Anti-profiteering under the naa: A Constitutional conundrum?
In July 2017, after a 17-year long wait, the Central Goods and Services Act came into force. Along with it came into force anti-profiteering law under section 171 and the National Anti-profiteering Authority as the adjudicatory body to resolve disputes before it. Countries like Australia and Malaysia have implemented the anti-profiteering law after seeing spike in inflation after the GST came into force. In addition to the international influence and subsequent learning from the VAT experience, legal teeth was provided in GST law by incorporating anti-profiteering provisions to check profiteering by businesses when GST was being rolled out in the country. However, the legislature has made several flaws while drafting this comprehensive law by compressing it under one section of the Act without providing any guidelines, thereby, causing hardship to the respondents to defend themselves against a law that is incomplete. The striking issues are summarized and explained by the author in this article.
The section 171 read with the NAA Rules devoid of any guidelines or legislative policies authorises the Central Government to appoint an Authority to give effect to the anti-profiteering law. The ambiguity and absence of guidelines/definitions in these clauses (both in the statute and the rules) is severe to an extent where the anti-profiteering law is diluted and constitutionally invalid.
As enunciated by J.Bhagwati in the case of Maneka Gandhi v. Union of Indiathat ifhen an authority is given unguided power to affect the rights without laying down any principle or guideline, it would be affected by the vice of discrimination since it would leave it open to the Authority to discriminate between persons and things similarly situated. Although this principle was explained by J. Bhagwati nearly four decades back, it can be seen how NAA due to the absence of any such support, has wrongfully discriminated between the parties before it.
With the absence of any guideline or policy aiding the formulation of the procedure and methodology, NAA does not have the rightful authority to adjudicate any claim before it. Justice Khanna in Gwalior Rayon Silk Mfg v. Asst. Commr. Of Sales Tax, observed that
“….in delegating powers to a statutory body with respect to the administration of statutes, the legislature must ordinarily prescribe a policy, standard, or rule for their guidance and must not vest them with an arbitrary and uncontrolled led discretion with regard thereto, and a statute or ordinance which is deficient in this respect is invalid. In other words, in order to avoid the pure delegation of legislative power by the creation of a statutory body, the legislature must set limits on such agency’s power and enjoin on it a certain course of procedure and rules of decision in the performance of its function; and, if the legislature fails to prescribe with reasonable clarity the limits of power delegated to statutory body, or if those limits are too broad, its attempt to delegate is a nullity.” The State has the right to fix the maximum price of an essential good/service in view of the economy of the country; it cannot force a blanket mandate to keep the prices constant for every product as the same would be violative of the freedom of trade and commerce. Moreover, it is essential that the Parliament in its legislative function decide the procedure for determining whether there has been commensurate reduction in prices or not.
The power conferred upon the NAA without any guidelines or policy in furtherance to the lack of knowledge about the definition of ‘commensurate reduction’ in section 171 of the CGST Act, 2017 is arbitrary and bad in law. J. Bhagwati rightfully stated that “The law always frowns on un-canalised and unfettered discretion conferred on any instrumentality of the State”. In Chief Settlement Coomr. v. Om Prakash,the Supreme Court stated that “the notion of inherent or autonomous law-making power in the executive administration is a notion that must be emphatically rejected”. Therefore, the anti-profiteering law which is introduced for the first time in India through Section 171 with only 3 clauses, thereby leaving it in the hands of the NAA to not only frame the methodology but also adjudicate disputes based on the framed procedure is unconstitutional and arbitrary.
The NAA is an adjudicatory body assuming judicial and quasi-judicial role in adjudicating matters before it. The Hon’ble Supreme Court in the case of Namit Sharma v. Union of India held that there is an absolute necessity to not only appoint a judicial member to a statutory body dispensing judicial/quasi-judicial functions but also directed the legislature to amend the provisions of the RTI Act to avoid ambiguity or impracticability and to make them in consonance with the constitutional mandates. The Court further directed the government procedures and practice related rules in consonance with the basic rule of law six months from the date of the judgement. Therefore, the author strongly believes that without any statutory guidelines and clauses filled with ambiguity, the enactment of the anti-profiteering law is against the spirit of the Constitution.
It is clear that since the NAA has the authority to formulate any procedure/methodology as per Rule 126, the defendants alleged with anti-profiteering do not receive a fair trial since in the absence of a concrete methodology or even a strict definition in the act keeping aside the implementation, leads to the absence of any defence and therefore, the principles of natural justice are violated. The Supreme Court by striking down Section 6(4) of the UP Industrial Disputes Act as unconstitutional has held that “the provision cannot be valid in the absence of necessary statutory guidelines for the exercise of the power conferred by it having regard to the fact that the proceeding before the labour court or the industrial tribunal is in the nature of a quasi-judicial proceeding where parties have adequate opportunity to state their respective cases and make submissions”. The Supreme Court has further held that wide-ranging powers to adjudicate and formulate procedures cannot be vested without there being guidelines or policy elucidated in the statute itself.
The author believes that as long as there exists such power in the hands of the NAA, mere safeguards too would not make this scheme constitutionally valid. As held by the Supreme Court in Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving Mills :-
Delegation that has the capacity to abuse power and delegation beyond permissible limits is contrary to the constitutional scheme. Undoubtedly delegation of the authority to legislate is always subject to the rule that action of the delegate will not be unreasonable so as to make it invalid. Although the delegate is subjected to such restrictions and controls, however, that does not imply that such rule against exercise of abuse of power and excessive delegation can be departed from. Safeguards against abuse do not alter the character of unauthorised delegation of legislative power. Guidance given to the delegate by the parliament as the part of the constitutional scheme cannot be taken away. The validity of the constitutional protection cannot be judged on the special aptitude of the delegate as well as on provisions made against abuse of power.
The author lays stress on the unguided power conferred by the impugned provision and submits that the only trigger for exercise of its power is “commensurate reduction” which is ipso facto a vague and undefined term with no concrete explanation provided whatsoever. It is further submitted that what is legitimate and what is not legitimate use or would constitute abuse, can only be determined by hearing the rival parties involved. However, NAA has altogether removed the possibility of being questioned by the rival party without bearing any defence due to such ambiguity regarding the procedure. A party likely to be affected by the order is precluded from exercising legitimate commercial rights. Thus, the grant of unbridled power in a matter relating to exercise of discretion by a quasi-judicial authority plainly violates Article 14 of the Constitution of India.
We believe that by not laying down guidelines, genuine interests of several companies are likely to be affected. The Supreme Court has concurrently held in State of Punjab v. Khan Chand that the East Punjab Requisition of Movable Property Act, 1947 that conferring wide discretionary powers upon authorities by the way of not laying down the defined and unambiguous guidelines for requisitioning movable property was prima facie violative of Article 14 of the Constitution.
The author further challenges the validity of the Rule 127 of the CGST Rules, 2017. While the central government gave the NAA arbitrary and unguided power to formulate a methodology and procedure to check whether commensurate reduction in tax had been passed on the recipients, Rule 127 gives the NAA authority to the extent of cancelling the registration of the opponent(s).
It is settled law that the Rule Making authority cannot exceed its power more than basis on which the legislature conferred upon it. It was held by the Supreme Court in Narendra v. Union of Indiathat cl.4 of the Non-Ferrous Metal Control Order, 1958, could not be enforced so long as the Central Government did not specify the principles, “in accordance with which” only a permit could be issued for acquiring non-ferrous metal, under the clause.
Through Rule 126, the Central Government has bestowed the power upon the NAA to formulate methodology and procedure to give effect to the anti-profiteering law without providing or prescribing any guidelines to be followed by the NAA under Rule 127. Rule 133 has further provided the adjudicatory duties of the NAA, thereby, violating the doctrine of separation of powers which is part of the basic structure of the Constitution. While providing such powers to the NAA, no concrete or specified guidelines or boundaries were provided by the legislature in order to make sure that the NAA does not go beyond its certain powers. Legislature has the power to create Tribunals with reference to specific enactments but such constitution must not be violative of the doctrine of separation of powers and independence of the Judiciary which are parts of the basic structure of the Constitution.
Therefore, the Legislature has excessively delegated its functions to make laws and enact legislative policies to the NAA inviting abuse of power making section 171 read with rules 126 and 127 arbitrary and unconstitutional. The law in question can be declared unconstitutional if it seeks to confer too broad a discretion on the administrator without laying down any principle or policy to regulate its exercise.
Rule 122 prescribes the composition of NAA. The Authority shall consist of:-
- A Chairman who holds or has held a post equivalent in rank to a Secretary to the Government of India; and
- Four Technical Members who are or have been Commissioners of State tax or central tax for at least one year or have held an equivalent post under the existing law, to be nominated by the Council.
In Jaswant Sugar Mills Ltd., Meerut vs. Lakshmichand, a test was laid down to examine whether an authority has the trappings of a Court, facets of which include the power of the authority to make determinations, evidentiary and procedural powers and ability to impose sanctions. NAA presently does not have any judicial member while it is performing quasi-judicial functions which require adjudication and have to follow the principles of natural justice. Even though its functions are of a similar nature to that of a court as it has to adjudicate upon the DGAP’s report and pronounce a judgement which acts as a sanction. It has been held in several cases that if a body is exercising jurisdiction that is being exercised by the courts, the presence of a judicial member in that body is imminent and absolutely necessary to make sure that the governance by that body is as per the law prescribed for the body and does not violate the principles of natural justice.
In the case Union of India v. Madras Bar Association, any adjudication transferred to a Technical or Non-Judicial member is a clear act of dilution and an encroachment upon the independence of judiciary. It was further ruled by this Court that even though the legislature has the powers to reorganise or prescribe qualifications for members of Tribunals, it is open for this Court to exercise “judicial review” of the prescribed standards, if the adjudicatory standards are adversely affected.
A similar view was held in the case of State of Gujarat and ors. v. Utility User’s Welfare Association and Ors. in which The Electricity Act, 2003 provided for Central and State Regulatory Commissions. It was held that it is mandatory that there should be a person of law as a Member of the Commission, which requires a person, who is, or has been holding a judicial office or with substantial experience in the practice of law, who has the requisite qualifications to have been appointed as a Judge of the High Court or a District Judge. The principle laid down by this case was that it is mandatory for a member having legal expertise to be a member of the bench if that body/authority is exercising judicial/quasi-judicial or adjudicatory functions.
While developing this principle, the case of Brahm Dutt v. Union of India was relied upon which held that if any adjudicatory authority is performing adjudicatory functions, the presence of a man of law as a member is a necessity in order to sustain the provision as well as for the efficient and appropriate performance of that body as otherwise, it would fall foul of the principles of separation of powers and judicial review, which have been read to be a part of the basic structure of the Constitution thereby becoming contrary to the very law that should have been that body’s foundation.
Recently, a judgment passed by the Division Bench of the Delhi High Court gave a decision on the similar lines following the case State of Gujarat and ors. v. Utility User’s Welfare Association and Ors in the case Mahindra Electric Mobility Limited and another v. Competition Commission of India and Another by directing the Competition Commission of India to ensure at all times, during the final hearing the judicial member is present and participates in the hearing.
It was held in the case Namit Sharma v. Union of India that, the Central Government/ the competent authority shall frame all the practice and procedure related rules to make the working of an authority effective and in consonance with the basic rule of law following the principles of natural justice.
In the present case, NAA provides a provision for a hearing to be conducted after the authority has reviewed the DGAP’s report and before the authority passes an order in the same regard. However, the NAA does not have a judicial member to oversee the proceedings or the hearing conducted by the authority and participate in the same. This leaves no authority to the body to make sure that the principles of natural justice are followed. Subsequently, a judicial approach to frame laws and procedure that is in consonance with the basic rule of law or to scrutinise the final decision of the body to make sure no instance of judicial error has occurred is absent owing to the current composition. This defeats the doctrine of separation of powers as the functions to be performed by a judicial member is also performed by the executive leading to concentration of power. Given that NAA performs quasi-judicial functions having trappings of a court, it should at least have one judicial member with experience in performing judicial functions.
To conclude the issue of unconstitutional composition, and non-compliance of doctrine of separation of power, it is vital to note that the Supreme Court in the landmark case of Pareena Swarup v. Union of India held that while new judicial forums are being created and powers are decentralised, it is the duty of the Government to see that they are not in breach of basic constitutional scheme of separation of powers and the independence of the judiciary remains intact.
The primary issue that needs to be resolved in order to give legal teeth to the anti-profiteering law in India is what amounts to commensurate reduction in price. The ramifications of neither defining such a vital aspect of the law make it extremely ambiguous, vague and subsequently, arbitrary. When rival parties or respondents raise doubts or questions on the judgments given by the NAA, the NAA responds with sub-silentio answers on similar facts and issues on the other, thereby, framing the law through their sanctions leading to the violation of the doctrine of separation of powers and equality at the least. In order to resolve these lacunae, the State needs to define the anti-profiteering law comprehensively and frame guidelines and policy leaving no room for the NAA to adjudicate disputes according to self-made rules and regulations. Apart from determining on the issue of commensurate reduction, the NAA also has the power to impose penalty and cancel registration which are legislative functions that are not mentioned in the Act. Such extreme powers with no bounds or limits given to the NAA could leave the future of companies to the whims and fancies of the NAA. Furthermore, as the NAA is an adjudicatory body deciding on intricate tax disputes, the presence of a judicial member is a necessity to follow the doctrine of separation of powers and to ensure a thorough adjudication of the dispute according to the refined law. Necessary amendments keeping in mind the purpose of the NAA behind the Act need to be made to address all the concerns stated above.
 The Competition and Consumer Act, 2010, No. 51, Acts of Parliament, 2010 (Aus).
 The Price Control and Anti Profiteering Act, 2011, No. 723, Acts of Parliament, 2015 (Mal).
 AIR India v. Nagesh Meerza, (1981) 4 SCC 335
 Maneka Gandhi v. Union of India, (1978) 2 SCC 350
 Gwalior Rayon Silk Mfg vs Asst. Commr. Of Sales Tax, AIR 1974 SC 1660
 Indraprastha Gas Ltd. v. Petroleum and Natural Gas, (2015) 9 SCC 209.
 Sheo Nanda Paswan v. State of Bihar, AIR 1987 SC 877
 Chief Settlement Coomr. v. Om Prakash, AIR 1969 SC 33
 Namit Sharma v. Union of India, (2013) 1 SCC 745.
 Central Goods and Services Rules, 2017.
 BB Rajwanshi v. State of Uttar Pradesh, AIR 1988 SC 1089
 Godawat Pan Masala Products I.P.Ltd. v State of Maharashtra, (2004) 7 SCC 68
 Municipal Corporation of Delhi v Birla Cotton, Spinning and Weaving Mills, 1968 (3) SCR 281
 Harakchand Ratanchand Banthia v. Union of India, (1969) 2 SCC 166
 Krishna Mohan v. Municipal Corporation of Delhi, (2003) 7 SCC 151
 State of Punjab v. Khan Chand, AIR 1974 SC 543
 Narendra v. Union of India, AIR 1960 SC 430
 Union of India v. R. Gandhi & Ors.,(2010) 11 SCC 1
 Treatise on Administrative Law by M.P. Jain, Edition 1996 (Vol. 1)
 The Central Goods and Services Rules, 2017.
Jaswant Sugar Mills Ltd., Meerut vs. Lakshmichand, AIR 1963 SC 677
 Union of India v. Madras Bar Association, (2010) 11 SCC 1.
 State of Gujarat and ors. v. Utility User’s Welfare Association and Ors, AIR 2018 SC 4215.
 Brahm Dutt v. Union of India , AIR 2005 SC 730.
 State of Gujarat and ors. v. Utility User’s Welfare Association and Ors, AIR 2018 SC 4215.
 Mahindra Electric Mobility Limited and another v. Competition Commission of India and Another, (2019) SCC OnLine Del 8032.
 Namit Sharma v. Union of India, (2013) 1 SCC 745.
 Rule 133, The Central Goods and Services Rules 2017.
 Pareena Swarup v. Union of India , (2008) 14 SCC 107.
 Rule 127, CGST Rules 2017.