2021 (1) TMI 174 - NAPA - GST

Profiteering - supplies of Snacks (HSN Code 21069099) - allegation that the benefit of GST rate reduction to his recipients not passed on by way of commensurate reduction in price - contravention of section 171 of CGST Act - penalty - HELD THAT - It has been revealed that the Respondent has wrongly charged GST @ 5% on his unregistered brand Dev Snacks HSN Code 21069099 from his buyers w.e.f. 27.11.2017 to 31.12.2017 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) of the CGST Act, 2017, it is clear that the violation of the provisions of Section 171 (1) is not covered under Section 122 (1) (i) of the CGST Act, 2017 as it does not provide penalty for not passing on the benefits of tax reduction and ITC and hence the penalty prescribed under Section 122 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. 27.11.2017 to 31.12.2017 when the Respondent had violated the provisions of Section 171 (1), the penalty prescribed under Section 171 (3A) can not be imposed on the Respondent retrospectively. Accordingly, the notice dated 11.03.2019 issued to the Respondent for imposition of penalty under Section 122 (1) (i) is hereby withdrawn and the present penalty proceedings launched against him are accordingly dropped.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. Violation of Section 171 (1) of the CGST Act, 2017 by not passing on GST rate reduction benefits to recipients.
2. Determination of profiteered amount.
3. Alleged offense under Section 122 (1) (i) of the CGST Act, 2017.
4. Imposition of penalty under Section 122 read with Rule 133 (3) (d).
5. Invocation of penal provisions under Section 122 and Rule 133 (3) (d) of the CGST Rules, 2017.
6. Incorrect charging of GST on unregistered brand "Dev Snacks" HSN Code 21069099.
7. Applicability of penalty for violation of Section 171 (1) of the CGST Act, 2017.
8. Retroactive imposition of penalty under Section 171 (3A) of the Finance Act, 2019.

Detailed Analysis:
1. The case involved a violation of Section 171 (1) of the CGST Act, 2017, where the Respondent failed to pass on the benefit of GST rate reduction to recipients for supplies of Snacks. The DGAP's report highlighted the profiteering amount of ?12,76,306 from 27.11.2017 to 31.12.2017, leading to a violation of Section 171 (1).

2. After issuing a notice to the Respondent and hearing both parties, the Authority determined the profiteered amount as ?12,76,306, in accordance with Section 171 (2) of the CGST Act, 2017 and Rule 133 (1) of the CGST Rules, 2017 for the specified period.

3. The Authority found that the Respondent not only collected extra amounts from consumers but also compelled them to pay more GST, potentially constituting an offense under Section 122 (1) (i) of the CGST Act, 2017, warranting the imposition of penalties.

4. Subsequently, a notice was issued to the Respondent to explain why penalties under Section 122 read with Rule 133 (3) (d) should not be imposed, considering the alleged violations.

5. The Respondent argued against the imposition of penalties, citing no malafide intention and errors due to incorrect interpretation of exemption notifications, requesting leniency in penalty imposition and further proceedings.

6. Upon reviewing the submissions and evidence, it was established that the Respondent incorrectly charged GST on an unregistered brand, leading to a violation of Section 171 (1) of the CGST Act, 2017.

7. The Authority noted that while penalties were not prescribed for violations of Section 171 (1) initially, the Respondent was issued a show-cause notice for potential penalties under Section 122 (1) (i). However, it was clarified that Section 122 did not cover penalties for failing to pass on tax reduction benefits, thus penalties under Section 122 could not be imposed for anti-profiteering violations under Section 171.

8. The judgment highlighted the introduction of specific penalty provisions under Section 171 (3A) of the Finance Act, 2019, effective from 01.01.2020, indicating that retrospective penalties could not be applied for violations occurring before the enactment of these provisions. Consequently, the penalty proceedings against the Respondent were withdrawn and dropped.