PROFITEERING UPHELD ON SUPPLY OF ‘AFTER SHAVE LOTION’

[Dr. Sanjiv Agarwal]

In one of the anti-profiteering complaints adjudicated recently, the complainant made an allegation that  M/s Raymond Ltd. had not passed on the benefit of tax reduction from 28% to 18% w.e.f. 15.11.2017 on “After-Shave Lotion Park Avenue Good Morning 50 ml which was supplied to M/s Big Bazaar, Inderlok run by M/s Future Retail Ltd., on 08.11.2017 under Purchase Order (PO) No. 8114997697 with MRP of ₹ 115/- per unit, on 19.12.2017 under PO No. 8115407972 with the same MRP of ₹ 115/- per unit and on 12.06.2018 vide PO No. 4518098598 again with the same MRP of ₹ 115/- per unit.

The matter was referred to DGAP for investigation who covered the period 15.11.2017 to 31.03.2019 and submitted report dated 24.09.2019

On facts, the ‘after shave lotion’ (product) was manufactured by the Respondent No. 1, an associate Company of M/s Raymond Ltd., which was also supplying them to the other marketing companies which further supplied them to the distributors. The distributors were supplying the above goods to retailers/mega stores such as M/s Big Bazaar, Inderlok which in turn were supplying these goods to the ultimate consumers.

Respondent No. 1 was not distributor of the above goods and that he had not supplied the same to M/s Big Bazaar or any other retailer/mega store. It had claimed that the allegation that the complained goods were supplied by him to M/s Big Bazaar, was not correct. The transaction referred had taken place between the Respondent No. 2 and M/s Big Bazaar and M/s Raymond Ltd. was not a party to the said transaction. It was also submitted by M/s Raymond Ltd. that on 15.11.2017, Respondent No 1 had issued letters to all his distributors intimating that there was reduction in the rate of GST on the impugned goods and they should pass on the commensurate benefit by giving an additional primary discount of 7.81% on the invoices. Accordingly, notice issued by DGAP to Raymonds Ltd. was withdrawn.

The purchase orders were issued by M/s Big Bazaar to the Respondent No. 2 and the said transactions referred in complaint were between the Respondent No. 2 and M/s Big Bazaar and first respondent was not a party to the said transactions.

Respondent No. 1 had issued letter dated 15.11.2017 to his distributors, including the Respondent No. 2, apprising them of the reduction in the rate of applicable GST on the subject goods with effect from 15 11.2017. Vide the said letter, it was advised to pass on the excess input tax credit benefit to the consumers via MRP reduction as per the directive of the GST Council and also vide another letter dated 15.11.2017, it had informed them that as far as the subject goods lying in the stock as on 15.11.2017 were concerned i.e. the inventory in respect of which he was unable to modify the MRPs affixed on such goods, the reduction in the total MRPs/ selling prices would be passed on by giving an additional primary discount of 7.81% on the face of the invoices.

The DGAP concluded that Respondent No. 1 did not reduce the selling price commensurately of the PA Asl Good Morning Splash 50ml (MRP 115/-) (NPAASG050008)” product, when the GST rate was reduced from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017 Central Tax (Rate) dated 14.11.2017 and hence it had profiteered an amount of ₹ 72.48/- on a particular invoice 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.

It had increased the base prices of the goods when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017 so that the commensurate benefit of GST rate reduction was not passed on to the recipients. The DGAP also contended that on the basis of the pre and post-reduction GST rates and the details of the outward taxable supplies (other than zero rated, nil rated and exempted supplies) of the impacted products supplied during the period from 15.11.2017 to 31.12.2018, as furnished by the Respondent No. 1, 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 28% to 18% or in other words, the profiteered amount came to ₹ 18,48,34,084/- and the said profiteered amount has been arrived at by comparing the customer type or channel-wise average of the base prices of the goods sold during the period from 01.11.2017 to 14.11.2017 (or the latest month i.e. October, 2017 and so on. in case those goods were not sold during 01.11.2017 to 14.11.2017), with the actual invoice-wise base prices of such goods sold during the period from 15.11.2017 to 31.03.2019. The excess GST so collected from the recipients. was also included in the aforesaid profiteered amount as the excess prices collected from the recipients also included the GST charged on the increased base prices.

Respondent No. 1 had profiteered an amount of ₹ 8,97,253/- from the Respondent No. 2 during the period from 15.11.2017 to 31.03.2019. The place (State or Union Territory) of supply-wise break-up of the total profiteered amount of ₹ 18,48,34,084/- was also furnished by the DGAP.

The Respondent No. 2 had increased the base prices of the products when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017. On the basis of pre and post-reduction GST rates and the details of the outward taxable supplies (other than zero rated, nil rated and exempted supplies) for all the products impacted by reduction in the rate of GST from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017, 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 products or in other words, the profiteered amount came to ₹ 38,64,891/-, and the said profiteered amount had been arrived at by comparing the average of the base prices (after discount) of the goods sold during the period from 01.11.2017 to 14.11.2017 (or the latest month i.e. October, 2017 and so on, in case these goods were not sold during 01.11.2017 to 14.11.2017), with the actual invoice-wise base prices of such goods sold during the period from 15.11.2017 to 31.03.2019.

The NAA considered the report of DGAP and the submissions of both the respondents. The NAA concluded that it was well established that both the Respondents have acted in contravention of the provisions of Section 171 of the CGST Act, 2017 and have not passed on the benefit of reduction in the rate of tax to their recipients by commensurate reduction in the prices. Accordingly, the amount of profiteering in respect of the Respondent No. 1 was determined as ₹ 18,48,34,084/- including the GST under the provisions of Rule 133 (1) of the CGST Rules, 2017, as per report of the DGAP. The place of supply wise break-up of the profiteered amount was given in DGAP report.

The profiteered amount in respect of the Respondent No. 2 was determined as ₹ 38,64,891/- in terms of Rule 133 (1) of the above Rules. The place of supply wise details were provided in DGAP report.

Further, the Respondent No. 1 had also profiteered an amount of ₹ 8,97,2531- from the Respondent No. 2. Since the amount was required to be passed on to the ultimate buyers hence, the same was to be deposited in the CWFs of the Central and the State Governments as per the provisions of Rule 133 (3) (C) of the CGST Rules, 2017 along with the interest and shall not be passed on to the Respondent No. 2 as it was not eligible to get the benefit of tax reduction at the expense of the common recipient.

Both the Respondents were directed to reduce the prices of the impacted 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 of tax reduction is passed on to the recipients. The Respondents were also directed to deposit the profiteered amounts mentioned above along with the interest to be calculated @ 18% from the date when the said amounts were collected by them from the recipients till said amounts are deposited, in terms of the Rule 133 (3) (b) of the CGST Rules, 2017. Since the recipients in this case were not identifiable, the Respondents were directed to deposit the above amounts of profiteering along with interest in the CWFs of the Central and the concerned State Governments as per the provisions of Rule 133 (3) (c) of the CGST Rules. 2017 in the ratio of 50:50 along with interest @ 18% till the same are deposited within a period of 3 months by the Respondents, from the date of receipt of order. failing which the same shall be recovered by the concerned Commissioners of the Central and the State GST, as per the provisions of the CGST/SGST Acts, 2017 under the supervision of the DGAP and shall be deposited as has been directed.

Since both the Respondents had denied the benefit of tax reduction from 28% to 18% w.e.f. 15.11.2017 to 31.03.2019, notified vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017, on the products which were being supplied by them to the consumers in contravention of the provisions of Section 171 (1) of the CGST Act. 2017 and had thus resorted to profiteering, they had committed an offence under Section 171 (3A) of the Central Goods & Services Tax Act. 2017 and therefore, they were apparently liable for imposition of penalty under the provisions.

The NAA also mentioned in its Order dated 11.05.2020 that as per the provisions of Rule 133 (1) of the CGST Rules, 2017 this order was to be passed on or before 24.03.2020 as the investigation Report was received from the DGAP on 25.09.2019. However, due to the COVID-19 pandemic prevailing in the Country the order could not be passed on or before the said due to force majeure. [SH. RAHUL SHARMA, M/S LOCAL CIRCLES INDIA PVT. LTD. AND DIRECTOR GENERAL OF ANTI-PROFITEERING, CENTRAL BOARD OF INDIRECT TAXES & CUSTOMS, VERSUS M/S J.K. HELENE CURTIS LTD. AND M/S SHREE SAI KRIPA MARKETING - 2020 (5) TMI 442 - NATIONAL ANTI-PROFITEERING AUTHORITY].