PROFITEERING ON SUPPLY OF USED OFFSET PRESS UPHELD

[Dr. Sanjiv Agarwal]

Can there be profiteering on supply of second hand goods ? The answer is Yes as was held by National Anti-profiteering Authority in SHRI ANIL SHARMA, FORTUNE PRINT SERVICES, DIRECTOR GENERAL OF ANTI-PROFITEERING, CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS VERSUS M/S. PRINTING MACHINE SOLUTIONS [2020 (5) TMI 265 - NATIONAL ANTI-PROFITEERING AUTHORITY];  

In the instant case, complainant filed a complaint  alleging profiteering in respect of the supply of a “Used Heidelberg Speed Master Offset Press with complete tools and accessories (Model SM 74-5+LX, Year of manufacture 1997)” by the Respondent. He had  purchased an imported “Used Heidelberg Offset Press SM 74-5 +LX, Mfg. Year 1997 with complete tools and accessories” from the Respondent for which the Respondent had quoted price of ₹ 1,40,00,000/-(plus local Sales Tax, if applicable) as per the proforma Invoice No. Press/DA/PMS/060517 dated 06.05.2017. He was, however, billed for an amount of ₹ 1,65,20,000/- as per tax invoice No. 01 dated 29.07.2017, which included GST @ 18% on ₹ 1,40,00,000/-. It was also alleged that after the implementation of the GST, various existing taxes like VAT, CST, CVD, SAD etc. had been subsumed in the GST but the Respondent charged 18% GST on ₹ 1,40,00,000/- which was the quoted price inclusive of erstwhile taxes like CVD and SPL CVD etc. and did not pass on the benefit of ITC to him by way of commensurate reduction in price in terms of Section 171 of the CGST Act, 2017.

The matter was referred to DGAP for investigation who submitted its report dated 25.10.2019 to NAA.  The DGAP observed that any additional benefit of ITC in the GST regime was required to be passed on by the suppliers to the recipients by way of commensurate reduction in price, in terms of Section 171 of Goods and Services Tax Act, 2017.  Further, in the event of the 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 the input tax credit. 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 that a supplier could adopt to pass on such benefits.

In the instant case, proforma invoice was issued for used Heidelberg speed master offset press with complete tools and accessories @ ₹ 1.40 crore + 5 % VAT in May, 2017. The invoice came to be issued in July, 2017 for ₹ 1.40 crore + 18% GST (9% CGST, 9% SGST).

According to DGAP, had the import of the Used Heidelberg Speed Master Offset Press with complete tools and accessories (Model SM 74-5+LX, Year of manufacture 1997)” taken place before implementation of GST when the quotation dated 06.05.2017 was provided to the above Applicant, the Respondent would have suffered Countervailing Duty (CVD) @ 12.5% and Special Additional Duty (SAD) @ 4% at the time of import. Though the refund of the amount paid by the Respondent as SAD would have been available to him upon the sale of the products, the credit of CVD paid by the Respondent would not have been available, and would have formed an embedded part of the cost of the product. However, the actual import of the said machine had taken place vide Bill of Entry No. 2432766 dated 13.07.2017, i.e., after implementation of GST, when the CVD and SAD were replaced by IGST and the full amount of IGST@ 18% paid at the time of actual import was available as ITC to the Respondent.

In light of the legal position regarding the duties payable and the credits available (or not available) both at the time, the quotation was given and when the actual import took place after the introduction of GST, the finding was that the Respondent should have reduced the base price to the extent of the CVD that was no longer to be paid as well as to the extent of the IGST the credit of which was now available. However, the invoice that was raised on 29.07.2017 for the transaction and on which IGST@18% was charged showed that the base price of the product remained the same, i.e., ₹ 1,40,00,0001- as per the quotation dated 06.05.2017. Thus, the base price was not reduced to the extent of CVD that was not payable in the post-GST period.

The total price to be charged from the applicant should have been ₹ 1,58,28,879/- instead of ₹ 1,65,00,000/- and the amount of profiteering by the Respondent was ₹ 6,71,121/- [₹ 1,65,00,000(-) ₹ 1,58,28,879].

The calculation of the amount of profiteering can be summarized as below:-

Description	Amount (in Rs.)
Taxable value at the time of import (A)	46,85,564
CVD©12.5% of the taxable value at the time of import (B)	5,85,696
Base price charged by the Respondent (C)	1,40,00,000
Commensurate base price (D=C-B)	1,34,14,304
IGST(18%) (E=D x 0.18)	24,14,575
Commensurate cum-tax price (F= D+E)	1,58,28,879
Price actually charged by the Respondent (G)	1,65,00,000
Profiteering amount (H=G-F)	6,71,121

The DGAP also stated that as the benefit of ITC had not been passed on to the complainant  the provisions of Section 171 (1) of the CGST Act, 2017 have been contravened and the amount of profiteering by the Respondent was ₹ 6,71,121/-(inclusive of GST©18% amounting to ₹ 1,02,374/- charged on the excess base price).

The NAA considered the report and the submissions. The NAA came to conclusion that the Respondent has violated the provisions of Section 171 of the CGST Act 2017 in as much as he had not passed on the benefit of reduction of tax/ additional ITC in respect of the supply effected by it to complainant, and therefore, it was liable for action under Rule 133 of the CGST Rules, 2017.

The Respondent had acted in contravention of the provisions of Section 171 of the CGST Act, 2017 and has not passed on the benefit of reduction in the rate of tax/ additional ITC to the complainant by commensurate reduction in the price. Accordingly, the amount of profiteering was determined as ₹ 6,91,121/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017.

The Respondent was liable to refund the profiteered amount of ₹ 6,91,121/-, along with the interest to be calculated at 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited/refunded. It was also held 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 Delhi to monitor this order under the supervision of the DGAP by ensuring that the interest amount as ordered by the Authority is passed on to the complainant.

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