2023 (12) TMI 229 - CCI - GST

Profiteering - Respondent had not passed on the benefit of reduction in the GST rate - non-reduction of selling price commensurately - contravention of provisions of section 171 of CGST Act - HELD THAT - The profiteered amount is determined as Rs. 6,58,523/- as has been computed in Annexure-1 2 of the DGAP's Report dated 29.01.2021. Accordingly, the Respondent is directed to reduce his prices commensurately in terms of Rule 133 (3) (a) of the above Rules. Further, since the recipients of the benefit, as determined above are not identifiable, Respondent is directed to deposit an amount of Rs. 6,58,523/- in two equal parts of Rs. 3,29,261.50/- each in the Central Consumer Welfare Fund and the Uttar Pradesh State Consumer Welfare Fund as per the provisions of Section 171 read with Rule 133 (3) (c) of the CGST Rules 2017, along with interest payable @ 18% to be calculated from the dates on which the above amount was realized by the Respondent from his recipients till the date of its deposit. The above amount of Rs. 6,58,523/- shall be deposited, as specified above, within a period of 3 months from the date of passing of this order failing which it shall be recovered by the concerned CGST/SGST Commissioner. Penalty - HELD THAT - The Respondent has denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus committed an offense under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty under the provisions of the above Section. However, since the provisions of Section 171 (3A) have come into force w.e.f. 01.01.2020 whereas the period during which the violation occurred is w.e.f. 01.07.2017 to 30.06.2019, hence the penalty prescribed under the above Section cannot be imposed on Respondent No. 1 retrospectively. Accordingly, Show Cause Notice directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him is not required to be issued.

Issues Involved:
1. Exclusion of sales data on World Sandwich Day (WSD).
2. Alleged non-passing of GST rate reduction benefit.
3. Calculation methodology for profiteering.
4. Period of investigation.
5. Inclusion of additional GST in profiteered amount.
6. Consideration of increased business expenses.
7. Impact of discounts and price reductions.
8. Jurisdiction and limitation of proceedings.
9. Penalty imposition.

Summary:

1. Exclusion of sales data on World Sandwich Day (WSD):
The DGAP excluded the sales data of WSD on 03.11.2017, considering it an outlier. However, the NAA found this exclusion improper as similar sales data were included in other franchisee cases. The DGAP was directed to reinvestigate and include WSD data in the calculation.

2. Alleged non-passing of GST rate reduction benefit:
The Respondent was accused of not passing the benefit of GST rate reduction from 18% to 5% effective 15.11.2017. The DGAP found that the Respondent increased base prices of products more than the commensurate reduction required, leading to profiteering.

3. Calculation methodology for profiteering:
The DGAP used the average base prices from 01.11.2017 to 14.11.2017 to calculate profiteering. The Respondent contended this method was flawed due to the inclusion of discounted prices. The NAA upheld the DGAP's methodology, finding it reasonable and justifiable.

4. Period of investigation:
The Respondent argued that the profiteering calculation should be limited to the next price revision post-GST rate reduction. The NAA clarified that the investigation period from 15.11.2017 to 30.06.2019 was appropriate and not violative of Article 19 (1) (g) of the Constitution.

5. Inclusion of additional GST in profiteered amount:
The Respondent contended that the 5% additional GST amount should be removed from the profiteered amount. The NAA found this inclusion correct as the customer bore the increased base price and excess GST. The Respondent was advised to claim the excess tax paid from the jurisdictional Commissionerate.

6. Consideration of increased business expenses:
The Respondent argued that increased royalty and advertisement expenses should be considered in the base price calculation. The NAA rejected this, stating these costs were part of the business process and could not offset the tax relief provided by the government.

7. Impact of discounts and price reductions:
The Respondent claimed that discounts offered and lower prices charged to some customers should reduce the profiteered amount. The NAA found that each customer is entitled to the full benefit of tax reduction, and benefits passed to one set of customers cannot offset increased prices for others.

8. Jurisdiction and limitation of proceedings:
The Respondent argued that the proceedings were without jurisdiction and barred by limitation. The NAA clarified that the investigation was initiated within the prescribed period, and the procedure followed was appropriate.

9. Penalty imposition:
The NAA found the Respondent liable for profiteering but did not impose a penalty under Section 171 (3A) as the violation period was before the section came into force on 01.01.2020.

Conclusion:
The NAA directed the Respondent to deposit Rs. 6,58,523/- in the Consumer Welfare Funds of the Central and Uttar Pradesh State Governments within three months, along with interest. The Commissioners of CGST/SGST were instructed to ensure compliance and submit a report within four months.

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