2020 (8) TMI 446 - NAPA - GST

Profiteering - Nestle Munch Nuts 32 Gm. Chocolate and the Cadbury Dairy Milk Chocolate - allegation that the benefit of GST rate reduction to his customers not passed on by way of commensurate reduction in price - contravention of provisions of Section 171 (1) of the CGST Act, 2017 - penalty - HELD THAT - It has been revealed that the Respondent has not passed on the benefit of reduction in GST rate from 28% to 18% on the above products w.e.f 15.11.2017 and hence, the Respondent has violated the provisions of Section 171 (1) of the CGST Act, 2017. Penalty - HELD THAT - It is also revealed from the perusal of the CGST Act and the Rules framed under it that no penalty had been prescribed for violation of the provisions of Section 171 (1) of the above Act, therefore, the Respondent was issued show cause notice to state why penalty should not be imposed on him for violation of the above provisions as per Section 122 (1) (i) of the above Act as he had apparently issued incorrect or false invoice while charging excess consideration and GST from the buyers - from the perusal of Section 122 (1) (i) it is clear that the violation of the provisions of Section 171 (1) is not covered under it as it does not provide penalty for not passing on the benefits of tax reduction and ITC and hence the above penalty cannot be imposed for violation of the anti-profiteering provisions made under Section 171 of the above Act. Since, no penalty provisions were in existence between the period w.e.f. 16.11.2017 to 31.03.2018 when the Respondent had violated the provisions of Section 171 (1), the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively - the notice dated 01.01.2019 issued to the Respondent for imposition of penalty under Section 122 (1) is hereby withdrawn and the present penalty proceedings launched against him are accordingly dropped.

Summary

Issues:
1. Violation of provisions of Section 171(1) of the CGST Act, 2017.
2. Imposition of penalty under Section 122(1) for profiteering.
3. Applicability of penalty provisions for violation of Section 171(1) retrospectively.

Analysis:
1. The case involved an investigation by the DGAP based on a complaint regarding the Respondent's failure to pass on the benefit of reduced GST rates on certain products. The DGAP found that the Respondent had not passed on the benefit of GST rate reduction to customers, amounting to a specific sum, thereby violating Section 171(1) of the CGST Act, 2017. The National Anti-Profiteering Authority issued a notice to the Respondent, who was found to have indulged in profiteering and violating the mentioned provision.

2. After thorough consideration and hearings, the Authority determined the profiteered amount and held the Respondent in violation of Section 171(1). It was noted that the Respondent had collected extra amounts from consumers and compelled them to pay more GST, thus committing an offense under Section 122(1) of the CGST Act, 2017. Consequently, the Respondent was issued a notice to explain why the penalty under Section 122(1) should not be imposed on him.

3. The Respondent argued against the imposition of penalty, stating that he had already accepted and paid the determined amount. He contended that penalty should only be imposed in cases of mens rea and deliberate violation of the law, emphasizing his compliance with the Authority's directives as evidence of his bona fide intentions. The Authority, after reviewing all submissions and evidence, found that the Respondent had indeed violated Section 171(1) by not passing on the GST rate reduction. However, it was observed that no penalty had been prescribed for this specific violation under Section 122(1)(i) of the Act.

4. The Authority highlighted that penalty provisions for violation of Section 171(1) were later added under Section 171(3A) of the Finance Act, 2019, effective from 01.01.2020. As the violation occurred before the introduction of these penalty provisions, the Authority concluded that the penalty prescribed under Section 171(3A) could not be imposed on the Respondent retrospectively. Therefore, the penalty proceedings initiated against the Respondent were dropped, and the notice for penalty imposition was withdrawn.