GST - SUPPLY OF FROZEN GREEN PEAS: PROFIT UNFREEZED

[Dr. Sanjiv Agarwal]

Section 171 of CGST Act, 2017 provides a strong customer centric protection to receivers of services and goods against any attempt of unjustified profiteering at the cost of customer’s benefits being eroded. When the GST rates are reduced by the Government in larger public interest but supplier do not pass on its benefits to the consumers, section 171 comes to the rescue of consumers.

In one such case, complaint was filed by Principal Commissioner, Hyderabad alleging profiteering by the Respondent in respect of the product “Frozen Green Peas” supplied by it. It was alleged that the Respondent supplier had not reduced the selling price of the “Frozen Green Peas”, when the GST rate was reduced from 5% to Nil w.e.f. 01.01.2019 with denial of Input Tax Credit, vide Notification No. 25/2018-Central Tax (Rate) dated 31.12.2018. [SHRI M. SRINIVAS, DIRECTOR GENERAL OF ANTI-PROFITEERING, CENTRAL BOARD OF INDIRECT TAXES & CUSTOMS, VERSUS M/S. VIJETHA SUPERMARKETS PVT. LTD. - 2020 (6) TMI 676 - NATIONAL ANTI-PROFITEERING AUTHORITY  ]

The matter was referred to DGAP for investigation who covered the period from 1.1.2019 to 30.06.2019 and submitted its report dated 23.12.2019 to the NAA.

Since the respondent did not submit complete documents even after several letters, therefore, Summons under Section 70 of CGST Act, 2017 read with Rule 132 of the above Rules, were issued to Managing Director of the Respondent to appear in the DGAP's office.

DGAP submitted that the Central Government had reduced the GST rate on the “Frozen Green Peas” and “Frozen Sweet Corn” falling under the HSN 071021000 and 07104000, from 5% to Nil with the denial of ITC w.e.f. 01.01.2019, vide Notification No. 25/2018-Central Tax (Rate) dated 31.12.2018.

The DGAP observed that it was important to examine Section 171 of the CGST Act, 2017 which governed the anti- profiteering provisions under the GST. Section 171 (1) of the CGST Act, 2017 reads as “any reduction in rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in prices.” Thus, the legal requirement was abundantly 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 input tax credit. This was legally prescribed mechanism to pass on the benefit of ITC or reduction in the rate of tax to the recipients under the GST regime.

The Respondent did not reduce the selling price of the “Frozen Kings Green Peas 500 gm”, when the GST rate was reduced from 5% to Nil w.e.f. 01.01.2019, vide Notification No. 25/2018-Central Tax (Rate) dated 31.12.2018 and hence it had profiteered an amount of ₹ 10.55/- on a particular invoice and thus the benefit of reduction in GST rate was not passed on to the recipients by way of commensurate reduction in the price, in terms of Section 171 of the CGST Act, 2017. The amount of net higher sales realization due to increase in the base prices of the impacted goods, despite the reduction in the GST rate from 5% to Nil or in other words, the profiteered amount came to ₹ 2,33,515/-. The said profiteered amount had been arrived at by comparing the average of the base prices of the impacted goods sold during the period from 01.09.2018 to 31.12.2018, with the actual invoice-wise base prices of such products sold during the period from 01.01.2019 to 30.06.2019. The DGAP also furnished the place (State or Union Territory) of supply-wise break-up of the total profiteered amount of ₹ 2,33,515/-.

The DGAP concluded that the total amount of profiteering on account of contravention of the provisions of Section 171 of the CGST Act, 2017 covering the period from 01.01.2019 to 30.06.2019 was ₹ 2,33,515/-. Section 171 (1) of the CGST Act, 2017 requiring that “any reduction in rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in prices”, had been contravened by the Respondent in the present case.

The NAA considered the DGAP report and also the submissions of the respondent. The Respondent vide his letter dated 04.02.2020 has accepted the profiteered amount of ₹ 2,33,515/- as computed by the DGAP in Report dated 23.12.2019.

This Authority vide its order dated 11.02.2020 had directed the Respondent to deposit the Demand Drafts in the concerned Consumer Welfare Funds and to submit a copy of the receipts of the same before this Authority. It also furnished copies of the Demand Drafts of profiteered amount along with interest, a copy of which was supplied to the DGAP for verification.

The profiteered amount was determined as ₹ 2,33,515/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent was therefore, directed to reduce the prices of the above products 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. It was also directed to deposit the profiteered amount of ₹ 2,33,515/- along with the interest to be calculated at 18% from the date when the above amount was collected 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 ₹ 2,33,515/- in terms of Rule 133 (3) (c) of the CGST Rules, 2017, along with 18% interest in the Central and the State Consumer Welfare Funds of State of Andhra Pradesh and Telangana within a period of 3 months from the date of this order failing which the same shall be recovered by the concerned Commissioner CGST/SGST as per the provisions of the CGST/SGST Act, 2017.

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

The NAA 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 of the CGST Rules. Since the present Report has been received by this Authority on 24.12.2019 the order was to be passed on or before 23.06.2020. However, due to the prevalent pandemic of COVID-19 in the country, the order could not be passed on or before the above date due to force majeure.

It is always advisable for suppliers of goods and services to adhere to business ethics and not resort to anything which is in contravention of provisions of section 171 of the CGST Act, 2017. One ought to be legally complaint as well as ethically correct.