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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 ..... To curb the tendency of undue enrichment by the suppliers of goods and services on account of and on the eve of implementation of the GST Section 171 (1) of the CGST Act, 2017 was enacted which states that “a reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.” - thus, 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. There is no force in the contention of the above Respondent that the provisions of Section 171 (1) can not be invoked by comparing the pre GST rate with the post GST rate of tax as he can not be allowed to pocket the amount of reduced tax which should have normally gone to the coffers of the Central/State Governments. Any benefit of reduction in the rate of tax given by the above Governments by sacrificing their own rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposit this amount along with the applicable interest, vide his submission dated 24 12 2018 before this Authority. 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. Penalty - Held that:- 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 the incorrect tax invoices which would have otherwise resulted in further benefit to the customers which he has failed to pass on - It is also established ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 indulged in profiteering in contravention of the provisions of Section 171 of the CGST Act, 2017 and hence appropriate action should be taken against them. 2. The above complaint was examined by the Standing Committee and vide the minutes of its meeting dated 13.04.2018 it had requested the DGAP to initiate investigation under Rule 129 (1) of the CGST Rules, 2017 and collect evidence necessary to determine whether the benefits of reduction in the rate of tax or Input Tax Credit (ITC) had been passed on by the Respondents to their recipients or not. 3. In this connection, the DGAP had called upon the Respondent No. 1 vide his letter dated 18.05.2018, to submit the tax rate structure and MRP of the product (i) prior to GST regime and (ii) post GST regime before 15.11 2017 and after 15.11.2017. Emails dated 21.05.2018 and 31 05.2018 were also sent to the Respondent No. 1 to submit the required informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufactured 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) 0% 18% 382 233.08 7. The DGAP has also stated that the Respondent No. 1 was also asked, vide letter dated 25 09.2018, to submit the details regarding GSTN registrations obtained, details of the invoice-wise outward taxable supplies of the above product other than zero rated from 01.07.2017 to 31.07.2018 along with the certified summary of the same, Melaglow Credit Note register for the period from J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ker 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 ₹ 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 ₹ 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 ₹ 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 (Rate) dated 14.11 2017, in consequence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MRP had been increased by the Respondent No, 1 and the Respondents No. 2 3 were not responsible for profiteering 14. The DGAP has also submitted that the Respondent No. I was required to sell the above product at the pre-GST base price of ₹ 202.06 and charge lower GST w.e.f. 01.07.2017 and 18% w.e.f. 15.11.2017 on such base price, to pass on the benefit of reduction in the rate of tax, however, it was apparent from the sales data submitted by him that the per unit base price of the product was increased w.e.f. 01.07.2017 after the GST had come in to force, from ₹ 202 06 to ₹ 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spots and it was not a mass-consumption or an essential product. He has also intimated that he was procuring the product from the Respondent No. 2 and it was being produced at Baddi, Himachal Pradesh and was availing area based CED exemption in terms of Notification Nos. 49/2003-CE and 50/2003-CE, both dated 10.06.2003 till 06 05.2016. He has further intimated that with effect from 07.05.2016, the product attracted CED, @12.5% on the abated MRP (65% of the MRP), which amounted to duty rate of 8.125%. He has also contended that the average rate of VAT applicable on the sale of the product was 12 5%. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the necessary precedent condition was not satisfied, since there was no reduction in rate of tax on the product When the GST was introduced w.e f. 01 07 2017 and the tax pertained to the tax imposed under the CGST Act, 2017. He has further contended that there could have been no reduction in the rate of GST, when the GST was introduced and brought into force for the first time with effect from 01.07.2017 22. The Respondent No 1 has further submitted that the aforesaid interpretation of the term rate of tax on any supply of goods or services, was unambiguous with reference to the various provisions of the GST law The terms rate of tax and tax were not specifically defined under the CGST Act or the State GST Acts and hence, the issue whether the various taxes and duties levied prior to the introduction of the GST were liable to be included within the scope of the term rate of tax had to be determined. He has also claimed that Section 9 of the CGST Act, 2017 and Section 5 of the Integrated Goods and Services Tax (IGST) Act, 2017 i.e. the charging provisions, stated that there shall be levied a tax called the CGST or the IGST on all the intra/inter-state supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AIR 1953 SC 394 = 1953 (5) TMI 12 - SUPREME COURT and J. K. Cotton Spinning Weaving Mills co. Ltd. v. State of U. P. AIR 1961 SC 1170 = 1960 (12) TMI 77 - SUPREME COURT . Thus, he has argued that the scope of Section 171 had to be interpreted as being limited to the reduction in the rate of tax levied on supply of goods or services i.e. to the reduction in the rate of GST. 24. The Respondent No. 1 has also pleaded that the term rate of tax was employed in the singular form and hence the term used in Section 171 was rate of tax , and not rates of taxes and 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 GST and the rate of GST levied after introduction of the GST, Section 171 would have employed the plural term rates of taxes . He has further pleaded that wherever the legislature intended to refer to the provisions of the erstwhile indirect tax enactments, the term existing law had been used, however, in Section 171 there was no reference to any tax levied under the existing law . 25. The Respondent No. 1 has also submitted that the legal maxim co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate of tax w.e.f. 01 07.2017. He has further submitted that In the table given in Para 14 of the Report, the pre-GST tax rate had been computed by calculating the tax amount of ₹ 60.74 as a % of ₹ 202.06 i.e. by reducing the amount of CED and CST from the VAT invoice value of ₹ 233.60, however, this method of calculation was incorrect in as much as.- On a product where MRP had been affixed, the effective tax rate had to be calculated on the total taxes leviable at all stages in the distribution chain which were included in the MRP of the product, divided by a denominator arrived at MRP less all the applicable taxes. The method of calculating the tax only up to the stage of sale by the Respondent and ignoring the tax paid subsequently in the distribution chain, was incorrect. The method of calculating the denominator as Respondent s selling price less the taxes, was also incorrect. 28. The Respondent No. 1 has further submitted that if the rate of tax was computed as per the above formulation, the pre-GST rate worked out to be 24.62% and since the rate of GST applicable on the product w.e.f. 01.07.2017 was 28%, there was no reduction in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as increased as the base price at which the goods were sold was ₹ 233.60 during the period up to 30 June 2017 (pre-GST) and ₹ 233 44 during the period from 1 July 2017 (post-GST) 31. The Respondent No. 1 has also claimed that the increase in the MRP was due to increase in the indirect tax rates on account of introduction of GST and due to revision of pricing structure due to withdrawal of the discount which was earlier taken in to account while fixing the MRP Which could not be brought under the purview of Section 171. He has further claimed that the DGAP had ignored that the cause for increase in the MRP was not due to increase in the base price or profiteering but was on account of following factors:- a. Up to 06 05.2016, i.e. up to the period when CED exemption was applicable, CED was not factored in the selling price since the said duty was exempted b. With effect from 07.05.2016, when the above exemption was withdrawn the applicable CED rate was 12.5% on 65% of MRP i.e. @8.125%, however, he had not increased his MRP. He has also stated that the product continued to be supplied at the earlier MRP of ₹ 348 and base price of ₹ 222.71. He has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16.26/-. The Respondent No.1I has further requested to close the matter upon deposit of the profiteered amount along with the applicable interest as per the CGST Act, 2017. 35. Reply was also sought from the DGAP, vide order dated 20.11,2018, by the Authority on the submissions made by the Respondent No. 1 on 19.11.2018. The DGAP vide his reply dated 04.12.2018, received by the Authority on 06.12 2018, has intimated that the scope of Section 171 of the CGST Act, 2017 was not restricted to the reduction in the rate of GST only and if the tax incidence on a product got reduced after the introduction of GST w.e.f. 01.07.2017, the provisions of Section 171 were attracted. He has further intimated that the total tax incidence on the product upto the stage of fixation of Respondent No. 1 s sale prices had been compared for the pre and post GST periods which clearly indicated that the rate of tax on the product had gone down from 30.06% to 28% after the introduction of GST w.e.f. 01.07.2017. He has also intimated that other issues raised by the Respondent had already been covered in the Investigation Report itself. 36. We have carefully considered the material placed before us and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction in the rate of tax as per the provisions of Section 171 (1) as the above provision had come in to effect immediately w.e.f. 01.07.2017 and the consequent benefit in the shape of commensurate reduction in the price has to be passed on otherwise it would result in earning undue profit by the supplier on account of tax which they can not appropriate. Had this not been the intention of the Parliament/Legislatures it would have provided that any tax reduction after coming in to force of the above Acts w.e.f. 01.07.2017 would be construed as violation of the above Section. On the other hand if the rate of GST fixed on 01.07.2017 is more than the net incidence of the above three taxes applicable before 3.06.2017 the supplier can not be forced to charge the lower rate of tax and he would be entitled to charge the enhanced rate of tax and consequently he would not be falling foul of Section 171 (1) as there is no reduction in the rate of tax. The term rate of tax used in Section 171 (1) has a much wider scope and can therefore not be restricted only to the GST rate reduction. Therefore, there is no force in the contention of the above Respondent that the provisions of Section 171 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in conjunction with the words on any supply of goods and services but it can not be interpreted to mean that only reduction in the rate of GST can be considered for invocation of Section 171 (1) and no comparison can be made with the pre-GST rates. 39. The Respondent No. 1 has submitted three case laws i.e. Aswini Kumar Ghose v. Arabinda Bose AIR 1952 SC 369 = 1952 (10) TMI 32 - SUPREME COURT , Rao Shiv Bahadur Singh v. State of U. P. AIR 1953 SC 394 = 1953 (5) TMI 12 - SUPREME COURT and J. K. Cotton Spinning Weaving Mills co. Ltd. v. State of U. P. AIR 1961 SC 1170 = 1960 (12) TMI 77 - SUPREME COURT , in his support which pertain to the interpretation of the statutes. It is to emphasize that the legal principles for interpreting a statute are to be used only when parent legislation is ambiguous and unclear in its intent. In the instant case, Section 171 of the CGST Act, 2017, is crystal clear in its objective and scope. Hence, it is respectfully submitted that the cases referred to by the Respondent No. 1 are of no help to him. 40. The Respondent No. 1 has also quoted the mandate of this Authority which has been mentioned on its website as well as the FAQs publis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the act itself and there is no ambiguity hence the well settled principle of contemporanea exposito is not applicable here and is relevant only in construing old statutes Since, CGST/SGST Acts, 2017 were passed by the Parliament/State Legislatures less than 2 years ago, they cannot be termed as old statutes. Moreover, the provisions of Section 171 are not at all ambiguous and are rather very clear in their scope and intent. Therefore, the Respondent No. I s argument of invoking the legal maxim of contemporanea exposito, to arrive at the contemporary exposition of the statute is not tenable and hence no reliance is being placed on the cases cited by him. 42. The Respondent No. 1 in his submission dated 19.11 2018 has contended that there was no reduction in the rate of tax and the DGAP had erred while calculating the effective rate of tax in the pre-GST regime. The Respondent No. 1, in para 41 of his submissions has given a table and argued that the DGAP had not included the VAT charged on the sale of the product in question beyond the sale made by him meaning that the VAT charged in the subsequent sales made after the Respondent No. 1 had sold the product should also have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 conclusion that he wanted to appropriate the benefit of tax reduction by such increase. Therefore, the contentions of the Respondent No. I made in this behalf are incorrect and hence the same cannot be accepted 44. The above Respondent has also claimed that he had paid ₹ 6 Lakhs to his distributors to offset the losses suffered by them however, the Respondent can not increase his base price to cover his losses at the expense of the tax concession given to the customers He has also cited the prices of his competitors to prove that his MRP was the lowest however, the claim made by him cannot be confirmed due to lack of supporting evidence and hence the same cannot be relied upon. 45. The Respondent No. 1 in his submission made to this Authority on 24.12.2018 has specifically admitted that he had resorted to profiteering and agreed to deposit the entire amount of ₹ 96,59,716.26/- along with applicable interest therefore, there is no doubt that he has contravened the provisions of Section 171 (1) of the above Act and is hence, lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 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 date when the above amount was collected by him from his recipients, till the date the above amount is deposited. Since, rest of the recipients in this case are not identifiable, the above Respondent is directed to deposit the amount of profiteering of ₹ 96,59,716.26 (Rupees Ninety Six Lakh Fifty Nine Thousand Seven Hundred Sixteen and Twenty Six Paise Only) along with interest in the Consumer Welfare Fund of the Central and the concerned State Governments as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017 in the ratio of 50.50 in the Central and State CWFs along with interest @ 18% till the same is deposited within a period of 3 months. Accordingly, an amount of ₹ 48,29,858.13 (Rupees Forty Eight Lakh Twenty Nine Thousand Eight Hundred Fifty Eight and Thirteen Paise Only) will be deposited in the Central Consumer Fund while the balance will be deposited in the State CWFs as shown in the table given below:- S. No. State/Union Territory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Telangana 16,636 3,07,438.4 25 Tripura 315 5,586.68 26 Uttar Pradesh 20,681 3,45,324.3 27 Uttarakhand 3,117 57,059.39 28 West Bengal 25,173 4,65,503.9 Total amount to be deposited in State Consumer Welfare Funds 2,76,873 48,29,858 49. The above amount shall be deposited within a period of 3 months by the Respondent No. 1, from the date of receipt of this order, failing which the same shall be recovered by the concerned Commissioners of the Central and the State GST, as per the provisions of the CGST/SGST Acts, 2017 under the supervision of the DGAP and shall be deposited as has 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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