INCREASE IN BASE PRICE ON GST RATE REDUCTION – CASE FOR PROFITEERING

[Dr. Sanjiv Agarwal]

In Surya Prakash Loonker and DGAP, CBIC, New Delhi v. Excel Rasayan Pvt. Ltd., 2019 (1) TMI 807 - NATIONAL ANTI-PROFITEERING AUTHORITY; , it was alleged that the supplier did not pass on the benefit of reduction in the GST rate applicable to detergents from 28% to 18% w.e.f. 15.11.2017 but increased the base prices of the detergents sold, so that there was no reduction in the prices to the recipients. This was based on two sales invoices dated 07.09.2017 and 26.12.2017.

On reference to DGAP for investigation, it was observed that the supplier had increased the base price by increasing the base prices of the said products consequent to the reduction in the GST rate, the benefit of reduction in the GST rate from 28% to 18% was not passed on to the recipients. The total amount of profiteering covering the period between 15.11.2017 to 31.03.2018, came out to be ₹ 4,64,849.74. The supplier had not disputed the fact that there has been reduction in the rate of tax from 28% to 18% with effect from 15th November, 2017 vide Notification No. 41/2017- Central Tax (Rate) dated 14.11.2017 and had also not disputed the calculation made by the DGAP based on his outward sales data.

The NAA observed that the benefits arising due to the GST rate reduction cannot be denied to the consumers just because in the earlier scenario MRPs were not changed to extend some extra benefit to the consumers. It has also been found that the base price of both the above products has been increased irrespective of the fact that there was GST rate reduction from 28% to 18%.

The supplier, who was a registered manufacturer, is liable to pass on the benefit to the recipients irrespective of the fact whether the base prices are still lower as compared to the pre-GST price or not.

It was also established that the base prices of the two products in question were increased to maintain the same selling prices (inclusive of GST), although there was a reduction in the GST rate from 28% to 18% w.e.f. 15.11.2017. Therefore, the Authority held that the supplier had violated the provisions of section 171 in as much as the prices have remained the same inspite of reduction in the tax rate.

The NAA directed the supplier to reduce the sale price of the above products immediately, commensurate to the reduction in the rate of tax, as was notified on 14.11.2017 so as to pass on the benefit of reduction in the rate of the tax to his customers as per Rule 133(3)(a) of the CGST Rules, 2017. It was also directed to deposit the profiteered amount of ₹ 4,64,849.74 into the Consumer Welfare Fund as per the provisions of Rule 133(3)(c) in the ratio of 50:50 in the Central and the State Consumer Welfare Funds, along with interest at the rate of 18% to be calculated from the date of collection of the higher amount till the date of deposit into the Consumer Welfare Fund. The Authority, as per Rule 136 of the CGST Rules 2017 also directed the DGAP and the respective Commissioners of both CGST and SGST to monitor this order by ensuring that the amount profiteered by the Respondent as ordered by the Authority, is deposited in the Consumer Welfare Funds within a period of 3 months from the date of receipt of this order, along with interest failing which the same shall be recovered by the concerned Commissioner CGST or SGST.

The supplier was liable for penalty under Rule 133(3)(d) of the CGST Rules 2017. It had committed an offence under section 122(1)(i) of the Act and hence, held liable for imposition of penalty under the above Section read with Rule 133(3)(d) of the CGST Rules 2017.

Discussions to this article

[Ganeshan Kalyani]

Supplier should pass on the benefit to the customer by reducing the base price. Keeping the selling price constant even after the tax rate has come down is not fair.

[Dr. Sanjiv Agarwal]

Yes, I agree Sir.