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TMI Blog2019 (3) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... to be necessarily has to be passed on to the recipients. Moreover the DGAP has rightly taken the transaction value of supplier which was the price that was charged by the respondent from his recipients which excluded the impact of discounts. Thus, the respondent is directed to reduce the price of the products as per provisions of Rule 133 (3) (a) of CGST Rules, 2017 by making commensurate reduction in the prices, keeping in view the reduction in the rate of tax. Penalty - Held that:- It has been established that the Respondent has profiteered by increasing his base price. Hence he is liable for penalty under Section 122(1)(i) of the CGST Act, 2017, for issuing incorrect invoices. In the interest of natural justice before imposition of penalty a notice for hearing need to be issued. - Case No. 16/2019 - - - Dated:- 7-3-2019 - SH. B. N. SHARMA, CHAIRMAN, MS. R. BHAGYADEVI, TECHNICAL MEMBER, MR. AMAND SHAH, TECHNICAL MEMBER Present:- Mr. Rahul Sharma and Mr. Sachin Taparia for the Applicant No. 1. Ms. Gayatri Verma, Deputy Commissioner, DGAP for the Applicant No. Ms. Sheena Saveen Sr. Manager, Deloitte, Mr. Ankit Mundra Sr. Tax Manager, Cloudtail India Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctured by other vendors; that he had no control over the MRP affixed by the manufacturer/ importer; that the manufacturer/ brand-owner (HP) had changed the MRP during the period between July 2017 to December 2017, that HP had first increased the MRP on account of increase in the tax rate from 5% (VAT) to 28% (GST) and also on account of imposition of Customs duty @ 10% on cartridges w.e.f. 01 .07 2017, that subsequently, HP had decreased the MRP to pass on the benefit of reduction in GST rate w.e.f. 15.1 1 .2017 (the Respondent had enclosed a certificate issued by HP regarding change in MRP), that he had not sold any product above the MRP fixed by the manufacturer/ importer, that probably the sale made on 04.10 2017 was from pre-GST stock and the sale made on 09.12.2017 was from the stock imported/ manufactured after 15.11.2017, that the invoice issued on 04.10.2017 had been raised during the Great Indian Festival Sale , a promotional event run by Amazon, whereas the invoice dated 09.12.2017 was raised during the course of routine business, when there was no promotion and no exceptional discounts were offered, that the margin earned by him on the sale effected on 09.12.2017 was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Respondent had offered similar discount of 5%, as earlier, on the increased base price after GST rate reduction w.e.f. 15.1 1.2017. Thus, by increasing the base price of the said goods and also by increasing the cum-tax price charged from the recipients post GST rate reduction, the benefit of GST rate reduction was not passed on by the Respondent to the recipients. 8. The DGAP's Report has also stated that the profiteered amount during the period w.e.f. 15.1 1.2017 to 31.07.2018 came to ₹ 10,79,813.28 The details of which are furnished in the table below:- Product Sales 01.10.2017 to 14.11.2017 (GST@28%) during Sales during 15.11.2017 to 31.07.2018 (GST@18%) Commensurate Price Profiteering (Rs.) Total Profiteering Avg. Base after Discount (Rs.) Qty. Sold Avg. Base Price after Discount (Rs.) Qty. Sold Actual selling Price per unit (Rs.) A B C D E F=118% of D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and consequence of the proceedings carried out. Therefore the Respondent claimed that it appeared that the findings in the Report had been made with a pre-closed mind without proper appreciation of the underlying facts in their true spirit. 12. The Respondent has further submitted that the proceedings initiated should be deemed infructuous as the complaint under Section 171 of the CGST Act, 2017, has been filed with respect to the MRP affixed on the product by the brand owner, i.e. M/s. HP India Sales Private Limited ( HP India ), which was evident from the face of the complaint itself, wherein the above Applicant had submitted that the HP India had increased the MRP post GST rate reduction. An extract of the application is given below: 13. The Respondent has also stated that in the Letter sent to the Members of the Standing Committee on Anti-Profiteering by the Secretary (NAA) vide his letter 22011/NAA/20/2018/122, dated May 18, 2018, this fact had been reconfirmed. The Respondent has also enclosed extract of the relevant portions of the letter which is reproduced below:- Sub - Information received by NAA regarding profiteering by HP Printer- reg. Please f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e MRP affixed by the Brand owner i.e. HP India and he was just a retailer dealing with the products manufactured or imported by the brand owner. He has further claimed that the product in question had not been imported by him. Quoting the circulars of the Legal Methodology department, he has claimed that as per the provisions of the Legal Metrology Act, 2009, it was the duty of the manufacturer/ importer to determine the MRP and to affix MRP label on the products. He has further submitted that the MRP of the product was changed by HP India the brand owner on two occasions. The MRP was ₹ 1076 upto 30th June 2017 (pre-GST), from 01.07.2017 to 14.11.2017 the MRP was increased to ₹ 1239 and from 15.11.2017 to 31.12.2017 the MRP was reduced to ₹ 1158 (post GST rate reduction). He has further claimed that as shown in the table below, the increase in MRP from ₹ 1,076 to ₹ 1,239 appeared to have been on account of increase in the rate of Basic Customs Duty and increase in the rate under GST on ink cartridges with effect from July 1 2017 and the decrease in MRP was to factor in the reduction in GST rate from 28% to 18%, effective from November 15, 2017, which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss (including ecommerce) to offer discretionary discounts to customers during the festival sales period and these discounts were largely guided by market practices but were also discretionary. Depending upon the sale period, inventory position, competitor strategy, market penetration, customer loyalty or other similar factors, retailers like him chose to provide voluntary discounts/benefits to their customers. These benefits were discretionary and the sellers were under no statutory obligation to provide them or to withdraw them. The Respondent has also claimed that he was fully entitled to sell the product at the MRP printed on the package but had chosen to provide certain discretionary, non-statutory benefits to his customers. 17. The also submitted that in compliance with the anti-profiteering regulations, the brand owner, HP India had reduced the MRP of the product from ₹ 1,239 to ₹ 1,158, post the reduction in the rate of tax in November 2017. He has also emphasised that at no given point of time the Respondent had sold the above product at a price more than the reduced MRP of ₹ 1,158 after 14.11.2017. He has also further claimed that because of voluntar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost August 14, 2017 and before the date of sale, i.e., October 4, 2017. The above two companies had stocks of the products as of July 1, 2017 which were sold to the Respondent in July 2017 and August 2017 which were further resold by him to the various customers including the above Applicant in the months of July 2017, August 2017, September 2017 and October 2017. The said goods sold by him might have contained pre-GST MRP or post-GST MRP. Specifically, the product sold to the above Applicant, the same pertained to the pre-GST stock as the same had MRP of ₹ 1,076 which was applicable till June 30, 2017 as was evident in the complaint filed by the above Applicant. He has also claimed that since the MRP affixed on the stock purchased by the above Applicant on October 4, 2017 was ₹ 1 ,076, it could be deduced that the product is pre-GST stock and therefore it was clear that the MRP of the product was not increased from ₹ 1,076 to ₹ 1,158 after rate reduction in November 2017 and the said product was never sold above the reduced MRP by the Respondent. He has also claimed that though the MRP was increased from ₹ 1,076 to ₹ 1,239 effective July 1, 2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es returns) (4,613) Stock as on November 30, 2017 2,899 Supplies made from December 1, 2017 to December 9, 2017 including supplies to the Applicant 753 Thus, it has been contended that because the Applicant No. 1 did not make any purchase of product with MRP of ₹ 1,239, it appeared to him that there had been an increase in the MRP. However, the fact was that the MRP had been reduced from ₹ 1,239 to ₹ 1,158. He has also produced the details of purchases as given below to substantiate his claim which is authenticated with the CA certificate. Amount in Rs. Period Total purchase cost (excluding taxes) Qty purchased Purchase price per unit* (B) (C) D = (B)/(C) July 1, 2017 to August 14, 2017 1,92,39,708 27 ,625 696.46 October 31, 2017* 6,96,460 1,000 696.46 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the price fixed by HP India and the margin was well within the entitlement fixed by HP India. He has further claimed that the Applicant has not only received a product with the reduced MRP but has also received additional voluntary discount from the Respondent. They further claimed that on applying the above revised procurement price post rate change to the average base prices per unit computed in the DGAP Report, it could be seen that the actual price difference earned by him was much below the entitled margin as has been computed in the table below:- Particulars Invoice dated October 4, 2017 (Note 1) Invoice dated December 2017 (Note 2) MRP 1,076 1,158 Sale price** 688.28 911.86 Discount** 34.38 45.59 Net sale price** 653.87 866.27 Purchase price** 696.46 798 00 Actual price difference* (42.59) 68 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the margin as made by him vis-a-vis the entitled margin revealed that he had sold at lesser margin and well within the entitled margin agreed with HP India/ their distributors. Mere comparison of selling price without factoring the purchase price/ margin earned for computation of profiteering would be grossly incorrect. Entitled Margin Amounts in Rs. Particulars Post GST (July 1, 2017) Post rate change (November15, 2017) MRP 1 ,239.00 1,158.00 Price without tax 967.97 981.36 Procurement price 798.00 798.00 Entitled margin 169.97 183.36 Entitled margin % of MRP 14% 15.83% Entitled margin % on selling price 17.56% 18.68% 23. The Respondent has also re-iterated that the invoices under consideration in the notice had been raised under two different circumstances. While the first invoice dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Purchase price 798.00 Margin (92.00) 26. He has also submitted that the DGAP had ignored the fact that the copy of the application filed along with the copies of the invoices, made available to him, did not have critical details like Order number, Invoice number, and Customer name without which he could not ascertain various details in respect of that sale transaction. He has raised approximately 2 lakh invoices per day towards sale of all kinds of goods and on that particular date October 4, 2017 itself, which was one of the dates on which sale of the product in question was undertaken, he had raised around 500 invoices for the sale of the product covered in the notice. Rule 128 of CGST Rules, 2017 provided that an application was to be filed in the manner and the form prescribed. The said Rule also provided that the Standing Committee was required to examine the accuracy and adequacy of the evidence provided in the application to determine whether there was prima facie evidence to support the claim and for a prima facie case to be established, it was pertinent that the details furnished along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax prices. Sales during 1.10.17 to 14.11.17 (GST@28%) Sales during 15.11.17 to 31.07.18 (GST Commensurate price Profiteering Average base price after discount Qty. Sold Average base price after discount Qty. Sold Actual selling price B C D E F=118% of D G-118% of B H=[F-G] 705.90 11471 887.90 5028 1047.72 832.96 214.76 28. The Respondent has contended that the profiteered amount should be calculated on the basis of the difference between the commensurate base price and the average base price after discount without considering the tax element as the differential tax element has anyway been deposited by him with the Government on a monthly basis as had been declared in the GST returns. Instead the formula in Column H should have been H=D-B instead of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de between July 1, 2017 to November 14, 2018 3. Reduction in amount profiteered after considering sales returns Amount in Rs. Particulars Amount Amount Average base price per unit after discount* (A) 887.90 887.90 Average base price per unit after discount** (B) 710.78 710.78 Profiteering per unit 177.26 177.26 Quantity sold 5,028 4,414 Total amount profiteered 8,91,263.28 7,82,425.60 *Based on sales made between November 15, 2017 to July 31, 2018 * *Based on sales made between July I, 2017 to November 14, 2018 Rectified table as provided by the Respondent Product Sales during 1.10.17 to 14.11.17 (GST @28%) Sales during 15.11.17 to 31.07.18 (GST@18%) Commensurate price Profiteering Total profiteering (Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the details of the order placed, pack shot etc. were key factors to determine the facts of the case. 30. He has further stated that the intention of the provision was to safeguard the interest of the customers and to deter any excess profiteering on account of GST. However, by not providing/ withholding several key details relevant to the case, the above Applicant and the DGAP had disregarded the spirit and purpose of the anti-profiteering provisions under the CGST Act, 2017. 31. The DGAP, in response to the written submissions of the Respondent, filed a rejoinder on 03.12.2018 and 06.12.2018, making the following observations:- a. With regard to the issue raised by the respondent that the complaint filed by the Applicant was incomplete, inadequate and not accurate, the DGAP quoting Rule 128(1) of the CGST Rules, 2017, has stated that the present application was examined by the Standing Committee in its meeting held on 25.05.2018, and it was decided to forward it to the Directorate General of Anti-profiteering for investigation after satisfying that prima facie case about anti-profiteering was made out. b. With regard to the Respondents submission that the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and charge lower GST @ 18% on such base price. He has also mentioned that the issue of change in MRP was not taken into consideration for profiteering calculation. e. With regard to the issue that the average base price per unit for the period prior to rate change should have been considered based on sales data for the period 01.07.2017 to 14.1 1 .2017, the DGAP has submitted that Section 171 (1)of the Central Goods and Service Tax Act, 2017 required that a reduction in 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. Therefore, as the complaint related to the allegation of the benefit of reduction in tax rate from 28% to 18% w.e.f. 15.11.2017 not having been passed on, the nearest available pre rate reduction prices have been compared and the profiteering amount has been computed accordingly, in the investigation report dated 19.09.2018. f. With regard to amounts to be compared should have been excluding the taxes, the DGAP has stated that the price paid by the recipient included both the base price and also the tax charged on it. Therefore, any excess base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the Applicant stands invalidated as crucial details were missing and the MRP was also written manually. Rule 128 (2) of the CGST Rules, 2017, reads All applications from interested parties on issues of local nature shall first be examined by the State level Screening Committee and the Screening Committee shall, upon being satisfied that the supplier has contravened the provisions of Section 171, forward the application with its recommendations to the Standing Committee for further action . Further Rule 137 (c) of the CGST Rules reads that interested party includes- a. suppliers of goods or services under the proceedings; and b. recipients of goods or services under the proceedings; c. any other person alleging, under sub-rule (1) of rule 128, that a registered person has not passed on the benefit of reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices. 34. As seen from the relevant rules above, it is clear that anyone alleging profiteering can file a complaint. So it is not necessary that the complainant has to purchase the products. Moreover, all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, when the MRP was ₹ 1,239. Further, it has been submitted that on reduction of GST rate of tax from 28% to 18%, the purchase price remained at ₹ 798 while price before tax with entitled margin of 15.83% increased to ₹ 981.36, when the MRP was reduced from ₹ 1,239 to ₹ 1,158. Thus, overall his entitled margin percentage on selling price had increased from 17.56% to 18.68%. This statistics itself clearly shows that when the MRP reduced from ₹ 1 , 239 to ₹ 1,158, the procurement price remaining the same and with GST rate of tax being reduced from 28% to 18%, the Respondent had increased his selling price by ₹ 13.39 per unit and on this increased price GST of 18% has also been collected. As claimed by the Respondent he could not take advantage of the reduction in the rate of tax to increase his profit margins. The benefit of reduction in rate of tax has to be necessarily passed on to the recipients. Moreover, the DGAP has rightly taken the transaction value of the supplier which was the price that was charged by the Respondent from his recipients which excluded the impact of discounts. 37. The Respondent has further submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.) Avg. Base Price after Discount (Rs.) Qty. Sold Avg. Base Price after Discount Rs.) Qty. Sold Actual selling Price per unit (Rs.) A B C D E F=118% of D G-118% of B H=[F-G] I=[H*E] HP 678 L0S24AA Combo-Pack Ink Advantage Cartridges (Black and Tri-Color 705.90 11471 887.90 5028 1047.72 838.96 214.76 10,79,813.28 39. Accordingly the Respondent is directed to reduce the price of the above product as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017 by making commensurate reduction in the prices, keeping in view the reduction in the rate of tax. The Respondent is also directed to deposit the profiteered amount along with interest at 18% when the above amount was collected by him from his recipients till the date of deposit. The Applicant No. 1 has admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 Karnataka 918 214.76 98574.84 15 Kerala 117 214.76 12563.46 16 Madhya Pradesh 57 214.76 6120.66 17 Maharashtra 981 214.76 105339.78 18 Manipur 1 214.76 107.38 19 Mizoram 2 214.76 214.76 20 Nagaland 1 214 76 107.38 21 New Delhi 561 214.76 60240.18 22 Odisha 34 214.76 3650.92 23 Puducherry 14 214.76 1503.32 24 Punjab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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