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2020 (12) TMI 91 - NAPA - GSTProfiteering - supply of Monitors and TVs of screen size up to 32 inches - allegation that the product LG LED TV was sold at a lower price after the reduction in the GST rate from 28% to 18% but without commensurate reduction in the price - also allegation that the Respondent had not passed on the benefit of reduction in the rate of tax in respect of the impugned product to the extent of 10% (28%-18%) by commensurate reduction in price - contravention of provisions of Section 171 (1) of the CGST Act, 2017 - penalty. HELD THAT - The excess GST charged from the recipients has also been included in the profiteered amount. The place of supply-wise break-up of the total profiteered amount of ₹ 37,89,550/- has been furnished vide Table-D supra in respect of 2 States. The above profiteered amount has been reduced to ₹ 34,34,008/- vide subsequent Report dated 01.06.2020 of the DGAP. The above methodology employed by the DGAP for computing the profiteered amount appears to be correct, reasonable, justifiable and in consonance with the provisions of Section 171 of the CGST Act, 2017. The above mathematical methodology has also been approved by this Authority in respect of all such cases of reduction in the rate of tax. Therefore, the above mathematical methodology can be safely relied upon. The price charged from different customer may vary but it cannot be below the price paid by him to the manufacturer plus his profit margin. Since, the Respondent has himself admitted that he was charging different prices from his customers there was no other alternative available to the DGAP except to compute the average base prices of the products being sold by him in the pre rate reduction period and then to compare them with the actual base prices so as to assess whether the Respondent has passed on the benefit of tax reduction or not. Therefore, the above claim of the Respondent is incorrect. 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 ₹ 34,34,008/- in two equal parts each in the Central Consumer Welfare Fund and the Consumer Welfare Funds (CWFs) of the States mentioned supra as per the provisions of Rule 133 (3) (c) of the above Rules, since the recipients are not identifiable. Scope of the Investigation - HELD THAT - There is no provision in the above Act or the Rules which provides that the investigation shall be limited to the products against which complaint has been received - The Respondent cannot get away by appropriating the benefit which he is legally bound to pass, on the ground that no complaint has been made in respect of the other products, as the benefit is not to be paid by him out of his own pocket, since it has been granted from the public exchequer to benefit the common customers. Therefore, the above claim of the Respondent is not correct and hence the same cannot be accepted. Penalty - HELD THAT - 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. Application disposed off.
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: 1. Requirement to Pass on Benefit of Tax Reduction: The core issue was whether the Respondent passed on the benefit of the GST rate reduction from 28% to 18%, effective from 01.01.2019, to his customers. The DGAP's investigation revealed that the Respondent increased the base prices of the products post-rate reduction, thereby not reducing the overall price paid by the consumers commensurately. The DGAP compared the average base prices before and after the rate reduction and found that the Respondent did not pass on the benefit, resulting in a higher sales realization of ?37,89,550/-. The Respondent's argument that the final sale prices were dependent on various factors like MRPs fixed by manufacturers, customer bargaining power, and discounts offered by E-commerce platforms was dismissed. The Respondent was legally bound to reduce the cum-tax prices commensurately with the tax rate reduction, which he failed to do. 2. Violation of Section 171 (1) of the CGST Act, 2017: Section 171 (1) mandates that any reduction in the tax rate or benefit of input tax credit must be passed on to the recipient by way of commensurate reduction in prices. The DGAP's investigation, which covered the period from 01.01.2019 to 30.06.2019, found that the Respondent had not reduced the prices commensurately despite the reduction in the GST rate. The calculation of profiteering was based on comparing the average base prices of products sold in December 2018 with the actual prices charged post-rate reduction. The DGAP's methodology was found to be correct, reasonable, and in line with Section 171. The Respondent's claims about unique pricing in the retail industry, impact of E-commerce discounts, and reduced ITC were rejected as they did not justify the failure to pass on the tax reduction benefit. Additional Findings: - The Respondent's argument that the DGAP expanded the scope of investigation without prior intimation was found to be incorrect. The Notice of Initiation of Investigation clearly stated that details of all products impacted by the GST rate reduction were to be provided. - The Respondent's reliance on the interim order in the case of M/s. Reckitt Benckiser India (P) Ltd. was dismissed as it was not a final judgement and did not apply to the present case. - The Respondent's plea to keep the proceedings in abeyance due to pending cases challenging the constitutional validity of Section 171 was rejected as no final judgement had been passed. - The Respondent's claim that the DGAP wrongly considered the LG LED TV 24LJ470 as impacted by the GST rate reduction was found to be incorrect. The product was indeed subject to the reduced GST rate from 01.01.2019. - The DGAP's computation of profiteering was adjusted by reducing ?1,98,751/- for an erroneously posted transaction and ?1,56,791/- for Power Banks with Lithium Polymer batteries, leading to a revised profiteering amount of ?34,34,008/-. 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 the customers. The profiteered amount was determined to be ?34,34,008/-, which the Respondent was directed to deposit in the Consumer Welfare Funds of the Central and State Governments. The Respondent was also directed to reduce his prices commensurately. The penalty under Section 171 (3A) could not be imposed retrospectively as it came into effect from 01.01.2020. The order was passed within the extended timeline due to the COVID-19 pandemic.
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