2020 (11) TMI 954 - NAPA - GST

Profiteering - Respondent had not passed on the benefit of rate reduction to the Applicant as well as other Customers as per the provisions of Section 171 (1) of the CGST Act, 2017 - HELD THAT - It has been revealed that the Respondent had not passed on the benefit of rate reduction to the above Applicant as well as other Customers for the period from 15.11.2017 to 31.10.2018 and hence, the Respondent has violated the provisions of Section 171 (1) of the CGST Act, 2017. It is also revealed from the perusal of the CGST Act and the Rules framed under it that no penalty had been prescribed for violation of the provisions of Section 171 (1) of the above Act, therefore, the Respondent was issued show cause notice to state why penalty should not be imposed on him for violation of the above provisions as per Section 122 (1) (i) of the above Act as he had apparently issued incorrect or false invoices while charging excess consideration and GST from the buyers. However, from the perusal of Section 122 (1) (i) it is clear that the violation of the provisions of Section 171 (1) is not covered under it as it does not provide penalty for not passing on the benefit of rate reduction and hence the above penalty cannot be imposed for violation of the anti-profiteering provisions made under Section 171 of the above Act - Since, no penalty provisions were in existence between the period w.e.f. 15.11.2017 to 31.10.2018 when the Respondent had violated the provisions of Section 171 (1), the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively. Accordingly, the notice dated 08.05.2019 issued to the Respondent for imposition of penalty under Section 122 (1) (i) is hereby withdrawn and the present penalty proceedings launched against him are accordingly dropped.

Summary

Issues:
1. Failure to pass on the benefit of rate reduction to customers.
2. Imposition of penalty for violation of anti-profiteering provisions.

Analysis:
1. The case involved an investigation by the Director General of Anti-Profiteering (DGAP) based on a complaint that the Respondent had not passed on the benefit of rate reduction to customers as required by Section 171(1) of the CGST Act, 2017. The DGAP's report highlighted that the Respondent had denied the benefit to customers, amounting to a specific sum, during a defined period. Upon review, the Anti-Profiteering Authority found the Respondent guilty of profiteering and violating Section 171(1) based on the evidence presented in the report.

2. The Authority issued a notice to the Respondent to explain why the DGAP's report should not be accepted and why the Respondent should not be held liable for the violation. After a detailed hearing, the Authority determined the profiteered amount and held the Respondent in violation of Section 171(1). It was established that the Respondent had not passed on the benefit to other customers as well, indicating a broader non-compliance issue. Consequently, the Authority considered the Respondent to have committed an offense under Section 122(1)(i) of the CGST Act, 2017, making the Respondent liable for penalty imposition under the relevant provisions.

3. Subsequently, the Respondent was issued a notice regarding the imposition of penalties as per Section 122 of the CGST Act, 2017. In response, the Respondent argued against penalty imposition, emphasizing that they had already paid the determined amount in compliance with the Authority's previous order. The Respondent contended that penalties should only be imposed in cases of deliberate violation with mens rea, which was not applicable in their situation. The Respondent's submissions were carefully reviewed, and it was confirmed that the Respondent had indeed failed to pass on the rate reduction benefit to customers, constituting a violation of Section 171(1).

4. However, a critical legal aspect emerged during the penalty assessment. It was observed that the CGST Act did not prescribe penalties for violations of Section 171(1) during the relevant period. As a result, the Authority could not impose penalties under Section 122(1)(i) for the anti-profiteering violation. The introduction of penalty provisions under Section 171(3A) of the Finance Act, 2019, effective from 01.01.2020, clarified the penalty framework for such violations. Since retrospective penalties were not applicable for the period of violation, the Authority withdrew the penalty notice issued to the Respondent under Section 122(1)(i), thereby dropping the penalty proceedings against the Respondent.

5. In conclusion, the Authority highlighted the absence of penalty provisions for Section 171(1) violations during the relevant period, leading to the withdrawal of penalty proceedings against the Respondent. The legal framework's evolution with the introduction of Section 171(3A) post the violation period underscored the limitations in retrospective penalty imposition, ultimately impacting the penalty decision in this case.