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2019 (3) TMI 371 - NAPA - GSTProfiteering - Melaglow Rich (Niacinamide) Depigmentation & Glow Restoration Cream - situation post implementation of GST - benefit of reduction in the rate of tax/input tax credit not passed on - increase in MRP by tampering the label - contravention of the provisions of Section 171 of the CGST Act, 2017 - penalty. First objection raised by Respondent No. 1 states that Section 171 of the CGST Act, 2017 was not applicable in the instant case since its scope was restricted to the cases where there was reduction in the rate of GST on the supply of the goods or services and a reduction in the rate of GST, did not extend to a reduction in the rate of tax when compared with the pre-GST indirect tax regime rates - Held that - IT would be appropriate to mention that the main objective of introducing the GST was to subsume multiple central and state taxes to reduce the costs of doing business and while doing so there should not be exorbitant rise in the prices. To curb the tendency of undue enrichment by the suppliers of goods and services on account of and on the eve of implementation of the GST Section 171 (1) of the CGST Act, 2017 was enacted which states that a reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. - thus, any reduction in the rate of tax should result in commensurate reduction in the price w.e.f. 01.07.2017, the date from which the above Act has come in to force so that there is no profiteering by the suppliers at the expense of the consumers in case the rate of tax is reduced post GST and in case it is not done the supplier shall be liable for breach of the above provision. There is no force in the contention of the above Respondent that the provisions of Section 171 (1) can not be invoked by comparing the pre GST rate with the post GST rate of tax as he can not be allowed to pocket the amount of reduced tax which should have normally gone to the coffers of the Central/State Governments. Any benefit of reduction in the rate of tax given by the above Governments by sacrificing their own revenue must be passed on to the customers by commensurate reduction in the prices by the suppliers as per the intention of Section 171 and any other interpretation of the same would be illogical and unreasonable. It appears that the Respondent No. 1 is trying to misinterpret the provisions of Section 9 of the CGST/SGST Acts, 2017 and Section 5 of the IGST Act, 2017 by stating that the term tax as used in the above Sections does not apply on the CED, CST or the VAT as it applies only on the supply of goods and services - A bare perusal of Section 7 of the CGST/SGST Acts, 2017 shows that supply includes sale also and as per Section 2 (21) of the IGST Act, 2017 the supply shall have the same meaning as has been assigned to it under Section 7 of the CGST Act, 201 T As CED forms part of the price of the product on which VAT is leviable therefore, all of them viz. CED CST and VAT are equally applicable on the taxable event of supply as supply includes sale also. There is no restriction imposed by the Parliament/ State Legislatures on comparing the pre and post GST rates and nor the terms tax , rate of tax or rates of tax or change in the rate of tax prohibit such comparison, to examine whether the above two benefits have been passed on or not. There is no doubt that the expression reduction in the rate of tax has to be read in conjunction with the words on any supply of goods and services but it can not be interpreted to mean that only reduction in the rate of GST can be considered for invocation of Section 171 (1) and no comparison can be made with the pre-GST rates. The rate of tax was 30.06% in the pre-GST era which was reduced to 28% in the post-GST era vide Notification No, 1/2017 Central Tax (Rate) dated 28.06.2017, and the rate of GST was further reduced from 28% to 18% vide Notification No. 41/2017- Central Tax (Rate) dated 14.11.2017. However, during these periods, the base price of the product was increased from ₹ 202.06 to ₹ 230.90 per unit which resulted in increasing of the selling price amounting to denial of not passing the benefit of tax reduction to the customers - the total amount the benefit of which was denied to the recipients by the Respondent No. 1 or the profiteered amount during the period w.e.f. 01.07.2017 to 31.07.2018, comes to ₹ 96,59,716.26/-. The Respondent No. 1 has also himself agreed to deposit this amount along with the applicable interest, vide his submission dated 24 12 2018 before this Authority. Since, the present investigation in to the issue of not passing on the benefit of reduction in the rate of tax by the Respondent No. 1 has been conducted w.e.f. 01.07.2017 to 31 07 2018, and the Respondent No. 1 has also not provided the details of every stage MRP change in the value chain along with the date of change of MRP for all the products that was demanded by the Authority during the hearing on 15.11.2018, the DGAP is directed to further investigate the quantum of profiteering on all the products including the present product which the Respondent No. 1 is supplying and thereafter submit his report accordingly. Penalty - Held that - Respondent has issued incorrect invoices while selling the above product to his customers as he had not correctly shown the basic price which he should have legally charged from them. The Respondent has also compelled them to pay additional GST on the increased price through the incorrect tax invoices which would have otherwise resulted in further benefit to the customers which he has failed to pass on - It is also established from the record that the Respondent has deliberately and consciously acted in contravention of the provisions of the CGST Act, 2017 by issuing incorrect invoices which is an offence under Section 122 (1) (i) of the above Act. Hence, he is liable for imposition of penalty under the above Section read with Rule 133 (3) (d) of the CGST Rules, 2017 - opportunity must be provided to respondent No. 1 to be heard, a notice be issued to him to explain why such a penalty should not be imposed on him. Application disposed off.
Issues Involved:
1. Allegation of profiteering by not passing on the benefit of tax rate reduction. 2. Examination of the tax rate structure before and after GST implementation. 3. Determination of the quantum of profiteering. 4. Compliance with Section 171 of the CGST Act, 2017. 5. Issuance of incorrect invoices and imposition of penalty. Detailed Analysis: 1. Allegation of Profiteering: The core issue revolves around the allegation that the Respondent No. 1 increased the MRP of "Melaglow Rich (Niacinamide) Depigmentation & Glow Restoration Cream" from ?365 to ?415 per unit post-GST implementation, despite a reduction in the tax rate. The applicant claimed that this was a contravention of Section 171 of the CGST Act, 2017, which mandates passing on the benefit of tax rate reductions to consumers. 2. Examination of Tax Rate Structure: The Director General of Anti-Profiteering (DGAP) investigated the tax rate structure and MRP of the product across different periods: - Pre-GST: Central Excise Duty (CED) exemption until 06.05.2016, followed by an effective CED rate of 8.13% of MRP. - Post-GST (01.07.2017 to 14.11.2017): GST at 28%. - Post-GST (15.11.2017 onwards): GST reduced to 18%. The DGAP found that the base price of the product increased from ?202.06 (pre-GST) to ?230.90 (post-GST), indicating that the benefit of tax reduction was not passed on to consumers. 3. Determination of Quantum of Profiteering: The DGAP calculated the amount of profiteering by comparing the base prices and tax rates before and after GST implementation. The investigation concluded that the Respondent No. 1 profiteered an amount of ?96,59,716.26 by increasing the base price of the product and not passing on the benefit of reduced GST rates to consumers. 4. Compliance with Section 171 of the CGST Act, 2017: The Respondent No. 1 argued that Section 171 was not applicable as it only referred to reductions in GST rates, not pre-GST tax rates. However, the Authority clarified that the intention of Section 171 was to ensure that any reduction in tax rates (including those resulting from the transition to GST) should lead to a commensurate reduction in prices. The Authority rejected the Respondent's interpretation, stating that the term "rate of tax" in Section 171 has a broader scope and includes comparisons between pre-GST and post-GST rates. 5. Issuance of Incorrect Invoices and Imposition of Penalty: The Authority noted that the Respondent No. 1 issued incorrect invoices by not reflecting the correct base price and charging additional GST on the inflated price. This was deemed a deliberate contravention of the CGST Act, 2017, making the Respondent liable for penalties under Section 122(1)(i) and Rule 133(3)(d) of the CGST Rules, 2017. The Respondent was given an opportunity to explain why a penalty should not be imposed. Conclusion: The Authority directed the Respondent No. 1 to reduce the price of the product as per Rule 133(3)(a) of the CGST Rules, 2017, and deposit the profiteered amount of ?96,59,716.26 along with 18% interest in the Consumer Welfare Fund of the Central and State Governments. The DGAP was also instructed to further investigate the quantum of profiteering on all products supplied by the Respondent No. 1.
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