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2020 (11) TMI 105 - NAPA - GSTProfiteering - DSLR Cameras - Power Banks - allegation that the reduction in the rate of tax not passed on - contravention of section 171 of CGST Act - Penalty - HELD THAT - While the commensurate base price of the Power Bank was ₹ 385.94, the actual sale price was ₹ 418.84, the cost price has been claimed to be ₹ 774.03. By no stretch of imagination such an unreasonable claim can be accepted. Similar claims have been made by him in respect of other products also. The Respondent has not produced any evidence during the course of the present proceedings which can establish the exorbitant moving cost prices claimed by the Respondent. The screen shots of the SAP system can also not be accepted as the conclusive proof of the cost movement as the Respondent is free to make any entries in the above system as per his convenience. It will also be pertinent to mention here that the pre rate reduction base prices included all the costs which the Respondent had borne while selling these products and hence, the Respondent cannot invent additional costs to be taken in to account while computing the profiteered amount. There is also no evidence on record to show that the sales made by the Respondent were on discount as all the sales mentioned in Annexure-Il were normal sales as has been admitted by the Respondent himself vide Annexure-B. Therefore, the above claim of the Respondent is unreasonable, unsubstantiated and far-fetched which cannot be accepted, hence an amount of ₹ 13,13,441/- cannot be reduced from the profiteered amount on this ground. The Respondent has also claimed that he had sold some of the products mentioned in Annexure-III, on discounted comparable sale prices below the cost of purchase and had made a nominal profit as compared to the regular profit. The said nominal profit earned was not even sufficient to recover the variable costs incurred by the Respondent. Therefore, in view of the above reason, profiteering amounting to ₹ 14,86,332/- should be excluded from the total profiteered amount. To further establish his claim made vide Annexure-Ill the Respondent has also submitted Annexure-C alongwith his submissions dated 22.06.2020 vide which he has attached the details of the sale transactions alongwith transaction level cost as per Annexure-3, excel worksheet as well as screen shots from the SAP system confirming the invoice wise sale value and cost, SAP screen shot of cost movement for sample transactions mentioned in Annexure-3 and sample purchase invoices in support of cost amount mentioned in Annexure-3. Perusal of the above Annexures shows that the Respondent has claimed that he ad sold the digital cameras on the prices which were slightly more than the average base prices but were less than their regular sale prices - The screen shots of the SAP system also do not prove his claim of moving costs as the Respondent can make any entries in the system. All the purchase costs incurred by the Respondent on the products sold during the pre rate reduction period have already been taken in to account while computing the average base prices and hence there is no ground to claim that they have increased subsequently. The Respondent cannot claim increase in his costs to deny the benefit of tax reduction. There is also no evidence of giving discount on the sold goods as these sales have been admitted to be normal sales by the Respondent himself vide Annexure-C. Therefore, the above claim of the Respondent is not tenable and hence, an amount of ₹ 14,86,332/- cannot be reduced from the profiteered amount. The profiteered amount is determined as ₹ 1,91,21,441/-, details of the computation of which are given in Annexure-21 of the DGAP s Report dated 23.12.2019. Accordingly, the Respondent is directed to reduce his prices commensurately, as indicated in the above mentioned Annexure, in terms of Rule 133 (3) (a) of the above Rules. The Respondent is also directed to deposit an amount of ₹ 1,91,21,441/- in two equal parts each in the Central Consumer Welfare Fund and the Consumer Welfare Funds of the States/UTs mentioned supra as per the provisions of Rule 133 (3) (c) of the above Rules, since the recipients are not identifiable. The above amounts shall be deposited along with 18% interest payable from the dates from which the above amount was realized by the Respondent from his recipients till the date of deposit in the Consumer Welfare Funds. The above amount of ₹ 1,91,21,441/-, along with applicable interest thereon, 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 CGST/SGST Commissioners as per the provisions of the CGST/SGST Acts. Penalty - HELD 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 01.01.2019 to 30.06.2019 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 01.01.2019 to 30.06.2019 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. Whether the Respondent was required to pass on and has passed on the commensurate benefit of reduction in the rate of tax to his customers? 2. Whether there was any violation of the provisions of Section 171 (1) of the CGST Act, 2017 in this case? Detailed Analysis: Issue 1: Requirement to Pass on the Benefit of Tax Reduction - The DGAP's investigation revealed that the GST rate on Digital Cameras and Power Banks was reduced from 28% to 18% effective 01.01.2019, as per Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018. - The Respondent was required to pass on the benefit of this tax reduction to customers by reducing the prices of these products commensurately. - However, the DGAP found that the Respondent increased the base prices of these products, thereby negating the benefit of the tax reduction. This was evidenced by comparing the average base prices before and after the tax rate reduction. - The methodology used by the DGAP involved calculating the average base price of products sold during December 2018 and comparing it with the actual selling prices post-GST rate reduction from January to June 2019. This comparison showed that the Respondent had not reduced the selling prices commensurately with the tax reduction. Issue 2: Violation of Section 171 (1) of the CGST Act, 2017 - Section 171 (1) 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 report confirmed that the Respondent violated this provision by not reducing the prices of Digital Cameras and Power Banks in line with the reduced GST rate. - The total profiteered amount, calculated by the DGAP, was ?1,91,21,441, which included the excess GST collected due to the increased base prices. Respondent's Submissions and DGAP's Supplementary Report: - The Respondent argued that the pricing of electronic goods depended on various commercial factors and that the DGAP's methodology did not account for these factors. The Respondent also claimed that the prices during December 2018 were lower due to festive season discounts. - The DGAP countered that the Respondent's increase in base prices exactly coinciding with the tax rate reduction indicated an intention to negate the benefit of the tax reduction. - The DGAP also clarified that the profiteered amount included the excess GST collected, which the Respondent was not entitled to retain. - The Respondent's claim that some products were sold below cost or at nominal profits was not substantiated with adequate evidence. Authority's Decision: - The Authority agreed with the DGAP's findings and methodology, stating that the Respondent had indeed profiteered by not passing on the benefit of the tax reduction to customers. - The Respondent was directed to reduce his prices commensurately and to deposit the profiteered amount of ?1,91,21,441 in the Central and State Consumer Welfare Funds along with 18% interest from the date of realization until the date of deposit. - The Authority also directed the concerned CGST/SGST Commissioners to monitor the compliance of this order. Penalty: - Although the Respondent was found liable for profiteering, the penalty under Section 171 (3A) could not be imposed retrospectively as it was not in force during the period of violation (01.01.2019 to 30.06.2019). Conclusion: - The Respondent was found to have violated Section 171 (1) of the CGST Act, 2017 by not passing on the benefit of the GST rate reduction to customers. - The total profiteered amount was determined to be ?1,91,21,441, which the Respondent was directed to deposit in the Consumer Welfare Funds along with applicable interest. - The Authority's order emphasized the need for businesses to comply with anti-profiteering provisions to ensure that benefits of tax reductions are passed on to consumers.
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