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2019 (12) TMI 510 - NAPA - GSTProfiteering - supply of the product namely Washing Machine (Elena Aqua VX) - benefit of reduction in the rate of tax on the impugned product not passed on - contravention of provisions of section 171 of CGST Act or not - penalty. Whether there was a reduction in the rate of tax on the product post introduction of GST w.e.f. 01.07.2017 and if so whether the benefit of such reduction in the rate of tax had been passed on by the Respondent to the recipients in terms of Section 171 of the Central Goods and Services Tax Act 2017? HELD THAT - 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 67, 28, 592/- 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 Rs 67 28, 592/- 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 in terms of the Rule 133 (3) (b) of the CGST Rules 2017. Since the present investigation is to the issue of not passing on the benefit of reduction in the rate of tax by the Respondent has been conducted w.e.f. 01.07.2017 to 31.08.2018 the Authority as per the Rule 133 (5) (a) of the CGST Rules 2017 directs the DGAP to investigate quantum of profiteering on all the products including the present product which the Respondent is supplying for violation of the provisions of Section 171 of the CGST Act 2017 and submit his Report as per the provisions of Rule 133 (5) (b) of the CGST Rules 2017. Penalty - HELD THAT - The Respondent has denied the benefit rate reduction of the GST to the consumers in contravention of the provisions of Section 171 (1) of the CGST Act 2017 and has thus resorted to profiteering. Hence he has committed an offence under Section 171 (3A) of the CGST Act 2017 and therefore he is apparently liable for imposition of penalty under the provisions of the above Section - thus a SCN be issued to him directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules 2017 should not be imposed on him.
Issues Involved:
1. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017. 2. The quantum of profiteering, if any. Detailed Analysis: Issue 1: Violation of Section 171 of the CGST Act, 2017 Section 171 of the CGST Act, 2017 mandates that any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. Respondent's Objections: - The Respondent argued that the average price for the pre-GST period was considered, but the actual price from invoices was taken for the post-GST period, which is incorrect. The average prices for the post-GST period should also have been taken for computation. - The Respondent claimed that prices charged post-GST had actually reduced, and the net impact was negative. They argued that sales made in the GST period at prices lower than the pre-GST average price had been ignored. Authority's Decision: - The Authority found that comparing actual pre-GST invoices with actual post-GST invoices state-wise and dealer-wise was not feasible. The DGAP's method of using average prices was deemed correct. - The Authority emphasized that Section 171 puts the onus on the supplier to pass on any benefit of GST rate reductions or ITC to the recipient. The term "commensurate reduction" implies that the benefit should be proportional to the rate reductions. - The Respondent's interpretation of calculating profiteering entity-wise was rejected. The law requires calculating profiteering by keeping the recipient at the center, ensuring that each recipient gets the benefit of the reduced tax rate. Issue 2: Quantum of Profiteering DGAP's Findings: - The DGAP observed that there was a reduction in the applicable rate of tax in the post-GST period compared to the pre-GST period in most states. - The profiteered amount was computed as Rs. 67,28,592/- for the period from 01.07.2017 to 31.08.2018. Respondent's Submissions: - The Respondent argued that the DGAP's computation was incorrect, as it was based on discounted base prices. They claimed that different discounts were offered to different dealers, leading to varying effective tax rates. - They also argued that the computation should have been based on pan-India prices rather than state-specific prices. Authority's Decision: - The Authority upheld the DGAP's method of comparing average discounted base prices during the pre-GST period with actual invoice-wise discounted base prices in the post-GST period. - The Authority found that the Respondent had not passed on the benefit of the reduction in the rate of tax to the recipients by commensurate reduction in prices. - The amount of profiteering was determined as Rs. 67,28,592/-, and the Respondent was directed to deposit this amount along with interest in the Consumer Welfare Fund of the Central and State Governments. Penalties: - The Respondent was found to have committed an offense under Section 171 (3A) of the CGST Act, 2017, and was liable for imposition of penalty. - A Show Cause Notice was issued to the Respondent to explain why the penalty should not be imposed. Further Investigation: - The DGAP was directed to investigate the quantum of profiteering on all products supplied by the Respondent for violation of Section 171 of the CGST Act, 2017. Conclusion: - The Respondent was found to have violated the provisions of Section 171 of the CGST Act, 2017 by not passing on the benefit of the reduction in the rate of tax to the recipients. - The quantum of profiteering was determined as Rs. 67,28,592/-, which the Respondent was directed to deposit along with interest. The Respondent was also liable for penalties under Section 171 (3A) of the CGST Act, 2017.
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