Why merging GST NAA with CCI may not be a prudent move, Legal News, ET LegalWorld – Legal Firms

Recent news reports have suggested that the GST anti-profiteering watchdog, National Anti-profiteering Authority (NAA) is set to be subsumed into the regulatory ecosystem of the Competition Commission of India (CCI). It is proposed that the NAA’s regulatory functions and its investigative arm (the Director General of Anti-Profiteering), continue to operate in some form under the CCI. This move is being considered to reduce multiplicity of regulators – a standalone NAA is not required when there exists the CCI, a body having specialised legal and economic expertise.

On the face of it, the proposed merger of the two regulatory bodies may seem logical given the perceived commonality between the two – namely, regulation of economic laws and protection of consumer interests. However, a closer scrutiny would reveal that this is where the similarity ends, and that the proposed merger may end up causing more harm than good. It is also unclear as to how this will address the fundamental issues with the NAA and the institutional framework under the Central Goods and Services Tax Act, 2017 (CGST Act).

At the outset, the NAA and the CCI have very different objectives under their respective statutes. The NAA was established as a statutory body under Section 171 of the CGST Act to track and curb any unfair profiteering by GST registered sellers and facilitate the smooth passing on of any GST rate reductions to consumers. The NAA may, amongst other things, impose a penalty on persons for not passing on the benefit of tax reductions or input tax credit, by way of reduction in prices. However, the CGST Act does not prescribe the methodology for determining the extent of ‘profiteering’ and there is no provision for a statutory appeal against an order of the NAA. Unsurprisingly, a plethora of writ petitions have been filed challenging the constitutionality of the body and its methodology (or lack thereof) for making the relevant calculations (matter is currently sub-judice before the Delhi High Court).

The CCI, on the other hand, is a statutory body established under Section 7 of the Competition Act, 2002 (Competition Act), with the objective of preventing practices having adverse effect on competition, to promote and sustain competition in the markets, to protect the interests of consumers and to ensure freedom of trade. The CCI also has the power to impose hefty penalties (such as the Rs 6,000 crores penalty upon cement companies). The CCI is, however, not a price regulator and, in practice, is rarely concerned with high (exploitative) prices charged by a party. The Competition Act also clearly sets out the appellate mechanism; appeals against the CCI’s orders lie before the National Company Law Appellate Tribunal and, thereafter, before the Supreme Court.

In the last decade, the CCI has gained maturity as a competition regulator, with the constitutional courts largely upholding its procedural and substantive actions in the recent past. The Supreme Court recently dismissed a writ petition filed by Meta challenging the CCI’s decision to investigate the 2021 Privacy Policy of WhatsApp, and also dismissed the pleas filed by Amazon and Flipkart against the CCI’s decision to investigate the e-commerce marketplaces. Earlier, the Delhi High Court had upheld the constitutional validity of the CCI and its practices in a challenge by several automakers.

The CCI is also cognizant of protecting competition in the increasingly important digital markets. It recently issued orders against Google in two separate cases (Android and Play Store) and MakeMyTrip and Oyo (Online Hotel Bookings). In addition, the CCI is also investigating other large digital players such as Apple (App store), and Zomato and Swiggy (Food Delivery), to name a few. Recently, the Parliamentary Standing Committee on Commerce’s Report on ‘Promotion and Regulation of E-Commerce in India’ recommended entrusting the CCI with major responsibilities of regulating e-commerce in India, by setting up a digital markets division within the CCI and the introduction of ex-ante regulation of digital platforms.

The proposed merger would, therefore, burden the CCI with the interpretation of a new statute and related concerns at a time when its focus is required elsewhere. This may upend the progress made by CCI towards maturing as a competition regulator by saddling it with a wholly new set of duties; it is still a fledgling competition authority, with just 13 years of enforcement expertise. Logistical and staffing issues may crop up given that the CCI operates on sub-optimal strength even today and is dependent on deputed officers for much of its strength. The CCI also faces a significant backlog of cases with a single bench having the responsibility for adjudicating all matters. Since 26 October 2022, the erstwhile Chairperson has also retired resulting in lack of quorum to pass any orders; presumably causing a further backlog.

While the objectives seem logical, a merger of the CCI and NAA may have the unintended consequence of halting the CCI’s steady progress and creating additional hurdles as it is faced with new age issues including the rapidly evolving digital markets. The foundational issues of the NAA, such as introducing a mechanism or guidelines to undertake the necessary calculations and establishing a statutory appellate authority, should in any case be addressed before any steps are undertaken to merge the bodies. Currently, the proposed merger requires the consideration and approval of the GST Council and it is hoped that a more effective solution is considered by the government which ensures that both statutes are effectively implemented.

(Sonam Mathur is Partner and Shubhang Joshi is Senior Associate at the competition law practice of TT&A.)