2021 (1) TMI 129 - NAPA - GST

Profiteering - supplies of Fortune ADW Detergent 1Kg and Fortune Rinse Aid 500 ml. - 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 has not passed on the benefit of reduction in GST rate from 28% to 18% on the above products w.e.f 15.11.2017 to 31.03.2018 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 31.03.2018 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the notice dated 28.03.2019 issued to the Respondent for imposition of penalty under Section 122 (1) (i) is hereby withdrawn and the present penalty proceedings launched against him are accordingly dropped.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. Violation of Section 171 (1) of the CGST Act, 2017 by not passing on GST rate reduction benefits to recipients.
2. Determination of profiteered amount and penalty imposition under Section 122 (1) (i) of the CGST Act, 2017.
3. Respondent's submission regarding penalty imposition and the consideration of mens rea.
4. Applicability of penalty provisions under Section 171 (3A) of the Finance Act, 2019 retrospectively.

Analysis:
1. The case involved a complaint where the Respondent was found to have not passed on the benefit of GST rate reduction to recipients, violating Section 171 (1) of the CGST Act, 2017. The investigation revealed that the Respondent had denied the benefit of GST rate reduction to recipients, resulting in profiteering amounting to ?4,64,894.74 from 15.11.2017 to 31.03.2018. The Anti-Profiteering Authority issued a notice to the Respondent to show cause, and after due consideration, determined the profiteered amount and held the Respondent in violation of Section 171 (1).

2. Subsequently, it was established that the Respondent not only collected extra amounts from consumers but also compelled them to pay more GST, leading to an offense under Section 122 (1) (i) of the CGST Act, 2017. The Respondent was issued a notice to explain why penalty under Section 122 should not be imposed. The Respondent argued against penalty imposition, stating that mens rea and deliberate violation were absent. However, the Authority found that the Respondent had indeed violated Section 171 (1) by not passing on GST rate reduction benefits.

3. The Authority noted that no specific penalty was prescribed for violation of Section 171 (1) of the CGST Act, 2017. While considering penalty imposition, it was observed that Section 122 did not cover penalties for not passing on tax reduction benefits. The Respondent's argument regarding mens rea was considered, but it was concluded that the penalty provisions under Section 122 could not be applied for violations of anti-profiteering provisions under Section 171.

4. Further analysis revealed that specific penalty provisions under Section 171 (3A) of the Finance Act, 2019 were introduced from 01.01.2020 for violations of Section 171 (1). Since these penalty provisions were not in force during the period of violation by the Respondent, the Authority decided that the penalty under Section 171 (3A) could not be imposed retrospectively. Consequently, the penalty proceedings initiated against the Respondent were dropped, and the notice for penalty imposition was withdrawn.

In conclusion, the Anti-Profiteering Authority found the Respondent in violation of Section 171 (1) for not passing on GST rate reduction benefits but could not impose penalties under Section 122 due to the absence of specific provisions. The retrospective applicability of penalty provisions under Section 171 (3A) was also considered, leading to the withdrawal of penalty proceedings against the Respondent.