2021 (1) TMI 127 - NAPA - GST

Profiteering - supply of Matchless Plus TTWG Grinder - allegation that the benefit of reduction in the rate of tax has not been passed on - violation of the provisions of Section 171 (1) of CGST Act - Penalty - HELD THAT - It has been revealed that the Respondent had not passed on the benefit of rate reduction to the customers who had purchased the Matchless Plus TTWG Grinder for the period from 15.11.2017 to 31.07.2018 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 Act. Since, no penalty provisions were in existence between the period from 15.11.2017 to 31.07.2018 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the notice dated 28.03.2019 issued to the Respondent for imposition of penalty under Section 122 (1) (i) is hereby withdrawn and the present penalty proceedings launched against him are accordingly dropped.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 tax rate reduction to customers.
2. Determination of profiteered amount.
3. Violation of provisions of Section 171(1) of the CGST Act, 2017.
4. Imposition of penalty under Section 122(1)(i) of the CGST Act, 2017.
5. Applicability of penalty provisions for violation of Section 171(1).

Issue 1: Failure to pass on the benefit of tax rate reduction to customers

The case involved a complaint where the Respondent did not pass on the benefit of a tax rate reduction from 28% to 12% on the supply of a specific product, as required by Section 171(1) of the CGST Act, 2017. The Directorate General of Anti-Profiteering (DGAP) conducted an investigation based on a complaint and found that the Respondent had denied the benefit of rate reduction to customers, resulting in profiteering and violation of the Act. The Authority determined the profiteered amount and held the Respondent accountable for not passing on the benefit during the specified period.

Issue 2: Determination of profiteered amount

After careful consideration and hearings, the Authority calculated the profiteered amount to be ?32,926.36 as per the provisions of Section 171(2) of the CGST Act, 2017 read with Rule 133(1) of the CGST Rules, 2017. The determination was made for the period from 15.11.2017 to 31.07.2018, based on the findings of the investigation conducted by the DGAP.

Issue 3: Violation of provisions of Section 171(1) of the CGST Act, 2017

The Authority found that the Respondent had indeed violated the provisions of Section 171(1) by not passing on the benefit of the tax rate reduction to consumers between the specified period. This violation constituted an offense under Section 122(1)(i) of the CGST Act, 2017, making the Respondent liable for penalty under the relevant provisions.

Issue 4: Imposition of penalty under Section 122(1)(i) of the CGST Act, 2017

Following the determination of the profiteered amount and the violation of Section 171(1), the Respondent was issued a notice to explain why the penalty mentioned in Section 122 of the CGST Act, 2017 should not be imposed. The Respondent submitted various arguments against the imposition of the penalty, citing unintentional errors and ignorance regarding the tax regulations.

Issue 5: Applicability of penalty provisions for violation of Section 171(1)

The Authority noted that no specific penalty had been prescribed for the violation of Section 171(1) of the CGST Act, 2017 at the time of the Respondent's actions. It was highlighted that the penalty provisions were added later under Section 112 of the Finance Act, 2019, which came into force from 01.01.2020. As a result, the penalty prescribed under Section 171(3A) could not be imposed retrospectively for the period when the violation occurred. Therefore, the penalty proceedings against the Respondent were withdrawn, and the notice for penalty imposition was dropped.

In conclusion, the judgment addressed the issues of failure to pass on tax rate benefits, determination of profiteered amount, violation of statutory provisions, and the applicability of penalties under the relevant laws. The decision provided detailed reasoning for each issue and clarified the retrospective application of penalty provisions, ultimately leading to the withdrawal of penalty proceedings against the Respondent.