CASES WHERE PROFITEERING NOT ESTABLISHED

[Dr. Sanjiv Agarwal]

The GST law contains a provision on anti-profiteering measure (Section 171) as a deterrent for trade and industry to enjoy unjust enrichment in terms of profit arising out of implementation of Goods and Services Tax in India, i.e., anti-profiteering measure would obligate the businesses to pass on the cost benefit arising out of GST implementation to their customers.

There have been a large number of cases (infact in majority of complaints) where National Anti-profiteering Authority (NAA) has upheld that profiteering could not be established and that there was no contravention of section 171 of the GST law implying that the complaints before it were not sustainable.

Following Orders of National Anti-profiteering Authority pronounced recently have held that complaints u/s 171 were not sustainable and there was no profiteering in contravention of section 171 involved:

• State Level Screening on Anti-profiteering, Kerala and DGAP, CBIC, New Delhi v. Ahuja Radios, Noida  (2018) 12 TMI 1602;

Date of Order 27.12.2018

The instant complaint (not by any private complainant) referred to DGAP made allegation of profiteering by supplier (Ahuja Radios) on the supply of ‘PA Ceiling dpeaker BS- 6083T’ (HSN Code 85182100), and ‘PA wall speaker WS661T’ (HSN Code 85182100) and by not passing on the benefit of reduction in the rate of tax w.e.f. 15.11.2017 vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 and thus indulged in profiteering in contravention of provisions of section 171 of CGST Act, 2017. The reliance was made on two invoices - pre and post GST rate revision dated 30.10.2017 and 04.12.2017.

It may be noted that the applicable rate of tax was reduced to 18% from the existing rate of 28% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017. The two invoices for supply of speakers revealed as under:

S.No.	Product	Pre-rate of GST revision (pre- 15.11.2017)			Post rate of GST revision (post-15.11.2017)
		Invoice No. & date	Tax Rate	Base price per unit Excluding GST (Rs.)	Invoice No. & date	Tax Rate	Base price per unit Excluding GST (Rs.)
1.	PA Ceiling Speaker BS 6083T	SKN/17-18/1469 dated 30.10.2017	28%	625/-	SKN/17-18/1761 dated 04.12.2017	18%	625/-
2.	PA Wall Speaker 661T	SKN/17-18/1469 dated 30.10.2017	28%	545/-	SKN/17-18/1761 dated 04.12.2017	18%	545/-

The scrutiny of complaint and investigation by DGAP indicated that there was no increase in the per unit price (excluding GST) in respect of both the products mentioned in the above invoices. The base Price per unit excluding GST remained same at ₹ 625/- and ₹ 545/- respectively for both the products during Pre-GST rate revision and Post-GST rate revision. The DGAP had finally submitted that while the GST rate was reduced from 28% to 18% w.e.f. 15.11.2017, there was no increase in the per unit price (excluding GST) and hence the allegation of profiteering by the supplier was not sustainable.

The NAA considered the report of DGAP and documents on record and identified the following questions to be determined:

1. Whether there was reduction in the rate of tax on the above products in question w.e.f. 15.11.2017?
2. Whether any benefit of reduction in the rate of tax was to be passed on?

Considering that the mandate of section 171 is that any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices, the NAA concluded that while there was reduction in the rate of tax on the above products from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-central Tax (Rate) dated 14.1 1.2017, but the base prices (excluding tax) of both these products had remained the same and hence the allegation of profiteering is not established.

The complaint was therefore, dismissed.

• State Level Screening Committee on Anti-profiteering, Kerala and DGAP, CBIC, New Delhi v. Lorenzo Vitrified Tiles Pvt. Ltd. (2018) 12 TMI 1601;

Date of Order 27.12.2018

In the instant case, profiteering by supplier of tiles was alleged on the supply of ‘Mirror Series Tiles’, by not passing on the benefit of GST at the time of implementation of the GST w.e.f. 01.07.2017 and w.e.f. 14.11.2017 when the GST rate was reduced from 28% to 18% vide Notification No. 41/2017 Central Tax (Rate) dated 14.11.2017 and that supplier of tiles has indulged in profiteering in contravention of provisions of section 171 of the CGST Act, 2017. For this purpose, following two invoices were relied upon, i.e., one dated 18.04.2017 (pre-GST period) and other dated 14.07.2017 (post-GST period) as per following details:

Particulars		Pre-GST	Post-GST
Product Description		Mirror Series Tiles (HSN Code 6907)
Invoice No.		0075	GST0042
Invoice Date		18.04.2017	14.07.2017
M.R P (in Rs.)	A	550	-
55% of M.R.P. (45% Abatement) (in Rs.)	B=55% of A	302.50	-
Central Excise Duty	C	12.5%	-
Central Excise Duty (in Rs.)	D=C*B	37.81	-
Base Price (excluding Excise Duty or GST or GST) (in Rs.)	E	310	310
Base Price for Central Sales Tax (GST) (in Rs.)	F = E+D	347.81	-
Central Sales Tax (GST)	G	2%
Central Sales Tax (in Rs.)	H=G*F	6.96
GST	I	-	28%
Total Tax (in Rs.)	J=D+H or I	44.77	86.8
Total Tax in terms of percentage of Base Price	L=(J/E)*100	14.44%	28%

DGAP’s investigation revealed that in the pre-GST era, the applicable tax on the product ‘Mirror Series Tiles’ was CST @ 2% and Central Excise Duty @ 12.5% on 55% of the MRP. On implementation of the GST w.e.f. 01.07.2017, the GST rate on the such tiles was fixed at 28% which was reduced to 18% w.e.f 15.11.2017.

However, no invoice for the period after 14.11.2017 when that rate of tax was reduced from 28% to 18% was examined by Screening Committee or by DGAP who also reported that in the absence of any invoice issued post 15.11.2017 when the GST rate on the said product was reduced from 28% to 18%, it was not possible to compare the pre-rate revision and post-rate revision actual selling prices. Thus, as there was no reduction in the tax rate of the tiles was increased from 14.44% to 28% and also the supplier did not increase the per unit price of the product excluding tax, the provisions of Section 171 of the CGST Act, 2017 were not contravened and the allegation of profiteering made by the supplier was not established. In this case though the tax rate was reduced from 28% to 18% w.e.f. 15.11.2017, no supporting documents were provided to prove that the reduction in rate of tax was not passed on to the recipient.

Based on facts and documents on records alongwith DGAP report, the National Anti-profiteering Authority framed the following issues to be determined in the instant complaint:

1. Whether there was reduction in the rate of tax on the product in question w.e.f. 01.07.2017 or 14.11.2017?
2. Whether any benefit of reduction in the rate of tax was to be passed on?
3. Whether the benefit of reduction in tax was passed on to the recipient by way of commensurate reduction in prices?

It observed that there was no reduction in the rate of tax on these tiles w.e.f. 01-07-2017. There was also no increase in the per unit base price (excluding tax) of the above product and therefore, the allegation of profiteering was not established.

Though the rate of tax had been reduced from 28% to 18% w.e.f. 14.11.2017 the Kerala Screening Committee has failed to produce any invoice and has not examined any documents to establish that the benefit of tax reduction has not been passed on by the supplier to the recipient. Hence DGAP has rightly observed that no supporting documents or invoices of the product ‘Mirror Series Tiles’ for the period post 15.11.2017 have been either examined or presented before the Standing Committee. Hence the allegation that the benefit of rate reduction has not been passed on is not sustained.

The NAA thus concluded that there was no contravention of provisions of section 171 of the CGST Act, 2017 on both occasions - either on implementation of the GST w.e.f. 01.07.2017 or w.e.f. 14.11.2017 after the introduction of GST rate reduction.

There being no merit in complaint, the same was dismissed.

• Kerala State Level Screening Committee on Anti-profiteering and DGAP, CBIC, New Delhi v. Janson, Tiruchengode, Kerala  (2018) 12 TMI 1600;

Date of order 27.12.2018

In the instant case, complaint was referred by Standing Committee alleging profiteering by the supplier of goods (Lungi) on the supply of ‘Handloom Design-King Supreme Lungi’ (HSN Code 54078460), 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 and that supplier had indulged in profiteering in contravention of the provisions of section 171 of the CGST Act, 2017.

The complaint was based on two sample invoices one dated 07.04.2017 for pre-GST period and other dated 18.08.2017 for post-GST regime which revealed the following details:

Sr. No.	Description of the product supplied	Pre-GST (Invoice no. 160 dated 07.04.2017)				Post-GST (Invoice No. JI/11842 dated 18.08.2017)
		Base Price after Discount (Rs.)	Tax Rate	Tax Amount (Rs.)	Total Selling price (Rs.)	Base Price after Discount (Rs.)	GST Rate	GST Amount (Rs.)	Total Selling Price (Rs.)
1.	King Supreme [F] 2.50 MTR LUNGI	210	NIL	NIL	210.00	200.70	5%	10.04	210.74
2.	Charm Dix [F] 2.00 Mtr Lungi	127	NIL	NIL	127.00	119.70	5%	5.99	125.69
3.	Excellent Delux [F] 2.00 MTR W.O.B. Lungi	183	NIL	NIL	183.00	170.10	5%	8.51	178.61
4.	Economy [F] 2.00 MTR Lungies	133	NIL	NIL	133.00	125.10	5%	6.26	131.36
5.	Mourya [F] 2.00 MTR Printed Lungies	118	NIL	NIL	118.00	110.70	5%	5.54	116.24
Total Tax Pre-GST (%)			NIL	Total Tax Post-GST (%)			5%

According to DGAP investigation and report, in the pre-GST era, the applicable Value Added Tax (VAT) was nil and the Central Excise Duty on the product was exempted vide Notification No.30/2004-CE dated 09.07.2004. In the post GST era, the rate of tax was levied @ 5%. It was revealed that there was no reduction in the rate of tax on the product “Handloom Design-King Supreme Lungi” which was at nil rate in the pre-GST era and @ 5% in the post-GST era (GST). Further, it was also intimated by the rate of tax in the pre-GST period was shown as 2% w.r.t. the said invoice No. 160 dated 07.04.2017, however, it was clear from the said invoice itself that there was actually nil tax. Thus, the two aforementioned supporting invoices confirm that there was an increase in the rate of tax on the product ‘Handloom Design-King Supreme Lungi’ from nil in the pre-GST era (there was no Excise Duty or VAT) to 5% in the post-GST era. Conclusively, the DGAP has submitted that 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 the allegation of profiteering by the supplier was not established.

The NAA, based on facts, records and DGAP report framed the following issues to be settled in the instant complaint:

1. Whether there was reduction in the rate of tax on the product in question w.e.f. 01.07.2017?
2. Whether any benefit of reduction in the rate of tax was to be passed on?

In view of the requirement of section 171 of the CGST Act, 2017 that any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices, the NAA observed that there was no reduction in the rate of tax on the above product w.e.f. 01-07-2017, hence the anti-profiteering provisions contained in Section 171(1) of the Central Goods and Services Tax Act, 2017 are not attracted.

It thus concluded that there was no contravention of section 171 and no merit in the complaint and was accordingly dismissed.

End Note

Based on above complaints disposed of in favour of suppliers and against the complainants, it is clear that profiteering in contravention of section 171 is not established when:

1. There is no reduction in rate of tax post GST when compared to pre-GST rate.
2. Examination of post-GST and pre-GST documents is necessary to establish that benefit of tax reduction has not been passed.
3. There cannot be profiteering when tax rate is increased in post-GST.
4. There cannot be profiteering when base rate remains the same in pre-GST and post-GST periods.