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2020 (6) TMI 782 - NAPA - GSTProfiteering - benefit of reduction in the CST rate w.e.f. 15.11.2017 not passed to customers but instead increased the base prices of the products by keeping the Maximum Retail Prices (MRP) unchanged - violation of provisions of Section 171 of the CGST Act, 2017 - HELD THAT - It is revealed that Respondent is engaged in the manufacturing and marketing of Cosmetic, FMCGs and Pharma products through the network of distributors spread all over India. It is also revealed that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on a number of products from 12% to 5% vide Notification No. 34/2017- Central Tax (Rate), dated 1310.2017 with effect from 14.10.2017 and from 28% to 18% vide Notification No. 41/2017-Central Tax (Rate), dated 14.11.2017 with effect from 15.11.2017. 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. 14.10.2017 and 15.11.2017 respectively. it is further revealed that a total of 425 items were impacted by the GST rate reductions. Out of these 425 items, 52 items were impacted by the CST rate reduction from 12% to 5% w.e.f. 14.10.2017 and 373 items were impacted by the GST rate reduction from 28% to 18% w.e.f. 15.11 2017. It is also evident from the record that the Applicant No. 1 who is also General Secretary of All India Chemists Distributors Federation had filed an application under Rule 128 (1) of the CGST Rules, 2017 on 27.11.2017 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 profiteered amount has been computed by comparing the average pre rate reduction base prices of the impacted products with the average post rate reduction base prices in respect of both the tax reductions. The above mathematical methodology adopted by the DGAP to compute the profiteered amount is not in consonance with the methodology approved by this Authority in the cases of tax reductions decided by it as the profiteered amount has been determined by comparing the average pre rate reduction base prices with the actual post rate reduction prices - the mathematical methodology adopted by the DGAP is not correct, logical, appropriate and in consonance with the provisions of Section 171 of the CGST Act, 2017. Therefore; the Report dated 22.10.2019 furnished by the DGAP cannot be accepted. As per the provisions of Rule 133 (1) of the CGST Rules, 2017 this order was to be passed on or before 22.04.2020 as the investigation Report was received from the DGAP on 23.10 2019 However, due to the COVID-19 pandemic prevailing in the Country the order could not be passed on or before the above date. Hence, the same is being passed today in terms of the Notification No. 35/2020-CentraI 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 Central Goods Services Tax Act, 2017. Application disposed off.
Issues Involved:
1. Allegation of non-passing of GST rate reduction benefits. 2. Calculation and quantification of profiteering amount. 3. Inclusion of promo supplies in profiteering calculation. 4. Legality and jurisdiction of the complaint and investigation. 5. Computation methodology for profiteering. 6. Time limitation for investigation and adjudication. Issue-Wise Detailed Analysis: 1. Allegation of Non-Passing of GST Rate Reduction Benefits: The case originated from an application alleging that the Respondent did not pass on the benefit of GST rate reduction to customers, instead increasing base prices while keeping MRPs unchanged. The Standing Committee referred the case to the DGAP for investigation. The DGAP's report confirmed that the Respondent had not reduced prices commensurately with the tax rate reduction, thus infringing Section 171 of the CGST Act, 2017. 2. Calculation and Quantification of Profiteering Amount: The DGAP quantified the profiteering amount based on pre and post-reduction GST rates, considering 425 items affected by the rate reductions. The initial profiteering amount was calculated at ?32,48,33,436/-, later adjusted to ?19,27,93,133/- after accounting for credit notes issued by the Respondent. The DGAP's reinvestigation revised the profiteering amount to ?27,42,95,345/-. 3. Inclusion of Promo Supplies in Profiteering Calculation: The Respondent argued that promo supplies (free samples, marketing samples, gifts) should not be included in the profiteering calculation as they were supplied free of cost. The DGAP, however, included these supplies in the calculation, stating they were treated as taxable supplies by the Respondent. This inclusion was contested, and the DGAP was directed to re-examine this aspect in light of CBIC Circular No. 92/11/20/2019-GST. 4. Legality and Jurisdiction of the Complaint and Investigation: The Respondent challenged the legality of the complaint, arguing it was not filed by a recipient of goods, as required by Section 171. The Respondent also contested the DGAP's jurisdiction to extend the investigation beyond the specific products mentioned in the complaint. The Respondent cited similar cases where the Delhi High Court stayed proceedings extending beyond the complaint's scope. 5. Computation Methodology for Profiteering: The DGAP's methodology of comparing average pre-rate reduction base prices with average post-rate reduction base prices was found inconsistent with the methodology approved by the Authority. The correct approach should compare average pre-rate reduction base prices with actual post-rate reduction prices. The DGAP was directed to reinvestigate and compute the profiteering amount afresh using the correct methodology. 6. Time Limitation for Investigation and Adjudication: The Respondent argued that the DGAP's investigation and the Authority's order were barred by limitation, as they exceeded the prescribed time limits under Rules 129(6) and 133(1) of the CGST Rules, 2017. The DGAP and the Authority provided explanations for the delays, citing extensions and the impact of the COVID-19 pandemic. Conclusion: The Authority directed the DGAP to reinvestigate the case, specifically comparing average pre-rate reduction base prices with actual post-rate reduction prices, and to complete the reinvestigation within three months. The Respondent was instructed to assist the DGAP during this process. The order was passed considering the delays caused by the COVID-19 pandemic, in compliance with the relevant notifications.
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