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2019 (3) TMI 1313 - NAPA - GSTProfiteering - supply of Matchless Plus TTWG Grinder - benefit of reduction in the rate of tax not passed on - contravention of the provisions of Section 171 of the Central Goods & Services Tax (CGST) Act, 2017 - Held that - From the perusal of the tax invoices dated 28.09.2017 and 27.12.2017, issued by the Respondent it is observed that the base price of the product had increased from ₹ 4728.90, which he was charging before the rate reduction till 14.11.2017 to ₹ 4,774.59 w.e.f. 15.11.2017 i.e. it was increased by ₹ 45.69 per item. Therefore, there is no doubt that the Respondent had increased the base price of the above product w.e.f. 15.11.2017 in spite of GST rate reduction from 28% to 12%, when he was legally bound to charge the reduced prices so as to pass on the benefit of reduced tax rate to his recipients - The Respondent s claim that the base price was increased because the purchase price of the product was increased by the manufacturer and that there was no question of profiteering by him is not legally tenable because he as a dealer registered under the GST is legally bound to pass on the benefit of rate reduction. Section 171 of the CGST Act, 2017, read with the rules made under it clearly mandates that every registered person has to pass on the benefit of reduction in the rate of tax on any supply of goods and services to the recipients by way of commensurate reduction in prices. Moreover his claim that his profit margin had reduced also does not hold good as this Authority is not concerned with his profit margin or loss because Section 171 of the CGST Act, 2017, read with relevant COST Rules, 2017, is clear and unambiguous to the effect that the benefit of rate reduction has to be passed on by every registered person to his recipients. The Respondent has acted in contravention of the provisions of Section 171 of the CGST Act, 2017 and has not passed on the benefit of reduction in the rate of tax to his recipients by commensurate reduction in the prices. Accordingly, the amount of profiteering is determined as ₹ 32,926.36 as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent is therefore directed to reduce the price of the above product as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. Penalty - Held that - 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 and hence he is liable for imposition of penalty under the above Section read with Rule 133 (3) (d) of the CGST Rules, 2017 - In the interest of natural justice before imposition of penalty a notice be issued to him asking him to explain why penalty should not be imposed on him. Application disposed off.
Issues Involved:
1. Whether the rate of tax applicable to the product was reduced w.e.f. 15.11.2017. 2. Whether the benefit of such reduction in the rate of tax was passed on by the Respondent to his recipients in terms of Section 171 of the CGST Act, 2017. 3. Whether the Respondent indulged in profiteering by retaining the benefit of the reduced rate of tax. 4. Determination of the amount of profiteering. 5. Liability for imposition of penalty under the CGST Act, 2017. Issue-wise Detailed Analysis: 1. Reduction in the Rate of Tax: The rate of tax on the product "Matchless Plus TTWG Grinder" was reduced from 28% to 12% w.e.f. 15.11.2017, as per Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017. This fact was undisputed and acknowledged by all parties involved. 2. Passing on the Benefit of Tax Reduction: The DGAP's investigation revealed that the Respondent increased the base price of the product from ?4728.90 to ?4774.59 when the GST rate was reduced from 28% to 12%. The Respondent was required to sell the product at the pre-reduction base price and levy GST at the reduced rate to pass on the benefit to the customers. The Respondent's failure to do so was found to be in contravention of Section 171 of the CGST Act, 2017, which mandates that any reduction in the rate of tax must be passed on to the recipient by way of commensurate reduction in prices. 3. Profiteering by the Respondent: The Respondent claimed that the increase in the base price was due to an increase in the purchase price set by the manufacturer. However, the Authority held that as a registered dealer under GST, the Respondent was legally bound to pass on the benefit of the reduced tax rate to the recipients. The Respondent's argument that his profit margin had reduced was not considered relevant to the obligation under Section 171 of the CGST Act, 2017. 4. Determination of the Amount of Profiteering: Initially, the DGAP calculated the profiteered amount as ?1,20,194/-. Upon re-examination, the DGAP revised the profiteered amount to ?32,927/-. The revised calculation was based on the difference between the increased base price post-GST reduction and the ideal base price that should have been charged. The Authority accepted the revised calculation and determined the profiteered amount as ?32,926.36. 5. Liability for Imposition of Penalty: The Authority found that the Respondent issued incorrect invoices by showing inflated base prices and charging additional GST on these prices, which is an offence under Section 122 (1) (i) of the CGST Act, 2017. The Respondent was held liable for penalty under Rule 133 (3) (d) of the CGST Rules, 2017. Before imposing the penalty, the Authority decided to issue a notice to the Respondent to explain why the penalty should not be imposed. Conclusion: The Respondent was directed to reduce the price of the product as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, and to deposit the profiteered amount of ?32,926.36 along with interest at 18% to the Central and Kerala State Consumer Welfare Funds. The Respondent was also found liable for penalty, subject to a notice and explanation process.
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