2020 (3) TMI 612 - NAPA - GST

Profiteering - Services by way of admission to exhibition of cinematograph films where price of admission ticket was above one hundred rupees - Rate of GST reduced from 28% to 18% - Services by way of admission to exhibition of cinematograph films where price of admission ticket was one hundred rupees or less - allegation that the benefit of reduction in the rate of GST not passed on - contravention of section 171 of CGST Act - penalty - HELD THAT - It is clear from the narration of the facts mentioned that the Respondent has indulged in profiteering in violation of the provisions of Section 171 of the CGST Act, 2017 and has not passed on the benefit of reduction in the rates of tax as per the Notification No. 27/2018- Central Tax (Rate) dated 31.12.2018 in respect of the above services to his customers and therefore, he is liable for action under Rule 133 of the CGST Rules, 2017. Accordingly, the profiteered amount is determined as ₹ 3,90,272/- which includes an amount of ₹ 14/- including the GST which the Respondent has profiteered in respect of the Applicant No.1 and ₹ 3,90,258/- in respect of the other recipients which also includes the GST on the said profiteered amount, as per the provisions of Rule 133 (1) of the CGST Rules, 2017. Accordingly, the Respondent is directed to reduce the sale prices of his admission tickets immediately commensurate to the reduction in the rates of tax as were notified on 31.12.2018 and pass on the benefit of reduction in the rates of tax to his customers. Penalty - HELD THAT - It is evident from the above that the Respondent has denied the benefit of rate reductions in the GST to his customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he 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 Show Cause Notice be issued to him directing him to explain why the penalty prescribed under the above sub-Section should not be imposed on him.

Summary

Issues Involved:
1. Non-passing of GST rate reduction benefits.
2. Methodology for determining profiteering.
3. Scope of investigation.
4. Calculation of profiteered amount.
5. Jurisdiction and authority of the Anti-Profiteering Authority.

Issue-wise Detailed Analysis:

1. Non-passing of GST rate reduction benefits:
The case involved an allegation that the respondent did not pass on the benefit of GST rate reduction on cinema tickets from 28% to 18% and 18% to 12% effective from January 1, 2019. The respondent was accused of increasing the base prices to maintain the same cum-tax selling prices, thus not providing a commensurate reduction in prices as required under Section 171 of the CGST Act, 2017. The DGAP's investigation confirmed that the respondent increased base prices, leading to excess realization or profiteering amounting to ?4,01,520, inclusive of GST.

2. Methodology for determining profiteering:
The respondent argued that Section 171 and the related rules did not provide a clear mechanism or guidelines for determining the profiteering amount. They cited the Supreme Court case K. Damodarasamy Naidu & Bros. v. State of Tamil Nadu, arguing that rules were necessary for computation. The DGAP countered that the methodology was consistent and approved by the Authority. The Authority held that the computation of commensurate price reduction is a mathematical exercise dependent on various factors, thus no fixed methodology could be prescribed. The methodology used by DGAP was deemed appropriate and in line with Section 171.

3. Scope of investigation:
The respondent contended that the investigation should be limited to the specific theatre in Hapur, Uttar Pradesh, and not extended to other locations. The Authority, citing Section 171(2) and Rule 126, asserted its power to examine whether the benefits of ITC or tax rate reduction were passed on across all locations operated by the respondent. The Authority directed the DGAP to investigate all screens operated by the respondent nationwide for potential violations.

4. Calculation of profiteered amount:
The DGAP's analysis revealed that the respondent did not reduce ticket prices commensurately with the GST rate reduction. The calculation of profiteered amount was based on the difference between the commensurate prices post-rate reduction and the actual selling prices. The DGAP identified errors in the calculation for certain 3D movie shows, reducing the profiteered amount to ?3,90,272. The Authority directed the respondent to refund ?14 to the applicant with interest and deposit the remaining amount in the Central and State Consumer Welfare Funds.

5. Jurisdiction and authority of the Anti-Profiteering Authority:
The respondent challenged the Authority's jurisdiction, citing ongoing cases questioning the constitutional validity of Section 171 and related rules. The Authority maintained its jurisdiction, noting that no stay or final judgment had been issued in these cases. The Authority also referenced its power to conduct suo moto investigations and expand the scope of inquiry as necessary.

Conclusion:
The Authority concluded that the respondent violated Section 171 by not passing on the GST rate reduction benefits to consumers. The respondent was directed to reduce ticket prices, refund the profiteered amount to the applicant, and deposit the remaining amount in the Consumer Welfare Funds. The DGAP was instructed to investigate all screens operated by the respondent for similar violations. The Authority also issued a show cause notice for the imposition of penalties under Section 171(3A).