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TMI Blog2019 (3) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... re that an application dated 22.01.201d was filed by the Applicant No. 1 before the Standing Committee constituted under Rule 128 of the above Rules alleging that the Respondent No. 1 had not passed on the benefit of reduction in the rate of tax as he had increased the MRP of "Melaglow Rich (Niacinamide) Depigmentation & Glow Restoration Cream' (here-in-after referred to as the product) from Rs. 365/- to Rs. 415/- per unit post implementation of the GST. He had also submitted an image of the label of the product, which showed that the MRP of the product was mentioned as Rs. 365/- per unit however, another pasted sticker on the label indicated that the "MRP post CST" was Rs. 415/- per unit, which amounted to an increase of Rs. 50/- per unit post implementation of the GST. The label also disclosed that the product was marketed by the Respondent No. 1 and manufactured by the Respondent No. 2. The Applicant No. 1 had further informed vide his email dated 10.07.2018 that the above product was purchased by him from the Respondent No. 3. The Applicant No. 1 had also claimed that since the Respondents had increased the MRP of the product after the rate of tax was reduced on it, they had in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for granting extension in time to complete the investigation up to 08 11 2018 which was allowed by this Authority under Rule 129 (6) of the above Rules, vide its order dated 31.07.2018. The present investigation pertains to the period between 01.07.2017 to 31 .07.2018. 6. The DGAP in his Report has stated that the Respondent No. 1 in reply to his notice had supplied information regarding period-wise applicable tax structure, MRP and the selling price of the product vide his letter dated 25.07.2018, the details of which are mentioned in the table given below:- Period Excise Duty Rate Avg VAT/ GST Rate MRP (Rs.) Abbott's Actual Selling Price (excluding VAT/ GST) (Rs.) pre-GST (Upto 06.05.2016) Central Excise Duty exemption till 06.05.2016 as the product was manufactured at Baddi Plant (Area-based exemption under Notification No. 49/2003-CE and 50/2003-CE dated 10 06.2003) 12.5% 348 222.72 Pre-GST (07.05.2016 to March, 2017) 12.5% on abated MRP of 65% = 8.13% of MRP 12.5% 348 222 72 Pre-GST (April, 2017 to June, 17) 12 5% on abated MRP of 65% = 8.13% of MRP 12 5% 365 233 60 Post-GST (01.07. 2017 to 14.11.2017) 0% 28% 415 233.44 Post-GST (15.11.2017 onwards) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduct was being manufactured for him by from the job worker viz. M/S Helios Pharmaceuticals at its manufacturing facility located in Village Malpur, P.O. Bhud, Baddi, Teh. Nalagarh, Distt.-Solan, Himachal Pradesh- 173205 and the CED was being paid by M/s. Helios Pharmaceuticals. The Respondent No. 2 had also submitted the desired invoices and the documents to the DGAP 10. The DGAP has further intimated that vide his reply dated 27.07.2018, the Respondent No. 3 had submitted that he had purchased the product from M/S Aditya Pharmaceuticals (Distributor of Respondent No. 1) at a price of Rs. 259 38/- exclusive of taxes. The Respondent No. 3 had also submitted his purchase tax invoice No. Sl/17-18/28781 dated 27.01.2018 issued by M/s. Aditya Pharmaceuticals, showing the MRP as Rs. 415/-. M/s Aditya Pharmaceuticals had also provided its purchase invoice No. 3194078993 dated 28.10.2017 issued by the Respondent No. 1, mentioning the MRP as Rs. 415/- 11. The DGAP has also informed in his Report that the Central Government on the recommendations of the GST Council had reduced the CST rate on the above product from 28% to 18% w.e.f. 15.11 2017 vide Notification No. 41/2017-Central Tax (R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 202 06 to Rs. 230.90 (average base price for the sales made during the period 01 07 2017 to 31.07.2018). The DGAP has further submitted that since the Respondent No. 1 was a supplier registered under the GST, he was legally bound to pass on the benefit of reduction in the rate of GST to his customers immediately w.e.f. 01.07.2017 and 15.11.2017 however, by increasing the base price of the product and also by increasing the cum-tax price charged from the recipients post GST, the benefit of GST rate reduction was not passed on by the Respondent No. 1 to his customers. Therefore, the DGAP has concluded that in respect of the above product, supplied by the Respondent No. I during the period between 01.07.2017 to 31.07.2018, the amount of profiteering came to Rs. 96,59,716.26/- on account of increase in its base price as had been furnished in Annexure-15 by him. 15. The above Report was received on 25 10.2018 and was considered by the Authority in its sitting held on 30.10.2018 and it was decided to hear the Applicants and the Respondents on 15 11.2018. 16. Three personal hearings were accorded to the parties on 15.11.2018, 13.12.2018 and 19 12 2018, wherein the Applicant No. 1 Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He has also supplied the summary of the applicable tax structure on the product during the pre-GST and the post-GST regime which is mentioned in the table given below:- Applicable tax structure on the Product Period Central Excise duty (CED) Central Excise rate Avg. VAT/ GST Rate MRP (Rs.) AHPL's Actual Selling Price (Rs.) Pre-GST period (Up to 06.05.2016) Exempted from Central Excise Duty, as the product was manufactured at a manufacturing facility in Baddi (availing area based exemption) 0% 12.50% 348 222.72 Pre-GST Period (From 07.05.2016 to March 2017) Attracted Central Excise Duty 12.5% on abated MRP of 8.125 effective rate 12.50% 348 222.72 Pre-GST Period (March 2017 to June 2017) Attracted Central Excise Duty 12.5% on abated MRP of 8.125% 12.50% 365 233.60 Post GST Period (from 01.07.2017 to 14.11.2017) 0% 28% 415 233.44 Post GST Period (15.11.2017 onwards) 0% 18% 382 233.08 20. The Respondent No. 1 has also submitted that Section 171 of the CGST Act, 2017 was not applicable in the instant case since its scope was restricted to the cases where there was a reduction in the rate of GST and it did not extend to the reducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods or services or both thus, in these Sections, the term "tax" had expressly been mentioned as CGST/IGST/SGST. He has further claimed that the term "tax" has been used in the charging provisions to denote the tax levied on the taxable event of "supply", and not to any other tax or duty levied on a taxable event other than "supply" and hence the term "tax" did not cover a tax imposed on a taxable event other than supply" hence, a tax on the manufacture of goods viz. the CED or a tax on the sale of goods i.e. the Central Sales Tax (CST) or the VAT did not fall under its ambit. 23. He has further drawn attention to Section 14 of the CGST Act, 2017 and averred that the term 'change in the rate of tax' used therein was limited to the change in the rate of COST leviable under the above Act and the same could not be extended to cover pre-GST taxes. He has further contended that if the intention of the legislature was to empower the Authority to investigate cases based on the rates of taxes or duties levied prior to the introduction of the GST and the rate of CST levied after introduction of the GST the provisions of Section 171 of the CGST would have been worded accordingly, in the abs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was used by the courts to interpret any ambiguous law was applicable in this case also. The Respondent No. 1 has also argued that the Authority on its website had published its mandate and had also defined profiteering in reply to the FAQs however, the same did not have the force of the law. He has further cited the judgments of the Hon'ble Supreme Court passed in the cases of: (i) K. P. Varghese v. Income Tax Officer 1982 SCR (1) 629 = 1981 (9) TMI 1 - SUPREME COURT (ii) Desh Bandhu Gupta and Co. v. Delhi Stock Exchange Association Ltd. (1979) 3 SCR 373 = 1979 (2) TMI 175 - SUPREME COURT OF INDIA and (iii) Spentex Industries Ltd. v. CCE 2015 (324) E.L.T. 686 (S.C.) = 2015 (10) TMI 774 - SUPREME COURT and submitted that the legislative intent behind section 171 was to empower the Authority to investigate cases of profiteering on account of change in the rate of GST only and any comparison of the rates of various taxes and duties levied before introduction of GST, with the rate of GST levied under the GST enactments, and the conclusions derived based on such comparison, were beyond its legal mandate 26. He has also claimed that Section 171 has been introduced to ensure that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t's sale price) 29.2 29.2 VAT (in the distribution chain beyond sale by Abbott i.e. in subsequent sales) 0 11.36 (A) Numerator - Total Tax 60.74 72.10 (B1) Denominator - Abbott's sales price minus taxes 233.60 - 60.74= 202.06 --- (B2) Denominator - MRP of the product (i.e. Rs. 365/-) minus all applicable taxes --- 365 - 72.10 = 292.90 Effective tax rate A/B1 = 60.74/202.06 = 30.06% A/B2 = 72.10/292.90 - 24.62% 29. The Respondent No. 1 has further submitted that the computation had been done without thorough understanding of the pricing structure of the product and the tax computation method under the prevailing indirect tax laws. He has also contended that by following an arbitrary computation methodology, the DGAP has calculated the effective tax rate (pre-GST) as 30.06% and has wrongly concluded that the tax rate has been reduced to 28% (post GST), however, the total effective tax rate (pre-GST) was 24.62%, which had increased to 28% post GST (an increase of around 3.38%). He has further contended that the very invocation of Section 171 on the ground that there was a "reduction in the rate of tax" was wrong. 30. The Respondent No. 1 has also submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name MRP Pre-GST MRP @ 28% GST MRP @ 18% GST Melaglow Rich 20 gm 365 415 382 Biluma 15 gm 395 435 401 Kojivit Ultra 20 gm 326 357 367 Advan 10 435 470 430 Advan 20 560 590 560 33. In his submissions dated 24.12.2018, the Respondent No. 1 has stated that post CED exemption, he had not passed on the cost of excise to the consumer by way of price increase and charging of the same at the time of the implementation of the GST it had been viewed by the DGAP as increase in the base price although he was entitled to charge the cost of excise duty post May 7, 2016. 34. In his submissions dated 24.12.2018 the Respondent has claimed that after the expiry of the CED exemption w.e.f. 07 05.2016 and upto 30.06.2017, after which the GST had come in to force he had not increased the price of the above product and had increased it w.e.f. 01 07.2017, although he had right to increase the same, however, it had been construed as profiteering made by him which was not his intention. He has therefore, stated that he had taken an internal decision to suo moto deposit the alleged amount of profiteering of Rs. 96,59,716.26/-. The Respondent No.1I has further requested to close the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices." Therefore, It is clear from the plain reading of the above provision that any reduction in the rate of tax should result in commensurate reduction in the price w.e.f. 01.07.2017, the date from which the above Act has come in to force so that there is no profiteering by the suppliers at the expense of the consumers in case the rate of tax is reduced post GST and in case it is not done the supplier shall be liable for breach of the above provision. It is also clear from the perusal of Section 174 of the CGST Act, 2017 and Section 173 of the State GST Acts, 2017 that the Central and the State Acts which imposed CED, CST as well as the VAT have been repealed (Except for Entry 84 of the Union List and Entry 54 of the State List) and the above duty/taxes have been subsumed in the GST and the new rates of GST have been fixed near to the net incidence of the above three taxes which was in force before coming in to effect of the GST, as per the recommendation of the GST Council. Therefore, in case the net effect of the above taxes was more than the rate of CST fixed on 01.07.2017 the same would have to construed as reduction in the rate of tax as per the provisions of Section 171 (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of "supply" as supply includes sale also. The provisions of Section 14 of the above Acts pertain to the "time of supply" with reference to the "rate of change in the tax" and not to the reduction in the rate of tax and hence they are being wrongly quoted by the above Respondent in his support. Therefore, both the rates of tax applicable pre-GST and post-GST can be compared and in case there is reduction in the rate of tax post-GST the same falls under the preview of Section 171 (1) of the above Act. 38. Section 171 (2) of the above Act read with Rule 127 of the CGST Rules, 2017 empowers this Authority to examine whether the benefits of tax reduction or input tax credit have been passed on by the suppliers or not. As has been discussed above there is no restriction imposed by the Parliament/ State Legislatures on comparing the pre and post GST rates and nor the terms 'tax', 'rate of tax' or 'rates of tax' or 'change in the rate of tax' prohibit such comparison, to examine whether the above two benefits have been passed on or not. There is no doubt that the expression reduction in the rate of tax has to be read in conjunction with the words on any supply of goods and services but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porary legal usages assigned o those provisions it has been rarely used. In this respect, the landmark case of J. K. Cotton Spinning and Weaving Mills Ltd. and another v Union of India and Others, AIR 1988 SC 191 = 1987 (10) TMI 51 - SUPREME COURT OF INDIA, is worth mentioning. In this case, the learned counsel had relied on the judgement passed in the case of K.P. Varghese v. the Income Tax Officer, Ernakulam AIR 1981 SC 1922 = 1981 (9) TMI 1 - SUPREME COURT (also cited by the Respondent No. 1). on which the Hon'ble Supreme Court had observed that in K. P. Varghese case there was ambiguity and a word was capable of two constructions hence, the maxim contempranea expositio was applied but in this case there is no ambiguity and hence the maxim cannot be imported. Further, in the case of National Textile Corporation, New Delhi and another v. Swadeshi Mining and manufacturing Co. Ltd, Lucknow and others AIR 1988 SC 782 = 1988 (2) TMI 61 - SUPREME COURT OF INDIA, the Hon'ble Supreme Court had ruled that the question can be resolved by interpretation of the relevant provisions of the act itself and there is no ambiguity hence the well settled principle of contemporanea exposito is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... post-GST. He has also claimed that the increase in the MRP by 4.89% was made in March, 2017 due to increase in the rate of GST and the withdrawal of the discount which he was giving due to cessation of the CE exemption. But the Respondent No. I's submissions fall Short Of establishing this fact as it is apparent from the record that he had increased the base price of the product-from Rs. 202 06 (Rs. 233.60 Rs. 29.66 CED-Rs. 1.88 CST) to Rs. 230.90 per unit w.e.f. 01.07 2017 whereas he should not have increased it and supplied the product by charging 28% GST w.e.f. 01.07.2017 and 18% w.e.f. 15.11.2017 to pass on the benefit of tax reduction. There is also no evidence to suggest that the above Respondent had increased the base price due to withdrawal of the CED exemption the benefit of which he was giving to his customers as discount or due to the implementation of the GST or due to inflation. If the Respondent had not increased his price annually it was his own business call for which he cannot claim any allowance. The Respondent No. 1 has failed to explain the coincidence why he had increased his base price on the date from which the rate of tax was reduced which leads to the only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the profiteered amount during the period w.e.f. 01.07.2017 to 31.07.2018, comes to Rs. 96,59,716.26/-. The Respondent No. 1 has also himself agreed to deposit this amount along with the applicable interest, vide his submission dated 24 12 2018 before this Authority. 48. Accordingly, the Respondent No. 1 is directed to reduce the price of above mentioned product as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, by making commensurate reduction in its price, keeping in view the reduction in the rate of tax w.e.f 01.07.2017 and 15.11 2017 so that the benefit is passed on to the recipients Since the Applicant No. 1 has not produced the invoice vide which he had purchased the above product the amount to be refunded to him can not be determined. However, the Authority places on record its appreciation of the efforts made by him in bringing to notice this case of profiteering and for being present in person through the proceedings. The Respondent No. 1 is also directed to deposit the profiteered amount of Rs. 96,59,716.26 (Rupees Ninety Six Lakh Fifty Nine Thousand Seven Hundred Sixteen and Twenty Six Paise Only) along with the interest to be calculated @ 18% from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been directed vide this order. A detailed Report shall also be filed by the concerned Commissioners of the Central and the State GST indicating the action taken by them within a period of 4 months from the date of this order. 50. Since, the present investigation in to the issue of not passing on the benefit of reduction in the rate of tax by the Respondent No. 1 has been conducted w.e.f. 01.07.2017 to 31 07 2018, and the Respondent No. 1 has also not provided the details of every stage MRP change in the value chain along with the date of change of MRP for all the products that was demanded by the Authority during the hearing on 15.11.2018, the DGAP is directed to further investigate the quantum of profiteering on all the products including the present product which the Respondent No. 1 is supplying and thereafter submit his report accordingly. 51. It is also established from the above facts that the above Respondent has issued incorrect invoices while selling the above product to his customers as he had not correctly shown the basic price which he should have legally charged from them. The Respondent has also compelled them to pay additional GST on the increased price through t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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