2022 (5) TMI 737 - NAPA - GST

Profiteering - supply of ECLAT SERUM - allegation is that Respondent had not passed on the benefit of reduction in the GST rate by the way of commensurate reduction in prices - violation of section 171(1) of CGST Act - HELD THAT - It is also observed from the record that the Respondent is engaged in selling of medicines from his retail stores having GSTIN 27BDVPM0061N1ZZ. It is also revealed from the plain reading of Section 171 (1) supra 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% w.e.f. 15.11.2017, on the subject goods being supplied by the Respondent, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017. Therefore, the Respondent is liable to pass on the benefit of 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. 15.11.2017 to 30.09.2019 - it is evident that, the Respondent did not reduce the selling price of the products mentioned above when the GST rate was reduced from 28% to 18% w.e.f. 15.11.2017 and hence, the benefit of reduction in GST rate was not passed on to the recipients by way of commensurate reduction in the prices, in terms of Section 171 of the CGST Act, 2017 and therefore, he has contravened the provisions of Section 171 of the CGST Act, 2017. It is established that the Respondent has acted in contravention of the provisions of Section 171 of the CGST Act, 2017, and has not passed on the benefit of reduction in the rate of tax to his recipients by commensurate reduction in the prices. Accordingly, the profiteered amount is determined as Rs. 1,54,138/- as per the provisions of Rule 133 (1) of the CGST Rules 2017. The Respondent is therefore directed to reduce the prices of his products as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. Penalty - HELD THAT - It is clear 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 30.09.2019 and the Respondent has also deposited the profiteered amount alongwith the interest, therefore, no penalty is proposed to be imposed on the Respondent. Application disposed off.

Summary

Issues Involved:
1. Whether the Respondent was required to pass on and has passed on the commensurate benefit of reduction in the rate of tax to his customers.
2. Whether there was any violation of the provisions of Section 171 (1) of the CGST Act, 2017 in this case.

Detailed Analysis:

Issue 1: Whether the Respondent was required to pass on and has passed on the commensurate benefit of reduction in the rate of tax to his customers.

The investigation by the Director General of Anti-Profiteering (DGAP) revealed that the GST rate on "Eclat Serum" was reduced from 28% to 18% effective from 15.11.2017. The Respondent was required to pass on this benefit to customers by reducing prices accordingly. However, the DGAP found that the Respondent did not reduce the selling price commensurately. Instead, the Respondent increased the base prices of the product, thereby not passing the benefit of reduced GST rates to the recipients.

The methodology for determining profiteering involved comparing the average base prices before and after the GST rate reduction. For instance, the average base price of "Eclat Serum 30GM" before the rate reduction was Rs. 898.32, and the commensurate selling price post-reduction should have been Rs. 1060. However, the actual selling price was Rs. 1260, indicating profiteering of Rs. 200 per unit. The total profiteering amount was calculated to be Rs. 1,54,138/-, which included Rs. 1000/- from the Applicant No. 1.

Issue 2: Whether there was any violation of the provisions of Section 171 (1) of the CGST Act, 2017 in this case.

Section 171 (1) of the CGST Act mandates that any reduction in the rate of tax on any supply of goods or services must be passed on to the recipient by way of commensurate reduction in prices. The DGAP's investigation confirmed that the Respondent did not comply with this provision. The Respondent's failure to reduce prices despite the reduction in GST rate constituted a violation of Section 171 (1).

The Respondent's argument that the rate reduction benefit was not passed on by his supplier was noted, and the DGAP was directed to investigate the entire supply chain to verify this claim. The Respondent agreed to pay the profiteered amount as computed by the DGAP and issued Demand Drafts for the amount, which were verified and confirmed by the DGAP.

Conclusion:

The Respondent was found to have contravened the provisions of Section 171 (1) of the CGST Act, 2017 by not passing on the benefit of reduced GST rates to the recipients. The total profiteered amount was determined to be Rs. 1,54,138/-, which the Respondent was directed to deposit along with interest. The DGAP confirmed that the Respondent had deposited the entire profiteered amount along with interest in the respective Consumer Welfare Funds. No penalty was imposed as the profiteered amount was deposited within the stipulated time frame. The DGAP was also directed to investigate the Respondent's supplier to ensure the benefit of the reduced GST rate was passed through the entire supply chain.