PROFITEERING TOO GRINDED IN SUPPLY OF MIXER GRINDER GST LAW

[Dr. Sanjiv Agarwal]

A mixer grinder is supposed to grind the items meant for grinding in smaller sizes. In a case of anti-profiteering in supply of a mixer grinder, the supplier was held to have indulged in profiteering in contravention of section 171 of the CGST Act, thus grinding the extra profits too.

SHRI S.C. GROVER, DIRECTOR GENERAL OF ANTI-PROFITEERING, INDIRECT TAXES & CUSTOMS, VERSUS M/S. GARG KITCHEN COLLECTION [2020 (3) TMI 406 - NATIONAL ANTI-PROFITEERING AUTHORITY] the complainant had alleged profiteering in respect of the supply of ‘Sujata Mixer Grinder 900W’ by the Respondent who had not passed on the benefit of reduction in the rate of GST on the impugned product supplied by it, although the rate of GST was reduced from 28% to 18% w.e.f. 27.07.2018 vide Notification no. 18/2018-Central Tax (Rate) dated 26.07.2018, by way of commensurate reduction in price, in terms of Section 171 of the CGST Act, 2017.

The said complaint was referred to DGAP for investigation for the period from 27.07.2018 to 28.02.2019 and submitted the report dated 04.09.2019 and supplementary report dated 10.10.2019 to NAA.

It was submitted by the respondent that the reduction in the GST rate was to be given effect on 27.07.2018, but he was not aware of Notification No. 18/2018-Central Tax (Rate) dated 26.07.2018. He started passing on the benefit of the reduction in the GST rate to its recipients/customers, as soon as he become aware of the reduction in the tax rate. He had deposited the entire GST @ 28% with the Government which he had recovered from its buyers during the relevant period and thus the recipient/customer was at liberty to claim the refund of the excess GST paid at the time of purchase of the goods from it. It was also contended that he had mistakenly sold the goods with GST @ 28% instead of charging GST @ 18% only for five days, i.e, from 27.07.2018 to 31.07.2018, and that too unintentionally and that he had deposited the excess GST charged by supplier in the Government treasury and contended that he it had not profiteered in the process.

DGAP’s report stated that the Central Government, ‘on the recommendation of the GST Council’, reduced the GST rate on the goods supplied by the Respondent from 28% to 18% w.e.f. 27.07.2018, vide S. No. 376AC, 376AD and 378A of the Schedule III attached to the Notification No. 18/2018-Central Tax (Rate) dated 26.07.2018 and that the impugned product, i.e., ‘Sujata Mixer Grinder 900W’ was covered by the said Notification.

The legal requirement u/s 171 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 in price 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 such benefit under the GST regime and that there was no other method which a supplier could adopt to pass on the benefits to its customers/recipients.

It appeared that the Respondent had increased the base prices of the goods when the rate of GST was reduced from 28% to 18% w.e.f. 27.07.2018 and hence the commensurate benefit of GST rate reduction had not been passed on by it to its customers/recipients. The amount of net higher sales realization due to the increase in the base prices of all impacted goods, when the GST rate was reduced from 28% to 18% w.e.f. 27.07.2018 or in other words, the total profiteered amount during the period 27.07.2018 to 28.02.2019, was ₹ 30,153/-.

The profiteered amount was the sum of total of the profiteered amounts arrived at by comparing the average of the base prices of all the products impacted by GST rate reduction w.e.f. 27.07.2018 which were sold during the period 01.07.2018 to 26.07.2018 (or during the period 01.04.2018 to 30.06.2018 for the products not sold during the period 01.07.2018 to 26.07.2018), with the actual invoice-wise base prices of such products sold during the period 27.07.2018 to 28.02 2019. The profiteered amount also included the GST charged on the increased base prices.

The allegation that the base prices of the goods were increased when there was reduction in the GST rate from 28% to 18% w.e.f. 27.07.2018 appeared to be correct and by doing so the commensurate benefit of reduction in GST rate from 28% to 18%, was not passed on by the Respondent to its recipients and that Section 171(1) of the CGST Act, 2017 had been contravened.

The respondent also contended that :

1. it was a small retailer and that the goods had been sold in retail at discounted prices with discounts upto 40%, which were much lower than the MRP and as such he had not profiteered.
2. the discounts offered by it may be considered as the benefit of reduced rate of GST.
3. the excess GST charged mistakenly from the buyers after the GST rate reduction (w.e.f. 27.07.2018 to 31.07.2018) had been deposited in the government treasury by it.

DGAP clarified in its report that the discounts offered by the Respondent were pursuant to a discretionary business Strategy wherein he willingly cut into its profit margins to offer appropriate discounts time and again. Further, Section 15 (3) (a) provided that the value of the supply shall not include any discount which was given before or at the time of supply if the said discount has been duly recorded in the invoice issued in respect of such supply. Thus GST was chargeable on the actual transaction value after excluding any discount and therefore, for the purpose of computation of profiteering, MRP could not be considered. The actual transaction value was the correct amount which was to be considered to determine whether any reduction in the rate of tax on any supply of goods or services has been passed on to the recipient by way of commensurate reduction in price. The DGAP also stated that the profiteering has been calculated on the basis of the invoice/transaction value which was after allowing discount.  The actual consumer had to suffer an amount which was not required to be paid by it after the reduction in tax rate. Thus, the commensurate benefit to the recipient had not been passed on as required in line with the provisions of Section 171 of the CGST Act, 2017.

The NAA considered the DGAP report and it observed that the Central Government vide Notification No. 18/2018-Central Tax (Rate) dated 26.07.2018 had reduced the rate of GST for the product from 28% to 18% with effect from 27.07.2018 and the benefit of the same was required to be passed on to the recipients by the Respondent as per the provisions of Section 171 of the CGST Act, 2017.

It was evident that the Respondent had increased the base prices of the goods when the rate of GST was reduced from 28% to 18% w.e.f. 27.07.2018, so that the commensurate benefit of GST rate reduction was not passed on to its recipients. Thus, by increasing the base price of the product the benefit of reduction in the tax rate was not passed on to the recipients by the Respondent and hence he has contravened the provisions of Section 171 of the CGST Act, 2017 and accordingly the DGAP vide Annexure-9 of his Report has correctly arrived at the profiteered amount ₹ 30,153/-.

The NAA directed the respondent to reduce the prices of its 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 and  directed to deposit the profiteered amount of ₹ 30,153/- along with the interest to be calculated @ 18% from the date when the above amount was collected by it from the recipients till the above amount is deposited in terms of Rule 133 (3) (b) of the CGST Rules, 2017. Since, rest of the recipients in this case were not identifiable, the Respondent was also directed to deposit the amount of profiteering of ₹ 30,153/- along with interest in the Consumer Welfare Fund 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 in the Central and State CWFs along with interest @ 18% till the same is deposited.

The said amount shall be deposited within a period of 3 months by the Respondent, from the date of receipt of the 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.

Further, since the Respondent had denied the benefit of rate reduction of the GST to the consumers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and had thus resorted to profiteering, it had committed an offence under Section 171 (3A) of the CGST Act, 2017 and therefore, it was apparently liable to penalty under the provisions.