HUL GST Profiteering issue

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HUL Case:

  • National Anti-profiteering Authority (NAA) assessment has revealed consumer goods maker Hindustan Unilever Ltd (HUL) allegedly profiteering to the extent of Rs 383 crore after the large-scale goods and services tax (GST) rate cut last November.
  • On the plea by Hindustan Unilever Ltd (HUL), the Delhi High Court has stayed the fine imposed on HUL.

Why the HUL has sought a review?

The HUL has sought the review of the order of NAA before the Delhi High Court based on the following reasons:

  • NAA has made a narrow interpretation of the law and did not take into account the well-established industry practice backed by law.
  • NAA order is arbitrary since no methodology has been determined by the NAA as required under law to determine if the benefit has been passed or not.
  • Absence of any prescribed method in the GST law to calculate the undue profit earned.

HUL case is one among the others

The various decisions of the NAA are now questioned in the various High Courts.  Even the real estate firm Pyramid Infratech has moved the high court against the order of NAA.

Why the issue has become complicated?

Section 171 of the CGST act deals with profiteering. It aims to ensure that reductions in the rate of tax on any supply of goods or services or the benefit of the input tax credit are passed on to consumers and empowers the central government to constitute authority for that purpose. The National Anti-profiteering Authority (NAA) was established by the central government under this provision.

But the absence of a clearly defined method to calculate the undue profit earned has become the bone of contention. The absence of rules has created a vacuum and resulting in ambiguity in dealing with anti-profiteering measu

Advance Pricing Agreement : Analysis

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What is an Advance Pricing Agreement?

  • APAs are primarily aimed at avoiding transfer pricing disputes arising from cross-border transactions undertaken by MNCs.
  • Through these agreements, tax department and companies seek to resolve transfer pricing disputes in advance before the cross-border related party transaction actually takes place.
  • Its provision was introduced in Income-tax Act, 1961 in 2012 and Rollback provisions to it were introduced in 2014.

 

What are the benefits of such agreements?

  • APAs provide certainty to taxpayers in domain of transfer pricing by specifying methods of pricing and setting prices of international transactions in advance.
  • It gives certainty to MNCs that agree on certain principles in valuation of their cross-border transactions.
  • It also provides them with alternate dispute resolution mechanism with respect to transfer pricing.
  • It helps in determining arm’s length price of international transactions in advance for max period of 5 future years.
  • It also strengthens Government’s resolve of fostering non-adversarial tax regime.
  • It also has significantly contributed towards improving ease of doing business in India and has been appreciated nationally and internationally for being able to address complex transfer pricing issues in a fair and transparent manner.

 

Analysis after entering into APAs:

  • Union Government has received Rs. 3,000 crore of additional tax from MNCs that have entered into advance pricing agreements (APAs) with it over last five years and also has eliminated big source of tax litigation.
  • 219 APAs signed by CBDT has resulted in MNCs accepting extra income of Rs 10,000 crore, translating into tax of Rs 3,000 crore.
  • The rate of completing APAs pacts has slowed down in FY18 compared to year ago.
  • CBDT had signed 88 APAs in FY17 and it has now come down to 67 in FY18.
  • One of the reasons for dip was increasing complexity of cases, which required more time for analysing relevant international transactions.
  • Shortage of manpower at level of additional or joint commissioners and deputy or assistant commissioners in APA teams also has slowed down processing of applications.
  • Despite slowing, India has outperformed China in finalising APAs in last five years.