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2020 (6) TMI 573 - NAPA - GSTProfiteering - supply of Refrigerator Whirlpool FP313D PROTTON ROY MIRROR - benefit of reduction in the rate of tax not passed on by way of commensurate reduction in price - contravention of Section 171 of the CGST Act, 2017 - Penalty - HELD THAT - It is evident from the perusal of Sub-Section 171 (1), 171 (3A) and the Explanation attached to this Section that profiteering pertains to the amount of benefit which has been denied to the recipients by a registered person by not reducing the prices of his products commensurately on which the rate of tax has been reduced. Hence, the definitions quoted by the Respondent from the various dictionaries are not applicable, Similarly, his contention that the above term refers to excessive, exorbitant and unjustifiable profits arising due to supply of essential goods is also not correct. The argument of the Respondent that the marginal notes on anti-profiteering measures attached to Section 171 of the CGST Act, 2017 and Chapter XV of the CGST Rules, 2017 were required to be considered while interpreting the anti-profiteering measures is also not relevant as profiteered amount has been clearly, concisely and appropriately defined in the above Section. Marginal note was only required to be considered in case the above provision of anti-profiteering measures was ambiguous and not clear. Hence, the above contention of the Respondent is untenable. The Respondent is directed to reduce the price of the above product 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 Respondent is also directed to deposit the profiteered amount mentioned above along with the interest to be calculated @ 18% from the date from which 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 Respondent is directed to deposit the above amount 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 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 he 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, Show Cause Notice be issued to 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 them.
Issues Involved:
1. Alleged profiteering by not passing on the benefit of GST rate reduction. 2. Methodology for calculating profiteering. 3. Comparison of pre-GST and post-GST prices. 4. Impact of discounts on profiteering calculation. 5. Increase in costs and its relevance to profiteering. 6. Period of investigation. 7. Penalty provisions under the CGST Act. Issue-wise Analysis: 1. Alleged Profiteering by Not Passing on the Benefit of GST Rate Reduction: The case revolves around the allegation that the Respondent did not pass on the benefit of the GST rate reduction from 01.07.2017 on the product "Refrigerator Whirlpool FP313D PROTTON ROY MIRROR" as mandated by Section 171 of the CGST Act, 2017. The DGAP's investigation confirmed that the Respondent increased the basic price of the product post-GST, thereby not passing on the benefit of the tax reduction to the consumers, resulting in profiteering amounting to ?4,07,451. 2. Methodology for Calculating Profiteering: The DGAP employed a methodology where the State-wise average basic price (after discount) during the pre-GST period (01.04.2017 to 30.06.2017) was compared with the transaction-wise basic price (after discount) during the post-GST period (01.07.2017 to 31.08.2018). This approach was deemed correct, reasonable, and in line with Section 171 of the CGST Act, 2017. The Respondent's contention that the methodology should be at the entity level was rejected as the benefit must be passed on to each customer on each purchase. 3. Comparison of Pre-GST and Post-GST Prices: The Respondent argued that the basic price should be considered pre-discount for comparing average tax incidence. However, as per Section 15 of the CGST Act, 2017, the value of supply is the transaction value after excluding any discount. The DGAP's calculation based on the actual transaction value (post-discount) was upheld. The Respondent's claim that the tax incidence should be compared at the entity level was also rejected. 4. Impact of Discounts on Profiteering Calculation: The Respondent's argument that discounts should be considered in the profiteering calculation was dismissed. The DGAP's approach of considering the basic price after discounts was found to be in accordance with the law. The Respondent's reliance on previous orders (e.g., Asian Paints Limited, Flipkart Internet Private Limited, Maruti Suzuki India Limited) was deemed irrelevant as those cases had different contexts. 5. Increase in Costs and Its Relevance to Profiteering: The Respondent claimed that increased raw material and freight costs justified the price increase. However, the timing of the price increase coinciding with the GST rate reduction was found to be deliberate and unjustifiable. The argument that increased costs should be factored in was rejected as Section 171 does not account for cost increases when passing on tax reduction benefits. 6. Period of Investigation: The investigation period from 01.07.2017 to 31.08.2018 was challenged by the Respondent. However, it was justified as the Respondent failed to provide evidence of passing on the benefit during this period. The DGAP's investigation was deemed appropriate and within the legal framework. 7. Penalty Provisions under the CGST Act: The Respondent argued against the imposition of penalties in the absence of specific provisions under the CGST Act. The notice for penalties under Sections 29, 122, 123, 124, 125, 126, 127 of the CGST Act was withdrawn, and the focus was placed on Section 171(3A), which prescribes penalties for profiteering. Conclusion: The Respondent was found guilty of profiteering by not passing on the GST rate reduction benefit, resulting in a profiteered amount of ?4,07,451. The Respondent was directed to reduce prices, deposit the profiteered amount along with interest in the Consumer Welfare Funds, and a show cause notice for penalty under Section 171(3A) was issued. Further investigation was ordered to ensure compliance with tax reduction benefits on other products.
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