2025 (1) TMI 392 - CCI - GST

Profiteering - Respondent had reduced, re-fixed and displayed the MRPS of the impacted SKUs commensurately w.e.f. 15.11.2017 after the rate of tax was reduced on them and conveyed the same to his Dealers or not - benefit of tax reduction passed on or not - violation of provisions of Section 171 of GST Act - HELD THAT - From a bare perusal of the provisions of Section 171 of the Act and also the interpretation of Section 171 by the Hon'ble Delhi High Court vide its judgment dated 29.01.2024 2024 (1) TMI 1248 - DELHI HIGH COURT it emerges that the benefit of tax reduction must be passed on to the consumer by the manufacturer and sellers. The amount foregone from the public exchequer in favor of the consumers cannot be appropriated by the manufacturers, traders, distributors etc. When the Goods and Services Tax rate gets reduced the final price paid by the recipient requires to be reduced. The obligation of effecting/making a commensurate reduction in prices, is relevant to the underlying objective of the Goods and Services Tax which is to ensure that manufacturer/suppliers pass on the benefit of reduction in the rate of tax to the consumers, especially since the Goods and Services Tax is a consumption-based tax and the recipient (consumer) practically pays the taxes which are included in the final price. The tax foregone by the authorities has to be passed on to the consumers as commensurate reduction in price. The Respondent was legally required to reduce, re- fix and display the MRPS of the impacted SKUs commensurately w.e.f. 15.11.2017 and was also legally required to affix sticker or stamp or online print the reduced MRPS on the stock lying with him as on 15.11.2017. By doing so the Respondent would have passed on the benefit of tax reduction to the ultimate consumers who bear the burden of tax as per the provisions of Section 171 of the CGST Act, 2017. Conclusion - Since the final price paid by the end consumer has not been reduced commensurately, as per Section 171, the Report of the DGAP stating that the Respondent has not violated the provisions of Section 171 of the CGST Act, 2017 cannot be accepted. The DGAP is directed to re-investigate the case in terms of the Hon'ble Delhi High Court judgment dated 29.01.2024 and submit report under Rule 133(4) of the CGST, Rules, 2017.

1. ISSUES PRESENTED and CONSIDERED

The judgment addresses several core legal questions under the Central Goods and Services Tax (CGST) Act, 2017, particularly focusing on Section 171, which mandates the passing on of tax reduction benefits to consumers. The issues considered include:

Whether the respondent reduced, re-fixed, and displayed the Maximum Retail Prices (MRPs) of the impacted Stock Keeping Units (SKUs) commensurately after the tax rate was reduced on 15.11.2017.
Whether the respondent affixed stickers, stamped, or online printed the reduced MRPs on stock lying with him or his dealers as of 15.11.2017.
Whether the respondent charged the correct GST rate after the tax reduction on the impacted SKUs.
The grounds on which the respondent increased the base prices of products immediately after the tax reduction on 15.11.2017.
Evidence regarding the increase in crude oil prices, which was claimed as a reason for the price increase.
Whether the respondent violated Section 171 of the CGST Act and the quantum of profiteering, if any.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Reduction and Display of MRPs

Legal Framework: Section 171 of the CGST Act requires that any reduction in tax rates must result in a commensurate reduction in prices.
Interpretation and Reasoning: The Commission noted that the respondent did not reduce MRPs for all impacted SKUs as required by law.
Evidence and Findings: The DGAP reported that out of 32 impacted products, MRPs were not reduced for 5 SKUs.
Application of Law to Facts: The failure to reduce MRPs was seen as contrary to Section 171, which aims to ensure consumers benefit from tax reductions.
Competing Arguments: The respondent argued that the benefit was passed to distributors, but the Commission emphasized the need for consumer-level price reductions.
Conclusions: The Commission directed a re-investigation to ensure compliance with Section 171.

Issue 2: Affixing of Stickers or Stamping Reduced MRPs

Legal Framework: The Legal Metrology Act and Rules mandate displaying accurate MRPs on packaged goods.
Interpretation and Reasoning: The Commission found the respondent's failure to affix revised MRPs as non-compliance.
Evidence and Findings: The DGAP noted that the respondent did not affix stickers or stamps on the reduced MRPs.
Application of Law to Facts: The lack of revised MRPs on goods was contrary to legal requirements for consumer transparency.
Competing Arguments: The respondent claimed no legal obligation under Rule 6(3) of the Legal Metrology Rules to affix stickers, which was rejected.
Conclusions: The Commission emphasized the legal requirement to display revised MRPs and directed further investigation.

Issue 3: Charging Correct GST Rate

Legal Framework: Section 171 mandates passing on tax benefits to consumers.
Interpretation and Reasoning: The respondent charged the reduced 18% GST rate, which was in compliance.
Evidence and Findings: The DGAP confirmed the correct GST rate was applied post-reduction.
Application of Law to Facts: Compliance with the tax rate was noted, but the issue of price reduction remained.
Competing Arguments: The focus was on whether the tax benefit reached consumers, not just distributors.
Conclusions: The respondent complied with the GST rate, but further action was needed to ensure consumer benefit.

Issue 4: Increase in Base Prices

Legal Framework: Section 171 requires that tax reductions lead to price reductions.
Interpretation and Reasoning: The Commission questioned the timing of price increases post-tax reduction.
Evidence and Findings: The DGAP noted crude oil price increases as a factor, but the timing suggested circumvention of Section 171.
Application of Law to Facts: The price increase post-tax reduction was seen as potentially avoiding consumer benefit.
Competing Arguments: The respondent cited cost increases, but the Commission required clear justification.
Conclusions: Further investigation was directed to assess the legitimacy of price increases.

3. SIGNIFICANT HOLDINGS

Legal Reasoning: "Section 171 mandates that tax foregone has to be passed on as a commensurate reduction in price."
Core Principles: The judgment reinforces the obligation to pass tax benefits to consumers, not just intermediaries.
Final Determinations: The Commission directed a re-investigation to ensure compliance with Section 171, emphasizing consumer protection and transparency.

In conclusion, the judgment underscores the importance of ensuring that tax benefits reach the end consumers, aligning with the consumer welfare objectives of the GST regime. The Commission's directive for re-investigation reflects a commitment to uphold these principles and address any potential non-compliance by the respondent.

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