2021 (1) TMI 128 - NAPA - GST

Profiteering - supply of Gamier Nat Shade 3 - allegation that the benefit of reduction in the rate of tax has not been passed on - violation of the provisions of Section 171 (1) of CGST Act - Penalty - HELD THAT - It has been revealed that the Respondent had not passed on the benefit of reduction in the rate of tax to the customers by way of commensurate reduction in the price of the product Gamier Nat Shade 3 during the period from 15.11.2017 to 31.03.2018 and hence, the Respondent has violated the provisions of Section 171 (1) of the CGST Act, 2017. 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 invoices while charging excess consideration and GST from the buyers. However, 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 benefit of rate reduction and hence the above penalty cannot be imposed for violation of the anti-profiteering provisions made under Section 171 of the Act. Since, no penalty provisions were in existence between the period from 15.11.2017 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. Accordingly, the notice dated 28.03.2019 issued to the Respondent for imposition of penalty under Section 122 (1) (i) is hereby withdrawn and the present penalty proceedings launched against him are accordingly dropped.

Summary

Issues:
1. Failure to pass on the benefit of tax rate reduction to customers.
2. Determination of profiteered amount.
3. Violation of Section 171 (1) of the CGST Act, 2017.
4. Imposition of penalty under Section 122 (1) (i) of the CGST Act, 2017.
5. Applicability of penalty provisions under Section 171 (3A) of the Finance Act, 2019.

Detailed Analysis:
1. The case involved an investigation by the DGAP, revealing that the Respondent did not pass on the benefit of tax rate reduction to customers for the product "Gamier Nat Shade 3" from 15.11.2017 to 31.03.2018, violating Section 171 (1) of the CGST Act, 2017. The profiteered amount was determined at ?3,43,109, leading to the Respondent's liability for profiteering and violation of statutory provisions.

2. The Anti-Profiteering Authority issued a notice to the Respondent after considering the DGAP's report, and after due hearings, determined the profiteered amount as per Section 171 (2) of the CGST Act, 2017. The Respondent was found in violation of Section 171 (1) for not passing on the rate reduction benefits to customers during the specified period.

3. It was established that the Respondent's actions amounted to an offense under Section 122 (1) (i) of the CGST Act, 2017, as he failed to pass on the benefit of rate reduction to customers, leading to the imposition of a penalty under the relevant provisions. The Respondent was issued a notice to explain why the penalty should not be imposed, but failed to provide written submissions.

4. However, it was noted that no penalty had been prescribed for the violation of Section 171 (1) of the CGST Act, 2017. The Authority highlighted that Section 122 (1) (i) did not cover the offense of not passing on rate reduction benefits, and therefore, the penalty under this section could not be imposed for violations related to anti-profiteering provisions under Section 171.

5. Subsequently, it was revealed that specific penalty provisions under Section 171 (3A) of the Finance Act, 2019, were introduced effective from 01.01.2020 for violations of Section 171 (1). As the Respondent's violation occurred prior to this provision, the penalty prescribed under Section 171 (3A) could not be imposed retrospectively. Therefore, the penalty proceedings initiated against the Respondent were withdrawn, and the notice for penalty imposition under Section 122 (1) (i) was dropped.

In conclusion, the Anti-Profiteering Authority's decision emphasized the importance of passing on tax rate reductions to customers, clarified the absence of penalty provisions for certain violations during the specified period, and highlighted the limitations on retrospective penalty imposition under subsequent legal amendments.