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2018 (9) TMI 1640 - NAPA - GSTProfiteering - contravention of the provisions of Section 171 of the CGST Act, 2017 - Benefit of reduction in the rate of tax by lowering the price of Maybelline FIT Me foundation not passed on to recipients - reduction in the rate of GST - N/N. 41/2017 -Central Tax (Rate) dated 14.11.2017 - Sale of goods by increasing the basis price of goods - also, the complaint mentioned at Sr. No. 1 did not contain the copy of the complaint and only a photocopy of the invoice was sent by the DGAP - Respondent has also claimed that the Authority had not prescribed the methodology under Rule 126 of the CGST Rules, 2017 for determining whether the benefit of tax reduction had been passed on or not and hence he could not be held liable for profiteering. Held that - The Respondent had enhanced the basic price of both the shades of the product which was exactly equal to the amount by which the GST on them had been reduced and hence there is no doubt that the Respondent had resorted to profiteering amounting to ₹ 15,861/- which includes profiteering of ₹ 41/- made by him from the Applicant No. 1, which constitutes violation of the provisions of Section 171 of the above Act. It is also established that the Respondent had issued incorrect invoices while selling the product to his customers as he had not correctly shown the basic price which he should have legally charged from them which is an offence under Section 122 (1) (i) of the CGST Act, 2017 and hence he is liable for imposition of penalty under the above Section. Rule 133 (3) (d) of the CGST Rules, 2017 also makes it clear that the penalty has to be imposed as per the provisions of the Act and since it is proposed to impose penalty under the Act there is no question of creating substantive liability under the Rules as there is specific sanction under the above Act to impose penalty. Similarly the CGST Act, 2017 also provides for imposition of interest under the Act and therefore, the same can be levied in the present proceedings. The Respondent cannot claim that since the amount of profiteering was miniscule no penalty should be imposed as each breach of the law has to be visited penalty. The Respondent is directed to reduce the price of both the shades of the product to ₹ 410/- and ₹ 449/- respectively excluding GST. He is also directed to refund an amount of ₹ 41/- along with interest @ 18% to the Applicant No. 1 from the date when this amount was realised by him from her till the date of refund - Since rest of the recipients are not identifiable the DGAP is directed to get the balance amount of profiteering of ₹ 15,820/- deposited in the Consumer Welfare Fund of the Central and the Concerned State Govt. as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017 along with interest @ 18% till the amount is paid. As regards complaint mentioned at Sr. No. 1 did not contain the copy of the complaint and only a photocopy of the invoice was sent by the DGAP - Held that - In the second complaint mentioned at Sr. No. 30 of the minutes there was a written application with full name, email address, product label, invoice and gist of the allegation and hence this complaint was rightly considered by the Committee and sent to the DGAP for investigation. A copy of this complaint was also supplied to Sh. Sayan Bandhopadhyay representative of the Respondent on 06.01.2018 as is clear from the receipt issued by him and hence the allegation made by the Respondent that he was not supplied copy of the complaint on the basis of which the present proceedings had been launched is not correct - It is also apparent from the reply filed by the DGAP on 19.06.2018 that no APAF-1 form had been prescribed when the above Applicant had lodged her complaint on 23.11.2017 and hence there was no question of filing the complaint in the above Form and hence this averment of the Respondent is also not correct. Presence of methodology under Rule 126 of the CGST Rules, 2017 for determining whether the benefit of tax reduction had been passed on or not - Held that - The present proceedings are nowhere connected with looking in to the process of fixation of prices or margins of profit by the Respondent and they are limited only to the extent of finding out whether the benefit of tax reduction has been passed on by the Respondent to his customers or not. This Authority is only concerned with passing on of the commensurate benefit as is arrived at after calculation of the impact of rate reduction on the MRP of a product. There is further no restriction on the right of the Respondent to conduct trade as per Article 19 (1) (g) of the Constitution as Section 171 only requires him to pass on the above two benefits and does not require him to get any licence or seek approval to conduct trade or fix prices of the products being sold by him. The Respondent must remember that the Government has thought is appropriate in the public interest to reduce the rate of tax on the products being sold by him by sacrificing its own revenue and therefore, he is bound to pass on this benefit to his customers and by no stretch of imagination he can pocket this reduction to the detriment of the ordinary consumer. Notice may also be issued to the Respondent to show cause as to why penalty as per the provisions of Section 122 of the CGST Act, 2017 read with Rule 133 (3) (d) of the CGST Rules, should not be imposed upon him. Application disposed off.
Issues Involved:
1. Allegation of profiteering by not passing on the benefit of GST rate reduction. 2. Examination of the complaint's validity and procedural aspects. 3. Determination of the methodology for passing on the GST rate reduction benefit. 4. Legal implications and penalties for non-compliance. Issue-wise Detailed Analysis: 1. Allegation of Profiteering: The core issue revolves around the Respondent allegedly not passing on the benefit of GST rate reduction from 28% to 18% for the product "Maybelline FIT Me foundation." The Applicant No. 1 claimed that despite the GST reduction effective from 15.11.2017, the Respondent sold the product at the same retail selling price (RSP) of ?525/-, implying profiteering of ?41/- per unit. The DGAP's investigation confirmed that the Respondent had increased the basic price of the product to offset the GST reduction, thus maintaining the same RSP and resulting in profiteering of ?15,861/- on the total units sold. 2. Examination of Complaint's Validity and Procedural Aspects: The Respondent raised concerns about the validity of the complaint, claiming that the Standing Committee had returned one of the complaints due to insufficient information. However, the Committee clarified that the second complaint had all necessary details and was forwarded for investigation. The DGAP confirmed that the complaint was received and acknowledged by the Respondent's representative, dismissing the Respondent's claim of not being provided with the complaint copy. 3. Determination of Methodology for Passing on GST Rate Reduction Benefit: The Respondent argued that no specific methodology had been prescribed under Rule 126 of the CGST Rules, 2017, for determining whether the benefit of tax reduction had been passed on. However, the Authority clarified that the methodology and procedure had already been prescribed and that the Respondent was responsible for calculating and passing on the commensurate benefit. The Respondent's claim that the benefit should not be passed on product-wise was rejected, emphasizing that each recipient must receive the benefit as per Section 171 of the CGST Act, 2017. 4. Legal Implications and Penalties for Non-Compliance: The Respondent's actions were found to constitute a violation of Section 171 of the CGST Act, 2017, by not passing on the benefit of GST rate reduction. The Authority directed the Respondent to reduce the price of the product and refund the profiteered amount of ?41/- to Applicant No. 1 with 18% interest. The remaining amount of ?15,820/- was to be deposited in the Consumer Welfare Fund. The Respondent was also issued a show cause notice for the imposition of penalty under Section 122 of the CGST Act, 2017, and Rule 133 (3) (d) of the CGST Rules, 2017. Additionally, the DGAP was directed to investigate the Respondent's admission of not passing on ?1,98,46,438/- to individual buyers. Conclusion: The judgment concluded that the Respondent had indeed engaged in profiteering by not passing on the GST rate reduction benefit to consumers, thereby violating Section 171 of the CGST Act, 2017. The Respondent was directed to make necessary refunds and deposits and was subject to further investigation and potential penalties for non-compliance.
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