RECENT ANTI-PROFITEERING ORDERS ON SUPPLY OF SANITARY NAPKINS

[Dr. Sanjiv Agarwal]

Recently in two orders of National Anti-Profiteering Authority has confirmed profiteering on the supplier of sanitary napkins for selling the goods at pre-rate reduction MRP whereas the rate of GST on sanitary napkins was reduced from 12% to Nil w.e.f. 27.07.2018 vide Notification No. 19/2018-CT (Rate) dated 26.07.2018.

Sandeep Puri, CGST, Mumbai and DGAP, New Delhi v. Glenmark Pharmaceutical Ltd. Mumbai  2019 (10) TMI 934 - NATIONAL ANTI-PROFITEERING AUTHORITY; – Order dated 21.10.2019

In the instant case, it was alleged that the supplier of sanitary napkins sold the goods at pre-rate reduction MRP whereas the rate of GST on sanitary napkins was reduced from 12% to Nil w.e.f. 27.07.2018 vide Notification No. 19/2018-CT (Rate) dated 26.07.2018. The complaint was examined by the Standing Committee on Anti-profiteering and investigated by DGAP.

The supplier submitted that it had sent a communication to all his distributors announcing the reduction in MRP of his product and the new reduced price (MRP) for each pack was also conveyed to the distributors, stockists and retailers and the inventory sold by them after 26.07.2018 was at a price lower than the MRP of the products and also claimed that it was advertised in one of the leading newspapers, informing the public at large about the reduction in the MRP of the product.

DGAP observed that the old stocks were being sold at the same MRP prevailing prior to the reduction of GST rate. The Report also stated that neither the GST rate nor the price was indicated on the invoice except the MRP of the product. This MRP also did not indicate that there was commensurate reduction in price charged from the ultimate consumers. Ratio of input tax credit of taxable turnover was worked at 8.39% which became part of cost offer the rate of GST was reduced from 12% to Nil rate. Thus, there was a loss of ITC @8.39%. Infact supplier had increased the base prices of the product in question when the GST rate was reduced from 12% to Nil.

The amount profiteered on 12 products amounted to ₹ 42,52,370 as the supplier had failed to passed on the benefit of rate reduction to his customers. Accordingly, the Respondent was directed to reduce his prices by way of commensurate reduction keeping in view the reduced rate of tax and benefit of ITC which has been availed by it as per Rule 133 (3) (a). Further, it was directed 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 CWFs of the State of Madhya Pradesh, along with the interest @ 18% till the same is deposited. The concerned Commissionerte was directed to ensure compliance and recovery.

It was further held that since the supplier had denied benefit of rate reduction to the buyers of the product “Sanitary Napkin” in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering, which is an offence under section 171 (3A) of the CGST Act, 2017, therefore, it will be apparently liable for imposition of penalty under the provisions of the Section 171.

Sandeep Puri, Commissioner CGST, Mumbai, C.P. Rao Principal Chief Commissioner, CGST Tamil Nadu & Punducheery and DGAP,  New Delhi v. Johnson & Johanson,  Mumbai and Apollo Hospitals Enterprise Ltd., Chennai 2019 (11) TMI 1084 - NATIONAL ANTI-PROFITEERING AUTHORITY;  – Order dated 21.11.2019

In the instant case, complaint was filed by Revenue Officers (CGST)  after detailed study conducted by them to analyse the impact of reduction in the GST rate on “Sanitary Napkin” from 12% to Nil w.e.f 27.07.2018, vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018 against both Respondents alleging that both the Respondents have not passed on the benefit of reduction in the GST rate from 12% to Nil w.e.f. 27.07.2018, levied vide Notification  No. 19/2018-Central Tax (Rate) dated 26.07.2018, on supply of “Sanitary Napkins” by way of commensurate reduction in prices in terms of Section 171 of the Central Goods and Services Tax Act, 2017.

The complaint was examined by the Standing Committee on Anti-profiteering and further investigated by DGAP under Rule 129 (6) of CGST Rules, 2017 on 18.03.2019 pertaining to the period w.e.f. 27.07.2018 to 30.09.2018.

Johnson & Johanson (JJ) submitted that it  had immediately given effect to the reduction in GST rate from 12% to Nil on sanitary napkins and accordingly, had reduced the Maximum Retail Price (MRP) of the said goods, to pass on the net benefit of GST rate reduction to the end consumers. Post 26.07.2018, it was not eligible to claim/avail input tax credit (ITC) on inputs and input services related to sanitary napkins and therefore, input taxes had become part of the cost of such goods and hence it increased his base price for the distributors in respect of the supplies post 26 07 2018, but the price to the ultimate consumer (MRP) of the said goods, was reduced after considering the net benefit of reduction in GST rate.  The total ITC of  193 Crore availed by him during the period from 01.07.2017 to 26.07.2018 for sanitary protection business, did not include ITC claimed in form TRAN-I including the ITC on the closing stock of sanitary napkin as on 30.06.2017.

M/s Apollo Hospitals was only a dealer of sanitary napkins which it purchased from the manufacturer (JJ). The products were subject to affixation of MRP under the Legal Metrology Act and the Rules made thereunder. When the said good was subject to GST at the rate of 12%, JJ had specified the MRP of “Stay free Secure Cotton Wings’ sanitary napkins in invoice no. 15674CS0075875 dated 19.07.2018 as  35/- which was reduced to  34/- by JJ. when the GST rate was reduced to ‘Nil’ with effect from 27.07 2018. For the stocks purchased prior to 27.07.2018, a dealer could not alter the MRP but the fact of MRP being reduced from  35/- to  34/- was communicated to him by the JJ and he had sold the goods within the revised MRP of  34/-, in compliance the relevant rules and regulations.

The DGAP observed that JJ has not passed on commensurate benefit to the recipients in respect of number of SKUs and excess benefit had been passed on in respect of other SKUs. J.J. had adjusted excess benefit passed on to some recipients against the commensurate benefit passed on to certain other recipients.

Based on DGAP report, NAA observed that the product “Sanitary Napkin” was exempted and attracted NIL rate of GST vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018, w.e.f 27.07.2018. However, prior to 27.07.2018 this product attracted 12% GST with the benefit of ITC on the inputs and input services which was denied from 27.07.2018 as the product was exempted from levy of tax. The GST paid on the inputs and on input service post rate reduction was a cost to the supplier, hence the base prices of the  products would increase to the extent of denial of ITC. Accordingly the DGAP based on the turnover and the ITC available to the Respondent had estimated the ratio of ITC to the taxable turnover as 9.4%. DGAP has estimated the profiteered amount for 81 SKUs supplied by JJ as  ₹ 42.70 18,581/-. It may be a fact that the MRP may not have been increased but the fact remains that the base price of the product had increased more than 9.4% which was allowed on account of denial of ITC. Therefore, any increase beyond 9.4% amounts to profiteering.

On jurisdiction of Standing Committee, NAA observed that complaint was well within jurisdiction.  As per Rule 128 of the CGST Rules, the Standing Committee on receipt of an application either from an interested party or from a Commissioner or any other person can examine as to whether the provisions of Section 171 have been violated. In the present case the Application was received from the Commissioner and the Principle Chief Commissioner and on prima facie finding that the provisions of section 171 have been violated it was forwarded for detailed investigation to the DGAP.

On methodology and procedure, it observed that Rule 126 of the CGST Rules empowers the authority to determine the methodology and procedure for determining as to whether the provisions of Section 171 have been violated. In exercise of the powers under Rule 126 of the CGST Rules, 2017,  the Authority has to determine ‘Procedure & Methodology’ which is evident from all orders. There cannot be a fixed methodology for determination of the profiteered amount as each case is different and determination of the profiteered amount depends on the facts of that case. The mathematical methodology applied in the case where the rate of tax has been reduced and ITC disallowed cannot be applied in the case where the rate of tax has been reduced and ITC allowed. Similarly, the mathematical methodology applied in the case of Fast Moving Consumer Goods (FMCGs) cannot be applied in the case of construction services. Therefore the question of prescribing any mathematical methodology does not arise but depending on facts of each case the Authority has been determining the mathematical methodology as per the provisions of Rule 126.

The NAA also noted that M/s Apollo Hospitals, who was the seller of the impugned product, had clearly increased the base price of the product as can be seen from the invoices. But as the benefit of ITC was not available to it post 27.07.2018, so the reversal of ITC on the closing stock was the extra cost on it. As per the records, reversal of ITC by it is more than excess realization on closing stock after denial of ITC benefit w.e.f 27.07.2019, therefore no profiteering can be concluded on its part and hence, Section 171 (1) does not hold good in respect of Apollo Hospitals.

The NAA in conclusion held that the provisions of Section 171 are completely clear and unambiguous and there is hardly any scope for misinterpretation of the same. The intent of legislature is to protect the interest of the consumers as and when the public exchequer intends to reduce the taxes or provide the benefit of ITC.  Therefore, the Authority within the ambit of the provisions of the Law has not dwelt into price fixation but restricted itself in extending the benefits of rate reduction to the recipient and thus there is no question of violation of the right of the Respondent granted under Article 19 (1) (g). The law or the Authority has not questioned the Respondents right to conduct business or to fix the prices of its products but ensures that the benefits provided by the Government through the Respondent are necessarily passed on. The question of retaining these benefits by the Respondent would deemed to be doing injustice to the consumers and thus depriving the consumers of the benefits extended through the Public Exchequer.

It held that JJ had increased the base price w.e.f. 27.07.2019 more than what it was entitled to increase, which clearly shows that it had deliberately in conscious disregard of the provisions of section 171 of the Act had resorted to profiteering. Therefore, upholding the findings of the DGAP, the Authority held that the had profiteered to the extent of  Rs. 42,70,18,581/- which includes an amount of  Rs. 8,50,029/- for Canteen Stores Department (CSD) outlets and  ₹ 42,61,68,552/- for outlets other than CSD outlets.

The profiteered amount by JJ was  determined as ₹ 42,70,18,5811- as per the provisions of Rule 133 (1) of the CGST Rules, 2017 as JJ had failed to pass on the benefit of rate reduction to his customers. Accordingly, JJ was directed to reduce the prices by way of commensurate reduction keeping in view the reduced rate of tax and benefit of ITC which has been denied by it as per Rule 133 (3) (a) of the CGST Rules, 2017. JJ was further directed to deposit the said amount as per the provisions of Rule 133 (3) (c) in the ratio of 50:50 in the Central or the State CWFs of all the States and UTs along with the interest @ 18% till the same is deposited. The concerned Central and State GST Commissioners were directed to ensure that the amount due is got deposited from along with interest and in case the same is not deposited necessary steps shall be taken by them to get it recovered from the Respondent as per the provisions of the CGST/SGST Acts under the supervision of the DGAP.

JJ was also liable for imposition of penalty under the provisions of section 171(3A) of CGST Act, 2017.