CMA Final · Indirect Tax Laws and Practice

Anti-profiteering: formula sheet

Full chapter guide

Key formulas

Core obligation: Benefit of rate reduction or ITC → passed to recipient through commensurate price reduction; Section 171(1). Applies to supplies of goods or services or both.
Profiteered amount: Profiteered amount = Benefit that should have been passed on − Benefit actually passed on; A working form of the statutory definition of profiteered. The Act gives the definition in words, not as an equation.
Penalty: Penalty = 10% × Profiteered amount; Section 171(3A). Not leviable if the profiteered amount is deposited within 30 days of the Authority's order.
Interest on amount not passed on: Interest at 18% per annum from the date of collection of the higher amount to the date of return; Rule 133(3)(b). Applies when the Authority orders return of the amount to the recipient.
Where recipient not identifiable or does not claim: 50% of the amount (with 18% interest) to the Fund under Section 57; remaining 50% to the Fund under Section 57 of the concerned State; Rule 133(3)(c). 'Concerned State' includes the Union Territory in respect of which the order is passed.
Time limits: DG investigation: 6 months from reference (extendable by up to 3 more months); Authority's order: 6 months from receipt of the DG report; Rule 129(6) and Rule 133(1). The extension needs reasons recorded in writing and is as allowed by the Authority.
Screening and Standing Committee: Examination of application: 2 months, extendable by up to 1 month; Rule 128(1) and (2). Extension needs reasons recorded in writing and is as allowed by the Authority.
Standing Committee: Constituted by the Council; officers of State and Central Government nominated by it (rule 123(1)); The Council constitutes it. The Standing Committee is not a State body.
State Screening Committee: 1 State Government officer (nominated by Commissioner) + 1 Central Government officer (nominated by Chief Commissioner) (rule 123(2)); Constituted in each State by the State Government. Two members only.
Screening Committee time limit: 2 months from receipt of application + extension up to 1 more month, for reasons recorded in writing, as allowed by the Authority (rule 128(2)); If satisfied that section 171 is contravened, it forwards the application with recommendations to the Standing Committee.
Standing Committee time limit: 2 months from receipt of written application + extension up to 1 more month, as allowed by the Authority (rule 128(1)); It tests accuracy and adequacy of evidence for prima-facie case.
DGAP investigation period: 6 months from receipt of reference + extension up to 3 more months, for reasons recorded in writing, as allowed by the Authority (rule 129(6)); On completion, DGAP furnishes report and relevant records to the Authority. Originally 3 months, substituted by 6 from 28.06.2019.
Authority's determination period: 6 months from receipt of the DGAP report (rule 133(1)); A hearing is given if an interested party asks in writing (rule 133(2)).
Cooperation and confidentiality: DGAP may seek opinion of other agencies or statutory authorities (rule 131); confidential information is protected under section 11 of the RTI Act, 2005 (rule 130); DGAP can ask for a non-confidential summary of confidential information.
Trigger for referral (Rule 129(1)): Prima-facie evidence of non-pass-on → Standing Committee refers to DGAP; The benefit may be a tax-rate reduction on goods or services, or input tax credit. Pass-on must be by commensurate reduction in prices.
Purpose of investigation (Rule 129(2)): DGAP collects evidence to determine whether the benefit has been passed on; The DGAP investigates; it does not decide the final order.
Contents of notice (Rule 129(3)): Notice = (a) description of goods or services + (b) summary of statement of facts + (c) time limit for reply; Issued to interested parties before the investigation begins.
Other notices and evidence sharing (Rule 129(4) and (5)): Notice to other persons as deemed fit; evidence of one party made available to the other parties; Supports a fair enquiry. Confidential material is covered by Rule 130.
Time limit for investigation (Rule 129(6)): 6 months from receipt of reference + extension of up to 3 months, with reasons recorded in writing; The extension is allowed by the Authority. The original period of three months was changed to six months from 28.06.2019.
Related time limits: Rule 128: Standing Committee and Screening Committee, 2 months each, extendable by up to 1 month. Rule 133(1): Authority, 6 months from DGAP report; Useful for questions that run through the whole timeline.
Time limit for the Authority's decision: Order within 6 months from receipt of the DG's report; Originally three months; substituted by six months from 28.06.2019.
Amount to be returned to recipient: Amount not passed on = Profiteered amount; interest = 18% p.a. from date of collection of higher amount to date of return; Interest runs on the amount from collection date, not from the date of the order.
Split when buyer is unidentified or does not claim: Fund under section 57 = 50% of the amount + interest at 18% till the date of deposit; Fund of the concerned State = remaining 50% of the amount; As worded in the rule, the interest goes with the 50% deposited in the section 57 Fund. Do not add it to the whole amount before splitting.
Orders the Authority may pass: (a) price reduction; (b) return with interest; (c) fund deposit; (d) penalty; (e) cancellation of registration; The rule says 'may order', so these are powers, not automatic outcomes.
Concerned State: State or Union Territory in respect of which the Authority passes the order; Used for the State's 50% share.

Quick revision

Section 171(1): a rate cut or the benefit of ITC must be passed on by commensurate price reduction.
The Authority examines whether ITC availed or a rate cut actually resulted in a commensurate price reduction.
Profiteered means the amount not passed on as a commensurate price reduction.
Penalty under Section 171(3A) is ten per cent of the profiteered amount.
No penalty if the profiteered amount is deposited within thirty days of the Authority's order.
For this section, Authority includes the Appellate Tribunal.
Rule 129: the Standing Committee refers the matter to the Director General of Anti-profiteering if there is prima facie evidence.
The Director General must issue a notice to interested parties before the investigation starts.
The investigation must be completed within six months of the reference, extendable by up to three more months for reasons recorded in writing, as allowed by the Authority.
Rule 133: the Authority decides within six months of receiving the report.
Order may include interest at 18% from the date of collection of the higher amount.
If the recipient does not claim the refund or is not identifiable, 50% goes to the Central Fund and 50% to the State Fund under Section 57.

Common mistakes

Applying anti-profiteering only to rate cuts. Fix: Section 171(1) covers both a reduction in rate of tax and the benefit of input tax credit.
Confusing the 10% penalty with the 18% interest. Fix: Penalty of 10% is in Section 171(3A) and is on the profiteered amount. Interest of 18% is in Rule 133(3)(b) and runs from the date of collection of the higher amount.
Saying the DGAP decides whether profiteering has occurred. Fix: DGAP only investigates and reports. The Authority determines under rule 133(1).
Writing 'Director General of Safeguards' in the answer. Fix: Use Director General of Anti-profiteering. The substitution has effect from 12.06.2018.
Stating the DGAP's investigation period as three months. Fix: The period is six months from the Standing Committee's reference, with a further extension of up to three months.
Saying the Standing Committee can extend the DGAP's time. Fix: The current rule says the extension is allowed by the Authority, for reasons recorded in writing.
Treating price reduction and return of amount as the same remedy. Fix: Price reduction is an order for reduction in prices. Return is an order to give the recipient the amount not passed on, with interest at 18%. They are separate clauses (a) and (b) of rule 133(3).
Sending the whole amount to the fund. Fix: Recipients get the money first. The fund deposit applies only where the eligible person does not claim or is not identifiable.

Exam tips

Memorise the numbers as a set: 10% penalty, 30 days, 18% interest, 50:50 split, 6 months for the DG, 3-month extension, 6 months for the Authority's order, 2 months for the committees.
In case-based MCQs, first check whether the benefit came from a rate cut or ITC. Then test whether the price cut is commensurate.
In written answers, quote Section 171(1) first, then link the facts to it. Marks come from application, not recall.
For numericals, show the shortfall working line by line, then penalty, then interest if asked. Close with a recommendation or conclusion.
Remember the Authority includes the Appellate Tribunal for the purposes of Section 171.
Learn the four time limits and extensions as a single table in your head. MCQs often swap them.
Be precise on who constitutes and who nominates. Examiners test Council vs State Government and Commissioner vs Chief Commissioner.
In case scenarios, label each step with the authority's name and its output.