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TMI Blog2019 (12) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of each case and no fixed formula can be set for calculating the same as the facts of each case are different. The mathematical methodology applied in the case where the rate of tax has been reduced and ITC disallowed cannot be applied in the case where the rate of tax has been reduced and ITC allowed. The power under Rule 126 has been granted to this Authority by the Central Government 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 Section and 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. It will also be appropriate here to mention that as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Respondent. ORDER 1. The present Report dated 08.10.2018 and the supplementary Reports dated 16.01.2019, 01.02.2019, 15.03.2019, 08.05.2019 and 12.06.2019 have been received from the above Applicant (here-in-after referred to as the DGAP) after detailed investigation under Rule 129 (6) of the Central Goods Services Tax (CGST) Rules, 2017. The brief facts of the case are that vide his letter dated 02.04.2018 the Respondent had admitted that he had set aside an amount of ₹ 12.6 Crore on account of profiteering in respect of the rate reductions which had been notified w.e.f. 15.11.2017 and accordingly, Office Memorandum (OM) F. No. D-22011/NAA/17/ 2018/1039-41 dated 10.04.2018 was issued by the Secretary of this Authority advising the Respondent to provisionally deposit the quantified profiteered amount set aside by him on account of the reduction in the GST rates w.e.f.15.11.2017, into the Consumer Welfare Fund (CWF). Vide the above OM, the DGAP (erstwhile Director General of Safeguards) was also directed to conduct an investigation to determine the actual amount of benefit of reduction in the GST rates which was not passed on by the Respondent to the recipien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2017 to March, 2018. (b) Invoice-wise break up of outward supplies, as downloaded from GSTN. (c) 5 sample invoices for each month from November, 2017 to March, 2018. (d) Total No. of SKUs manufactured. (e) Total No. and list of SKUs impacted by GST rate reductions w.e.f. 15.11.2017 and 25.01.2018 alongwith the quantum of benefit passed on. (f) GSTIN-wise details of outward taxable supplies for the period from November, 2017 to June, 2018. 4. The DGAP has also stated in his above Report that the Respondent, vide his letters dated 09.07.2018 and 21.08.2018 had informed that he had deposited the amount set aside of ₹ 15,32,86,055/- in two instalments of ₹ 13,80,54,526/- and ₹ 1,52,31,529/- for the period from 15.11.2017 to 31.03.2018 and ₹ 1,25,46.668/- for the period from 01.04.2018 to 30.06.2018, in terms of aforementioned OM dated 10.04.2018 in CWF. Respondent vide his letter dated 19.09.2018 had also submitted the evidence with regard to the expenses incurred on passing on the GST rate reduction benefits, such as, expenses on obsolete packing material, expenses on manufacture and development of new packaging material and exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services post reduction in the GST rates it could be conclude that the benefit has been passed on to the recipient. He has further argued that Section 171 (1) did not provide a supplier of the goods and services any other means of passing on the benefit of reduction in the rate(s) of tax or benefit of Input Tax Credit (ITC) which implied that there was no discretion available to a supplier to suo moto decide on any other method of passing on such benefit to the recipients. He has also contended that applying the above parameters to the present case, it was established that the Respondent had not passed on the benefit that has accrued to him on account of the reduction in GST rates by way of a commensurate reduction in the prices of the goods being supplied by him. The DGAP has also pleaded that the Respondent s contention that the benefit of the GST rate reduction was passed on by way of giving discounts on the relevant products was not correct as the sample invoices submitted by him did not mention that the discounts were given due to the GST rate reductions, however, on the other hand, these invoices revealed that the discounts offered were in accordance with the general discoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the Central Goods and Services Tax Act, 2017 to permit the cost of packing material to be adjusted against the amount of reduction in the prices due to lower GST rates and therefore, the above deduction claimed by the Respondent on these grounds were not admissible. 8. The DGAP has also submitted that based on the details of the outward taxable supplies other than zero rated, nil rated and exempted supplies made during the period from 15.11.2017 to 30.06.2018, as submitted by the Respondent it was apparent that the impacted SKUs were supplied by the Respondent through different channels, i.e. (a) Canteen Stores Department (CSD); (b) Para-Military Force Canteens and other Government outlets and (c) Distributors and Modern Trade. He has further submitted that the base prices of the SKUs varied across the different channels and also varied within the same channel e.g. prior to the GST rate reduction w.e.f. 15.11.2017, the base prices at which the Respondent was selling Nescafe Classic Jar 24x50g PR Dbl Maggi In to the CSD ranged between ₹ 1,803.70 to ₹ 2,716.12, to Para-military Force Canteens and other Government outlets at the base price of ₹ 2,455.22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove Report furnished by the DGAP under Section 171 of the CGST Act, 2017 should not be accepted and his liability for profiteering should not be fixed. He was also directed to explain why penal provisions under Section 29, 122-127 of the above Act read with Rule 21 and 133 of the CGST Rules, 2017 should also not be invoked against him. It was also decided to hear the DGAP and the Respondent on 31.10.2018 which was adjourned to 26.11.2018 on the Respondent s request. During the course of the hearings the DGAP was represented by Ms. Gayatri, Deputy Commissioner and Sh. B. Murli, Legal Head, Sh. Ashish Aggarwal, Business Controller, Sh. Manish Mudgal, Sales Controller and Sh. Gaurav Khanna, Authorised Representatives were present for the Respondent. Further hearings were held on 12.12.2018, 20.12.2018, 10.01.2019 (adjourned), 03.04.2019 (adjourned), 12.04.2019, 02.05.2019, 07.05.2019, 28.05.2019, 14.06.2019 (adjourned), 28.06.2019 (adjourned) and 01.07.2019. 11. The Respondent has filed the following replies during the course of the proceedings:- (i) Filed preliminary reply dated 07.12.2018 along with 18 Exhibits. (ii) Furnished additional documents on 20.12.2018 request ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing constraints, additional benefit was passed on other packs/ SKUs in the same product category and if there were manufacturing constraints additional benefit was passed on other packs/ SKUs in the same product category. 17. That to ensure that the benefit of rate reduction was passed on, computation for passing on the benefit of rate reduction was done at the aggregate product category level. Communication was also sent to all the distributors reminding them of their obligation to pass on the benefit to their recipient i.e. retailers. In addition, advertisements on GST benefits being passed on select products indicating the reduced MRPs of the products were also published in the national and regional newspapers. The benefit to be passed on, was determined for each product category based on the sales contribution of the SKUs in that product category with due consideration to the lower priced SKUs. The sale contribution of the SKUs in the product category impacted by the GST rate changes with effect from 15.11.2017 was determined by aggregating the actual sales of the SKUs from January 2017 to September 2017 with the planned sales from October 2017 to December 2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om this Authority advising him to provisionally deposit the amount of ₹ 12.6 Crore in the CWF to be constituted under Section 57 of the CGST Act, 2017. The Respondent was also directed to furnish the necessary documents/evidences to the DGAP so that the investigation could be conducted to determine the actual amount of benefit that has not been passed on. The Respondent vide his letter dated 02.04.2018 had sought clarification to make the provisional deposit and adjustment of the expenses incurred and requested the DGAP to intimate the schedule for furnishing the information. Surprisingly, the Respondent, had received a Notice dated 26.04.2018 issued by the DGAP for initiation of investigation under Rule 129 of the CGST Rules, 2017 vide which he was directed to determine the total actual amount of the benefit with effect from 15.11.2017 that has not been passed on to the consumers with the necessary documents/evidences. Thereafter, the Respondent has provided the details sought by the DGAP through various communications. However, the Report was silent about his letter dated 11.09.2018 in which the methodology adopted by the Respondent to pass on the benefits from GST rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the facts of each case and hence no general methodology can be prescribed and the DGAP in his reply dated 01.02.2019, in Para E has also followed the above principle therefore, the quantum of profiteering has to be arrived at on a case to case basis, by adopting suitable method based on the facts of each case. Thus, in the light of the DGAP s above reply the methodology adopted by the Respondent needed to be accepted and on this very ground the present proceedings needed to be dropped. While complying with the provisions of Section 171, the Respondent has followed the methodology which was based on the facts and operational and legal constraints applicable to the Respondent. 22. That the rate reductions announced with effect from 15.11.2017 and 25.01.2018 were with immediate effect and the Respondent had taken immediate steps to pass on the benefit after taking in to account the operational, manufacturing and legal constraints and with an intent to ensure that there was no disruption in the supply of his products to the consumers. In respect of the Price Point Products which play a critical role in the Fast Moving Consumer Goods (FMCG) sector the price points were in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k with MRP of ₹ 10/mould could accommodate 13.2 Gms. and was used to expeditiously and efficiently pass on the benefit in cost effective manner. For changing the wafer length which was needed to maintain the product balance at the higher grammage a new mould was required which would take 6 to 9 months as per the statement of Mr. Jagdeep Singh Marahar, Factory Manager, at one of Respondent s factory located at Ponda, Goa where KITKAT was manufactured. 27. That the packaged food products were part of the FMCG industry which were mainly sold to the Distributors from whom they would reach the retailers directly or through some other intermediary. The Respondent has over 1,700 Distributors across the country and the products were sold in over 35 lakh retail outlets and an estimated 70 Crore packs of various food products of the Respondent were sold every month. 28. That effective from 01.01.2018, Rule 6 (1) (e) of the Legal Metrology (Packaged Commodities) Rules, 2011 reads as follows:- (e) The retail sale price of the package shall clearly indicate that it is the maximum retail price inclusive of all taxes and the price in rupees and paise be rounded off to the nea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pursuant to the direction of this Authority vide OM dated 10.04.2018 the Respondent had made provisional deposit of the amount set aside where it was not practical to pass the on benefit on the existing stocks till arrival of the new stocks with GST benefit after constitution of the CWF. 31. The first preference of the Respondent was to pass on the benefit of rate reduction by reduction in prices of the goods to the recipients in the invoices itself with consequent reduction in the MRPs. Majority of the benefit of rate reduction has been passed by the Respondent following this methodology by decreasing the prices to the recipients accordingly, the benefit of ₹ 192 Crore has been passed by way of reduction in the MRPs e.g. in the case of NESCAFE 25 gm. Jar bearing MRP of ₹ 80/- per pack, the MRP was reduced to ₹ 70/-. 32. That in respect of Price Points products the business option available to the Respondent was to pass on the benefit through extra quantity. Reducing MRPs for price point products was not an option as the consumer demand was based on the price point and the consumer over years was used to the price point. When extra quantity was given o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit the amount of benefit in the CWF including the timeline as to how long the deposit was to be made he had passed additional benefit on the MAGGI Noodles pack having MRP of ₹ 12/- which was reduced to ₹ 11/- as the MRP was required to be reduced to ₹ 11.39 only. At the product category level of Instant Noodles and Pasta (HSN Code 1902) against GST benefit of 5.08%, benefit sought to be passed was around 5.17%. In respect of KIT KAT manufacture which involved the length of the wafer and the use of mould for size of the product, the quantum of benefit by way of extra quantity was determined by the size the mould could accommodate. For KITKAT 12.8 Gms. Pack with MRP of ₹ 10/- mould could accommodate 13.2 Gms. and was used to pass on the benefit. However in respect of KITKAT pack bearing price point MRP of ₹ 5/- having 7 Gms. quantity, the quantity was increased to 8.6 Gms., whereas to pass on the GST benefit quantity would have been 7.5 Gms. At the product category level of Wafers containing Chocolate (HSN Code 1905) against GST benefit of 7.81%, benefit passed was around 7.83%. 34. That in the case of few SKUs relating to the product category ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 20.12.2018. 37. That the Respondent has also submitted the details of the benefit passed by him through price reduction and grammage vide Exhibit-24 and the details of the break-up of benefit passed higher/ lower as compared to the tax rate benefit for SKUs in each product category (HSN) vide Exhibit-25. The Respondent also clarified that the total number of SKUs impacted with both the rate reductions was 409. He has also claimed that the SKUs where benefit less than the GST rate reduction has been passed, was due to operational and legal constraints, however, higher benefit was passed on SKUs across product categories as an integral part of methodology followed by the Respondent so that the benefit to be passed for each product category was commensurate to the benefit. 38. The Respondent has also referred to the supplementary Report dated 07.05.2019 filed by the DGAP and stated that the DGAP s above Report has not addressed the issue of benefit of ₹ 192 Crore passed on by the Respondent based on the methodology followed by him and hence, the methodology followed by him and the benefit passed on, has attained finality and should form the basis to determine if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 where this pack is mentioned as Example 1; vi. MRP of ₹ 4.75 (to pass benefit) not permitted under Legal Metrology Rules. KIT KAT ₹ 10 12.8 13.2 10 10 3.12 i. Manufacturing Constraints and 6-9 months time for action; ii. Understanding that under GST law benefit to be passed expeditiously and no retention of benefit; iii. Higher benefit passed in other SKUs within the same category, so that the benefits have been passed at product category level. Higher benefit has been passed on lower price SKUs; iv. No objection of Authority to letter dated 2 nd April, 2018 where this pack is mentioned as Example 4. NESACAFE SUNRIS (70/30 Recipe) 2.2 2.2 2 2 0 i. Coinage below 25 paise has been scrapped by Reserve Bank of India and even 50 paise coinage is practically not available in the trade ii. For sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ₹ 4.75. In the absence of 25 paise tender reducing the MRP by ₹ 4.75 was not a feasible option. In the case of NESCAFE Classic single serve sachet of 1.5 Grams bearing MRP of ₹ 2/-, in addition to the limitation of coinage, the taste of coffee cup would change in case more quantity was given. However, benefits have been passed on the other packs compensating for the packs as given above, ensuring that the commensurate GST benefit was passed at product HSN category level. In respect of MAGGI Noodles Masala pack bearing MRP of ₹ 12/-, the MRP has been reduced to ₹ 11/- while to pass on the CST benefit MRP would have been ₹ 11.39. For NESCAFE Classic 25 grams bearing MRP of ₹ 80/-, the MRP has been reduced to ₹ 70/while to pass GST benefit MRP would have been ₹ 73.75. The GST benefit which could not be passed on, has been set aside and not accounted as sales or profit. It was kept as current liability to be passed on to consumers. An amount of ₹ 12.6 Crore has been set aside on the following product categories:- Category of products HSN Code Amount set aside (R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sit the amount set aside of ₹ 12.6 crore as on 31.12.2017 in the CWF and (ii) to furnish the necessary documents/ evidences to the DGAP so that investigation could be conducted expeditiously to determine the actual amount of benefit due to reduction in the GST rate w.e.f. 15.11.2017 that has not been passed on. 48. That the above directions given by this Authority made specific mention of the Respondent s letter dated 02.04.2018, therefore all the disclosures/ submissions made by the Respondent in his letter dated 02.04.2018 including the methodology followed by the Respondent to pass on the GST benefit have been considered by this Auuthority. Where it was not practical to pass on the GST benefit the Respondent has set aside the moneys to be passed on following the methodology to pass the benefit on New Stocks . This methodology has been used to quantify the amount set aside at product category level aggregating to ₹ 12.6 Crore as on 31.12.2017. The direction of this Authority vide OM dated 10.04.2018 to the DGAP to determine the actual amount of benefit w.e.f. 15.11.2017 that has not been passed on, was with reference to the amount set aside that has to be determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eyond the scope of reference ordered by this Authority and also not in compliance with Section 129 of the CGST Act. 53. That the DGAP has submitted the above Report based on his own understanding of the data furnished by the Respondent and without seeking any explanation from the Respondent which apart from factual inaccuracies, was also sketchy and bereft of details and reasons. 54. That the impugned Report despite specifically pointing out that this Authority has passed directions for provisional deposit of amount set aside and investigation to verify the same, as per the modalities disclosed in the letter dated 02.04.2018, the DGAP has not followed the methodology adopted by the Respondent by ignoring the directions of this Authority. 55. That the DGAP has applied wrong interpretation of Section 171 of the CGST Act by stating that the benefit to be extended to the consumer on account of reduction in the rate of tax has to be in absolute terms and there were no other means of passing the same as has been adopted by the Respondent. 56. That the disallowance of passing of the benefit by extra quantity and passing of the benefit at product category HSN level were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and after adjusting the amount of suo moto deposit of ₹ 16.58 Crore and the amounts wrongly included, the balance profiteering was on account of the SKUs considered in the impugned Report, where the methodology for passing on the benefit was ignored during the calculation. He has also submitted his comments vide Exhibit-29 on Annexure-14 and Annexure-15 of the impugned Report and also attached Exhibit-30 which showed State wise break up of the suo moto deposit of the amount in the CWF aggregating to ₹ 16,58,32,723/-. 60. That the benefit amounting to ₹ 14,86,43,439/- has been passed by the Respondent by way of grammage increase (extra quantity) which excluded the excess benefit passed in SKUs in order to pass the overall benefit at the product category level. He has also furnished the details of estimated benefit passed in Exhibit-31, how the above grammage benefit has been calculated. The Respondent has further annexed the State wise (GSTN wise) summary of the aforesaid amount as Exhibit-32 and submit State wise (GSNT wise) details separately in a pen drive. 61. That for comparing the prices after GST rate reductions the GST has been included in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the customers / recipients impacted the net realization which has resulted in profiteering in DGAP s Report. 64. That the Respondent vide his letter dated 27.09.2018 and e-mail dated 29.09.2018 addressed to the DGAP, pursuant to his queries made vide emails dated 20.09.2018 and 28.09.2018, has pointed out that the comparison of realization varies from customer to customer due to the reason that differential discounts were applicable to different customers. The Respondent has also pointed out that the correct way was to consider percentage of the benefit to be passed on, for the particular SKU on the realization to assess the GST benefit passed. 65. That the Respondent has passed on the additional benefits by additional grammage/ additional reduction in MRPs on SKUs in the same product category level so that commensurate benefit was passed at product category level. The Respondent has also provided break-up of the amount of ₹ 192 Crore, being the benefit passed by him pursuant to the methodology followed by the Respondent vide Exhibit-5 and the details of category (HSN) wise balancing at SKU level on 2012.2018. Exhibit-23 which incorporated the benefit passed by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Price Control and Anti-Profiteering (Mechanism To Determine Unreasonably High Profits for Goods) (Net Profit Margin) Act, 2014 which has defined profiteering as making unreasonably high profits . Section 15 of the above Act provided that the following factors have to be taken into consideration in formulating mechanism for determining profiteering:- (a) any tax imposition; (b) the supplier s cost; (c) any cost incurred in the course or furtherance of business (c) supply and demand conditions; (d) the conditions and circumstances of geographical or product market; or (e) any other relevant matters in relation to the prices of goods or charges for services 70. That this Authority has itself taken into consideration the increase in the cost of raw materials for calculation of the quantum of benefit which could be passed on to the consumer in its Order dated 04.05.2018 passed in the matter of Kumar Gandharv v. KRBL Limited, Case No. 3/2018 = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY . However, the DGAP has not taken the said factor into account in his Report while disallowing the costs incurred on passing on the benefit. Para 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lection of evidence by the DGAP to even conduct the investigation, thus, none of the statutory requirements for even initiating the investigation by the DGAP in the present case, have been followed. 74. That in the present case, the trigger point for the DGAP to initiate investigation against the Respondent was the OM dated 1004.2018 issued by this Authority which was also evident from the Notice dates 26.04.2018 issued by the DGAP. It appeared that this Authority has proceeded on the ground that it has powers and jurisdiction to initiate or order investigation against any person suo moto i.e. on its own motion, however, this assumption of jurisdiction was legally untenable. This Authority and the DGAP being creatures of the statute viz. the CGST Act, 2017, were bound by the statutory provisions of the above Act and could not act either beyond or contrary to the provisions. The above Act did not confer any power either on this Authority or the DGAP to initiate investigation against the Respondent on their own motion i.e. suo moto. When there was no conferment of suo moto power on this Authority to initiate proceedings on its own motion notice issued by the DGAP was without jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of registration under the CGST Act. 78. That on the basis of the aforementioned powers of this Authority, it can be said that this Authority under Section 171 of the above Act would determine the rights and liabilities of the registered person with civil and/or penal consequences. However, Rule 133 did not provide for issuance of a show cause notice to the alleged violator therefore, Rule 133 of the CGST Rules to that extent was violative of the principles of natural justice. 79. That a show cause notice forms the base of the principles of natural justice, audi alteram partem. In this regard, reliance was placed on the case of Canara Bank and Others v. Debasis Das and Others (2003) 4 SCC 557 = 2003 (3) TMI 664 - SUPREME COURT , where the Hon ble Supreme Court held that a notice should apprise the party of the case it has to meet. The extract of the relevant portion of the judgment was reproduced as under:- 15. Notice is the first limb of this principle. It must be precise and unambiguous. It should apprise the party determinatively of the case has to meet. Time given for the purpose should be adequate enough so as to enable him to make his representation. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the Hon ble Supreme Court has observed that applicability of principles of natural justice was not dependent upon any statutory provision. The principle has to be mandatorily applied irrespective of the fact as to whether there was any such statutory provision or not. In the case of Anrak Aluminium Ltd. v. Commissioner 2017 (4) G.S.T.L. 248 = 2017 (5) TMI 1200 - CESTAT HYDERABAD , the Hon ble Tribunal has held that the department could not proceed to recover the interest under Section 87 without issuing a show cause notice and determination of the amount due and payable by the assessee as provided under sub-section (1) of Section 73 of the Finance Act, 1994. 83. That vide its Notice dated dated 16.10.2018 this Authority has considered the Report of the DGAP as a show cause notice, which was not correct. The Authority should have issued a show cause notice before examining the alleged profiteering which should have contained the following:- i. description of the goods and services in respect of which the proceedings have been initiated; ii. reasons on the basis of which profiteering has been alleged; iii. issues proposed to be examined by this Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations have been set as barometers for calculating profiteering. 87. That in the case of Commissioner of Income Tax Bangalore v. B.C. Srinivasa Setty (1981) 2 SCC 460 = 1981 (2) TMI 1 - SUPREME COURT , the Hon ble Supreme Court has held that charging section was not attracted where corresponding computation provision was inapplicable. In this regard, reliance was also placed on the case of Eternit Everest Ltd. v. Union of India 1997 (89) E.L.T. 28 (Mad.) = 89) E.L.T. 28 , where the Hon ble Madras High Court has held that in the absence of machinery provisions pertaining to determination and adjudication upon a claim or objection, the statutory provision would not be applicable. It is also submitted that the Hon ble Supreme Court in the cases of Commissioner Central Excise and Customs Kerala v. Larsen and Toubro Limited (2016) 1 SCC 170 = 2015 (8) TMI 749 - SUPREME COURT has held that where there was no machinery for assessment, the law being vague, it would not be open to the assessing authority to arbitrarily assess to tax the subject. It was further held that where the statute provided no procedural machinery for assessment or levy of tax or where it was conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any ambiguity in the provision. In this regard, reliance was placed on the case of Indian Aluminium Company v. Kerala State Electricity Board (1975) 2 SCC 414 = 1975 (7) TMI 158 - SUPREME COURT , wherein the Hon ble Supreme Court has held that the marginal notes could be relied upon to show what the section was dealing with. In another case of Union of India v. Harbhajan Singh Dhillon (1971) 2 SCC 779 = 1971 (10) TMI 31 - SUPREME COURT , the Hon ble Supreme Court has observed that marginal notes could serve as guidance when there was ambiguity or doubt about the true meaning of the provisions. Similar observations were made by the Hon ble Supreme Court in the case of S. P. Gupta v. Union of India AIR 1982 SC 149 = 1981 (12) TMI 165 - SUPREME COURT . 90. That Profiteering has not been defined in CGST Act or the Rules therefore, reference to common parlance meaning of the term profiteering must be made. Definitions of the term Profiteer/Profiteering from various dictionaries was provided below for quick reference:- a) The Chambers Dictionary, Allied Chambers (India) Ltd., New Delhi: Profiteer is a person who takes advantage of an emergency to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent The Compact Edition of the Oxford English Dictionary: Having the same measure; of equal extent, duration or magnitude; 2. Of corresponding extent, magnitude, or degree; proportionate, adequate 3. Corresponding in nature; belonging to the same sphere or realm of things. 4. Characterized by a common measure 10 th Ed., The Concise Oxford Dictionary: corresponding in size or degree; in proportion Chambers 21st Century Dictionary: 1. in equal proportion to something, appropriate to it 2. Equal in extent, quantity, etc. to something 94. That in view of the above definitions, the word commensurate would mean appropriate, adequate or proportionate. Therefore, to determine commensurate benefit to be given to the recipient, reduction in price must necessarily be considered when a registered person was considered as an entity and a recipient as a group. Profiteering would always relate to the entity or registered person as a whole and not to some truncated transactions. The entire supply of goods impacted by the rate change, undertaken by the registered person must be considered and then on comparison of reduction in the tax rate, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P in calculating the alleged profiteering and therefore, this Authority should follow the above stand taken by the Government of India and allow netting off in determining whether the Respondent has passed the benefit or not. 97. That as per the provisions of Section 171 of the CGST Act the benefit could be ascertained product category wise, service category wise or entity however, the above Section or the rules or the procedure laid down by this Authority was silent on this aspect of calculation/computation in the absence of which the Respondent had no option but to apply best judgment keeping in view the business operations and the industry requirement, to pass on the benefit when the rate changes were effected. Due to absence of any methodology for computing profiteering, the registered persons were also following different methods for passing on the benefit of reduction in the tax rate or benefit of ITC to the recipients as per their own understanding. 98. That in the absence of any framework or guidelines laid down by Section 171 or Rules made thereunder, different approaches may be followed by the DGAP and such unfettered discretion would lead to uncertainty and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and finally a fresh Report in this regard was furnished on 15.03.2019. His above Report has stated that the investigation revealed that there had been profiteering by the Respondent and hence, the quantum of profiteering had been determined. 101. That the DGAP has also submitted that as per Rule 126 of the CGST Rules, 2017, this Authority has been empowered to determine the methodology and procedure for determination as to whether the reduction in the rate of tax or the benefit of ITC had been passed on by the registered person to the recipients by way of commensurate reduction in prices. The above Rule did not stipulate that this Authority shall prescribe the methodology to quantify the amount of profiteering. Thus, the quantum of profiteering had to be arrived at on a case to case basis, by adopting suitable method based on the nature and facts of each case and no uniform methodology could be prescribed for determination of the quantum of benefit to be passed on. In Rule 126, the word used was determine and not prescribe . 102. That the DGAP has also stated that on receipt of the OM dated 10.04.2018, he had issued a Notice under Rule 129 of the Central Goods and Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istributors and also makes sales to the CSD, Government outlets and the Modern Trade etc. 106. It is further revealed that the Central and the State Governments vide Notification No. 41/2017 Central Tax (Rate) dated 14.11.2017 had reduced the rates of GST from 28% to 18% and from 18% to 12% w.e.f. 15.11.2017 and vide Notification No. 06/2018 Central Tax (Rate) dated 25.01.2018 had reduced the rate of the above tax from 18% to 12% w.e.f. 25.01.2018. 107. It is also apparent from the record that a total number of 370 SKUs being manufactured and sold by the Respondent were impacted by the rate reduction w.e.f. 15.11.2017 and 39 SKUs of the Respondent were affected by the rate reduction w.e.f. 25.01.2018 (Total SKus 409). As per the provisions of Section171 (1) of the CGST Act, 2017 the Respondent was required to pass on the benefit of both the above rate reductions on all the impacted SKUs. 108. The Respondent has claimed that he has passed on the above benefit by way of reduction in the MRPs, by increasing the quantity of the products and by additional benefit on the other packs/ SKUs in the same or the other product category and computation for passing on the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed to have passed on the above benefit at the aggregate level of the SKUs or at the product level whereas he was required to pass it on every SKU so that the benefit could reach every buyer of that SKU. Passing on of the benefit to another customer at the expense of the customer who was legally entitled to receive it or complete denial of the above benefit to such customer amounts to violation of the provisions of Section 171 (1) of the above Act as well as Article 14 of the Constitution as the intent of the above provision is to pass on the benefit to every customer on his every purchase of a SKU. The Respondent has no discretion to pass on the benefit as per his own preferences and he is bound to pass on the benefit uniformly and equitably on all the impacted SKUs. Hence, the above methodology adopted by the Respondent to pass on the benefit is illegal and hence the same cannot be accepted. 111. It is also apparent that as a manufacture the Respondent is also legally responsible for fixing the MRPs as per the provisions of Rule 6 of the Legal Metrology (Packaged Commodities) Rules, 2011 mentioned supra. However, he has not re-fixed the MRPs after rate reductions. He was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 171 (1) of the above Act. 112. The Respondent has also claimed to have passed on the benefit at the product category level based on the sales contribution of the SKUs in that product category with due consideration to the lower priced SKUs. Accordingly, vide Exhibit-3 of his submissions dated 07.12.2018 he has calculated that overall benefit of 5.08% was requited to be passed on 8 product categories which were impacted by the tax reductions whereas he had passed 5.78% benefit. Vide Exhibit-4 and 5 the Respondent has claimed that he had passed benefit of ₹ 204 Crore at the product category level against the benefit of ₹ 192 Crore and in case the set aside amount of ₹ 16.6 Crore was also included the total amount passed was ₹ 209 Crore. However, the above claim of the Respondent is not correct as the benefit was to be passed on each SKU and not at the product category level. Passing on of the benefit at the product category level implies that the benefit has either not been passed on some SKUs which formed part of that product category or has been passed more than what could have been passed on some SKUs e.g. the Respondent had not passed any benefit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the benefit of tax reductions to prove his above methodology. The most simple and appropriate methodology required to be adopted by the Respondent was to calculate the new MRP for each SKU as per the tax reductions and to charge it accordingly. Therefore, the above methodology adopted by the Respondent is illogical, arbitrary and illegal and hence the same cannot be approved and held to be correct. Accordingly, the claim of the Respondent that he had passed on benefit of ₹ 209 Crore as against the benefit of ₹ 204 Crore as has been shown in Exhibits-4 5 is fallacious and hence the same cannot be accepted. 114. The Respondent has further claimed that he has computed the benefit from 15.11.2017 to 30.06.2018 to correspond with the period taken by the DGAP whereas it should have been taken from 15.11.2017 to 31.01.2018 in respect of the rate reductions which have been notified on 14.11.2017 and from 25.01.2018 to 30.06.2018 for the tax reduction which was notified on 25.01.2018. The above contention of the Respondent is illogical as the benefit has to be calculated till it is not passed on. It is apparent from the record and perusal of Annexure-14 15 attached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to them and it could also not have been passed to the future customers as it did not pertain to them. Moreover, the Respondent had also proposed to pass more benefit than what was required to be passed on the SKUs belonging to the same product category, which he could not have done legally. Perusal of the above letter also shows that the Respondent had claimed to have passed on the above benefit by giving discounts to his distributors. However, as mentioned supra the Respondent had not given any discount on account of tax reductions. Charging of the reduced rates of GST also does not amount to passing on the benefit as the Respondent was legally bound to charge the reduced rates of tax once they had been notified. He has also claimed that he had written letters to his distributors to pass on the benefit however, it is not understood how the distributors or the ultimate consumer would have got the benefit of tax reductions unless the MRPs were reduced and displayed on each SKU as has been mentioned above which could have been done by the Respondent only and not his distributors. The Respondent has himself admitted that he had no control on his retailers and hence his claim that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of these invoices between the prices which were prevalent pre-GST rate reductions and post-GST rate reductions. Therefore, all the above contentions of the Respondent are incorrect and hence, they cannot be accepted. 116. This Authority on receipt of the letter dated 02.04.2018 of the Respondent vide its OM dated 10.04.2018 (Exhibit-7 Colly) had advised the Respondent to provisionally deposit the amount of ₹ 12.6 Crore in the CWF to be constituted under Section 57 of the CGST Act, 2017. The above OM reads as under:- National Anti-profiteering Authority Department of Revenue, Ministry of Finance, Tower-I, 6th Floor, Jeevan Bharti Building, Connaught Place, New Delhi F.No. D-22011/NAA/17/2018/ Date: 10.04.2018 OFFICE MEMORANDUM Sub: Deposit of the suo moto profiteering amount by M/s. Nestle India Limited in the Consumer Welfare Fund -Reg. With reference to M/s. Nestle India Limited s (M/s. Nestle) letter dated 02.04.2018, addressed to the Chairman, National Anti-profiteering Authority (NAA), I have been directed by the Chairman, NAA to advise M/s. Nestle to provisionally deposit the amount set aside o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on it would be relevant to mention that the duties of this Authority have been clearly explained vide Rule 127 of the CGST Rules, 2017, according to which this Authority is neither a consultative nor an advisory body and hence there was no question of advising the Respondent on the issues raised by the Respondent in his above letter. 119. The Respondent has also stated that he had received a Notice dated 26.04.2018 (Exhibit-8) issued by the DGAP for initiation of investigation under Rule 129 of the CGST Rules, 2017 vide which he was directed to determine the total actual amount of the benefit with effect from 15.11.2017 that has not been passed on to the consumers with the necessary documents/evidences. The above Notice was issued by the DGAP in terms of Rule 129 (3) of the above Rules and hence the same has been issued to the Respondent correctly as the Respondent had himself admitted to have resorted to profiteering. The Respondent has further stated that the DGAP had not taken cognizance of his letter dated 11.09.2018 (Exhibit-9) in which the methodology adopted by the Respondent to pass on the benefits of GST rate reductions, determination of the actual amount of benefit n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Respondent had not computed the benefit for the quarter 01.04.2018 to 30.06.2018 till 21.08.2018 when it was finally deposited in respect of the rate reduction which had occurred on 25.01.2018 as is clear from his letters dated 06.07.2018 and 21.08.2018 (Exhibit-10 Colly). 121. It is also apparent from the record that the DGAP vide his Report dated 08.10.2018 has concluded that the allegation of profiteering by way of either increasing the base prices or by maintaining the same selling prices and by not reducing the selling prices of the products commensurately, despite a reduction in the GST rates stood confirmed against the Respondent to the tune of ₹ 100,98,03,096/- which shows that the Respondent has not reduced his prices as he was required to do and hence he had resorted to profiteering. 122. The Respondent has also submitted that vide his letter dated 02.04.2018 he had disclosed the methodology adopted by him for complying with the provisions of Section 171 (1) which was implicitly accepted by this Authority vide its OM dated 10.04.2018. The above claim of the Respondent is completely incorrect as it was nowhere mentioned in the above OM which has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduction to millions of customers. Similar is the case in respect of the NESCAFE Classic single serve pack having MRP of ₹ 2. Hence, the above claim of the Respondent is not tenable. 125. The Respondent has further argued that the packaged food products have MRPs, which were in multiples of Re. 1/- however, coinage below 25 paise has been scrapped and 50 paise coinage was not available. The MRPs were in the multiples of ₹ 1/- such as 1, 2, 5 and 10 etc. and the products did not have MRPs with coinage such as ₹ 1.84, ₹ 4.50, ₹ 4.75 and ₹ 9.25 etc. and in case the GST benefit involving coinage was passed on, it was unlikely to reach the end consumer. He has also cited the case of MAGGI Noodles pack bearing MRP of ₹ 5/- per pack and claimed that to pass on the benefit the MRP was required to be reduced to ₹ 4.75 and in the absence of 25 paise tender, reducing MRP to ₹ 4.75 was not a feasible option. The above argument of the Respondent is not justified as it was for the customer to provide the required amount of price and not for the Respondent to draw any adverse inference on behalf of the customer. Moreover, the customer co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garb of changing of the mould has not passed on the benefit of tax reduction. As there is no evidence of his having changed the mould on record it appears that the Respondent has not passed on the benefit yet. 128. The Respondent has also placed reliance on Rule 6 (1) (e) and (m) of the Legal Metrology (Packaged Commodities) Rules, 2011 as it was existing on 01.01.2018 and contended that the retail sale price (MRP) of a packaged commodity could only be in Rupees or in fraction of 50 paise and any package having MRP which has fractions such as 15 paise, 25 paise or 60 paise etc. would be violation of the above Rules. In this connection it would be relevant to mention that the Respondent has to act in consonance with the above Rules and in case MRP of any of his products is fixed in the fractions he has to round off the same. Therefore, the above contention of the Respondent is wrong as he cannot act in contravention of the law. 129. The Respondent has further contended that the benefit was to be passed on immediately and the Respondent could not deposit it in the CWF. However, it is apparent from the perusal of Annexure-14 and 15 of the Report dated 08.10.2018 that the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he could not have passed the benefit to another buyer who had purchased the pack having MRP of ₹ 12/-. As per the provisions of Section 171 (1) of the CGST Act, 2017 the benefit has to be passed on to each customer on every supply and the Respondent could not have denied the benefit to an eligible customer arbitrarily as per his own convenience as he was bound to take note that the Central and the State Governments have given the above benefit by sacrificing their own revenue in the interest of the general public and the Respondent has no right to deny it to a particular customer at the expense of another customer when the above benefit is not being paid out of his own account. The above action of the respondent amounts to violation of Article 14 of the Constitution as it denies equal treatment to a customer in comparison to another customer as well as provisions of Section 171 (1) of the CGST Act, 2017. 132. The Respondent has further stated that in the case of 6 SKUs (Exhibit-13 of his submissions dated 07.12.2018) relating to the product category of Instant Coffee, the benefit accruing due to the rate reduction with effect from 15.11.2017 was offset by the increase in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of benefit passed on. Similarly the amounts of ₹ 16.6 Crore and ₹ 209 Crore which have been claimed to have been set aside and passed on as benefit in the above Exhibit cannot be construed to have been correctly computed and passed on as the methodology adopted to compute them is inherently flawed. 135. The Respondent has further submitted that where it was not possible to pass on the benefit by price reductions he has passed it by commensurately increasing the grammage or quantity of the SKU. The first such claim was made by the Respondent vide Exhibit-5 attached to his submissions dated 07.12.2018 in which the amount passed as grammage benefit was included in the amount of ₹ 209 Crore which was claimed to have been passed on by the Respondent as overall tax benefit. However, details of the amount of grammage benefit given and the amount passed were not explained in the above Exhibit. The names of the SKUs on which the above benefit was passed were also not mentioned by the Respondent in his above submissions. He had also not mentioned the amount of benefit which was required to be passed on these SKUs and the amount of quantity which was increased by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belong. The extra benefit of 5.1% shown in respect of the SKUs mentioned at Sr. No. 21 to 27 is equal to the percentage of 5.1% which has been computed for the product category of Instant Noodles Pasta as per Exhibit-5, to which these SKUs pertain. Therefore, there is no doubt that the percentage benefit of grammage has been computed at the product category level whereas it was to be calculated at the SKU level. Therefore, the benefit of grammage computed by the Respondent in Column E of the Chart prepared by the Respondent is incorrect and hence it cannot be allowed. 138. The Respondent has also given details of the extra grammage actually passed on in respect of the above 27 SKUs vide Column F of the above Chart. Perusal of this Column shows that different percentages have been mentioned in this Column which are either higher or lower than the percentages shown in Column E which shows that the Respondent has not passed on benefit of 7.8% or 5.1% in the case of even a single SKU. Therefore, it is established that the commensurate reduction has not been passed on by the Respondent against each SKU and he has tried to set off the higher benefit with the lower benefit which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de this Exhibit the Respondent has claimed that he has passed on benefit of 54 Crore by increasing the grammage or quantity by ₹ 5.5 Crore in respect of the Chocolate product category, by ₹ 3.1 Crore in respect of Instant Noodles Pasta Category, by ₹ 33.2 Crore for the Wafer containing Chocolate category, by 4.3 Crore in respect of Instant Coffee product category, by ₹ 6.7 Crore for the Curry Paste, Mixed Condiments Seasoning Category and by ₹ 1.2 Crore for the Sugar Boiled Confectionary (Total ₹ 54 Crore). However, the above claim of the Respondent is not correct as the benefit was to be passed on at the SKU level and not at the level of product category and hence the above claim of the Respondent cannot be accepted. 143. Vide Exhibit-24 attached to his submissions dated 02.05.2019 the Respondent has given the details of the grammage benefit computed by him as per Exhibit-23 as well as the benefit passed on corresponding with the period of Report of the DGAP w.e.f. 15.11.2017 to 30.06.2018. Perusal of the Exhibit-24 shows that no grammage benefit has been passed in respect of the categories of Sweetened Condensed Milk (page 5) and Nutri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Vide Exhibit-31 he has given two examples of calculation of the grammage benefit claimed in respect of MUNCH Maha 32 (24X11.1g) 10% and KIT KAT 2F Mini (36X13.2 g) 3%. In respect of Munch Maha mentioned above the profiteering computed by the DGAP has been shown as ₹ 4.2 Crore by the Respondent whereas as per the Annexure-14 of the DGAP Report dated 08.10.2018 the profiteered amount has been shown as ₹ 4,16,63,810/- Crore In respect of KIT KAT mentioned above the profiteering computed by the DGAP has been mentioned as ₹ 0.6 Crore whereas as per Annexure-14 of the Report the profiteered amount comes to ₹ 86,54,924/-. Since, the details of the grammage benefit passed on each SKU have not been explained in the above Exhibit and the amount claimed to have been passed on account of the grammage benefit has been computed on the product category level and not at the SKU level and there is also no corroborative and irrebuttable evidence produced by the Respondent, hence the above amount cannot be allowed to have been passed on account of the benefit of tax reductions. 146. Although the DGAP in his Report dated 08.10.2018 has pointed that the provisions of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the DGAP has used a mathematical methodology which vastly differs from the methodology used by the Respondent, which is also more logical and in consonance with the provisions of Section 171 (1) of the above Act. Since, the DGAP has not used the methodology adopted by the Respondent it amounts to raising objections against the methodology used by the Respondent. Hence, both the above amounts cannot be taken to be correct and final as per the wishes of the Respondent as the mathematical methodology adopted by the Respondent to compute the above amounts was flawed. 149. The Respondent has further contended that he has adopted such a methodology that the benefit was duly passed on to the recipients and the SKUs where the benefit has been passed by extra grammage or no benefit has been passed or proportionate benefit has not been passed, was due to prevalent practices, practicalities and legal reasons. He has also given the details of the key SKUs viz. MAGGI Noodles Masaia 35 Gms., KIT KAT ₹ 10/- and NESACAFE SUNRISE ₹ 2/- (70/30 Recipe) SKUs and cited the reasons how the commensurate benefit could not be passed and how it was passed on other SKUs. The issues pertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his own as he was asked by this Authority to intimate how he had passed on the benefit of both the rate reductions. The Respondent had persistently claimed during these meetings that he had passed on the full benefit and had at no stage admitted that there were practical difficulties in passing on the benefit and hence, he has set aside an amount of ₹ 12.6 Crore on account of the benefit which he could not pass. The above admission of the Respondent was an afterthought as he had realised during the discussions that he had not passed on the benefit and hence he had set aside the above amount to justify what he had wrongly claimed. The Respondent had also not volunteered to deposit the above amount in the CWF inspite of the fact that he could not have passed the above amount to the customers who had already bought his goods at the higher prices as he had denied them the benefit. These customers were also not identifiable. The Respondent wanted to pass on the above amount in future which he could not have legally done. The above actions of the Respondent show that he had no sincere intention of passing on the above benefit and the claims made by him in this regard are wrong and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 171 (1) of the above Act. Therefore, the above pleadings of the Respondent cannot be accepted. 154. The Respondent has also contended that he was in the process of passing on the set aside benefit at the same product category level but after his meeting with this Authority on 23.02.2018, the same was put on hold pending discussions. In this connection it is made absolutely clear that the Respondent had never admitted during the above meeting that he had set aside the above amount as his repeated stand was that he has passed on the full benefit and nothing remained to be passed on. Moreover, the Respondent could not have passed on the above amount to those customers who had already purchased his goods and to whom he had denied the benefit. Hence, the above contention of the Respondent is bereft of logic and hence, it cannot be accepted. 155. He has further contended that as per the directions of this Authority given vide OM dated 10.04.2019 the DGAP was required to investigate only the quantification of the amount set aside for the GST rate reductions effective from 15.11.2017 till January, 2018 and for the rate reduction effective from 25.01.2018 till June, 2018 and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had sought repeated explanations and also obtained data from the Respondent vide Annexure-6 and various e-mails which was furnished by the Respondent vide Annexures-5, 8, 9, 10, 11 and 12 attached with the Report dated 08.10.2018. The DGAP was not bound to interpret the data supplied by the Respondent as per the wishes of the Respondent and hence the above arguments advanced by the Respondent are irrelevant. 158. He has also submitted that the impugned Report despite specifically pointing out that this Authority had passed directions for provisional deposit of the amount set aside and investigation to verify the same, as per the modality disclosed in letter dated 02.04.2018, the DGAP has not followed the methodology adopted by the Respondent by ignoring the directions of this Authority. The above claim of the Respondent is not correct as no direction was passed to restrict the investigation to the set aside amount and the methodology adopted by the Respondent as per OM dated 10.04.2018 and hence the above claims of the Respondent are not tenable. 159. The Respondent has further submitted that the DGAP has applied wrong interpretation of Section 171 of the CGST Act by stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 100,98,03,096/- reducing the profiteering amount by ₹ 11 He has also revised the State wise profiteering vide Annexure-16 of his Report dated 15.03.2019. Therefore, the above contention of the Respondent stands admitted by the DGAP. 162. He has also claimed that the DGAP has wrongly included the GST amounting to ₹ 9,75,18,342/- (Annexure-29 attached to his submissions dated 28.06.2019) in his calculations of the profiteered amount which he had already deposited with the Government. However, as far as the issue of including the GST charged by the Respondent in the profiteered amount is concerned the DGAP has correctly included it in the profiteered amount as the Respondent has not only charged additional price from his customers which they were legally not bound to pay as they were entitled to the benefit of tax reductions but he has also forced them to pay additional GST on this illegally charged price which they should not have paid. Had he not charged extra GST the customers would have paid less price and thus got the benefit of tax reductions. The Central as well as the State Governments had sacrificed their own tax revenue to benefit the consumers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cussed above the above amounts were wrongly computed, the GST was wrongly charged and the set side amount was incorrectly computed and hence the above contentions of the Respondent cannot be accepted. 166. The Respondent has also claimed that his invoices post reduction in the GST rate indicated the benefit passed on the relevant product as a discount bearing Code Z368 and sample invoices were annexed as Exhibit-6 to his reply dated 07.12.2018. He has further claimed that where the discount was on account of the GST rate reduction, code Z368 has been indicated. As has been discussed above the Respondent was required to pass on the benefit by reducing his MRP in respect of each SKU sold by him and not by offering discounts at the product level. Moreover, the Respondent had also not passed on the benefit of tax reductions by way of discounts as is evident from the Report dated 08.10.2019 of the DGAP. Therefore, the above claims of the Respondent cannot be accepted. 167. The Respondent has also contended that in para 21 of his Report the DGAP has observed that for calculating profiteering, the average base prices of supplies made to each channel of suppliers has been conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no reduction in the price of the SKU keeping in view the reduction due to change in the tax rates. The period which has been considered by the DGAP while calculating the average base prices has been mentioned in Annexure-14 and 15 submitted by the DGAP in his Report dated 08.10.2018. Hence, the allegation levelled by the Respondent on this ground in not tenable. 169. The Respondent has also submitted that there were calculation errors in the base prices taken by DGAP in his workings as has been mentioned by him vide Exhibit-22 attached to his reply dated 12.04.2019. Perusal of Annexure-22 shows that all these errors have been taken in to account by the DGAP in his supplementary Report dated 15.03.2019 and hence the objection of the Respondent made on this ground stands removed. 170. The Respondent has also stated that the method adopted by the DGAP by taking average base prices pre rate reduction has resulted in an anomaly where for the very same SKU the report was showing no profiteering and for some other supplies, it was showing profiteering. This objection has been explained in Exhibit-17 attached by the Respondent with his reply dated 07.12.2018. Perusal of the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empowered to ensure that the benefits of tax reduction and ITC are passed to the consumers as per the specific provisions of Section 171 (1) of the CGST Act, 2017. The above claim of the Respondent runs contrary to the argument of the Respondent which claims that no fetters can be placed on his power to fix prices of his products in violation of the provisions of Article 19 (1) (g) of the Constitution. 174. The Respondent has also cited the Order dated 04.05.2018 passed by this Authority in the matter of Kumar Gandharv v. KRBL Limited Case No. 3/2018 = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY and claimed that the increase in the cost of raw materials had been taken into consideration for calculation of the quantum of benefit which should also be taken in to account in his case. However, perusal of the above Order shows that in the above case the rate of tax had increased and not reduced and since, there was no reduction, the provisions of Section 171 were not applicable in the above case. However, in the present case the rates of tax have been reduced and therefore, the above Order does not help the Respondent. 175. The Respondent has also argued tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Anti-Profiteering measures cannot the construed to be violative of the above Article of the Constitution as the Respondent is fully entitled to fix his prices and carry out his trade without any control being exercised under the above measures. It is rather the Respondent who is advocating the enactment of the price control Acts in line with the Acts framed by the Malaysian and the Australian Government. Hence, the above contentions of the Respondent are not maintainable. 177. That the Respondent has further argued that in the absence of a judicial member, the constitution of the Authority was improper. In this regard it is mentioned that there is no judicial member in all such Authorities viz. the Authorities on Advance Rulings on the GST or Income Tax and the TRAI etc. All the proceedings are conducted by this Authority by applying the principles of natural justice and all its orders are detailed, reasoned and speaking and they are also subject to judicial review. The Parliament, the State Legislatures, the GST Council as well as the Central and the State Governments in their wisdom have not thought it fit to provide a judicial member in this Authority. However, absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (12) On receipt of the information as mentioned in Para 9 above, in case the Authority is of the opinion that there exists a prima facie case it shall direct the Director General of Anti-profiteering to cause an investigation to be made in a fixed time frame and submit report. 181. Accordingly, this Authority was competent to suo moto order investigation against the Respondent once information of profiteering has been received by it, as per the above provisions. Therefore, no illegality has been done on this ground as the investigation has been ordered as per the provisions of the statute and hence the investigation carried out by the DGAP is also legal and within jurisdiction. It is also stated here that the Respondent had himself subjected him to the jurisdiction of this Authority vide his letter dated 02.04.2018 and hence he cannot resile from his earlier stand. 182. He has also claimed that he had sought advice / clarity from this Authority and also furnished his methodology which was accepted by this Authority and hence he could not have been investigate mentioned supra this Authority is not an advisory body nor it has accepted the methodology adopted by the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent and he was also given full opportunity to defend himself before this Authority and hence, the above principle has not been violated. Similarly, the law propounded in the cases of Uma Nath Pandey and Others v. State of UP (2009) 12 SCC 40 = 2009 (3) TMI 526 - SUPREME COURT , Collector of Central Excise v. ITC Ltd. 1994 (71) ELT 324 = 1994 (2) TMI 62 - SUPREME COURT , Vasta Bio-Tech Pvt. Ltd. v. Assistant Commr. 2018 (360) ELT 234 = 2018 (1) TMI 1437 - MADRAS HIGH COURT , Dharampal Satyapal Ltd. v. Dy. Commissioner of Central Excise 2015 (320) ELT 3 = 2015 (5) TMI 500 - SUPREME COURT and Anrak Aluminium Ltd. v. Commissioner 2017 (4) G.S.T.L. 248 = 2017 (5) TMI 1200 - CESTAT HYDERABAD , does not help the Respondent as this Authority has fully complied with the principles of natural justice. 186. The Respondent has also contended that this Authority has considered the Report of the DGAP as a show cause notice, which was not correct as it was bound to serve a detailed notice to him to that he could defend himself. In this regard it is mentioned that the Report dated 08.10.2018 was carefully considered by this Authority in its sitting held on 16.10.2018 and acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the facts of each case are different. The mathematical methodology applied in the case where the rate of tax has been reduced and ITC disallowed cannot be applied in the case where the rate of tax has been reduced and ITC allowed. Similarly, the mathematical methodology applied in the case of Fast Moving Consumer Goods (FMCGs) like the present case of the Respondent cannot be applied in the case of construction services. Even the methodology applied in two cases of construction service may vary on account of the period taken for execution of the project, the area sold and the turnover realised. Similarly, the mathematical methodology applied in two cases of FMCGs may differ on account of quantum of goods and services and the period during which the benefit of tax reduction was not passed. It would also be appropriate 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 Government as per the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd hence it is not similar to the provisions of the tax laws which create charge. therefore, the above contention of the Respondent is untenable. 190. As submitted above the provisions of the Malaysia Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit) (Net Profit Margin) Regulations 2014, cannot be applied in this Country as they provide for price control. The anti-profiteering measures adopted in Australia mention the Net Dollar Margin Rule which also provides for regulation of prices which is not the intent of the CGST Act, 2017. There is also an adequate mechanism to enforce the Anti-Profiteering measures in the Act and hence the above contentions of the Respondent are frivolous. 191. The Respondent has also relied upon the cases of Commissioner of Income Tax Bangalore v. B. C. Srinivasa Setty (1981) 2 SCC 460 = 1981 (2) TMI 1 - SUPREME COURT , Eternit Everest Ltd. v. Union of India 1997 (89) E.L.T. 28 (Mad.) = 1996 (6) TMI 90 - MADRAS HIGH COURT and Commissioner Central Excise and Customs Kerala v. Larsen and Toubro Limited (2016) 1 SCC 170 = 2015 (8) TMI 749 - SUPREME COURT in his support but since appropriate methodolog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ford University Press to support his argument. However, it would be worthwhile to mention here that the word profiteered has been duly defined in the Explanation attached to Section 171 of the above Act as under:- Explanation : For the purposes of this section, the expression profiteered shall mean the amount determined on account of Not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of ITC to the recipient by way of commensurate reduction in the price of the goods or services or both. 195. Based on the above Explanation there is no doubt on the definition of profiteering which has been duly incorporated in the CGST Act, 2017 and hence the above contention of the Respondent is incorrect and the interpretation given by the Respondent is wrong. 196. He has further claimed that the term commensurate appearing in Rule 127 and Section 171 (1) means appropriate , adequate or proportionate . The Respondent has also cited the dictionary meanings of the word commensurate from the Random House Compact Unabridged Dictionary, Special Second Edition, The New International Webster s Comprehensive Dictionary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity level as the benefit has to be passed on each supply of goods and services. Hence, the above contentions of the Respondent are not correct as the Respondent cannot apply the above methodology of netting off as has been approved in the above Report of the WTO as it would result in denial of benefit to certain customers which would amount to violation of the provisions of Section 171 of the above Act as well as Article 14 of the Constitution. 198. He has further submitted that in the absence of any framework or guidelines different approaches may be followed by the DGAP and such unfettered discretion would lead to uncertainty and arbitrariness on case to case basis. The above argument of the Respondent is incorrect as the mathematical methodology adopted by the DGAP in this case is in consonance with the provisions of Section 171 and Rule 127 and 133 of the above Act whereas the methodology adopted by the Respondent is illogical, arbitrary and illegal which has resulted in unfairness and inequality while passing on the benefit of tax reductions. As mentioned above the mathematical methodology applied in one case cannot be applied in another case as no two cases have the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Arunachal Pradesh 1368850.509 53501.58 1655540.09 4. Assam 24386709.02 852400.8 29901227.3 5. Bihar 31370216.35 930626.2 37024406.7 6. Chandigarh 2596457.442 40902.35 2913581.13 7. Chhattisgarh 17983763.27 114245.7 19183118.6 8. Delhi 32407126.76 312867.5 38132954.2 9. Goa 6697019.396 115909.9 7445587.77 10. Gujarat 43134078.85 586578.8 46103759.6 11. Haryana 19143358.11 463103.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29. Telengana 25015237.18 2018939 33825793.7 30. Tripura 4602223.46 278735.9 5913664.92 31. Uttar Pradesh 74781066.35 646110.2 82924936.3 32. Uttarakhand 8943110.779 146513.7 9789512.99 33. West Bengal 64842800.71 2288491 87960436.2 Total 853077868 44238516 897316384 201. It is evident from the above narration of facts that the Respondent has denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus profiteered as per the explanation attached to Section 171 of the above Act. Therefore, he is liable for imposition of penalty under Section 171 (3A) of the CGST Act, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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