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TMI Blog2020 (8) TMI 772X X X X Extracts X X X X X X X X Extracts X X X X ..... 12% on Services by way of admission to exhibition of cinematograph films where price of admission ticket was one hundred rupees or less w.e.f. 01.01.2019. vide Notification No. 27/2018- Central Tax (Rate) dated 31 12.2018. Therefore. the Respondent is liable to pass on the benefit of both the tax reductions to his customers in terms of Section 171 (1) of the above Act. It is also apparent that the DGAP has carried out the present investigation w.e.f. 01.01.2019 to 31.07.2019. The mathematical methodology employed by the DGAP to compute the profiteered amount is correct, appropriate, reasonable and in consonance with the provisions of Section 171 (1) as the Respondent was selling tickets at various prices to his customers due to which the actual transaction value was required to be taken in to account to calculate the profiteered amount. The average base price computed by the DGAP was required to be compared with the actual base price of the ticket to ascertain whether the Respondent has passed on the benefit to each of his buyer or not. Therefore, it would not have been correct to compare the average base prices pre and post rate reductions. Hence, the mathematical methodolog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rate of GST from 28% to 18% w.e.f. 01.01.2019. The Applicant No. 1 had alleged that the Respondent had sold tickets of value of ₹ 250/-, ₹ 200/- ₹ 150/- at the same prices prior to and after the GST rate reduction vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018. The Applicant No. 1 had also alleged that the Respondent had not passed on the benefit of reduction in the GST rate from 28% to 18% w.e.f. 01.01.2019 announced vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018 and instead. Had increased the base prices. The above Applicant had also enclosed the following supporting documents along with his application:- a. Copy of the APAF-I. b. Sample tickets dated 31.12.2018 (Pre-rate reduction) and 06.01.2019 07.01.2019 (Post-rate reduction). c. Letter dated 25.02.2019 of the Respondent addressed to Pr. Chief Controller of Accounts, CBIC, New Delhi along with copy of cheque No. 349950 dated 22.02.2019 for payment of ₹ 13,72,181/- into the Consumer Welfare Fund (CWF). 2. The DGAP has reported that on receipt of the aforesaid reference from the Standing Committee on Anti-profiteering, a Notice under Rule 129 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s voluntarily deposited in the CWF. Therefore. The Respondent had exercised all due diligence, within his control. To ensure that the GST rate reduction benefit was appropriately passed on to his customers. d) That he has 8 cinema properties [having total 49 No. of screens viz. 30 (2D), 18 (3D) 1 (4DX)] in the State of Telangana out of which PVR Erramanzil. Hyderabad had started its operation from 30.11.2019 and the 4DX screen was in operation from 11.02.2019. In terms of Telangana State Regulations, approval from the Licensing Authority was generally given for an introductory ticket of ₹ 75/-. After a month of operations, permission was granted to increase the ticket prices. Further, the prices applicable in this property were fixed in terms of the order dated 02.01.2019 passed by the Hon ble High Court of Telangana in WP No. 48127 of 2018 filed on 31.12.2018. e) That the PVR Musarambagh Hyderabad (having 6 screens) has started its operation from 22.03.2019 and pricing in this property was fixed in terms of the order dated 01.04.2019 passed by the Hon ble High Court of Telangana in WP No. 6811 of 2019. 4. Vide the aforementioned letters; the Respondent ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 should be passed on to the recipient by way of commensurate reduction in prices. Thus, the legal requirement was abundantly clear that in the event of a benefit of Input Tax Credit (ITC) or reduction in the rate of tax, there must be a commensurate reduction in the prices of the goods or services. Such reduction should obviously be in monetary terms only so that the final price payable by a consumer got reduced which was the legally prescribed mechanism for passing on the benefit of ITC or reduction in rate of tax to the customers under the GST regime. Moreover, it was also clear that the said Section 171 simply did not provide a supplier of goods or services any other means of passing on the benefit of ITC or reduction in the rate of tax to the buyers. 7. The DGAP has also noted that there were basically two classes of tickets in the Respondent s Multiplexes, namely, Classic and Recline . For the purpose of determination of profiteering, the class wise no. of tickets sold during the period from 01.12.2018 to 31.12.2018 (pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Post-Reduction Movie Name date J PRETHAM 2 dated 05.01.2019 (3D) AQUAMAN (English) dated 04.01.2019 11. Actual Selling price (post rate reduction) (including GST) K 150 250 12. Excess amount charged or Profiteering L 11.72 19.53/- 8. The DGAP has claimed from Table-A that the Respondent had not reduced the selling prices commensurately of the Movie Tickets , when the GST rate was reduced from 28% to 18% w.e.f. 01.01.2019, vide Notification No. 27/2018 Central Tax (Rate) dated 31.12.2018 and hence, the Respondent has profiteered an amount of ₹ 11.72/- on Classic and ₹ 19.53/- on Recline classes per ticket and thus the benefit of reduction in GST rates was not passed on to the recipients by way of commensurate reduction in the prices, in terms of Section 171 of the CGST Act, 2017. On the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.96/- 6. GST Rate F 28% 18% 18% 28% 18% 18% 18% 18% 7. Actual Selling price (post rate reduction) (including GST) G=E*(1+F) 150/- 150/- 138/- 250/- 250/- 230/- 75/- 75/- 8. Commensurate Selling price (post Rate reduction) (including GST) H=118% of E 138.28/- 138.27/- 230.47/- 230.45/- 71.19/- 9. Excess amount charged or Profiteering per Ticket I=G-H 11.72/- - 19.53/- - 3.81/- 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was one hundred rupees or less when the rate of GST was reduced from 18% to 12% w.e.f. 01.01.2019 stood confirmed against the Respondent. On this account, the Respondent had realized an additional amount to the tune of ₹ 13,51.519/- from the recipients which included both the profiteered amount and the GST on the said profiteered amount. However, as mentioned in para supra, the Respondent had voluntarily deposited ₹ 13,72,181/- along with interest of ₹ 35,8651- in the CWF which was in accordance with the provisions of Section 171 of the CGST Act, 2017 read with Rule 133 of the CGST Rules. 2017. 12. The DGAP has also stated that Section 171 (1) of the CGST Act, 2017 requiring that any reduction in rate of tax on any supply of goods or services or the benefit of ITC should be passed on to the recipient by way of commensurate reduction in prices might not be invoked against the Respondent in the present case and the profiteering amount already paid might be confirmed and regularized. 13. The above Report of the DGAP was considered by this Authority and it was decided to hear the parties on 02.03.2020. A Notice dated 05.02.2020 was also issued to the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has suo moto passed on the benefit on account of rate reductions even though there was no clarity on this issue in the regulated market. 17. The Respondent has also submitted that he was registered in the State of Telangana under GSTIN 36AAACP4526DIZR and was majorly engaged in the following business segments: - a. Sale of Tickets b. Sale of Food Beverages c. Sale of Advertisement space 18. The Respondent has also submitted that effective from 01.01.2019 the Government vide Notification No. 27/2018 - Central Tax (Rate) dated 31.12.2018 had reduced GST rates as under:- a. For ticket prices above ₹ 100/- - GST rate was reduced to 18% from existing rate of 28% b. For ticket prices up to ₹ 100/- - GST rate was reduced to 12% from existing rate of 18% 19. The Respondent has argued that while there were no specific guidelines or methodology prescribed under the CGST Act, 2017 for passing on benefit of tax reductions, he had suo moto computed the benefit and passed on the same by way of reduction in prices. 20. The Respondent has also argued that one of his sites in the State of Telangana located at Erramanzil. Hyderabad had started its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing the same on the license itself. Any deviation thereto in the admission ticket prices required the previous sanction of the concerned Licensing Authority. 22. The Respondent has also claimed that in the present case, the Respondent was also granted license by the Licensing Authority whereupon the admission ticket prices were fixed. A copy of the license/permission granted to the PVR Panjagutta by the Licensing Authority was enclosed as evidence wherein the admission ticket price was endorsed as ₹ 150/-. 23, The Respondent has further claimed that as and when the taxes were raised before implementation of the GST, the ticket prices had remained same and there were no changes made in them under the provisions of the Cinematograph Act and the Rules made thereunder resulting in net business losses. He has also submitted that the GST rate applicable on the ticket prices in multiplexes was brought down from 28% to 18% w.e.f. 01.01.2019 and still the ticket prices were not changed by the Licensing Authority. The Respondent has further submitted that on increase in the procurement prices. he was not allowed to increase his prices. Accordingly, on decrease in the GST rates, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res were not allowed to change ticket prices even on account of increase in the cost without permission of the concerned authorities. In the present case, even when the cost had increased in the past, the Respondent had not approached the Licensing Authority for revising the ticket prices. The Respondent has also argued that he had infact passed on the benefit of GST rate reductions to his customers and therefore. there was no need for further reduction of ticket prices. He has also stated that even though there was no requirement to pass on the GST benefit he had suo-moto computed the benefit and passed on the same by way of reduction in the prices of tickets in the State of Telangana. 27. The Respondent has also pleaded that he had sought clarity from the relevant Licensing Authority through MAI to deal with the impact of GST rate changes on the ticket prices in a regulated market of Telangana but no clarity was provided by the concerned Licensing Authority. Despite that, the Respondent had suo-moto reduced the ticket prices without even waiting for written permission in this regard from the concerned Licensing Authority, in order to pass on the benefit to his customers. The R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EERING AUTHORITY by the Respondent was different from the instant case as in the above case the pre-GST rate was nil and for the first time a tax rate of 5% was imposed on the impugned product, therefore the same was not applicable in the present circumstances. 31.The DGAP has also claimed that the Respondent has submitted that there were no guidelines/instructions provided by the Licensing Authority on applicability of the change in the rates of GST in the regulated market. In this regard, the DGAP has stated that the rates prescribed by the State Government were maximum rates and the Respondent was free to charge any rate upto maximum rates allowed by the Government. Further the Respondent being registered under CGST Act, 2017 has to comply with the provisions of Section 171 of the CGST Act, 2017 and pass on the benefit of reductions in the rates of tax commensurately to his recipients 32. We have carefully considered all the Reports furnished by the DGAP, the submissions made by the Respondent and the other material placed on record. On examining the various submissions we find that the following issues need to be addressed:- a. Whether the Respondent has passed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployed by the DGAP to compute the profiteered amount is correct, appropriate, reasonable and in consonance with the provisions of Section 171 (1) as the Respondent was selling tickets at various prices to his customers due to which the actual transaction value was required to be taken in to account to calculate the profiteered amount. The average base price computed by the DGAP was required to be compared with the actual base price of the ticket to ascertain whether the Respondent has passed on the benefit to each of his buyer or not. Therefore, it would not have been correct to compare the average base prices pre and post rate reductions. Hence, the mathematical methodology applied by the DGAP to compute the profiteered amount is justified and can be relied upon. 35. It is also revealed from the perusal of Table- B supra that after comparing the average selling prices pre rate reductions for the period from 01.12.2018 to 31.12.2018 and the actual selling prices post rate reduction w.e.f. 01.01.2019 to 31.07.2019, as per the details submitted by the Respondent, it has been found that the Respondent has profiteered an amount of ₹ 13,51,519/- w.e.f. 01.01.2019 to 06.01.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit/service level by treating them equally. The above provision also mentions any supply which connotes each taxable supply made to each recipient thereby making it evident that a supplier cannot claim that he has passed on more benefit to one customer on a particular product therefore he would pass less or no benefit to another customer than what is actually due to that customer. on another product. Each customer is entitled to receive the benefit of tax reduction or ITC on each SKU or unit or service purchased by him subject to his eligibility. The term commensurate mentioned in the above Sub-Section provides the extent of benefit to be passed on by way of reduction in the price which has to be computed in respect of each SKU or unit or service based on the price and the rate of tax reduction or the additional ITC which 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 build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of one sector cannot be applied to the other sector. Moreover, both the above benefits are being 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 suppliers are not required to pay even a single penny from their own pocket and therefore, they are bound to pass on the above benefits as per the provisions of Section 171 (1) which are abundantly clear, unambiguous, mandatory and legally enforceable. The above provisions also reflect that the true intent behind the above provisions, made by the Central and the State legislatures in their respective GST Acts, is to pass on the above benefits to the common buyers who bear the burden of tax. Therefore, no guidelines or methodology or clarifications were required to be issued for passing on the benefit of tax reductions. The Respondent was only required to reduce selling prices of the tickets by taking in to account the reductions in the tax rates w.e.f. 01.01.2019 which he has failed to do till 06.01.2019. Therefore, the above contention of the Respondent is frivolous and hence it cannot be accepted. 37. The Respondent has also claimed that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Section 171 of the CGST Act, 2017 at the time of rate reductions. Therefore, the above claim of the Respondent is not tenable. 39. The Respondent has also contended that the cinemas and theatres have been mentioned against Entry 33 of the State List of Seventh Schedule of the Constitution of India and therefore, the business of multiplexes was a State subject which has not been affected by the 101st Amendment of the Constitution Act, 2016 by way of which the GST has been implemented and hence prior approval for fixing the prices of the tickets was required under the Andhra Pradesh Cinemas (Regulation) Act, 1955. In this regard it would be relevant to mention that passing on of the benefit of GST is regulated under the CGST/SGST Act, 2017 and not under the 1955 Act and hence, no prior approval of the State Government under this Act is required to pass on the benefit of tax reductions as the rates of tax are not fixed under it. Therefore, the above argument of the Respondent is far-fetched which cannot be accepted. 40. The Respondent has further contended that as and when the taxes were raised before implementation of the GST, the ticket prices had remained the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced in the present case. 43. Based on the above facts the profiteered amount is determined as ₹ 13,51,519/- for the period from 01.01.2019 to 06.01.2019 as mentioned in Table-B of the DGAP s Report dated 31.01.2020 as per the provisions of Section 171 (1) read with Rule 133 (1) of the CGST Rules, 2017. The Respondent has reduced his prices commensurately w.e.f. 07.01.2019 in terms of Rule 133 (3) (a) of the above Rules therefore, no further direction is required to be passed on this account. Further, since the recipients of the benefit, as determined above are not identifiable, the Respondent has voluntarily deposited an amount of ₹ 13,72,181/-along with interest of ₹ 35,865/- in the CWFs in accordance with the provisions of Rule 133 (3) (c) of the CGST Rules, 2017. 44. Based on the above facts it is clear that the Respondent has contravened the provisions of Section 171 (1) of the CGST Act, 2017. However, since, the penalty prescribed under Section 171 (3A) of the CGST Act, 2017 for violation of the above provisions has come in to force w.e.f. 01.01.2020 and the infringement pertains to the period from 01.01.2019 to 06.01.2019 and the Respondent has also de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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