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2018 (10) TMI 510 - NAPA - GSTProfiteering - Benefit of reduction in the rate of tax - Maggi - reduction of rate of tax from 18% to 12% - increase in the base price of the product - benefit of the reduction of GST rate not passed, as base price increased - violation of the provisions of Section 171 of the CGST Act, 2017 - quantum of profiteering. Whether the benefit of reduction in the rate of tax on the above product had been passed on by the Respondent to the Applicant or not? Held that - The base price of the product was ₹ 3.96/- per pack before 15.11.2017 which was increased to ₹ 4.17/- per pack by the Respondent after the rate of tax on the product was reduced from 18% to 12% vide Notification dated 14.11.2017 and the product was sold to the recipients @ ₹ 4.67/- per pack. The Respondent was required to sell the product @ ₹ 4.43/- per pack due to reduction in the tax rate and hence he has resorted to profiteering of ₹ 0.24/- per pack. Therefore, there is no doubt that the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in the price charged by the Respondent which amounts to violation of the provisions of Section 171 of the above Act. It is also apparent from the facts of the case that the Respondent had no legal sanction to increase the base price of the product on his own and what was required of him was that he should have only reduced the MRP of the product by taking in to accout the effect of the reduction in the rate of tax. The Respondent was further required to fix the MRP keeping in view the provisions of the Legal Metrology (Packaged Commodities) Rules, 2011 which prescribe the methodology of fixining the MRP keeping in view the rounding off the price. Respondent has contended that he had passed on the benefit in respect of the product by way of reducing the MRP of the 70 Gms. products - Held that - The Respondent has no such liberty to arbitrarily decide in respect of which products he would pass on the benefit and in respect of which products he would not pass such benefit. As per the provisions of Section 171 of the Act the benefit has to be passed on to each recipient and the same can not be selectively granted or denied. It is also clear that the Maggi Noodle pack of 35 Gms. is distinct from a 70 Gms. pack and both the packs may be bought by the different recipients/customers and hence the benefit accruing to one customer can not be given or denied to another nor can the benefit given to one set of customers arbitrarily enhanced and set off against the another. No such adjustments are permissible under the Act. Quantum of profiteering - Held that - The quantum of profiteering is determined as ₹ 90,778/- including the profiteering of ₹ 2,253/- made by the Respondent from the Applicant No. 1. Accordingly, the Respondent is directed to reduce the price of the product commensurate to the reduction in the rate of tax. He is also directed to refund an amount of ₹ 2,253/- to the Applicant No. 1 alongwith interest @ 18% P. A. from the date form which the above amount was collected by the Respondent from him. Contravention of the provisions of Section 171 (1) of the CGST Act, 2017 - Held that - The Respondent had denied benefit of the reduction in GST rate to the consumers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus realized more price from them than he was entitled to collect and had also compelled them to pay more GST than that they were required to pay by issuing incorrect tax invoices and hence he has committed offence under section 122 (1) (i) of the CGST Act, 2017 and therefore, he is liable for imposition of penalty. Application disposed off.
Issues Involved:
1. Whether the benefit accrued due to reduction in the rate of tax of one product can be passed on via another product or not? 2. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 in this case? 3. If yes, then what was the quantum of profiteering? Issue-Wise Detailed Analysis: 1. Whether the benefit accrued due to reduction in the rate of tax of one product can be passed on via another product or not? The Respondent contended that the benefit of GST rate reduction on the 35 Gms. Maggi Noodles pack (MRP ?5/-) was passed on through other packs of Maggi Noodles with different grammage. Specifically, the Respondent claimed that reducing the price of the 70 Gms. pack (MRP ?12/-) by 92 paise to ?11/- sufficed for passing on the GST rate reduction benefit. However, the DGAP concluded that the Maggi Noodle packs of 35 Gms. and 70 Gms. are distinct products, and the benefit available to the buyer of one item cannot be denied by offering more than the required benefit to the buyer of another item. The law does not provide for such adjustments, and the benefit must be passed on to each recipient individually. 2. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 in this case? Section 171 of the CGST Act mandates that any reduction in the rate of tax on any supply of goods or services must be passed on to the recipient by way of commensurate reduction in prices. The DGAP's investigation revealed that the Respondent increased the base price of the 35 Gms. Maggi Noodles pack from ?3.96/- to ?4.17/- after the GST rate was reduced from 18% to 12%. This increase in base price meant the product was sold at the same cum-tax price of ?4.67/- per pack, thereby not passing the benefit of the tax reduction to the consumer. The Respondent's actions were found to be in violation of Section 171 of the CGST Act, 2017. 3. If yes, then what was the quantum of profiteering? The DGAP calculated the total amount of profiteering as ?90,778/-, which includes ?2,253/- charged from Applicant No.1. The calculation was based on the difference between the commensurate price per unit (?4.43/-) and the actual price charged (?4.67/-), multiplied by the quantity sold during the period from 15.11.2017 to 28.02.2018. The Respondent was directed to refund ?2,253/- to Applicant No.1 with 18% interest per annum and deposit the balance amount of ?88,525/- along with interest in the respective Central or State Consumer Welfare Fund within three months. Conclusion: The Respondent was found to have violated the provisions of Section 171 of the CGST Act, 2017 by not passing on the benefit of GST rate reduction to the consumers. The benefit of tax reduction on one product cannot be passed on via another product. The total profiteered amount was determined to be ?90,778/-. The Respondent was ordered to refund the profiteered amount to Applicant No.1 and deposit the remaining amount in the Consumer Welfare Fund. Additionally, a Show Cause Notice was issued to the Respondent for imposition of penalty under Section 122 of the CGST Act, 2017. The Commissioner of State Tax, Uttar Pradesh, was directed to monitor compliance with this order.
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