2018 (5) TMI 760 - NAPA - GST

Benefit of reduction in the rate of tax - India Gate Basmati Rice - ITC benefit - Anti-Profiteering proceedings - Held that - it is revealed that the India Gate Basmati Rice sold by the Respondent was not liable for tax before the implementation of the GST and after coming into force of the CGST Act, 2017 it was levied GST @ 5% w.e.f. 22.09.2017. The ITC claimed by the Respondent was not sufficient to meet his output tax liability and he had to pay the balance amount of tax in cash as is evident from the perusal of the table prepared by the DGSG. It is also apparent from the returns filed by the respondent for the months of September, 2017, October, 2017 and November, 2017 that the ITC available to him as a percentage of the total value of taxable supplies was between 2.69% to 3% whereas the GST on the outward supply of his product was 5% which was not sufficient to discharge his tax liability. Moreover in this case the rate of tax has been increased from 0% to 5% instead of reduction in the same. Therefore, there appears to be no reason for treating the price fixed by the Respondent as violation of the provisions of the Anti-Profiteering clause. Due to the imposition of the GST on the above product as well as the increase in the purchase price of the paddy there does not appear to be denial of benefit of ITC as has been alleged by the Applicant as there has been no net benefit of ITC available to the Respondent which could be passed on to the consumers. Application dismissed.

Summary

Issues:
1. Allegation of non-passing of tax rate reduction benefit to consumers.
2. Examination of input tax credit (ITC) availability and passing on the benefit.
3. Impact of GST implementation on pricing and profit margins.

Analysis:
1. The case involved an allegation that the respondent had not passed on the benefit of a tax rate reduction on "India Gate Basmati Rice" to consumers, resulting in increased profit margins. The applicant provided evidence of price changes on the product's packaging to support the claim.

2. The Director General Safeguards (DGSG) conducted an investigation and reported that the respondent had not registered the brand name "India Gate" and was paying GST at a rate of 5% on the product. The ITC available to the respondent was insufficient to cover the tax liability, leading to cash payments for the balance amount. The DGSG's analysis of the ITC availability and tax liability for the months of September, October, and November 2017 showed no net benefit of ITC to pass on to consumers.

3. During the hearing, the respondent argued that the price increase was necessitated by a rise in the cost of paddy, a major component of production costs. They presented data showing the price changes and contended that market forces and cost factors influenced pricing, not just tax rates. The respondent's MRP increase from ?540 to ?585 (8.33%) was justified by the significant increase in the cost of paddy. The Anti-Profiteering Authority found no violation of Section 171 of the CGST Act, 2017, as there was no net benefit of ITC available to pass on to consumers due to the tax rate increase and cost factors affecting pricing.

4. The Authority concluded that the imposition of GST on the product, coupled with the rise in paddy purchase prices, did not result in a denial of ITC benefit to consumers. The application alleging non-compliance with anti-profiteering provisions was dismissed, and the order was to be provided to the parties and the DGSG.