2022 (10) TMI 312 - HC - GST

Anti-Profiteering provisions - Constitutional Validity of Section 171 of the CGST Act, Chapter XV of the CGST Rules, more particularly, Rules 126, 127 133 of the CGST Rules - vires and violative of Articles 14, 19(1)(g), 265 300A of the Constitution of India or not - HELD THAT - This Court is of the prima facie view that Section 171 is not a charging or a taxing provision. On the contrary, it is an incidental provision in the CGST/SGST Acts, for the purpose of ensuring that the object of these Acts, namely, eliminating the cascading effect of taxation on the consumer is achieved and any benefit of rate reduction of taxes or input tax credit benefit is passed on to the recipient without the middleman taking advantage of the Governments forgoing their taxes for the end consumer. In that sense, this provision is in the nature of a consumer welfare provision. Further, Section 171 of the CGST Act, 2017 casts an obligation of every supplier of goods and services/registered person to pass on the benefit of rate reduction of GST or the benefit of ITC on every supply and not on some supplies. Consequently, prima facie, a supplier cannot claim that he has passed on more benefit to one customer therefore he could pass less or no benefit to another customer than the benefit which is actually due to that customer - This Court is also of the prima facie view that the post-sale discount has not been granted on account of GST rate reduction and therefore, does not qualify as commensurate reduction in prices as required under Section 171 of the Act. Keeping in view the aforesaid as well as the orders passed by this Court in M/S. SAMSONITE SOUTH ASIA PVT. LTD. VERSUS UNION OF INDIA ORS. 2020 (10) TMI 1031 - DELHI HIGH COURT , this Court directs the petitioner to deposit the principal profiteered amount after deducting the GST imposed on the net profiteered amount (which has already been deposited by the petitioner with the Department) in six equated instalments commencing 10th October, 2022. The interest amount directed to be paid by the respondents as well as the penalty proceedings and further investigation by NAA in respect of other products sold by the petitioner are stayed till further orders. Application disposed off.

Issues Involved:
1. Constitutionality of Section 171 of the CGST Act and related rules.
2. Validity of NAA's suo moto powers.
3. Netting off benefits of rate reduction.
4. Post-sale discounts as commensurate reduction.
5. Impact of customs duty increase on profiteering.
6. Calculation and deposition of profiteered amount.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 171 of the CGST Act and Related Rules:
The petitioner challenged the constitutionality of Section 171 of the CGST Act and specific rules under Chapter XV of the CGST Rules, alleging they are unconstitutional, ultra vires, and violative of Articles 14, 19(1)(g), 265, and 300A of the Constitution of India. The court, however, viewed Section 171 as an incidental provision aimed at ensuring the benefits of tax rate reduction or input tax credit are passed on to consumers, aligning with the consumer welfare objective of the CGST/SGST Acts.

2. Validity of NAA's Suo Moto Powers:
The petitioner argued that the National Anti-Profiteering Authority (NAA) lacks suo moto powers to initiate proceedings. In contrast, the respondent contended that Section 171 confers broad powers on the NAA to examine any supply of goods or services for profiteering. The court noted that Rule 128 permits 'a commissioner or any other person' to make a written application, and prima facie, the Secretary, NAA, qualifies to make such an application. The court referenced previous cases where the issue of suo moto powers was raised but upheld the NAA's actions.

3. Netting Off Benefits of Rate Reduction:
The petitioner contended that the NAA should consider the netting of benefits extended in some products against those not extended. The respondent argued that Section 171 mandates passing on the benefit of tax reduction on every supply, not selectively. The court agreed with the respondent, stating that a supplier cannot offset benefits passed to one customer against another and must pass on the benefit on each supply.

4. Post-Sale Discounts as Commensurate Reduction:
The petitioner claimed that post-sale discounts should be considered a commensurate reduction in prices. The respondent countered that the petitioner was required to pass on the benefit by not increasing base prices and that post-sale discounts were irrelevant. The court held that post-sale discounts do not qualify as commensurate reduction under Section 171.

5. Impact of Customs Duty Increase on Profiteering:
The petitioner argued that increases in customs duty should be excluded from the profiteered amount. The respondent pointed out that the actual selling price per unit remained unchanged despite customs duty increases and that Section 171 does not allow for adjustments against increased costs. The court found the petitioner's evidence inadequate and unreliable, noting that any purported increase in customs duty could not be examined at this stage.

6. Calculation and Deposition of Profiteered Amount:
The court directed the petitioner to deposit the principal profiteered amount, deducting the GST already deposited, in six equated installments. The interest amount and penalty proceedings were stayed until further orders. The court emphasized that these views were prima facie and would not prejudice the final hearing.

The court also directed the parties to complete pleadings before the next hearing date and listed the matter for further hearing on 19th October 2022.

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