2024 (9) TMI 376 - CCI - GST

Profiteering - supply of the goods Eclat Serum 30gm (HSN 33049910) - reduction in the rate of GST from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 - failure to reduce the prices commensurately, in terms of Section 171 of the CGST Act, 2017 - Penalty. Whether there was any reduction in the GST rate and whether the benefit of rate reduction was passed on or not to the recipients as provided under Section 171 of the CGST Act, 2017? HELD THAT - The Commission finds that the Respondent having GSTIN 24AFKPG7000FIZZ is engaged in selling of medicines. It is also revealed that there has been a reduction in the rate of tax from 28% to 18% w.e.f. 15.11.2017, on the impugned 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 31.07.2023, however, the same was restricted to 08.07.2019 as he had discontinued the product Eclat Serum 30gm in 2019 and there was no sale of the product after 08.07.2019. However, 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. Accordingly, the profiteered amount is determined as Rs. 2,06,100/- as per the provisions of Rule 133 (1) of the CGST Rules 2017 - the Respondent is required to pass on the profiteered amount of Rs. 2,06,100/- along with the interest to be calculated @ 18% from the date when the above amount was collected by him from the recipients till the above amount is passed on/paid in terms of Rule 133 (3) (b) of the CGST Rules, 2017. The Respondent has denied benefit of rate reduction to his customers/recipients in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act. However, perusal of the provisions of Section 171 (3A), under which liability for penalty arises for the above violation, shows that it has been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019 and it was not in operation during the period from 15.11.2017 to 08.07.2019 when the Respondent had committed the above violation and hence, the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively for the said period.

Issues involved:
1. Reduction in GST rate from 28% to 18%.
2. Non-passing of GST rate reduction benefit to recipients.
3. Investigation and determination of profiteering.
4. Computation and recovery of profiteered amount.
5. Imposition of penalty under Section 171 (3A) of the CGST Act, 2017.

Issue-wise Detailed Analysis:

1. Reduction in GST rate from 28% to 18%:
The Central Government, on the recommendation of the GST Council, reduced the GST rate on "Eclat Serum 30gm" from 28% to 18% effective from 15.11.2017, as per Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017. The Commission confirmed this reduction in the rate of tax.

2. Non-passing of GST rate reduction benefit to recipients:
The investigation revealed that the Respondent did not reduce the selling price of the products when the GST rate was reduced from 28% to 18%. Instead, the Respondent increased the base prices of the goods, thereby not passing on the benefit of the GST rate reduction to the recipients. This was in contravention of Section 171 of the CGST Act, 2017, which mandates that any reduction in the tax rate on any supply of goods or services must be passed on to the recipient by way of commensurate reduction in prices.

3. Investigation and determination of profiteering:
The Director General of Anti-Profiteering (DGAP) conducted a detailed investigation and submitted multiple reports. The DGAP examined the application, various replies of the Respondent, and documents/evidence on record. The investigation period was initially set from 15.11.2017 to 31.07.2023 but was restricted to 08.07.2019 as the Respondent had discontinued the product "Eclat Serum 30gm" in 2019. The DGAP found that the Respondent had increased the base prices of the goods when the GST rate was reduced, thus not passing on the commensurate benefit to the recipients.

4. Computation and recovery of profiteered amount:
The DGAP calculated the profiteered amount by comparing the average base price of the product before the GST rate reduction (01.11.2017 to 14.11.2017) with the actual selling price after the rate reduction (15.11.2017 to 08.07.2019). The total profiteered amount was determined to be Rs. 2,06,100/-. The Respondent agreed to pay this amount along with interest calculated at 18% from the date the amount was collected until it is paid to the recipients.

5. Imposition of penalty under Section 171 (3A) of the CGST Act, 2017:
The Commission noted that the Respondent had committed an offence under Section 171 (3A) of the CGST Act, 2017, which prescribes a penalty for not passing on the benefit of tax rate reduction. However, since this provision was inserted into the CGST Act effective from 01.01.2020, it could not be applied retrospectively for the period from 15.11.2017 to 08.07.2019. Therefore, the penalty under Section 171 (3A) was not imposed on the Respondent for the said period.

Additional Orders:
The Commission directed the jurisdictional Commissioners of CGST/SGST to monitor the payment of the profiteered amount to the recipients and submit a compliance report within four months. The DGAP was also instructed to provide guidance to the Respondent for the deposition of the profiteered amount along with applicable interest. A copy of the order was to be sent to all interested parties, and the case file was to be consigned after completion.

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