2019 (4) TMI 1244 - NAPA - GST

Profiteering - supply of Snacks - benefit of reduction in the rate of tax not passed on - contravention of the provisions of Section 171 (1) of the CGST Act, 2017 - Penalty - HELD THAT - The claim of the Respondent that he could not have reduced his prices after the tax reduction due to stiff competition from other exempted and compounding manufacturers, resistance from his customers, increase in the raw material and transportation costs and he was providing robust profit margins and discounts to his dealers cannot be accepted as the present proceedings are only concerned with ascertaining whether the Respondent had passed on the benefit of rate reduction to his customers or not and have no concern with the above factors mentioned by him. The commensurate benefit of tax reduction was required to be passed on by him by reducing his prices irrespective of the above factors, which he had failed to do. It is also on record that the Respondent vide his written submissions dated 16.01.2019 has asked for permission to remit the profiteered amount in three instalments. Therefore, there is absolutely no doubt that the Respondent has resorted to profiteering and has not passed on the benefit of tax reduction to his customers. The Respondent has indulged in profiteering in violation of the provisions of Section 171 (1) of the CGST Act, 2017 and has not passed on the benefit of reduction in the rate of tax as per the Notification No. 34/2017-Central Tax (Rate) dated 13.10.2017 supra in respect of the products being supplied by him to his customers and therefore, he is liable for action under Rule 133 of the CGST Rules, 2017. Respondent has acted in contravention of the provisions of Section 171 (1) 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 ₹ 12,76,306/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent is directed to deposit the profiteered amount of ₹ 12,76,306/- along with the interest to be calculated @ 18% from the date from which the above amount was collected by him from the recipients till the above amount is deposited - Since the recipients in this case are not identifiable, the Respondent is directed to deposit the amount of profiteering of ₹ 6,38,153/- in the Central Consumer Welfare Fund (CWF) and ₹ 6,38,153/- in the Kerala State CWF as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017, along with 18% interest. Penalty - HELD THAT - The Respondent has deliberately and consciously acted in contravention of the provisions of the CGST Act, 2017 by issuing incorrect tax 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 - A notice has already been issued to him on 10.12.2018 to show cause why penalty should not be imposed upon him. However, no detailed submissions have been filed by him on the issue of penalty. Therefore, keeping in view the principles of natural justice a fresh notice be issued to him before imposition of penalty. Application disposed off.

Summary

Issues Involved:
1. Allegation of profiteering by not passing on the benefit of GST rate reduction.
2. Investigation and findings by the Director General of Anti-Profiteering (DGAP).
3. Respondent's defense and submissions.
4. Calculation and determination of profiteered amount.
5. Legal implications and directives issued by the Authority.

Detailed Analysis:

1. Allegation of Profiteering:
The case originated from an application alleging that the Respondent did not pass on the benefit of GST rate reduction from 12% to 5% on the supply of "Snacks" (HSN Code 21069099) effective from 15.11.2017. The Applicant No. 1 provided two invoices for comparison, one before and one after the rate change, showing an increase in base prices despite the tax reduction.

2. Investigation and Findings by DGAP:
The DGAP conducted a detailed investigation under Rule 129 (6) of the CGST Rules, 2017. The DGAP’s report dated 04.12.2018 revealed that the Respondent increased the base prices of the products after the rate reduction and wrongly charged GST @ 5% instead of Nil from 27.11.2017 to 31.12.2017. This increase in base prices and incorrect tax rate application led to a denial of the benefit of tax reduction to the consumers.

3. Respondent's Defense and Submissions:
The Respondent argued that:
- The MRPs of the products were not changed despite the tax rate change.
- They faced competition from unregistered manufacturers and those under the compounding scheme.
- They were unaware of the tax rate change until 27.11.2017 and started charging GST @ 5% thereafter.
- They got their brand name registered on 29.12.2017 and started charging GST @ 12% from 01.01.2018.
- The increase in base prices was due to factors like raw material costs, transportation, and competition.
- They deposited the entire GST collected during the disputed period in the Government account.

4. Calculation and Determination of Profiteered Amount:
The DGAP calculated the profiteered amount as ?12,76,306/- for the period from 27.11.2017 to 31.12.2017. This amount included the increased base prices and the wrongly charged GST @ 5%. The Respondent's claim that the profiteered amount should be reduced by the GST already paid was rejected as the entire amount collected from consumers was considered profiteering.

5. Legal Implications and Directives Issued by the Authority:
The Authority determined that the Respondent had violated Section 171 (1) of the CGST Act, 2017 by not passing on the benefit of tax reduction. The Respondent was directed to deposit the profiteered amount of ?12,76,306/- along with 18% interest in the Central and Kerala State Consumer Welfare Funds within three months. Additionally, the Respondent was found to have issued incorrect tax invoices and a fresh notice for penalty imposition was ordered to be issued.

Conclusion:
The judgment concluded that the Respondent indulged in profiteering by not passing on the benefit of GST rate reduction to consumers and was liable to deposit the profiteered amount and interest in the Consumer Welfare Funds. The Respondent was also liable for penalty due to the issuance of incorrect tax invoices.