2018 (11) TMI 1011 - NAPA - GST

Profiteering - benefit of reduction of tax - it was alleged that Respondent had not passed on the benefit of reduction in the rate of tax, when she had bought Bathing Bar and Instant Drink Powder 50 Gms. - contravention of the provisions of Section 171 of CGST Act, 2017 or not. Held that - The actual pre-GST tax rate on the above products was not 27% (12.5%Excise Duty 14.5% VAT), as had been mentioned by the Applicant No.1 in her applications, but it was 14.5% (Nil Central Excise Duty 14.5% VAT) in the case of Bathing Bar and 16.5 % (2% Central Excise Duty 14.5% VAT) in the case of Instant Drink Powder 50 Gms. It is also revealed that the Respondent was procuring both the above products on interstate basis from their sole vendors and this tax liability had increased by 3.5% post GST from 14.5% to 18% w.eJ 01.07.2017 and therefore, he had suffered loss on the supply of both the products in question - the base price of these products had been reduced by the Respondent to maintain the same MRP (Pre GST MRP) inspite of the increase in the tax rate of both the above products. The anti-profiteering provisions contained in Section 171 (1) of the CGST Tax Act, 2017 are not attracted in the present case. Since the reduction in the base prices of these products is more than the additional ITC eligible thereon, the allegation of profiteering is not established - Respondent has not contravened the provisions of Section 171 (1) of the CGST Act, 2017 - application dismissed.

Summary

Issues:
I. Reduction in the rate of tax on products from 01.07.2017.
II. Increase in Input Tax Credit (ITC) of the products from 01.07.2017.
III. Violation of Section 171 of the CGST Act, 2017 by not passing on tax reduction benefits.

Analysis:
I. The case involved allegations of profiteering due to the respondent not passing on tax rate reduction benefits post-GST implementation. The DGAP report revealed that the pre-GST tax rates on the products were lower than claimed by the applicant, with the respondent suffering losses post-GST due to increased tax liability. The respondent reduced base prices to maintain the same MRP, ensuring no violation of Section 171 (1) of the CGST Act, as the reduction in base prices exceeded additional ITC eligible.

II. The DGAP found no increase in ITC for the products post-GST implementation. Despite the tax rate increase, the respondent maintained the same MRP by reducing base prices, resulting in a loss in gross margin. This action of reducing base prices to keep the MRP constant led to the conclusion that the anti-profiteering provisions under Section 171 (1) of the CGST Act were not breached.

III. Section 171 (1) of the CGST Act mandates passing on tax rate reduction benefits to consumers. However, in this case, the respondent's actions of reducing base prices to match the pre-GST MRP despite increased tax rates ensured compliance with the law. The Authority dismissed the applications filed by the applicant, finding no merit in the claims of profiteering. The order was sent to both parties, concluding the case.

This judgment clarifies the application of anti-profiteering provisions in cases of tax rate changes post-GST implementation, emphasizing the importance of passing on benefits to consumers and maintaining transparency in pricing strategies to avoid allegations of profiteering.