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2019 (6) TMI 1337 - NAPA - GSTProfiteering - Vitrified Tiles - benefit of reduction in the rate of tax not passed on - increase in the MRP of the product after the rate of tax was reduced - contravention of the provisions of Section 171 of the CGST Act, 2017 - penalty - HELD THAT - It is revealed that the 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 tiles 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 ₹ 750/- to ₹ 814/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 rate reduction, the benefit of reduction in tax rate was not passed on to the Applicant No. 1 by the Respondent. It is established that the Respondent has acted in contravention of the provisions of Section 171 of the CGST Act, 2017 and has not passed on the benefit of reduction in the rate of tax to his recipients by commensurate reduction in the prices. Accordingly, the amount of profiteering is determined as ₹ 54,67,149/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017 - The Respondent is therefore directed to reduce the prices of his products as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients - The Respondent is also directed to deposit the profiteered amount of ₹ 54,67,149/- along with the interest to be calculated @ 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited. The Respondent is further directed to refund an amount of ₹ 75/- (750 1.28 960 -750 1.1.8 885) to Applicant No. 1. along with the interest @ 18% - Since rest of the recipients in this case are not identifiable, the Respondent is directed to deposit the amount of profiteering of ₹ 27,33,537/- in the Central Consumer Welfare Fund (CWF) and ₹ 27,33,537/- in the Uttar Pradesh State CWF as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017, along with 18% interest. Penalty - HELD THAT - The Respondent had issued incorrect invoices while selling the above product to his recipients as he had incorrectly shown the base prices and had also compelled them to pay additional GST on the increased prices through the incorrect tax invoices which would have otherwise resulted in further benefit to the recipients. 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 CGST Act - penalty under Section 122 (1) (i) of CGST Act read with Rule 133 (3) (d) of the CGST Rules, 2017 upheld - Since he has not submitted his reply on the issue of penalty, therefore, in the interest of natural justice before imposition of penalty a notice is issued to him asking him to explain why penalty should not be imposed on him. Application disposed off.
Issues Involved:
1. Allegation of not passing on the benefit of GST rate reduction. 2. Determination of base price and profiteering amount. 3. Methodology for calculating profiteering. 4. Compliance with Section 171 of the CGST Act, 2017. 5. Issuance of incorrect invoices and imposition of penalty. 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 GST rate reduction from 28% to 18% effective from 15.11.2017, as per Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017. Instead, the Respondent increased the base price of "Vitrified Tiles" from ?750/- to ?814/- post-GST rate reduction. This was claimed to be in contravention of Section 171 of the CGST Act, 2017. 2. Determination of Base Price and Profiteering Amount: The DGAP's investigation revealed that the Respondent increased the base price of tiles when the GST rate was reduced, thus not passing on the commensurate benefit of the tax rate reduction to customers. The DGAP concluded that the total amount of profiteering was ?54,67,149/- for the period 15.11.2017 to 30.06.2018. The Respondent's argument that sales were made below MRP and based on bargaining was not accepted as the relevant value for calculating profiteering was the transaction value, not the MRP. 3. Methodology for Calculating Profiteering: The DGAP used the average base prices of tiles before and after the GST rate reduction to determine profiteering. The Respondent contested this methodology, arguing that it was arbitrary and did not account for variations in tile quality. However, the Authority upheld the DGAP's methodology, stating that the Respondent did not provide specific details of the goods, such as size, quality, or texture, in the invoices. The average method was deemed appropriate given the lack of detailed data from the Respondent. 4. Compliance with Section 171 of the CGST Act, 2017: The Authority found that the Respondent acted in contravention of Section 171 of the CGST Act, 2017, by not passing on the benefit of the GST rate reduction to customers. The Respondent's various contentions, including the lack of clarity in anti-profiteering rules and the irrelevance of Section 15 for calculating profiteering, were rejected. The Authority emphasized that profiteering must be viewed from the consumer's perspective, and any excess tax paid by the consumer due to increased base prices constitutes profiteering. 5. Issuance of Incorrect Invoices and Imposition of Penalty: The Authority determined that the Respondent issued incorrect invoices by showing inflated base prices and charging additional GST on these prices, which is an offense under Section 122 (1) (i) of the CGST Act, 2017. Consequently, the Respondent was liable for a penalty under Rule 133 (3) (d) of the CGST Rules, 2017. The Respondent was directed to explain why a penalty should not be imposed, ensuring a fair opportunity for defense. Conclusion: The Authority ordered the Respondent to reduce product prices in line with the GST rate reduction and deposit the profiteered amount of ?54,67,149/- along with 18% interest. The Respondent was also directed to refund ?75/- to Applicant No. 1 with interest. The remaining amount was to be deposited in the Central and Uttar Pradesh State Consumer Welfare Funds. The Respondent's non-compliance would result in recovery actions by the Commissioner CGST/SGST under the supervision of the DGAP.
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