2020 (4) TMI 571 - NAPA - GST

Profiteering - supply of Dettol HW Liquid Original 900 ml - allegation that respondent had not passed on the benefit of reduction in the GST rate from 28% to 18% and instead, increased the base price of the above product - contravention of section 171 of CGST Act - penalty - HELD THAT - It is apparent from the DGAP s Report that there has been reduction in the rate of tax from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 and the above product was impacted by the rate reduction and hence, the benefit of the rate reduction was required to be passed on to the customers by the Respondents. It is also revealed that the DGAP vide his report dated 19.09.2019 has calculated the amount of net higher sales realization due to increase in the base price of the impacted goods, despite the reduction in the GST rate from 28% to 18% as ₹ 63,14,901/- in respect of the Respondent No. 1 and ₹ 2,33,456/- in respect of the Respondent No. 2. - The said profiteered amount has been arrived at by the DGAP by comparing the actual invoice-wise base price of the complained product sold during the period from 15.11.2017 to 31.03.2019 with the commensurate price based on the average of the base prices of the product sold during the period from 01.11.2017 to 14.11.2017. The profiteered amount is determined as ₹ 63,14,901/- in respect of the Respondent No. 1 and ₹ 2,33,456/- in respect of the Respondent No. 2 in terms of Rule 133 (1) of the CGST Rules, 2017, during the period from 15.11.2017 to 31.03.2019. This Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondent No. 1 2 shall reduce their prices commensurately as has been detailed above. The Respondent No. 1 2 are also directed to deposit an amount of ₹ 63,14,901/- and ₹ 2,33,456/- respectively in the CWF of the Central and the concerned State Governments, 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 them from their recipients till the date of deposit - Since the Respondent No. 2 has made supplies in the NCT of Delhi only the profiteered amount shall be deposited by him in the CWF of the Central Government and the Government of NCT of Delhi respectively, as per the provisions of Rule 133 (3) (o) along with the interest @ 18% within a period of 3 months failing which the same shall be recovered by the concerned Commissioner CGST/SGST as per the provisions of their respective Acts. Penalty - HELD THAT - It is evident from the above narration of facts that the Respondent No. 1 and 2 have denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and have thus profiteered as per the explanation attached to Section 171 of the above Act. Therefore, both the Respondents are apparently liable for the imposition of penalty under Section 171 (3A) of the CGST Act, 2017 - Therefore, a show cause notice be issued directing them to explain why the penalty prescribed under the above sub-Section should not be imposed on him.

Summary

Issues Involved:
1. Reduction in the GST rate and its impact.
2. Obligation to pass on the benefit of tax reduction.
3. Alleged violation of Section 171 of the CGST Act, 2017.
4. Quantum of profiteering.

Issue-wise Detailed Analysis:

1. Reduction in the GST Rate and Its Impact:
The GST rate on "Dettol HW Liquid Original 900 ml" was reduced from 28% to 18% effective from 15.11.2017, as per Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017. This fact was acknowledged by all parties involved and was the basis for the investigation.

2. Obligation to Pass on the Benefit of Tax Reduction:
Section 171 of the CGST Act, 2017 mandates that any reduction in the rate of tax on any supply of goods or services must be passed on to the recipient by way of commensurate reduction in prices. The DGAP's investigation aimed to determine whether the Respondents had adhered to this requirement.

3. Alleged Violation of Section 171 of the CGST Act, 2017:
The DGAP's report revealed that the Respondents had increased the base price of "Dettol HW Liquid Original 900 ml" when the GST rate was reduced from 28% to 18%, thereby not passing on the benefit of the tax reduction to the recipients. The investigation covered the period from 15.11.2017 to 31.03.2019. The DGAP calculated the profiteered amount by comparing the average base price of the product before the tax reduction with the actual invoice-wise base prices post-reduction.

4. Quantum of Profiteering:
The DGAP calculated the total profiteered amount as ?63,14,901/- for Respondent No. 1 and ?2,33,456/- for Respondent No. 2. This calculation included the excess GST collected from the recipients due to the increased base price. The DGAP provided a detailed computation of the profiteered amount, including a state-wise breakdown of the total amount.

Key Findings and Orders:

- The Standing Committee on Anti-Profiteering had considered the complaint within the prescribed period of limitation.
- The Respondents' contention that the period of investigation was arbitrary was dismissed. The DGAP's investigation period was deemed appropriate as the Respondents had not shown evidence of passing on the benefit of tax reduction.
- The argument that the Respondents' price increase was due to market factors and increased costs was rejected. The timing and amount of the price increase coinciding with the tax rate reduction indicated an intention to appropriate the benefit of tax reduction.
- The DGAP's methodology for calculating the profiteered amount was upheld as logical, reasonable, and in consonance with the provisions of Section 171 (1) of the CGST Act, 2017.
- The Respondents' claim of passing on the benefit through increased grammage was not substantiated with evidence.
- The inclusion of excess GST in the profiteered amount was justified as it represented the amount of benefit denied to the recipients.

Orders:

- The Respondents were directed to reduce their prices commensurately.
- The Respondents were ordered to deposit the profiteered amounts in the Consumer Welfare Fund (CWF) of the Central and concerned State Governments along with 18% interest from the date of realization till the date of deposit.
- The Commissioners of CGST/SGST were instructed to monitor the compliance of this order and submit a report within four months.
- A show cause notice was to be issued to the Respondents to explain why the penalty under Section 171 (3A) of the CGST Act, 2017 should not be imposed on them.

Conclusion:
The judgment emphasized the importance of passing on the benefits of tax reductions to consumers as mandated by Section 171 of the CGST Act, 2017. The detailed investigation and computation by the DGAP were upheld, and the Respondents were found to have violated the anti-profiteering provisions, resulting in significant financial penalties and directives for corrective action.