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2022 (6) TMI 1253 - NAPA - GSTProfiteering - purchase of Stayfree Sanitary Napkins - allegation is that reduction in the rate of Input Tax Credit has not been passed y commensurate reduction of the price - violation of the provisions of Section 171 of the CGST Act 2017 - Penalty - HELD THAT - A plain reading of Section 171 (1) of the CGST Act 2017 indicates that it deals with two situation - one relating to the passing on the benefit of reduction in the rate of tax and the second about the passing on the benefit of the ITC. On the issue of reduction in the tax rate it is apparent from the record that there has been a reduction in the rate of tax from 12% to Nil on Sanitary Napkins w.e.f. 27.07.2018 vide Notification No. 19/2018-CTR dated 26.07.2018. Therefore the Respondent was liable to pass on the benefit of the above tax rate reduction to his customers in terms of Section 171 (1) of the above Act. It is also apparent that the DGAP has carried out the present investigation w.e.f. 27.07.2018 to 31.03.2019. This Authority had given specific direction to DGAP vide Interim Order No. 15/2020 dated 20.04.2020 to carry out investigation on the specific points that are discussed. Based on the said direction and subsequent investigation the DGA.P has calculated that the Respondent has increased the base price of the impugned goods during the period from 27.07.2018 to 31.03.2019. Thus the benefit of reduction in the tax rate has not been passed on to the recipients by way of commensurate reduction in the prices by the Respondent in terms of Section 171 (1) of the CGST Act 2017 during the above period. Therefore the DGAP had calculated the profiteered amount on the impugned item i.e. Sanitary Napkins by comparing the average pre-rate reduction base price of the impugned item with the actual selling price during the post-reduction period i.e. after 27.07.2018 by the Respondent during the period from 27.07.2018 to 31.03.2019. The mathematical methodology employed by the DGAP to compute the profiteered amount is correct appropriate reasonable and in consonance with the provisions of Section 171 (1) of the CGST Act 2017. This Authority as per the provisions of Section 171 of the CGST Act 2017 determines the profiteered amount as Rs. 9, 84, 354/- for period from 27.07.2018 to 30, 03.2019 by the Respondent. The Authority finds that such amount needs to be passed on by the Respondent alongwith interest @ 18% as prescribed to the recipients of supply/customers other than the Applicant No. 1 as the profiteering in respect of the Applicant No. 1 has been found to be Nil as per the DGAP Report dated 24.09.2019. As the recipients other than the Applicant No. 1 of such supply are not identifiable the Authority directs that the Respondent shall deposit the said amount with interest in the Consumer Welfare Funds (CWP) of the Central and State Governments as prescribed under Rule 133 (3)(e) of the CGST Rules 2017 within three months of the date of this order failing which such amount will be recovered under the provisions of CGST Act 2017. Penalty - HELD THAT - The Authority finds that the Respondent has contravened the provisions of Section 171 (1) of the CGST Act 2017. Therefore he is liable for imposition of penalty under the provisions of Section 171 (3A) of the said Act. However since the provisions of Section 171 (3A) have come in to force w.e.f. 01.01.2020 and the offence pertains to the period from 27.07.2018 to 31.03.2019 hence penalty under the above section cannot be imposed retrospectively on the Respondent. This Order having been passed today falls within the limitation prescribed under Rule 133(1) of the CGST Rules 2017.
Issues Involved:
1. Violation of Section 171 of the CGST Act, 2017. 2. Quantum of profiteering. Issue-wise Detailed Analysis: 1. Violation of Section 171 of the CGST Act, 2017: The case revolves around the allegation that the Respondent did not pass on the benefit of a tax rate reduction from 12% to Nil on Stayfree Sanitary Napkins, effective from 27.07.2018, as per Notification No. 19/2018-CTR dated 26.07.2018. The DGAP's investigation confirmed that the Respondent increased the base price of the product when the tax rate was reduced, thereby benefiting by Rs. 19,61,033/- during the period from 27.07.2018 to 31.03.2019. This was deemed a violation of Section 171 of the CGST Act, 2017, which mandates passing on the benefit of tax rate reduction to consumers. 2. Quantum of Profiteering: The DGAP was directed to investigate specific issues and submit a detailed report. The investigation revealed that the Respondent had increased the base price of the sanitary napkins post the tax rate reduction, leading to profiteering. The DGAP's report dated 31.12.2020 recalculated the profiteered amount, considering common input tax credit (ITC) reversals and discounts. Detailed Findings: a. Common Input Tax Credit: The DGAP verified the Respondent's claim of reversing common credit of Rs. 13,07,118/-. The ITC reversal was found to be correct and proportionately distributed to the turnover of sanitary napkins, impacting the base price calculation for profiteering. b. Discounts: The Respondent, being a retailer, provided discounts at the point of sale, reflected in the invoices. The DGAP concluded that profiteering should be calculated on the taxable value (transaction value) as per Section 15 (3) of the CGST Act, 2017. c. Profiteering Amount Calculation: The DGAP computed the profiteered amount separately for closing and fresh stocks. For the closing stock, the profiteered amount was Rs. 5,37,208/-, and for the fresh stock, it was Rs. 4,47,146/-. The total profiteered amount was Rs. 9,84,354/-. Respondent's Contentions: The Respondent argued that the total common credit reversal should be adjusted against the alleged profiteering. They also contended that the benefit of common credit reversal should be given for both closing and fresh stocks. However, the DGAP clarified that the common credit reversal was correctly apportioned and accounted for in the profiteering calculation. Authority's Decision: The Authority determined that the Respondent violated Section 171 (1) of the CGST Act, 2017, by not passing on the benefit of the tax rate reduction. The profiteered amount was confirmed as Rs. 9,84,354/-, which the Respondent was directed to deposit along with 18% interest in the Consumer Welfare Funds of the Central and State Governments. The Respondent's liability for penalty under Section 171 (3A) could not be imposed retrospectively as the provision came into force after the period in question. Conclusion: The Authority concluded that the Respondent must deposit the profiteered amount with interest in the Consumer Welfare Funds within three months. The jurisdictional Commissioners of CGST/SGST were directed to ensure compliance and report back within four months. The order was passed within the limitation period as per the Supreme Court's directions on the exclusion of the limitation period due to the COVID-19 pandemic.
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