2020 (5) TMI 286 - NAPA - GST

Profiteering - supply of American Tourister Sky Tracer HL Blue 68 cm Hard Trolley - allegation that the Respondent did not reduce the selling price of the above product when the GST rate was reduced and thus, the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in its price - contravention of section 171 of CGST Act - penalty - HELD 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 to his recipients by commensurate reduction in the prices. Accordingly, the amount of profiteering is determined as ₹ 25,73,82,482/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent is therefore directed to reduce the prices of his products as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. The Respondent is also directed to deposit the profiteered amount of ₹ 25,73,82,482/- along with the interest to be calculated 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited in terms of the Rule 133 (3) (b) of the CGST Rules, 2017. Since, the recipients in this case are not identifiable, the above Respondent is directed to deposit the amount of profiteering of ₹ 25,73,82,482/- along with interest in the CWFs of the Central and the concerned State Governments as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017 in the ratio of 50 50 along with interest @ 18%, till the same is deposited. Penalty - HELD THAT - The Respondent has denied the benefit of rate reduction of the GST to the consumers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST Act, 2017 and therefore, he is apparently liable for imposition of penalty under the provisions of the above Section - Accordingly, a Show Cause Notice 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.

Issues Involved:
1. Alleged profiteering by not reducing prices after GST rate reduction.
2. Scope of investigation by the Director General of Anti-Profiteering (DGAP).
3. Methodology for calculating profiteered amount.
4. Jurisdiction and authority of the National Anti-Profiteering Authority (NAA).
5. Constitutional validity of anti-profiteering provisions.
6. Inclusion of GST in profiteered amount.
7. Respondent's compliance with Section 171 of the CGST Act, 2017.

Detailed Analysis:

1. Alleged Profiteering by Not Reducing Prices After GST Rate Reduction:
The case originated from an application alleging that the Respondent did not reduce the selling price of "American Tourister Sky Tracer HL Blue 68 cm Hard Trolley" when the GST rate was reduced from 28% to 18% effective 15.11.2017. The DGAP's investigation confirmed that the Respondent did not pass on the benefit of the reduced GST rate to the recipients by way of a commensurate reduction in price, thereby profiteering an amount of ?25,73,82,482/-.

2. Scope of Investigation by the DGAP:
The Respondent argued that the investigation should have been limited to the product mentioned in the complaint. However, the DGAP expanded the investigation to include all products affected by the GST rate reduction. The NAA held that the DGAP is bound to investigate all such products which have been impacted by the rate reduction, even if they were not mentioned in the notice issued by him, as per the provisions of Section 171 of the CGST Act, 2017 and Rule 129 of the CGST Rules, 2017.

3. Methodology for Calculating Profiteered Amount:
The DGAP calculated the profiteered amount by comparing the average base prices of the products during the pre-GST rate reduction period with the actual post-GST rate reduction base prices. The methodology adopted was found to be correct, reasonable, and in consonance with the provisions of Section 171 of the CGST Act, 2017. The Respondent's contention that the quantum of benefit should have been computed by comparing taxable value excluding GST was rejected.

4. Jurisdiction and Authority of the NAA:
The NAA clarified that it has the jurisdiction to examine all cases where benefits of tax reduction or ITC are to be passed on to consumers, not limited to the product mentioned in the complaint. The DGAP's investigation and the NAA's authority to determine the profiteered amount and provide relief to affected consumers were found to be legal and in accordance with the provisions of the CGST Act and Rules.

5. Constitutional Validity of Anti-Profiteering Provisions:
The Respondent argued that Section 171 of the CGST Act, 2017 violates Article 19 (1) (g) of the Constitution. The NAA held that Section 171 does not infringe on the Respondent's right to trade but only requires passing on the benefit of tax reduction to consumers. The Respondent's reliance on the pending case of M/s Abbott Healthcare Pvt. Ltd. v. Union of India was noted, but the NAA stated that the case is still pending and hence not applicable.

6. Inclusion of GST in Profiteered Amount:
The DGAP included the excess GST collected from recipients in the profiteered amount. The NAA upheld this inclusion, stating that the statutory provisions require such amounts to be refunded to eligible recipients or deposited in the Consumer Welfare Fund, regardless of whether the extra tax collected was deposited in the Government account.

7. Respondent's Compliance with Section 171 of the CGST Act, 2017:
The NAA found that the Respondent had increased the base prices of his products when the GST rate was reduced, thereby not passing on the commensurate benefit of the GST rate reduction to the recipients. The Respondent's claim that the term 'profiteering' was not defined under the CGST Act was rejected, as Section 171 itself provides the definition and mechanism for determining profiteering.

Conclusion:
The NAA directed the Respondent to reduce the prices of his products and deposit the profiteered amount of ?25,73,82,482/- along with interest in the Consumer Welfare Funds of the Central and State Governments. The Respondent was also issued a Show Cause Notice for imposition of penalty under Section 171 (3A) of the CGST Act, 2017.

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