9911796707
TMI Blog2020 (7) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... ication, it was alleged that despite reduction in the rate of GST from 18% to 5% w.e.f. 15.11.2017, the Respondent had not passed on the commensurate benefit of tax reduction as he had increased the base prices of his products. Statement dated 07.02.2019 of Sh. Gaurav Sharma, Proprietor of the Respondent along with estimated cost of goods supplied by him was also enclosed with the recommendations of the Standing Committee. On receipt of the said reference from the Standing Committee on Anti-profiteering, a notice under Rule 129 (3) was issued on 12.07.2017 by the DGAP, calling upon the Respondent to reply as to whether he admitted that the benefit of reduction in the GST rate w.e.f. 15.11.2017, had not been passed on to his recipients by way of commensurate reduction in prices and if so, to suo-moto determine the quantum thereof and indicate the same in his reply to the notice as well as furnish all the supporting documents. The Respondent was also allowed to inspect the relied upon non-confidential evidence/information which formed the basis of the investigation between 18.07.2019 and 22.07.2019, which was however not availed of by the Respondent. 2. The DGAP has reported that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amination of the case record, including the reference received from the Standing Committee on Anti-Profiteering, various replies of the Respondent and the documents/evidence placed on record, it emerged that the main issues for determination were whether the rate of GST on the service supplied by the Respondent was reduced from 18% to 5% w.e.f. 15.11.2017 and if so, whether the benefit of such reduction in the rate of GST had been passed on by the Respondent to his recipients, in terms of Section 171 of the CGST Act, 2017. 7. The DGAP has further stated that the GST rate on the restaurant service had been reduced from 18% to 5% w.e.f. 15.11.2017 along with the condition that no ITC on the goods and services used in supplying the service would be available to the Respondent vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017. Since it was a case of reduction in the rate of tax, it was important to examine the provisions of Section 171 (1) of the CGST Act, 2017, to ascertain whether the present case was a case of profiteering or not. Section 171 (1) reads as "Any reduction in rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect from 15.11.2017, the rate of tax on restaurant service was reduced from 18% to 5% and no ITC was available to the Respondent. A summary of the computation of the ratio of ITC to the taxable turnover as furnished by the DGAP is given in Table-A below:- Table-A (Amount in Rs.) Particulars Jul-2017 Aug-2017 Sept.-2017 Oct.-2017 Total ITC Availed as per GSTR-3B (A)* 43,170 48,675 81,471 75,678 2,48,994 Total Outward Taxable Turnover as per GSTR-3B (B) 7,30,558 Ratio of Input Tax Credit to Net Taxable Turnover (C=A/B*100) 8.72% 10. The DGAP has further intimated that the analysis of the details of the item-wise outward taxable supplies made during the post-rate reduction period from 15.11.2017 to 31.06.2019 revealed that the base prices of the different items supplied by the Respondent had been increased by the Respondent, presumably, to offset denial of ITC-. The pre and post rate reduction prices of the items sold by the Respondent during the period from 01.07.2017 to 14.11.2017 (Pre-GST rate reduction) and from 15.11.2017 to 30.06.2019 (Post-GST rate reduction) were compared and it was revealed that the Respondent had increased the base prices of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he base profiteered amount for the period of investigation which was detailed in Annexure-13 of his Report. It has also been stated by the DGAP that the service had been supplied by the Respondent in the State of Rajasthan only. 13. The DGAP has also claimed that the allegation of profiteering by way of either increasing the base prices of the products while maintaining the same selling prices or by way of not reducing the selling prices of the products commensurately, despite the reduction in the rate of GST from 18% to 5% w.e.f. 15.11.2017 stood confirmed against the Respondent and the extent of profiteering was Rs. 7,53,854/- (inclusive of GST). Thus the provisions of Section 171 (1) of the CGST Act, 2017 had been contravened by the Respondent in the present case. 14. The above Report of the DGAP was considered by this Authority and it was decided to hear the parties on 17.01.2019. A Notice dated 06.01.2020 was also issued to the Respondent asking him to explain why the Report dated 31.12.2019 furnished by the DGAP should not be accepted and his liability for violating the provisions of Section 171 of the above Act should not be fixed. Sh. Vishal Khandelwal and Sh. Amit Kumar, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 6.47% June'18 23,368.35 1,180,227.17 1.98% Apr'19 79,816.33 1,154,848.52 6.91% July'18 27,716.87 1,117,425.06 2.48% May'19 74,381.46 1,126,637.44 6.60% Aug'18 27,090.32 1,114,046.35 2.43% Jun'19 69,988.34 1,131,809.89 6.18% Total 264,353.06 9,760,166.85 489,501.35 11,391,814.62 c. That Right to trade was a fundamental right guaranteed under Article 19 (1) (g) of the Constitution of India and the right to trade included the right to determine prices which could not be taken away without any explicit authority under the law. The base sale price of the complained product was not controlled under any legislation or the Essential Commodities Act or the CGST Act and the Rules. Therefore, this form of price control was a violation of Article 19 (1) (g) of the Constitution of India. d. That after the GST rate reduction notification there was no such change in the taxation regime for restaurant service. However, the DGAP has completely ignored the fact that he has fundamental right to increase prices of his products. He had increased the prices of the products after substantial time approx. 15 months from the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nov 2017 Sum of Total Profiteering (DGAP Working) A Sum of Revised Profiteering after correct Base Price-B Difference (A-B) 1. SOTD 6 in Aloo Patty 105 Aug'17 110 9871 -1098 -10969 2. SOTD 6 in Chatpata or ck 105 Aug'17 110 1530 -170 1,700 3. SOTD 6 in Ckn Slice or M 105 Aug'17 110 1397 -155 1,552 4. SOTD 6 in Ckn Tik or cor 105 Aug'17 110 1777 -197 1,974 5. SOTD 6 in Corn & peas or 105 Aug'17 110 15388 4450 10,938 6. SOTD 6 in Hara Bhara or 105 Aug'17 110 1813 -201 2,014 7. SOTD 6 in Veg Shami or C 105 Aug'17 110 1890 -210 2,100 33,666 2415 31,247 f. Increase in royalty expense paid to Subway India Private Limited @1.77% should be considered in calculation of base price after rate reduction:- That As per the franchise agreement, the Respondent was under legal obligation to pay 8% on the net sales towards royalty and 4.5% towards advertisement charges to M/s Subway Systems India Private Limited (SSIPL). The royalty and tax Invoices had been issued by M/s SSIPL after charging GST @12% on royalty amount and @18% on the advertisement expenses. The basis of calculation of the royalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount as per the Table given below:- Impact due to Royalty Expenses (Amount in Rs.) Month Total Profiteering Amount (DGAP Working) Revised Profiteering after royalty expenses adjustment Difference due to Royalty Expenses adjustment Nov'17 15,712.25 8,528.72 7,183.53 Dec'17 29,012.79 15,744.12 13,268.67 Jan'18 32,994.24 17,860.42 15,133.82 Feb'18 30,848.62 16,270.71 14,577.91 Mar'18 30,241.74 15,677.71 14,564.03 Apr'18 24,306.29 12,595.46 11,710.83 May'18 22,813.73 11,659.36 11,154.37 Jun'18 23,368.35 11,866.26 11,502.09 Jul'18 27,716.87 13,993.46 13,723.40 Aug'18 27,050.87 13,586.28 13,464.59 Sept'18 24,757.34 12,576.24 12,181.10 Oct'18 28,523.73 14,471.98 14,051.74 Nov'18 26,071.64 13,211.15 12,860.49 Dec'18 30,602.91 16,442.72 14,160.19 Jan'19 31,367.62 16,549.95 14,817.67 Feb'19 50,127.19 38,762.58 11,364.61 Mar'19 73,793.02 58,463.08 15,329.94 Apr'19 79,816.33 63,869.73 15,946.60 May'19 74,381.46 59,295.10 15,086.36 June'19 69,988.34 55,870.31 14,118.03 753,495.32 487,295.34 266,199.97 i. Increase in delivery expense paid to Online E-Commerce Platforms should be considered in cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anti-dumping action by the EU as the exporters were exporting different varieties of Bed Linen to the EU, the Government of India had objected to this approach of the European Commission and the matter was taken to the Dispute Settlement Body of the WTO which held in favour of Government of India. In the appeal filed by the EU before the Appellate Body, the Appellate Body held that the practice of not netting off positive dumping margins and negative dumping margins was not correct. In the present case, the Respondent on few products had not only passed the benefit by reduction in the tax rate but had also reduced the basic prices further and incurred substantial losses. The DGAP while calculating the profiteered amount had not considered the prices of products which had been reduced by him and considered the impact on the profiteered amount as zero instead of negative value. However, the column named "Difference in Value %" in the DGAP working file (File name "Total" in Annexure-13 of DGAP Report) clearly showed the negative % for the impacted line items. The total amount of these impacted negative line items was Rs. 2,34,510/- which has been incurred by the Respondent on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other benefits to the customers, reductions in the SKU rates, discounts and increase in the royalty expense were not account for. For the period from February 2019 to June 2019, the profiteered amount calculated by the DGAP was approx. 6% of net sales turnover, which was much over the average of 3.56%, calculated by the DGAP. This was primarily due to the fact that the Respondent had increased his prices during the month of January/February 2019 to account for several other business factors. These factors had not been considered by the DGAP in his calculations and accordingly, profiteering was calculated on the increased base prices for the period from January 2019 to June 2019 period. This reiterated the fact that the period for calculation of profiteered amount should be considered for a reasonable length of time. On 31st March 2018 the Respondent's gross profit ratio was 7.26% but, in the year ending 31st March 2019, his gross profit had been reduced from 7.26% to 6.67% as well as the total sales. Therefore, there was no profit due to change in the rate reduction of GST. If the calculation period was considered upto March 2018, the profiteered amount would be reduced from Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit of tax rate reduction by maintaining the base price and charging GST at the reduced rate on such base price. Every supplier of goods and services was free to increase the price of his supply depending upon the various components affecting the cost of production/supply. But under the provisions of the Section 171 of the CGST Act, 2017, no supplier could increase the base prices of the products overnight in such a manner that even with reduction in the rate of tax, the cum-tax selling price would remain unchanged. Therefore, there wasn't any violation of Article 19 (1) (g) of the Constitution of India as the DGAP has not attempted to examine or question the base prices as Section 171 did not mandate control over the prices of the goods or services as they were to be determined by the supplier. Section 171 only mandated that any reduction in the rate of tax or the benefit of ITC which accrued to a supplier must be passed on to the consumers as both were the concessions given by the Government and the suppliers were not entitled to appropriate them. Such benefits must go to the consumers and in case they were not identifiable, the amount so collected by the suppliers was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of ITC loss has been given to the Respondent. Further, the case of M/s KRBL was different as the pre-GST rate of tax was nil and for the first time tax rate of 5% was imposed on the impugned product. d. Para 4:- That during the investigation, the Respondent has not made any such submissions. Therefore in the absence of any documentary evidence, the claim of the Respondent was not acceptable at this point of time. e. Para 5:- That the price included both the basic price and the tax charged on it. Therefore, any excess amount collected from the recipients, even in the form of tax, must be returned to the recipients. In case, the recipients were not identifiable the said amount was required to be deposited in the CWF. By increasing the base price, the Respondent has forced his customers/recipients to pay extra tax which they were not liable to pay. Therefore, it was clear that the amount of extra tax ( GST) on the increased base prices was an amount paid by the customers/recipients which they were not supposed to pay. If any supplier has charged more tax from the recipients, the aforesaid statutory provisions would require that such amount be refunded to the eligible reci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total impact of ITC denial which included the loss of ITC in respect of MRP goods also, has been duly considered and accordingly ratio of ITC to Net Outward Taxable Turnover has been calculated for the pre rate reduction period and hence the claim of the Respondent has no significance at this point of time. 17. The Respondent, vide his submissions dated 01.06.2020 sent through e-mail dated 10.06.2020, has filed his contentions against the above Supplementary Report of the DGAP. Upon perusal of the submissions dated 01.06.2020 made by the Respondent, it is observed that he has reiterated the issues mentioned in his earlier submissions dated 13.02.2020. In addition to the submissions dated 13.02.2020, the Respondent has made the following additional submissions:- a. That he did not agree with the reply of the DGAP mentioned in Para 2 of his submissions dated 09.03.2020. He has stated that he has submitted the pre and post GST rate reduction product wise Price Lists. Further, this fact could also be verified from the sales register in which subject product has been sold at Rs. 110/- under SOTD Scheme. b. That he did not agree with the reply of the DGAP made in Para 4 of his cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rices as per the details submitted by the Respondent for the period from 01.08.2017 to 14.11.2017 and the actual selling prices post rate reduction w.e.f. 15.11.2017 to 30.06.2017 it has been found that the GST rate of 5% has been charged by the Respondent w.e.f. 15.11.2017 however the base prices of some of the products have been increased more than their commensurate prices w.e.f. 15.11.2017 which established that because of the increase in the base prices the cum-tax price paid by the consumers was not reduced commensurately, inspite of the reduction in the GST rate. 21. While comparing the average pre rate reduction base prices with the post rate reduction actual base prices the DGAP has duly taken in to account the impact of denial of ITC in respect of the "restaurant service" being supplied by the Respondent as a percentage of the taxable turnover from the outward supply of the products made during the pre-GST rate reduction period by taking into consideration the period from 01.07.2017 to 31.10.2017 and not up to 14.11.2017. This has been done because there was no reversal of ITC on the closing stock of inputs/input services and capital goods as on 14.11.2017 made by the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d amount. The details of the computation have been given by the DGAP in Annexure-13 of his Report. 24. The DGAP for computation of the profiteered amount has compared the average base prices of the products which were being charged by the Respondent during the pre rate reduction period with the actual post rate reduction base prices of these products. It was not possible to compare the actual base prices prevalent during the pre and the post GST rate reduction periods due to the reasons that the Respondent was (i) selling his products at different rates to different customers based on the various factors such as sales, inventory position, competitor's strategy, market penetration and customer loyalty (ii) the same customer may not have purchased the same product during the pre and the post rate reduction periods and (iii) a customer may have purchased a particular product during the pre rate reduction period and may not have purchased it in the post rate reduction period or vice versa and (iv) the average base prices computed for a period of 14 days w.e.f. 01.11.2017 to 14.11.2017 or for the previous months provide highly representative and justifiable comparable average base pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and other factors although at no stage between the period w.e.f. 15.11.2017 till date he has established that he has passed on the benefit of tax reduction commensurately. The Respondent has continued to increase his prices by more than what he could have done to off set the denial of ITC and he has not fixed them commensurately even once during the above period which could prove that he has passed on the benefit of tax reduction. Therefore, the DGAP has rightly computed the profiteered amount. Hence, the above contention of the Respondent is not tenable. 26. The Respondent has also argued that the right to trade was a fundamental right guaranteed under Article 19 (1) (g) of the Constitution which included the right to determine prices which could not be taken away without any explicit authority under the law. Therefore, this form of price control was a violation of Article 19 (1) (g). In this connection it would be relevant to mention that the Respondent has full right to fix his prices under Article 19 (1) (g) of the Constitution but he has no right to appropriate the benefit of tax reduction under the garb of the above right. The DGAP has not acted in any way as a price co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertisement Charges on his net sales on which GST @ 12% and 18% was also being charged and after 01.07.2017 his royalty cost has directly increased by 1.769% which has not been considered by the DGAP. In this connection it would be appropriate to mention that there has been no change in the rates of royalty and advertisement charges in the post rate reduction period and hence, they have no impact on the base prices of the Respondent. These charges were already built in the base prices during the pre rate reduction period and hence, they cannot be added again in the base prices. These charges are also bound to increase as the Respondent has increased his base prices by more than the permissible limit of 8.72% which he cannot claim to exclude from the profiteered amount. Therefore, the above claim of the Respondent cannot be accepted. 29. The Respondent has also relied upon the decision of this Authority given in the case of Kumar Gandhrav v. M/s KRBL Limited (Case Number 03/2018 dated 04.05.2018) = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY to support his case. In this context, it is pertinent to mention that in the above case no benefit of increase in the cost was give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general public. The Respondent was legally not required to collect the excess GST and therefore, he has not only violated the provisions of the CGST Act, 2017 but has also acted in contravention of the provisions of Section 171 (1) of the above Act as he has denied the benefit of tax reduction to his customers by charging excess GST. Had he not charged the excess GST the customers would have paid less prices while purchasing food items from the Respondent and hence the above amount has rightly been included in the profiteered amount as it denotes the amount of benefit denied by the Respondent. The above amount can also not be recovered from the Government as it is required to be deposited in the CWFs of the Central and the State Government. Therefore, the above amount has been correctly included in the profiteered amount by the DGAP and therefore, the contention of the Respondent is untenable and hence it cannot be accepted. 32. The Respondent has further averred that the DGAP while calculating the profiteered amount has incorrectly applied a methodology similar to the 'zeroing methodology'. In this regard, we observe that no 'netting off' can be applied in the cases of profiteer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit has to be passed on each supply of goods and services to each buyer. Hence, the above contentions of the Respondent is not correct as the Respondent cannot insist on applying the above methodology of netting off as has been approved in the above Report of the WTO as it would result in denial of benefit to the customers which would amount to violation of the provisions of Section 171 of the above Act as well as Article 14 of the Constitution. 34. The Respondent has also stated that the DGAP has not considered the amount of Rs. 2,34,510/- incurred by the Respondent on account of rate reduction in the prices of the products after GST rate reduction. In this connection it is mentioned that Section 171 of the CGST Act, 2017 requires passing of the benefit of tax reduction by commensurate reduction in prices only and therefore, the Respondent cannot claim to pass on the benefit through the promotional schemes. Such schemes have been offered by the Respondent to increase his sales in the normal course of his business which do not constitute passing on of the benefit. The Respondent cannot pass on the benefit as per his own convenience as he is legally bound to pass on the above be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by him. The fact that the Respondent has not complied with the provisions of Section 171 (1) of the above Act till 30.06.2019 requires that the profiteering is computed for the entire period and hence we do not see any reason to accept this contention of the Respondent. We further observe that had the Respondent passed on the benefit before 31.03.2019, he would have been investigated only till that date. The Respondent has failed to cite any ground due to which the profiteered amount should be computed till March 2018 only. Therefore, the period of investigation from 15.11.2017 to 30.06.2019 has been rightly taken by the DGAP for computation of the profiteered amount. 37. The Respondent has further argued that the CGST Act, 2017 did not prescribe any method of computation by which profiteered amount could be calculated. The above contention of the Respondent is frivolous as the 'Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and ITC or computation of the profiteered amount has been outlined in Section 171 (1) of the CGST Act, 2017 itself which provides that "Any reduction in rate of tax on any supply of goods or services or the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT 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 and mathematics. However, to further explain the legislative intent behind the above provision, this Authority has been authorised to determine the 'Procedure and Methodology' which has been done by it vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017. However, no fixed mathematical formula, in respect of all the Sectors or the SKUs or the services, can be set for passing on the above ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product which he was charging as on 14.11.2017 and then add 8.72% of the base price on account of denial of ITC any charge GST @5% w.e.f. 15.11.2017. Instead of doing that he has raised his prices by adding more than 8.72% of the base prices as is evident from Table-B supra. The average pre rate reduction base price of the product mentioned in the above Table was Rs. 120/- which could have been raised to Rs. 130.19/- by adding denial of ITC to the extent of 8.72%. After adding GST @ 5% amounting to Rs. 6.51/- the Respondent was required to sell it at the commensurate price of Rs. 136.70/- w.e.f. 15.11.2017. However, he had sold the above product at Rs. 140/- and hence, he has profiteered to the extent of Rs. 3.30/-. It is clear from the above narration of facts and the law that no procedure or elaborate mathematical calculations are required to be prescribed separately for passing on the benefit of tax reduction. The Respondent cannot deny the benefit of tax reduction to his customers on the above ground and enrich himself at the expense of his buyers as Section 171 provides clear cut methodology and procedure to compute the benefit of tax reduction and the profiteered amount. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the recipients of the benefit, as determined above are not identifiable, the Respondent is directed to deposit an amount of Rs. 7,53,854/- in two equal parts of Rs. 3,76,927/- each in the Central Consumer Welfare Fund and the Rajasthan State Consumer Welfare Fund as per the provisions of Rule 133 (3) (c) of the CGST Rules 2017, along with interest payable @ 18% to be calculated from the dates on which the above amount was realized by the Respondent from his recipients till the date of its deposit. The above amount of Rs. 7,53,854/- shall be deposited, as specified above, within a period of 3 months from the date of passing of this order failing which it shall be recovered by the concerned CGST/SGST Commissioner. 41. It is evident from the above narration of facts that the Respondent has denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus resorted to profiteering. Hence, he has committed an offence under section 171 (3A) of the CGST Act, 2017 and therefore, he is liable to penal action under the provisions of the above Section. Accordingly, a notice be issued to him directing him to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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