CAN THERE BE PROFITEERING IN CINEMA TICKETS ? YES !!

[Dr. Sanjiv Agarwal]

Generally anti-profiteering has been so far established and upheld in cases of supply of goods including immovable properties. However, services sector are also equally covered in the scope of section 171 of CGST Act, 2017, on anti-profiteering.

In what could rarely be anticipated, a cinema goer dragged the theatre u/s 171 for charging a higher amount on cinema tickets. To its shock and surprise, it was established that cinema owner was guilty of profiteering charges and was penalised.

SHRI HIMANSHU SHARMA, DIRECTOR GENERAL OF ANTI-PROFITEERING, CENTRAL BOARD OF INDIRECT TAXES & CUSTOMS, VERSUS M/S. NY CINEMAS LLP [2020 (3) TMI 612 - NATIONAL ANTI-PROFITEERING AUTHORITY]; dated 12.03.2020, complainant had alleged that the respondent cinema hall had not passed on the benefit of reduction in the GST rates on “Services by way of admission to exhibition of cinematograph films where price of admission ticket was above one hundred rupees” from 28% to 18% and “Services by way of admission to exhibition of cinematograph films where price of admission ticket was one hundred rupees or less” from 18% to 12% w.e.f. 01.01.2019, vide Notification No. 27/2018- Central Tax (Rate) dated 31.12.2018, by way of commensurate reduction in prices, in terms of Section 171 of the Central Goods and Services Tax Act, 2017 and instead, had increased the base prices to maintain the same cum-tax selling prices of the admission tickets.

The matter was referred to DGAP for investigation who submitted its report dated 12.09.2019 covering the period 01.01.2019 to 31.03.2019.

The respondent was engaged in the business of running a chain of multiplexes in India and had screens operational in Kotkapura of Punjab State, Greater Noida, Hapur, Ghazipur, Raebareli, Pilkhua and Kanpur Districts of Uttar Pradesh and Surendra Nagar and Bhuj Districts of Gujarat. It submitted that it had legitimately reduced the rates of tax for movie tickets but was not able to incorporate changes in the tax rates for the movie tickets of value more than ₹ 100/- from 28% to 18% and for movie tickets of value less than or upto ₹ 100 from 18% to 12% for the initial period of 2 days i.e. 01.01.2019 to 02.01.2019.

Further, section 171 was not contravened because:

1. the benefit was passed on to the consumers only in the cases where reduction in the rates of tax had not reduced the cum-tax prices of the admission tickets.
2. the base prices of the admission tickets had remained unchanged for the period from 01.01.2019 to 02.01.2019.
3. the rates of tax had also remained unchanged for the period from 01.01.2019 and 02.01.2019.

It was not a case of profiteering, rather it was a case of excess tax collected which had been voluntarily paid by him. It was observed that there were basically three classes of tickets in the theatre, namely, Gold, Platinum and Premium. The pricing of tickets for a movie varied within each category depending on the timing of the show as well as part of the week during which the movie was being screened i.e. weekdays or weekends.

According to DGAP, it appeared that the allegation of profiteering by way of either increasing the base prices of the services or by way of not reducing the selling prices of the services commensurately, despite a reduction in the GST rates on “Services by way of admission to exhibition of cinematograph films where price of admission ticket was above one hundred rupees” from 28% to 18% and on “Services by way of admission to exhibition of cinematograph films where price of admission ticket was one hundred rupees or less” from 18% to 12%, w.e.f. 01.01.2019 stood established against the Respondent. On this account, the Respondent has realized an excess amount to the tune of 14/- from the complainant which included both the profiteered amount and the GST on the profiteered amount.  The Respondent had realized an excess amount of 4,01,5061- from the other recipients and the complainant which included both the profiteered amount and the GST on the profiteered amount. These other recipients were not identifiable as no details of these customers could be ascertained.

The respondent objected to the charge of profiteering vide submissions in para 18 of the text of Order.

The NAA observed that it was revealed that the Central and the State Governments had reduced the rates of GST on “Services by way of admission to exhibition of cinematograph films where price of admission ticket was above one hundred rupees” from 28% to 18% and “Services by way of admission to exhibition of cinematograph films where price of admission ticket was one hundred rupees or less” from 18% to 12% w.e.f. 01.01.2019, vide Notification No. 27/2018- Central Tax (Rate) dated 31.12.2018, the benefit of which was required to be passed on to the recipients as per the provisions of Section 171 of the CGST Act, 2017.

The NAA dealt with respondent’s submissions and came to conclusion that the respondent had indulged in profiteering in violation of the provisions of Section 171 of the CGST Act, 2017 and has not passed on the benefit of reduction in the rates of tax as per the Notification No. 27/2018- Central Tax (Rate) dated 31.12.2018 in respect of the above services to customers and  therefore, it was liable for action under Rule  133 of the CGST Rules, 2017.

Accordingly, the profiteered amount was determined as Rs. 3,90,272/- (₹ 4,01,520- ₹ 11,248) which includes an amount of ₹ 14/- including the GST which the Respondent has profiteered in respect of the complainant and Rs. 3,90,258/-(Rs. 3,90,272-₹ 14) in respect of the other recipients which also includes the GST on the said profiteered amount, as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent was directed to reduce the sale prices of the admission tickets immediately commensurate to the reduction in the rates of tax as were notified on 31.12.2018 and pass on the benefit of reduction in the rates of tax to its customers. Further, it was directed to refund an amount of ₹ 14/- to the complainant along with interest to be calculated @ 18% from the date when the said amount was collected by it till the above amount is paid. Since, the rest of the recipients in this case were not identifiable, the Respondent was directed to deposit the balance amount of profiteering of ₹ 1,95,129/- in the Central CWF and ₹ 1,95,129/- (Total Rs. 3,90,258) in the Uttar Pradesh State CWF as per the provisions of Rule 133 (3) (C) of the CGST Rules, 2017, along with 18% interest, as all the supplies were made in the District of Hapur in the State of Uttar Pradesh. The  above amount shall be deposited within a period of 3 months from the date of receipt of this order failing which the same shall be recovered by the concerned Commissioners CGST/SGST as per the provisions of the CGST/SGST Act, 2017.

Since, the Respondent had denied the benefit of rate reductions in the GST to its customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and thus profiteered as per the explanation attached to Section 171 of the said Act, it was apparently 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 Uttar Pradesh 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 passed on to the complainant and deposited in the State and the Central CWF.

Further, since the Respondent had itself admitted that he has profiteered in respect of the above screens there are sufficient grounds to believe that the Respondent has apparently not passed on the benefit of tax reductions in respect of other cinema halls and other such screens located all over India. Accordingly, Authority, as per the provisions of Rule 133 (5) (a) of the CGST Rules, 2017, directed the DGAP to further investigate all the above screens and any other screens being operated by the Respondent in the Country, for violation of the provisions of Section 171 of the CGST Act, 2017 and submit the Report as per the provisions of Rule 133 (5) (b) of the CGST Rules, 2017, as the Respondent is liable to pass on the benefit of tax reductions in respect of all the screens as per the provisions of Section 171.