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2020 (11) TMI 104 - NAPA - GSTProfiteering - purchase of Short Capuccino - allegation that the Respondent had not passed on the benefit of reduction in the GST rate on restaurant service - contravention of section 171 of CGST Act - Penalty - HELD THAT - The Respondent has profiteered to the tune of ₹ 1 ,04, 70,664/- during the period from 15.11.2017 to 30.06.2018 which he is required to pass on to the buyers by commensurately fixing prices of his products after taking in to account the impact of denial of ITC, which he has not done and hence he has violated the provisions of Section 171 (1) of the CGST Act, 2017. Accordingly, as per the provisions of Section 171(2) of the above Act read with Rule 133 (1) of the CGST Rules, 2017 the profiteered amount is determined as ₹ 1,04,70,664/-. The Respondent is directed to reduce the prices of his 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 of tax reduction is passed on to the recipients. The Respondent is also directed to deposit the profiteered amount mentioned above along with the interest to be calculated @18% from the date from which the above amount was collected by him from the recipients till the above amount is deposited, in terms of the Rule 133 (3) (b) of the CGST Rules, 2017. Since, the recipients in this case are not identifiable, the Respondent is directed to deposit the above amount of profiteering along with interest in the Consumer Welfare Funds (CWFs) of the Central and the above State Governments as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017 in the ratio of 50 50 along with interest @ 18%, till the same is deposited as per the details mentioned - The above amount shall further be deposited within a period of 3 months by the Respondent, from the date of this order, failing which the same shall be recovered by the concerned Commissioners of the Central and the State GST, as per the provisions of the CGST/SGST Acts, 2017 under the supervision of the DGAP and shall be deposited as has been directed vide this order. A detailed Report shall also be filed by the concerned Commissioners of the Central and the State GST through the DGAP indicating the action taken by them within a period of 4 months from the date of this order. Penalty - HELD THAT - It is also evident from the above narration of the facts that the Respondent has denied benefit of rate reduction to the buyers of his products in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus resorted to profiteering. Hence, he has committed an offence for violation of the provisions of Section 171(1) during the period from 15.11.2017 to 30.06.2018 and therefore, he is apparently liable for imposition of penalty under the provisions Of Section 171 (3A) of the above Act. However, perusal of the provisions of Section 171 (3A) under which penalty has been prescribed for the above violation shows that it has been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019 and it was not in operation during the period from 15.11.2017 to 30.06.2018 when the Respondent had committed the above violation and hence, the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively. Accordingly, notice for imposition of penalty is not required to be issued to the Respondent.
Issues Involved:
1. Allegation of not passing on the benefit of GST rate reduction. 2. Calculation and methodology of determining the profiteered amount. 3. Respondent's pricing policy and its impact on profiteering. 4. Period of investigation for determining profiteering. 5. Inclusion of additional GST collected in the profiteered amount. 6. Jurisdiction and scope of investigation by the DGAP. 7. Imposition of penalty under the CGST Act. Detailed Analysis: 1. Allegation of Not Passing on the Benefit of GST Rate Reduction: The case stemmed from an application alleging that the Respondent did not pass on the benefit of GST rate reduction on restaurant services from 18% to 5% effective 15.11.2017. The Respondent was accused of increasing the base prices of food items, thereby negating the benefit of the reduced GST rate. 2. Calculation and Methodology of Determining the Profiteered Amount: The DGAP calculated the profiteered amount by comparing pre and post-GST rate reduction prices, considering the denial of ITC. Initially, the profiteered amount was calculated as ?4,51,29,600/-, which was later revised to ?2,42,82,996/- after correcting the ITC ratio from 10.83% to 11.79%. The final profiteered amount was determined as ?1,04,70,664/- after further investigation and adjustments. 3. Respondent's Pricing Policy and Its Impact on Profiteering: The Respondent claimed to follow a consistent pricing policy of increasing prices twice a year. However, the DGAP found that the evidence provided by the Respondent was inconsistent and did not substantiate the claim of periodic price increases. The DGAP's investigation revealed that the Respondent increased prices by more than 11.79%, which was the permissible limit to offset the denial of ITC. 4. Period of Investigation for Determining Profiteering: The Respondent argued that the investigation period should be limited to 17.04.2018, considering the price increase on 18.04.2018. However, it was found that the Respondent continued to increase prices beyond the permissible limit, and thus, the investigation period was justified up to 30.06.2018. 5. Inclusion of Additional GST Collected in the Profiteered Amount: The Respondent contended that the additional GST collected should not be included in the profiteered amount. However, it was established that the excess GST collected on the increased base prices was part of the profiteered amount as it was charged on the excess prices, thus denying the benefit of tax reduction to the customers. 6. Jurisdiction and Scope of Investigation by the DGAP: The Respondent argued that the investigation should be limited to the product mentioned in the complaint. However, it was clarified that the DGAP has the jurisdiction to investigate all products where the benefit of tax reduction or ITC is required to be passed on, as per Section 171 of the CGST Act. The DGAP's investigation of other products was found to be legal and within the scope of the Act. 7. Imposition of Penalty under the CGST Act: The Respondent was found to have violated Section 171(1) of the CGST Act, 2017, by not passing on the benefit of GST rate reduction. However, the penalty under Section 171(3A) could not be imposed retrospectively as it was inserted in the Act w.e.f. 01.01.2020, after the period of violation. Conclusion: The Respondent was directed to reduce the prices of his products to pass on the benefit of GST rate reduction and to deposit the profiteered amount of ?1,04,70,664/- along with interest in the Consumer Welfare Funds of the Central and State Governments. The Respondent was also directed to comply within three months, failing which recovery proceedings would be initiated. No penalty was imposed due to the retrospective nature of the relevant provision.
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