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2019 (1) TMI 22 - NAPA - GSTProfiteering - manufacturers of Fast Moving Goods Consumer Goods (FMCGs) - benefit of reduction in the rate of tax not passed - increase in the base price - contravention of the provisions of Section 171 of the CGST Act, 2017 - Held that - The fact that the GST rates have been reduced vide Notification No. 41/2017-Central Tax (Rate) dated 14 11.2017, with effect from 15.11.2017 is not in dispute. The Respondent is a distributor who is duly registered under the above Act and hence the benefit of rate reduction was required to be passed on by him to the recipients as per the provisions of Section 171 of the CGAT Act, 2017 - From the perusal of the invoices dated 11.10.2017 and 30.11.2017 it is noticed that the Respondent had increased the base price of Garnier Nat Shade 3 from ₹ 24.41 (price charged prior to rate reduction) to ₹ 26.48 (price charged after rate reduction). Similarly from the perusal of Annexure-13 of the DGAP s Report it is clear that to retain the MRPs of all his products at pre-GST rate reduction the Respondent had increased the base prices of his products to the extent of GST rate reduction. It is established that out of the 388 products the base prices of 293 (259 34) products were increased by him inspite of the rate reduction to maintain the pre rate reduction prices. Accordingly the Respondent has charged increased base prices on the above products thus indulging in profiteering. Respondent has vehemently argued that he had no control on the fixing of base prices as well as the MRPs as both of them were fixed by the manufacturer M/S L oreal India Pvt. Ltd. through it s software - Held that - The discounts provided to the customers after GST rate reduction are required to be considered as the on going existing promotional schemes during the pre-GST rate reduction period. The argument of the Respondent that the prices were controlled by the manufacturer does not hold good in as much as he is registered supplier under the CGST/SGST Act, 2017 and is bound to follow the notification dated 14.11.2017 to pass on the benefit of GST rate reduction. The legal obligation imposed upon him cannot be .ignored only because he is not the manufacturer who controls the prices, as he is accountable as a supplier to pass on the benefit of GST rate reduction. There is no evidence to show that he had corresponded with the manufacturer for decrease in the base prices on account of the GST rate reduction. Hence it is apparent that the Respondent inspite of his legal obligation has enhanced the prices of all the 293 products and resorted to profiteering. It is also established from the above facts that the Respondent had issued incorrect invoices while selling all the above products to his customers as he had not correctly shown the basic prices which he should have legally charged from them. The Respondent had also compelled them to pay additional GST on the increased prices though the incorrect tax invoices which would have otherwise resulted in further benefit to the customers which he had failed to pass on - It is also established from the record that the Respondent has deliberately and consciously acted in contravention of the provisions of the CGST Act, 2017 by issuing incorrect invoices which is an offence under Section 122 (1) (i) of the above Act and hence he is liable for imposition of penalty under the above Section read with Rule 133 (3) (d) of the CGST Rules, 2017. But, a fresh notice may be given to him to explain why penalty should not be imposed on him. Decided against respondent.
Issues Involved:
1. Allegation of not passing on the benefit of GST rate reduction. 2. Determination of profiteering amount. 3. Respondent's defense regarding control over pricing. 4. Obligation to pass on benefits to consumers. 5. Imposition of penalty on the Respondent. Detailed Analysis: 1. Allegation of Not Passing on the Benefit of GST Rate Reduction: The case originated from a complaint alleging that major FMCG manufacturers, including the Respondent, did not pass on the benefit of a GST rate reduction from 28% to 18%, effective from 15.11.2017. The Standing Committee requested the DGAP to investigate, which found that the Respondent had increased the base price to maintain the same MRP, thus indulging in profiteering contrary to Section 171 of the CGST Act, 2017. 2. Determination of Profiteering Amount: The DGAP's investigation revealed that out of 388 products, the base prices of 293 products were increased post-GST rate reduction. The total amount of profiteering was determined to be ?3,43,109/-. The Respondent was found to have denied the benefit of this amount to customers by not reducing prices commensurately with the GST rate reduction. 3. Respondent's Defense Regarding Control Over Pricing: The Respondent argued that he was merely a distributor, with the MRP and other pricing details controlled by the manufacturer through a web-based software. He claimed that the MRP of the product was not increased but that a promotional discount was given prior to the GST rate reduction. The Respondent also contended that he had passed on the benefit of the GST reduction through a discount scheme. 4. Obligation to Pass on Benefits to Consumers: The Authority held that as a registered supplier under the CGST Act, the Respondent was legally obligated to pass on the benefit of the GST rate reduction to consumers. The argument that the manufacturer controlled the prices was dismissed, as the Respondent had not provided evidence of corresponding with the manufacturer to decrease base prices. The Respondent's actions were found to be in contravention of Section 171 of the CGST Act, 2017. 5. Imposition of Penalty on the Respondent: The Respondent was directed to reduce the prices of all products in accordance with Rule 133 (3) (a) of the CGST Rules, 2017, and to deposit the profiteered amount of ?3,43,109/- along with interest into the Consumer Welfare Fund. The Respondent was also found to have issued incorrect invoices, compelling customers to pay additional GST on increased prices, which constituted an offence under Section 122 (1) (i) of the CGST Act. A notice for the imposition of penalty was issued, and the Respondent was given an opportunity to be heard on the quantum of penalty. Conclusion: The judgment concluded that the Respondent had acted in contravention of the CGST Act by not passing on the GST rate reduction benefits to consumers, resulting in a profiteering amount of ?3,43,109/-. The Respondent was directed to deposit this amount with interest into the Consumer Welfare Fund and to reduce product prices accordingly. A penalty notice was also issued for issuing incorrect invoices.
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