GST RATE CUT BENEFIT NOT PASSED IS A ANTI-PROFITEERING STANCE

[Dr. Sanjiv Agarwal]

The National Anti-profiteering Authority (NAA) is one of its recent order dated 07.09.2018 in Pawan Sharma C/o Kalptaru Departmental & General Stores and Director General of Anti-profiteering v. Sharma Trading Company [(2018) 9 TMI 625 (NAA)] has upheld the charge of anti-profiteering where the supplier did not pass on the benefit of GST rate cut to the customer. It also ordered that a monetary penalty of ₹ 10,000 or actual amount of tax not reduced whichever is higher, be imposed.

In the instant case, there was a complaint that the benefit of reduction in the rate of tax has not been passed by lowering the price of product, ‘Vaseline VTM 400 ml’, when the rate of GST was reduced from 28% to 18% on such product w.e.f. 15.11.2017.

The application was examined by the Standing Committee on Anti-Profiteering and was referred to Directorate General of Anti Profiteering (DGAP) for detailed investigation. After the investigation, the DGAP concluded that the quantum of benefit was not passed to the departmental store by the supplier on November 15, 2017, following reduction of GST rate to 18% from 28%. Sharma Trading Company, the distributor and stockist of Hindustan Unilever (HUL), had contended that it has purchased from HUL the product on which GST was levied at 28% and sold the same to the departmental store. It also contended that profit was made by HUL and not Sharma Trading.

The Authority noted that “It is clear from the facts of the present case that the Respondent was fully aware of the Notification dated 14.11.2017 whereby the rate of GST was reduced on the above product from 28% to 18%. It was also fully aware of the provisions of Section 171 of the above Act whereby it was bound to pass on the benefit of reduction in the rate of tax by the commensurate reduction in the price of the above product.

The contention that no profiteering was involved on the part of respondent on the contention in the present case as the Applicant had returned the product on 15.12.2017 which was sold to him on 15.11.2017 and a credit note had been issued in his favour by the Respondent and hence the above transaction was null and void was not correct as Section 171 of CGST Act, 2017 required that the benefit of tax reduction should be passed on at the time of supply of the goods and services and any future event related to that supply would not render the transaction of original supply infructuous. Further, the claim made by the Respondent that the benefit of GST rate reduction had been passed on by increasing the quantity of Vaseline from 300 ml. to 400 ml. without any increase in the MRP was not tenable as the Respondent was not competent to either increase the quantity of the product or to reduce the MRP w.e.f. 15.11.2017 as it was not in his stock and on which full Input Tax Credit (ITC) of 28% had been availed by him.

However, the Respondent has deliberately acted in defiance of the above law and hence he is guilty of the conduct which is contumacious and dishonest. It has further acted in conscious disregard of the obligation which was cast upon him by the law, by issuing incorrect invoices in which the base price was deliberately enhanced exactly equal to the amount of reduced tax and thus it had denied the benefit of reduction in the rate of tax granted.

NAA order dictate Reduce sale price with immediate effect Pass the rate deduction benefit to customers Pay penalty of ₹ 10000 or tax involved, whichever is higher

While confirming the imposition of the penalty, the NAA directed the respondent to reduce the sale price of the product immediately commensurate to the reduction in the rate of tax as was notified on 14.11.2017 and pass on the benefit of reduction in the rate of the tax to his customers. It was further held that the supplier is liable to pay a penalty of ₹ 10,000 or an amount equivalent to the tax evaded or the tax not reduced under section 31 or short-deducted or deducted but not paid to the government, whichever is higher.