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TMI Blog2020 (5) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... The Applicant had also enclosed two invoices of "Fly Ash Blocks" supplied by the Respondent along with his application viz. Invoice No. 4204 dated 18.12.2018 and Invoice No. 4481 dated 02.01.2019. 2. The Applicant No. 1 had also alleged that the Respondent did not pass on the benefit of reduction in the GST rate from 12% to 5% w.e.f. 01.01.2019 notified vide Notification No. 24/2018- Central Tax (Rate) dated 31.12.2018 and instead increased the unit base price. The Applicant No. 1's invoice details have been furnished by the DGAP in the Table-A given below:- Table-A Sr. No. Name of the product supplied Pre GST rate revision on 31.12.2018 Post GST rate revision on 01.01.2019 Difference (in Rs.) Invoice No. & Date GST Rate Price excluding GST (in Rs. Per cu.mt. Invoice No. & Date GST Rate Price excluding GST (in Rs. Per cu.mt. 1. Fly Ash Blocks 4204 dated 18.12.2018 12% 2232.14 4481 dated 02.01.2019 5% 2380.95 148.81 3. The Gujarat State Screening Committee on Anti-profiteering had conducted prima facie verification of the application and after having satisfied itself that the Respondent was involved in profiteering, had forwarded the application to the Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of raw materials when factored with their proportion in the total cost of the product came to 1.73%. Thus, out of the total percentage increase in the base price of the product on and from 01.01.2019 when compared with December, 2019, 1.73% was attributable to the increase in the cost of production as demonstrated by the cost sheet furnished by him. c. That the product was made taxable @ 5% from 01.01.2019 but the inputs, capital goods and input services for the final product "Fly Ash Blocks" attracted taxable rate higher than 5% leading to accumulation of ITC. The Respondent has also stated that:- (i) All the inputs were taxable at the rate of more than 5%, such as Soluble Oil, Cement and the like. (ii) All the input services were taxable at the rate of more than 5% such as legal services, security services, telephone/mobile/internet services and the like. Barring transportation, all the input services of the Respondent were taxable at the rate of 18%. (iii) All the capital goods were taxable at the rate of more than 5%. Generally, all the capital goods of Chapter 84 and 85 of the CTA, 1975 were taxable at the rate of 18%. d. That as per the CBIC Circular No. 79153/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t been contested by the Respondent. 13. The DGAP has also examined Section 171 of the CGST Act, 2017 and stated that the legal requirement in the event of benefit of ITC or reduction in the rate of tax was that there must be a commensurate reduction in the prices of the goods or services. Such reduction could only be in terms of money, so that the final price payable by a recipient got reduced commensurate with the reduction in the tax rate or benefit of ITC. This was the only legally prescribed mechanism to pass on the benefit of ITC or reduction in the rate of tax to the recipients under the GST regime and there was no other method which a supplier could adopt to pass on such benefits. 14. The DGAP has also submitted regarding the contention of the Respondent that the base prices were increased to offset the increase in prices of the raw materials, increase in cost of production and blockage of accumulated ITC due to inverted duty structure etc. that his contention could not be accepted as such increase in the prices of raw materials could not have happened overnight to exactly coincide with the GST rate reduction w.e.f. 01.01.2019. Thus, the increase in the cost of raw materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5015.35 5. Average base price (without GST) E=D/C 18.62 6. GST Rate F 12% 5% 7. Commensurate Selling price (post Rate reduction) G=E*1.05 19.55 8. Invoice No. H GST/ 4462/1819 9. Invoice Date I 01.01.2019 10. Total quantity (above invoice) J 1490 11. Total Invoice Value K 30173 12. Actual Selling price (post rate reduction of item (size) L=K/J 20.25 13. Difference (Profiteering) M=L-G 0.70 14. Final Profiteering N=M*J 1043 17. The DGAP has thus stated that the Respondent did not reduce the selling price of the "Fly Ash Blocks 600 x 200 x 75", when the GST rate was reduced from 12% to 5% w.e.f. 01.01.2019, vide Notification No. 24/2018 Central Tax (Rate) dated 31.12.2018 and hence profiteered an amount of Rs. 1043/- on particular Fly Ash Blocks item (size) and thus the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in the price, in terms of Section 171 of the CGST Act, 2017. The profiteering in case of all impacted items (size) of the Respondent had also been arrived in the similar manner as per the illustration given ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increased when there was a reduction in the GST rate from 12% to 5% w.e.f. 01.01.2019, so that the benefit of such reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in prices, was sustainable and it appeared that the base prices of the "Fly Ash Blocks" were indeed increased by the Respondent post GST rate reduction w.e.f. 01.01.2019. Thus, by increasing the base prices of the goods subsequent to the reduction in the GST rate, the commensurate benefit of reduction in the GST rate from 12% to 5%, was not passed on to the recipients. The total amount of profiteering covering the period from 01.01.2019 to 31.03.2019 was Rs. 55,60,340/-. 21. The above Report was considered by this Authority in its meeting held on 25.09.2019 and it was decided to hear the Applicants and the Respondent on 23.10.2019. Accordingly, a notice dated 26.09.2019 was issued to the Respondent to explain why the Report dated 24.09.2019 should not be accepted and his liability should not be fixed for violation of the provisions of Section 171 of the CGST Act, 2017. 22. Six personal hearings were accorded to the parties on 23.10.2019, 11.11.2019, 27.11.2019, 23.12.2019, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of profiteering seemed to be purely whimsical in nature. 26. The Respondent has further submitted that he had furnished his reply dated 29.05.2019 before the DGAP and the same along with all its annexures should be considered as part and parcel of this reply. He has also contended that the fact of increase in the prices of the raw materials has led to an increase in the prices of the final product which was specifically brought to the notice of the DGAP. He has also furnished cost sheet, copies of purchase registers and sample purchase invoices vide Annexures A to F. 27. The Respondent has further contended that it was specifically brought to the notice of the DGAP that on an average 1.73 % of the price rise was due to demonstrated increase in the prices of the raw materials which could not be included in the profiteering. The DGAP should have perused the data and given his findings on the same either accepting the contentions or rebutting the same. However. the DGAP had chosen to remain discreet on the said issue. 28. The Respondent has also claimed that instead of giving objective findings on the issue of price rise of the raw materials, the DGAP had tried to step in to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted along with cogent evidence, on the perusal of which it was clearly forthcoming that increase in the prices in the case of other customers ranged only from 1.71% to 1.99 %. 32. Clarifications were sought from the DGAP on the Respondent's above mentioned submissions. The DGAP has filed his clarifications on 06.12.2019 vide which he has submitted that the allegations of the Respondent were improper as the findings in his investigation Report were based on the documents and record furnished by the Respondent himself. The DGAP has also submitted that the contention of the Respondent regarding fundamental and basic errors in the quantification of the profiteered amount was incorrect as the profiteering has been calculated on the basis of sale reports submitted by the Respondent. He has also claimed that in Annexure-16 of his Report dated 24.09.2019, the Respondent, apart from the details like Invoice No. & date, place of supply and tax rate etc., has also submitted the following details which are given in the Table below:- Date Goods Description Size Quantity(A) Quantity (B) Rate per unit Value 12.01.19 Fly Ash Blocks 625x200x100 1500 Nos 18.75 Cubic Meter 2261 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the Fly Ash Blocks on the basis of per cubic metre quotation and not on the basis of number of pieces or the various types of Fly Ash Blocks. He has further stated that the DGAP, even in his clarifications has failed to comprehend the method of billing of sales adopted by the Respondent. 36. The Respondent has also contended that the DGAP has arrived at the new profiteered amount of Rs. 1,15,67,524/- and the said figure would hold true if each different volume was taken as a distinct item. However, the DGAP had also clarified that the said method and working was inappropriate. Thus, the DGAP has himself accepted that his method and working was inappropriate. The Respondent has also submitted the following:- (i) That the DGAP along with his clarifications dated 06.12.2019 has supplied new profiteering working in Excel sheet soft copy. (ii) In the said working of the new profiteering, the commensurate price (excluding tax) of Fly Ash Block 600 x 200 x 75 was adopted as Rs. 18.481- per piece (and not as per cubic metre) in respect of Invoice No. GST/4462/1819 appearing in Row No. 4. (iii) However, for the same product i.e. Fly Ash Block 600 x 200 x 75, the commensurate price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AP that freight was not mentioned separately in the invoices was absolutely incorrect and misleading. Thus, the DGAP has not considered the freight expenditure and has arrived at highly overstated and totally unrealistic figures of profiteering. The Respondent has also furnished sample invoices wherein freight has been charged separately. The Respondent has also requested to decide the case on the basis of his submissions and waived his right of personal hearing. 40. Clarifications were again sought from the DGAP on the Respondent's above mentioned submissions. The DGAP vide his Report dated 23.01.2020 has submitted that the clarifications given by him dated 06.12.2019 were in response to the submissions of the Respondent after the Report was submitted before this Authority. The DGAP has further submitted that the Respondent has contended that increase in prices of the raw materials and non-availability of refund of ITC has led to increase in prices which could not be termed as profiteered amount. In this regard the DGAP has claimed that his Report dated 24.09.2019 was proper as the price of a product could not increase as soon as the rate of tax was reduced. Further, the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product on per cubic metre basis whereas the DGAP has made calculations on per piece basis. The Respondent has also submitted that the difference in the prices per cubic metre was of no consequence since such a difference would also percolate down to per unit selling price. He has also claimed that such per piece calculation lacked objectivity as for a single product, two different prices were adopted. He has also reiterated his previous submissions on the issue of freight expenditure. 43. We have carefully considered the Reports filed by the DGAP, submissions of the Respondent and other material placed on record and it is revealed that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on the "Fly Ash Blocks" supplied by the Respondent from 12% to 5% w.e.f. 01.01.2019, vide Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018 which has also not been contested by the Respondent. Therefore, it is evident that rate of tax has been reduced on the above product which was admittedly being supplied by the Respondent. Therefore, the provisions of Section 171 (1) which state that "any reduction in rate of tax on any supply of goods or servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of each unit of the product dimension wise, commensurate price has been computed by the DGAP in respect of each unit, keeping in view the reduction in the rate of tax, which has been compared with the actual selling price of the unit having similar dimension supplied post rate reduction and in case the price charged was more than the commensurate price, profiteered amount has been calculated. Accordingly, the DGAP has computed the base prices in respect of all the 66 dimension wise units of the product being sold by the Respondent as per Annexure-16 of his Report and has compared their commensurate prices with the actual sale prices post rate reduction and reported that the Respondent has profiteered an amount of Rs. 55,60,340/- from his customers. The above methodology has been adopted by the DGAP in all such previous cases of tax reduction which has been duly approved by this Authority. The above mathematical methodology adopted by the DGAP is reasonable, appropriate, accurate and in consonance with the provisions of Section 171 (1) of the CGST Act, 2017 and hence, the same can be relied upon. 45. The Respondent has filed his first written submission on 09.11.2019 vide which he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e invoices produced by the Respondent mentioning the freight separately during the course of the present proceedings as an afterthought cannot be relied upon as it was incumbent on the Respondent to produce them before the DGAP during the investigation. Since, the transaction value realised by the Respondent mentioned in each invoice which was issued during the pre and the post GST period, on which tax was paid by the Respondent, has been taken in to account by the DGAP, while computing the profiteered amount, no fault can be found in the computation of the profiteered amount. Hence, the above claim of the Respondent is not tenable. 48. The Respondent has also claimed that there has been increase in the prices of the raw materials which has led to an increase in the prices of the final products. He has also furnished cost sheet, copies of Purchase Register and sample purchase invoices vide Annexures A to F. However, it is evident from the record that the Respondent has increased the rates of his products w.e.f. 01.01.2019 the date from which the rate reduction has come in to force. The Respondent has no ground to claim that the prices of the raw materials have increased on the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on input services and capital goods as it was not available to him under Section 54 of the CGST Act, 2017 w.e.f. 01.07.2017. Moreover, the Respondent has not claimed ITC on the capital goods during the period of investigation. Since, the benefit of ITC on input services and capital goods was not available to the Respondent since coming in to force of the CGST Act, 2017 w.e.f. 01.07.2017 and the Respondent had fixed his prices keeping in view the above denial during the period from 01.07.2017 to 31.12.2018 for the last one and half year, he cannot claim that such denial has resulted in increase in his cost suddenly on 01.01.2019. Hence, the above contention of the Respondent is untenable. 51. The Respondent has also claimed that he was selling his products per cubic meter and not as per their dimensions. He has also produced copy of an invoice to prove it. However, perusal of the record shows that the Respondent was charging different prices for different dimension of his products and was not selling them at the per cubic meter rate. Nowhere the selling price was mentioned in per cubic meter in the invoices submitted by him to the DGAP during the course of the present investigatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and frivolous and hence they cannot be entertained. 54. The Respondent has further pleaded that he failed to understand as to how there could be two commensurate prices for a given product of specific dimension. However, the above claim of the Respondent is falsified by the copies of the invoices submitted by him which have been mentioned above. In each invoice the dimensions of the product have been found to be different. The DGAP has correctly computed the profiteered amount on the basis of the dimensions of the product and there is no error in the same. Hence, the contention of the Respondent made on this ground is untenable. 55. The Respondent has himself admitted that he has charged an excess amount of Rs. 33,73,307/- during the period from 01.01.2019 to 31.03.2019, however, it could not be included in the profiteered amount as it was charged due to increase in the prices of the raw materials as well due to denial of ITC w.e.f. 01.01.2019. In this connection it would be pertinent to mention that both the above claims have been considered in detail in the paras supra and have not been found to be correct and hence the claim made by the Respondent in this regard is not mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Rs. 27,80,170/- will be deposited in the Central CWF while the balance will be deposited in the State CWFs as has been shown in the Table given below:- Sr.No. State Code State Profiteered Amount (Rs.) 1. 24 Gujarat 6,69,999 2. 25 Daman and Diu 1,525.50 3. 26 Dadar and Nagar Haveli 1,26,421.50 4. 27 Maharashtra 19,82,224 Grand Total 27,80,170/- 58. The above amount shall be deposited within a period of 3 months by the Respondent, from the date of receipt of this order, failing which the same shall be recovered by the concerned Commissioners of the Central and the State GST, as per the provisions of the CGST/SGST Acts, 2017 under the supervision of the DGAP and shall be deposited as has been directed vide this order. A detailed Report shall also be filed by the concerned Commissioners of the Central and the State GST indicating the action taken by them within a period of 4 months from the date of this order. 59. It is also evident from the above narration of the facts that the Respondent has denied the benefit of rate reduction of GST to his recipients in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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