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2019 (12) TMI 588 - NAPA - GSTProfiteering - packaged foods - urisdiction of NATIONAL ANTI-PROFITEERING AUTHORITY (NAPA) - benefit of reduction in the GST rates that had not been passed on by him to the recipients - contravention of Section 171 of CGST Act, 2017 - penalty - HELD THAT - The benefit of rate reduction has to be passed on by a registered person to the recipient on every supply of goods and services by commensurate reduction in the prices and in case it is not passed on the supplier shall be acting in contravention of the above provision. This Authority has been duly constituted under Section 171 (2) of the above Act and in exercise of the powers conferred on it under Rule 126 of the CGST Rules, 2017 it has notified the Procedure Methodology for determination of the profiteered amount vide its Notification dated 28.03.2018 and not on 19.07.2018 as has been claimed by the Respondent. However, the mathematical methodology for determination of the profiteered amount has to be applied on case to case basis depending on the facts of each case and no fixed formula can be set for calculating the same as the facts of each case are different. The mathematical methodology applied in the case where the rate of tax has been reduced and ITC disallowed cannot be applied in the case where the rate of tax has been reduced and ITC allowed. The power under Rule 126 has been granted to this Authority by the Central Government as per the provisions of Section 164 of the above Act which has approval of the Parliament. Rule 126 has further been framed on the recommendation of the GST Council which is a constitutional body created under the Constitution (One Hundred and First Amendment) Act, 2016. Therefore, the above power has both legislative sanction as well as incorporation in the CGST Act, 2017 and the CGST Rules, 2017. The delegation provided to this Authority under the above Section and Rule is clear, precise, unambiguous and necessary and is well within the provisions of the Constitution and therefore, it has been rightly conferred on this Authority. Hence, the objections raised by the Respondent in this regard are frivolous and without legal force. It will also be appropriate here to mention that as per the provisions of Section 171 (2) of the above Act and the Rules framed under it, the Central Government has been empowered to constitute an Authority to examine whether ITCs availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of goods or services or both supplied by him. In exercise of the above power the Central Govt. has constitute this Authority vide Office Order No. 343/2017 dated 28th November, 2017 to ensure that both the above benefits are passed on to the customers. The profiteered amount is determined as ₹ 89,73,16,384/- as per the provisions of Rule 133 (1) of the above Rules as has been computed vide revised Annexure-16 of the supplementary Report dated 15.03.2019. Accordingly, the Respondent is directed to reduce his prices commensurately in terms of Rule 133 (3) (a) of the above Rules. The Respondent is also directed to deposit an amount of ₹ 73,14,83,660/- (₹ 89,73,16,383/- ₹ 16,58,32,723/- as he has already deposited an amount of ₹ 16,58,32,723/- in the CWF of the Central and the concerned State Government, as the recipients are not identifiable, as per the provisions of Rule 133 (3) (c ) of the above Rules alongwith 18% interest payable from the dates from which both the above amounts were realised by the Respondent from his recipients till the date of their deposit as per the revised Annexure-16 attached with the Report dated 15.03.2019. Penalty - HELD THAT - The Respondent has denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus profiteered as per the explanation attached to Section 171 of the above Act. Therefore, he is liable for imposition of penalty under Section 171 (3A) of the CGST Act, 2017 - Therefore, a SCN be issued to him directing him to explain why the penalty prescribed under the above sub-Section should not imposed on him. Application disposed off.
Issues Involved:
1. Whether the Respondent passed on the benefit of GST rate reductions to the recipients. 2. Methodology adopted by the Respondent to pass on the GST benefits. 3. Calculation of profiteering amount by the DGAP. 4. Legal validity of the Anti-Profiteering measures under the CGST Act and Rules. 5. Compliance with principles of natural justice and procedural fairness. 6. Imposition of penalty on the Respondent. Issue-wise Analysis: 1. Whether the Respondent passed on the benefit of GST rate reductions to the recipients: The Respondent admitted to setting aside ?12.6 Crore due to GST rate reductions but claimed to have passed on benefits through discounts and increased quantities. However, the DGAP found that the discounts were not specifically attributed to GST rate reductions and were part of the general discount pattern. The Respondent also failed to reduce MRPs or re-sticker them as required, thus not passing on the benefits to the consumers. 2. Methodology adopted by the Respondent to pass on the GST benefits: The Respondent claimed to have passed on benefits at the aggregate product category level, considering sales contributions and lower-priced SKUs. However, the DGAP and the Authority found this methodology arbitrary and illegal, as benefits must be passed on each SKU to ensure every buyer receives the benefit. The Respondent's methodology was deemed to violate Section 171 (1) of the CGST Act and Article 14 of the Constitution. 3. Calculation of profiteering amount by the DGAP: The DGAP calculated the profiteering amount by comparing pre and post-GST rate reduction prices for each SKU, finding that the Respondent had not reduced prices commensurately. The DGAP's methodology was found logical and in consonance with Section 171 (1) of the CGST Act. The final profiteering amount was determined to be ?89,73,16,384/-, after adjusting for the Respondent's suo moto deposit of ?16,58,32,723/-. 4. Legal validity of the Anti-Profiteering measures under the CGST Act and Rules: The Respondent challenged the Anti-Profiteering measures, claiming excessive delegation and violation of Article 19 (1) (g) of the Constitution. However, the Authority found that the Rules were framed under Section 164 of the CGST Act with approval from the Parliament and the GST Council. The Authority's role is not to control prices but to ensure benefits of tax reductions and ITC are passed to consumers, thus not violating constitutional provisions. 5. Compliance with principles of natural justice and procedural fairness: The Respondent alleged violation of natural justice due to the absence of a show cause notice. However, the Authority issued a notice on 16.10.2018, detailing allegations and proposed actions, and provided ample opportunity for the Respondent to defend himself. The proceedings were found to comply with principles of natural justice. 6. Imposition of penalty on the Respondent: The Authority found the Respondent liable for profiteering and directed the deposit of ?73,14,83,660/- along with 18% interest in the Consumer Welfare Fund (CWF) of the Central and State Governments. A show cause notice for penalty imposition under Section 171 (3A) of the CGST Act was also directed to be issued. Conclusion: The Respondent was found to have denied the benefit of GST rate reductions to consumers, resulting in profiteering. The methodology adopted by the Respondent was deemed arbitrary and illegal. The DGAP's calculation of the profiteering amount was upheld, and the Respondent was directed to deposit the profiteered amount with interest. The Authority also directed the issuance of a show cause notice for penalty imposition.
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