2020 (5) TMI 265 - NAPA - GST

Profiteering - supply of a Used Heidelberg Speed Master Offset Press with complete tools and accessories (Model SM 74-5 LX, Year of manufacture 1997) - allegation that the benefit of ITC was not passed by way of commensurate reduction in price in terms of Section 171 of the CGST Act, 2017 - contravention of section 171 of CGST Act - imposition of penalty - HELD THAT - The Central Government implemented GST w.e.f 01.07.2017 and that GST subsumed several taxes hitherto levied by the Central Government and the State Governments. Out of these several taxes, input tax credit of some taxes was not being allowed in the erstwhile tax regime. Such subsumed taxes, the credit of which was not allowed in the erstwhile tax regime, used to get embedded in the cost of the goods or services supplied resulting in an increase in the prices of the goods or services supplied. With the introduction of GST with effect from 01.07.2017, the said taxes got subsumed in GST. Under the GST regime, ITC of the GST paid on inputs is available in respect of all inward supplies of goods and services, unless specifically denied - Thus, the additional benefit of ITC in the GST regime is limited to those input taxes, the credit of which was not allowed in the pre-GST regime, but is allowed in the GST regime. This additional benefit of ITC in the GST regime is required to be passed on by the suppliers to the recipients by way of commensurate reduction in price in terms of Section 171 of Goods and Services Tax Act, 2017. The Respondent has violated the provisions of Section 171 of the CGST Act 2017 in as much as he had not passed on the benefit of reduction of tax/ additional ITC in respect of the supply effected by him to Applicant No. 1, and therefore, he is liable for action under Rule 133 of the CGST Rules, 2017 - it is established that 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/ additional ITC to the Applicant No. 1 by commensurate reduction in the price. Accordingly, the amount of profiteering is determined as ₹ 6,91,121/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. 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/ additional ITC to the Applicant No. 1 by commensurate reduction in the price. Accordingly, the amount of profiteering is determined as ₹ 6,91,121/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017 - the Respondent liability to refund the profiteered amount of ₹ 6,91,121/-, along with the interest to be calculated at 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited/refunded, is established. Further, since the Respondent has already refunded the profiteered amount of ₹ 6,91,121/- to Applicant No. 1 through RTGS dated 12.12.2019 and since the receipt thereof has also been acknowledged by the Applicant No. 1, vide submissions of Applicant No. 1 dated 10.01.2020, we direct the Respondent to pay the interest to be calculated @ 18% from the date when the profiteered amount was collected by him from the Applicant No. 1 till the above amount is paid within a period of 3 months from the date of receipt of this order failing which the same shall be recovered by the Commissioner CGST/SGST as per the provisions of the CGST/SGST Act, 2017. Penalty - HELD THAT - It is evident from the case records that the Respondent has denied the benefit of rate reductions/additional ITC in the GST to the Applicant No. 1 in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus profiteered as per the explanation attached to Section 171 of the above Act. Therefore, he is liable for imposition of penalty under Section 171 (3A) of the CGST Act, 2017 - Therefore, a Show Cause Notice be issued to him directing him to explain why the penalty prescribed under the above sub-Section should not be imposed on him.

Summary

Issues Involved:
1. Allegation of profiteering by the Respondent.
2. Calculation of the benefit of Input Tax Credit (ITC) under GST.
3. Determination of the profiteered amount.
4. Compliance with Section 171 of the CGST Act, 2017.
5. Respondent's request for waiver of interest.
6. Imposition of penalty under Section 171 (3A) of the CGST Act, 2017.

Detailed Analysis:

1. Allegation of Profiteering by the Respondent:
The Applicant No. 1 alleged that the Respondent charged 18% GST on a quoted price of ?1,40,00,000 for a "Used Heidelberg Speed Master Offset Press" without passing on the benefit of ITC, contravening Section 171 of the CGST Act, 2017. The DGAP investigated and found that the Respondent should have reduced the base price to reflect the benefit of ITC after GST implementation.

2. Calculation of the Benefit of ITC under GST:
The DGAP noted that GST subsumed various taxes, including CVD and SAD, which were not creditable in the pre-GST regime. Post-GST, the ITC of GST was available, necessitating a reduction in the base price of goods. The Respondent did not adjust the base price despite the availability of ITC, leading to profiteering. The DGAP calculated the benefit of ITC by comparing the pre-GST and post-GST tax liabilities.

3. Determination of the Profiteered Amount:
The DGAP calculated the profiteered amount by determining the reduction in base price due to the non-applicability of CVD and the availability of ITC on IGST. The initial calculation showed a profiteering amount of ?6,71,121. However, after correcting a typographical error regarding the billed price (?1,65,20,000 instead of ?1,65,00,000), the profiteered amount was revised to ?6,91,121. The DGAP provided detailed calculations to substantiate this amount.

4. Compliance with Section 171 of the CGST Act, 2017:
The Authority found that the Respondent violated Section 171 by not passing on the benefit of ITC to the Applicant No. 1 through a commensurate reduction in price. The Respondent's argument of providing additional accessories instead of reducing the price was rejected as it did not comply with the legal requirement of Section 171.

5. Respondent's Request for Waiver of Interest:
The Respondent requested a waiver of interest on the profiteered amount, citing lack of knowledge about anti-profiteering provisions. The Authority denied this request, stating there was no legal provision to waive the interest. The Respondent was directed to pay interest at 18% from the date of collection until the amount was refunded.

6. Imposition of Penalty under Section 171 (3A) of the CGST Act, 2017:
Given the Respondent's contravention of Section 171, the Authority determined that the Respondent was liable for a penalty under Section 171 (3A). A Show Cause Notice was to be issued to the Respondent to explain why the penalty should not be imposed.

Conclusion:
The Authority concluded that the Respondent had profiteered by not passing on the benefit of ITC as required under Section 171 of the CGST Act, 2017. The Respondent was ordered to refund the profiteered amount of ?6,91,121 along with interest at 18% to the Applicant No. 1. The Respondent's request for waiver of interest was denied, and a Show Cause Notice for penalty imposition was to be issued. The Commissioners of CGST/SGST were directed to monitor compliance with this order.