9911796707
TMI Blog2020 (5) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. The Respondent is also directed to deposit the profiteered amount of 25,73,82,482/- along with the interest to be calculated 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited in terms of the Rule 133 (3) (b) of the CGST Rules, 2017. Since, the recipients in this case are not identifiable, the above Respondent is directed to deposit the amount of profiteering of 25,73,82,482/- along with interest in the CWFs of the Central and the concerned State Governments as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017 in the ratio of 50:50 along with interest @ 18%, till the same is deposited. Penalty - HELD THAT:- The Respondent has denied the benefit of rate reduction of the GST to the consumers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST Act, 2017 and therefore, he is apparently liable for imposition of penalty under the provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given an opportunity to inspect the non-confidential evidence/information furnished by the Applicant No. 1 during the period from 15.04.2019 to 17.04.2019, which the Respondent did not avail. However, as per the request of the Respondent, the DGAP had provided all the documents/evidence which was submitted by the Applicant No. 1, to the Respondent vide e-mail dated 29.04.2019 3. Through e-mail dated 30.08.2019, the DGAP had also provided the Applicant No. 1 an opportunity to inspect the non-confidential documents/reply furnished by the Respondent on any working day between 03.09.2019 and 04.09.2019 which the Applicant No. 1 did not avail. 4. The period of the investigation conducted by the DGAP in this case is from 15.11.2017 to 31.03.2019. 5. The DGAP had sought extension of time for completing the investigation which was duly extended by this Authority vide its order dated 19.06.2019 in terms of Rule 129 (6) of the CGST Rules, 2017. 6. The DGAP in his Report dated 24.09.2019 has stated that the Respondent had filed his submissions vide letters/e-mails dated 18.04.2019, 23.04.2019, 25.04.2019, 30.04.2019, 03.05.2019, 17.06.2019, 16.08.2019, 23.08.2019, 26.08.2019, 11.09.2019 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -line, the Respondent was making huge stock transfers to meet the demand-supply of the market. Thus, they should be excluded from the ambit of the present investigation. (v) New Stock Keeping Units (SKUs) introduced after 15.11.2017: These included the products which were introduced by the Respondent post rate reduction i.e. 15.11.2017. (vi) Discount offered by giving Credit Notes: The Respondent on periodical basis was giving discounts to the various channel partners by issuing credit notes, the details of the which had been submitted and they should be set off or considered while computing the profiteering. d. That the Respondent was selling his products through different channels in the market like Franchisees, Hyper Markets, Departmental Stores, E-commerce platforms, Institutional sales and CSD etc. and the pricing pattern was different for each channel and hence, the pricing for one channel should not be adopted for the pricing of another, for the purpose of arriving at the profiteering in terms of Section 171 of CGST Act, 2017. 7. The Respondent has also furnished the following documents to the DGAP:- a. List of all GSTINs. b. GSTR-1 & GSTR-3B Returns for the perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annel wise outward taxable supplies of the products on which GST rate was reduced from 28% to 18% w.e.f. 15.11.2017 vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017, the DGAP has taken the above submission of Respondent into consideration for computing the profiteered amount. 13. The Respondent has also sought to exclude the outward sale of the following from the scope of the present investigation:- (i) New SKUs introduced after 15.11.2017: These were the newly launched products and hence were not comparable. (ii) Export Sales: The effective rate of GST on export sales was Nil and therefore they were not affected by the rate reduction. (iii) Goods sold to Canteen Stores Department (CSD): The prices of CSD goods were not affected by the GST rate as the CSD was getting the rebate of tax paid by it. (iv) Stock Transfers within the Respondent's units: Stock transfers were actually the transfers of the goods from one premises of the Respondent to other premises and thus were not effective sales. (v) Scrap Sales: The sales data submitted by the Respondent was examined by the DGAP and it was observed that during the pre-rate reduction period there were no sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by total quantity of this item sold during the period from 01.11.2017 to 14.11.2017. The average base price of this item was compared with the actual selling price of the same item sold through the said channel during the post-GST rate reduction period i.e. on or after 15.11.2017 as has been illustrated in the Table given below:- Table (Amount in Rs.) SI.No. Description Factors Pre Rate Reduction (Before 15.11.2017) Post Rate Reduction (From 15.11.2017) 1. Product Description A AMT PRESTON SP67 OXFORD BLUE 2. Channel B Franchisee 3. Total quantity of item sold C 48 4. Total taxable value D 154690.35 5. Average base price (without GST) E=D/C 3222.72 6. GST Rate F 28% 18% 7. Commensurate Selling price (post Rate reduction-with GST) G=E*1.18 3802.80 8. Invoice No. H 80311701428 9. Invoice Date I 22.11.2017 10. Total quantity (above invoice) J 2 11. Total Invoice Value K 8100.41 12. Actual Selling price per unit (post rate reduction-with GST) L=K/J 4050.20 13. Excess amount charged or profiteering M=L-G 247 40 14. Total Profiteering N= M*J 494.80 16. The DGAP has thus contended that the Respondent did not red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... base prices of the impugned products sold during the period from 01.07.2017 to 14.11.2017, with the actual invoice-wise base prices of such products sold during the period from 15.11.2017 to 31.03.2019. The excess GST so collected from the recipients, has also been included in the aforesaid profiteered amount as the excess prices collected from the recipients also included the GST charged on the increased base prices. 18. The DGAP has also furnished the place (State or Union Territory) of supply-wise break-up of the total profiteered amount of ₹ 25,73,82,482/- in the Table given below:- Table S. No. Name of State State Code Profiteering (Rs.) 1 Andaman & Nicobar Islands 35 20,084 2 Andhra Pradesh 37 69,32,139 3 Arunachal Pradesh 12 5 4 Assam 18 19,54,020 5 Bihar 10 43,26,639 6 Chandigarh 4 14,00,530 7 Chhattisgarh 22 22,81,979 8 Delhi 7 3,23,43,522 9 Goa 30 31,35,116 10 Gujarat 24 96,48,320 11 Haryana 6 1,17,69,422 12 Himachal Pradesh 2 6,083 13 Jammu & Kashmir 1 10,76,457 14 Jharkhand 20 23,89,425 15 Karnataka 29 3,10,01,943 16 Kerala 32 60,83,216 17 Madhya Pradesh 23 53,97,369 18 Maharasht ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged in the business of manufacturing and trading of travel bags in various segments and presently, the Respondent was registered under the provisions of the Central and the State Goods and Service Tax Acts, 2017 in 21 States on pan India basis. The Respondent has also submitted that he was engaged in the design, manufacturing and sale of luggage and luggage accessories. He was also selling hard and soft luggage items, duffels, small bags, briefcases, laptop bags, laptop strollers and backpacks, wallets, belts and travel accessories etc. He has further submitted that he was selling the above products through offline channels such as distributors, retailers and online channels. The Respondent has also stated that he was making the following types of taxable supplies during the period from 01 October 2017 till 31 March 2019:- * Exports to his overseas customers; * Inter-company stock transfers (Supplies to Distinct Persons within the meaning of Section 25 (4) of the Act, 2017); * Canteen Stores Department (CSD) supplies; and * Supplies undertaken in the domestic market (apart from CSD Supplies). 23. The Respondent has also claimed that the market operating prices for goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et aside on the ground that this amount was not profiteered by the Respondent. He has further argued that without prejudice to the above submissions and assuming that the contention of DGAP was valid the amount of profiteering should be diverted from the credit of the Central and the State Governments to the Consumer Welfare Funds instead of recovering the said amount from the Respondent. 26. The Respondent has also contended that it was well settled in the cases of M/s Miles India v. Assistant Commissioner of Customs 2002 TIOL 501 SC CUS = 1984 (4) TMI 63 - SC ORDER (Annexure-E) and M/s Northern Plastics Ltd. v. Hindustan Photo Films Mfg. Co. Ltd. 1991 (91) ELT 502 SC = 1997 (2) TMI 115 - SUPREME COURT that the creatures of the statute were bound by the respective powers and limitations prescribed under the statute. Accordingly, any authority could only exercise the powers conferred on it specifically under the provisions of the statue. The Respondent has further contended that the application dated 30.07.2018 filed by the Applicant No. 1 was based on the screenshots (Annexure-F) of the product 'American Tourister Sky Tracer HL Blue 68 cm Hard Trolley' which was being sold by a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the law passed by the Parliament or the State legislature under Entry 34 of the Concurrent List (List III) of Seventh Schedule of the Constitution of India. Only in exceptional cases, and in respect of a few specified goods, the Government had enacted laws to control prices. Thus the provisions of Section 171 of the CGST Act were not akin to the price control regulations enacted in terms of Entry 34 of the Concurrent List. Consequently, any such effort would be violation of the freedom of trade guaranteed under the Constitution of India. Hence, the price control exercised by the DGAP was ultra vires the fundamental rights guaranteed under Article 19 (1) (g) of the Constitution of India. He has also placed reliance on the decision given in WP (C) 4213/2019 in the matter of M/s Abbott Healthcare Pvt. Ltd. v. Union of India & others = 2019 (5) TMI 563 - DELHI HIGH COURT wherein the constitutional validity of the anti-profiteering provisions has been challenged. He has also contended that the Hon'ble High Court of Delhi had observed in the above case that similar petitions of M/s Hindustan Unilever Limited Versus Union Of India & Ors. - 2019 (5) TMI 562 - DELHI HIGH COURT and Jubilant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the anti-profiteering investigation with a pre-conceived notion that the Respondent had not passed on the benefit of the reduced GST rate to his customers. Such arbitrariness would render the entire investigation conducted by the DGAP an otiose exercise resulting in grave injustice to the Respondent. In this regard, the Respondent has also referred to the Apex Court's decision given in the case of Natural Resources Allocation Special Reference No. 1 of 2012 = 2012 (10) TMI 596 - SUPREME COURT, wherein it was held as under:- "Therefore, a State action had to be tested for constitutional infirmities qua Article 14 of the Constitution. The action has to be fair, reasonable, non-discriminatory, transparent, non-capricious, unbiased, without favouritism or nepotism, in pursuit of promotion of healthy competition and equitable treatment. It should conform to the norms which was rational, informed with reasons and guided by public interest, etc. All these principles are inherent in the fundamental conception of Article 14. This is the mandate of Article 14 of the Constitution of India." 31. The Respondent has also furnished a few invoices issued during the pre and post GST rate reducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the benefit of reduction in the GST rate from 28% to 18% was not passed on to the ultimate customers. The DGAP has further claimed that the allegation of profiteering by way of increasing the base prices of the products was sustainable against the Respondent and the profiteered amount was ₹ 25,73,82,482/-. He has also stated that the investigation was carried out in terms of Rule 129 of the Central Goods and Services Tax Rules, 2017 without going into the merit of the Applicant No. 1's locus standi. 34. The DGAP has also contended that the provisions of Section 171 of the CGST Act, 2017 and the rules made thereunder have been passed by the Parliament. Section 171 (1) of the CGST Act, 2017 envisages that any reduction in the rate of tax or the benefit of input tax credit has to be passed on to the recipient by way of commensurate reduction in price. Thus, every recipient of goods or services has to get the benefit from the supplier and hence, this benefit has to be calculated for each and every product supplied. He has further contended that this Authority has been constituted under the provisions of Section 171 (2) of the CGST Act, 2017. Section 171 (3) the CGST Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CGST Act, 2017, also give jurisdiction to this Authority to exercise such authority and powers as specified under the Act/Rules. 35. The DGAP has also stated that the provisions of Section 171 of the CGST Act, 2017 and the rules made thereunder have been approved by the Parliament. Section 171 (1) of the CGST Act, 2017 envisages that any reduction in the rate of tax or the benefit of input tax credit has to be passed on to the recipient by way of commensurate reduction in price. The additional benefits that accrue to the Respondent on introduction of GST have to be passed on to the recipients in terms of Section 171 of the CGST Act, 2017. The contention of the Respondent that there was no machinery for computation and the case law cited by him, were both out of context as assessment or computation of tax was neither carried out by the DGAP as was evident in his Investigation Report nor the same was done by this Authority in any of its orders. The orders passed by this Authority were restricted to the mandate given by the Parliament as per the above mentioned provisions. The DGAP has also contended that the provisions of Section 171 were nowhere related to imposition of any tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed on. Without prejudice to the above-mentioned submissions and assuming that the contention of the DGAP was valid (which was not the case), the profiteered amount should be diverted from the credit of the Central and the State Governments to the Consumer Welfare Funds instead of recovering the said amount from the Respondent, as the same had not been pocketed by the Respondent. He has also contended that refund of GST, which was already credited to the treasury of the Central Government, should be given to the Respondent. 38. The Respondent has further contended that the DGAP has mentioned that "the investigation was carried out in terms of Rule 129 of the CGST Rules, 2017 without going into the merit of the Applicant No.1's Locus Standi" which proved that the DGAP had himself accepted the fact that there was absence of merit in the complaint. 39. The Respondent has also quoted the provisions of Rule 129 of the CGST Rules and argued that it was applicable in case of a supplier, who had not passed on the benefit of reduction in the rate of tax on the supplies of goods or services or the benefit of input tax credit to the recipients by way of commensurate reduction in prices an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord that the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 on the products which were being supplied by the Respondent, the benefit of which was required to be passed on by the Respondent to his customers. The Respondent has also admitted that his products were being sold through different channels in the market like the Franchisees, Hyper Markets, Departmental Stores, E-commerce platforms, Institutional sales and CSD etc. and the pricing pattern was different for each channel. It is also apparent from the record that the Respondent has provided the details of the channel wise outward taxable supplies of the products being supplied by him during the period from 15.11.2017 to 31.03.2019. It is further apparent that the DGAP has not included the new SKUs introduced after 15.11.2017, the export sales, sales made to the CSD, stock transfers and the scrap sales in computation of the profiteered amount. However, he has rightly not included the amount of discounts given by the Respondent on his sales as they did not satisfy the conditions prescribed under Section 15 (3) of the CGST Act, 2017. The DGAP has ill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase price which is less than the average base price but more than the commensurate base price would not get the benefit of tax reduction. From the invoices and details of outward sales made available by the Respondent it has been found that the Respondent has increased the base prices of his products when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017 so that the commensurate benefit of GST rate reduction was not passed on to the recipients. There was no reason for the Respondent to increase his base prices exactly equal to the rate of tax reduction w.e.f. 15.11.2017, the date from which the tax reduction was announced. Such a coincidence is unconvincing and unheard off and it can be safely concluded that such a course of action has been adopted by the Respondent merely to deny the benefit of tax reduction to his customers and to unjustly enrich himself. Accordingly, on the basis of the pre and post-reduction GST rates and the details of the outward taxable supplies of the impacted products during the period from 15.11.2017 to 31.03.2019 the profiteered amount has been rightly computed as ₹ 25,73,82,482/- channel wise, including the GST, the details which have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a registered person by not reducing the prices of the products commensurately on which the rate of tax has been reduced. Hence, the definitions quoted by the Respondent from various dictionaries are not applicable in respect of the provisions of Section 171. Similarly, his contention that the above term refers to excessive, exorbitant and unjustifiable profits arising due to supply of essential goods is also not tenable. 45. The Respondent has further claimed that the application dated 30.07.2018 filed by the Applicant No. 1 was based on the screenshots of the above product which was being sold by a third party viz. M/s Amazon on line and had not been bought by the above Applicant. He has also referred to Section 171 of the CGST Act, 2017 and Rule 129 (1) of the CGST Rules, 2017 and pleaded that the investigation could be conducted against the "supplier" of the goods only whereas he was not the supplier. In this connection perusal of Annexure-F attached by the Respondent with his written submissions dated 05.11.2019 (Annexure-1 of DGAP's Report) shows that the Applicant No. 1 vide his e-mail dated 30.07.2018 had complained to the Standing Committee on Anti-Profiteering by stating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for mrp 9100. http://www. amazon. in/American-Tourister-Polyproplene-Litres-Luggag…. anti-profiteering authority is requested to book samsonite and contact big bazar if they want to validate these purchase orders." (Emphasis supplied) 46. Therefore, it is clear that the complaint for not passing on the benefit of tax reduction was specifically made against the Respondent and not M/s Amazon by quoting the Purchase Orders (PO) issued by M/s Big Bazar to the Respondent in which the MRP of ₹ 9100/- fixed by the Respondent on the above product before the tax reduction, was still being charged on 26.06.2018, even after a lapse of a period of more than 7 months. Therefore, there was accurate and adequate prima facie evidence before the Standing Committee on Anti-Profiteering to order investigation by the DGAP as per Rule 129 (1). It is also apparent that the complaint was lodged on the basis of the MRP, which only the Respondent could fix as a manufacturer, on which he had supplied the above product to M/s Big Bazar, therefore, the Respondent was the supplier in this case and not M/s Amazon. It is further apparent that the above application was filed on the basis of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefits of tax reduction and ITC are required to be passed on by the suppliers to the buyers by commensurate reduction in the prices as they are given from the public exchequer in the interest of the consumers. Perusal of Sub-Section 171 (2) shows that the Central Government may on the recommendations of the GST Council constitute an Authority to examine whether the input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the prices of the goods or services or both supplied by him or not. Therefore, this Authority is competent to examine all such cases in which the above benefits are required to be passed on suo moto or to get them investigated through the DGAP and its jurisdiction to do so is not limited to a particular product in respect of which complaint has been made but it extends to all the products which have been impacted by the rate reduction. It is also apparent from the provisions of Rule 129 (1) that the DGAP shall investigate and collect necessary evidence in all such cases in which rate of tax has been reduced or the benefit of ITC has been granted which is required to be passed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent cannot refuse to pass on the benefit of tax reduction in respect of other products in respect of which rate of tax was reduced w.e.f. 15.11.2017 as it is not to be given out of his own pocket. Accordingly, the DGAP has rightly investigated all the products which have been impacted by the rate reduction. Hence, the investigation conducted by the DGAP in this case is legal and is in consonance with the provisions of Section 171 and the Rules framed under Chapter XV of the CGST Rules, 2017 and therefore, the above contention of the Respondent is not tenable. 50. He has further contended that as per Rule 129 (3) of the CGST Rules, 2017 the DGAP should issue notices to all the interested parties containing information of the relevant products and since only one product was mentioned and described in his notice dated 09.04.2019, his other products could not be investigated. In this context it is mentioned that as has been discussed above the DGAP is bound to investigate all such products which have been impacted by the rate reduction even if they were not mentioned in the notice issued by him, once it has come to his attention during the course of the investigation that the be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices." It is evident from the above Sub-Section that it mentions "reduction in the rate of tax or benefit of ITC" which connotes that the benefit of tax reduction or ITC has to be passed on by a registered supplier to his buyers since both the above benefits are granted by the Central and the State Governments out of the public exchequer, which cannot be misappropriated by a registered person. It also requires that the above benefits are to be passed on each SKU or unit of construction or service to every buyer and in case they are not passed on, the quantum of denial of these benefit or the profiteered amount has to be calculated for which investigation has to be conducted in respect of all such SKUs/units/services by the DGAP. What would be the 'profiteered amount' has been clearly mentioned in Sub-Section and the explanation attached to Section 171 which have been quoted above. These benefits can also not be passed on at the entity/organisation/branch level as they have to be passed on to each and every buyer at each SKU/unit/service level by treating them equally. The above provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the project, rates of taxes pre and post GST implementation, amount of CENVAT and ITC availed/available, total saleable area, area sold and the taxable turnover received before and after the GST implementation would always be different from the other project and hence the amount of benefit of additional ITC to be passed on in respect of one project would not be similar to the other project. Therefore, no set procedure/methodology/guidelines/principles can be framed for determining the benefit of additional ITC which has to be passed on to the buyers of the units. Moreover, this Authority under Rule 126 has been empowered to 'determine' Methodology & Procedure and not to 'prescribe' it. Similarly, the facts of the cases relating to the sectors of Fast Moving Consumer Goods (FMCGs), restaurant service, construction service and cinema service are completely different from each other and therefore, the mathematical methodology adopted in the case of one sector cannot be applied in the other sector. Moreover, both the above benefits have been given by the Central as well as the State Governments as a special concession out of their tax revenue in the public interest and hence the supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Screening Committees on Anti-Profiteering have been constituted under Rule 123 of the CGST Rules, 2017. The DGAP has been entrusted to carry out investigation in those cases where benefit of tax reduction or ITC is required to be passed on under Rule 129. This Authority has been constituted under Sub-Section 171 (2) of the above Act to examine all such cases where both the above benefits are to be passed on. Under Rule 127 duties of this Authority have been prescribed and under Rule 133 it has been given power to determine the profiteered amount and provide relief to the recipients who have been denied the benefit of tax reduction or ITC. Under Rule 136 this Authority can get its orders monitored through the tax authorities of both the Central and the State Governments. Therefore, adequate and appropriate machinery to implement the anti-profiteering provisions has been provided in the CGST/SGST Acts and the Rules framed under them. Therefore, the above argument of the Respondent is incorrect and is unacceptable. 55, Reliance in this regard has been placed by the Respondent on the Hon'ble Apex Court's judgement passed in the case of CIT v. B. C. Srinivasa Shetty 1981 (2) SCC 460 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, the amount of profiteering is determined as ₹ 25,73,82,482/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent is therefore directed to reduce the prices of his products as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. The Respondent is also directed to deposit the profiteered amount of ₹ 25,73,82,482/- along with the interest to be calculated © 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited in terms of the Rule 133 (3) (b) of the CGST Rules, 2017. Since, the recipients in this case are not identifiable, the above Respondent is directed to deposit the amount of profiteering of ₹ 25,73,82,482/- along with interest in the CWFs of the Central and the concerned State Governments as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017 in the ratio of 50:50 along with interest @ 18%, till the same is deposited. Accordingly, an amount of ₹ 12,86,91,241/- will be deposited in the Central CWF while the balance will be deposited in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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