2022 (5) TMI 1595 - NAPA - GST

Profiteering - supply of goods - benefit of GST rate reduction had been passed on to the recipients by way of commensurate reduction in the prices of the subject goods or not - HELD THAT - The Report of the DGAP stating that the Respondent has not violated the provisions of Section 171 of the CGST Act cannot be accepted and accordingly, the same is rejected and the DGAP is directed to reinvestigate the case as per the provisions of rule 133 (4) of the CGST Rules, 2017 on the following issues and submit a fresh Report as per the provisions of Rule 129 (i) Whether the Respondent has reduced, refixed and displayed the MRPs of the impacted SKUs commensurately w.e.f. 15-11-2017, after the rate of tax was reduced on them and conveyed the same to his Dealers i.e. Distributors/Wholesalers/Retailers by whatever name known? (ii) Whether the Respondent has affixed stickers or stamped or online printed the reduced MRPs on the stock lying with him or his Dealers as on 15-11-2017 and thus passed on the benefit of tax reduction on it? (iii) Whether the Respondent has charged 18% GST after rate reduction on the impacted SKUs after rate reduction? (iv) On which grounds the Respondent has increased the base prices of his products in the month of November, 2017 immediately after the tax reduction on 15-11-2017? (v) What evidence regarding increase in the prices of Crude Oil is available on the basis of which it has been claimed that the Respondent has increased his prices due to the increase in the prices of the Crude Oil? (iv) Whether the Respondent has violated the provisions of section 171 of the Act and if so what is the quantum of profiteering?

Issues Involved:

1. Whether the GST rate on the products supplied by the Respondent was reduced from 28% to 18% w.e.f. 15-11-2017.
2. Whether the Respondent passed on the benefit of such GST rate reduction to the recipients in terms of section 171 of the Central Goods and Services Tax Act, 2017.
3. Whether the Respondent reduced, refixed, and displayed the MRPs of the impacted SKUs commensurately w.e.f. 15-11-2017.
4. Whether the Respondent affixed stickers or stamped or online printed the reduced MRPs on the stock lying with him or his Dealers as on 15-11-2017.
5. Whether the Respondent charged 18% GST after the rate reduction on the impacted SKUs.
6. On what grounds the Respondent increased the base prices of his products in November 2017 immediately after the tax reduction on 15-11-2017.
7. What evidence regarding the increase in the prices of Crude Oil is available to support the Respondent's claim of price increase due to crude oil price rise.
8. Whether the Respondent violated the provisions of section 171 of the Act and if so, what is the quantum of profiteering.

Issue-wise Detailed Analysis:

1. GST Rate Reduction:
The DGAP confirmed that the Central Government reduced the GST rate on "Detergent Powder" and "Scouring Bar" from 28% to 18% w.e.f. 15-11-2017, as per Notification No. 41/2017-Central Tax (Rate) dated 14-11-2017.

2. Passing on the Benefit of GST Rate Reduction:
The DGAP observed that the Respondent did not increase the base prices of the impacted products immediately after the GST rate reduction. The Respondent claimed that the benefit was passed on by maintaining the same base prices and charging the reduced GST rate. However, the DGAP's investigation was found lacking in verifying whether the MRPs were reduced commensurately and whether the benefit was passed on to the end consumers.

3. Reduction, Refixing, and Display of MRPs:
The DGAP did not conclusively verify if the Respondent had reduced, refixed, and displayed the MRPs of the impacted SKUs commensurately w.e.f. 15-11-2017. The investigation did not adequately address whether the Respondent complied with the requirement to adjust MRPs in line with the reduced GST rate.

4. Affixing Stickers or Stamping Reduced MRPs:
The DGAP's report lacked evidence on whether the Respondent affixed stickers, stamped, or online printed the reduced MRPs on the stock lying with him or his dealers as of 15-11-2017. This step is crucial to ensure that the benefit of the tax reduction reaches the end consumers.

5. Charging 18% GST After Rate Reduction:
The DGAP observed that the Respondent maintained the same base prices and charged the reduced GST rate of 18% after the rate reduction. However, the investigation did not conclusively establish whether this practice was consistently followed across all impacted products and whether the end consumers benefited from the reduced prices.

6. Grounds for Increasing Base Prices in November 2017:
The DGAP noted that the Respondent increased the base prices of some products in December 2017, citing factors such as crude oil price increases. However, the DGAP did not adequately explain the price increases observed in November 2017, immediately after the GST rate reduction. The investigation lacked evidence to support the Respondent's claims regarding the timing and reasons for price increases.

7. Evidence of Crude Oil Price Increase:
The DGAP's report did not provide concrete evidence to substantiate the Respondent's claim that the increase in crude oil prices justified the subsequent increase in product prices. The investigation needed to verify the actual impact of crude oil price fluctuations on the Respondent's cost structure.

8. Violation of Section 171 and Quantum of Profiteering:
The DGAP concluded that the Respondent had not violated section 171 of the CGST Act, 2017, as the base prices were not increased immediately after the GST rate reduction. However, the Authority found this conclusion insufficient and directed the DGAP to reinvestigate the case. The reinvestigation should focus on whether the Respondent reduced MRPs commensurately, affixed the revised MRPs on existing stock, charged the correct GST rate, and whether the end consumers benefited from the tax reduction. The DGAP was also tasked with determining the quantum of profiteering, if any, by the Respondent.

Conclusion:
The Authority rejected the DGAP's report and directed a reinvestigation to comprehensively address the issues of MRP reduction, proper communication to dealers, evidencing the impact of crude oil prices, and ensuring that the benefit of the GST rate reduction was passed on to the end consumers. The reinvestigation aims to determine any violation of section 171 and quantify the extent of profiteering, if applicable.

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