2020 (3) TMI 557 - NAPA - GST

Profiteering - supply of Bajaj Majesty MX 20 Steam Iron - allegation that the benefit of reduction in the GST rate not passed on - contravention of Section 171 of the CGST Act - HELD THAT - The allegation of Applicant No. 1 is that the Respondent had increased the MRP of the said product from ₹ 1099/- to ₹ 1405/- or ₹ 1520/- in respect of supplies of the said product and after coming into force of Notification No. 18/2018-Central Tax (Rate) dated 27.07.2018 and he had not passed on the benefit of reduction in the GST rate to the recipients. In this context, we have perused the invoices of the product dated 06.07.2018 and 03.08.2018, and we observe that the base price of the product was kept unchanged same by the Respondent despite the reduction in the rate of tax and that he did not increase the base price after coming into force of Notification No. 18/2018-Central Tax (Rate) dated 27.07.2018. The MRP of ₹ 1099/- shown on the screenshot, pertained to the stock of the goods carrying an MRP of ₹ 1099/-, which was lying with the Respondent and that the Respondent has himself stated that once the old stock was liquidated, the MRP of ₹ 1520/- was updated on the website. But since the new stock carrying the MPR of ₹ 1520/- had already circulated in the market, the website of the Respondent showed MRP of ₹ 1099/- till July, 2018 - the Applicant No. 1, vide his email dated 30.09.2019, has also agreed with the DGAP's conclusion recorded in his Report dated 06.09.2019. The present case is not a fit case of profiteering as had been alleged by the Applicant No. 1 - the allegation of the Applicant No. 1 is not tenable and therefore the application alleging violation of provisions of Section 171 of the CGST Act, 2017 is hereby dismissed.

Summary

Issues Involved:
1. Whether there was a reduction in the rate of tax on the product in question after the implementation of GST w.e.f. 01.07.2017?
2. Whether any benefit of reduction in the rate of tax was to be passed on?

Issue-Wise Analysis:

I. Reduction in the Rate of Tax:
The primary issue was to determine if the GST rate on the product "Bajaj Majesty MX 20 Steam Iron" was reduced from 28% to 18% w.e.f. 27.07.2018 as per Notification No. 18/2018-Central Tax (Rate) dated 26.07.2018. The DGAP confirmed that the Central Government, on the recommendation of the GST Council, indeed reduced the GST rate on "electro-thermic appliances of a kind used for domestic purposes" from 28% to 18% effective from 27.07.2018. The legal requirement under Section 171(1) of the CGST Act, 2017 mandates that any reduction in the rate of tax must be passed on to the recipient by way of a commensurate reduction in prices.

II. Benefit of Reduction in the Rate of Tax:
The investigation focused on whether the Respondent passed on the benefit of the reduced GST rate to the recipients. The DGAP examined the invoices provided by the Respondent and observed that the base price of the product remained unchanged at ?676 both before and after the GST rate reduction. The DGAP's detailed analysis (Table-A) showed no increase in the base price post the tax rate reduction, indicating no profiteering. The Respondent's business practice of revising the base price twice a year, once at the start of the year and again around the festival season, was also considered. The base price increased from ?676 to ?696 in October 2018, consistent with this practice.

The DGAP's report concluded that the Respondent had not contravened Section 171(1) of the CGST Act, 2017, as there was no profiteering in the complained product. The Respondent provided substantial documentation, including GSTR-1 and GSTR-3B returns, invoice-wise details, price lists, and sample invoices, to support their claim. The Respondent also cited the Delhi High Court's order in the case of M/s Reckitt Benckiser India Pvt. Ltd., which limited the scope of investigation to the complained product only.

Conclusion:
The Authority examined the DGAP's report and the documents on record, finding no evidence of profiteering. The base price of the product remained unchanged despite the GST rate reduction, and the increase in the base price in October 2018 was consistent with the Respondent's business practice. The screenshots provided by Applicant No. 1 showing an MRP of ?1099 pertained to old stock, and the MRP was updated to ?1520 once the old stock was liquidated. Applicant No. 1 agreed with the DGAP's conclusions, and the Authority found no violation of Section 171 of the CGST Act, 2017. Consequently, the application alleging profiteering was dismissed.

Order:
The application alleging violation of provisions of Section 171 of the CGST Act, 2017, was dismissed. A copy of the order was to be sent to both Applicants and the Respondent free of cost. The case file was to be consigned after completion.