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2019 (12) TMI 1082 - NAPA - GSTProfiteering - purchase of various consumer goods - baby care products - allegation that benefit of reduction in the rate of GST not passed on - contravention of section 171 of CGST Act - penalty - HELD THAT - The Respondent has taken in to account the price of a particular product description sold to a particular customer in the last invoice prior to 15.11.2017 as the base price prior to 15.11.2017 and where such a price was not available till 01.07.2017 he has taken the price available in the price list as on 14.11.2017. However. the Respondent has considered one invoice having the maximum base price for computing the base price whereas he should have taken average of the base prices which he had charged to his different customers making purchase from him through different channels. Taking the maximum base price from an invoice or from the price list has resulted in reducing the amount of benefit when compared with the post GST base price. the DGAP has computed the average pre rate reduction base prices after taking in to account all the invoices issued to different customers which gives more representative measure of the base prices than the prices computed by the Respondent. The Respondent has not commensurately reduced his prices but he has infact increased them by adding the tax costs and the losses w.e.f. 15.11.2017 on the base prices which he was already charging on 14.11.2017 as is apparent from the perusal of column L and M of Annexure-13 submitted by him. It is also clear that the Respondent has arbitrarily computed the pre rate reduction base prices of his products by taking in to consideration the highest selling base prices instead of the average base selling prices although he was admittedly selling his products to different customers at different prices. It is absolutely clear that the Respondent had no intention of passing on of the above benefit and he has thus denied the benefit of tax reduction to his customers. Therefore, it is established that he has committed violation of the provisions of Section 171 (1) of the above Act - It is also established that the methodology adopted by the Respondent while computing the benefit of tax reduction was illogical, unreasonable, arbitrary, illegal and incorrect and hence the same cannot be accepted. The profiteered amount is determined as ₹ 2,30,40,74,132/-as per the provisions of Rule 133 (1) of the above Rules as has been computed vide Annexure-13 of the Report dated 24,06.2019. 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 ₹ 2,30,40,74,132/-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 the above amount was realised by the Respondent from his recipients till the date of its deposit. The above amount shall be deposited within a period of 3 months from the date of passing of this order failing which it shall be recovered by the concerned Commissioners CGST/SGST. 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 apparently liable for imposition of penalty under Section 171 (3A) of the CGST Act, 2017 - Therefore, a SCN be issued directing him to explain why the penalty prescribed under the above sub-Section should not be imposed on him.
Issues Involved:
1. Investigation compliance under Rule 128 of CGST Rules. 2. Method of computation of profiteering. 3. Responsibility for affixing revised MRPs. 4. Inclusion of stock transfer transactions in profiteering computation. 5. Consideration of additional costs and price adjustments. 6. Computation of profiteering amount. 7. Imposition of penalty. Detailed Analysis: Investigation Compliance under Rule 128 of CGST Rules: The Respondent contended that the investigation was not initiated in compliance with Rule 128 of the CGST Rules and was without jurisdiction. The Authority clarified that it had the jurisdiction to take suo moto cognizance of the contravention of Section 171 of the CGST Act, 2017. The information provided by the Respondent indicated potential profiteering, leading to the investigation. Method of Computation of Profiteering: The Respondent argued that the statute did not prescribe any method for computing profiteering. The Authority noted that the computation of profiteering is a simple mathematical calculation, which does not require a specific prescription under the Act or Rules. The DGAP compared the average base prices of products sold during the period from 01.11.2017 to 14.11.2017 with the actual invoice-wise base prices sold from 15.11.2017 to 31.12.2018. This methodology was deemed logical and in consonance with Section 171 (1) of the CGST Act. Responsibility for Affixing Revised MRPs: The Respondent claimed that affixing revised MRPs was not their responsibility. The Authority held that as a manufacturer, the Respondent was responsible for fixing MRPs as per Rule 6 of the Legal Metrology (Packaged Commodities) Rules, 2011. The Respondent failed to comply with the Ministry of Consumer Affairs' letter dated 16.11.2017, which required affixing revised MRPs due to GST rate reduction. Inclusion of Stock Transfer Transactions in Profiteering Computation: The Respondent argued against the inclusion of stock transfer transactions in the profiteering amount. The Authority found that the Respondent did not provide the necessary details of stock transfer transactions. Hence, the DGAP could not consider these transactions, and the Respondent's claim of &8377; 95.86 Crore related to stock transfers was not accepted. Consideration of Additional Costs and Price Adjustments: The Respondent contended that additional costs and price adjustments were not considered. The Authority clarified that Section 171 (1) only mandates passing on the benefit of tax reduction and does not account for additional costs. The Respondent's increase in prices exactly coinciding with the tax rate reduction was found to be unjustified. Computation of Profiteering Amount: The DGAP computed the profiteered amount as &8377; 2,30,40,74,132/- by comparing the average base prices pre and post-GST rate reduction. The Respondent's methodology of taking the highest base price and adding tax costs was found to be arbitrary and incorrect. The DGAP's methodology was upheld as reasonable and correct. Imposition of Penalty: The Respondent argued that the Authority was not empowered to impose penalties. However, Section 171 (3A) of the CGST Act provides the Authority with the power to impose penalties. The Authority directed the issuance of a show cause notice to the Respondent for explaining why the penalty should not be imposed under Section 171 (3A). Conclusion: The Respondent was directed to reduce prices commensurately and deposit the profiteered amount of &8377; 2,30,40,74,132/- in the Consumer Welfare Fund (CWF) of the Central and State Governments along with 18% interest. The Authority also directed the Commissioners of CGST/SGST to monitor the compliance of this order. A show cause notice for penalty imposition was to be issued to the Respondent.
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