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TMI Blog2019 (12) TMI 1082X X X X Extracts X X X X X X X X Extracts X X X X ..... n base prices after taking in to account all the invoices issued to different customers which gives more representative measure of the base prices than the prices computed by the Respondent. The Respondent has not commensurately reduced his prices but he has infact increased them by adding the tax costs and the losses w.e.f. 15.11.2017 on the base prices which he was already charging on 14.11.2017 as is apparent from the perusal of column L and M of Annexure-13 submitted by him. It is also clear that the Respondent has arbitrarily computed the pre rate reduction base prices of his products by taking in to consideration the highest selling base prices instead of the average base selling prices although he was admittedly selling his products to different customers at different prices. It is absolutely clear that the Respondent had no intention of passing on of the above benefit and he has thus denied the benefit of tax reduction to his customers. Therefore, it is established that he has committed violation of the provisions of Section 171 (1) of the above Act - It is also established that the methodology adopted by the Respondent while computing the benefit of tax reduction wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction in the rate of GST on the products being supplied by him, when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017. 2. The DGAP had issued Notice under Rule 129 (3) of the CGST Rules, 2017 on 15.01.2019 to the Respondent, to submit his reply as to whether he admitted that the benefit of reduction in the GST rate w.e.f. 15.11.2017, had not been passed on to the recipients by way of commensurate reduction in prices and if so, to suo moto determine the quantum thereof and indicate the same in his reply to the Notice as well as furnish all documents in support of his reply. The Respondent was also afforded an opportunity to inspect the non-confidential evidences/information which formed the basis of the said Notice, during the period 21.01.2019 to 23.01.2019, which the Respondent had availed and inspected the documents on 23.01.2019. 3. The DGAP has also mentioned that the time period of the present investigation was from 15.11.2017 to 31.12.2018.1-le has also sought extension of time to complete the investigation from this Authority, which was granted to him till 06.07.2019 in terms of Rule 129 (6) of the above Rules vide order dated 19.03.2019. 4. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned products when the rate of GST was reduced from 28% to 18% w.e.f. 15.011.2017. On the basis of aforesaid pre and post-reduction GST rates and the details of outward taxable supplies (other than zero rated, nil rated and exempted supplies) of the impugned products during the period from 15.11.2017 to 31.12.2018, as furnished by the Respondent to the DGAP, the DGAP has concluded that the amount of net higher sales realization due to increase in the base prices of the impacted products, despite the reduction in the GST rate from 28% to 18% or in other words, the profiteered amount came to ₹ 2,30,40,74,132/-. The DGAP has also claimed that the profiteered amount has been arrived at by comparing the average of the base prices of the impugned products sold during the period from 01.11.2017 to 14.11.2017, with the actual invoice-wise base prices of the products sold during the period from 15.11.2017 to 31.12.2018. The reference base prices of the products which were not sold during the period from 01.11.2017 to 14.11.2017, were taken from the sales data for the period from July, 2017 to October, 2017 and the price list submitted by the Respondent to the DGAP. The excess GST so c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 33 Tamil Nadu 8,57,12,789 20 36 Telengana 5,72,57,528 21 37 Andhra Pradesh (New) 3,86,40,679 Grand Total 2,30,40,74,132/- 9. The DGAP has also contended that from the details furnished in Annexure-13 of his report, it appeared that the base prices of the products under investigation were indeed increased post GST rate reduction w.e.f. 15.11.2017. Thus, by increasing the base prices of the products subsequent to the reduction in the GST rate, the commensurate benefit of reduction in the GST rate from 28% to 18%, was not passed on to the recipients. 10. After perusal of the DGAP s Report, this Authority in its meeting held on 02.07.2019 decided to hear the Applicant and the Respondent on 17.07.2019. A notice was issued to the Respondent on 02.07.2019 asking him to reply why the Report dated 24.06.2019 furnished by the DGAP should not be accepted and his liability for pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s investigation has not been initiated in compliance with Rule 128 of the CGST Rules and was without jurisdiction as in the present case, there was no complaint / written application on the basis of which the present proceedings have been initiated. He has further submitted that the present proceedings have been initiated on the basis of a suo moto reference made vide letter dated 09.10.2018 from the Secretary of this Authority to the Standing Committee on Anti-Profiteering. He has also stated that there was no written application in the prescribed format. namely, Form APAF-1 on the basis of which the Standing Committee had examined the present matter and forwarded the same to the DGAP for investigation. 13. The Respondent has also referred to the Order dated 19.07.2019 passed by the Hon ble Delhi High Court in the case of Reckitt Benckiser v. Union of India WP (C) 7743/2019 = 2019 (7) TMI 1135 - DELHI HIGH COURT wherein with respect to products not complained of, the Hon ble High Court had given limited interim relief to the extent that the petitioner therein was not required to give the information to the DGAP. Therefore, the absence of a complaint was fatal to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MRP per piece (Post 15 November 2017) 1106 JB Oil 100ml Monsoon B 65.52 94 3208 JB Oil 100ml Monsoon - B 66.32 94 7808 JB Oil 100ml Monsoon B 63.52 94 1096 JB Lotion 100 ml- B TBP 55.76 80 8774 JB Lotion 100 ml- B TBP 54.06 80 77273 JB Lotion 100 ml- B TBP 58.45 80 From the above Table. the Respondent has submitted that each of the products sold by him were sold at different prices to different persons in the trade and no single price could be fixed for a product in the trade stream. He has also made reference to the judgment of the Hon ble Supreme Court passed in the case of Basant Industries v. Asst. Collector of Customs 1996 (81) ELT 195 (SC) = 1995 (1) TMI 89 - SUPREME COURT wherein it was categorically noted that it is a matter of common knowledg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the principles of natural justice. He has also cited the judgment of the Hon ble Supreme Court passed in the case of Dharampal Satyapal Ltd. v. Dy. Commissioner of C. Ex. 2015 (320) ELT 3 (SC) =2015 (5) TMI 500 - SUPREME COURT wherein the Hon ble Supreme Court had observed that even in administrative actions, where the decision of the authority may result in civil consequences, a hearing before taking a decision was necessary. He has also relied on the case of Escorts Farms Ltd. v. Commissioner (2004) 4 SCC 281 = 2004 (2) TMI 683 - SUPREME COURT in which the Hon ble Supreme Court has held that Right of hearing to a necessary party is a valuable right. Denial of such right is serious breach of statutory procedure and violation of rules of natural justice . He has also made reference to the judgment of the Hon ble Delhi High Court passed in the case of CCE v. SG Engineers 2015 (322) ELT 204 (Del.) = 2013 (7) TMI 905 - DELHI HIGH COURT wherein it was held that where the order did not notice the relevant facts, it was a cryptic order without any reasons and such an order was not sustainable for violation of principles of natural justice, Accordingly, he has pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was an alleged positive profiteering and he has ignored instances where he has passed on excess benefit which was more than the commensurate benefit the has further stated that in such cases, the DGAP has considered the profiteering as NIL whereas in the cases where he has sold products to his customers at a price lower than the alleged ideal selling price, the DGAP should have taken those instances in to account while computing the total amount of the alleged profiteering, 22. He has also contended that the DGAP has erred in including the amount of excess GST collected on the supply of products in the total amount of profiteering as per Para 12 of his Report on the ground that the excess price collected from the recipients also included the GST charged on the increased base price. He has also mentioned that the DGAP has computed an amount of ₹ 35,14,68,936/- as excess recovered GST which has been deposited with the Government and hence, no recovery of this amount can be made from him, therefore, the total profiteering calculated at ₹ 230,40,74 132/- should be reduced by ₹ 35,14,68 936/-. He has further contended that since the GST was collected by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red as sale , however, under the GST regime. these transactions have been deemed to be supply under Section 7 of the CGST Act read with S. No. 2 of Schedule l of the CGST Act, and if they were included in the DGAP s computation of the alleged profiteering. the same transaction would be considered twice and, accordingly, profiteering would also be calculated twice. Therefore, he has submitted that the DGAP has included the above transactions in computing the alleged profiteering which was incorrect, erroneous and liable to be set aside. 26. He has further averred that the valuation of such stock transactions was determined differently from supply transactions between unrelated persons and that the valuation of stock transfer transactions was not determined on an actual basis but it was determined in terms of the deeming provisions made under Rule 28 of the CGST Rules which provides as follows:- 28. Value of supply of goods or services or both between distinct or related persons, other than through an agent.- The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the alleged profiteering. However, in the case of 79 product descriptions, the DGAP has adopted alternate product descriptions without any reasonable justification and once the DGAP has adopted product descriptions as the basis to compare prices of products prior to and after GST rate reduction, he could not adopt alternate product descriptions and calculate profiteering as it would amount to comparing incomparable products with each other. He has further contended that the reliance placed on alternate product descriptions was incorrect and the DGAP ought to have made comparison at the SKU level asit would be an accurate comparison instead of comparing products for which the pricing was different. He has also submitted that he was adopting different product descriptions when the product was sold in different channels and therefore. comparing one product description with an alternate product description was grossly incorrect and has resulted in skewed calculations. 29. He has also submitted that in case of 16 product descriptions, the DGAP has compared completely different products as the products considered prior to GST rate reduction have a different chemical composition fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Free BMR JB TTT Wash 500ml + JBL 100 Free - B 09-01-2018 1,77,372/- 13. JB Lotion 500 ml BMR SAPR - Alliance JB Lotion 500 ml Pump Pack TBP 17-08-2018 1,689/- 14. Johnson s Baby Lotion 200 ml BMRm JB Lotion 200ml- B TBP 18-12-2017 1,007/- 15. Johnson s Baby Lotion 100ml BMR JB Lotion 100ml- B TBP 18-12-2017 544/- 16. Johnson s Baby Lotion 50 ml (Sample) BMR JB Lotion 50ml(TBP)- Sample - B 18-12-2017 305/- Total amount of alleged profiteering (INR) 19,41,44,747/- 30. He has further submitted that it was clear from the above Table that the above products have different chemical compositions and were completely different products which could not be compared with each other and the products considered after the rate reduction were new products which have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions could not be taken into account as such supplies were valued on a notional basis in terms of Rule 28 of the CGST Rules and were not based on the actual prices. As the goods which were stock transferred were thereafter supplied by the branch office/depots/warehouses to the recipients, the DGAP has calculated the alleged profiteering on the same goods. ii. The period of 411 days was an extraordinarily long period for profiteering to be calculated and that the DGAP was proceeding on the basis that the Respondent was not entitled to increase his prices over a period of time and by doing so the DGAP has failed to appreciate that the businesses reviewed their prices from time to time. iii. The period taken for calculating the weighted average base prices in the pre-GST rate reduction period was erroneous. As per Para 12 of the Report, where the DGAP could not find the sales of certain product descriptions during the period from 01.11.2017 to 14.11.2017, the DGAP has calculated weighted average base prices by considering the preceding months. Accordingly, where the DGAP could not find sales of certain product descriptions in the period from 01.11.2017 to 14.11.2017, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd (Maharashtra). On an average, the effective tax cost of manufacture and sale of these Products (i.e. Excise Duty and VAT) was approximately 17.97% and there was an additional cost of 2% on account of loss of CENVAT credit of Excise Duty which was not available to him at his manufacturing unit at Baddi, therefore, there was a total tax cost (including loss of ITC) of approximately 20%. He has further claimed that after the commencement of GST, he had undertaken change in the packaging of these variants of Powder products which has led to a further escalation in costs by approximately 4% as packaging constituted approximately 90% of the cost of the overall product in case of Powder. After the tax rate reduction while the rate of GST has come down from 28% to 18%, he has reduced the prices of Powder products after taking into account the above mentioned costs, including tax costs as well as non-tax costs. He has herefore, submitted that the DGAP has erred as the above mentioned tax as well as non-tax costs have not been taken into account while determining whether he has passed on the commensurate benefit of tax rate reduction. He has also submitted that an amount of ₹ 30,86, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further claimed that he has absorbed such increased tax costs not only during the implementation of the GST but also during the present rate reduction. He has also submitted that there were also certain additional costs which he had to bear on a regular basis, including inflation related increase in costs of raw materials, ingredients and services etc. which were factored in while determining the prices of the products, which the DGAP has not considered. 39. The Respondent has also argued that he was importing two finished products viz. Neutrogena and Aveeno line of products and the rate of Basic Customs Duty (BCD) on these products was increased from 10% to 20% w.e.f. 02.02.2018 vide Clause 101 (a) of the Finance Bill, 2018. Being non-creditable in nature, this increased BCD has resulted in increase in the cost of imported products for him which he has not passed on to his customers from 02.02,2018 to August 2018 and the additional duty burden was absorbed by him. 40. The Respondent has further argued that the DGAP has failed to consider that pricing of products sold by the Medical Division was determined on the negotiations with respect to each independent supply and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GST was increased, all products covered under the present investigation saw an increase in the tax costs, however, he had continued to bear the losses of the increased tax costs. He has also claimed that he was committed to the intention of the Government and the GST Council that the public should not be burdened due to the increase in tax rates and therefore, even though he was suffering increased losses due to the increased tax rate, he had not changed his prices and accordingly, at the time of rate reduction he had factored in these losses and, accordingly, passed on the benefit of tax rate reduction to his recipients. Thereafter, he has computed the ideal base prices which he could have fixed for his products after the commencement of GST, considering the higher rate of GST. He has further claimed that these ideal base prices has been calculated by adding the increased tax costs which he had incurred at the time of commencement of the GST to the actual base prices of the products prior to the tax rate reduction. He has also contended that he has then compared the ideal base price of a particular product description in the pre-rate reduction period to the actual selling prices o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46. He has also submitted that the term profiteering has been defined in Black s Law Dictionary which was relied upon by the Hon ble Supreme Court in the case of Islamic Academy of Education v. State of Karnataka, (2003) 6 SCC 697, 774 = 2003 (8) TMI 469 - SUPREME COURT was defined as taking advantage of unusual or exceptional circumstances to make excessive profits and that it was well settled that the right to reasonable profit was a part of right to trade and any methodology prescribed under Section 171 could not be dehors a reasonable profit that may be earned or costs incurred by an enterprise. He further submitted that the MRP only indicated a price above which the goods could not be sold and it could not be considered I assumed as the price realized by a person for all his sales and it was a general commercial practice to sell goods at price less than the MRP and thus any price arrived on the basis of the MRP alone was notional, not real, and could not form basis to determine commensurate reduction in price. He has also added that the DGAP has erred in adopting an average base price based on MRP without considering any of the relevant factors including t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be cancelled. ln this regard he has submitted that Section 29(2)(a) of the CGST Act, provided that a proper officer might cancel the registration if a registered person has contravened the provisions of the CGST Act or the CGST Rules. Rule 21 (c) of the CGST Rules provided that the registration granted to a person was liable to be cancelled if the said person violated the provisions of Section 171 of the CGST Act or the Rules made thereunder. Rule 133(3) (e) of the CGST Rules also provided that where the Authority determined that a registered person has not passed on the benefit of the reduction in the rate of tax on the supply of goods to the recipient by way of commensurate reduction in prices, the Authority may order cancellation of registration. He has further submitted that he has not violated the provisions of Section 171 and hence his registration could not be cancelled. He has also contended that he has also not violated the provisions of Section 122 to 127 of the CGST Act, 2017 and hence no penalty could be imposed on him. 49. The Respondent vide his submissions dated 04.09.2019 has submitted that he has undertaken revision in prices of his products from time to ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18.01.2019 50. The Respondent has also submitted Annexure-3 enclosing photographs of his products to claim that the products compared by the DGAP pre and post reduction were different which could not be compared. He has also attached Annexure-4 to substantiate that the Powder being manufactured in Baddi was different than the Powder being manufactured in Mulund and there was no tax benefit at Mulund and hence, the prices fixed could not be compared. The Respondent has also stated that he has enclosed the details of the profiteered amount as per his own calculations in Annexure-13 of his submissions dated 05.08.2019 which showed that he has passed more benefit than he was required to pass on. 51. The Respondent has also stated that the DGAP vide his e-mail dated 23.09.2019 had requested for the following information from the Respondent which was also called from the Respondent by this Authority vide order dated 24.09.2019:- a) Copy of Notification vide which Basic Custom Duty has been increased for Neutrogena and Aveeno products from 10% to 20% w.e.f. 02.02.2018. b) MRP and Base price (without tax) of products Neutrogena and Aveeno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the MRP data of the key products at the Brand Combination level which was considered in the DGAP s Report dated 24.06.2019 alongwith the sample invoices, He has further submitted that he was in the process of preparing the said data for all the products which were under consideration in the above Report dated 24.06,2019. As far as supporting invoices for the said price changes in case of all the products under consideration were concerned, he submitted that the invoices related to numerous Brand Combinations for a period of 7 years and in certain cases, the invoices had been archived and he was in the process of acquiring copies of the invoices from his warehouses at various locations across the country where such invoices have been archived. He requested that he may be granted a period of six (6) weeks to provide the said information. 53. The DGAP was also directed to file clarifications on the submissions made by the Respondent who vide his Report dated 26.11.2019 in respect of clubbing of the supplies made to all the product distribution channels, CSD and non-CBD supplies in a common group while computing the profiteering, during the course of investigation, has stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only submitted the copy of the Notification vide which BCD has been increased for the Neutrogena and Aveeno products from 10% to 20% w.e.f. 02,02.2018 and MRPs and Base prices (without tax) of products Neutrogena and Aveeno pre post 02.02.2018 and cycle of change in MRPs of products Neutrogena and Aveeno from July, 2017 to December, 2018 to the NAA on 04.10.2019 but he has not submitted the details of supplies made to various distribution channels and other information in support of his claim. 57. We have carefully considered the Reports furnished by the DGAP and the submissions made by the Respondent and all other documents placed on record and it is revealed that the Respondent is manufacturing and selling consumer general products, healthcare products, medical devices and pharmaceutical products and is operating in 22 States of India. It is also revealed that the Respondent is supplying his products through various distribution channels like (i) General Trade which included wholesale distributors and retailers (ii) Institutional Trade like hospitals and CSD (iii) Key/ Modern Trade which comprises of large retail chains and e-commerce operators (iv) Others, sales not formi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his distributors and issued advertisements to inform the consumers about the price reduction. He had further intimated that affixing of stickers of reduced MRPs was not his responsibility and it was not possible to affix them as the Notification was issued in this regard only on 16.11.2017 and the whole process was time consuming and could not be taken immediately, He had also informed that once the product was sold he was not responsible for affixing stickers. He had also supplied the Stock Taking Unit (SKU) wise details of the pre and post rate reduction of MRPs which showed that in respect of some of the SKUs the reduction in the MRPs was not commensurate with the rate reduction which might involve profiteering in terms of Section 171 of the CGST Act, 2017. Therefore, this Authority had suo moto decided to forward the letter dated 28.09.2018 and the enclosures attached with it to the Standing Committee on Anti-Profiteering to take necessary action under Rule 128 (1) of the CGST Rules, 128 vide its letter dated 09,10.2018 (Annexure-5 of submissions dated 05.08.2019). It would also be relevant to state here that this Authority as per Para 9 of the Methodology Procedure notifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent has also claimed that the only requirement under Section 171 (1) was that the benefit of tax reduction should be passed on to the recipient by way of a commensurate reduction in prices however, the above Section had not prescribed any method of computation by which the profiteering can be computed. It would be appropriate to mention here that the provisions of Section 171 (1) of the CGST Act, 2017 are absolutely clear in this regard which require that the Respondent was legally obliged to pass on the benefit of rate reduction by commensurate reduction in the prices which meant that he was required to compute the MRPs in respect of each SKU after the rate of tax had been reduced and show it on each SKU. The above computation is a simple mathematical calculation which needs no prescription either under the above Act or the Rules. However, the above mathematical computation or methodology for determination of the benefit of tax reduction has to be applied on case to case basis depending on the facts of each case and no one mathematical formula can be fixed for computing it. The mathematical methodology used in respect of the case where the rate of tax has been reduced and ITC no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s dated 05.08.2019} that he has passed on full benefit of tax reduction through his distributors by reducing the MRPs and that affixing of stickers of MRPs was not his responsibility. However, as a manufacture the Respondent and not the wholesale distributors or retailers, is entirely responsible for fixing the MRPs as only he can fix, round off and print the MRPs per the provisions of Rule 6 of the Legal Metrology (Packaged Commodities) Rules, 2011 which states as follows:- (m) retail sale price means the maximum price at which the commodity in packaged form may be sold to the ultimate consumer and the price shall be printed on the package in the manner given below : Maximum or Max. retail price Rs ./Rs .. inclusive of all taxes or in the form MRP Rs /Rs .incl. of all taxes after taking into account the fraction of less than fifty paise to be rounded off to the preceding rupee and fraction of above 50 paise and upto paise to the rounded off to fifty paise. 65. The Respondent was also required to stamp or re-sticker or reprint the MRPs on all the SKUs on which rate of tax was reduced in terms of the letter written by the Ministry of Consumer Affairs, Food ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be appropriate to mention that Section 171 (1) deals with passing on the benefit of tax reduction and has no connection with the fixing of the prices which can be done by the Respondent as per his own methodology but the Respondent cannot packet the benefit of tax reduction which has been granted by the Central and the State Governments out of their own tax revenue to the ordinary consumers and therefore, the Respondent is legally bound to demonstrate that he has passed on the above benefit by commensurate price reductions. The Respondent is also not required to pay the benefit from his own money and hence he should have no problem in passing on the same. 68. He has further contended that the prices at which the products were sold to a distributor depended of several factors and the same product might have different prices when sold through different product channels even though the printed MRP was the same for each product at the retail channels. He has also submitted a Chart to prove his contention. However, it is apparent from the Chart submitted by him that the MRP in respect of JB Oil 100ml Monsoon-B was ₹ 94/- whereas the base price varied from ₹ 65.52, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion period in column L of Annexure-13 submitted by him through his submissions dated 05.08.2019 and compared it with the base price after rate reduction in column N of the above Annexure and therefore, he cannot cite the above cases in his favour. 72. The Respondent has also claimed that no personal hearing was granted to him by the DGAP. In this regard it is mentioned that the DGAP is not required to give opportunity of hearing to the Respondent as there is no such provision in the CGST Rules, 2017. However, the DGAP was required to issue notice to the Respondent as per the provisions of Rule 129 (3) of the above Rules which he has given on 15.01.2019 (Annexure-6 of Respondent s submissions dated 05.08.2018) and therefore, he has complied with the provisions of the above Rules, However, this Authority has granted him full opportunity of hearing during which the Respondent has been heard at length and he has also filed his written submissions on 05.08,2019, 04.09.2019 and 03.10,2019, as per the provisions of Para 6 the Methodology Procedure framed by this Authority on 28.03.2018 read with Rule 133 (2) of the above Rules. Therefore, the Respondent cannot claim that he has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prices from July 2017 to October 2017 or from the price list. The DGAP has also computed the average pre rate reduction prices as the Respondent was not selling his products on single base price and was charging different prices from different buyers. It was also not possible to compare the actual pre rate reduction prices with the post rate reduction prices for every customer as the same customer may not have bought the same goods during the pre and the post reduction periods. A customer may also not have purchased goods in the pre rate reduction period at all and may have bought them in the post reduction period or vice versa. The DGAP was required to compare the pre rate reduction prices with the actual post reduction prices as the benefit was required to be passed on to each buyer and it could not have been calculated by computing the average base prices post rate reduction. The above mathematical methodology adopted by the DGAP is logical, reasonable, correct and is in consonance with the provisions of Section 171 (1) of the CGST Act, 2017 and hence the same can be relied upon. 75. The Respondent has further alleged that the methodology adopted by him was not allowed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable in the price list as on 14.11.2017. However. the Respondent has considered one invoice having the maximum base price for computing the base price whereas he should have taken average of the base prices which he had charged to his different customers making purchase from him through different channels. Taking the maximum base price from an invoice or from the price list has resulted in reducing the amount of benefit when compared with the post GST base price. the DGAP has computed the average pre rate reduction base prices after taking in to account all the invoices issued to different customers which gives more representative measure of the base prices than the prices computed by the Respondent. The Respondent has then added the tax costs and the losses which he had allegedly incurred at the time of the introduction of the GST w.e.f. 01.07.2017 and then arrived at the pre rate reduction ideal base prices. In this connection it would be relevant to mention that the Respondent has given no justification for adding tax costs. The Respondent could also not have added the alleged losses in the pre rate reduction base prices which he has stated to have incurred when the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished that he has committed violation of the provisions of Section 171 (1) of the above Act. It is also established that the methodology adopted by the Respondent while computing the benefit of tax reduction was illogical, unreasonable, arbitrary, illegal and incorrect and hence the same cannot be accepted. 78. The Respondent has also submitted that the approach adopted by the DGAP in his Report was completely arbitrary and there was no uniformity in the mechanism adopted by the DGAP while examining allegations of profiteering. However, it is clear from the facts mentioned above that infact the approach adopted by the Respondent while claiming to pass on the benefit of tax reduction was arbitrary and the approach of the DGAP was valid and correct. 79. He has also argued that the DGAP in one of his investigations has separated the CSD and non-CSD supplies while computing the benefit of tax reduction, however, in the present case, he had not done so. In this connection it would be relevant to mention that the Respondent had not furnished the channel wise details of the outward taxable supplies to the DGAP inspite of the specific request made by the DGAP during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culated on those products on which no benefit or less than commensurate benefit has been passed on. Accordingly, the above contention of the Respondent is farfetched and hence it cannot be accepted. 82. He has further argued that the DGAP has erred in including the amount of GST of ₹ 35,14,68,936/- in the profiteered amount which has been deposited with the Government. In this connection it would be appropriate to mention that the Respondent has not only collected excess base prices from the customers which they were not required to pay due to reduction in the rate of tax but he has also compelled them to pay additional GST on these excess base prices which they should not have paid. By doing so the Respondent has defeated the vary objective of both the above Governments which aimed to provide benefit of rate reduction to the general public. The Respondent was legally not required to collect the excess GST and therefore, he has not only violated the provisions of the CGST Act, 2017 but has also acted in contravention of the provisions of Section 171 (1) of the above Act as he has denied the benefit of tax reduction to them by charging excess GST. Had he not charged the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deserve rejection. 84. The Respondent has further contended that in the case of 79 product descriptions, the DGAP has adopted alternate product descriptions without any reasonable justification to compute profiteering. He has also attached list of 79 such product descriptions pre and post rate reduction as Annexure-16 with the profiteered amount. Perusal of the record shows that the Respondent had not supplied the details of all the impacted goods SKU wise inspite of his having been asked to do so by the DGAP and by this Authority vide its order dated 24.09,2019. Hence, the DGAP has compared the prices of similar products pre and post rate reduction. The Respondent has also not supplied the SKU number wise details of his products while selling the same product through different channels which he was specifically asked to supply. The Respondent has also failed to produce any reliable evidence to prove his above claim during the present proceedings and hence mere attaching of a list cannot be relied upon unless he had submitted SKU number wise details of the products. 85. He has also submitted a list of 16 product descriptions claiming that the DGAP has compared completely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s therefore the weighted average price was required to be computed which has been correctly compared with the actual price post rate reduction as profiteered amount was required to be computed on each sale of the product so that the benefit of tax reduction is passed on to each customer. It was also not possible to compare the actual pre and post rate reduction prices as the same recipients had not purchased the same products during the two periods and one recipient may not have bought any products from the Respondent either in the pre or the post rate reduction period. Hence, the above arguments of the Respondent are flawed and therefore, the same cannot be accepted. 88. He has also stated that since the weighted average prices included the stock transfer transactions the same were erroneous. In this regard it would be pertinent to mention that the Respondent had neither supplied the details of the stock transfer transactions during the investigation nor supplied them on the specific direction of this Authority given on 24.09.2019 and hence the above claim of the Respondent is incorrect. 89. The Respondent has further stated that the period of investigation of 411 days w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he weighted average price, the DGAP has considered a carton as a single unit irrespective of the number of pieces in it. The Respondent has not produced any evidence to substantiate his above claim and hence the same cannot be accepted. 92. He has also submitted that the DGAP has failed to appreciate that different factors at different points had affected his costs which had resulted in price increase, In this connection it would be pertinent to mention that the provisions of Section 171 (1) of the above Act required the Respondent to pass on the benefit of tax reduction to the consumers only and have no mandate to look in to fixing of prices of the products which the Respondent was free to fix. If there was any increase in his costs the Respondent should have increased his prices between the period from 01.07.2017 to 14.11.2017 however. it cannot be accepted that his costs had increased on the intervening night of 14/15.11.2017 when the rate reduction had happened which had forced him to increase his prices exactly equal to the reduction in the rate of such tax. Such an uncanny coincidence is unheard off and hence there is no doubt that the Respondent has increased his prices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.2017 has continued to grant the area-based exemption to the eligible manufacturers in the State of Himachal Pradesh. There is also no evidence to suggest that the Respondent was charging less prices on the above product after taking in to account the area-based exemption which means that he was charging uniform price for the above product throughout all the States without taking in to account the area-based exemption. The Respondent has himself admitted in his submissions dated 05.08.2019 that he has not reduced the price of the above product when rate of tax was reduced on it from 28% to 18% w.e.f. 15.11.2017 and hence the DGAP has rightly computed the profiteered amount of ₹ 10, 84, 91,611/- on the Baby Wipes. Therefore, the claim of the Respondent that he has passed on excess benefit of ₹ 4,40,98,185/- on the Baby Wipes as has been shown in Annexure-13 prepared by him is also incorrect. Based on the above reasons all the above claims made by the Respondent are frivolous and hence the same cannot be accepted. 95. The Respondent has also claimed that the DGAP ought to have considered the additional costs including change in IT systems, marketing costs, operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on additional benefit of ₹ 9,82,72,510/- Crore. As mentioned supra the mathematical methodology adopted by the Respondent to compute the benefit of tax reduction is arbitrary, unreasonable, illegal and incorrect and hence the same cannot be accepted whereas the mathematical methodology employed by the DGAP is reasonable, legal and correct and therefore, the objections raised by the Respondent on this ground are frivolous. 98. He has also stated that the sales details submitted by him to the DGAP for May 2018, were incorrect therefore, while making computations as per his methodology, he has corrected them. However, the Respondent has not submitted any such details during the course of the proceedings and hence the above claim of the Respondent could not be accepted. 99. He has further stated that in the absence of any prescribed methodology any methodology which was compliant with the provisions of Section 171 should be accepted. As discussed above the methodology adopted by the Respondent is neither bonafide nor in consonance with the provisions of Section 171 (1) of the above Act and hence, the same cannot be accepted. 100. The Respondent has also claimed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of Islamic Academy of Education v. State of Karnataka, (2003) 6 SCC 697 = 2003 (8) TMI 469 - SUPREME COURT and defined as taking advantage of unusual or exceptional circumstances to make excessive profits. and hence he was entitled to reasonable profit. In this regard it would be appropriate to refer to the Explanation attached to Section 171 of the above Act which states 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 Therefore, it is clear that the above Section speaks about passing on of the above two benefits only which has no connection with the definition given in the Black s Law Dictionary and hence it no where affects the right of the Respondent to earn profit 103. He has further submitted that the MRP only indicated a price above which the goods could not be sold and could not form basis to determine commensurate reduction in price. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 171 (3A) of the CGST Act, 2017 itself hence the above case does not help the Respondent. He has also quoted the case of Petroleum and Natural Gas Regulatory Board v. Indraprastha Gas Limited (2015) 9 SCC 209 = 2015 (7) TMI 1130 - SUPREME COURT , in which it has been held that if on reading of the statute in entirety, a power did not flow, a delegated authority could not frame a regulation as that would not be in accord with the statutory provisions. Since, this Authority has been conferred power under the above Act to impose penalty the above case is not being followed. He has also argued that since there was no deliberate defiance of law by the Respondent no penalty could be imposed as per the law settled in the case of Hindustan Steel Ltd. v. State of Orissa 1978 (2) ELTJ 159 (SC) = 1969 (8) TMI 31 - SUPREME COURT . Since, the Respondent is still to be heard on the quantum of penalty after the present case is decided the above case cannot be relied upon at this stage. 107. The Respondent vide his submissions dated 04.09.2019 has stated that it was difficult to trace the price revision trends at the SITU product description level as the same may have change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aphs submitted by him. 109. He has also attached Annexure-4 to substantiate that the Powder and Baby Wipes being manufactured in Baddi were enjoying area-based benefit whereas the Powder being manufactured in Mulund was not enjoying such benefit and there was no tax benefit at Mulund and hence, the prices fixed in respect of the goods produced at these two location could not be compared. The Respondent has also stated that he has enclosed the details of the profiteered amount as per his own calculations in Annexure-13 of his submissions dated 05.08.2019 which showed that he has passed More benefit than he was required to pass on. However, as has already been discussed above the Respondent has failed to produce any evidence to show that he is not enjoying area based benefit at Baddi and he was charging less prices for the products being manufactured by him at Baddi. Perusal of Annexure-13 prepared by the D AP shows that the Respondent has arbitrarily increased the prices of the Powder and Baby Wipes and has thus resorted to profiteering and hence the prices mentioned in Annexure-4 are hypothetical and incorrect and hence the same cannot be relied upon. 110. The Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also not produced any evidence to show that the above increase was infact made. Therefore. it is apparent that there no evidence to prove that the increase in the BCD has resulted in increase in the MRPs as the increase claimed to have been made has not been made immediately after the BCD was increased. The increase was also not made on all the products w.e.f. 02.02.2018 and there was no increase in respect 8 products. Accordingly, the above claim of the Respondent cannot be relied upon. (c) He has also submitted the MRP data for Neutrogena and Aveeno products from July 2017 to December 2018 at a Brand Combination level as per Annexure-4. He has also claimed that it was difficult to trace the price revision trend at a SKU / product description level as the same might have changed in the past. Accordingly, he has collated the MRP data at a Brand Combination level which included various SKUs within the said level. Again the details of cycle of change in the MRPs have not been given SKU wise and the above Annexure also does not show any trend and hence the same cannot be considered. (d) He has further stated that he was making supplies through various channels such as (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns made in this regard were frivolous. 112. Based on the above facts the profiteered amount is determined as ₹ 2,30,40,74,132/-as per the provisions of Rule 133 (1) of the above Rules as has been computed vide Annexure-13 of the Report dated 24,06.2019. Accordingly, the Respondent is directed to reduce his prices commensurately in terms of Rule 133 (3) (a) of the above Rules. The Respondent is also directed to deposit an amount of ₹ 2,30,40,74,132/- in the CWF of the Central and the concerned State Government, as the recipients are not identifiable, as per the provisions of Rule 133 (3) (c ) of the above Rules alongwith 18% interest payable from the dates from which the above amount was realised by the Respondent from his recipients till the date of its deposit. The above amount shall be deposited within a period of 3 months from the date of passing of this order failing which it shall be recovered by the concerned Commissioners CGST/SGST. The State/Union Territory wise amount of benefit to be deposited in the concerned CWF is as under:- Table S. No. State Code State Profiteered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent 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 apparently liable for imposition of penalty under Section 171 (3A) of the CGST Act, 2017. Therefore, a show cause notice be issued directing him to explain why the penalty prescribed under the above sub-Section should not be imposed on him. Accordingly, the notice dated 02.07.2019 vide which it was proposed to impose penalty on the Respondent under Section 29 and 122-127 of the above Act read with Rule 21 and 133 of the CGST Rules, 2017 is hereby withdrawn to that extent. 114. Further, this Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioners of CGST/SGST to monitor this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by this Authority is deposited in the CWFs of the Central and the State Governments as per the details given above. A report in compliance of this order shall be submitted to this Authority by the concerned Commissioner within a period of 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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