PROFITEERING ON SUPPLY OF GOODS (GLASS KIT HOOD)

[Dr. Sanjiv Agarwal]

Section 171 of the CGST Act, 2017 is very clear that the benefit of reduction in tax has to be necessarily passed on to the recipient by commensurately reducing the prices.

In Kerala State Screening Committee on Anti-Profiteering and DGAP, CBIC, New Delhi v.  TTK Prestige Ltd., 2019 (5) TMI 560 - NATIONAL ANTI-PROFITEERING AUTHORITY, applicant alleged profiteering by the supplier  on the supply of "Glass Kit Hood Curved Black-90 Cm GHK 900CS Electric Chimney" by not passing on the benefit of GST rate reduction from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.112017 and therefore, indulging in profiteering in contravention of the provisions of Section 171 of CGST Act, 2017. In this regard, the Applicant had relied on two invoices issued by the Respondent, one was dated 30.08.2017 (Pre-GST) and the second one was dated 18.12.2017 (Post-GST rate reduction w.e.f. 15.11.2017).

On reference to DGAP for investigation, it was stated that Central Government had reduced the GST rate on the Air or vacuum pumps, air or other gas compressors and fans; ventilating or recycling hoods incorporating a fan, whether or not fitted with filters [other than bicycle pumps, other hand pumps and parts of air or vacuum pumps and compressors of bicycle pumps]; from 28% to 18% w.e.f. 15.11.2017, vide S.No. 317B of the Schedule III attached to the Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017. Since the product was covered in the aforesaid notification, the supplier was required to sell the above goods on the base prices which were being charged by him before 15.11.2017 and levy GST @18% so that the benefit of reduction in the rate of tax could be passed on to its customers.

The legal requirement was abundantly clear that in the event of a benefit of input tax credit or reduction in rate of tax, there must be a commensurate reduction in the prices of the goods or services. Such reduction can only be in absolute terms, such that the final price payable by a consumer must get reduced commensurate with the reduction in the tax rate. The DGAP had further stated that this was the legally prescribed mechanism for passing on the benefit of input tax credit or reduction in rate of tax to the consumers under the GST regime.

The supplier had increased the base price of the product from ₹ 6113.79 to ₹ 7369.20/, when the rate of tax was reduced from 28% to 18% and on the basis of aforesaid pre and post-reduction GST rates and the details of outward taxable supplies (other than zero rated, nil rated and exempted supplies) of the product during the period 15.11.2017 to 31.08.2018, as furnished by the supplier, the amount of net higher sale realization due to increase in the base price of the goods, despite the reduction in the GST rate from 28% to 18% the profiteered amount came to ₹ 9,75,078/-. The DGAP has further submitted that this profiteered amount had been arrived at by comparing the average basic price of the product (₹ 6,506/-) during the period 01.11.2017 to 14.11.2017, with the actual basic prices of the product during the period 15.11.2017 to 31.08.2018.

According to DGAP, vide Notification No. 41/2017- Central Tax (Rate) dated 14.11.2017, the rate of tax was reduced from 28% to 18% w.e.f. 15.11.2017 and it was clear that the supplier  had increased the base price of the product, therefore, the commensurate benefit of GST rate reduction could have been passed on to the recipients. The DGAP also stated that the Pre-GST average basic price has been arrived at on the basis of the products sold during the period from 01.11.2017 to 14.11.2017.

The NAA observed that the supplier’s submission that the price of the product was not increased at the time of introduction of GST when the rate of tax was increased to 28% and hence the question of reducing the prices when the rate of tax was decreased from 28% to 18% does not arise is legally not sustainable in as much as Section 171 of the CGST Act, 2017 is very clear that the benefit of reduction in tax has to be necessarily passed on to the recipient by commensurately reducing the prices.

Since the supplier had confirmed to deposit the profiteered amount of ₹ 9,75,078 along with interest @ 18% into the Consumer Welfare Fund as the recipients were not identifiable, it was directed to pay the above amount along with interest @18% as per Rule 133 (3) (c) of the CGST Rules, 2017 in the Consumer Welfare Fund of the Central and concerned State Governments as per the provisions of the above Rule in the ratio of 50:50 along with interest @ 18% till the same is deposited within a period of 3 months.

The respective Commissioners were authorized to monitor the implementation, by making commensurate reduction in the prices, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients.

It was further held that supplier had issued incorrect invoices while selling all the above products to customers as it had not correctly shown the basic price which it should have legally charged from them. The supplier had also compelled them to pay additional GST on the increased price through the incorrect tax invoices which would have otherwise resulted in further benefit to the customers which he had failed to pass on. It was also established from the record that the supplier has deliberately and consciously acted in contravention of the provisions of the CGST Act, 2017 by issuing incorrect invoices which is an offence under Section 122 (1) (i) of the Act. Hence, it was also liable for imposition of penalty under Section 122 (1) (i)  read with Rule 133 (3) (d) of the CGST Rules, 2017.