2024 (7) TMI 796 - CCI - GST

Profiteering - supply of Services by way of admission to exhibition of cinematograph films - not passing on the benefit of reduction in the GST rate, by way of commensurate reduction in price - contravention of Section 171 of the CGST Act, 2017 - HELD THAT - The Respondent had resorted to profiteering by way of either increasing the base price of the service while maintaining the same selling price or by way of not reducing the selling price 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 was above one hundred rupees from 28% to 18% w.e.f. 01.01.2019 upto 05.02.2019. On this account, the Respondent profiteered to the tune of Rs. 13,99,061/- (including GST) from the recipients. Thus the profiteered amount is determined as Rs. 13,99,061/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. Further, as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, the Respondent is directed to reduce the prices of cinema tickets, keeping in view the reduction in the rate of tax so that the benefit would be passed on to the recipients. However, as observed by the DGAP during its investigation that w.e.f. 06.02.2019, the Respondent had revised the selling price of tickets from Rs. 150/- to Rs. 138/- which depicts commensurate passing on of the benefit of reduction in rate of tax from 28% to 18%. Penalty - HELD THAT - The Respondent has denied benefit of rate reduction to his customers/recipients in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act. However, perusal of the provisions of Section 171 (3A), under which liability for penalty arises 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 05.02.2019 when the Respondent had committed the above violation. Hence, the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively for the said period.

Issues Involved:
1. Reduction in GST rate on cinema tickets.
2. Passing on the benefit of GST rate reduction to recipients.
3. Allegation of profiteering by the Respondent.
4. Locus standi of the Applicant.
5. Market-driven pricing of movie tickets.
6. Losses incurred by the Respondent.
7. Penalty imposition under Section 171 (3A) of the CGST Act, 2017.
8. Moratorium under the Insolvency and Bankruptcy Code (IBC).

Detailed Analysis:

1. Reduction in GST rate on cinema tickets:
The GST rate on "Services by way of admission to exhibition of cinematograph films" was reduced from 28% to 18% for tickets priced above Rs. 100, and from 18% to 12% for tickets priced at Rs. 100 or less, effective from 01.01.2019, as per Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018.

2. Passing on the benefit of GST rate reduction to recipients:
The investigation revealed that the Respondent did not reduce the selling price of movie tickets commensurately when the GST rate was reduced. Instead, the Respondent increased the base price of tickets to maintain the same selling price (MRP), thereby denying the benefit of the GST rate reduction to customers. The Commission determined that this action contravened Section 171 of the CGST Act, 2017, which mandates that any reduction in the rate of tax must be passed on to the recipient by way of commensurate reduction in prices.

3. Allegation of profiteering by the Respondent:
The DGAP concluded that the Respondent had profiteered by not reducing the selling price of tickets commensurately with the GST rate reduction. The total amount of profiteering was calculated to be Rs. 13,99,061/-, which included Rs. 10,78,726/- for tickets sold at the 'Gold Spot' multiplex and Rs. 3,20,335/- for tickets sold at the 'Leonia' multiplex.

4. Locus standi of the Applicant:
The Respondent contended that the Applicant had no locus standi to file the application alleging profiteering. However, the Commission held that under Rule 128 of the CGST Rules, 2017, read with Section 171 of the CGST Act, 2017, any complainant has the right to make a complaint if the benefit of rate reduction is not passed on by the supplier. The DGAP is legally bound to investigate such complaints and bring the facts before the Commission.

5. Market-driven pricing of movie tickets:
The Respondent argued that the price of movie tickets is market-driven and influenced by various factors such as class of ticket, movie rating, location, and statutory regulations. The Commission found that despite these factors, the Respondent did not reduce the selling price commensurately with the GST rate reduction, thereby contravening Section 171 of the CGST Act, 2017.

6. Losses incurred by the Respondent:
The Respondent claimed that it was incurring losses during the financial years 2017-18 and 2018-19 and had to increase the base price of tickets to offset these losses. The Commission rejected this argument, stating that being a loss-making company does not exempt the Respondent from passing on the benefit of GST rate reduction to customers.

7. Penalty imposition under Section 171 (3A) of the CGST Act, 2017:
The Respondent contended that penalty cannot be imposed as the specific penalty provisions under Section 171 (3A) were not in force during the period of violation (01.01.2019 to 05.02.2019). The Commission agreed, stating that since Section 171 (3A) was inserted w.e.f. 01.01.2020, the penalty cannot be imposed retrospectively.

8. Moratorium under the Insolvency and Bankruptcy Code (IBC):
The Respondent informed the Commission that a moratorium on proceedings was imposed by the NCLT under Section 14 of the IBC. The Commission noted that while assessment proceedings can continue, recovery actions cannot be initiated due to the moratorium.

Conclusion:
The Commission directed the Respondent to deposit the profiteered amount of Rs. 13,99,061/- along with interest in the Central and Telangana State Consumer Welfare Funds. The jurisdictional Commissioners of CGST/SGST Telangana were directed to monitor the compliance of this order under the supervision of the DGAP. The case file was to be consigned after completion.

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