ESTABLISHMENT OF PROFITEERING ‘MUST’ FOR CONTRAVENTION OF SECTION 171 OF GST LAW

[Dr. Sanjiv Agarwal]

While number of complaints being filed before National Anti-profiteering Authority (NAA) are on rise, still in the majority of cases, the case for contravention of section 171 of the GST law is not established as profiteering has to be established or substantiated , i.e., not passing of benefit of tax rate reduction and/ or input tax credit.

The business entities need not worry about such complaints as the NAA shall adjudicate such cases only on the basis of documentary evidence and facts following principles of natural justice. Few of such complaints recently adjudicated go on to prove that the NAA does not proceed with the pre-determined mindset that each complaint received by it is a fit case of profiteering where section 171 has been contravened.

• Kerala State Screening Committee on Anti-profiteering & DGAP, New Delhi v. Impact Clothing Co, Bengaluru 2018 (12) TMI 1404 - NATIONAL ANTI-PROFITEERING AUTHORITY ;

In this case, complaint was against readymade garments (shirts) supplier that benefit of reduction in tax rate at the time of GST implementation w.e.f. 1.7.2017 was not passed based on invoices dated 2.6.2017 (pre-GST period) and 14.08.2017 (post-GST period) as per following Table.

Table

S.No.	Description of the Product	Pre-GST				Post-GST		Difference in Price (Rs.)
		Invoice No./Date	Tax Rate (CST)	Base Price (Rs.)	Invoice No./Date	Tax Rate(GST)	Base Price (Rs.)
1.	Impact Shirts 700-800 H/S M.R.P. 439	211 dated 02/06/2017	2%	303/-	493 dated 14/08/2017	5%	303/-	-
2.	Impact Shirts 700-800 F/S M.R.P. 449	211 dated 02/06/2017	2%	310/-	493 dated 14/08/2017	5%	310/-	-
3.	Impact Shirts 900 H/S M.R.P. 489	211 dated 02/06/2017	2%	338/-	493 dated 14/08/2017	5%	338/-	-
4.	Impact Shirts 900 F/S M.R.P. 499	211 dated 02/06/2017	2%	345/-	493 dated 14/08/2017	5%	345/-	-
5.	Impact Shirts 1500 H/S M.R.P. 689	211 dated 02/06/2017	2%	475/-	493 dated 14/08/2017	5%	475/-	-
6.	Impact Shirts 1500 F/S M.R.P. 699	211 dated 02/06/2017	2%	482/-	493 dated 14/08/2017	5%	482/-	-

These shirts were exempted from Central Excise duty, vide Notification No. 30/2004-CE dated 09.07.2004 and attracted only Central Sales Tax (CST) @ 2%. After implementation of the GST w.e.f. 01.07.2017, the tax rate of these products was fixed 5%. The rate of tax on these shirts was actually increased from 2% in the pre-GST era to 5% in the post-GST era. Moreover, the pre-GST and post-GST base prices (excluding tax) had remained the same. Therefore, the provisions of Section 171 of the CGST Act, 2017 have not been contravened and the allegation of profiteering by the supplier was not established.

The NAA noted that it is clear from the perusal of the facts of the case that there was no reduction in the rate of tax on the above products w.e.f. 01.07.2017 and hence the anti-profiteering provisions contained in Section 171 (1) of the CGST Act, 2017 are not attracted. Also, there was no increase in the per unit base price (excluding tax) of the these products and therefore, the allegation of profiteering was held to be not sustainable in terms of Section 171 of the CGST Act, 2017.

The complaint was accordingly dismissed.

• State level Screening Committee on Anti-profiteering, Kerala and DGAP, New Delhi v. Panasonic India Pvt. Ltd., Trivandrum 2018 (12) TMI 1403 - NATIONAL ANTI-PROFITEERING AUTHORITY ;

(Date of Order 24.12.2018)

In this complaint, profiteering by supplier of Panasonic LED was alleged by not passing on the benefit of reduction in the rate of tax at the time of implementation of GST w.e.f. 01.07.2017. It was alleged that the supplier had indulged in profiteering in contravention of the provisions of Section 171 of CGST Act, 2017.

The following two invoices dated 15.06.2017 (pre-GST period) and 22.07.2017 (post-GST period) were relied upon:

S.No.	Description of the product supplied	Pre GST Invoice No. 140217101517 dated 15.06.2017			Post GST Invoice No. 14021702034 dated 22.07.2017
		Base price	Total Tax (Rs)	Total Price (Rs.)	Base price (Rs.)	GST  (Rs.)	Total Price (Rs)
1.	Panasonic LED TH43E200DX#45 580 (HSN code 85281211)	27,428/-	7349/- (Rs. 2945/- Central Excise Duty @ 12.5% on 65% of abated MRP of ₹ 36250/as per Annexure-7) + ₹ 4404/- VAT on discounted price ₹ 30,373/-)	34,777/-	27818/- (after discount)	7789/(28% GST)	35,607/-
Total Tax Pre-GST in (%)			26.79%		Total Tax Post-GST in (%)	28%

On scrutiny of invoices, DGAP observed that in the pre-GST era, the subject product attracted VAT @ 14.5% and Central Excise Duty @ 12.5% on 65% of abated MRP of the product, in terms of Notification No. 49/2008 Central Excise (N.T.) dated 24.12.2008. On implementation of the GST w.e.f. 01.07.2017, the GST rate on this product was fixed at 28%.  It was reported by DGAP that there was an increase in the rate of tax on the said product from 26.79% in the pre-GST era (VAT and Excise Duty) to 28% in the post-GST era and there was no reduction in the rate of tax. Consequently, as there was no reduction in the tax rate of the said product the provisions of Section 171 of the CGST Act, 2017 were not contravened and hence the allegation of profiteering by the Respondent was not established.

The NAA noted that the only issue that needs to be dwelled upon is as to whether there was a case of reduction in the rate of tax and whether the provisions of section 171 of CGST Act, 2017 are attracted. The NAA concluded that there was no reduction in the rate of tax on the above product w.e.f. 01-07-2017 and that the rate of tax in the Post-GST era has also been increased from 26.79% to 28%, therefore, the allegation of profiteering is not sustainable in terms of Section 171 of the CGST Act, 2017.

The complaint was accordingly dismissed.

• State level Screening Committee on Anti-profiteering, Kerala and DGAP, New Delhi v. Peps Industries Pvt. Ltd., Trivandrum   2018 (12) TMI 1402 - NATIONAL ANTI-PROFITEERING AUTHORITY ;

(Date of Order 24.12.2018)

In this complaint, profiteering was alleged on the supply of Peps Spring Koil Bornell Normal Maroon 75x60x6" Mattress by not passing on the benefit of reduction in the rate of tax at the time of implementation of GST w.e.f 01.07.2017. Thus it was alleged that the supplier had indulged in profiteering in contravention of the provisions of Section 171 of CGST Act, 2017. The following invoices for pre-GST and post-GST were considered and relied upon:

S.No.	Description of the product supplied	Pre GST rate				Post GST rate			Difference (in Rs.)
		Invoice No.& Date	CST Rate	Central Excise Duty Rate	Price excluding Taxes (in Rs.)	Invoice No. & Date	GST rate	Price excluding GST (in Rs.)
1.	Peps Spring Koil Bornell Normal Maroon 75X60X6" Mattress (HSN 94042910)	2901 dated 30.06.2017	2%	12.5%	7,293	C/0014196 dated 09.08.2017	28%	7,986	693
		C/002255 dated 15.06.2017	2%	12.5%	7,293	C/003495 dated 21.07.2017	28%	7,643	350

 

The DGAP observed that in the pre-GST era, the applicable Central Sales Tax (CST) on the product 'Peps Spring Koil Bornell Normal Maroon 75x60x6" Mattress" was being levied @ 2% and Central Excise Duty was  being levied @ 12.5%. In the post GST era, the rate of tax is levied @ 28%. The scrutiny of invoices by DGAP revealed that there was an increase in the rate of tax on the product "Peps Spring Koil Bornell Normal Maroon 75X60X6" Mattress" from 14.5% (2%+12.5%) (wrongly shown as 14.75% in the Report) ) in the pre-GST era to 28% in the post-GST era. Therefore, the rate of tax applicable to the product had increased from 14.5% (12.5% Excise Duty + 2% CST) in pre-GST era to 28% in the post-GST regime.  Thus, according to DGAP report, as there was no reduction in the rate of tax on the product in the post-GST era as compared to the pre-GST era, the provisions of Section 171 of the CGST Act, 2017 were not contravened and hence the allegation of profiteering by the supplier was not established.

While adjudicating the complaint, the NAA observed that the only issue that need to be dwelled upon in as to whether there is a case of reduction in the rate of tax and whether the provision of section 171 of CGST Act, 2017 were attracted. It was held that it is clear from the perusal of the facts of the case that there was no reduction in the rate of tax on the above product w.e.f. 01-07-2017 and that the rate of tax on the said product has increased from 14.5% (2% CST + 12.5% Excise) to 28% and therefore, the allegation of profiteering is not sustainable in terms of Section 171 of the CGST Act, 2017.

The complaint was accordingly dismissed.

End Note

In all the above complaints adjudicated by the NAA, it has been found that there was no prima facie case established and that the complaints should not have reached this stage involving crucial time of DGAP as well as the NAA, besides money spent on such adjudication. It would be desirable for the policy makers to appropriately amend the rules to ensure that:

1. Only complaints with substantial or material evidence leading to anti-profiteering are forwarded to DGAP.
2. DGAP be authorized to disposed of complaints at its level up to a certain amount or where no ground for complaint is established without referring the matter to NAA.
3. In case of infructuous complaints, a cost is imposed on the complainant.
4. To discourage petty complaints or complaints without material evidence, complaints should be accompanied by prescribed fee.
5. A threshold limit may be prescribed for adjudication of complaints by Screening Committee and DGAP so that number of complaints reaching the NAA are reduced.

It may be noted that taking cognizance of cases suo moto is already there in GST  law which can always be invoked in larger public interest.