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2020 (5) TMI 442 - NAPA - GSTProfiteering - After-Shave Lotion Park Avenue Good Morning 50 ml - allegation that the benefit of reduction in the rate of tax not passed on by way of commensurate reduction in prices - contravention of provisions of section 171 of CGST Act - penalty - HELD THAT - It is apparent from the perusal of Sub-Section 171 (1) that both the benefits of tax reduction and ITC are required to be passed on by the suppliers to the customers by commensurate reduction in the prices as they have been granted from the public exchequer to benefit the consumers. Sub-Section 171 (2) provides that the Central Government may on the recommendations of the GST Council constitute an Authority to examine whether the input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the prices of the goods or services or both supplied by him. Therefore, this Authority has mandate to examine all such cases in which the above benefits are required to be passed on either suo moto or to get them investigated through the DGAP and its power to do so is not restricted to only those cases or products in respect of which complaint has been made. It is also apparent from the provisions of Rule 129 (1) that the DGAP shall investigate and collect necessary evidence in all such cases in which the rate of tax has been reduced or the benefit of ITC has been granted which is required to be passed on to the buyers and submit his Report to this Authority under Rule 129 (6). During the course of the investigation the DGAP had further found that the Respondents had not passed on the benefit of tax reduction in respect of other products also which were being supplied by them inspite of tax reduction and therefore, he was legally bound to investigate and bring this infringement of Section 171 to the notice of this Authority. The Respondents cannot be allowed to deny benefit of tax reduction to their customers on the ground of jurisdiction and misappropriate the amount of benefit of tax reduction which they are not required to pay from their own pockets. Accordingly, the investigation conducted by the DGAP against the Respondent No.1 is in consonance with the provisions of Section 171 and the Rules framed under Chapter XV of the CGST Rules. 2017. It is established that both the above Respondents have acted in contravention of the provisions of Section 171 of the CGST Act, 2017 and have not passed on the benefit of reduction in the rate of tax to their recipients by commensurate reduction in the prices. Accordingly, the amount of profiteering in respect of the Respondent No. 1 is determined as ₹ 18,48,34,084/- including the GST under the provisions of Rule 133 (1) of the CGST Rules, 2017 as per Annexure-32 of the Report dated 24.09.2019 furnished by the DGAP - The Respondent No. 1 has also profiteered an amount of ₹ 8,97,2531- from the Respondent No. 2 as has been mentioned in Annexure-33 of the Report dated 24.09.2019. Since, the above amount is required to be passed on to the ultimate buyers hence, the same shall be deposited in the CWFs of the Central and the State Governments as per the provisions of Rule 133 (3) (C) of the CGST Rules, 2017 along with the interest and shall not be passed on to the Respondent No. 2 as he is not eligible to get the benefit of tax reduction at the expense of the common recipient. Both the Respondent are directed to reduce the prices of the impacted 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 of tax reduction is passed on to the recipients. The Respondents are also directed to deposit the profiteered amounts mentioned above along with the interest to be calculated @ 18% from the date when the above amounts were collected by them from the recipients till the above amounts are 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 Respondents are directed to deposit the above amounts of profiteering 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 are deposited. Penalty - HELD THAT - It is also evident from the facts that both the above Respondents have denied the benefit of tax reduction from 28% to 18% w.e.f. 15.11.2017 to 31.03.2019, notified vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017, on the products which were being supplied by them to the consumers in contravention of the provisions of Section 171 (1) of the CGST Act. 2017 and have thus resorted to profiteering. Hence, they have committed an offence under Section 171 (3A) of the Central Goods Services Tax Act. 2017 and therefore, they are apparently liable for imposition of penalty under the provisions of the above Section - Accordingly, Show Cause Notices be issued to them directing them to explain why the penalty prescribed under Section 171 (3A) of the Act read with Rule 133 (3) (d) of the Central Goods Services Tax Rules, 2017 should not be imposed on them. As per the provisions of Rule 133 (1) of the CGST Rules, 2017 this order was to be passed on or before 24.03.2020 as the investigation Report was received from the DGAP on 25.09.2019. However, due to the COVID-19 pandemic prevailing in the Country the order could not be passed on or before the above date. Hence, the same is being passed today in terms of the Notification No. 35/2020-Central Tax dated 03.04.2020 issued by the Government of India, Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes Customs under Section 168 A of the Central Goods Services Tax Act, 2017.
Issues Involved:
1. Allegation of non-passing of GST rate reduction benefit by M/s Raymond Ltd. 2. Jurisdiction and procedure followed by DGAP. 3. Calculation methodology for profiteering. 4. Period of investigation. 5. Discounts and credit notes in profiteering computation. 6. Impact of GST on pre and post-rate reduction prices. 7. Constitutionality of Anti-Profiteering provisions. 8. Penalty imposition under Section 171 (3A). Detailed Analysis: 1. Allegation of Non-Passing of GST Rate Reduction Benefit: The complaint alleged that M/s Raymond Ltd. did not pass on the benefit of GST rate reduction from 28% to 18% on "After-Shave Lotion Park Avenue Good Morning 50 ml," maintaining the MRP at ?115 per unit. The DGAP's investigation revealed that the product was supplied by Respondent No. 2 after purchasing it from Respondent No. 1. Both respondents failed to pass on the benefit of tax reduction as required under Section 171 of the CGST Act, 2017. 2. Jurisdiction and Procedure Followed by DGAP: The Respondent No. 1 contended that the DGAP lacked jurisdiction to expand the investigation beyond the initial complaint against M/s Raymond Ltd. However, the authority clarified that the DGAP is mandated to investigate all cases where tax reduction benefits are not passed on, as per Section 171 (2) and Rule 129 of the CGST Rules, 2017. The DGAP acted within its jurisdiction by investigating both respondents. 3. Calculation Methodology for Profiteering: The DGAP used average base prices of products pre-rate reduction and compared them with actual post-rate reduction base prices. The Respondent No. 1's claim of passing on a 7.81% discount was found insufficient as the required reduction was 10%. The methodology of comparing average pre-rate reduction prices with actual post-rate reduction prices was deemed correct and in line with Section 171 of the CGST Act, 2017. 4. Period of Investigation: The Respondent No. 1 argued that the investigation period of 16 months and 16 days was arbitrary. The authority justified the period from 15.11.2017 to 31.03.2019, as the respondent failed to provide evidence of passing on the benefit within this period. The DGAP's investigation period was found reasonable and necessary to ensure compliance. 5. Discounts and Credit Notes in Profiteering Computation: The Respondent No. 1's claim of passing on the benefit through discounts was rejected as discounts did not meet the conditions under Section 15 (3) of the CGST Act, 2017. The authority emphasized that the benefit must be passed on through commensurate price reduction. Credit notes issued for reasons other than tax reduction were not considered in profiteering calculations. 6. Impact of GST on Pre and Post-Rate Reduction Prices: The Respondent No. 1's argument that the profiteered amount included GST was dismissed. The authority clarified that the excess GST collected from customers due to increased base prices must be included in the profiteered amount as it represents the benefit denied to customers. 7. Constitutionality of Anti-Profiteering Provisions: The Respondent No. 1 challenged the constitutionality of Section 171 and related rules, claiming they violated Articles 14 and 19 (1) (g) of the Constitution. The authority refuted this, stating that the provisions ensure the benefit of tax reduction reaches consumers and do not impose price control, thus not infringing on the respondent's right to trade. 8. Penalty Imposition Under Section 171 (3A): The authority found both respondents liable for profiteering and directed them to deposit the profiteered amounts along with interest in the Consumer Welfare Funds (CWFs) of the Central and State Governments. Show Cause Notices were issued to both respondents for the imposition of penalties under Section 171 (3A) of the CGST Act, 2017. Conclusion: The authority confirmed that both respondents failed to pass on the benefit of GST rate reduction and engaged in profiteering. They were directed to reduce prices, deposit the profiteered amounts with interest in the CWFs, and were issued Show Cause Notices for penalties. The methodology and period of investigation were upheld, and the respondents' constitutional challenges were dismissed.
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