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2018 (9) TMI 625 - NAPA - GSTProfiteering Activity - Benefit of reduction in the rate of tax - it was alleged that Respondent had not passed on the benefit of reduction in the rate of tax by lowering the price of Vaseline VTM 400 ml, which he had purchased from the respondent, when the Goods and Services Tax (GST) was reduced from 28% to 18% on this product on 15.11.2017 - Rule 129 (1) of the CGST Rules, 2017. Held that - Respondent has himself admitted through the Table submitted by him vide his submissions dated 23.4.2018 that prior to the reduction in the GST on the product from 28% to 18% w.e.f. 15.11.2017 it was being purchased by the Respondent at the base price of ₹ 158.66/- per unit with GST of ₹ 44.42/- @ 28% and the total purchase price was ₹ 203.08/ per unit and it was being sold by him on the price of ₹ 213.63/per unit after adding his margin @ 4.06% of ₹ 10.55/-. He had 1288 units of the product in stock on 14.11.2017. He has also admitted that after 15.11.2017 he had sold the product at the base price of ₹ 172.77/- after levying GST of ₹ 31.10/- @ 18% and charging margin of ₹ 9.77/- per unit and the product was sold by him at the price of ₹ 213.64/-. Therefore, it is clear that there was no reduction in the sale price charged by him although the rate of GST was cut by 10%, rather the base price was increased by ₹ 14.11/- per unit by the Respondent. It is established from the record as well as the admission of the Respondent himself that he had resorted to profiteering by increasing the base price in violation of the provisions of Section 171 of the above Act and had thus not passed on the benefit of reduction in the rate of tax by commensurately reducing the price of his product rather the base price was increased by him exactly by the same amount by which the tax had been reduced. The Respondent has claimed that the HUL had changed the base price in its software and hence he was bound to charge the increased base price at the time of issuing invoices. However, the Respondent being a registered dealer having GSTIN 08AAEFS7072EIZ4 under the CGST/SGST Acts 2017 was fully aware of the reduction in the rate of tax of the product issued vide Notification No. 41/2017- Central Tax (Rate) dated 14.11.2017, with effect from 15.11.2017 and Section 171 of the above Act and hence he was legally bound not to charge the enhanced base price resulting in negation of the effect of reduction in the rate of tax and thus he cannot escape his accountability of passing on the benefit of the reduction in the rate of tax to his customers. The Respondent has also averred that Section 171 of the Act did not provide for any methodology for determining the commensurate reduction in the prices - Held that - Section 171 only stipulates that any benefit of reduction in the rate of the tax or the ITC which accrues to a supplier must be passed on to the consumers as both are the concessions given by the Government from its own revenue and the suppliers cannot appropriate them as they are not entitled to do so. Both the benefits must go to the consumers and in case they are not identifiable the amount so collected by the suppliers should be deposited in the CWF so that it can be used in the public interest - The Respondent was at no stage required to perform an impossible act and hence the doctrine of Lex non cogit ad impossibilia does not apply in his case. It is clear from the narration of the facts stated above that the Respondent has indulged in profiteering in violation of the provisions of Section 171 of the CGST Act, 2017 and has not passed on the benefit of reduction of tax as per the Notification dated 14.11.2017 supra in respect of the above product to his customers and therefore, he is liable for action under Rule 133 of the CGST Rules, 2017 - the Respondent is directed to reduce the sale price of the product immediately commensurate to the reduction in the rate of tax as was notified on 14.11.2017 and pass on the benefit of reduction in the rate of the tax to his customers. Penalty - Held that - It is clear from the facts of the present case that the Respondent was fully aware of the Notification dated 14.11.2017 whereby the rate of GST was reduced on the above product from 28% to 18%. He was also fully aware of the provisions of Section 171 of the above Act whereby he was bound to pass on the benefit of reduction in the rate of tax by commensurate reduction in the price of the above product. However, the Respondent has deliberately acted in defiance of the above law and hence he is guilty of the conduct which is contumacious and dishonest - Accordingly, it is proposed to impose penalty on the Respondent under Section 122 of the CGST Act, 2017 read with Rule 133 (d) of the CGST Rules, 2017. However, before the penalty is imposed the Respondent is hereby given notice as to why such penalty should not be imposed on him. Application disposed off.
Issues Involved:
1. Allegation of profiteering by not passing on the benefit of GST rate reduction. 2. Examination of the transaction's validity due to the return of goods. 3. Determination of the methodology for commensurate reduction in prices. 4. Consideration of increased product quantity as a benefit. 5. Examination of excess Input Tax Credit (ITC) recovery by HUL. 6. Imposition of penalty for violating Section 171 of the CGST Act, 2017. Issue-wise Analysis: 1. Allegation of Profiteering: The Applicant No. 1 alleged that the Respondent did not pass on the benefit of GST rate reduction from 28% to 18% on Vaseline VTM 400 ml. The DGAP's investigation revealed that the Respondent increased the base price of the product to maintain the same selling price, thus contravening Section 171 of the CGST Act, 2017. The Respondent's defense that the benefit was passed on through increased quantity was deemed untenable, as the Respondent was not competent to alter the product's quantity or MRP. 2. Transaction Validity Due to Return of Goods: The Respondent argued that the transaction was nullified as the goods were returned. However, the DGAP clarified that Section 171 required the benefit to be passed on at the time of supply, and future events like returns did not negate the original transaction. The Authority upheld this view, stating that the supply was completed upon issuance of the tax invoice and receipt of payment. 3. Methodology for Commensurate Reduction in Prices: The Respondent contended that the CGST Act did not specify a methodology for determining commensurate price reduction. The Authority dismissed this argument, stating that it involved simple mathematical calculations to adjust the MRP by the reduced tax amount. The Respondent's failure to declare the reduced MRP as per Legal Metrology Rules further violated Section 171. 4. Consideration of Increased Product Quantity: The Respondent claimed that the increased quantity of Vaseline from 300 ml to 400 ml at the same MRP passed on the tax reduction benefit. The Authority found this claim untenable as the Respondent, being an intermediary, could not alter the product's quantity. The Respondent was required to pass on the tax reduction benefit by reducing the base price. 5. Excess ITC Recovery by HUL: The Respondent argued that the excess ITC credited to HUL was deposited in the Consumer Welfare Fund (CWF), absolving him of profiteering. The Authority rejected this, stating that the Respondent issued incorrect tax invoices and increased the base price to negate the tax reduction benefit. Any subsequent deposit in the CWF did not absolve the Respondent of profiteering. 6. Imposition of Penalty: The Authority determined that the Respondent deliberately violated Section 171 by issuing incorrect invoices and increasing the base price equal to the reduced tax amount. This conduct was deemed contumacious and dishonest, justifying the imposition of a penalty under Section 122 of the CGST Act, 2017. The Respondent was given notice to show cause why such a penalty should not be imposed. Conclusion: The Respondent was directed to reduce the sale price of the product commensurate with the GST rate reduction and return the profiteered amount of ?184 to Applicant No. 1 with 18% interest. The Respondent was also ordered to deposit ?5,50,186 (excluding the amount returned to Applicant No. 1) along with 18% interest into the respective Consumer Welfare Funds. The DGAP was tasked with ensuring compliance and recovering any shortfall. The Respondent was given three months to comply with the order, failing which the amount would be recovered by the DGAP as per the CGST Act, 2017.
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