2020 (6) TMI 676 - NAPA - GST

Profiteering - Frozen Green Peas - allegation that the Respondent had not reduced the selling price of the Frozen Green Peas , when the GST rate was reduced - penalty - HELD THAT - The profiteering amount is determined as ₹ 2,33,515/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017 as per Annexure-12 of the Report. The Respondent is therefore directed to reduce the prices of the above 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 ₹ 2,33,515/- along with the interest to be calculated at 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited. Since the recipients, in this case, are not identifiable, the Respondent is directed to deposit the amount of profiteering of ₹ 2,33,515/- as per Table-B, mentioned above and Annexure-12 of the DGAP's Report dated 23.12.2019, in terms of Rule 133 (3) (c) of the CGST Rules, 2017, along with 18% interest in the Central and the State Consumer Welfare Funds of State of Andhra Pradesh and Telangana. The above amount shall be deposited within a period of 3 months from the date of this order failing which the same shall be recovered by the concerned Commissioner CGST/SGST as per the provisions of the CGST/SGST Act, 2017. Penalty - HELD THAT - The Respondent has denied the benefit of reduction in the tax rate to his buyers 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 liable for imposition of penalty under the provisions of the above Section. Accordingly, a Show Cause Notice 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. Allegation of profiteering by not reducing the selling price of "Frozen Green Peas" after GST rate reduction.
2. Investigation and findings by the Director General of Anti-Profiteering (DGAP).
3. Respondent's non-compliance and submissions.
4. Calculation of profiteering amount.
5. Determination of liability and penalty under Section 171 of the CGST Act, 2017.

Detailed Analysis:

1. Allegation of Profiteering:
The Applicant No. 1 filed an application alleging that the Respondent did not reduce the selling price of "Frozen Green Peas" when the GST rate was reduced from 5% to Nil effective from 01.01.2019, as per Notification No. 25/2018-Central Tax (Rate) dated 31.12.2018.

2. Investigation and Findings by DGAP:
The DGAP conducted a detailed investigation under Rule 129 (6) of the CGST Rules, 2017. The investigation covered the period from 01.01.2019 to 30.06.2019. The DGAP issued multiple notices and summons to the Respondent, who initially did not comply but later provided the required documents. The DGAP's report concluded that the Respondent did not pass on the benefit of the GST rate reduction to the recipients, thereby profiteering an amount of ?2,33,515/-.

3. Respondent's Non-Compliance and Submissions:
The Respondent failed to submit the requisite documents on time and did not appear for summons initially. However, later, the Respondent submitted documents and accepted the profiteered amount of ?2,33,515/- as computed by the DGAP. The Respondent claimed that the final price to the consumer remained the same because suppliers increased the base prices of the products, which increased the cost to the Respondent.

4. Calculation of Profiteering Amount:
The DGAP calculated the profiteering amount by comparing the average base prices of the impacted products before and after the GST rate reduction. The methodology involved comparing the average base price (without GST) before the rate reduction with the actual selling price (post-rate reduction). The DGAP found that the Respondent increased the base prices of the products to offset the GST rate reduction, thereby not passing the benefit to the recipients. The total profiteering amount was determined to be ?2,33,515/-.

5. Determination of Liability and Penalty:
The Authority concluded that the Respondent contravened Section 171 (1) of the CGST Act, 2017, by not passing on the benefit of the GST rate reduction. The Respondent was directed to reduce the prices of the products and deposit the profiteered amount of ?2,33,515/- along with 18% interest in the Central and State Consumer Welfare Funds of Andhra Pradesh and Telangana within three months. A Show Cause Notice was issued to the Respondent for imposing a penalty under Section 171 (3A) of the CGST Act, 2017.

Conclusion:
The Authority determined that the Respondent engaged in profiteering by not reducing the prices of "Frozen Green Peas" and "Frozen Sweet Corn" after the GST rate reduction. The Respondent was directed to deposit the profiteered amount and interest in the Consumer Welfare Funds and reduce the prices of the products. The Respondent was also liable for a penalty for violating Section 171 of the CGST Act, 2017. The Commissioners of CGST/SGST were instructed to monitor the compliance of this order.

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