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2019 (10) TMI 934 - NAPA - GSTProfiteering - Sanitary Napkin - whether the benefit of reduction in the rate of GST on supply of the product had been passed on by the Respondent to the recipients? - Penalty - HELD THAT - The quantum of profiteering illegally obtained by the Respondent is determined as ₹ 42,52,370/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017 as the Respondent has failed to passed on the benefit of rate reduction to his customers. Accordingly, the Respondent is directed to reduce his prices by way of commensurate reduction keeping in view the reduced rate of tax and benefit of ITC which has been availed by him as per Rule 133 (3) (a). The Respondent is further directed to deposit the above amount as per the provisions of Rule 133 (3) (c) in the ratio of 50 50 in the Central or the State CWFs of the State of Madhya Pradesh, along with the interest @ 18% till the same is deposited. Penalty - HELD THAT - The Respondent has denied benefit of rate reduction to the buyers of the product Sanitary Napkin in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering, which is an offence under section 171 (3A) of the CGST Act, 2017 and therefore, he will be apparently liable for imposition of penalty under the provisions of the above Section - Accordingly, a Show Cause Notice will be issued to him directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him. Application disposed off.
Issues Involved:
1. Alleged non-passing of GST rate reduction benefit. 2. Calculation of profiteered amount. 3. Respondent's compliance with reduction in MRP. 4. Methodology for determining profiteering. 5. Legal contentions regarding evidence and penalty. Issue-wise Detailed Analysis: 1. Alleged Non-Passing of GST Rate Reduction Benefit: The case originated from an application under Rule 128 of the CGST Rules, 2017, alleging that the Respondent did not pass on the GST rate reduction benefit from 12% to Nil on "Sanitary Napkin" as per Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018. The Standing Committee referred the matter to the DGAP for detailed investigation. 2. Calculation of Profiteered Amount: The DGAP's investigation revealed that the Respondent increased the base prices of the product post-GST rate reduction, resulting in a profiteered amount of ?42,52,370/-. The DGAP calculated this by comparing the commensurate base prices (adjusted for loss of ITC at 8.39%) with the actual selling prices during the period from 27.07.2018 to 30.11.2018. 3. Respondent's Compliance with Reduction in MRP: The Respondent claimed to have communicated the reduction in MRP to distributors and advertised the same. However, field inspections indicated that old stock was sold at pre-rate reduction MRP. The DGAP's report found that the benefit of GST rate reduction was not passed on to consumers, as the base prices were increased beyond the 8.39% ITC loss adjustment. 4. Methodology for Determining Profiteering: The Respondent contested the DGAP's methodology, arguing for a distributor-wise comparison instead of an average price comparison. The Authority upheld the DGAP’s method, stating it was difficult to identify customers with pre and post rate reduction purchases. The DGAP's approach of comparing actual post-rate reduction prices with recalibrated base prices was deemed appropriate. 5. Legal Contentions Regarding Evidence and Penalty: The Respondent argued that the evidence should have been made available for cross-examination as per Rule 129 (5) of CGST Rules, 2017, and cited various legal precedents. The Authority dismissed these arguments, stating the facts of the present case were different. The Respondent also claimed that immediate compliance with the rate reduction was impractical, but this was not accepted by the Authority. Conclusion: The Authority determined that the Respondent had profiteered ?42,52,370/- by not passing on the GST rate reduction benefit. The Respondent was directed to deposit this amount with interest in the Consumer Welfare Funds of the Central and State Governments. The Authority also indicated that the Respondent might be liable for penalties under Section 171 (3A) of the CGST Act, 2017, and a Show Cause Notice would be issued accordingly.
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