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2019 (1) TMI 1419 - NAPA - GSTProfiteering - major manufacturers of Fast Moving Consumer Goods (FMCG) - benefit of reduction in the GST rate not passed on - contravention of provisions of Section 171 of the CGST Act, 2017 - Held that - It is established that the Respondent had denied benefit of reduction in the rate of tax to his customers by increasing the base price exactly by the amount by which the tax was reduced and therefore, he had resorted to profiterring in violation of the provisions of Section 171 of the CGST Act, 2017. The Respondent had further compelled the recipients to pay additional GST on the increased price @ 18% and had he not increased the base price and charged additional GST his customers would have got benefit of further reduction in the MRP. Therefore, the additional amount of tax collected also amounts to profiteering made by the Respondent. It is quite clear that the Respondent had not passed on the benefit of tax reduction in respect of the 109 products supplied by him during the period between 15.11.2017 to 31.05.2018 and hence, it is established beyond doubt that the Respondent had resorted to profiteering of ₹ 6,06,752.72/-, as has been elaborated in Annexure-Il of the DGAP s Report. The Respondent has not raised any objection against the calculation of the profiteered amount by the DGAP and hence this Authority determines the above amount as the profiteered amount. It has also been found that all the supplies were made by the Respondent in the NCT of Delhi. Imposition of penalty - Held that - It is clear from the facts of the present case that the Respondent was fully aware of the provisions of Section 171 of the COST Act, 2017 as well as the Notification dated 14.11.2017 whereby he was bound to pass on the benefit arising due to reduction in the rate of tax to his customers. However, the Respondent has deliberately acted in defiance of the above law and hence he is guilty of the conduct which is contumacious and violative of the provisions of the above Section - appellant has committed offence under Section 122 (1) (i) of the CGST Act, 2017. Therefore, notice be issued asking him to explain why penalty should not be imposed on him. Application disposed off.
Issues Involved:
1. Non-passing of GST rate reduction benefits to consumers. 2. Increase in base prices post-GST rate reduction. 3. Calculation and determination of profiteered amount. 4. Legal obligations and defenses claimed by the Respondent. 5. Directions for reducing sale prices and depositing profiteered amount. 6. Imposition of penalty on the Respondent. Issue-wise Detailed Analysis: 1. Non-passing of GST rate reduction benefits to consumers: The Central Government reduced the GST rate on various FMCGs from 28% to 18% effective from 15.11.2017. The DGAP's investigation revealed that the Respondent did not pass on this benefit to consumers. The invoices dated 12.11.2017 and 29.11.2017 showed that the Respondent increased the base price of 'Beauty Cream 50 GM' to maintain the pre-GST rate reduction cum-tax price. 2. Increase in base prices post-GST rate reduction: The DGAP's report stated that the Respondent increased the base price of the product 'Beauty Cream 50 GM' from ?48.60 to ?52.73 per unit after the GST rate reduction, keeping the selling price inclusive of GST almost the same. This action was deemed a violation of Section 171 of the CGST Act, 2017, as the Respondent denied the benefit of tax reduction to customers by increasing the base price. 3. Calculation and determination of profiteered amount: The DGAP's investigation covered the period from 15.11.2017 to 31.05.2018. It was found that the Respondent increased the base prices of 109 out of 154 products affected by the GST rate reduction. The total profiteered amount was calculated to be ?6,06,752.72. The Respondent did not contest this calculation, and the Authority confirmed this amount as the profiteered sum. 4. Legal obligations and defenses claimed by the Respondent: The Respondent claimed that the MRPs were fixed by the manufacturer, M/s. Patanjali Ayurveda Ltd., and he had no control over them. He also stated that he charged a fixed commission of 5% and did not increase it post-GST reduction. However, the Authority rejected this defense, stating that the Respondent was legally bound to reduce MRPs in line with the tax reduction and could not evade this responsibility by blaming the manufacturer. 5. Directions for reducing sale prices and depositing profiteered amount: The Respondent was directed to reduce the sale prices of all products whose base prices were increased post-GST rate reduction. He was also ordered to deposit the profiteered amount of ?6,06,752.72 along with 18% interest from the date of realization from customers to the date of deposit. The amount was to be deposited into the Central Consumer Welfare Fund and the CWF of the NCT of Delhi in a 50:50 ratio within three months. 6. Imposition of penalty on the Respondent: The Authority considered imposing a penalty on the Respondent for deliberate defiance of Section 171 of the CGST Act, 2017. The Respondent's actions were found to be contumacious and violative of the Act, as he issued incorrect invoices and forced customers to pay additional GST on increased base prices. The Respondent was asked to explain why a penalty should not be imposed under Section 122 (1) (i) of the CGST Act, 2017. Conclusion: The judgment concluded that the Respondent had engaged in profiteering by not passing on the GST rate reduction benefits to consumers and was directed to rectify the prices and deposit the profiteered amount with interest. The Respondent was also issued a notice for potential penalties for violating the provisions of the CGST Act, 2017.
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