2019 (5) TMI 560 - NAPA - GST

Profiteering - supply of Glass Kit Hood Curved Black-90 Cm GHK 900CS Electric Chimney - benefit of GST rate reduction not passed on - contravention of the provisions of Section 171 of CGST Act, 2017 - N/N. 41/2017-Central Tax (Rate) dated 14.11.2017. 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. The Respondent's submissions that the price of the product was not increased at the time of introduction of GST when the rate of tax was increased to 28% and hence the question of reducing the prices when the rate of tax was decreased from 28% to 18% does not arise is legally not sustainable in as much as Section 171 of the CGST Act, 2017 is very clear that the benefit of reduction in tax has to be necessarily passed on to the recipient by commensurately reducing the prices - Secondly the argument that the pre GST prices and the post reduction prices should have been compared will also not hold good as the DGAP has rightly taken into consideration the prices before the rate reduction and the prices after the reduction of tax rates to analyse and estimate the extent of benefit passed on to the recipient. The amount shall be deposited within a period of 3 months by the Respondent, from the date of receipt of this order, failing which the same shall be recovered by the corresponding field formations of Central and State GST Authorities, as per the provisions of the CGST/SGST Act, 2017 - The Authority as per the provisions of Rule 136 of the CGST Rules, 2017 also directs the respective Commissioners of CGST/SGST to monitor the implementation of this order. Penalty - HELD THAT - The Respondent had issued incorrect invoices while selling all 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 - also 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. 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. Application disposed off.

Summary

Issues Involved:
1. Allegation of profiteering by not passing on the benefit of GST rate reduction.
2. Examination of compliance with Section 171 of CGST Act, 2017.
3. Determination of the quantum of profiteering.
4. Respondent's defense regarding promotional discounts and price adjustments.
5. Calculation of the profiteered amount and its deposition.
6. Imposition of penalty for issuing incorrect invoices.

Issue-wise Detailed Analysis:

1. Allegation of Profiteering:
The case was initiated based on an allegation that the Respondent did not pass on the benefit of GST rate reduction from 28% to 18% on the product "Glass Kit Hood Curved Black-90 Cm GHK 900CS Electric Chimney" as required by Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017, thus indulging in profiteering in contravention of Section 171 of the CGST Act, 2017.

2. Examination of Compliance with Section 171 of CGST Act, 2017:
Section 171(1) of the CGST Act, 2017 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 product from ?6113.79 to ?7369.20 when the GST rate was reduced from 28% to 18%, thereby not passing on the benefit of the reduced tax rate to the consumers.

3. Determination of the Quantum of Profiteering:
The DGAP calculated the profiteered amount by comparing the average basic price of the product during the period 01.11.2017 to 14.11.2017 with the actual basic prices during the period 15.11.2017 to 31.08.2018. The DGAP concluded that the Respondent had profiteered an amount of ?9,75,078/- by not reducing the prices commensurately with the reduction in the GST rate.

4. Respondent's Defense Regarding Promotional Discounts and Price Adjustments:
The Respondent argued that the prices during the Onam festival (10.08.2017 to 31.10.2017) were promotional and could not be compared with off-season prices. He claimed that the effective tax rate during the VAT period was around 18%, and despite the GST rate increasing to 28%, he did not increase the price for the dealer. The Respondent also contended that the DGAP's comparison of prices was flawed as it did not consider the promotional discounts.

5. Calculation of the Profiteered Amount and Its Deposition:
The DGAP's report, which was accepted by the Authority, stated that the Respondent had increased the base price of the product post-GST rate reduction, leading to a profiteered amount of ?9,75,078/-. The Respondent agreed to deposit this amount in the Consumer Welfare Fund (CWF). The amount was to be split equally between the Central and State CWFs, with the Respondent directed to deposit ?4,87,539/- to each fund along with interest at 18%.

6. Imposition of Penalty for Issuing Incorrect Invoices:
The Authority found that the Respondent issued incorrect invoices by not showing the correct base price, thereby compelling customers to pay additional GST on the increased price. This action contravened the provisions of the CGST Act, 2017, making the Respondent liable for a penalty under Section 122 (1) (i) of the Act. The Authority directed the issuance of a show-cause notice to the Respondent to explain why a penalty should not be imposed.

Conclusion:
The Respondent was directed to deposit the profiteered amount of ?9,75,078/- along with interest at 18% into the Central and respective State Consumer Welfare Funds within three months. The Respondent was also directed to reduce the price of the product to pass on the benefit of the reduced GST rate to the recipients. The case was to be monitored by the respective Commissioners of CGST/SGST to ensure compliance.