PROFITEERING ON SUPPLY OF PRINTING CARTRIDGES UPHELD

[Dr. Sanjiv Agarwal]

Section 171 of CGST Act, 2017 read with relevant rules requires National Anti-profiteering Authority to examine whether any reduction in rate of tax on any supply of goods or services or the benefit of ITC has been passed on to the recipient by way of commensurate reduction in prices and also to identify the registered person who has not passed on the benefit of reduction in the rate of tax on supply of goods or services or the benefit of ITC to the recipient by way of commensurate reduction in prices.

In Re: Rahul Sharma v. Cloudtail India (P.) Ltd. 2019 (3) TMI 430 - NATIONAL ANTI-PROFITEERING AUTHORITY;  it was alleged that supplier had not passed on the benefit of reduction in the GST rate applicable to the H.P. printing cartridges from 28% to 18% w.e.f. 15.11.2017 and had increased their base price, therefore there was no reduction in the price (inclusive of GST @ 18%) charged from the recipients. Two sales invoices dated 04.10.2017 and 09.12.2017 were relied upon.

On reference to DGAP, the supplier informed that it had no control over the MRP affixed by the manufacturer/ importer; that the manufacturer/ brand-owner (HP) had changed the MRP during the period between July 2017 to December 2017, that HP had first increased the MRP on account of increase in the tax rate from 5% (VAT) to 28% (GST) and also on account of imposition of Customs duty @ 10% on cartridges w.e.f. 01.07 2017, that subsequently, HP had decreased the MRP to pass on the benefit of reduction in GST rate w.e.f. 15.11.2017.

According to DGAP report, supplier was required to sell the said goods at the pre 15.11.2017 base price and charge lower GST @ 18% on such base price, to pass on the benefit of reduction in the rate of tax from 28% to 18% w.e.f. 15.11.2017. It was evident from the sales data submitted by the respondent that he had raised the per unit base price of the product post-GST rate reduction w.e.f. 15.11.2017, from Rs. 705.90 (average base price for the sales made during the period 01.10.2017 to 14.11.2017) to Rs. 887.90 (average base price for the sales made during the period 15.11.2017 to 31.07.2018). The total profiteered amount of Rs. 10,79,813.28 included an amount of Rs. 214.76 in respect of the supply of 1 unit of printer cartridge, covered by the invoice dated 09.12.2017 enclosed with the complaint.

The NAA observed that it ought to examine whether :

(a)     any reduction in rate of tax on any supply of goods or services or the benefit of ITC has been passed on to the recipient by way of commensurate reduction in prices?

(b)    to identify the registered person who has not passed on the benefit of reduction in the rate of tax on supply of goods or services or the benefit of ITC to the recipient by way of commensurate reduction in prices?

The NAA observed and concluded that since, the product was sold by the respondent and he being registered under GST, his obligation to pass on the benefit of rate reduction still remained and holds good. Rule 127 (ii) of the CGST Rules, 2017, clearly states the Authority has to identify the registered person who has not passed on the benefit to the recipient and in this case, the respondent was clearly that registered person.

It was also held that anyone alleging profiteering can file a complaint. So it is not necessary that the complainant has to purchase the products. The passing of the benefit by the distributor or retailer does not rest on the fact that the manufacturer or his supplier should have passed on the same benefit to him first.

The benefit of reduction in rate of tax has to be necessarily passed on to the recipients. Moreover, the DGAP had rightly taken the transaction value of the supplier which was the price that was charged by the respondent from his recipients which excluded the impact of discounts. The respondent had not only increased his base price but had also collected GST on the increased base price. The recipient has to be given the benefit of the increased base price and the increased tax collected from him.

The supplier was directed to reduce the price of the above product as per the provisions of rule 133(3)(a) of the CGST Rules, 2017 by making commensurate reduction in the prices, keeping in view the reduction in the rate of tax and to deposit the profiteered amount along with interest at 18% when the above amount was collected by him from his recipients till the date of deposit. It was directed to deposit the entire amount of Rs. 10,79,813.28 in the Consumer Welfare Fund of the Centre and the respective States as per the provisions of rule 133(3)(c) of CGST Rules, 2017 in the ratio of 50:50 in the Central and the State Consumer Welfare Funds.

It was also liable for penalty under section 122(1)(i) of the CGST Act, 2017 for issuing incorrect invoices.