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2020 (6) TMI 781 - NAPA - GSTProfiteering - Paints - Varnishes - Putty - Respondent had not passed on the benefit of reduction in the rate of GST - contravention of section 171 of CGST Act - Penalty - HELD THAT - The record reveals that the Government had reduced the GST rate from 28% to 18% w.e.f. 27.07.2018 vide its Notification No. 18/2018-Central Tax dated 26.07.2018 on Paints Varnishes and Putty . This fact has also not been contested by the Respondent. Therefore there is no dispute that the Respondent is liable to pass on the benefit of tax reductions w.e.f. 27.07.2018. It is further observed that the Respondent who supplied the above products was impacted with the Notification in the case of 331 products. Out of these 331 products base prices only in the case of 151 products were increased from 27.07.2018 (post GST rate reduction). Therefore the Respondent is required to pass on an amount of 3, 76, 360/- in respect of these 151 products. It is also evident from the record that the Applicant No. 1 had filed an application under Rule 128 (1) of the CGST Rules 2017 before the Standing Committee on Anti-profiteering alleging that the Respondent had not passed on the benefit of reductions in the GST rates to his customers but had instead increased the base prices of his products by keeping the Maximum Retail Prices (MRPs) unchanged. The above Applicant had also submitted invoices showing both the pre and post GST rate reduction prices claiming that the Respondent had not reduced the MRPs. It is clear from the narration of the facts that the profiteered amount has been computed by comparing the average pre rate reduction base prices of the impacted products with the monthly average post rate reduction base prices in respect of both the tax reductions. The mathematical methodology adopted by the DGAP to compute the profiteered amount is not in line with the methodology adopted by the DGAP himself in similar cases of profiteering wherein the average pre rate reduction base prices have been compared with the actual post rate reduction prices to compute the profiteered amount. Further in case the mathematical methodology of comparing the average to average base prices employed by the DGAP is adopted it would not be possible to compute the benefit of tax reduction which is due to each customer on each supply. The profiteered amount computed by the DGAP would also not be correct. The DGAP is directed to compare the average pre rate reduction base prices of the products which were impacted by the tax rate reduction w.e.f. 27.07.2018 with the actual post rate reduction base prices of the impacted products - the DGAP shall reinvestigate the case and submit his Report under Rule 133 (4) of the Rules. The Respondent is directed to extend necessary assistance to the DGAP during the course of the investigation. Penalty - HELD THAT - As per the provisions of Rule 133 (1) of the CGST Rules 2017 this order was required to be passed within a period of 6 months from the date of receipt of the Report from the DGAP under Rule 129 (6) of the above Rules. Since the present Report has been received by this Authority on 10.10.2019 the order was to be passed on or before 09.04.2020. However due to the prevalent pandemic of COVID-19 in the country this order could not be passed on or before the above date due to force majeure - this order is being passed today in terms of the Notification No. 35/2020-Central Tax dated 03.04.2020 issued by the Government of India Ministry of Finance (Department of Revenue) Central Board of Indirect Taxes Customs under Section 168 A of the CGST Act 2017.
Issues Involved:
1. Allegation of profiteering by not passing on the GST rate reduction benefits. 2. Calculation of the profiteered amount by DGAP. 3. Respondent's claim on price variation due to color addition. 4. Re-investigation and re-calculation of profiteered amount. Issue-Wise Detailed Analysis: 1. Allegation of profiteering by not passing on the GST rate reduction benefits: The Applicant No. 1 alleged that the Respondent did not pass on the benefit of GST rate reduction from 28% to 18% on paints effective from 27.07.2018. Instead, the Respondent increased the base prices of the paints, denying the benefit of the commensurate reduction in the cum-tax price to the recipients. The Standing Committee on Antiprofiteering, upon prima facie satisfaction, referred the matter to the DGAP for detailed investigation. 2. Calculation of the profiteered amount by DGAP: The DGAP's initial report dated 29.03.2019, covering the period from 27.07.2018 to 30.09.2018, found that the Respondent had increased the base prices of 151 out of 331 products post-GST rate reduction. The profiteered amount was calculated as ?3,76,360/- based on the average prices of the products before and after the rate reduction. However, the DGAP did not provide a clear explanation of the calculation method used to arrive at the per-unit base prices. 3. Respondent's claim on price variation due to color addition: The Respondent argued that the DGAP erred in calculating the profiteered amount based on average value per unit, as the prices varied due to the addition of colors to the base paint. The Respondent submitted that the DGAP's average value method was inappropriate and suggested calculating the profiteered amount based on the base price of the items or by comparing actual invoices of the pre and post-reduction periods. The DGAP, in a subsequent report dated 31.05.2019, stated that the information provided by the Respondent during the hearings was not submitted during the investigation. 4. Re-investigation and re-calculation of profiteered amount: The Authority directed the DGAP to re-investigate and clarify the calculation of the pre-rate reduction per unit price, examine the Respondent's claim on price variation due to color addition, and provide a detailed calculation sheet. The DGAP's re-investigation report dated 10.10.2019 confirmed that the Respondent increased the base prices post-GST rate reduction and did not pass on the commensurate benefit to the recipients. The total profiteered amount was reaffirmed as ?3,76,360/-. However, the Authority found the DGAP's methodology of comparing average pre and post-rate reduction prices inappropriate and not in line with the provisions of Section 171 of the CGST Act, 2017. The Authority directed the DGAP to re-investigate the case under Rule 133 (4) of the CGST Rules, 2017, comparing average pre-rate reduction base prices with actual post-rate reduction base prices of the impacted products. Conclusion: The DGAP is to re-investigate and submit a revised report, and the Respondent is to assist in the investigation. The order was delayed due to the COVID-19 pandemic and issued under the provisions of the Notification No. 35/2020-Central Tax dated 03.04.2020. Copies of the order were to be supplied to both parties, and the case file was to be consigned after completion.
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