PROFITEERING AND PENALTIES ON SUPPLY OF SANITARY NAPKINS UPHELD

[Dr. Sanjiv Agarwal]

Where the supplier, Unicharm India had increased the base price w.e.f. 27.07.2019 which clearly showed that he had deliberately in conscious disregard of the provisions of section 171 of the CGST Act, it was held that such supplier had resorted to profiteering as it had no ground whatsoever to increase his prices on the eve of tax reduction.

In C.P. Rao v. M/s. Unicharm India Pvt. Ltd. and M/s Apollo Hospitals Enterprise Ltd. 2019 (7) TMI 36 - NATIONAL ANTI-PROFITEERING AUTHORITY;  it was reported to CBIC that the prices of “Sanitary Napkins” were not reduced by the respondents despite reduction in the rate of GST on the said product from 12% to Nil w.e.f. 27.07.2018. Tax invoices dated 18.07.2018 and 02.08.2018 were relied upon.

On reference to DGAP for investigation, it was revealed that the benefit of reduction in the GST rate from 12% to Nil on the product was not passed on to the ultimate consumers. Also, in case of the respondent No. 1 (Unicharm India), the denial of ITC (ITC) on account of reduction in GST rate from 12% to Nil would affect the pricing pattern as input taxes are embedded in the cost of the product but in case of the respondent No. 2(Apollo Hospitals), profiteering, if any, on the part of the wholesaler/retailer was directly related to the pricing adopted pursuant to GST rate reduction by the Government because on or after 27.07.2018, the product attracted Nil rate of GST. The wholesaler/retailer did not pay any GST on or after 27.07.2018 and the ITC would also not be available to him as there would be no output tax on the product and therefore, profiteering, if any, by the respondent No. 2 (Apollo Hospitals) would be limited to the closing stock of the product as on 26.07.2018.

DGAP computed profiteering in respect of the respondent No. 1(Unicharm India) by comparing the commensurate post-GST rate reduction base price with the base price at which the product had actually been sold during the period 27.07.2018 to 30.09.2018. The commensurate base price or selling price post reduction in GST rate from 12% to Nil w.e.f. 27.07.2018, has been arrived at by the DGAP by increasing the pre-GST rate reduction base prices by 12.7% on account of denial of ITC credit and the profiteering has been calculated by comparing the said commensurate selling price with the actual invoice-wise selling price during the period 27.07.2018 to 30.09.2018 and accordingly, the amount of net higher realisation or the amount of profiteering due to increase in base price beyond 12.7% had been worked out. The DGAP computed the profiteered amount as Nil for the Canteen Stores Department (CSD) outlets and ₹ 10,77,182 for outlets other than CSD outlets.

Respondent No. 2 (Apollo Hospitals) had increased the base prices of the goods in question when the rate of GST was reduced from 12% to Nil. Also on account of the reduction in GST rate from 12% to Nil w.e.f. 27.07.2018, the ITC reversed on the closing stock held as on 26.07.2018 would become cost to the respondent No. 2 (Apollo Hospitals), also as he would not get any ITC once rate of GST on The product was reduced from 12% to Nil and his input was also his final product or output. Hence, the respondent No. 2 (Apollo Hospitals) would not have to pay any GST on supply of the product and thus, the profiteering would be limited to closing stock on which credit was available in the pre-GST rate reduction period. The excess realisation from the closing stock (as on 26.07.2018) sold during the period 27.07.2018 to 30.09.2018, as compared with the ITC reversed on the said stock and the difference, if any, would be the amount of profiteering and such excess realisation came to ₹ 8,16,641.

The NAA observed that respondent No. 1(Unicharm India) had increased the base price w.e.f. 27.07.2019 which clearly shows that he had deliberately in conscious disregard of the provisions of section 171 of the Act, resorted to profiteering as he had no ground whatsoever to increase his prices on the eve of tax reduction. The quantum of profiteering illegally obtained by the respondent No. 1(Unicharm India)  was determined as ₹ 10,77,182.34/-.

Respondent No. 1(Unicharm India) was directed to reduce his prices by way of commensurate reduction keeping in view the reduced rate of tax which has been availed by him as per rule 133 (3) (a) and to deposit the above amount as per the provisions of rule 133 (3) (c) in the ratio of 50:50 in the Central or the State Consumer Welfare Fund of all the States and UTs, along with the interest @ 18% till the same is deposited within a period of 3 months.

It had also issued incorrect invoices while selling the above product to its recipients as he had incorrectly shown the base price without mentioning any specifics such as colour, texture, quality etc about the products being supplied with the sole intention of not having to pass commensurate benefit of reduction in rate of tax to its recipients. It was also established from the record that the it had 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 above Act and hence was liable for imposition of penalty under the section 122 (1) (i) read with rule 133 (3) (d) of the CGST Rules, 2017.

Discussions to this article

[Ganeshan Kalyani]

True and fair deal is expected from the tax payer. They should support the government in the smooth operation of the gst law. Undue benefit of the law should not be taken and the practice should be stopped.