9911796707
TMI Blog2020 (6) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... at the marginal notes on anti-profiteering measures attached to Section 171 of the CGST Act, 2017 and Chapter XV of the CGST Rules, 2017 were required to be considered while interpreting the anti-profiteering measures is also not relevant as profiteered amount has been clearly, concisely and appropriately defined in the above Section. Marginal note was only required to be considered in case the above provision of anti-profiteering measures was ambiguous and not clear. Hence, the above contention of the Respondent is untenable. The Respondent is directed to reduce the price of the above product 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 of tax reduction is passed on to the recipients. The Respondent is also directed to deposit the profiteered amount mentioned above along with the interest to be calculated @ 18% from the date from which 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 Respondent is directed to deposit the above amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,475 VAT @ 14.5% (Rs.) J=G*14.50% 4,164 - GST @ 28% (Rs.) K=G*28% - 7,413 Total Tax (Rs.) L=H+J or K 7,353 7,413 Total Tax (in%) M=L/I 28.80% 28% Selling Price (As per Invoice) (Rs.) N=G+J or G-L 32,880 33,888 Increase in Basic Price Diff. of I ₹ 948/-(3.71%) 2. The above complaint was examined by the Standing Committee on Anti-profiteering in its meeting held on 02.07.2018, wherein it was decided to refer the matter to the Director General of Anti-Profiteering (DGAP) to initiate detailed investigation in the matter under Rule 129 (1) of the CGST Rules, 2017. 3. On receipt of the reference from the Standing Committee on Anti-profiteering, a Notice under Rule 129 (3) of the CGST Rules, 2017 was issued to the Respondent by the DGAP on 10.09.2018 asking him to reply whether he admitted that the benefit of reduction in the GST rate had not been passed on to the recipients by way of commensurate reduction in price. The Respondent was also asked to suo moto determine the quantum Of benefit not passed on and indicate the same in his reply to the Notice along with the supporting evidence. 4. The period covered by the current investigation is from 01.07 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... @ 14.5% Pre-GST Example All India VAT @ 13.82% Same DP Post GST Example All India GST @ 28% Same DP Change All India same DP MRP 39250 39250 39250 Dealer Price 37300 37300 37300 VAT/GST Rs. 14.50% 13.82% 28.00% VAT/GST Rs. 4724 4529 8159 Basic Price 32576 32771 29140 Less: Excise 3189 3189 Net Basic Price 29987 29582 29140 -441 The Respondent has claimed that it could be seen from the Table-B above that if the All India pre-GST Net Basic Price (Rs-29,582/-) was compared with the All India post-GST Net Basic Price (₹ 29, 140/-), there was reduction of ₹ 441 per unit (~15%) which directly impacted his margins, (c) That to bridge this gap and to maintain margins, there was a need to increase the price of the impugned product however, in the case of the impugned product, there had been no price increase between October, 2016 and August, 2017 when the DP was increased. (d) That in the Table-'A' mentioned supra, there was gap in the discount offered on the Invoices in the Pre and Post GST columns (₹ 3860/- in pre-GST and ₹ 3349/- in post-GST). The mechanism of passing on discounts in the industry depended on various market f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Discount % 208 18.3% 226 20.2% 18 1.9% Total Discount / Unit (Rs.) 2493 2599 105 The Respondent has also contended that as could be seen from the Table-E above, the actual discount passed on to the trade partner has actually increased by ₹ 105/- per unit over the period. (f) That the allegation made in the Notice that the benefit of reduction in the rate of tax has not been passed by commensurate reduction Of price was not correct as there was no reduction in the total tax incidence (in %) and infact the total tax incidence as % of Net Basic Price has gone up from 26.1% to 28.0% as has been shown in the Table-'F' below:- Table-'F' (Amount in Rs.) Rs. Per Unit Pre-GST Example All India VAT @ 13.82% Same DP Post GST Example All India GST @ 28% Same DP MRP 39250 39250 Dealer Price 37300 37300 VAT/GST Rs. 13.82% 28.00% VAT/GST Rs. 4529 8159 Basic Price 32771 29140 Less: Excise 3189 Net Basic Price 29582 29140 Total Tax 7718 8159 % to Net Basic Price 26.1% 28.0% In absolute terms also, the total tax incidence has gone up by 441 per unit (₹ 8159-₹ 7718). 6. The Respondent has also submitted the following document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be equated or in other words, the same discount amount should be considered for both the periods. In this regard the DGAP has referred to Section 15 (1) of the CGST Act, 2017 which reads as "The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply." He has also referred to Section 15 (3) (a) of the above Act which provides that the value of the supply shall not include any discount which is given before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply. Accordingly, he has argued that the GST was chargeable on the actual transaction value after excluding any discount and therefore, for the purpose of establishing profiteering, if any, Basic Price before discount could not be considered and the Basic Price after discount (excluding duties) was the correct amount which should be taken into consideration, 9. The DGAP has further argued that as per Section 171 of the CGST Act, 2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Puducherry 1 2,170 13. Punjab 9 15,495 14. Rajasthan 26 42,192 15. Tamil Nadu 10 42,192 16. Telangana 24 32,437 17. Tripura 3 5,310 18. Uttar Pradesh 62 57,498 19. Uttarakhand 1 735 20. West Bengal 38 65,374 Grand Total 451 5,06,921 13. The DGAP has also alleged that the basic price (excluding tax) of the impugned product was increased by the Respondent although there was a reduction in the rate of tax after the introduction of GST w.e.f. 01.07.2017 as was evident from the details furnished in Annexure-20 and thus, the commensurate benefit of reduction in the GST rate was not passed on to the recipients, Accordingly, the DGAP has submitted that the provision of Section 171 (1) of the CGST Act, 2017 requiring that "a reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices", has been contravened by the Respondent in the present case. 14. After perusal of the DGAP's Report dated 06.12.2018, this Authority in its meeting held on 11.12.2018 had decided to hear the Applicants and the Respondent on 03.01 ,2019 and accordingly notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,586/- VAT reversal 185/- - Entry Tax (Annexure 16) 45/- - Total taxes 8,257/- 8,586/- Total 30,993/- 30,664/- Total taxes (percent) 26.64 28 Increase in tax incidence between pre-GST post-GST based on actual MRP Particulars Pre-GST (in Rs.) Post-GST (in Rs.) MRP 39,250/- 40,100/- Excise Duty 3,189/- - Average VAT & CST on MRP (14.06%) GST (28%) 4,838/- 8,772/- VAT reversal 185/- - Entry Tax 45/- - Total taxes 8,257/- 8,772/- Total 30,993/- 31,328/- Total taxes (percent) 26.64 28 17. The Respondent has also stated that the Authority vide its order dated 24.12.2018 passed in the case of M/s. Panasonic India Pvt. Ltd. = 2018 (12) TMI 1403 - NATIONAL ANTI-PROFITEERING AUTHORITY which was also trading in consumer durables has held that increase in the basic price did not amount to profiteering when the rate of tax incidence post-GST had increased 18. The Respondent has also claimed that there were gross infirmities in the computation of the profiteered amount made by the DGAP and these infirmities were shown as ignorance of negative profiteering supplies, denial of benefit of VAT ITC reversal and the benefit of discounts. The Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 and July 2017 and considering these factors. the change in realisation was ₹ 23/- (negative) per unit (₹ 971- Rs- 948) against the allegation of profiteering. The Respondent has also argued that if the discounted price was taken in to account the pre GST rate of tax would be 26.92% and the post GST rate would be 28% as has been explained in the Table given below:- Particulars Pre-GST Post-GST Invoice No. A 1214654736 91321006167 Invoice Date B 11.09.2016 03.08.2017 Quantity Sold (No.) C 2 5 MRP as per Annexure-7 (Rs.) D 39,250/- 40,100/- BP before discount per unit (Rs.) E 32,576/- 29,824/- Discount per unit (Rs.) F 0/- 0/- BP after discount per unit (Rs.) G=E-F 32,576/- 29,824/- Less: Excise Duty at the rate of 12.5% {35% abatement on MRP) (Rs.) H=(D*65%*12.5%) 3,189/- - BP (excluding duties & taxes) (Rs.) I=G-H 29,387/- 29,824/- VAT at the rate of 14.5% (Rs.) J=G*14.50% 4,723/- - GST at the rate of 28% (Rs.) K=G*28% - 8,350/- Total tax (Rs.) L=H+J of K 7,913 8,350/- Total tax (percentage) M=L/I 26.92% 28% 20. The Respondent has further stated that the product in question constituted 61% of his total sales an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his VAT reversal was tax cost and based on that he had computed the tax incidence. He has further claimed that the VAT reversal had no link with the price and it was not relevant for determining commensurate reduction in the price as VAT reversal did not form part of the invoice. He has also stated that the DGAP has failed to consider that reduction of VAT reversal from the basic price would entail double effect of the tax incidence. The DGAP has also not considered the CST sales from Assam and merged the CST sales from Gujarat in local sales, because of which pre-GST tax incidence has got reduced by 34 basis points. The Respondent has also stated that he was maintaining single MRP and DP across India, but due to different VAT rates and varying discounts in various States, there could be instances where post-GST price was less than pre-GST price end vice-versa but the DGAP has failed to consider that the Respondent could not have different DP for different customers. 24. In his submissions dated 11.02.2019 the Respondent has stated that:- * The prices were reduced across all Stock Keeping Units (SKUs) w.e.f. July 27, 2018. Price Lists are enclosed as Annexure-1. * The revised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c price. He has also claimed that the Respondent had not produced evidence to prove that the amount of VAT reversal was ₹ 185/-. The DGAP has further claimed that the rate of tax was 31 during the pre GST period which was reduced to 28% during the GST period and since there was reduction in the rate of tax its benefit was required to be passed on to the customers by the Respondent as per the provisions of Section 171 (1) of the above Act. He has also contended that the claim of the Respondent that the pre GST incidence of tax was 27.31% was not correct as it had been calculated on the pre discounted base price. He has further contended that the profiteered amount has been computed invoice wise by taking into account the post GST basic price inspite of reduction in the rate of tax. The DGAP has also stated that increase in the cost and freight charges were independent factors which had no connection with the provisions of Section 171 (1) of the above Act. 27. This Authority Vide its order dated 25.06.2019 had directed the DGAP to re-examine the following issues under Rule 133 (4) of the CGST Rules, 2017 as the Respondent had vehemently contested the issues of reversal of ITC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as further stated that the amount of profiteering made by the Respondent for failing to pass on the benefit of the reduction in the rate of tax to the recipients, in terms of Section 171 of the CGST Act, 2017, came to ₹ 4,07,451/- including the GST after considering the details of outward supplies during the period from 01 07.2017 to 31.08.2018 furnished by the Respondent and the various submissions made before this Authority the said profiteered amount has been arrived at by comparing the State-wise average basic price (after discount) of the impugned goods during the period from 01.04.2017 to 30.06.2017 with the transaction-wise basic price (after discount) during the period from 01.07.2017 to 31 08.2018 for ail the States (except Delhi and Haryana where the tax incidence has increased on introduction of GST). The place of supply wise break-up of the total profiteered amount of ₹ 4,07,451/- as given by the DGAP is furnished in the Table-A below:- Table-A S. No. State / Union Territory (Place of Supply} State Code No. of Units Sold Amount of Profiteering (Rs.) 1 Andhra Pradesh 37 20 26,955 2. Assam 18 5 7,297 3. Gujarat 24 51 41,633 4. Jammu and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alization under GST regime has changed due to reduction in discounts. c) Various other factors which impacted the cost of impugned product including change in direct bill Of material cost and change in other variable costs like freight, warranty, installation. d) The overall profitability of the Respondent has reduced post introduction of GST- e) Basic Price considered for the purpose of 'profiteering' needs to be considered 'Pre-discount'. f) There is an overall increase in prices prevailing in consumer durable electronic industry. 33. He has also submitted that in response to the Report dated 06.12.2018 he had raised various contentions vide his submissions dated 11.019019, 1801.2019, 2101.2019, 06.02.2019, 11.02.2019 and 05.04.2019 which were recorded by this Authority in its order dated 25.06.2019, however, the said submissions were not considered by it while passing the order dated 25.6.2019. This Authority had directed the DGAP to consider all the submissions made by the Respondent during the re-investigation as to whether there was reduction in the rate of tax after introduction of GST and whether the provisions of Section 171 of CGST Act were applicable or not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na' for computation of the alleged profiteering amount. 37. The Respondent has further claimed that the methodology adopted by the DGAP for calculating the profiteered amount was incorrect Insofar as the comparison between the average tax incidence (%) pre-GST vis-å-vis the average tax incidence (96) post-GST was concerned as it should be computed on an overall basis (Entity Level) and not at the State level as the decision to ascertain product pricing was taken considering the Indian market as a whole. The Respondent has fixed the price of the impugned product at the national level i.e. the MRP of the impugned product was same across all the States in India and the rate of tax applicable in a State (which varied earlier) has not led to difference in the MRP. 38. He has also contended that with the introduction of GST, the consumer durable electronic industry had to revisit its pricing in the background of the revised rate of tax and ITC availability. Accordingly, he had ascertained the factors affecting his pricing including credits which were not available earlier, tax rates, overall tax incidence, increase/decrease in the price of the inputs and logistic costs etc- on ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Suzuki India Limited = 2019 (1) TMI 139 - NATIONAL ANTI-PROFITEERING AUTHORITY. Thus, it was settled legal position that discount was not a relevant factor for determining profiteering. Therefore, basic price should be considered after including discount, 41. He has further submitted that after considering the basic price pre-discount and if the calculation was made on an overall basis, the alleged profiteering, if any would come to the negative figure (Minus ₹ 43,558/-), He has also enclosed the detailed calculation for the same as Exhibit-4 with his submissions. 42. He has also averred that even if the methodology adopted by the DGAP (Annexure-19 of his Report dated 07.10.2019) to ascertain the States in which the Respondent has resorted to profiteering, was followed, the alleged profiteering should be computed for only 5 States viz. Assam. Bihar, Gujarat, Madhya Pradesh and Rajasthan. in case the basic price was considered 'pre-discount'- In respect of the said 5 States, the average tax incidence would be marginally less under the GST regime (i.e. pre-GST tax incidence in these states was 28.52%). The tax incidence of 52% was marginal and should not be considered to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame as that of "Assam'. He has further stated that in such a case. the approach adopted by the DGAP was incorrect on the following two counts:- 1. That without ascertaining the incidence of taxes pre-GST (%) and without comparing the same with the incidence of taxes post-GST (%), the DGAP has assumed that the Respondent has undertaken profiteering in the said States and has, thereafter computed profiteering which was grossly incorrect. 2. That the calculation of profiteering was also incorrect for the reason that the pre-GST basic price for 'Maharashtra' was compared with the transaction-wise basic price for 'Goa' (in the absence of pre-GST basic price for 'Goa'), which was principally incorrect. 45. Accordingly, he has claimed that the profiteering computed by the DGAP in respect of the above States to the tune of ₹ 31,677/- was liable to be set aside as per the details given in Exhibit-7- He has also claimed that in any case, the Respondent did not have any depot in the States of Nagaland and Tripura and all the supplies made to the said States were CST sales, Thus, he has further claimed that the DGAP has wrongly assumed profiteering in the above States by assuming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... availability (driven by demand supply gaps), loading regulations and overall inflation etc. Resultantly. the per unit freight cost has witnessed an increase of ₹ 29/- per unit as was evident in Exhibit-11- 48. To substantiate his above submission the Respondent has reproduced below the details regarding pricing of the impugned product during its entire life cycle. The Respondent has submitted that he had commenced manufacture of the impugned product in 2014 and started selling the same in April 2014, The manufacturing of the impugned product was discontinued in December 2017, The MRP and DP of the impugned product underwent frequent changes depending upon market conditions and the same was tabulated as under:- Month & Year MRP (Rs.) DP (Rs.) April 2014 36,750/- 34,990/- August 2014 36,875/- 35,115/- December 2014 37,075/- 35,115/- February 2015 37,575/- 36,200/- October 2015 38,150/- 36,200/- April 2016 38,300/- 36,850/- July 2016 39,175/- 37,300/- October 2016 39,250/- 37,375/- July 2017 40,100/- 38,175/- December 2017 onwards (Product discontinued) 42,550/- 38,675/- 49. He has also submitted that frequent price increase was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018-VIL-02-AUTHORlTY = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY, In the case of M/s. Hardcastle Restaurants Pvt. Ltd. 2018-VIL-II- AUTHORITY = 2018 (11) TMI 1073 - NATIONAL ANTI-PROFITEERING AUTHORITY and in the case of M/s. NP Foods 2018-VlL-08- AUTHORITY = 2018 (10) TMI 1338 - NATIONAL ANTI-PROFITEERING AUTHORITY, loss of ITC has been factored-in for determination of net profiteering. Thus, the other factors which affected the 'price' have been held to be valid factors for deciding the price. 54. The Respondent has further claimed that the investigation undertaken by the DGAP covering the relevant period and holding that the price increase undertaken by Respondent was effect of change in the tax rate and not due to other commercial factors, has the effect of placing unlawful restraint on the fundamental right of the Respondent to carry on his business and was therefore violative of Article 19 (1) (g) of the Constitution of India. 55. The Respondent has also submitted that the period covered under the investigation was from July, 2017 to August, 2018 which covered the business operations of the Respondent of 14 months. While the GST regime had come in to effect fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said working as suggested by him is given below:- No. Sate (A) Total Tax/duties incidence (in % - Pre-GST (Ref-Ann-19 to DG Report-Column X) (B) Total Tax/duties incidence (in % - Post-GST (C) Profiteering (%) (D=B-C) (Approx.) Taxable supplies post-GST State wise (E) Profiteering (Amount) (F=D*E) 1. Andhra Pradesh 30.39% 28.00% 2.39% 5,10,818 12,232 2. Assam 30.93% 28.00% 2.93% 1,26,545 3,710 3. Assam-CST Sale 15.70% 28.00% -12.30% 4. Bihar 29.24% 28.00% 1.24% 72,682 900 5. Chhattisgarh 31.00% 28.00% 3.00% 22,606 678 6. Delhi 27.86% 28.00% -0.14% 7,54.742 (1,036) 7. Gujarat 30.84% 28.00% 2.84% 12,90,293 36,604 8. Gujarat-CST Sale 15.59% 28.00% -12.41% 9. Haryana 27.96% 28.00% -0.04% 3,37,616 (151) 10. Jammu and Kashmir 28.02% 28.00% 0.92% 1,84,442 1,703 11. Jharkhand 29.94% 28.00% 1.94% - - 12. Karnataka 30.20% 28.00% 2.20% 72.980 1,602 13. Kerala 29.81% 28.00% 1.81% 15,11,848 27,333 14. Madhya Pradesh 30.91% 28.00% 2.91% 4,66,935 13.605 15. Maharashtra 28.59% 28.00% 0.59% 11,84,349 6,964 16. Orissa 30.77% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich has been used in the marginal notes, 61. He has also contended that it was a settled principle of law that marginal notes were used as an internal aid of interpretation to address any ambiguity in the provision. In this regard, he has placed reliance on the case of Indian Aluminum Company v. Kerala State Electricity Board (1975) 2 SCC 414 Wherein the Hon'ble Supreme Court has held that the marginal notes could be relied upon to show what the section was dealing with. In the case Of Union of India v. Harbhajan Singh Dhillon (1971) 2 SCC 779 it was observed by the Hon'ble Supreme Court that marginal notes could serve as guidance when there was ambiguity or doubt about the true meaning of the provision- Similar observations were made by the Hon'ble Supreme Court in the case of SP Gupta v. Union of India AIR 1982 SC 149. He has also made reference to the common parlance meaning of the term 'profiteering' from the following dictionaries:- a) The Chambers Dictionary, Allied Chambers (India) Ltd., New Delhi Profiteer is a person who takes advantage of an emergency to make exorbitant profits. b) The Collins Cobuild English Dictionary for Advanced Learners - Harper Collins Publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was to be treated as allegedly profiteered by the Respondent, This methodology of 'Zeroing' has been held to be incorrect as the Government of India had itself objected to this concept of 'zeroing-in' at the World Trade Organization (WTO). He has also submitted that while calculating the alleged profiteering amount, the DGAP has incorrectly applied a methodology similar to 'Zeroing' which was used by the anti-dumping authorities in certain countries including the European Union (EU) According to the said methodology. while calculating the dumping margins only those SKUs were considered Which were being dumped and those SKUs which were not being dumped were not considered. The Government of India had disputed this practice and had taken a stand against such methodology at the WTO and argued that while determining the dumping margins, all SKUs should be taken into consideration rather than only those which showed positive dumping. In this regard, he has invited attention to Report No. WT/DSI41/AB/R dated 01.03.2001 of the Appellate Body of the WTO regarding Anti-Dumping Dunes on imports of Cotton-Type Bed Linen from India, In the instant case, the Indian exporters were facing an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that if the negative price variations (in respect Of those invoices of product, where the reduction in price has been more than what was considered necessary by DGAP) was considered for determining alleged profiteering (if any) and where the effect of MRP price-increase was also excluded, the alleged profiteering would be Negative ₹ 75,368/- as per Exhibit-18. If the negative price variations (in respect of those invoices of product where the reduction in price has been more than what was considered necessary by the DGAP) was considered for determining alleged profiteering (if any) and where base-price was considered to be Pre-discount', along with exclusion of impact of (MRP) price-increase, the alleged profiteering would be Negative ₹ 16,326/- as has been computed vide Exhibit-19. 67. The Respondent has also contended that while arriving at the total alleged profiteering amount, the DGAP has incorrectly added 28% to the alleged profiteered amount without adducing grounds as to why this amount has been added and such computation was ab initio incorrect. It was an undisputed fact that the amount charged as GST by the Respondent has been duly deposited in the Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely gathered the sum by way of tax and kept it in suspense account because of dispute about taxability or was ready to return if eventually it was not taxable, it is not collected 'Collected., in an Australian Customs Tariff Act, was held by Griffith CJ., not to include money deposited under an agreement that if it was not legally payable it will' be returned' (Words & Phrases p- 274). We therefore, semanticise Collected' not to cover amounts gathered tentatively to be given back if found non-exigible from the dealer." 69. He has also stated that since the amount collected as GST by the Respondent from the recipients on the alleged profiteering amount had already been deposited with the Government and there was no factual dispute on this aspect, addition of 28% GST to calculate the alleged profiteering amount was not sustainable, He has further stated that on re-computation of the alleged profiteering amount extending the benefit of cum-tax to the Respondent, the alleged profiteering amount would be further reduced by ₹ 79,403/- as per Exhibit-20. 70. The Respondent has also submitted that the calculation of profiteering arrived at by the DGAP was incorrect due to the reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Authority whereby it could order reduction in prices, return to the recipient an amount equivalent to the amount not passed on as benefit, imposition of penalty and cancellation of registration under the CGST Act The duties of this Authority as enumerated in Rule 127 included determination whether benefits consequent to reduction in the rate of tax or allowance of ITC were being passed on to the recipients, identification of registered persons who have not passed on the benefits to the recipients and passing of orders effecting reduction in prices, However. under the CGST Act or the Rules made thereunder, there was no indication, let alone description as to how to conclude that there was profiteering due to change in the rate of tax. Whether such computation has to be done invoice-wise, product-wise, business vertical-wise or entity-wise etc. Thus, in absence of the same, there was lack of transparency and the results could vary from case to case resulting in arbitrariness and violation of Article 14 of the Constitution of India, It would be impossible for the Respondent to defend his case and explain how the observations and findings of the DGAP with respect to profiteeri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a singular MRP, the authorities under the Act could not possibly assess the components of such a composite package separately. He has also claimed that such an exercise, if undertaken, would also fall foul of the principles enunciated by the Hon'ble Supreme Court. 75. He has also submitted that this Authority was itself using different methodologies to ascertain 'profiteering' in the cases filed before it. in some cases, this Authority had restricted itself to the goods mentioned in the application. while in some other cases it has considered business as a whole, which showed that there was no defined procedure being adopted by this Authority which was leading to arbitrariness. In the absence of a well-defined procedure/methodology regarding calculation of profiteering, the DGAP was adopting an ad-hoc and arbitrary methodology, In the absence of prescribed method/formula for calculation of profiteering, following a method on case-to-case basis was arbitrary and thus, the Report was liable to be rejected. 76. The above submissions of the Respondent were forwarded to the DGAP for his reply and the DGAP vide his Report dated 06.12.2019 has stated that his office had considered all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned product and the same should be compared with the tax rate prescribed under the GST law, in order to ascertain whether the Respondent was covered under the ambit of Section 171 of CGST Act, 2017. He has also submitted the details of pre and post GST rates of tax as under:- The computation of pre-GST rate of taxes (%) shall be computed as follows - Sl.No. State Pre-GST rate of Taxes (%) Central Excise Duty1 (A) State VAT2 (B) CST/VAT Reversal3 Entry Tax4 (D) Total Taxes (%) (A+B+C+D) 1. Andhra Pradesh 12.50% 14.50% 0.75% - 27.751% 2. Assam 12.50% 15.00% 0.75% - 28.250% 3. Assam-CST Sale 12.50% 2.00% 0.73% - 15.227% 4. Bihar 12.50% 15.00% 0.67% - 28.170% 5. Chhattisgarh 12.50% 14.50% 0.78% 1.00% 28.780% 6. Delhi 12.50% 12.50% 0.74% - 25.739% 7. Gujarat 12.50% 15.00% 0.75% - 28.245% 8. Gujarat-CST Sale 12.50% 2.00% 0.72% - 15.221% 9. Haryana 12.50% 13.13% 0.71% - 26.334% 10. Jammu and Kashmir 12.50% 14.50% 0.68% - 27.730% 11. Jharkhand 12.50% 14.50% 0.73% 27.742% 12. Karnataka 12.50% 14.50% 0.74% - 27.723% 13. Kerala 12.50% 14.50% 0.72% - 30. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76% - 26.64% 18. Tamil Nadu 10.83% 14.50% 0.74% - 26.06% 19. Telangana 10.83% 14.50% 0.77% - 26.10%, 20. Uttar Pradesh 10.83% 14.50% 0.72% - 26.05% 21. West Bengal 10.83% 14.50% 0.80% 1.00% 27.13% 22. Goa 10.62% 12.50% 0.77% - 23.88% 23. Nagaland - CST sale from Assam 10.83% 2.00% 0.73% - 13.55% 24. Puducherry 10.83% 14.50% 0.74% - 26.06% 25. Punjab 10.98% 15.95% 0.74% - 27.67% 26. Tripura - CST Sale from Assam 10.72% 2.00% 0.73% - 13.45% 27. Uttarakhand 10.83% 14.50% 0.72% - 26.05% Average Pre-GST tax rate 24.32% 81. Thus. the Respondent has claimed that on addition of the rates of applicable duties/taxes and the VAT/CST reversal, it could be seen that the rates of taxes were nominally more than 28% in only 2 states. In Orissa, the earlier rate was 28.10% which on application of Section 170 of the CGST Act (Rounding off) was to be read as 28%. Thus. the only State where the pre-GST rate was more than 28% was Madhya Pradesh where it was 28.63%. He has also submitted that applying the principal of rounding off, the rate of tax would be 28% in one of these States. Further this decrease in ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputations had not considered any given data to arrive at the pre-GST (%) and the percentage of rate was arrived at by adding all the pre-GST tax rates which were applicable on the impugned product. Therefore, he has claimed that the DGAP's observation was not relevant. He has also submitted that it was pertinent to note that even though the "All India Dealer price is same", the price at which the goods were sold to the dealers were different in the Pre-GST regime due to various factors such as difference in the tax rates (VAT), differences in negotiations and discounts thereof etc., therefore, for the purpose of computing profiteering amount, a single average price for the respective State could not be taken as the base. Instead. the dealer level comparison should be made i.e. the average commensurate price, at the dealer's level, during pre-CST period should be compared with the transaction-wise actual price during the GST period for the respective dealer, due to the reason that Section 171 of CGST Act envisaged benefit on account of reduction in the tax rate to be passed on to the recipients. Therefore. the computation should also be at the recipient's level (i e, dealers level) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is fresh Report on 07, 10.2019 after re-investigation whereby he has computed the profiteered amount as ₹ 4,07,451/- as per the revised Annexure-20 87. It is further revealed from the record that the Central Government, on the recommendation of the GST Council, had levied 28% GST on the 'Refrigerators, freezers and other refrigerating or freezing equipment electric or other, heat pumps other than air conditioning machine of heading 8415", vide S. NO. 120 Of Schedule- IV attached to Notification No. 01/2017-central Tax (Rate) dated 28,06.2017. The impugned product "Refrigerator Whirlpool FP313D PROTTON ROY MIRROR" was covered by the aforesaid Notification. Therefore, the Respondent is liable to pass on the benefit of tax reduction to the buyers of his above product in terms of Section 171 Of the above Act. 88. It is also evident from the methodology adopted by the DGAP for computation of profiteered amount that he has compared the State wise average basic price of the product after discount during the period from 01.04.2017 to 30.06.2017 with the transaction wise basic price after discount during the period from 01.07.2017 to 31.08 2018. The DGAP vide Annexure-19 of his Repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such a coincidence is incomprehensible. wrong and unheard off which shows that the Respondent has deliberately tried to pocket the benefit of tax reduction to enrich himself at the expense of the vulnerable customers. Accordingly, on the basis of the pre and post reduction tax rates and the details of the outward taxable supplies of the impacted product made during the period from 01 07.2017 to 31.08.2018 the profiteered amount in respect of the Respondent has been rightly computed as ₹ 4,07,451/- including the GST, the details which have been mentioned in Annexure-20 (Revised) of the Report dated 07.10.2019 submitted by the DGAP. The State wise profiteered amount has been mentioned in Table-A of the above Report 89. The Respondent in his submissions has claimed that no principles or guidelines or methodology or procedure or formula or modalities have been framed by this Authority or in the CGST Act or the Rules in order to determine whether profiteering has been undertaken by a supplier or not in the absence of which the Respondent was free to decide how the benefit of tax reduction was to be passed on as per the provisions of Section 171 of CGST Act, The above contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich has become available to a registered person. The legislature has deliberately not used the word 'equal' or 'equivalent' in this Section and used the word 'Commensurate' as it had no intention that it should be used to denote proportionality and adequacy, The benefit of additional ITC would depend on the comparison of the ITC/CENVAT Which was available to a builder in the pre-GST period with the ITC available to him in the post GST period w.e.f. 01.07.2017. Similarly, the benefit of tax reduction would depend upon the price and quantum of reduction in the rate of tax from the date of its notification. Computation Of commensurate reduction in prices is purely a mathematical exercise which is based upon the above parameters and hence it would vary from SKU to SKU or unit to unit or service to service and hence no fixed mathematical methodology can be prescribed to determine the amount of benefit which a supplier is required to pass on to a buyer. Similarly, computation of the profiteered amount is also a mathematical exercise which can be done by any person who has elementary knowledge of accounts. However, to further explain the legislative intent behind the above provision, thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by claiming that he was required to carry out highly complex and exhaustive mathematical computations for passing on the benefit of tax reduction which he could not do in the absence of the principles / guidelines/ procedure/ methodology/ modalities/ formula framed by this Authority or under the above Act and the Rules, However, his claim is absolutely wrong as he was only required to maintain the same basic price of his product which he was charging before the tax reduction was notified w.e.f. 01.07.2017 and charge 28% GST on the basic price, Accordingly, MRP of his impacted product was required to be the re-fixed and stickered by him as manufacturer and conveyed to his dealers. However, as is evident from the invoices mentioned in Table-A supra the Respondent had increased his basic pre GST price from ₹ 25,527/- to post GST basic price amounting to ₹ 26,475/- and the MRP from ₹ 39250/- to Rs, 40, 100/- and had also not re-fixed his MRPs which he was bound to do in terms of Section 171 of the CGST Act, 2017 as well as the Legal Metrology Act, 2009 after the rate of tax was reduced to 28% w.e.f. 01.07,2017. Hence, no principles, methodology and procedure or guidel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustomers. Moreover, the benefit of tax reduction has to be passed on to each customer on each purchase which cannot be done if the benefit vs computed at the entity level as it would deny the required benefit. Therefore, the benefit has to be computed at the State level and not at the national level. 92. He has also contended that with the introduction of GST he had to revisit his pricing in the background of the revised rate Of tax and ITC availability. The above argument of the Respondent is untenable as there was no ground to refix the price of the impugned product as the Respondent was required to maintain the basic price which he was charging during the pre GST period and charge GST after coming in to force Of the GST which had no connection with his cost of production and ITC. There was no cause for the Respondent to increase his price w.e.f. 01.07.2017 the date from which the rate of tax had been reduced. Such a coincidence is deliberate and unheard off and shows that the Respondent had no intention of passing on the benefit of tax reduction and he had illegally appropriated the same. 93. He has also claimed that the basic price for the purpose of making comparison of aver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the rate of tax had been increased and hence the anti-profiteering provisions were not attracted in the above case. Accordingly, the orders passed in the above cases are of no help to the Respondent. As has been discussed above the basic price cannot be computed pre-discount and therefore, the profiteered amount cannot be considered as (-) ₹ 43,558/- as per Exhibit-4 attached by the Respondent with his submissions. 94. The Respondent has also submitted that even if the methodology adopted by the DGAP as per Annexure-19 of his Report dated 07.10.2019 is accepted the profiteering should be computed for only 5 States viz. Assam, Bihar, Gujarat, Madhya Pradesh and Rajasthan, in case the basic price was considered pre-discount. It would be pertinent to mention here that the basic price cannot be computed pre discounts on the grounds mentioned supra and hence profiteering in respect of all the 18 States as per Annexure-19 has to be computed including the States of Assam, Bihar Gujarat, Madhya Pradesh and Rajasthan, Accordingly, in respect Of these five States the profiteering amount as computed in the revised Annexure-20 of the revised DGAP Report dated 07.10.2019 cannot be redu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Respondent cannot be accepted on his mere assertion. Accordingly, the profiteered amount in respect of the E-commerce customers to the tune of ₹ 36,357/- cannot be reduced as per the details given in Exhinit-6. 96. The Respondent has also stated that in respect of the States Of (a) Goa (b) Nagaland (c) Puducherry (d) Punjab (e) Tripura and (f) Uttarakhand the DGAP has wrongly computed profiteering in the absence of comparable pre-GST base prices which could be substantiated from Annexure-19 (revised) of the DGAP Report dated 07.10.2019 wherein column (C) to (H) against rows (29) to (34) were intentionally left blank. In the absence of such comparable pre-GST base prices. the DGAP has arbitrarily adopted the pre-CST base prices of other States for computing profiteering. For instance - the pre-GST base price for 'Goa' was the same as that of "Maharashtra', The pre-GST base price for 'Nagaland' was same as that of "Assam'. In this regard it is revealed from the perusal of Table-A of the Report dated 07,10.2019 that no profiteered amount has been computed for the State of Goa and hence the pre GST rate of tax in respect of the above State has no impact on the liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 2016 due to increase in raw material cost which was computed every month to arrive at the 'MAP' at the end of each month, There was an increase of ₹ 365/. per unit of the impugned product when compared between the pre-GST and the post-GST periods from August 2016 to July 2017 which was included in the MRP of the product. The comparison of the BOM for the pre-GST period vis-å-vis the BOM when the MRP was increased under the GST regime has been given by the Respondent vide Exhibit-9 and the Cost Accountant's Certificate vide Exhibit-10 has also been attached certifying such increase. In this connection it would be relevant to mention that there was no ground for the Respondent to increase his basic price on the very date from which the rate of tax was reduced. There is also no justification to establish why the Respondent had not increased his price during the period from August 2016 to June 2017 every month when he was computing the MAP every month. It is also apparent from the details of the life cycle of the product submitted by the Respondent that he has increased the MRP and DP of the product during the months of July and October 2016 which falsifies the claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinary buyers by the Central and the State Governments by sacrificing their precious tax revenue which the Respondent cannot be allowed to misappropriate and enrich himself at the expense of the common buyers who are unorganized, voiceless and vulnerable. The Respondent is free to exercise his right to trade and fix his prices keeping in view his cost of goods. market conditions, competition and his business strategy but he cannot deny the above benefit under the pretext that it infringes his right to trade. Neither the DGAP nor this Authority has mandate to direct the Respondent to fix his prices as per their directions nor they have directed so and hence all such claims made by the Respondent are farfetched and are not tenable. 102. The Respondent has also submitted that the period covered under the investigation was from July, 2017 to August, 2018 covering 14 months and no grounds have been given by the DGAP for selecting such a long period which should be restricted to 3 months, In this regard it would be appropriate to note that the rate of tax on the products being supplied by the above Respondent was reduced w.e.f. 01.07-2017 and therefore, he was legally required to pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the benefits of tax reduction and ITC have been passed on or not and therefore, the claim of the Respondent that it is a profit checking body is wrong and untenable. 104. He has further submitted that the correct methodology to compute profiteering would be by comparing the tax incidence (%) pre and post GST and applying the difference to the supplies post-GST (taxable value). Accordingly. he has claimed that the profiteering should be ₹ 2,23,800/- as per Exhibit-i4. He has also furnished details of computation of the profited amount in the Tables prepared by him Perusal of the Tables prepared by the Respondent shows that he has computed the profiteered amount on the basis of the total taxable supplies made in each State multiplied by the reduction in the rate of tax. Such a methodology adopted by the Respondent is not in consonance with the provisions of Section 171 (1) as profiteered amount has to be computed on each supply so that the benefit could be passed to every buyer. In case the above methodology is applied the eligible buyers would not be able to get the due benefit as the Respondent has charged different prices to different dealers by giving them different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services of both." (Emphasis supplied) 106. Therefore, it is evident from the perusal of Sub-Section 171 (1), 171 (3A) and the Explanation attached to this Section that profiteering pertains to the amount of benefit which has been denied to the recipients by a registered person by not reducing the prices of his products commensurately on which the rate of tax has been reduced. Hence, the definitions quoted by the Respondent from the various dictionaries are not applicable, Similarly, his contention that the above term refers to excessive, exorbitant and unjustifiable profits arising due to supply of essential goods is also not correct. The argument of the Respondent that the marginal notes on anti-profiteering measures attached to Section 171 of the CGST Act, 2017 and Chapter XV of the CGST Rules, 2017 were required to be considered while interpreting the anti-profiteering measures is also not relevant as profiteered amount has been clearly, concisely and appropriately defined in the above Section. Marginal note was only required to be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 16,326/- cannot be reduced/considered from the alleged profiteering computation as per Exhibit-16, 17, 18 and 19. 109. The Respondent has also contended that while computing the profiteered amount the DGAP has incorrectly added 28% GST which has already been deposited with the Government. In this regard it is mentioned that the Respondent has not only collected excess basic price from his customers which they were not required to pay due to the reduction in the rate of tax but he has also compelled them to pay additional GST on the excess basic price which they should not have paid. The Respondent has thus defeated the objective of both the Central and the State Governments to provide the benefit of rate reduction to the ordinary customers by sacrificing their tax revenue. 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 the ordinary buyers by charging excess GST. Had he not charged the excess GST the customers would have paid less price while pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit) (Net Profit Margin) Regulations 2014 as they were not properly working and has also Withdrawn the GST. These provision were also regulating and controlling the prices in Malaysia. As far as the 'Net Dollar Margin Rule' framed by the Government of Australia is concerned the same also regulates the prices. The intention and objective of the provisions of Section 171 (1) of the above Act is only to pass on the above two benefits and they do not propose to control and regulate the prices, It is strange that the Respondent is not willing to pass on the benefit of tax reduction which he is not to pay from his own pocket as it is being given out of the tax revenue of the Central as well as the State Governments but is advocating fixing of prices of his products by the Government. Therefore, the above contention of the Respondent is frivolous and hence, it cannot be taken in to consideration. 112. In this regard, the Respondent has also placed reliance on the cases of Eternit Everest Ltd. v, Union of India 1997 (89) EL.T. 28 (Mad.)., Commissioner of Income Tax Bangalore v. B. C. Srinivasa Setty (1981) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITC has been provided irrespective of the fact whether any complaint is received or not and whether all the impacted goods are mentioned in the complaint or not. However, the profiteered amount has to be calculated on the facts of each case as has been mentioned supra. Therefore, the above contention of the Respondent is frivolous 114. The Respondent has also contended that Section 171 (1) of CGST Act, 2017 contemplated reduction in the "rate of tar and not reduction in the "incidence of tax' and thus, the methodology followed by the DGAP was incorrect. In this regard it would be appropriate to note that the DGAP has computed the profiteered amount on the basis of the actual tax charged by the Respondent in each State during the pre GST period as is clear from the perusal of Annexure-20 (Revised). The above amount has not been calculated on the basis of the incidence of tax but on the basis of the actual amount of tax charged during the pre and the post GST periods and hence the above argument of the Respondent is not tenable. 115. He has also stated that for the pre-GST the tax rates (%) should be added to arrive at the pre-GST tax rate applicable on the impugned product and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as well as the MRP With an intention to deny the benefit of tax reduction. The Respondent cannot fasten his liability on his dealers. In case he does not pass on the benefit of tax reduction there is no possibility of its getting passed on to the ultimate customer down the supply chain. Therefore, the above contention of the Respondent is wrong and hence it cannot be accepted. Accordingly, the profiteering amount cannot be reduced to ₹ 1,50,122/- from ₹ 4,07,451/- 117. The Respondent has also stated that even though the "All India Dealer price is same", the price at which the goods were sold to the dealers were different in the Pre-GST regime due to various factors therefore, for the purpose of computing profiteering amount the dealer level comparison should be made, As discussed in para supra the comparison has to be made at the level of the Respondent as he is fixing the basic price and the MRP and the same cannot be made at the level of the dealers. 118. The Respondent has further stated that penalty could not be imposed on him in the absence of substantive provision in the CGST Act, He has also claimed that Section 122 of the CGST Act. 2017 could be invoked only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of tax so that the benefit of tax reduction is passed on to the recipients. The Respondent is also directed to deposit the profiteered amount mentioned above along with the interest to be calculated @ 18% from the date from which 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 Respondent is directed to deposit the above amount of profiteering 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 as per the details mentioned in Table-A mentioned above 121. The above amount shall further 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 Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed on the benefit of tax reduction on the products mentioned in Annexure-I, Accordingly, the DGAP under Rule 133 (5) Of the CGST Rules, 2017 is directed to further investigate whether the Respondent has passed on the benefit of tax reduction to his recipients in terms of Section 171 of the above Act or not in respect of the products on which the rate of tax was reduced and submit his Report as per the provisions of Rule 129 (6) of the above Rules.
124. As per the provisions of Rule 133 (1) of the CGST Rules, 2017 this order was to be passed on or before 06 04.2020 as the investigation Report was received from the DGAP on 07.10.2019, However, due to the COVID-19 pandemic prevailing in the Country the order could not be passed on or before the above date. Hence, the same is being passed today in terms of the Notification No, 35/2020-CentraI Tax dated 03,04.2020 issued by the Government of India, Ministry of Finance, Department of Revenue. Central Board of Indirect Taxes & Customs under Section 168 A of the CGST Act, 2017,
125. A copy of this order be sent to the Applicants and the Respondent free of cost. File of the case be consigned after completion. X X X X Extracts X X X X X X X X Extracts X X X X
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