2020 (11) TMI 915 - NAPA - GST

Profiteering - base prices of 1383 goods had been increased by the Respondents after the rate of tax was reduced - allegation that the Respondents had not passed on the benefit of reduction in the rate of GST - contravention of provisions of Section 171(1) of the CGST Act, 2017 - penalty - HELD THAT - It would be appropriate to state that as has been discussed in paras supra (i) the pre and post reduction base prices have been correctly computed excluding the discounts as per the provisions of Section 15(1) and 15(3)(a) and hence there is no mistake in calculating the same. Therefore, the comparison of prices made by the Respondents as per the Annexure attached with their submissions dated 19.06.2019 is not correct (ii) It is also apparent from the plain reading of Section 171(1) that the benefit of tax reduction has to be passed on by commensurate reduction in price and hence the same cannot be passed by way of discounts. Moreover, the Respondents cannot treat the already existing promotion schemes as passing on of the benefit as such schemes were floated by them to increase their sales in normal course of their business. Hence, the mapping of prices which could have been charged by the Respondents for the SKUs on which promotion schemes were extended and revised profiteering was computed which included the higher benefit passed on, as per the annexure attached with their above submissions is wrong and incorrect and accordingly, an amount of ₹ 61.50 Crore cannot be reduced from the profiteered amount on the above two grounds as has been claimed by the Respondents. (iii) As explained in para supra the Respondents cannot pass more benefit on certain SKUs as per their own convenience and refuse to pass on the same on other SKUs. As per theprovisions of Section 171(1) and Article 14 they are required to pass on the benefit on each SKU to each buyer and therefore, computation of the benefit passed on by way of higher price reduction on certain SKUs as per the annexure attached with the submissions dated 19.06.2019 is incorrect and hence an amount of ₹ 190.36 Crore cannot be reduced from the profiteered amount. (iv) No profiteering has been computed on the SKUs where the Respondents have charged less prices as compared to the average prices. In addition any benefit passed on by claiming higher price reduction on certain SKUs where the actual price charged was less than the average price cannot be set off against the profiteered amount as has been computed by the Respondents vide their above submissions as the benefit has to be passed on each SKU (v) As discussed in para supra the Respondents have not supplied the details to prove that they have passed on the benefit by way of supplying extra quantity, hence, mapping of the normal prices which could have been charged by the Respondents for the products with extra quantity or the higher grammage at the same or lower prices as per the annexure attached with their above submissions is wrong and incorrect and hence the amount so computed cannot be allowed to be deducted from the profiteered amount. As mentioned above no benefit can be passed by introducing new promotion schemes, therefore, the mapping of the benefit as per the annexure attached with the submissions dated 19.06.2019 is wrong and hence, no reduction can be permitted in the profiteered amount. (vi) The Respondents could not have reduced their prices post supply by extending discounts as the benefit was required to be passed on by way of commensurate reduction in the prices upfront. Therefore, computation of benefit on account of post supply rate reductions as per the annexure attached with their submissions dated 19.06.2019 is wrong and incorrect and hence an amount of ₹ 69.55 Crore cannot be reduced from the profiteered amount. Based on the above reasons an amount of ₹ 139.99 Crore in respect of M/s. PGHP Ltd. cannot be reduced. The Respondents have also claimed that they have passed on an amount of ₹ 7.12 Crore in respect of M/s. GIL on account of correction in the base prices, extension of pre rate reduction promotion schemes and introduction of new promotion schemes as has been computed vide their submissions dated 19.06.2019. However, the claim of the Respondents is wrong. Therefore, the above amount of ₹ 7.12. Crore cannot be deducted from the profiteered amount. Moreover, the Respondents are required to pass on the benefit at the level of each SKU and therefore, any claim of passing on the benefit at the entity level is wrong and against the provisions of Section 171(1) and Article 14. Therefore, all the mappings and computations made by the Respondents through their submissions dated 19.06.2019 are frivolous, incorrect, illogical and against the provisions of Section 171(1) and Article 14 and hence they are liable to be rejected. The profiteered amount in respect of all the 3 Respondents is further determined as (i) ₹ 181,51,46,262/- in respect of the Respondent No. 1 i.e. M/s. Proctor Gamble Home Products (PGHP) Pvt. Ltd. (ii) ₹ 2,00,30,807/- in respect of the Respondent No. 2 i.e. M/s. Proctor Gamble Hygiene Health Care (PGHH) Ltd. and (iii) ₹ 57,99,37,416/- in respect of the Respondent No. 3 i.e. M/S Gillette India Ltd. (GIL), on the sale transactions made by the above Respondents w.e.f. 14.11.2017 to 30.09.2018, which has been individually and collectively computed in respect of all the 33 States and Union Territories as per Annexure-6 attached to the Report of the DGAP dated 31.01.2020. The total profiteered amount of ₹ 2,41,51,14,485/- is computed - Also, the Respondents are directed to reduce prices of all the SKUs commensurately in respect of which profiteering has been computed as per Annexure-6 forthwith in terms of Rule 133 (3) (a) of the above Rules read with Section 171(1) of the Act. The Respondents are also directed to deposit 50% of the profited amount of ₹ 2,41,51,14,485/- (₹ 181,51,46,262/- in respect of Respondent No. 1 ₹ 2,00,30,807/- in respect of Respondent No. 2 ₹ 57,99,37,416/- in respect of Respondent No. 3) in the Central Consumer Welfare Fund and the balance 50% in the Consumer Welfare Funds of the 33 States/UTs mentioned supra as per the provisions of Rule 133 (3) (c) of the above Rules read with Section 171(1) as per Annexure-6, since the recipients who are millions of ordinary customers are not identifiable. The above amounts shall be deposited along with 18% interest payable from the dates from which the above amount was realized by the Respondents from their recipients till the date of deposit in the respective Consumer Welfare Funds. Penalty - HELD THAT - The Respondents have denied benefit of rate reduction to the buyers of their SKUs in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and they have thus resorted to profiteering. Hence, they have committed an offence for violation of the provisions of Section 171 (1) during the period from 15.11.2017 to 30.09.2018 and therefore, they are apparently liable for imposition of penalty under the provisions of Section 171 (3A) of the above Act. However, perusal of the provisions of Section 171 (3A) under which penalty has been prescribed for the above violation shows that it has been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019 and it was not in operation during the period from 15.11.2017 to 30.09.2018 when the Respondents had committed the above violation and hence, the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondents retrospectively. Accordingly, notice for imposition of penalty is not required to be issued to the Respondents. 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 31.01.2020, the order was to be passed on or before 30.07.2020. However, due to prevalent pandemic of COVID-19 in the Country this order could not be passed on or before the above date due to force majeure. Accordingly, this order is being passed today in terms of the Notification No. 65/2020-Central Tax dated 01.09.2020 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. Application disposed off.

Summary

Issues Involved:

1. Whether the Respondents passed on the benefit of tax reduction in terms of Section 171(1) of the CGST Act, 2017.
2. Calculation of the profiteered amount as per Section 171(2) of the CGST Act, 2017.
3. Imposition of penalties under Section 171(3A) of the CGST Act, 2017.

Issue-wise Analysis:

1. Whether the Respondents passed on the benefit of tax reduction in terms of Section 171(1) of the CGST Act, 2017:

The Respondents were accused of not passing on the benefit of GST rate reduction from 28% to 18% effective from 15.11.2017. The DGAP's investigation revealed that the base prices of the Respondents' products were increased post-GST rate reduction, which meant the commensurate reduction in prices was not passed on to the consumers. The Respondents claimed to have passed on the benefits through various means such as higher price reduction on certain SKUs, extra quantity, and post-supply price reductions. However, the DGAP found that these methods did not comply with Section 171(1), which mandates passing on the benefit by way of commensurate reduction in prices. The Respondents' contention that they faced increased costs and other business considerations was dismissed as they failed to provide sufficient evidence. The Authority concluded that the Respondents did not pass on the benefit of tax reduction as required by law.

2. Calculation of the profiteered amount as per Section 171(2) of the CGST Act, 2017:

The DGAP calculated the profiteered amount by comparing the average base prices of the products sold during the pre-rate reduction period (01.11.2017 to 14.11.2017) with the actual base prices post-rate reduction (15.11.2017 to 30.09.2018). The total profiteered amount was determined to be ?2,41,51,14,485/-, which included excess GST collected from consumers. The Respondents' objections to the methodology used, such as comparing average prices and considering post-supply discounts, were rejected. The Authority found the DGAP's methodology appropriate, logical, and in line with Section 171 of the CGST Act. The Respondents' claims of passing on benefits through increased grammage, promotional schemes, and post-supply discounts were also dismissed as they did not meet the legal requirements for passing on the benefit of tax reduction.

3. Imposition of penalties under Section 171(3A) of the CGST Act, 2017:

The Authority noted that Section 171(3A), which prescribes penalties for profiteering, was inserted into the CGST Act effective from 01.01.2020. Since the period of investigation (15.11.2017 to 30.09.2018) predates this amendment, the Authority concluded that penalties under Section 171(3A) could not be imposed retrospectively. Therefore, no notice for the imposition of penalties was issued to the Respondents.

Conclusion:

The Authority directed the Respondents to reduce the prices of all impacted SKUs commensurately and deposit 50% of the profiteered amount in the Central Consumer Welfare Fund and the remaining 50% in the Consumer Welfare Funds of the respective States/UTs. The total amount to be deposited was ?2,41,51,14,485/- along with 18% interest from the date of realization till the date of deposit. The DGAP was also instructed to conduct further investigations to determine if the benefit of tax reduction was passed on post-30.09.2018 and to compute the profiteered amount on the stock lying with the Respondents and their distributors/retailers as of 15.11.2017.