2019 (1) TMI 807 - NAPA - GST

Profiteering - sale of Fortune ADW Detergent 1 Kg. and Fortune Rinse Aid 500 ml. - benefit of reduction in the GST rate not passed - base price of goods also increased - contravention of provisions of Section 171 of CGST Act, 2017 - penalty - Held that - The Respondent has admittedly not passed on the benefit of tax reduction since the base prices of the above two products were increased to maintain the same selling prices which were existing before the reduction in the rate of tax. The Respondent, who is a registered manufacturer, is liable to pass on the benefit to the recipients irrespective of the fact whether the base prices are still lower as compared to the pre-GST price or not. Moreover, from the documents submitted to the DGAP by the Respondent it is also established that the base prices of the two products in question were increased to maintain the same selling prices (inclusive of GST), although there was a reduction in the GST rate from 28% to 18% w.e.f. 15.11.2017. In the present case, the Respondent has admittedly accepted the fact that there was no reduction in the prices post 15.11.2017 on any of the products sold by him. Therefore, the Authority holds that the Respondent has violated the provisions of section 171 in as much as the prices have remained the same inspite of reduction in the tax rate. His plea that the base prices were drastically lowered when GST came in effect cannot absolve him from not passing on the benefit. Penalty u/r 133(3)(d) of the CGST Rules, 2017 - Held 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 41/2017-Central Tax(Rate) dated 14.11.2017 in respect of the above products to his customers and therefore, he is liable for penalty under Rule 133(3)(d) of the CGST Rules, 2017. Penalty u/s 122 (1) (i) of the Act - Held that - As it is clear from the facts of the present case that the Respondent was fully aware of the Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 whereby the rate of GST was reduced from 28% to 18% and he was also fully aware of Section 171 of the CGST Act 2017, whereby he was bound to pass on the benefit of reduction in the rate of tax by commensurate reduction in the prices of the products in question, therefore he is liable for penalty - respondent has committed an offence under section 122 (1) (i) of the above Act and hence, he is liable for imposition of penalty under the above Section read with Rule of the CGST Rules 2017. Decided against Respondent.

Issues Involved:
1. Whether the benefit of reduction in GST rate from 28% to 18% was passed on to the consumers.
2. Calculation and determination of profiteering amount.
3. Compliance with Section 171 of the CGST Act, 2017.
4. Directions for reduction in sale price and deposit of profiteered amount.
5. Imposition of penalty under Rule 133(3)(d) of the CGST Rules, 2017.

Issue-wise Detailed Analysis:

1. Whether the benefit of reduction in GST rate from 28% to 18% was passed on to the consumers:
The applicant alleged that the respondent did not pass on the benefit of the GST rate reduction on detergents from 28% to 18% effective from 15.11.2017. Instead, the respondent increased the base prices of the detergents, ensuring no reduction in the final prices to the consumers. The respondent admitted that the GST rate was reduced but argued that the base prices post-GST were still lower than pre-GST prices.

2. Calculation and determination of profiteering amount:
The Director General of Anti-Profiteering (DGAP) investigated and reported that the respondent increased the base prices of the products after the GST rate reduction, thus not passing on the benefit to consumers. The total amount of profiteering for the period from 15.11.2017 to 31.03.2018 was calculated as ?4,64,849.74. However, it was noted that the applicant was not eligible for any refund as the prices he paid were lower than the commensurate cum-tax prices.

3. Compliance with Section 171 of the CGST Act, 2017:
Section 171 mandates that any reduction in the rate of tax must be passed on to the recipient by way of commensurate reduction in prices. The respondent did not dispute the reduction in the GST rate or the calculations made by the DGAP. It was found that the respondent increased the base prices to maintain the same selling prices, thus violating Section 171.

4. Directions for reduction in sale price and deposit of profiteered amount:
The respondent was directed to reduce the sale prices of the products commensurate with the reduction in the GST rate. The profiteered amount of ?4,64,849.74 was ordered to be deposited into the Consumer Welfare Fund, with 50% going to the Central Fund and 50% to the State Fund, along with interest at 18% from the date of collection until the date of deposit. The DGAP and respective Commissioners of CGST and SGST were instructed to ensure compliance within three months.

5. Imposition of penalty under Rule 133(3)(d) of the CGST Rules, 2017:
The respondent was found liable for penalty under Rule 133(3)(d) as the profiteering was established. Despite being aware of the GST rate reduction and the requirement to pass on the benefit, the respondent deliberately maintained higher prices. A fresh notice was to be issued to the respondent to explain why a penalty should not be imposed.

Conclusion:
The respondent was found to have indulged in profiteering by not passing on the benefit of GST rate reduction to consumers, violating Section 171 of the CGST Act, 2017. The respondent was directed to reduce the sale prices and deposit the profiteered amount into the Consumer Welfare Fund. Penalty proceedings were also initiated against the respondent.

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