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TMI Blog2020 (6) TMI 782X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 and 15.11.2017 respectively. it is further revealed that a total of 425 items were impacted by the GST rate reductions. Out of these 425 items, 52 items were impacted by the CST rate reduction from 12% to 5% w.e.f. 14.10.2017 and 373 items were impacted by the GST rate reduction from 28% to 18% w.e.f. 15.11 2017. It is also evident from the record that the Applicant No. 1 who is also General Secretary of All India Chemists Distributors Federation had filed an application under Rule 128 (1) of the CGST Rules, 2017 on 27.11.2017 before the Standing Committee on Anti-profiteering alleging that the Respondent had not passed on the benefit of reductions in the GST rates to his customers but had instead increased the base prices of his products by keeping the Maximum Retail Prices (MRPs) unchanged. The profiteered amount has been computed by comparing the average pre rate reduction base prices of the impacted products with the average post rate reduction base prices in respect of both the tax reductions. The above mathematical methodology adopted by the DGAP to compute the profiteered amount is not in consonance with the methodology approved by this Authority in the cases of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the Respondent, when the rate of GST was reduced from 12% to 5% w.e.f. 14.10.2017. The Standing Committee on Anti-profiteering vide the minutes of its meeting held on 02.05.2018 had clubbed it with the earlier application for the purpose of investigation and forwarded it to the DGAP. 3. The DGAP after completing the investigation had submitted his Report under Rule 129 (6) of CGST Rules, 2017 on 27.08.2018. In his Report the DGAP had submitted that the provisions of Section 171 of the CGST Act, 2017 have been infringed and the Respondent had profiteered by not passing on the benefit of reduction in the tax rates by lowering the prices of his products commensurately. The DGAP had quantified the profiteering amount on the basis of pre and post-reduction GST rates and the details of the outward supplies (other than zero rated, nil rated and exempted supplies) for the period from 14.10.2017 to 31.03.2018; furnished by the Respondent. 4. The DGAP had also stated that a total of 425 items supplied by the Respondent were impacted by both the GST rate reductions. Out of these 425 items, 52 items were impacted by the GST rate reduction from 12% to 5% w.e.f. 14, 10.2017 and 373 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e: products used for marketing given for free and the combo packs supplied for a very short period on which GST was being paid instead of reversing the ITC as per the provisions of Section 17 of the CGST Act 2017. He has also claimed that majority of such promo supplies included removal as samples, gifts and for other marketing purposes and the GST paid on the output value was expensed off in the books of accounts and no amount was recovered (in respect of supplies) from the customers, hence it would not be right to allege that the Respondent had profiteered in respect of the supply of promo products. He had further claimed that the Report was inconsistent to the extent of considering promo supplies in certain months and not considering the same in respect of the other months. He had also filed Annexure-B which provided the details of branch transfers and promo supplies and stated that if his aforesaid details were taken into account for re-verification the alleged profiteered amount would get reduced. He had also claimed, that the difference in average selling prices arrived by the DGAP would also come down, if the quantity and the value of sales in respect of the above two suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport had also stated that a total of 425 items were impacted by the GST rate reductions. Out of these total 425 items, 52 items were impacted by the GST rate reduction from 12% to 5% w.e.f. 14.10.2017 and 373 items were impacted by the GST rate reduction from 28% to 18% w.e.f. 15.11.2017. However, it was noticed that the Annexure-14 of the Report prepared by the DGAP did not provide any breakup of these items and the details of calculation of the base prices for these two categories of rate reductions, Therefore this Authority vide its 1.0. No. 05/2019 dated 30.04.2019 passed under Rule 133 (4) of the CGST Rules, 2017 had directed the DGAP:- i.To examine and submit his clear cut findings whether the promo sales should be included while calculating the profiteered amount keeping in view the Circular No 92/11/20/2019-GST dated 07.03.2019 issued by the CBIC ii. To submit separate Annexures for the products in the case of which the rate of tax was reduced from 28% to 18% and from 18% to 12% respectively and how the base prices in respect of these products were computed. 9. The DGAP's Report after reinvestigation under Rule 133 (4) was received on 23.10.2019 in which he ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /A) 140.811 Total qty. sold during 15.11.2017 to 31.03 2018 (D) 123,024 Total amount during 15.11.2017 to 31.03.2018 (E) 1,83,92,155 Post rate reduction Average Basic Price (F=E/D) 149, 50 Post rate reduction Average Basic price 176.410 Commensurate Price (H=C*I . 1 8) 166.157 Profiteering per unit (I=G-H) 10.253 Total Profiteering (J=I*D) 12,61,406.93 The DGAP has also submitted that the base price of the main product 7001769 Anti-Dandruff Shampoo 400 ml has been arrived at separately and did not; in any way influence the base price of the combo pack 7001994 Anti-Dandruff Shampoo 400 ml + 100 ml free 12. The DGAP has thus contended that the average base prices of the products impacted by the rate reduction w.e.f. 15.11.2017 have been determined by dividing the total taxable value of a product by the total quantity sold during the period from 01.11.2017 to 14.11.2017 to arrive at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.07.2017 some of the products of the Respondent were imposed higher rate of GST of 28% / 12% as against the Indirect tax rate of 26% / 7% (approx.) which was applicable prior to the coming in to force of the GST w.e.f. 01.07.2017. 16. He has further submitted that it was a matter of fact that he had not undertaken any upward or downward price revision of his products at the time of introduction of the GST irrespective of the tax rate change which had resulted in a financial loss of ₹ 8,30,66,056/- to him. He has also claimed that based on the various representations by the industry, he was under the impression that the Government was taking steps to reduce the GST rates in respect of some of the essential products which were in a lower tax bracket prior to the GST regime. While he was incurring losses due to increase in the tax rates he had not taken the hasty decision of increasing the prices of his products as the same would have caused undue confusion due to release of new prices, withdrawal of products from the market and additional cost burden to the end consumers. 17. He has also added that given the GST rate revision by the Government on 13.10.2017 and 14.11.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying at different stages in the supply chain across the country. In order to effectuate the MRP revision, he had not only issued credit notes to the stockists but had also issued specific instructions to them to pass on the benefit of reduced MRPs to the end consumers which was passed on by him by way of issuance of credit notes. 20. He has also contended that since he had not increased his MRPs when the rates of tax had gone up at the time of introduction of GST, he had incurred incremental loss in the sales till the date of rate change i.e. up to 13.10.2017 / 14.11.2017 but the aforesaid loss had not been taken into consideration by the complainant as well as the investigating authorities, while scrutinizing the case of profiteering against him. 21. He has further contended that the DGAP has alleged that he has profiteered by drawing comparison between the post GST rates and post GST reduced rates. However, there could not be comparison between the prices pre-rate changes and post rate changes, both under the CST regime, as he had not undertaken upward price revision at the time of introduction of GST even when the rates of tax had gone up in comparison to the rates of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst him was as per the prescribed provisions, it might be pertinent to note that the complaint having been filed in respect of certain products, could not become the basis of conducting anti-profiteering proceedings in respect of all the products sold by him as a whole and the complaint should be investigated only if filed by the recipient / consumed' and not by anyone else. He has further averred that the Hon'ble High Court of Delhi has stayed similar proceedings in the following cases, where this Authority and the DGAP had proceeded to investigate beyond the complaint or the complained product by seeking to carry out investigation on many or all the products of the assessed Reckjtt Benckiser India Private Limited v. Union of India Ors. [Interim Order dated 19.7.2019 in WP (C) 7743/20191 Abbott Healthcare Private Limited v. Union of India Ors. [Interim Order dated 24.4.2019 in WP (C) 4213/2019] 25. He has also submitted that it might be fair to state that any proceedings which were found to be in excess of jurisdiction: beyond the complaint / complainant / complained product(s), were being viewed by the Hon'ble Courts as untenable under the law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objection with the price changes and / or the process followed to implement the same by him. In view of this it could not be alleged that he had profiteered. 28. He has further maintained that he had not retained or adjusted any profit made during the transition period from the rate changes to price changes i.e. 14.10.2017 / 15.11.2017 to 30.11.2017 against 29. the loss suffered from 01.07.2017 up to 13.10.2017 / 14.11 2017. He has acted as a bonafide assessee and complied with the provisions framed in respect of anti-profiteering under the GST legislative framework. However, the DGAP had not only held him liable to have profiteered during the transition period but also gone ahead to include the period from 01.12.2017 to 31.03.2018 in the profiteering computation, ignoring the fact that he had already reduced the prices from 01.12.2017. He has also submitted that if any profiteering was to be alleged against him it should have been for the period from 14.10.2017 / 15.11.2017 to 30.11.2017 and not beyond that. Even the profiteering alleged to have been made during the above transition period had been compensated to the customers by way of issuance of credit notes worth ₹ 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence from the Standing Committee or from the receipt of the Report from the DGAP. In this connection he has placed reliance on the judgement passed in the case of Bharat Hari Singhania v. Commissioner of Wealth Tax 1994 Supp 3 SCC 46 wherein the Hon'be Supreme Court has observed that, the use of the term 'shall' implies a mandatory reference. 32. He has also argued that taking the above facts into account (1) the DGAP could not have completed the investigation and given his Report dated 27.08.2018 after expiry of a period of 3 months from the date of receipt of the reference from the Standing Committee on 09.02.2018 / 02.05.2018; (2) this Authority could not have passed the Order dated 30.04.2019 and given direction for specific investigation beyond a period of 3 months from the date on which the DGAP's Report was placed before it and (3) the DGAP could not have completed the investigation and given his Report dated 22.10.2019 beyond a period of 3 months from the time allowed by this Authority for such investigation. Thus the entire proceedings were carried out in disregard of the legal principles beyond the framework that has been prescribed by the statute a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther discussion in respect of the other observations made by the DGAP in his Report dated 22.10.2019. 35.The Respondent has also claimed that assuming but not accepting that he had profiteered, the DGAP had erred in computing the profiteering amount by including the taxes in the average prices taken for comparison. It was a matter of fact that the computation of profiteering amount was by way of difference between the average selling prices during the pre-rate reduction period and the average selling prices during the post rate reduction period (both periods falling under the GST regime) and such average selling prices, considered as the base for computing profiteering, included the amount of tax that has been deposited with the Government. Hence, the profiteering amount to the extent of weighted average of tax portion has accrued to the Government exchequer as the same could not be said to have been retained by him. Therefore, the profiteering amount alleged to have accrued to him has been incorrectly calculated on account of inclusion of tax. 36. He has further claimed that the GST was collected by him on behalf of and as an agent of the Central / State Governments and dul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther submitted that the DGAP's Report dated 22.10.2019 was consequent to this Authority's Order dated 30.04.2019 vide which it was directed to only investigate whether or not the promo supplies should be included in the computation of the profiteering amount alleged to be ₹ 14,22,54 443/-. As submitted earlier the DGAP has erred in including the promo supplies in the profiteering computation, as these supplies did not represent supplies in the usual course of business. Such combo packs were generally in the nature of 'buy one get one free'; 'buy 200 ml get 100 ml free' and 'buy a face wash and get a face pack free' etc. which were specially packed seasonally and not sold throughout the year. These combo packs were introduced in the market to provide value addition to the end consumers and given that the consumer was provided with extra product or portion of the product it was unreasonable to allege profiteering in respect of such combo packs as such packs were anyway supplied at a far lesser price than the aggregate price of the two products put together owing to the fact that the product combination kept changing so did the combo-pack. He ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resorted to colourable exercise of interpreting the anti-profiteering provisions in his own way and had drawn comparison from the comprehensive details submitted by the Respondent as per his own convenience. He has also submitted that the DGAP appeared to have ignored the rightful comparison by picking the correct base. 42. He has further submitted that the statutory provisions have been framed in such a manner which suggested that it was only a broad correlation between the reduction in the rate of taxes and the pricing of the products that may be established to substantiate whether profiteering existed or not but there were many other factors as stated above influencing the pricing decisions, He has also stated that it was clear from the use of the word commensurate which was generally understood to mean an appropriate / suitable amount compared to something else' that the intent of the law was not to apply exact reduction in the rate of tax to bring the same reduction in the price of goods but the intent was to take the overall facts and circumstances into consideration and bring an appropriate and justifiable reduction where there has been reduction in the rate of tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DGAP has failed to rightfully discharge his obligation under the law in finding out whether he had passed on the commensurate benefit or not. Therefore, a direct co-relation between the reduction in the rate of tax and the price of an individual product might not be a correct application to test the profiteering or otherwise. In fact, the Constitution of India, in terms of Article 19 (1) (g) granted everyone right to carry on trade or business and to fix prices and earn profits. Reasonable restrictions on that right were permissible but the right to carry on trade could not be subjected to unreasonable restrictions. Section 171 was in the nature of an anti-abuse provision and the power granted under the said provision had to be construed and used only to prevent abuse and not in a manner that it restricted the right of a person to carry on trade freely. Therefore, the entire enquiry conducted under the provisions of Section 171 had to necessarily limit itself to finding out if a business was flagrantly abusing its position in the market and was making abnormal profits by taking advantage of reduction in the rate of tax and conversely, if the business was able to establish that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the MRPs and not the selling prices to the stockists / customers. He has also submitted that the DGAP has not verified or tested the precision of reduction in the MRPs between the pre-GST period and the period after 01.12.2017, accordingly, there could not be any doubt that the Respondent has profiteered in the absence of any test instituted in respect of the MRPs. 47. He has further submitted that assuming but not accepting that the profiteering existed, the DGAP has incorrectly computed the profiteering amount even in respect of the promo supplies. It might have been pertinent for the DGAP to consider only the regular sales made by the Respondent for the purpose of computation of average prices, however: the DGAP had also considered the supply of promo goods: due to which the alleged profiteering appeared to have been inflated. He has also contended that it could not be said that the profiteering existed in the case of promo supplies as such promo supplies were occasionally sold and anyway sold at much reduced prices resulting in value addition In the hands of the consumers. Therefore, the profiteering amount alleged to have accrued to the Respondent has been incorrectly calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atural justice ought to be followed by this Authority while conducting anti-profiteering proceedings. Considering that the Order dated 30.04.2019 passed in the present case had not considered or directed the exclusion of the above costs and losses in the computation of profiteering amount by the DGAP, both the authorities have acted in complete disregard of the legal principles of natural justice. Therefore, the present proceedings were against the direction of the Hon'ble High Court in so far as they have not observed fairness and failed to follow the principles of natural justice strictly mandated by the Hon'ble Court. 52. The Respondent has also contended that he has passed on the benefit which has accrued on account of GST rate reductions by way of commensurate reduction in the prices and by issuing credit notes, therefore, there was no case of profiteering'. On the contrary, he had incurred huge expenses on account of IT system and accounting changes for implementation of the GST which have resulted in financial loss to him. 53. The submissions of the Respondent were forwarded to the DGAP for his clarifications/reply. The DGAP vide his Report dated 20.12.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no dispute that the Respondent is liable to pass on the benefit of tax reductions w.e.f. 14.10.2017 and 15.11.2017 respectively. it is further revealed that a total of 425 items were impacted by the GST rate reductions. Out of these 425 items, 52 items were impacted by the CST rate reduction from 12% to 5% w.e.f. 14.10.2017 and 373 items were impacted by the GST rate reduction from 28% to 18% w.e.f. 15.11 2017. 57. It is also evident from the record that the Applicant No. 1 who is also General Secretary of All India Chemists Distributors Federation had filed an application under Rule 128 (1) of the CGST Rules, 2017 on 27.11.2017 before the Standing Committee on Anti-profiteering alleging that the Respondent had not passed on the benefit of reductions in the GST rates to his customers but had instead increased the base prices of his products by keeping the Maximum Retail Prices (MRPs) unchanged. The above Applicant had also submitted Price Lists of a large number of products published by the Respondent showing both the pre and post GST rate reduction prices claiming that the Respondent had not reduced the MRPs. 58. The above application was scrutinised by the Standing C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have resulted in commensurate reduction in the cum-tax prices which were more than the benefit actually passed on by the Respondent by way of issuance of credit notes. This was due to the fact that the Respondent after reduction in the GST rates has increased the base prices of his products due to which the reduction in the cum-tax prices was not commensurate with the reduction in the rates of tax. He has further claimed that the benefit passed on by the Respondent through the credit notes was less than the benefit that ought to have been passed on by him on account of reduction in the tax rates which has resulted in profiteering. He has aiso contended that the provisions of Section 171 of the CGST Act, 2017 have been infringed by the Respondent as he has not passed on the benefit of tax reductions. 60. The DGAP has also quantified the amount of benefit which the Respondent has denied to his customers or the profiteered amount on the basis of the pre and post-reduction GST rates and the details of the outward supplies (other than zero rated, nil rated and exempted supplies) for the period from 14.10 2017 to 31 03.2018 furnished by the Respondent vide Annexures 11, 12, 13 and 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CBIC. Accordingly, vide its Order dated 30.04.2019 this Authority had directed the DGAP to reinvestigate the above case under Rule 133 (4) of the CGST Rules, 2017 and to submit clear cut findings on the above issue in terms of the Circular dated 07.03.2019. The DGAP was also directed to submit separate Annexures for the products in the case of which the rate of tax was reduced from 28% to 18% and from 12% to 5%. Accordingly, the DGAP has carried out reinvestigation and submitted his Report on 23.10.2019 which has been mentioned supra. Perusal of Annexure- 1 attached with the above Report shows that it gives the Pivot Table in respect of the rate reduction which has come in to force w.e.f. 15.11.2017 by mentioning the material code, material description sum of invoiced quantity and sum of taxable value. The Sale Report given in this Annexure in respect of the above rate reduction mentions the name of the customer, GSTN, invoice No., invoice date, place of supply; new place of supply, material code, material description, HSN Code, COM MRP, invoice quantity, rate per unit, taxable value, discount, taxable value, rate of GST, amount of GST invoiced GST, whether GST rate changed and im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... average base prices with the post rate reduction average base prices from 14.10.2017 to 31.03.2018 as per Annexure-4 of the Report mentioned above. Hence, the total profiteered amount has been computed as ₹ 27,42,95,345[- (₹ 26,24,46,632/- + ₹ 1,18,48,713/- 64. It is clear from the above narration of the facts that the profiteered amount has been computed by comparing the average pre rate reduction base prices of the impacted products with the average post rate reduction base prices in respect of both the tax reductions. The above mathematical methodology adopted by the DGAP to compute the profiteered amount is not in consonance with the methodology approved by this Authority in the cases of tax reductions decided by it as the profiteered amount has been determined by comparing the average pre rate reduction base prices with the actual post rate reduction prices, It would also be pertinent to mention here that the DGAP has also been comparing the average pre rate reduction base prices with the actual post rate reduction prices in the cases where rate of tax has been reduced to compute the profiteered amount. In case the mathematical methodology of comparing the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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