GST: PROFITEERING CHARGES ON SUPPLY OF FOGG DEO UPHELD

[Dr. Sanjiv Agarwal]

Recently, National Anti-profiteering Authority confirmed the profiteering charges and imposed penalty on supplier of Fogg Deo in SH. RAHUL SHARMA, M/S. LOCAL CIRCLES INDIA PVT. LTD., DIRECTOR GENERAL OF ANTI-PROFITEERING, CENTRAL BOARD OF INDIRECT TAXES & CUSTOMS, VERSUS M/S. TANYA ENTERPRISES [2020 (6) TMI 110 - NATIONAL ANTI-PROFITEERING AUTHORITY]

 In the instant case, complainant alleged that M/s Vini Cosmetics Pvt. Ltd. had not passed on the benefit of tax reduction from 28% to 18% w.e.f. 15.11.2017 on “Fogg Deo Fougere BX 150 ml” which was supplied to M/s. Big Bazaar, Inderlok on 09.11.2017 under Purchase Order (PO) No. 81149976814 with MRP of ₹ 299/- and on 19.12.2017 under PO No. 8115259654 with the same MRP of ₹ 299/-.

The matter was referred to DGAP for investigation who submitted its report dated 24.09.2019 covering the period from 15.11.2017 to 31.03.2019. M/s Vini Cosmetics Pvt. Ltd. submitted that it had not supplied to M/s Big Bazar and that the impugned goods “Fogg Deo Fougere BX 150 ml” was supplied to M/s. Big Bazaar by the Respondent, on 02.12.2017, under PO number 8115259654 with the base price of ₹ 190.04/-, on 04.11.2017, under PO number 8114996814 with the base price of ₹ 175.19/- and on 05.05.2018, under PO number 4517361778 with the base price of ₹ 173.14/-.

M/s Vini Cosmetics Pvt. Ltd. submitted that :

1. The product in respect of which his company was being alleged to have profiteered viz. ‘Fogg Deo Fougere BX 150 ml” was a deodorant classified under HSN 3307. The rate of GST was reduced on this product from 28% to 18% vide Notification No. 41/2017 - Central Tax (Rate) dated 14th November 2017 effective from 15th November 2017. This product was being meant to be supplied only to the super stockists who sold it further to the Modern Trade (Malls like M/s. Big Bazaar) through distributors. The pricing of such products varied from party to party which meant that the same product was sold at different rates to the different parties. However, the price for supply of a specific product to a specific buyer / recipient was fixed.
2. It had not supplied the goods to M/s. Big Bazaar and therefore the question of passing on of benefit of rate reduction to M/S Big Bazaar being recipient did not arise.
3. It had passed on the benefit of rate reduction on the impugned product, by reducing the base price of the product and that the same could be verified from the price list issued by him for the supply of ‘Fogg Deo Fougere BX 150 ml” from different super stockist in pre and post rate change regimes.
4. It  had simultaneously reduced the MRPs of all the impacted products. In case of the impugned product i.e. Fogg Deo Fougere BX 150 ml”, the MRP of ₹ 299/- in the pre-reduction period was revised to ₹ 275/-, whereas the commensurate reduction required that the revised MRP should have been ₹ 275.64 (₹ 299*1.18/1.28).
5.  In respect of the stock that had already been supplied to the recipients/stockists/super stockists in the further supply chain but not yet sold to the final consumers till 15th of November, 2017, reduction in the price was communicated to all the super stockists through electronic mail.
6. It had also forwarded stickers with the reduced MRPs to his super stockists/stockists/distributors for being affixed on the impacted goods which had remained unsold to the end users/final consumers as on 15th November, 2017.

According to DGAP, main issue in the instant complainant was to determine whether the rate of GST on “Fogg Deo Fougere BX 150 ml” supplied by M/s. Vini Cosmetics Pvt. Ltd. and the Respondent was reduced w.e.f. 15.11.2017 and if so, whether M/s. Vini Cosmetics Pvt. Ltd. and the Respondent had passed on the benefit of such reduction in GST rate to their recipients, in terms of Section 171 of the Central Goods and Services Tax Act, 2017. The Central Government, on the recommendation of the GST Council, had reduced the GST rate on the product “Fogg Deo Fougere BX 150ml” from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017 - Central Tax (Rate) dated 14.11.2017.

The pricing of such products varied from party to party which meant that the same product was being sold at different price to the different parties. However, the price for specific product for a specific party was fixed.  The DGAP has further stated that from the documents submitted by M/s. Vini Cosmetics Pvt. Ltd., had reduced the MRP of the product from ₹ 299/- to ₹ 275/- w.e.f. 15.11.2017.

Since the GST rate on the impugned product was reduced from 28% to 18%, the commensurate reduction in the revised MRP should have been ₹ 275.64 (₹ 299*1.18/1.28) whereas M/s. Vini Cosmetics Pvt. Ltd. had revised the MRP of the impugned product to ₹ 275/-, which showed that M/S Vini Cosmetics Pvt. Ltd. had indeed passed on benefit to the end user/final consumer by reducing MRP to the extent of GST rate reduction.

M/s. Vini Cosmetics Pvt. Ltd. had communicated such reduction in price to its super stockists through electronic mail. It had also forwarded stickers of reduced MRPs to its super stockists/distributors etc. to affix the same on the impacted goods which were lying unsold with them as on 15.11.2017.

On the other hand, the Respondent had increased the base prices of the products when they were sold to distributors/modern trade, and hence had not passed on the benefit of rate reduction to his recipients and hence the benefit had not been passed to the end users/final consumers.

The DGAP concluded that the amount of net higher sales realization on account of the increase in the base price of the product, despite the reduction in the GST rate from 28% to 18%, came to ₹ 8,50,442/- inclusive of the excess GST so collected by the Respondent from Recipient.

The NAA considered the report and submissions of respondent supplier. Respondent  accepted that it had profiteered to the extent of ₹ 8,50,442/- and that he did not wish to contest the same. It also stated that the said profiteering was done by mistake and not intentionally and that the same would not be repeated in future.

Based on above, the NAA determined the amount profiteered at ₹ 8,50,442/- (inclusive of the GST) as per the provisions of Rule 133 (1) of the Rules. Accordingly, the Respondent was directed to reduce his prices commensurately in terms of Rule 133 (3) (a) of the above Rules. He was also directed to deposit an amount of ₹ 8,50,442/- in the Consumer Welfare Fund of the Central and the Delhi State Governments, where the Respondent has made his supplies, as the recipients were not identifiable, as per the provisions of Rule 133 (3) (c ) of the CGST Rules alongwith 18% interest payable from the dates from which the above amount was realised by the Respondent from his recipients till the date of its deposit within a period of 3 months from the date of passing of this order failing which it shall be recovered by the concerned Commissioners CGST/SGST.

Since the Respondent had denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171(1) of the CGST Act, 2017 and had thus profiteered as per the explanation attached to Section 171 of the above Act, it was apparently liable to be penalised as per Section 171 (3A) of the CGST Act, 2017.

The Authority as per Rule 136 of the CGST Rules, 2017 directed the Commissioners of CGST/SGST to monitor this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by the Authority is deposited in the CWFs of the Central and the State Governments .

The order also mentioned that order was to be passed by NAA by 25.03.2020 but could not be passed due to Covid -19 due to force majeure.