PROFITEERING CHARGES UPHELD ON SUPPLY OF TV-LED

[Dr. Sanjiv Agarwal]

Recently, National Anti-profiteering Authority confirmed the profiteering charges and imposed penalty on supply of TV-LED in SH. RAHUL SHARMA, M/S. LOCAL CIRCLE (I) PVT. LTD., DIRECTOR GENERAL OF ANTI-PROFITEERING, INDIRECT TAXES AND CUSTOMS VERSUS M/S. SAMSUNG INDIA ELECTRONICS PVT. LTD. [2020 (3) TMI 184 - NATIONAL ANTI-PROFITEERING AUTHORITY];  .

In the instant case, complainant made a complaint alleging profiteering on supply of ‘Samsung 80 CM HD ready LED –TV’ (in short TV). It was alleged that respondent company did not reduce the selling price of TV when the GST rate was reduced from 28% to 18% w.e.f. 01.01.2019, vide Notification No.24/2018 Central Tax (Rate) dated 31 12 2018 and the price of the product remained the same after tax reduction and thus the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in the price, in terms of Section 171 of the Central Goods and Services Tax Act, 2017.

The matter was referred to DGAP for investigation who investigated for the period 1.1.2019 to 31.03.2019 and submitted report dated 12.09.2019 and another supplementary report dated 25.11.2019. The respondent company submitted that the maximum Retail Price (MRP) based products were sold through two channels namely Business-to-Business (i.e. B2B sales generally meant for institutional buyers) and Business-to-consumer (i.e. B2C sales intended for end consumers). While pricing for B2C sales was highly dynamic and varied depending upon chain structure and other market factors such as size of business, operating cost, location and logistics. etc., prices for B2B sales were negotiated with each customer on a case to case basis depending on various parameters such as volume and order size, etc.

The sales were made to Canteen Stores Department (CSD) at a specially negotiated price. As a process, the Respondent negotiated an exclusive Index price for a product with CSD and once fixed, while the Respondent could sell the products at a price lesser than the fixed agreed price, it could not sell the products at a price higher than the agreed price. Generally, the price agreed with CSD was lesser than the price at which the Respondent sold such goods in the open market/trade.

It may be noted that the Central Government, had reduced the GST rate on the “Samsung 80 CM (32 inches) HD ready LED TV 32FH4003” supplied by the Respondent from 28% to 12% w.e.f. 01.01.2019, vide Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018.

 The DGAP has derived that the Respondent did not reduce the selling price of the TV, even when the GST rate was reduced from 28% to 18% w.e.f. 01.01.2019, vide Notification No.24/2018 Central Tax (Rate) dated 31 12.2018. Hence, the DGAP found that the Respondent had profiteered by an amount of ₹ 466.11/- on each of the said item sold. in as much as the benefit of reduction in GST rate was not passed on by the Respondent to its recipients by way of commensurate reduction in the price of the said item in terms of Section 171 of the Central Goods and Services Tax Act, 2017.

Further, the Respondent indicated that the Respondent had increased the base price of the “Samsung 80 CM (32 inches) HD ready LED TV 32FH4003 and Power Bank” when the rate of GST was reduced from 28% to 18% w.e.f. 01.01.2019. 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 “Samsung 80 CM (32 inches) LED TV and Power Bank” during the period 01.01.2019 to 31.03.2019, the amount of net higher sales realization due to increase in the base price of the impacted good, despite the reduction in the GST rate from 28% to 18%, or in other words, the aggregate profiteered amount worked to ₹ 37,55,606/-(in respect of Samsung 80 CM (32 inches) LED TV) + ₹ 29,7361- (in respect of Power Bank). Thus, the total amount profiteered by the Respondent worked out to be ₹ 37,85,342/-.

 The DGAP concluded that the amount of profiteering by the Respondent on account of contravention of provisions of Section 171 of Central Goods and Services Tax Act, 2017, was ₹ 37,85,342/-. The place (State or Union Territory) of supply chain-wise break-up of the total profiteered amount of ₹ 37,85,342/- was also provided by the DGAP.

The respondent submitted  that even though there were no specific guidelines/ methodology prescribed under the CGST Act for passing on such benefit, the respondent submitted that he had suo-moto computed the benefit and passed on the same by way of reduction in prices to his dealers and to give effect of reduction in GST rate from 28% to 18% for Television Sets, Computer Monitors and Power Banks, the respondent revised his MRP and DP by 10% (which was 7.8125% on GST inclusive price) resulting in reduction in prices to the dealers. There was no change in the sale price of the respondent (before GST) and the impact of GST rate change was accordingly passed on to the dealers.

It was further contended that it was a settled position that where there was no machinery for assessment, the law being vague, it would not be open to the authorities to arbitrarily assess the tax.

Based on report, contentions and evidences, the NAA determined profiteering amount at  ₹ 37,85,342/-as per the provisions of Rule 133 (1) of the Rules. Accordingly, the Respondent was directed to reduce the prices commensurately in terms of Rule 133 (3) (a) of the said Rules. The Respondent was also directed to deposit an amount of ₹ 37,85,342/- in the Consumer Welfare Fund (CWF) of the Central and the concerned State Government within 3 months of the order, as the recipients were not identifiable, as per the provisions of Rule 133 (3) (c) of the above Rules along with 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.

Thus, 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 CGST Act, 2017. Therefore, it was apparently liable for imposition of penalty under 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 the order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by this Authority is deposited in the CWFs of the Central and the State Governments.