2020 (7) TMI 286 - NAPA - GST

Profiteering - supply of Services by way of admission to exhibition of cinematograph films where the price of admission ticket was above one hundred rupees - benefit of reduction in the rate of GST not passed on - contravention of section 171 of CGST Act - HELD THAT - The Respondent has resorted to profiteering by way of either increasing the base prices of the service while maintaining the same selling prices or by way of not reducing the selling prices of the service commensurately, despite a reduction in GST rate on Services by way of admission to exhibition of cinematograph films where price of admission ticket is above one hundred rupees from 28% to 18% w.e.f. 01.01.2019 to 30.06.2019. on this account, the Respondent has realized an additional amount to the tune of ₹ 30,13,058/- from the recipients which included both the profiteered amount and GST on the said profiteered amount. Thus the profiteering is determined as ₹ 30,13,058/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent is therefore directed to reduce the prices of his tickets 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 ₹ 30,13,058/- 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. Since the recipients, in this case, are not identifiable, the Respondent is directed to deposit the amount of profiteering of ₹ 15,06,529/- in the Central Consumer Welfare Fund (CWF) and ₹ 15,06,529/- in the Telangana state as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017, along with 18% interest. The above amount shall be deposited within a period of 3 months from the date of receipt of this Order failing Which the same shall be recovered by the Commissioner SGST as per the provisions of the SGST Act, 2017. Penalty - HELD THAT - The Respondent has denied the benefit of rate reduction to his customers/recipients in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and resorted to profiteering and hence, committed an offence under section 171 (3A) of the CGST Act, 2017. Therefore, he is liable for the imposition of penalty under the provisions of the Section. Accordingly, a 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.

Summary

Issues Involved:
1. Alleged profiteering by not passing on GST rate reduction benefits.
2. Examination of whether GST rate reduction was passed on to recipients.
3. Calculation and determination of profiteering amount.
4. Penalty and compliance directives.

Issue 1: Alleged profiteering by not passing on GST rate reduction benefits.

The Applicant No. 1 filed an application alleging that the Respondent did not pass on the benefit of GST rate reduction from 28% to 18% effective from 01.01.2019 on cinema tickets. The DGAP conducted an investigation and reported that the Respondent increased the base prices of tickets instead of reducing the final price, thus not passing on the GST reduction benefit to consumers.

Issue 2: Examination of whether GST rate reduction was passed on to recipients.

The DGAP confirmed that the GST rate on "Services by way of admission to exhibition of cinematograph films where the price of admission ticket was above one hundred rupees" was indeed reduced from 28% to 18% effective from 01.01.2019. The legal requirement under Section 171 of the CGST Act, 2017 mandates that any reduction in tax rate must result in a commensurate reduction in prices. The DGAP reported that the Respondent did not pass on this benefit, as evidenced by the increased base prices of tickets post-GST rate reduction.

Issue 3: Calculation and determination of profiteering amount.

The DGAP calculated the profiteering amount by comparing the average base prices of tickets before and after the GST rate reduction. The Respondent had increased the base prices from ?117.18 to ?127.12 for 2D movies and from ?195.32 to ?211.86 for 3D movies. The DGAP determined that the Respondent had profiteered by ?11.73 per ticket for 2D movies and ?19.52 per ticket for 3D movies, resulting in a total profiteering amount of ?30,13,058/-. The DGAP also noted that the Respondent adjusted the ticket prices commensurately only from 08.02.2019.

Issue 4: Penalty and compliance directives.

The Authority found that the Respondent had contravened the provisions of Section 171 of the CGST Act, 2017 by not passing on the GST rate reduction benefit. The Respondent was directed to reduce ticket prices and deposit the profiteered amount of ?30,13,058/- along with 18% interest in the Central Consumer Welfare Fund (CWF) and Telangana State CWF. The Respondent was also liable for a penalty under Section 171 (3A) of the CGST Act, 2017. The jurisdictional Commissioners of CGST/SGST Telangana were directed to monitor compliance, and a report was to be submitted within three months.

The order was delayed due to the COVID-19 pandemic and was passed under the Notification No. 55/2020, Central Tax dated 27.06.2020. Copies of the order were supplied to the Applicants, Respondent, and Commissioners CGST/SGST for necessary action.