PROFITEERING UNDER GST CONFIRMED ON SUPPLY OF ‘FOOD PROCESSOR’

[Dr. Sanjiv Agarwal]

In KERALA STATE LEVEL SCREENING COMMITTEE ON ANTI-PROFITEERING, COMMISSIONER, DIRECTOR GENERAL OF ANTI-PROFITEERING, CENTRAL BOARD OF INDIRECT TAXES & CUSTOMS VERSUS M/S. PHILLIPS INDIA LTD.  2020 (6) TMI 81 - NATIONAL ANTI-PROFITEERING AUTHORITY; , National Anti-profiteering Authority has confirmed charges of profiteering in contravention of Section 171 of CGST Act, 2017 read with  Rule 128 to 136 of CGST Rules, 2017 vide order dated 19.05.2020.

In the instant case, complainant filed the complaint alleging profiteering by the Respondent on the supply of “Food Processor” (HSN: 85094090), by not passing on the benefit of GST at the time of implementation of the GST w.e.f. 01.07.2017. It was also alleged that the Respondent had indulged in profiteering in contravention of the provisions of Section 171 of the CGST Act, 2017. He relied on two invoices issued by the Respondent, one dated 09.05.2017 (Pre-GST) and the other dated 22.12.2017 (Post-GST).

The matter was referred to DGAP for investigation who carried out investigation for the period 01.07.2017 to 31.12.2018 and submitted its report dated 26.09.2018 and supplementary report on 14.08.2019.

It was observed that in the pre-GST era, the applicable tax rate on the product  “Food Processor” (HSN Code 85094090 was 26.24%, including Excise duty @ 12.5% (abatement @35% of MRP) and VAT @14.5%. On implementation of GST w.e.f. 01.07.2017, the GST rate on the said product was fixed at 28%. Since the allegation of profiteering was based on the observation that the pre-GST and post-GST MRP were the same, a comparison of pre and post-GST tax rates was done taking the MRP as the selling price.  The pre-GST and post-GST MRP was the same, i.e. ₹ 5795/.

The Central Government had levied GST @28% on Food Processor w.e.f. 01.07.2017 vide Notification No. 01/2017-Central Tax (Rate), dated 28.08.2017, which was reduced to 18% w.e.f. 15.11.2017, vide Notification No 41/2017- Central Tax (Rate), dated 14.11.2017.

The DGAP found that there was an increase in the rate of tax on “Food Processor” from 26.24% in the pre-GST era to 28% in the post-GST era. The DGAP found that the Respondent did not increase the MRP of the product which was ₹ 5,795 during both the periods. Furthermore, Section 171 of the Central Goods and Services Tax Act, 2017 came into play in the event when there was a reduction in the rate of tax or increase in the input tax credit, the latter was not the subject matter of this inquiry as there was no reduction in the rate of tax in the present case, the provisions of the said Section 171 were not attracted.

The NAA considered the report and since there was no complainant in this case, Kerala State Screening Committee appeared and argued that the issue of MRP has not been addressed by DGAP. The matter was referred back for re-investigation under Rule 133(4) of CGST Rules, 2017.

The respondent contended that the total tax incidence of tax on the impugned product had increased from 14.50% (pre-GST) to 28% (post-GST). However, the impugned product was imported from outside India and has liable to Countervailing Duty @ 12.50% on the abated MRP apart from Value Added Tax (ranging between 12.50% to 15.95%). Therefore, the average tax incident in the pre-GST era was 29.80% (Approx) which was reduced to 28% on the implementation of GST. The State-wise details of pre-GST tax incidence were furnished in Annexure-17 of the DGAP’s Report. Therefore, the contention of the Respondent that the total tax incidence on the impugned product has increased in the post-GST period was not correct.

The DGAP stated that the GST was chargeable on actual transaction value after excluding any discount and to establish profiteering, if any, Basic Price before discount could not be considered and the Basic Price after discount (excluding duties) should be taken into consideration. The rebates offered by the Respondent were in the form of logistics rebates, service rebates, and rebates on operational income and not on account of reduction in the rate of tax. Therefore, it was established that the Respondent had not passed on any benefit of reduction in the rate of tax to their recipients in any manner.

As per section 15(3), to exclude any discount after the supply has been affected, the supplier should produce an agreement of such a discount entered into at or before the time of such supply. Further, the discount should be specifically linked to the relevant invoice and the recipient should reverse the input tax credit attributable to such a discount. Since the aforesaid conditions were not satisfied in this case, the discount claimed by the Respondent after the supply has been affected was liable to be disallowed.

The amount of profiteering made by the Respondent for failing to pass on the benefit of the reduction in the rate of tax to the recipients, in terms of Section 171 of the Central Goods and Services Tax Act, 2017, worked out to ₹ 4,53,949/. The said profiteered amount was arrived at by comparing the State-wise average basic price (after discount) of the impugned product during the period 01.04.2017 to 30.06.2017, with the transaction-wise basic price (after discount) during the period 01.07.2017 to 31.12.2018 for all the States.

The NAA considered the report and profiteering was determined as ₹ 4,53,949/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017 and the supplier was directed to reduce the price of the impugned product as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. The Respondent was also directed to deposit the profiteered amount of ₹ 4,53,949/- along with the interest to be calculated @ 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited. Since the recipients, in this case, were not identifiable, the Respondent was directed to deposit the amount of profiteering of ₹ 2,26,975/- in the Central Consumer Welfare Fund (CWF) and ₹ 2,26,974/- in the State CWFs as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017, along with 18% interest within a period of 3 months from the date of receipt of this order failing which the same shall be recovered by the Commissioners CGST/SGST of the concerned State/Zone as per the provisions of the CGST/SGST Act, 2017.

Since Respondent has denied the benefit of reduction in the rate of tax to his buyers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017, and has thus resorted to profiteering, he had committed an offence under section 171 (3A) of the CGST Act, 2017, and therefore, liable for imposition of penalty under the provisions.

The Authority as per Rule 136 of the CGST Rules 2017 directed the Commissioners of CGST/SGST of concerned States/Zones 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 respective Consumer Welfare Funds.

The order also mentioned that as per the provisions of Rule 133 (1) of the CGST Rules, 2017 this order was required to be passed within a period of 6 months from the date of receipt of the Report from the DGAP under Rule 129 (6) of the Rules. However, due to the prevalent pandemic of COVID-19 in the Country this order could not be passed on or before the above date due to force majeure.

The NAA also ordered for further investigation as the Respondent had been engaged in the supply of several other products, prices of which have been impacted at the time of introduction of GST. Since, the DGAP has established that the Respondent has contravened the provisions of Section 171 of the CGST Act, 2017 while selling the product “Food Processor”, it becomes inevitable to investigate the profiteering aspect in respect of other impacted products too which have been supplied by the Respondent. Therefore, the Authority directed the DGAP to investigate into all the other impacted products which have been supplied by the Respondent and submit a detailed Report under Rule 133(5) of the CGST Rules, 2017.

Proceedings before High Court

The company filed a writ petition / appeal against the NAA order before Delhi High Court, wherein the interest amount as well as penalty and further investigation with regard to other impacted products as well as the letter dated 11th June, 2020 issued by the Director General of Anti Profiteering were stayed till further orders vide court order dated 25.06.2020. [PHILLIPS INDIA LIMITED VERSUS UNION OF INDIA & ORS. 2020 (6) TMI 626 - DELHI HIGH COURT ].

The instant writ petition challenged the order dated 19th May, 2020 passed by the National Anti-Profiteering Authority whereby it has been held that the petitioner had contravened the provisions of Section 171 of CGST Act and thereby had profiteered on the sale of its “food processor” product. The Authority had directed the petitioner to reduce the price of its “food processor” and deposit the profiteered amount of ₹ 4,53,949/- within a period of three months from the date of receipt of the order, along with interest calculated at the rate of eighteen per cent from the date of collection of the amount from the recipients till the date of deposit.

In the instant case, petitioner was directed to deposit ₹ 4,53,949/- with Central and State Consumer Welfare Boards within three months. The interest amount as well as penalty and further investigation with regard to other impacted products as well as the letter dated 11th June, 2020 issued by the Director General of Anti Profiteering were stayed till further orders. National Anti-Profiteering Authority had held that petitioner had profiteered on sale of its 'food processor' product and gave direction to expand scope of investigation to 'other impacted products'. The petitioner was directed to deposit ₹ 4,53,949/- with Central and State Consumer Welfare Boards within three months.  The interest amount as well as penalty and further investigation with regard to other impacted products as well as the letter dated 11th June, 2020 issued by the Director General of Anti Profiteering were stayed till further orders. Matter was listed for 07^th September, 2020.