NO PROFITEERING WHEN ITC BENEFIT PASSED ON

[Dr. Sanjiv Agarwal]

In yet another complaint under section 171 of CGST Act, 2017 for anti-profiteering against an automobile dealer, charges could not be proved before National Anti-profiteering Authority (NAA). The NAA vide its Order dated 17.12.2018 in Shylesh Damodaran and DGAP, New Delhi v. Landmark Automobiles Pvt. Ltd.  (2018) 12 TMI 1002 (NAA)  has dismissed the compliant as not maintainable since it could not be proved that there was any violation of the provisions of section 171 of the CGST Act, 2017. It was observed that the Honda car dealer had not passed on the burden of the input tax to the complainant as it was eligible to claim input tax credit on the same. Thus the allegation that benefit of ITC was not given was not proved. It may be noted that this is the second complaint against a car dealer dealt with by the NAA, first being in the matter of Vrandavaneshwree Automotive Pvt. Ltd. which was also dismissed by the NAA in March, 2018, the first order of NAA.

Brief Facts

In the instant case, complainant had purchased a Honda city car for ₹ 9,54,234 vide invoice dated 14.10.2017 (in GST regime) on which GST @ 28% and Cess @ 17% was charged (total 45%). It was alleged that the benefit of Input Tax Credit (ITC) has not been passed by the automobile dealer.

The invoice details are as follows:

Post GST sale invoice dated 14.10.2017 issued to complainant

Post GST price	Amount (in Rs.)
Dealer's Price (excluding GST paid which is available as Input Tax Credit) (A)	6,41,471
Dealer Margin(B)	16,621
Total (C= A+B)	6,58,092
GST (D= 45% of C)	2,96, 141.4
Selling price (E= C+D)	9,54,233.4

 

DGAP Enquiry

The DGAP scrutinized the complaint but returned the same to the Standing Committee for reconsideration on the ground that no meaningful investigation could be conducted as no evidence had been furnished by the complainant. The Standing Committee had returned the application on 28.02.2018 to the DGAP stating that once the application had been recommended for investigation, it couldn't reconsider it's decision as it had become 'functus officio'.

The DGAP, therefore, re-examined the complaint and reported to the NAA that allegation of profiteering was without any basis and hence, no meaningful investigation could be initiated by him. However, NAA directed the DGAP to conduct fresh investigation in the case and submit a comprehensive and detailed report as no opportunity of being heard had been granted to the complainant by the DGAP.

The details were sought from the complainant as well as dealer. The dealer submitted the following documents for investigation:

1. Purchase invoice of the Car sold to the complainant.
2. Sale invoice of the Car sold to the complainant.
3. Sample sale and purchase invoices of the same model car as was sold to the complainant.
4. Price lists applicable pre-GST (as on 01.05.2017) and post-GST (as on 01.07.2017).
5. Worksheet showing details of the sale and purchase of 4 cars of similar model.

It was submitted by the dealer that the trade of selling cars was controlled by the manufacturers and the dealers were bound to follow the ex-show room prices fixed by the manufacturers. The margin of the dealers had decreased by about ₹ 7,000/- per car from the pre-GST regime while the sale price of the same car had reduced by ₹ 15,683/- [Rs. (Pre-GST price) - Rs. (Post-GST price)].

It also furnished the purchase and sale invoice wise details of the base price of the car sold by the dealer to the complainant which were applicable before and after coming in to force of the GST along with the applicable duties/taxes/cess.

It also received a discount of ₹ 4,500/- for achieving a pre-defined purchase and sale target for the pre-GST transactions and a trade discount of ₹ 9,000/- for the post-GST transactions.

The DGAP observed that the profit margin of the dealer had been reduced from ₹ 28,589/- which it was getting in the pre-GST era to ₹ 16,621/- in the post-GST era. Even after taking in to account the trade discounts of ₹ 4,500/- and ₹ 9,000/-, which the dealer had received for achieving pre-defined purchase and sale targets for the pre-GST and post-GST transactions respectively, the total post-GST profit margin of the dealer came to ₹ 25,621/- (Rs. 16,621/- + ₹ 9,000/-), which was less than the total pre-GST profit margin of ₹ 33,089/- (Rs. 28,589/- + ₹ 4,500/-). The reduced profit margin of the dealer was also evident from the fact that the dealer's post-GST purchase price was ₹ 6,906.05 less than the pre-GST purchase price [Rs. (-) ₹ 9,30,132.95/-]. Further,  the post-GST sale price was ₹ 15,683.50/- less than the pre-GST sale price [Rs. 9,69,916.90/- (-) ₹ 9,54,233.40/-] and therefore, the allegation of profiteering made by the complainant was not established. The landed price charged by the dealer in the post-GST sale invoice dated 14.10.2017 was ₹ 1,73,346 less than the landed price in the pre-GST sale invoice dated 28.04.2017 (Rs. (-) ₹ 6,41,471/-) due to the reason that in the pre-GST period, the credit of Excise Duty, National Contingent Calamity Duty (NCCD), and Cesses etc. was not available to the dealer as only credit of VAT was admissible while in the post-GST period, the dealer was entitled to claim the ITC of the entire GST paid @ 45%. It was also observed that in case the post-GST purchase invoice dated 29.09.2017 and sale invoice dated 14.10.2017 issued by the dealer were compared, it would be clear that the dealer had not passed on the burden of the input GST paid @ 45% amounting to ₹ 288661 to the complainant as he was eligible to claim ITC of the said amount. There was increase in the ITC available to the dealer in the post-GST era as compared to the pre-GST era and the pre-GST and post-GST sale invoices issued by the dealer revealed that the base price charged from the complainant was reduced as the benefit of ITC had been passed on by the dealer to the complainant. Therefore, the allegation that complainant had not been given the benefit of ITC by the dealer was not proved.

NAA Findings

The NAA decided to accord opportunity of hearing to the complainant only as there was 'nil' profiteering established in the instant case by the DGAP, but it was not availed.

The NAA considered all submissions and DGAP report to decide on:

1. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 in the instant case?

2. If yes, then what was the quantum of profiteering?

It was observed that  it is clear from the plain reading of Section 171 (1) that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second pertaining to the passing on the benefit of the ITC. On the issue of reduction in the tax rates, it was clear from the DGAP's investigation report that there was no reduction in the tax rate in this case hence, the allegation of profiteering by the dealer on account of change in tax rate is not sustainable. Infact, the total profit margin including discount was less than the pre-GST profit. Post GST sale price was also less by ₹ 15683 than the pre GST price. Comparing the pre-GST and post GST invoices, it was evident that the dealer had not passed on the burden of the input GST paid @ 45% amounting to ₹ 2,88,661/- to the complainant due to the reason that he was eligible to claim ITC on this amount. It is also clear that there was increase in the ITC which the dealer could avail in the post-GST era as compared to the pre-GST era and the pre-GST and post-GST sale invoices issued by the dealer revealed that the base price charged from the complainant had been reduced as the benefit of ITC was passed on by the dealer to the complainant. Therefore, the allegation that the complainant had not been given the benefit of ITC by the dealer was not proved. The petition was therefore, dismissed as non-maintainable.  

End Note

The number of complaints which are not proved are on a rise. It is high time that the GST Council / CBIC / NAA do something to discourage this practice of filing un-substantiated complains and tone up the Steering Committee / Standing Committee functioning to drop the complaints at that stage itself, if not found, prima facie having any sustainable complaint. Further NAA may also start imposing cost on the complainant. DGAP and NAA ought not be burdened with frivolous complaints.