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TMI Blog2019 (12) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent is therefore directed to reduce the prices of his products as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients, The Respondent is also directed to deposit the profiteered amount of Rs, 67, 28,592/- along with the interest to be calculated @ 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited in terms of the Rule 133 (3) (b) of the CGST Rules, 2017. Since, the present investigation is to the issue of not passing on the benefit of reduction in the rate of tax by the Respondent has been conducted w.e.f. 01.07.2017 to 31.08.2018, the Authority, as per the Rule 133 (5) (a) of the CGST Rules, 2017, directs the DGAP to investigate quantum of profiteering on all the products including the present product which the Respondent is supplying for violation of the provisions of Section 171 of the CGST Act, 2017 and submit his Report as per the provisions of Rule 133 (5) (b) of the CGST Rules, 2017. Penalty - HELD THAT:- The Respondent has denied the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e minutes of its meeting dated 02.07.2018; it requested the DGAP to initiate investigation under Rule 129 (1) of the CGST Rules, 2017 and to conduct a detailed investigation in the matter. 3. In this connection, a Notice under Rule 129 of the CGST Rules, 2017, was issued on 10.09.2018 by the DGAP to the Respondent, directing the Respondent to intimate as to whether he admitted that the benefit of reduction in the tax rate had not been passed on to the recipients by way of commensurate reduction in price. The Respondent was also asked to suo- moto determine the quantum of benefit not passed on, if any, and indicate the same in his reply to the Notice issued by the DGAP. Certain documents, viz., Balance sheet, GST Returns (1&3B), price list, details of outward taxable supplies of the impugned product in the country, etc, were also sought from the Respondent by the DGAP. 4. The DGAP requested this Authority for grant of extension in time to complete the investigation up to 09.12.2018 which was allowed by this Authority under Rule 129 (6) of the CGST Rules, vide its order dated 09.10.2018. The present investigation pertains to the period between 01.07,2017 to 31.08.2018. 5. The DGAP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.44 Basic Price 21,775.17 21,476.56 Reduction in Basic Price 298.61 7. The Respondent also furnished the following documents to the DGAP:- i. Invoice-wise details of outwards taxable supplies of the product "Washing machine Elena Aqua VX" on All-India basis for the period April, 2017 to August, 2018. ii. Price list of the product under investigation, pre-GST and post-GST, iii. Sample copies of invoices, pre-GST and post-GST. iv. GSTR-1 and GSTR-3B Returns for the period July, 2017 to August, 2018. v. TRAN-1 and TRAN-2 Statements from July, 2017 to December, 2017. vi. VAT Return including Annexure from April, 2017 to June, 2017. vii. ST-3 Returns for 2016-17 and 2017-18. viii. Applicable tax rates, pre-GST and post-GST. ix. Sample copies of invoices issued by M/s IFB Industries Ltd., indicating Central Excise Duty & VAT Separately. x. Details of total adjusted discount given month wise to M/s Pittapilli Agencies against the invoices/ total sales value. xi. Details of reversal of VAT credit at Goa, in lieu of CST payable on stock-transfer to other States 8. The DGAP examined the application filed by the Applicant No. 1, the reply of the Respondent and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Rs.) S.No. State Code State (Place of Supply) Profiteering (Rs.) 1. 1 Jammu & Kashmir 9261 2. 3 Punjab 16904 3. 5 Uttarakhand 4690 4. 8 Rajasthan 641 5. 9 Uttar Pradesh 28509 6. 10 Bihar 19987 7. 18 Assam 1756 8. 19 West Bengal 30045 9. 22 Chhattisgarh 26000 10. 23 Madhya Pradesh 110908 11. 24 Gujarat 220645 12. 29 Karnataka 108786 13. 32 Kerala 2775386 14. 33 Tamil Nadu 1568332 15. 36 Telengana 62849 16. 37 Andhra Pradesh New 119304 Total 51,04,002 14. The DGAP thus concluded that the base price of the product under investigation was increased after 01.07.2017. Thus, by increasing the base price of the product consequent to the reduction in the tax rate, the commensurate benefit of the reduction in tax rate post implementation of GST w.e.f. 01.07.2017, was not passed on to the recipients and accordingly, the total amount of profiteering covering the period 01.07.2017 to 31.08.2018 had been calculated as ₹ 51,04,002/-. 15. The above Report was received on 07.12,2018 and was considered by the Authority in its sifting held on 11.12.2018 and it was decided to hear the Applicants and the Respondents on 03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prices of the product in the pre and post GST regime shall be analysed and changes in price arising due to discounts, offered by the manufacturer from its margin, should not be considered for the propose of provisions of Section 171 of the CGST Act, 2017. (c) That it was clear that in his case the base price was reduced in GST regime and therefore the question of profiteering did not arise, and that the DGAP had failed to understand the correct perspective of Law. He contended that in several cases where it was found that the base price has been reduced or remained same or the tax percentage for referred transaction had not been reduced, the enquiry under Section 171 of the CGST Act had been dropped at that stage itself. The Respondent cited the case of Kerala State Screening Committee and another Vs. M/s Peps Industries Pvt. Ltd in Case No. 22/2018 decided on 27.09.2018 = 2018 (12) TMI 1402 - NATIONAL ANTI-PROFITEERING AUTHORITY and in the case of Kerala State Screening Committee and another Vs. M/s. Maruti Suzuki India Ltd. in Case No. 01/2019 decided on 02.01.2019 = 2019 (1) TMI 139 - NATIONAL ANTI-PROFITEERING AUTHORITY passed by this Authority (d) That since in his case. t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiated price cannot be considered as profit arising due to GST. He added that a holistic approach ought to have been taken considering the overall scheme, intention and objective of anti-profiteering provision. (g) That even if it was assumed that the impact shall be analysed for each 'registered person' i.e., for each GST registration each State, then also, the computation done by the DGAP was principally incorrect, since the instant enquiry was meant only for the State of Kerala and hence, the inclusion of certain other States in the study and exclusion of some others was unjustified. Also that the DGAP had not limited his enquiry to the concerned registered person [IFB Kerala] but had prepared the report at Company level but had still not considered the entire sales of the said product Further if the DGAP had intended to limit his enquiry to specific registered person i.e., IFB Kerala, the impact of taxes paid in other States i.e., in manufacturing State (Goa) for excise duty and VAT reversal in pre-GST regime, ought not have been considered and the analysis should have been limited to pre-GST and post GST tax payments in Kerala only. (h) That even it was assumed but not adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Andhra Pradesh 18,248 12,94,720 71 18,235 61,62,499 341 18,072 -164 UP 18,375 12,41,765 68 18,261 46,49,206 260 17,882 -380 Telangana 17,511 2,26,275 13 17,406 26,36,271 150 17,575 169 Madhya Pradesh 17,661 3,36,733 19 17,723 15,41,382 82 18,797 1,075 Bihar 18,541 1,84,349 10 18,435 12,72,755 69 18,446 11 West Bengal 17,328 5,70,898 33 17,300 10,86,370 62 17,522 222 Chhattisgarh 17,815 1,60,339 9 17,815 10,26,438 67 18,043 227 Punjab 17,760 71,199 4 17,800 8,98,137 50 17,963 163 Uttarakhand 18,317 74,404 4 18,601 6,33,744 35 18,107 -494 North East 19,335 58,066 3 19,355 3,78,782 20 18,939 -416 Rajasthan 18,742 1,49,694 8 18,712 3,29,116 18 18,284 -427 J & K 17,934 2,94,425 16 18,402 Thus, from the above table, it was clear that:- (i) For each of the State, the pre-GST average price as stated in DGAP's report was incorrect; (ii) Prices for the product had decreased in most of the states during post GST period, as indicated in above table. (iii) The states wherever the positive differences were coming out, the sates in terms of quantity were minimal as compared to total sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gy and procedure for determination as to whether the reduction in rate of tax on supply of goods or services or benefit of input tax credit had been passed on by the registered person to the recipient by way of commensurate reduction in prices. He further mentioned that no such guidelines had been framed by the Authority yet, leaving the issue in complete discretion of the authorities with no guidance to a registered person under the Act. Further, no directions had also been issued under the Act. In absence of the guidelines as prescribed under Rule 126, a registered person cannot be held, liable for not complying with requirements of Section 171.The Respondent also submitted that the provisions of Section 171 of the CGST, Act and Rule 122 to 137 being part of a taxing Statute, cannot be enforced in absence of machinery provisions for computation of the profiteered amount. In this regard, he also cited the judgments of the Hon'ble Supreme Court in the cases of CIT vs. B. C. Srinivasa Shetty [(1991) 2 SCC 460] = 1981 (2) TMI 1 - SUPREME COURT and Commissioner of Central Excise vs Larsen & Toubro Ltd. [(2016) 1 SCC 170] = 2015 (8) TMI 749 - SUPREME COURT, wherein the said principal h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not cover any other transaction. He also intimated that the matter had been referred by the Screening Committee in the State of Kerala based on certain application filed by the Commissioner, CGST Department, Kerala referring to the transaction with a particular dealer. (o) The Respondent also submitted that in the instant case, since no profiteering was involved the question of invocation of any of the penal provisions did not arise and hence, he is not going into specific submissions in respect of each of penal previsions specified in the notice. He added that GST was a new Statute and since the Legislature had not notified any methodology for determination of the profiteering amount, the question of invocation of any penal actions in such a scenario did not arise. (p) There were no provisions in the Act for penal action as provided in the Rule 133 and that it was well settled principle that the Rules can only provide for procedural provisions and hence, the Rule cannot go beyond the provisions of the Act and hence, there can be no invocation of the penal provisions in the present case. He also cited the judgements of Kunj Behari Lal & Ors. v. State of H.P. 2000 (3) SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P (12.5% of 65% of MRP) and not as a percentage of the discounted base price, which was required to be compared with the post-GST tax rate of 28%. The DGAP in his report dated 06.12.2018 had mentioned that the total incidence of Central Excise Duty and VAT had been calculated as a percentage of pre-GST discounted base price and same had been compared with the post-GST tax rate of 28%. The details of entry tax/octroi etc., now claimed by the Respondent, were not submitted during the course of investigation. 19. The Respondent filed his next written submissions on 12.02.2019. Vide his submissions, he conveyed his disagreement with the DGAP Report dated 30.01.2019 and submitted the following:- (a) That in the pre-GST regime, effective tax rate was lower than the post-GST regime in practically all the States which was evident from the table below, which also gave the details of the pre-discounted tax rates of the product in pre-GST period (aggregate of ED, VAT, Entry Tax, Local Levies etc) which showed that the post-GST tax rate was more than the pre-GST tax rates, as per the Table-I below:- Table-I (Amount in Rs.) SI. No. State % Sales of Elena Aqua-VX Pre-discount Rate of Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.5% on 65% of MRP and VAT @ 14.5% on Actual Selling price. He added that since the two above mentioned taxes i.e., Excise Duty and VAT were payable at two different bases, varying discounts could be offered to different dealers based on independent price negotiations and the tax rate for a product would not change in the pre-GST era on account of different prices charged to different customers. Since, DGAP had computed the tax rate based on discounted base price, there was different effective tax rate for each dealer on account of varying quantum of discounts offered to each dealer. The Respondent thus submitted that it was incumbent on the DGAP to have not calculated the tax rate on the basis of post discount prices. (e) He reiterated that the method of comparison adopted by DGAP was incorrect since the average price in respect of pre-GST period have been only compared with the average price for post GST period. Further, he reiterated that DGAP had only considered the positive numbers (where post-GST base price was higher than the pre-GST base price) to arrive at the profiteering, which was unjustified. He also explained the same with the illustration in Table given below:- Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions. (i) He also submitted the revised calculation based on comparison of prices for pre and post GST period at dealer level. 20. The DGAP vide his Report dated 18.02.2019 on the submissions made by the Respondent on 12.02.2019, submitted that the Respondent had submitted dealer-wise data in respect of different States. However, the DGAP had conducted the investigation by working out the average of discounted base prices during the pre-GST period, separately for each State and comparing the same with the actual invoice-wise discounted base prices in the post-GST period for the same State. Only those invoices had been taken into account for computing profiteering, where the post-GST discounted base price was more than the average of pre-GST discounted base prices. The invoices where the post-GST discounted base price was less than the average of pre-GST discounted base prices had not been considered by the DGAP. 21. The Respondent filed his next written submissions on 27.02.2019. Vide his submissions; he submitted the dealer wise impact of comparison of prices for sale of product during pre-GST and post GST period i.e. from 01-07-2017 to 07-06-2018 and state wise impact of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65% of the higher MRP, i.e. ₹ 27,490/-. The DGAP further reported that the Respondent had also stated that they were offering different types of discounts to different dealers based on the agreement and the quantum of the product sold and submitted the dealer-wise data for different States and the aforesaid two different MRPs and that the Respondent had again increased the MRP of the product from ₹ 27,490/- to ₹ 28,490/- w.e.f. 07.06.2018 which was higher, had been taken by the DGAP. On this issue, the DGAP reported that this was a new fact which had not been previously submitted by the Respondent, at any time during the investigation. (b) That the dealer-wise data in respect of different States could not be considered to arrive at the total applicable tax rate in the pre-GST period as there were more than 1000 dealers to whom the Respondent had made supplies in the pre-GST period as also the post-GST period and it was not possible to compare the pre-GST and post-GST base prices in respect of each dealer separately. DGAP further submitted that the investigation was conducted based on the average of the discounted base prices during the pre-GST period separately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al invoice-wise cum-tax prices during the post-GST period from 01.07.2017 to 31.08.2018 and separately for the period from 01.07.2017 to 06.06,2018, for facilitating a decision thereon, as shown in the tables below:- Table (01.07.2017 to 31.08.2018) S.No. State Code State (Place of Supply) Profiteering (Rs.) 1 37 Andhra Pradesh 153892 2 10 Bihar 30083 3 22 Chhattisgarh 32242 4 24 Gujarat 489976 5 20 Karnataka 179221 6 32 Kerala 3459894 7 23 Madhya Pradesh 132493 8 18 Assam 2095 9 3 Punjab 19184 10 8 Rajasthan 840 11 33 Tamil Nadu 2047928 12 36 Telangana 90596 13 9 Uttar Pradesh 47015 14 5 Uttarakhand 4704 15 19 West Bengal 38429 Total 68,28,592 Table 01.07.2017 to 06.06.2018 S.No. State Code State (Place of Supply) Profiteering (Rs.) 1 37 Andhra Pradesh 84568 2 10 Bihar 26738 3 22 Chhattisgarh 19877 4 24 Gujarat 336149 5 29 Karnataka 108166 6 32 Kerala 1754329 7 23 Madhya Pradesh 116156 8 18 Assam 1225 9 3 Punjab 15031 10 8 Rajasthan 840 11 33 Tamil Nadu 1236809 12 36 Telangana 31220 13 9 Uttar Pradesh 41065 14 5 Uttarakhand 4570 15 19 West Bengal 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent in his submissions dated 22.04.2019 had already been discussed and stood clarified in his previous report dated 15.03.2019 submitted to the Authority. 25. The Respondent vide email dated 22.06.2019 filed his next written submission, wherein he cited the judgements of Hon'ble Supreme Court in the cases of:- (i) Consumer Online Foundation and Others vs. Union of India and Others, (2011) = 2011 (4) TMI 1275 - SUPREME COURT which stated that "It is a settled principle of statutory interpretation that any compulsory exaction of money by the Government such as a tax or a cess has to be strictly in accordance with law and for these reasons a taxing statute has to be strictly construed. AS observed by this court in Ahmadabad Urban Development vs. Sharad kumar Joyanti kumar Pasawalla, (1992) 3 SCC 285 = 1992 (5) TMI 175 - SUPREME COURT, it has been consistently held by this court that whenever there is compulsory exaction of money, there should be specific provision for the same and there is no room for intendment and nothing is to be read or nothing is to be implied and one should look fairly to the language used." (ii) CCE (Import), Mumbai vs. Dillip Kumar and Company a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his dealers post introduction of GST had actually reduced and the net impact of such price change was negative i.e., (-) ₹ 33,60,124/-. In few cases, difference of base price was positive to the extent of ₹ 3,76,305/-, primarily due to reduction in discounts offered, sales of certain old MRP inventory in pre-GST period to such dealers, which needed to be ignored since the same was not due to change in tax rate but due to business marketing reasons. He also submitted that the Analysis carried out by DGAP at discounted prices was against the principles laid down by the Authority, particularly because pre-GST tax rates were based on MRP and in GST, it was ad valorem. The Respondent further submitted that the proceedings in the present matter were barred by limitation prescribed under Rule 133(1) of the COST Rules, 2017, in terms of the response by the DGAP dated 11.06,2019 since proceedings were required to be completed within a period of 3 months from the date of receipt of report from DGAP and in the present case, the DGAP's report under Rule 129 (6) was submitted to the Authority on 0612.2018. Thus, time limit as prescribed under Rule /33(1) had already lapsed and the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt at the centre. This implies that one particular recipient may have bought one product from the Respondent at a price which he was entitled to pay when the rates of tax were reduced but simultaneously there is another recipient who has paid more than what he was supposed to pay for some another product of the Respondent. The additional benefit given to one recipient cannot be offset with the denial of benefit to another recipient, as this is not the spirit of the law. Since, the Respondent's interpretation of Section 171 of CGST Act, 2017, doesn't have any legal merit, it cannot be accepted. 29. The Respondent has also claimed that the prices charged by him from his dealers post introduction of GST had actually reduced and the net impact of such price change was negative and while comparing the average price for pre-GST period with sales transactions in post GST regime, sales made in GST period at price lower than pre-GST average price had been ignored, But this contention is not correct since aggregate profiteering has to be computed on the basis of what each consumer has lost due to non-reduction of the prices in a commensurate manner by the Respondent. 30. The Respondent has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision clearly links profiteering to be a function of each supply of goods or services or both and hence, profiteering needs to be computed at the level of each invoice and not at the entity level or any consolidated level. From a complete reading of Section 171 of the Act ibid, it is amply clear that the total quantum of profiteering by an entity/registrant is the sum total of all the benefits that stood denied to each of the recipients/consumers individually. The intent of the words "commensurate reduction" is also clearly explained by the words "by reduction in price". 33. The Respondent has also placed reliance on the judgement of the Hon'ble Supreme Court passed in the case of Commissioner Central Excise and Customs Kerala v. Larsen and Toubro Limited (2016) 1 SCC 170 = 2015 (8) TMI 749 - SUPREME COURT. However, it is respectfully submitted that in the above case the issue involved was pertaining to the lack of machinery for enforcing the levy of Service Tax however, in the present case no tax has been levied and hence the law settled in the above case does not apply. 34. The Respondent further cited the judgements of the Hon'ble Supreme Court in the cases of Consumer Onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calculation of the profiteered amount. Hence, we uphold the DGAP's computation of the profiteered amount as apt and correct. This contention of the Respondent is liable to be rejected as it holds no ground. 37. Another contention of the Respondent is that the computation of profiteering should have been on the basis of prices charged at a pan India level and not based on prices charged in specific states and specific transactions. This contention of the Respondent is also incorrect since profiteering is computed by the DAP only in respect of the States where the rate of tax was increased from pre-GST to post-GST, thus the DGAP has rightly computed the profiteering. The Respondent further queried that since the instant enquiry was meant only for the State of Kerala and hence, the inclusion of certain other States in the study and exclusion of some others was unjustified. In our opinion, this contention of the Respondent does not hold good since Section 171(1) and (2) of the CGST Act state as follows:- "(1) Any 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 pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate to mention here that this Authority has power to 'determine' the methodology and not to 'prescribe' it as per the provisions of the above Rule and therefore, no set prescription can be laid while computing profiteering, It would be further relevant to mention that the power under Rule 126 has been granted to this Authority by the Central Govt., as per the provisions of Section 164 of the above Act which has approval of the Parliament. Rule 126 has further been framed on the recommendation of the GST Council which is a constitutional body created under the Constitution (One Hundred and First Amendment) Act, 2016, Therefore, the above power has both legislative sanction as well as incorporation in the CGST Act, 2017 and the CGST Rules, 2017. The delegation provided to this Authority under the above Rule is clear, precise, unambiguous and necessary and is well within the provisions of the Constitution and therefore, it has been rightly conferred on this Authority. Hence, the objections raised by the Respondent in this regard are frivolous and without legal force. 39. The Respondent also contended that there were no provisions in the Act for penal action as provided in the Rule 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Entry Tax, Local Levies etc) to prove that the post-GST tax rate was more than the pre-GST tax rates. But this contention of the Respondent is not correct since the table K was prepared by the DGAP based on the contentions of the Respondent himself and the details of effective pre-GST tax rates (detailed in table I). The table K also supersedes the table C which was originally relied by the DGAP. We find that the table K is an elaborate computation of the effective state wise tax rates and the reduction in the rate of tax state wise. Hence, the table K submitted by the DGAP is correct. 42. Another contention of the Respondent is that the proceeding was barred by limitation prescribed under Rule 133(1) of the CGST Rules, 2017 since proceedings were required to be completed within a period of 3 months from the date of receipt of report from DGAP i.e. from 06.12.2018. But this contention is not correct since the DGAP had submitted his last Report on 11.06.2019 and vide Notification No. 31/2019-Central Tax dated 28.06.2019 of the Central Board of Indirect Taxes and Customs the time period for the Authority to pass the order from the date of the report of DGAP was increased to 6 month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients, The Respondent is also directed to deposit the profiteered amount of Rs, 67, 28,592/- along with the interest to be calculated @ 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited in terms of the Rule 133 (3) (b) of the CGST Rules, 2017. Since, rest of the recipients in this case are not identifiable, the above Respondent is directed to deposit the amount of profiteering of ₹ 67, 28,592/- 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. Accordingly, an amount of ₹ 33,64,296/- 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 Code State (Place of Supply) Total Profiteering (Rs.) 1. 37 Andhra Pradesh New 76946 2. 10 Bihar 15041.50 3. 22 Chhattisgarh 161 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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