2019 (6) TMI 1266 - NAPA - GST

Profiteering - footwear - Respondent had not passed on the benefit of rate reduction of GST from 18% to 5% to him by way of commensurate reduction in price - contravention of provisions of Section 171 of the CGST Act, 2017 - HELD THAT - It has been revealed that the Central Govt. vide Notification No. 18/2018- Central Tax (Rate) dated 26.07.2018 had reduced the rate of GST from 18% to 5% in respect of footwear priced between ₹ 500/- to ₹ 1000/-, with effect from 27.07.2018 and the benefit of the same was required to be passed on to the recipients by the Respondent as per the provisions of Section 171 of the CGST Act, 2017. It is evident that the Respondent had increased the base price of the product from ₹ 592.37/- to ₹ 665.71/-, when the rate of tax was reduced from 18% to 5% with effect from 27.07.2018. Thus, by increasing the base price of the product the benefit of reduction in tax rate was not passed on to the recipients and hence he has contravened the provisions of Section 171 of the CGST Act, 2017. The records clearly show that the Respondent has supplied a total number of 6380 footwears out of which 1451 were impacted by the reduction in the rate of GST from 18% to 5% w.e.f. 27.07.2017 - the Respondent is hereby directed to reduce the price of the products as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, by making commensurate reduction in the prices, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. Penalty - HELD THAT - Respondent has issued incorrect invoices while selling the above products to his recipients as he had not correctly shown the basic prices which he should have legally charged from them. The Respondent has also collected additional GST on the increased prices through the incorrect tax invoices which would have otherwise resulted in further benefit to the customers which he had failed to pass on. It is also established from the record that the Respondent has 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 - respondent is liable for imposition of penalty under Section read with Rule 133 (3) (d) of the CGST Rules, 2017 - In the interest of natural justice, notice may be issued to the Respondent to show cause as to why penalty should not be imposed on him as per the provisions of Section 122 of the CGST Act, 2017 read with Rule 133 (3) (d) of the CGST Rules, 2017. Application disposed off.

Summary

Issues Involved:
1. Allegation of profiteering by not passing on GST rate reduction benefits.
2. Examination of whether the benefit of GST rate reduction was passed on.
3. Determination of the amount of profiteering.
4. Directions for refund and deposit of profiteered amount.
5. Imposition of penalty for issuing incorrect invoices.

Issue-wise Detailed Analysis:

1. Allegation of Profiteering:
An application was filed alleging that the respondent did not pass on the benefit of GST rate reduction from 18% to 5% on footwear priced between ?500 and ?1,000, thus contravening Section 171 of the CGST Act, 2017. The applicant claimed that despite the rate reduction, the respondent maintained the same selling price, thereby indulging in profiteering.

2. Examination of GST Rate Reduction Benefit:
The DGAP investigated whether the benefit of GST rate reduction was passed on. It was found that the respondent had increased the base price of the footwear to maintain the pre-GST reduction cum-tax price. This increase in base price negated the effect of the reduced GST rate, thus denying the benefit to the recipients. The investigation covered the period from 27.07.2018 to 30.11.2018.

3. Determination of Profiteering Amount:
The DGAP's report revealed that the respondent supplied 6,380 footwear items, out of which 1,451 were impacted by the GST rate reduction. For 831 of these products, the profiteering amount was calculated based on the difference in base prices before and after the rate reduction. The total profiteered amount was determined to be ?6,55,307, including ?77 for the applicant.

4. Directions for Refund and Deposit:
The respondent was directed to reduce the prices of the products to reflect the GST rate reduction and refund ?77 to the applicant along with 18% interest. The remaining profiteered amount of ?6,55,230 was to be deposited into the Consumer Welfare Fund of the Central and State Governments in a 50:50 ratio. The respondent had already paid ?6,55,310 into the Central Consumer Welfare Fund, and was further directed to pay 18% interest on this amount within three months.

5. Imposition of Penalty:
The respondent issued incorrect invoices by not showing the correct base prices and collected additional GST on the increased prices. This act was in contravention of the CGST Act, 2017, and constituted an offense under Section 122 (1) (i). A notice was to be issued to the respondent to show cause why a penalty should not be imposed under Section 122 of the CGST Act, 2017, read with Rule 133 (3) (d) of the CGST Rules, 2017.

Conclusion:
The judgment concluded that the respondent had indeed contravened the provisions of Section 171 of the CGST Act, 2017, by not passing on the benefit of GST rate reduction. The respondent was directed to make necessary refunds and deposits, and a show-cause notice for penalty imposition was to be issued. The order was to be sent to the concerned parties and authorities free of cost.