2022 (5) TMI 691 - NAPA - GST

Anti-profiteering - failure to pass the benefit of ITC - supply of 04 goods - Anutone Serge Astral Lay-in Aluminium Unperforated Aquila 595 595 0.6mm - Anutone Serge Astral Lay-in Aluminium Unperforated Aquila 1200 1200 0.6mm - Anutone Serge Astral Lay-in Aluminium Perforated Mensa (2.5 mm dia) 595 595 0.6mm - Anutone Serge Astral Lay-in Aluminium Perforated Mensa (2.5 mm dia) mm - Respondent had not reduced the basic price of the said goods commensurate with the ITC of IGST paid at the time of import available with the introduction of GST w.e.f. 01.07.2017 - any benefit of ITC to the Respondent after implementation of GST w.e.f. 01.07.2017 or not - contravention of section 171 of GST Act - HELD THAT - This Authority finds that Section 171 of the CGST Act 2017 mandates that the supplier should pass on the benefit of reduction in rate of tax or the benefit of ITC availed by the supplier to the recipients by way of commensurate reduction in prices. The investigation by the DGAP was conducted under the provisions of Section 171 of the Act read with Rule 129 of the CGST Rules 2017 on the recommendation of the Standing Committee on Anti-Profiteering and the Investigation Report was submitted to this Authority under Rule 129(6) of the Rules in terms of the mandate of law. Therefore this Authority finds that there has been no violation of the principles of natural justice and the Notice issued by the DGAP under Rule 129(3) of the Rules is perfectly legal and maintainable and hence there is no merit in this submission of the Respondent. This Authority has examined the sequence of events and the documents placed on record. This Authority finds that the supply of goods by the Respondent to the Applicant no. 1 was made as per the order placed during February 2017 on the prices agreed as per the offer of the Respondent given during November 2016. In such offer and quote the amount of Additional Duty of Customs (referred as CVD) payable at the time of import and on which no ITC was then available was necessarily factored into the prices. As per the mandate of Section 171 of the CGST Act 2017 if the benefit of ITC which was not available earlier was made available to the Respondent in the post GST period it was incumbent on the Respondent to pass on such benefit to the Applicant no. 1 by commensurate reduction in price. This Authority finds that while arriving at profiteering in terms of Section 171 of the CGST Act 2017 the DGAP has correctly examined as to whether the Respondent had benefited by any additional amount of ITC and if so the quantum thereof and whether the Respondent had passed on the said benefit to the Applicant No. 1 by commensurate reduction in prices. The Authority also finds that Section 171 of the CGST Act 2017 itself defines the term profiteered which means the amount determined on account of not passing on the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both - This Authority holds that the DGAP has correctly calculated as mandated by the law the amount profiteered by the Respondent in this case. This Authority is obligated by Section 171 of the CGST Act 2017 to ensure that the benefit of the reduction in the rate of tax and/ or benefit of ITC is passed on to the recipients by the suppliers. This Authority finds as per the discussion and findings that in this case such benefit has not been passed on by the Respondent to the Applicant No. 1 by way of commensurate reduction in the price. Therefore the submission made by the Respondent has no basis in law. This Authority also finds that such discounts were offered to increase the sales of the Respondent in the normal course of their business which do not constitute passing on of the benefit which accrued to the Respondent on account of availability of ITC of IGST paid at the time of import during the GST period. The Respondent is legally bound to pass on the above benefit through commensurate reduction in prices. Hence the Authority holds this contention of the Respondent devoid of any merit. This Authority finds that the Respondent has profiteered by an amount of Rs. 12, 79, 304/- during the period of investigation i.e. 01.07.2017 to 30.09.2019. The above amount of Rs.12, 79, 304/- (including 18% GST) that has been profiteered by the Respondent from Applicant No. 1 shall be refunded by him alongwith interest @18% thereon from the date when the above amount was profiteered by him till the date of such refund in accordance with the provisions of Rule 133 (3) (b) of the GCST Rules 2017 - this Order having been passed today falls within the limitation prescribed under Rule 133(1) of the CGST Rules 2017.

Summary

Issues Involved:

1. Whether there was any benefit of Input Tax Credit (ITC) to the Respondent after the implementation of GST.
2. Whether the benefit of such ITC had been passed on by the Respondent to his recipients, in terms of Section 171 of the CGST Act, 2017.
3. Whether the investigation by the Director General of Anti-Profiteering (DGAP) met the mandate under Rule 129(3) of the CGST Rules, 2017.
4. Whether the Respondent's claim of increased raw material costs justified the non-reduction of base prices.
5. Whether the methodology adopted by the DGAP for calculating profiteering was appropriate.
6. Whether any penalty could be imposed on the Respondent under Section 171(3A) of the CGST Act.

Detailed Analysis:

1. Benefit of ITC to the Respondent:
The DGAP's investigation revealed that the Respondent was entitled to avail ITC of IGST paid at the time of import of goods post-GST implementation, which reduced the tax incidence on imports. However, the Respondent did not reduce the basic price of the goods commensurate with the ITC of IGST paid at the time of import available with the introduction of GST w.e.f. 01.07.2017. This led to the conclusion that the Respondent had benefited from ITC but did not pass this benefit to the recipients.

2. Passing on the Benefit of ITC:
Section 171(1) of the CGST Act, 2017, mandates that any benefit of ITC must be passed on to the recipients by way of commensurate reduction in prices. The investigation determined that the Respondent did not reduce the base prices of the goods supplied to the Applicant No. 1, despite the availability of ITC on IGST. Therefore, the Respondent contravened the provisions of Section 171(1).

3. Investigation by DGAP:
The Respondent contended that the Notice issued by the DGAP was defective and did not meet the mandate under Rule 129(3) of the CGST Rules, 2017. However, the Authority found that the description of goods was mentioned as 'false ceiling materials' in the Notice of Investigation, and the exact detailed description was found during the investigation. The investigation was conducted as per the mandate of law, and there was no violation of principles of natural justice.

4. Increased Raw Material Costs:
The Respondent argued that the increased cost of raw materials justified the non-reduction of base prices. However, the Authority found that the base prices quoted in the pre-GST period included the incidence of Additional Duty of Customs (CVD), which was not payable post-GST. The benefit of ITC of IGST paid at the time of import should have been passed on to the Applicant No. 1 by reducing the base prices. The Respondent's argument was not accepted as it did not comply with the mandate of Section 171.

5. Methodology for Calculating Profiteering:
The Respondent claimed that neither the CGST Act nor the CGST Rules provided the methodology for calculating profiteering. The Authority held that Section 171 itself provides the procedure and methodology for passing on the benefit by way of commensurate reduction in prices. The DGAP's calculation of the profiteered amount was based on the information supplied by the Respondent and was found to be correct.

6. Imposition of Penalty:
The Respondent argued that no penalty should be imposed as Section 171(3A) of the CGST Act could not be applied retrospectively. The Authority agreed that since the penalty provisions under Section 171(3A) came into force w.e.f. 01.01.2020, they could not be imposed for violations that occurred between 01.07.2017 to 30.09.2019.

Conclusion:
The Respondent was found to have profiteered by an amount of Rs. 12,79,304/- during the period of investigation (01.07.2017 to 30.09.2019). The Respondent was directed to refund this amount to Applicant No. 1 along with interest @18% from the date of profiteering till the date of refund. The jurisdictional Commissioners of CGST/SGST, State of Karnataka, were directed to monitor the compliance of this order.