ANTISEPTIC – ANTI-PROFITEERING UNDER GST

[Dr. Sanjiv Agarwal]

Recently, the National Anti-profiteering Authority (NAA) affirmed the charges of excessive profiteering in contravention of the provisions of section 171 of the CGST Act, 2017 on supply of ‘dettol’ liquid  900 ml bottle vide order dated 19.03.2020. [Rahul Sharma, Local Circles (I) Pvt. Ltd., and DGAP, New Delhi v. Reckitt Benckiser India Pvt. Ltd., Gurugram and Affiniti Enterprises, Delhi 2020 (4) TMI 571 - NATIONAL ANTI-PROFITEERING AUTHORITY ].

In the instant case, complainant filed a complaint stating that the Respondent No. 1 had resorted to profiteering in respect of supply of “Dettol HW Liquid Original 900 ml” and had also alleged that the Respondent No. 1 (Reckitt Benckiser India Pvt. Ltd) had not passed on the benefit of reduction in the GST rate from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 and instead, increased the base price of the above product. The complainant also stated that the (Reckitt Benckiser India Pvt. Ltd) had supplied “Dettol HW Liquid Original 900 ml” to M/s Big Bazar, Inderlok on 07.11.2017 under Purchase Order (PO) No. 8115009618 with the MRP of ₹ 189/- per unit, on 21.12.2017 under PO No. 4514107805 with the MRP of ₹ 209/- and on 20.06.2018 under PO No. 4518283635 with the MRP of ₹ 192/- and thus he had not reduced the price of the above product commensurately.

The matter was referred to DGAP for investigation who submitted its report dated 19.09.2019 covering the period from 15.11.2017 to 31.03.2019.

Reckitt submitted that it did not supply the product directly nor did the purchase order of Big Bazar was given to it. Since the supplies were made by M/s Affiniti Enterprises, it was made Co-noticee (Respondent No. 2). Since Reckitt did not responded, Summons were issued to Managing Director of the Respondent No. 1 under Section 70 of the CGST Act, 2017 read with Rule 132 of the CGST Rules, 2017 to appear before the Assistant Commissioner, Directorate General of Anti profiteering and to produce the relevant documents.

The Respondent No. 1 filed a RECKITT BENCKISER INDIA PRIVATE LIMITED VERSUS UNION OF INDIA THROUGH: ITS SECRETARY & ORS. [2019 (7) TMI 1135 - DELHI HIGH COURT] Writ Petition No. 7743/2019, before the  High Court of Delhi and the Court vide its orders dated 19.07.2018 and 22.08.2019 had granted stay on the submission of the information in respect of the products other than the complained product, during the pendency of the Writ Petition. The Respondent No. 2 had also filed a Writ Petition No. 816212019, before the  High Court of Delhi and the court vide its orders dated 29.07.2018 and 22.08.2019 had granted stay on submission of information in respect of the products other than the complained product, during the pendency of the Writ Petition. Therefore, the DGAP in compliance of the above orders of the  High Court of Delhi, limited the investigation to the complained product “Dettol HW Liquid Original 900 ml” only in respect of the supplies made by both the Respondents. The DGAP investigated the profiteering by both the parties separately.

Reckitt made the following submissions :

1. That he had taken necessary steps to reduce the price of the above product at the earliest possible time. Till 31.08.2017, he was selling the product with MRP of ₹ 189/- per unit. For commercial reasons, the MRP of the said product was increased to ₹ 209/- per unit w.e.f. 01.09.2017. When the GST rate on the product was reduced from 28% to 18%, he had reduced the MRP by 8.1% from ₹ 209/- to ₹ 192/- w.e.f. 24.11.2017.
2. That his product had a shelf life of 18 to 24 months and it was most likely that the complainant had bought the product having an old manufacturing date, which must have been lying on the shelf of the retailer, on which he did not have any control.
3. That the pricing to different type of customers was different. The different types of customers were Canteen Stores Department (CSD), Distributors, Direct Modern Trade, E-Commerce Trade, Indirect Modern Trade and Super Stockists.
4. That there were cases of return of goods by the customers back to him, for which he had issued credit notes with GST. He requested that the supplies against which credit notes had been issued, should be excluded from the investigation.
5. That in respect of the CSD supplies, the prices were negotiated without tax and thereafter taxes prevailing were charged at the time of supply.
6. That he had increased the price of the product from ₹ 192/- per unit to ₹ 209/- per unit w.e.f. 01.06.2018 due to commercial reasons such as increase in the rate of Customs Duty, forex rate fluctuations and market forces etc.
7. That he had submitted the price trend of the product from September, 2014 and the price of the product was ₹ 170/- per unit in September, 2014, the price was further increased to ₹ 189/- per unit in September, 2016. Thereafter, in September, 2017, the price of the product was increased to ₹ 209/- per unit.
8. That the benefit of ITC claimed in TRAN-1 statement had not been accepted by the GST authorities due to some technical glitch for which he had been running from pillar to post and had filed a Writ Petition before the  Punjab & Haryana High Court.

The main issue to be decided was whether the rate of GST on the product “Dettol HW Liquid Original 900 ml” supplied by the Respondent No. 1 & 2 was reduced w.e.f. 15.11.2017 and if so, whether the above Respondents have passed on the benefit of such reduction in the GST rate to the recipients, in terms of Section 171 of the CGST Act, 2017.

The Central Government, had reduced the GST rate on the “Dettol HW Liquid Original 900 ml” from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017

According to DGAP, it was important to examine the provisions of Section 171 of the Act and it was clear that in the event of benefit of ITC or reduction in the rate of tax, there must be a commensurate reduction in the prices of the goods or services. Such reduction could only be in terms of money, so that the final price payable by a recipient got reduced commensurate with the reduction in the tax rate or benefit of ITC. This was the only legally prescribed mechanism to pass on the benefit of ITC or reduction in the rate of tax to the recipients under the GST regime and there was no other method which a supplier could adopt to pass on such benefits.

The respondent contended that it had contended that he had increased the MRP of the product from ₹ 192/- per unit to ₹ 209/- per unit w.e.f. 01.06.2018 due to commercial reasons such as increase in the rate of Customs Duty, forex rate fluctuations and the market forces etc. and the price of the product was ₹ 170/- per unit in September, 2014 which was further increased to ₹ 1891- per unit in September, 2016. Thereafter, in September, 2017, the price of the product was increased to ₹ 209/- per unit.

While calculating profiteering in this case, the average base price was calculated for the period immediately before 15.11.2017 and then compared with the transaction value of each invoice during the period after 15.11.2017. Thus, where the Respondent No. 1 had reduced the price after 24.11.2017, the average base price was compared with the actual transaction value of the reduced price only and benefit extended to the Respondent No.1. The invoices against which credit notes have been issued by the Respondent No. 1, were excluded from the investigation.

It was revealed that it had increased the base price of the product “Dettol HW Liquid Original 900 ml” when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017. For product viz. “Dettol HW Liquid Original 900 ml”, average base price had been calculated during the pre-GST rate reduction period from 01.11.2017 to 14.11.2017 and then profiteering has been calculated for the post-GST rate reduction period.

As per the pre and post-reduction GST rates and the details of the outward taxable supplies (other than zero rated, CSD, nil rated and exempted supplies) of the product “Dettol HW Liquid Original 900 ml” during the period from 15.11.2017 to 31.03.2019, as furnished by the Respondent No. 1, the amount of net higher sales realization due to increase in the base price of the product, despite the reduction in the GST rate from 28% to 18% or in other words, the profiteered amount came to ₹ 63,14,901/-.

The said profiteered amount was arrived at by comparing the average of the base prices of the product “Dettol HW Liquid Original 900 ml” sold during the period from 01.11.2017 to 14.11.2017 differently for different types of customers i.e. CSD, Distributors, Direct Modern Trade, E-commerce Trade, Indirect Modern Trade and Super Stockists, with the actual invoice-wise base prices of such products sold during the period from 15.11.2017 to 31.03.2019. The excess GST so collected from the recipients, has also been included in the aforesaid profiteered amount as the excess price collected from the recipients also included the GST charged on the increased base price. Further, perusal of the outward sales data made available by the Respondent No. 1 indicated that he had profiteered by an amount of ₹ 45,444/- from the Respondent No. 2 during the period from 15.11.2017 to 31.03.2019.

In case of respondent No. 2,  it had increased the base price of the product “Dettol HW Liquid Original 900 ml” when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017. On the basis of the pre and post-reduction GST rate and the details of the outward taxable supplies (other than zero rated, nil rated and exempted supplies) of the product “Dettol HW Liquid Original 900 ml” during the period from 15.11.2017 to 31.03.2019, as furnished by the Respondent No. 2, the amount of net higher sales realization due to increase in the base prices of the product, despite the reduction in the GST rate from 28% to 18% or in other words, the profiteered amount came to ₹ 2,33,456/-.

The NAA considered the report as well as submissions of respondents. It was submitted that :

1. The proceedings were without jurisdiction as they are barred by limitation prescribed under Rule 128 (1) of the CGST Rules, 2017
2. In the absence of prescription under Section 171 of the CGST Act and  / or Rule 129 of the CGST Rules prescribing the period of investigation, the period of 15.11.2017 to 31.03.2019 adopted by DGAP was arbitrary and was liable to remand the matter for re-investigation & recalculation
3. Increase in price of product w.e.f. 01.06.2018 was a routine increase and due to commercial reasons
4. The DGAP had taken an average of price of complained product for calculating pre-GST Base Selling Price, but not for post-GST rate reduction, Base Selling Price
5. Benefit of Credit Notes on account of sales returns was not considered by the DGAP while computing the alleged profiteering
6. Supplies made to ‘Institutional Distributor’ Channel Partner were based on contractual and negotiated prices (excluding the taxes). The same could not be considered for the purpose of present calculation by DGAP
7. In the absence of methodology prescribed in the CGST Act or Chapter XV of the CGST Rules for calculation of profiteering, the procedure adopted by the DGAP in his Report was arbitrary and subjective
8. The findings of the DGAP in its Report were in violation of the import and meaning of Section 171 of the CGST Act
9. Passing of commensurate reduction benefit could be in monetary or non-monetary terms
10. Alleged profiteered amount has been inflated in the DGAP Report, by adding GST; such inclusion was not sustainable in law

The NAA determined the profiteered amount at ₹ 63,14,901/- in respect of the Respondent No. 1 and ₹ 2,33,456/- in respect of the Respondent No. 2 in terms of Rule 133 (1) of the CGST Rules, 2017, during the period from 15.11.2017 to 31.03.2019. The Authority under Rule 133 (3) (a) of the CGST Rules, 2017 ordered that the Respondent No. 1 & 2 shall reduce their prices commensurately. The Respondent No. 1 & 2 were also directed to deposit an amount of ₹ 63,14,901/- and ₹ 2,33,456/- respectively in the CWF of the Central and the concerned State Governments, as the recipients were not identifiable, as per the provisions of Rule 133 (3) (c) of the above Rules alongwith 18% interest payable from the dates from which the above amount was realised by them from their recipients till the date of deposit. The above amount shall be deposited within a period of 3 months from the date of passing of the order failing which it shall be recovered by the concerned Commissioners CGST/SGST.

Since the Respondent No. 2 has made supplies in the NCT of Delhi only the profiteered amount shall be deposited by him in the CWF of the Central Government and the Government of NCT of Delhi respectively, as per the provisions of Rule 133 (3) (o) along with the interest @ 18% within a period of 3 months failing which the same shall be recovered by the concerned Commissioner CGST/SGST.

The Respondent No. 1 and 2 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. Therefore, both the Respondents were also apparently liable for the 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 Respondents as ordered by this Authority is  deposited in the CWFs of the Central and the State Governments.

Before High Court

The company filed a writ petition against RECKITT BENCKISER INDIA PRIVATE LIMITED VERSUS UNION OF INDIA AND ORS. [2020 (7) TMI 610 - DELHI HIGH COURT] before Delhi High Court [W.P. (C) No. 4345 of 2020] challenging the constitutional validity of section 171 of the CGST Act, 2017, CGST Rules and NAA order. The court issued notice to the respondents and directed the petitioner to deposit ₹ 63.14 lakh as amount of profiteering determined by the NAA within two weeks. The amount once deposited shall be kept in maximum interest bearing account awaiting the adjudication of the petition.