2022 (7) TMI 640 - NAPA - GST

Profiteering - Services by way of admission to exhibition of cinematograph films where price of admission ticket was above one hundred rupees - benefit of reduction in GST rate w.e.f. 01.01,2019, had not been passed on to his recipients by way of commensurate reduction in prices - contravention of provisions of section 171 of CGST Act - penalty - HELD THAT - The Respondent has resorted to profiteering by way of either increasing the base prices of the service while maintaining the same selling prices or by way of not reducing the selling prices of the service commensurately, despite a reduction in GST rate on Services by way of admission to exhibition of cinematograph films where price of admission ticket is above one hundred rupees from 28% to 18% and Services by way of admission to exhibition of cinematograph films where price of admission ticket was one hundred rupees or less were reduced from 18% to 12% w.e.f. 01.01.2019 to 29.02.2020. On this account, the Respondent has realized an additional amount to the tune of Rs. 2,66,99,340/- from the recipients which included both the profiteered amount and GST on the said profiteered amount, Thus the profiteering amount is determined as Rs. 2.66,99,340/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent is therefore directed to reduce the prices of his tickets as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. Penalty - HELD THAT - It has also been found that the Respondent has denied the benefit of rate reduction to his customers/recipients in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and resorted to profiteering and hence, committed an offence under section 171 (3A) of the CGST Act, 2017. Therefore, he is liable for the imposition of penalty under the provisions of the above Section Accordingly, a notice be issued to him directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him for the profiteered amount collected from 01.01.2020 to 29.02 2020. Accordingly this Order having been passed today falls within the limitation prescribed under Rule 133 (1) of the CGST Rules, 2017.

Issues Involved:
1. Whether the GST rate reduction on cinema tickets was passed on to consumers.
2. Validity of the initiation of anti-profiteering proceedings.
3. Methodology for calculating the profiteered amount.
4. Consideration of capital expenditure in pricing.
5. Determination of the profiteered amount and its deposition.

Issue-wise Detailed Analysis:

1. GST Rate Reduction and Consumer Benefit:
The main issue was whether the reduction in GST rates on cinema tickets from 28% to 18% (for tickets above Rs. 100) and from 18% to 12% (for tickets Rs. 100 or less) effective from 01.01.2019 was passed on to the consumers. The DGAP's investigation revealed that the Respondent had increased the base prices of tickets, thereby not passing on the benefit of the reduced GST rates to the consumers. The Authority found that the Respondent had indeed profiteered by increasing the base prices and not reducing the selling prices commensurately, leading to a total profiteered amount of Rs. 2,66,99,340/- for the period from 01.01.2019 to 29.02.2020.

2. Validity of Initiation of Proceedings:
The Respondent argued that the initiation of anti-profiteering proceedings was invalid as the notice was issued before the amendment to Rule 133(5) of the CGST Rules, 2017, which came into effect on 28.06.2019. The Authority clarified that the Interim Order No. 15/2020 dated 12.03.2020 to investigate other cinema screens was issued after the rule came into force and that Section 171(2) of the CGST Act empowers the Authority to examine whether benefits of tax reduction were passed on, irrespective of Rule 133(5). Thus, the initiation of proceedings was valid.

3. Methodology for Calculating Profiteered Amount:
The Respondent contended that the methodology adopted by the DGAP was flawed and proposed an alternative method. The Authority upheld the DGAP's methodology, which involved comparing the average base prices of tickets for unique combinations of factors (e.g., type of movie, ticket type, weekdays/weekends, show timings) pre and post-GST rate reduction. The Authority found that this method was appropriate and based on material facts, not assumptions.

4. Consideration of Capital Expenditure:
The Respondent claimed that capital expenditures incurred should be considered in pricing. The Authority rejected this argument, stating that the main factor under consideration for profiteering was the base prices of tickets, not capital expenditures. The Respondent's claim lacked detailed information on amortization of capital costs, and thus, the adjustment on account of capital expenditure was not sustained.

5. Determination and Deposition of Profiteered Amount:
The Authority directed the Respondent to deposit the profiteered amount of Rs. 2,66,99,340/- along with 18% interest from the date of collection till the date of deposit. Since the recipients were not identifiable, the amount was to be deposited in the Central and respective State Consumer Welfare Funds (CWFs) within three months. The Authority also directed the DGAP to compute profiteering from 01.03.2020 till the date the Respondent passed on the benefit of tax reduction.

Conclusion:
The Authority concluded that the Respondent had profiteered by not passing on the GST rate reduction benefits to consumers and directed the deposition of the profiteered amount in the CWFs. Additionally, the Respondent was liable for penalty under Section 171(3A) of the CGST Act, 2017, and a notice was issued for the same. The jurisdictional Commissioners were directed to monitor compliance with the Order.

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