2020 (9) TMI 497 - NAPA - GST

Profiteering - supply of Services by way of admission to exhibition of cinematography films where the price of admission ticket - allegation that the reduction in the rate of GST not passed on by way of commensurate reduction in price - violation of the provisions of Section 171 of the CGST Act, 2017 - penalty - HELD THAT - It is observed from the record that the Respondent is engaged in the business of running of cinema screens and sale of cinema tickets in the State of Telengana. It is also revealed from the plain reading of Section 171 (1) of the CGST Act, 2017 that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second about the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the record that there has been a reduction in the rate of tax from 28% to 18% on Services by way of admission to exhibition of cinematograph films where price of admission ticket was above one hundred rupees w.e.f. 01.01.2019, vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018. Therefore, the Respondent is liable to pass on the benefit of the above tax reduction to his customers in terms of Section 171 (1) of the above Act. It is also apparent that the DGAP has carried out the present investigation w.e.f. 01.01.2019 to 31.07.2019. The profiteered amount is determined as ₹ 4,20,731/- for the period from 01.01.2019 to 06.01 2019 as mentioned in Tables-B to D of the DGAP's Report dated 31.01.2020 as per the provisions of Section 171 (1) read with Rule 133 (1) of the CGST Rules, 2017. The Respondent has reduced his prices commensurately w.e.f. 07.01.2019 in terms of Rule 133 (3) (a) of the above Rules therefore, no further direction is required to be passed on this account. Further, since the recipients of the benefit, as determined above are not identifiable, the Respondent has voluntarily deposited the profiteered amount of ₹ 4,20,731/- along with interest of ₹ 10,065/- in the CWFs of the Central and the State Government in accordance with the provisions of Rule 133 (3) (c) of the CGST Rules, 2017. Penalty - HELD THAT - The Respondent has contravened the provisions of Section 171 (1) of the CGST Act, 2017. However, since, the penalty prescribed under Section 171 (3A) of the CGST Act, 2017 for violation of the above provisions has come in to force w.e.f. 01.01.2020 and the infringement pertains to the period from 01.01.2019 to 06.01.2019 and the Respondent has also deposited the profiteered amount alongwith the interest therefore, no penalty is proposed to be imposed on the Respondent - As per the provisions of Rule 133 (1) of the CGST Rules, 2017 this order was required to be passed within a period of 6 months from the date of receipt of the Report from the DGAP under Rule 129 (6) of the above Rules. Since, the present Report has been received by this Authority on 31.01.2019 the order was to be passed on or before 30.07.2020.

Summary

Issues Involved:
1. Whether the Respondent passed on the commensurate benefit of reduction in the GST rate to his customers.
2. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 committed by the Respondent.

Issue-wise Detailed Analysis:

1. Whether the Respondent passed on the commensurate benefit of reduction in the GST rate to his customers:

The main issue examined was whether the GST rate on "Services by way of admission to the exhibition of cinematograph films where the price of admission ticket was above one hundred rupees" was reduced from 28% to 18% w.e.f. 01.01.2019 and if so, whether the benefit of such reduction in the rate of GST had been passed on by the Respondent to his recipients, in terms of Section 171 of the CGST Act, 2017.

The DGAP confirmed that the Central Government, on the recommendation of the GST Council, had indeed reduced the GST rate from 28% to 18% w.e.f. 01.01.2019. The legal requirement under Section 171 was that there must be a commensurate reduction in prices of the goods or services. The DGAP's investigation revealed that the Respondent had not reduced the selling prices of the movie tickets commensurately with the reduction in GST rate. Instead, the Respondent increased the base prices, resulting in the same selling prices post-GST rate reduction, thereby denying the benefit to the customers.

The DGAP's methodology involved comparing the average base prices of tickets pre and post-GST rate reduction. The investigation covered two classes of tickets: 'Executive' and 'Royal'. The DGAP found that the Respondent had profiteered by ?11.73 per ticket for 'Executive' and ?21.88 per ticket for 'Royal' categories. The total profiteered amount was ?4,20,731/- for the period from 01.01.2019 to 06.01.2019.

2. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 committed by the Respondent:

The Respondent argued that the ticket prices were regulated by local enactments in Telangana, and he had no say in the prices charged. Despite this, he claimed to have reduced the prices suo moto and deposited the profiteered amount along with interest in the Consumer Welfare Funds. The DGAP confirmed that the Respondent had indeed deposited ?4,20,936/- against the profiteered amount of ?4,20,731/- along with interest of ?10,065/- in the Consumer Welfare Funds.

The Authority found that the Respondent had contravened the provisions of Section 171 (1) by not passing on the benefit of GST rate reduction to the customers during the period from 01.01.2019 to 06.01.2019. However, since the Respondent had rectified the mistake and deposited the profiteered amount along with interest before the initiation of the proceedings, the profiteered amount was confirmed and regularized. No further direction was required as the Respondent had reduced his prices commensurately w.e.f. 07.01.2019.

The Authority concluded that although the Respondent had violated Section 171 (1), no penalty was imposed due to the voluntary deposit of the profiteered amount and interest. The order was passed considering the COVID-19 pandemic as a force majeure, extending the deadline for passing the order.

Conclusion:

The Respondent was found to have violated Section 171 (1) of the CGST Act, 2017 by not passing on the benefit of GST rate reduction to his customers. However, the Respondent had rectified the issue by depositing the profiteered amount along with interest in the Consumer Welfare Funds. The Authority confirmed the deposit and regularized the profiteered amount without imposing any penalty.