2019 (5) TMI 359 - NAPA - GST

Profiteering - purchase of 68766- Glass for GT 03-RO Gas Stove - benefit of reduction of rate of GST not passed on - contravention of the provisions of Section 171 of the CGST Act, 2017 or not - HELD THAT - Central Govt. vide Notification No. 41/2017- Central Tax (Rate) dated 14.11.2017 had reduced the rate of GST from 28% to 18% in respect of the above product with effect from 15.11.2017, the benefit of which 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 is revealed that the Respondent had increased the base price of the product from ₹ 1,640.62 to ₹ 1,779.66, when the rate of tax was reduced from 28% to 18% with effect from 15.11.2017. Thus, by increasing the base price of the product, post-GST, the benefit of reduction in tax rate was not passed on to the recipients. The total amount of profiteering during the period 15.11.2017 to 31.10.2018 is ₹ 13,973/- and this amount is inclusive of ₹ 535/- which is the profiteered amount in respect of the Applicant. Respondent is directed to reduce the price of the product as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, by making commensurate reduction in the prices, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. Penalty - HELD THAT - It is established from the facts that the Respondent had issued incorrect invoices while selling the above product to his customers as he had not correctly shown the basic price which he should have legally charged from them. The Respondent had also compelled them to pay additional GST on the increased price through 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 Act. Hence, he is liable for imposition of penalty under the above Section read with Rule 133 (3) (d) of the CGST Rules, 2017. In the interest of natural justice, notice may be issued to the Respondent to show cause as to why penalty should not be imposed on him as per the provisions of Section 122 of the CGST Act, 2017 read with Rule 133 (3) (d) of the CGST Rules, 2017 Application disposed off.

Summary

Issues Involved:
1. Allegation of not passing on the benefit of GST rate reduction.
2. Determination of the amount of profiteering.
3. Refund of excess amount collected from customers.
4. Compliance with Section 171 of the CGST Act, 2017.
5. Imposition of penalty under Section 122 of the CGST Act, 2017.

Issue-Wise Detailed Analysis:

1. Allegation of Not Passing on the Benefit of GST Rate Reduction:
The Applicant No. 1 alleged that the Respondent did not pass on the benefit of the GST rate reduction from 28% to 18% by increasing the base price of the product to maintain the same cum-tax selling price. The Respondent issued a new invoice after the Applicant's objection but had increased the base price to keep the selling price unchanged, thus not passing on the benefit of the reduced GST rate.

2. Determination of the Amount of Profiteering:
The Director General of Anti-Profiteering (DGAP) conducted an investigation and found that the Respondent had increased the base price of the product from ?1640.62 to ?1779.66 after the GST rate reduction. The DGAP calculated the total profiteered amount as ?13,973/-, which included ?535/- specific to the Applicant. This amount was determined by comparing the average base price before and after the GST rate reduction.

3. Refund of Excess Amount Collected from Customers:
The Respondent claimed to have refunded the differential amount to the Applicant and other customers. The Respondent provided evidence of refunds through cheques and credit notes. The total refund amount was ?39,524/-, including refunds to trade customers and walk-in customers.

4. Compliance with Section 171 of the CGST Act, 2017:
Section 171 mandates that any reduction in the tax rate must be passed on to the recipient by way of commensurate reduction in prices. The Respondent failed to comply with this provision as he did not reduce the base price of the product after the GST rate reduction. The Authority directed the Respondent to reduce the price of the product and refund the profiteered amount along with interest to the Consumer Welfare Fund.

5. Imposition of Penalty under Section 122 of the CGST Act, 2017:
The Authority found that the Respondent had issued incorrect invoices by not showing the correct base price and charging additional GST on the increased price. This was deemed a deliberate contravention of the CGST Act, 2017, making the Respondent liable for a penalty under Section 122 (1) (i). The Authority decided to issue a show-cause notice to the Respondent to explain why a penalty should not be imposed.

Conclusion:
The Respondent was directed to refund ?535/- to the Applicant and deposit the remaining profiteered amount of ?13,438/- along with interest in the Consumer Welfare Fund. The respective State CGST/SGST Commissionerates were instructed to ensure compliance and monitor the implementation of the order. The Authority also directed the issuance of a show-cause notice for the imposition of a penalty on the Respondent for issuing incorrect invoices.