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TMI Blog2022 (7) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... 171 of the CGST Act and Rules - Rules 126, 127 and 133 of the CGST Rules suffer from the vice of excessive delegation or not? Whether proceedings are time-barred under the provisions of Rule 133? - HELD THAT:- The time limits prescribed under Rule 133(1) and Rule 129(6) are not mandatory and hence all the contentions of the Respondent on the ground of not observing the time limits are untenable and hence rejected. Whether in absence of any prescribed methodology in the CGST Act to calculate profiteering or the procedure prescribed by Authority, the whole proceedings are arbitrary and liable to be dropped? - HELD THAT:- This Authority under Rule 126 has been empowered to 'determine' Methodology & Procedure and not to 'prescribe' it. Similarly, the facts of the cases relating to the sectors of Fast Moving Consumer Goods (FMCG), restaurant service, construction service and cinema service are completely different from each other and therefore, the mathematical methodology adopted in the case of one sector cannot be applied 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 thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd hence is rejected. Whether base price discrepancies have resulted in inflated profiteered amount? - HELD THAT:- The value of the supply does not include any discount which was given before or at the time of the supply if such discount had been duly recorded in the invoice issued in respect of such supply and thus, the GST was chargeable on the actual transaction value after excluding any discount (conditional as well as unconditional) and therefore, actual transaction value has been considered for computation of profiteering. Since, the DGAP has compared the transaction values of a SKU mentioned by the Respondent in his pre and post rate reduction invoices there is no question of comparing the net price of SKU (Gross price net of discounts) prior to reduction of tax with the gross price of SKU post reduction of tax in respect of certain SKUs - the contention of the Respondent regarding incorrect method of determination of profiteered amount due to discrepancies in the base price is unsustainable and is rejected. Whether claim of benefits like discounts or by way of price reduction post supply of goods to recipients by way of price reduction is considerable? - HELD THAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omers 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 said 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 purchasing goods 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 above Respondent. It would also be appropriate to state here that price includes GST. The profiteered amount can also not be paid from the GST deposited in the account of the Central and the State Governments by the Respondent as the above amount is required to be deposited in the Consumer Welfare Funds (CWFs) as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017 along with the interest. Whether higher benefits passed in respect of certain SKUs, as claimed by Respondent, can be considered and netted of? - HELD THAT:- The Authority finds that the interpretation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the provisions under section 171 of the CGST Act 2017 and the rules made thereunder in the earlier paragraphs. As mentioned earlier, this beneficial clause of the Act provides for transfer of the sacrifice of the Government revenue to the common person or the end users. The Respondent in his defence has informed that he has distributors, modern trade retailers, ecommerce and canteen stores as his customers. All these customers i.e. distributors, modern trade retailers, e-commerce and canteen stores, etc may have certain business agreements amongst them but ultimately the products supplied by the Respondent reaches to-the common person on payment of consideration. As such, distributors, modern trade retailers, e-commerce and canteen stores are intermediary in the process of transferring the consideration from the ultimate recipients to the Respondent - In this connection it would be relevant to state that it has been clarified several times by the Union Finance Minister, the Central Government and the GST Council that the benefit of tax reduction is required to be passed on to the ordinary customer, who bears the burden of tax - the contention of the Respondent that in case th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established under the 101st Amendment of the Constitution and comprises of all the Finance/Taxation Ministers of the States and the Union Finance Minister. Hence, the above Rules have express approval of the Parliament, all the State Legislatures, the Central and all the State Governments and the GST Council and therefore, constitution of this Authority under above Rules is legal and does not amount to excessive delegation. It is also mentioned that the Rule 122 only prescribes the qualifications of the members of the Authority whereas its constitution has been duly provided in Section 171 (2). Further it has been specifically provided in Section 171 (3) that “The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.” and hence, the functions and powers conferred on this Authority under Rule 127 also have mandate of the Parliament, the State Legislatures, the Central and the State Governments as well as of the GST Council and hence the conferring of powers and functions under the above Rules on this Authority does not tantamount to excessive delegation. Penalty - HELD THAT:- Tthe Respondent has denied the benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as used for comparison {01.10.2017 to 14.11.2017 (Goods Desc.) and 01.09.2017 to 30.09.2017 (Goods Desc.)}. However, the DGAP has also stated that the above rectification could be made if it was decided to do so by this Authority. The DGAP has not mentioned the reasons on the basis of which such an approach can be approved by this Authority. He has also not explained why the above approach was not applied by him at the time of preparing of his Report dated 05.07.2019. (ii) DGAP has also submitted that an amount of Rs. 4,80,88,937/- can be excluded from the original profiteered amount due to rectification of inconsistency in the sequence followed by him in respect of certain line items in case it is so decided by this Authority. However, no explanation has been given why the above inconsistency cannot be rectified by him in case such an error has taken place. (iii) DGAP has also stated that an amount of Rs. 5,18,75,235/- could be subtracted from the profiteered amount on the ground of rectification of the adopted average price on description wherever comparable product code was used subject to the approval of this Authority. However, no reasons have been given why the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g certain inadvertent discrepancies as submitted by the Respondent during the course of hearings held before the Authority. 3. The above said Investigation Report dated 5.7.2019 and subsequent revision of the quantification of the profiteered amount conveyed vide letter dated 23.12.2019 was shared with the Respondent. Personal hearing was given by the Authority to the Respondent on 01.01.2020 and the proceedings culminated in passing of its I.O. No. 05/2019 dated 03.01.2020 with a direction to the DGAP to conduct further investigation on the observations as mentioned in paragraph 1 above. The Authority also directed DGAP to supply detailed list of the Stock Keeping Units (SKUs) impacted by the rate reduction w.e.f. 15.11.2017 along with the pre-rate reduction base prices and the commensurate reduced base prices post rate reduction with percentage increase/reduction made by the Respondent in respect of such SKU. 4. The DGAP in it's report dated 28.8.2020 has, inter-alia, submitted as under: - 4.1 After receiving reference from the Authority, letter was issued to the Respondent on 14.01.2020 calling upon him to submit the information/ documents required to further invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction with computations: The Respondent submits that the commensurate increase required in the Weight/Volume to pass on the benefit of reduction in rate of tax comes to 8.48%. Respondent submitted that it has increased the grammage by 10%, 18.18% and 41.30% at 11-digit code level, which is much higher than the 8.48% commensurate increase in grammage required. (vi) Actual Increase in the weight in grams/mis: The Respondent has increased grammage by 10%, 18.18% and 41.30% respectively in respect of products supplied by him, and the details of increased grammage at 11-digit code level. This grammage increase is more than the 8.48% grammage increase required to pass on the benefit of reduction in rate of tax. The Respondent has also provided supporting documents viz. the shipper labels for sample SKUs as per production records showing the increased grammage along with the corresponding SKUs with old grammage. (vii) Whether the increase is commensurate with the rate reduction: The Respondent has increased grammage by 10%, 18.18% and 41.30% respectively in respect of products supplied by him. Thus, the Respondent has increased the grammage to pass on the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by DGAP on these SKUs State/Union Territory wise: The amount of profiteering computed by DGAP as adjusted for base price discrepancies and weighted average price of products with latest MRP as per Respondent's submission dated 01.11.2019. 4.3 The Respondent submits that an amount of INR 26,96,31,164 (restricted to profiteering amount at line item level) passed on by the Respondent by way of increase in grammage (calculated based on weighted average price of products with latest MRP) should be reduced from the total profiteering alleged to have been made by the Respondent. Further, the Respondent has on totality basis passed on INR 82,97,36,596 by way of higher grammage. 4.4 However, the Respondent vide E-mail dated 22.08.2020 has submitted that there was an inadvertent formula error in 2 files out of total 35 files, which they have revised and corrected. Accordingly, the Respondent submitted that amount is revised to INR 26,65,22,215 (earlier was Rs. 30,29,26,538/-) (restricted to profiteering amount at line item level) passed on by the Respondent by way of increase in grammage (calculated based on weighted average price of the products with all the MRPs ) should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total taxable value by total quantity sold) in pre-rate reduction period and compared it with the actual transaction value in post-rate reduction period. However, in case one product having same description is sold in multiple product code, then DGAP has adopted the average base price available at first place in the same product. The same has happened due to the proprietary of VLOOKUP function (used to lookup a value in a table by matching on the first column) in MS-Excel, which in case of duplicate values, find the first match when the match mode is exact. Respondent has submitted that instead of taking average price at first place, the pre-rate reduction base price should be taken as one out of the following three approaches: (a) Weighted Average Base Price of the product having same description with all the MRPs. (b) Average Base Price of the product with latest MRP of the latest product code introduced immediately prior to rate-reduction. (c) Weighted Average Base Price of the products with latest MRP prevailing in pre-rate reduction period. Accordingly, Respondent has re-computed the profiteering amount and submitted that the profiteering should be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Similarly, approach (b) does not hold good as adopting average price of product with latest MRP is not appropriate when old/other MRPs were also prevailing in pre-rate reduction period. Therefore, approach (a) where Weighted Average Base Price of the product having same description with all the MRPs is the correct approach to be adopted for pre-rate reduction base price to address the issue of adopting old MRP/first line item. Following the approach as per (a) above, and adopting weighted average base price of Rs. 226.03/-, the profiteering amount will reduce by Rs. 7,70,237/- resulting into revised profiteering of Rs. 20,02,733/- [Rs. 27,72,970/- (-) Rs. 7,70,237] for the State- Delhi General Trade. Another example of the product with description MAIIREL (NEW) SHADE NO.3 , for General Trade Channel, of which the details are furnished in table below: No. Product Code Product Description HSN MRP Quantity Taxable Amount Average Price 2435 MRCIP300-70 MAJIREL (NEW) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Investigation Report dated 05.07.2019 read with Summary Sheet of Annexure-15 of the said report and diligently followed without any inconsistency wherein, it is mentioned that at first step, DGAP has compared pre-rate reduction average base price (during the period 01.10.2017 to 14.11.2017) with post-rate reduction actual base price using product codes and wherever, product codes were not found, he has used product description to compare the pre-rate reduction average base price (during the period 01.10.2017 to 14.11.2017) with post-rate reduction actual base price at step two. In similar manner, wherever, price was still not found, DGAP has used pre-rate reduction average base price (during the period 01.09.2017 to 30.09.2017) with post-rate reduction actual base price using product code at step three and used product description to compare the pre-rate reduction average base price (during the period 01.09.2017 to 30.09.2017) with post-rate reduction actual base price at step four and so on. However, due to adoption of the average base price available at first place in the same product (having multiple product codes), if the price was not obtained at Step-2 (due to non-avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Product Description HSN MRP Quantity Taxable Amount Average Price 3626 SYMAF050-00 AcnoFight Face wash 50ml 33049990 85 3,096 166,926 53.92 3627 SYMAF050-30 AcnoFight Face wash 50ml 33049990 95 210 12,655 60.26 3628 SYMAF050-40 AcnoFight Face wash 50ml 33049990 99 1,96,034 1,21,84,724 62.80 Total 1,99,340 1,23,64,305 62.03 Further, in case one product having same description is sold in multiple product code, then DGAP has adopted the average base price available at first place in the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her method which a supplier can adopt to pass on such benefits. 17. As the provisions contained in Section 171 of the Central Goods and Services Tax Act, 2017 do not provide for any means of passing on the benefit of reduction in the rate of tax or benefit of input tax credit other than by way of commensurate reduction in price, the claim of the Respondent that they had passed on the benefit of GST rate reduction on certain SKUs by increasing the quantity or grammage of the product while maintaining the earlier pre-rate reduction MRP of such SKUs, is also not acceptable, 4.8 As per directions of the Authority contained in para-103 of aforesaid I.O. No. 05/2020 dated 03.01.2020, the documents submitted by the Respondent regarding his claim of passing on the benefit of reduction in rate of tax by increasing the grammage/volume were examined and it was observed that there were formula errors in three columns viz. Column-BA Commensurate Base Price with Grammage including GST , column-BB Grammage Benefit-Gross and column-BC Grammage Benefit-Net restricted to Alleged Profiteering incl. GST . However, on specific pointing out, the Respondent revised and corrected only two co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,80,88 ,937/- Para- B(II) of letter dated 23.12.2019 4. Less : Rectification of Adoption of average price of description wherever comparable product code is used (D) 5,18,75,235/- Para- B(III) of letter dated 23.12.2019 5. Less : Exclusion of profiteering in respect of line items for which credit notes issued (E) 65,20,961/- Para- B(IV) of letter dated 23.12.2019 6. Less : Exclusion of profiteering for sales not impacted by rate reduction (F) 14,45,267/- Para- B(V) of letter dated 23.12.2019 7. Less : Rectification of profiteering computed in respect of Invoice No. MH1814006635 dated 22.06.2018 (G) 1,63,882/- Para- B(VI) of letter dated 23.12.2019 8. Add : Rectification of inadvertent error in adopting pre-rate reduction base price from Respondent's Price List (H) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chhattisgarh 22 1,74,40,804 35,78,123 1,38,62,681 8. Dadra and Nagar Haveli 26 3,16,680 84,008 2,32,672 9. Daman and Diu 25 4,96,288 1,59,447 3,36,841 10 Delhi 7 23,05,94,750 2,08,17,829 20,97,76,921 11. Goa 30 1,21,32,941 19,26,455 1,02,06,486 12. Gujarat 24 11,95,97,065 2,16,20,776 9,79,76,289 13. Haryana 6 9,58,25,575 1,12,00,203 8,46,25,372 14. Himachal Pradesh 2 77,75,294 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30,79,109 4,10,887 26,68,222 30. Tamil Nadu 33 6,21,10,519 99,72,842 5,21,37,677 31. Telangana 36 5,76,76,182 96,42,487 4,80,33,695 32. Tripura 16 30,93,745 8,65,260 22,28,485 33. Uttar Pradesh 9 14,22,37,365 2,84,37,729 11,37,99,636 34. Uttarakhand 5 1,42,01,632 26,02,258 1,15,99,374 35. West Bengal 19 16,24,65,370 2,48,04,575 13,76,60,795 Grand Total 1,86,39,57,058 27,49,45,942 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied by the Respondent from 14% to 9%. Simultaneously, State Governments also issued notifications to reduce the SGST from 14% to 9% effective from 15.11.2017. The details of the products impacted by the aforesaid GST rate reduction with effect from 15.11.2017 along with the corresponding HSN codes are tabulated as under: Category Product HSN Impacted category Hair Care Shampoo, Conditioner, Serum etc. 3305 Yes (except Hair Oil) Hair Color L'Oreal Paris, Garnier 3305 Yes Skin Care Cream 3304 Yes Make Up Kajal, Maybelline, etc., 3304 Yes (except Kajal) Luxury Products Giorgio Armani, Diesel, etc. 3303 Yes The above portfolio of products is supplied by the Respondent under different brands and in differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lemented by the Respondent on the midnight of November 14th to fully comply with the law and the Respondent charged the revised GST rate of 18% for all supplies made effective from November 15, 2017. 10.11.2017 to 30.11.2017 The Respondent prepared the plan immediately from the date of issue of notification to pass the net commensurate benefit through combination of price reductions in majority of the cases and by way of increase in quantity in respect of three product lines (shampoo, conditioner and colour naturals) considering the nature of SKUs, free higher grammage and higher post supply price reduction (discounts). The Respondent communicated the price reduction plan to its recipients from November 2017 onwards and also educated them of their obligations to ensure they further pass on the net benefits arising from GST rate reduction to their customers to ensure that the benefits reach the end consumers. The Respondent allowed price claims to the customers for the supplies made by the customers at reduced prices after GST rate reduction. The Respondent had advised the recipients to submit claims for this purpose to compensate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26.96 3 Zeroing due to higher price reductions, increased grammage and area-based incentive 139.98 4 Increase in Customs Duty 19.19 5 Reduction in budgetary support 16.76 Total 276.48 5.6 The conclusions drawn in report Under Rule 133(4) of the CGST Rules dated 28.08.2020 i.e. 2nd DGAP report are incorrect and are devoid of legal merits. The Respondent has not retained any benefit from the reduction in rate of GST and hence has not profiteered. Therefore, the Respondent does not agree with the conclusions drawn by the DGAP and challenges the 1st and 2nd DGAP report on the following grounds which are independent and without prejudice to one another. The detailed submissions are mentioned in the subsequent paragraphs. 5.7 Vide this written statement, the Respondent submits the following: i. Preliminary objections - The time limit for passing of order in the case of the Respondent has already expired and hence the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 133(1) of the CGST Rules. 5.8.4 Unlike rule 133 (5) (b) of the CGST Rules which deems the investigation/enquiry as a new investigation / enquiry, no such provision exists in rule 133 (4) of the CGST Rules. The rule making authority has consciously distinguished a further investigation u/s 133 (4) from a new investigation u/r 133(5). The rule making authority has picked up rule 133(5) and provided that a fresh time limit will be available for the new investigation. The same has not been done for rule 133 (4). This implies that the fresh time limit is not available u/r 133 (4). As a consequence of this, the fresh time limit available to a new investigation is not available to a further investigation u/r 133 (4), and that the further investigation u/r 133 (4) needs to be completed and final order of the NM needs to be passed within the overall time limit of 6 months from the date of receipt of original report of DGAP provided in rule 133(1). 5.8.5 Every time an order is passed by the NM u/r 133(4) of the CGST Rules, if a fresh time limit is made available to DGAP to furnish report based on further investigation to be carried out by it and for NM to pass an order, it will l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etent to hear matters where the vires of statutory provisions are questioned. However, in discharging this duty, they cannot act as substitutes for the High Courts and the Supreme Court which have, under our constitutional set-up, been specifically entrusted with such an obligation. Their function in this respect is only supplementary and all such decisions of the Tribunals will be subject to scrutiny before a Division Bench of the respective High Courts. The Tribunals will consequently also have the power to test the vires of subordinate legislations and rules. However, this power of the Tribunals will be subject to one important exception. The Tribunals shall not entertain any question regarding the views of their parent statutes following the settled principle that a Tribunal which is a creature of an Act cannot declare that very Act to be unconstitutional. In such cases alone, the High Court concerned may be approached directly. All other decisions of these Tribunals, rendered in cases that they are specifically empowered to adjudicate upon by virtue of their parent statutes, will also be subject to scrutiny before a Division Bench of their respective High Courts. We may add t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estigation u/r 133 (4) with respect to the very same objections raised by the Respondent . Therefore, the Respondent submits that the interim order dated 03.01.2020 is nothing but a direction seeking clarifications from the DGAP u/r 133(2A). In light of the above submissions, the Respondent submits that the time limit for passing of order by the Authority has already lapsed, and any order passed in the present case will be completely barred by time. It is submitted that in a proceeding between the Respondent and DGAP as adversary, if the DGAP has not provided reasons or clarifications, the NAA should draw adverse inference against the DGAP. Instead, in the present case, the DGAP has been granted additional time to provide clarifications on the subject which ought not to be in accordance with the law. 5.9 The methodology adopted by DGAP of comparing the average price pre-rate reduction with actual price post-rate reduction is not equitable comparison, is erroneous, without logical reasoning and requires reconsideration. The methodology adopted by the Respondent should be considered as correct. 5.9.1 Neither the CGST Act nor the CGST Rules provide for methodology by which ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NM was challenged, the High Court has passed an interim order dated 18.02.2020, taking a prima facie view that the methodology adopted by the NM to consider average of prices pre-rate change and comparing it with specific instances of prices post the change of rates appears to be incorrect and that the impugned order of NAA needed reconsideration. Based on this prima facie case, a stay of operation of impugned order of NAA has been granted in the said case. The relevant portion of the order passed by Hon'ble Delhi High Court is extracted below: We have heard learned senior counsel for the petitioner as well as the counsel for the respondent on the aspect of grant of interim relief It is pointed out by learned senior counsel for the petitioner that the respondents have acted unreasonably, inasmuch, as, for the period prior to reduction of GST from 12% to nil w.e.f. 27.07.2018, the DGAP had computed the base price on average basis. However, for the period after the GST rate became nil w.e.f. 2Z07.2018, the base price has been worked out item by item. Our attention has been drawn to the tabulation filed by the petitioner before the DGAP, which shows that in respect of seve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NDED TO RECIPIENTS M. MANUFACTURER IS NOT UNDER LEGAL OBLIGATION TO AFFIX STICKERS FOR CHANGE OF MRP ON THE GOODS LYING IN DISTRIBUTION CHAIN. N. IN THE ABSENCE OF ANY PRESCRIBED METHODOLOGY IN THE CGST ACT TO CALCULATE PROFITEERING OR IN THE CGST RULES OR IN THE PROCEDURE PRESCRIBED BY NM, THE PROCEEDINGS ARE ARBITRARY AND LIABLE TO BE DROPPED. O. IN THE ABSENCE OF ISSUANCE OF SHOW CAUSE NOTICE, PROCEEDINGS INITIATED ARE IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. OTHER LEGAL GROUNDS P. IN ABSENCE OF A JUDICIAL MEMBER, THE CONSTITUTION OF THE NM IS UNCONSTITUTIONAL Q. SECTION 171 OF THE CGST ACT AND THE RULES MADE THEREUNDER ARE UNCONSTITUTIONAL BEING VIOLATIVE OF ARTICLE 14 19 (1) (G) OF THE CONSTITUTION OF INDIA. R. RULES 126, 127 AND 133 OF THE CGST RULES SUFFER FROM THE VICE OF EXCESSIVE DELEGATION. S. NON-PRESCRIPTION OF ANY METHODOLOGY OR GUIDELINES RENDERS THE INVESTIGATION REPORT UNSUSTAINABLE. A. PERIOD ADOPTED FOR INVESTIGATION IS ARBITRARY A.1 The period covered under the investigation is from 15.11.2017 to 31.12.2018. However, the report is silent about the period till when the Respondent will be investigated for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w MRP and prices were given effect to in production from January 2018 onwards. Once the MRP was revised by the Respondent considering the above factors and also taking into consideration various other commercial factors affecting the pricing and MRP of the products, it should be considered as a conscious effort on the part of Respondent to pave the way for new prices to be charged for products sold by the Respondent. Since the production of these goods with new MRP came into effect from January 2018, the sale of these products would have started by around January/February/March 2018. A.4 In a number of instances, the Authority has passed orders covering period of investigation of 2 to 5 months, as follows: A.5 The period of investigation should be restricted to a shorter period. A.6 While in various investigations, the period of investigation adopted was 2-5 months, in the present case of Respondent, the period adopted is almost 14 months, which is discriminatory and hence violative of Article 14 of the Constitution of India. Hon'ble Supreme Court in the case of S.G. Jaisinghani vs. Union of India Ors. (1967) 2 SCR 703, wherein the following was held: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09.2017 (Goods Desc.)) 2. Rectification of inconsistency in sequence followed for some line items 5.28 3. Adoption of average price of description wherever comparable product code is used 5.72 4. Above figures are based on adoption of weighted average of prices of products with latest MRP instead of weighted average of all products (Annexure 1 Annexure 2 in CD submitted on 25.10.2019): 5. Calculation of profiteering in respect of line items for which credit notes issued (based on DG computation) 0.65 6. Computation of profiteering for sales not impacted by rate reduction (based on DG computation) 0.14 7. Incorrect quantity in 1 line item of sale (Annexure 1 Annexure 4 in CD submitted on 75.10.2019) has been rectified 0.02 Total 42.33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice 2439 MRCIP400-70 MAJIREL (NEW) SHADE NO. 4 33059040 310 73,906 163,20,873 220.83 2440 MRCIP400-80 MAJIREL (NEW) SHADE NO. 4 33059040 335 30,465 72,70,227 238.64 Total 1,04,371 2,35,91,101 226.03 B.6 While calculating the alleged profiteering, the DGAP compared the actual invoice-wise selling price post GST with the pre-rate reduction price. However, although DGAP had mentioned that the average price pre-rate reduction was compared, the Respondent pointed out that the price at the first line item (i.e. SI. No. 2439 having price of INR 220.83) was adopted by the DGAP instead of the average price of all the products. The DGAP has rectified the computation based on the submission of the Respondent and has adopted INR 226.03 as the pre-rate reduction price, based on approach (a) considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te reduction, the Respondent would have sold the product in the range of INR 123.08 to 123.57 only (or higher than that, considering the said prices are average and not actual prices). The prices of INR 113.98 and INR 117.23 had become irrelevant as far as Respondent is concerned. By including even those prices in computation of the weighted average prices, the DGAP effectively expects the Respondent to sell at such lower prices even post rate reduction. The Respondent submits that it is erroneous on the part of DGAP to expect the Respondent to sell at prices which have otherwise become irrelevant. It is for this reason that the Respondent requested for considering the weighted average price of products with latest MRP. In the above example, the DGAP may consider the price based on SI. No. 427 to 429 (all 3 of which have MRP of INR 190). B.11 In any case, the present matter is in respect of allegation of profiteering against the Respondent, and in the event that there is a possibility to compute profiteering in 2 possible manners, the manner which favours the Respondent alone needs to be considered. In the instant case, if the Respondent's submissions are accepted, the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime new artwork with revised MRP became ready. The process by which Respondent granted post supply price reduction is as follows: a. L'Oreal makes sales to its customers. b. Customers make a further sale to their customers at a discounted price to pass on the benefit of reduction in rate of GST c. Such discount is claimed back by customers from L'Oreal, effectively ensuring compliance for both L'Oreal and customer Discounts are admissible deductions C.3 The fact that implementation of reduced MRP on the package is a time-consuming process and accordingly, the same was carried out over a period of time. Till then, although MRP was not reduced on the package, the Respondent was determined to pass on the benefit to the ultimate consumers through its customers. C.4 The Respondent introduced a system of price reduction in the form of GST discount claims, wherein sales by Respondent to its customers was at a price higher than the price which existed prior to 15th November 2017, and upon the distributor/MR selling to their customers at reduced prices communicated to them by Respondent on account of GST rate reduction, they would become eligible to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f one credit note amounting to Rs.10,15,587.31 issued by it, the Respondent has also provided the sales register of distributor to his retailers containing the GST scheme discount along with sample invoices issued by him which also provide for a declaration that the benefit is being passed on by distributor pursuant to anti-profiteering provisions, the relevant portion is extracted as under: GST Price Reduction Declaration Considering the anti-profiteering provisions under GST, we are passing on the benefit of stock manufactured at old MRP sold to you. It should be ensured by you that these benefits should be transferred to the ultimate customer, by selling at the Reduced MRP mentioned on the invoice. C.9 Thus, from the above it is evident that the Respondent has passed on the benefit to its recipient by way of credit notes as required, while also ensuring that the benefits are further passed down the line even though the Respondent was not obligated to do so. Further, in respect of modern trade/e-commerce, the claim was raised by them by way of service invoices. Accordingly, it is respectfully submitted that the Hon'ble Authority may please take note of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the rate per unit of product, as applicable based on difference between old and reduced MRP. Discount per unit given by customer to retailer - INR 35.91 per unit Claim made by customer on L'Oreal and processed by L'Oreal C.14 The claim made by customer on L'Oreal shows the very same invoice line item sold by customer to retailer. Bill Date Bill No Retailer Name Shipping Address Product Code Product Name Sales Qty GST Scheme Discount 11-01-20118 LCBL041341701898 PRABHA COLLECTION KAMLA NAGAR-- KAMLA NAGAR -- NEW DELHI DMEEL001-D0 DGL Eye Studio Gel Blackest 48.0 1,723.47 C. 15 The claim made by customer for the above product worked out to INR 35.91 on a p.u. basis. This is the same product sold by L'Oreal to customer which can be seen from the invoice of L'Oreal as follows: C.16 As can be seen from the above, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were disputes under the erstwhile service tax legislation between the department and the dealers of the automobile companies who were receiving the incentives from the manufacturers post sale. The incentive received by the dealers was considered by the department as consideration for the service provided by the dealers to the manufacturers and service tax was demanded on such incentives. In order to avoid dispute regarding future tax liability and interest thereon, if any, L'Oreal took a position to accept the claim for price reductions from the recipient with tax as it was revenue neutral, being creditable in the hands of the Respondent. The Respondent submits that the amount paid was towards price reduction, passed on by modern retail customers on account of GST only. C.21 In this regard, the Respondent submitted that as a part of its regular trade practice, it runs various schemes for its recipients, wherein the recipient sells the goods at a reduced price to its customers and such price reduction is reimbursed to the recipient by the Respondent. This results in reduction in net realization by the Respondent from its recipients. Since the same is towards reduction in pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount passed on by way of post supply discount claims as that alone reflects the net realization of the Respondent. These discounts were given on account of GST rate reduction and the practice of post-supply discount followed by the Respondent is as per the established practice followed in the past for giving discounts not only by the Respondent but by the entire FMCG industry. It is submitted that once discount is allowed as per established practice, the same should be allowed to be deducted from the sale price of the goods. In this regard, the Respondent relies on the decision of Hon'ble Supreme Court in the case of Union of India vs. Bombay Tyres International 1984 (17) E.L.T. 329 (S.C.) wherein it was held that discounts allowed in the trade by whatever name such discount is described should be allowed to be deducted from the sale price having regard to the nature of the goods if established under agreements, or under terms of sale or by established practice. The relevant paragraph of the judgement is extracted below: Discounts allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her method which a supplier can adopt to pass on such benefits. C.31 The Respondent passed on the benefit of tax rate reduction by way of reducing the price subsequent to supply. It is submitted that in common parlance discount is nothing but reduction in price. The amount by which the price is reduced is discount. It is settled law that discounts known in advance to the customer are deductible from the value, irrespective of its form or nomenclature, as discussed earlier. C.32 It is submitted that the price reduction has been given in the monetary form to the recipients on the basis of documents received from the recipients. It is nowhere prescribed that benefit of GST rate reduction should be given on the invoice itself. The benefit can be given subsequent to the supply by way of adjustments in books of accounts of the recipient and supplier. In the present case admittedly, the price reduction had been given subsequent to supply either by way of credit notes or honoring service invoice issued by customer and by way of adjustment in the books of accounts. It also satisfies the condition put by DG that monetary form is the form in which the benefit can be passed on. C.33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.07.2019 without dealing specifically with any of the submissions made by the Respondent. C.37 Further, the DGAP once again cited an example of sample document in which invoice is raised by trade partner for provision of services, advertising, sales promotion, etc. to deny the benefit of discount passed on by the Respondent. In this regard, the Respondent submitted that the GST post-supply discounts have been processed by the Respondent in separate modes for General Trade (through credit notes) and modern trade/ e-commerce (through service invoices). The GST post-supply discounts are as follows: General trade: In respect of these customers, once they passed on the amount to their customers, they became entitled to claim the said amount from the Respondent. Once the Respondent processed their claims on account of GST post-supply discounts, same were settled through issuance of credit notes by Respondent. This was unlike the case of modern trade/e-commerce where service invoices were issued by customer on Respondent. The value of such credit notes processed by Respondent on account of GST rate reduction is INR 51.93 crores (51,93,52,553). GST rate reduction discount i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. Accordingly, the Respondent reiterates the submissions made by it in its written submissions filed on 05.11.2019 and requests the Authority to allow reduction to the tune of INR 73.59 crores (INR 51.93 crores + INR 21.66 crores) which has been passed on by the Respondent by way of post-supply price reduction on account of GST rate reduction. C.40 The DGAP has not dealt with the aforesaid submissions in its report dated 28.08.2020 u/r 133 (4). In the absence of any findings in this regard in the report, the Respondent requests to accept their submissions and reduce an amount of INR 73.59 crores as above from the profiteering alleged by the DGAP. C.41 The DGAP has in its reply u/s 133 (2A) dated 05.11.2020 on this issue reiterated its earlier stand that it was Respondent 's own business decision to extend consumer promotion the cost of which cannot be offset. Further, it has referred to the sample document in case of Modern Trade customer showing description Advertising services . In this regard, the Respondent had in para C.22 already submitted that these price reductions/discounts were treated as service in view of the fact that there were disputes under the erstwh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% / 12.5% was on account of GST rate reduction, the Respondent has provided an internal email dated 25.11.2017, which clearly reflects that the Respondent has introduced a new 12.5% GST benefit scheme . C.44 The Respondent has also submitted copies of credit notes which reflect that the benefit is on account of GST price reduction. The Respondent provided a copy an additional credit note dated 16.04.2018 issued to M/s. Ankita Enterprises for total amount of 1NR 1,61,645.05, which clearly reflects that it is on account of GST price reduction. A screenshot of the credit note is also provided below: C.45 Further, it has also been observed by DGAP that the said credit notes nowhere indicated that those were related to benefit of reduction in GST rate from 28% to 18% w.e.f. 15.11.2017. In this regard, the Respondent submits that the credit notes pertaining to period from January 2018 onwards clearly indicate that they are for GST PRICE REDUCTION . Therefore, the claim cannot be rejected on the basis of this reason. As regards period up to December 2017, although the credit notes used the nomenclature as TRADE SCHEMES, the Respondent has already demonstrated through ema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s indeed on account of GST rate reduction. Therefore, the Respondent requests the Authority to accept the submissions and reduce an amount of INR 73.59 crores from the total alleged profiteering computed by DGAP. The correct breakup of 1NR 73.59 crores into various types of customers is as follows: Type of customer Amount (in crs.) General Trade 54.19 MR / E-comm (i.e. other than General Trade) 19.40 Total 73.59 D. BENEFIT OF GST RATE REDUCTION PASSED ON BY WAY OF INCREASED QUANITITY (HIGHER GRAMMAGE) ON CERTAIN SKUS NOT CONSIDERED BY DG D.1 In the absence of any prescribed methodology for passing of benefit of GST rate reduction, the Respondent had passed on the benefit by various methods. The same also included providing increased quantity of the same product at the same/ reduced price per grammage. The Respondent as a part of GST rate reduction pass through plan, had passed the benefit through higher grammage on certain SKUs. In this regard, the Respondent vide paras 5.11 to 5.13 of letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antity of his products. D.5 In the present case, the Respondent has passed on the benefit of GST rate reduction by way of increasing the quantity of the product while retaining the same/reduced selling price including tax. For an illustration, please see below: Customer type Product code Description Selling price incl. tax Base price as per DG incl. tax Profiteering as per DG New grammage Old grammage General Trade HESEC640-20 HEX ExtraOrd Clay SH 704 ml 371.68 341.09 30.59 704 ml 640 ml Per nil price: Period Selling price incl. tax Grammage Per ml price Post rate reduction 371.68 704 ml 0.528 Pre rate reduction 341.09 640 ml 0.533 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... data was huge, the Respondent provided said information in CD by adding additional columns as desired by the Authority in the 35 excel sheets relating to line items where benefit was passed on by way of additional grammage, which was enclosed as Annexure - 19 to submissions dated 04.11.2019. D.11 From the above, the Respondent submitted that it has passed on benefit of GST rate reduction by way of increase in quantity of products which should be reduced from the alleged profiteering computation. D.12 The DGAP reiterated its stand in its reply dated 11.12.2019. However, the Authority in its Interim Order No. 5/2020 dated 03.01.2020 was pleased to note the order in the case of M/s Hindustan Unilever Limited mentioned supra and accordingly directed the Respondent to furnish certain additional information, which shall be examined by the DGAP and included in the fresh Report to be filed by him in consequence of the said Order. The Respondent was directed to furnish the following details: i. Name of the SKU ii. Base price of the SKU pre rate reduction with documentary evidence iii. Weight/volume of the SKU pre rate reduction with documentary evidence iv. Commens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manners in which benefit of reduction in rate of tax can be passed on, and once the NAA has already accepted the said stand, the DGAP being an investigative body should not take a different view. Therefore, the Respondent submits that the DGAP's stand that benefit cannot be passed on by increasing the grammage cannot be accepted. The DGAP has computed benefit of INR 27,49,45,942 (restricted to profiteering at line item level by considering approach (a) of Weighted Average Base Price of the product having same description with all MRPs for pre-rate reduction period) passed on by the Respondent by way of increase in grammage, which the Authority may be pleased to deduct from the total profiteering alleged by the Respondent. D.16 Further, the Respondent submits that if the submissions made by it in Para B above are accepted, the benefit passed on by way of increase in grammage will be INR 26.96 crores (restricted to profiteering alleged at line item level by considering approach (c) of Weighted Average Base Price of the products having same description with latest MRP for pre-rate reduction period). D. 17 The DGAP has merely reiterated its stand as per report u/r 133 (4) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the 35 excel sheets representing the amount of profiteering (recalculated based on average price of products with latest MRP) computed on these line items is required to be reduced from the total alleged profiteering computed by DG. These line items can be identified by filtering non-zero and non-blank line items in Column BH - heading 'Increased Custom Duty Paid w.e.f Mar18-Total' and taking the total of column BY - Total Profiteering-Revised Including GST (Avg. of Latest). The difference in Customs Duty rate has resulted in additional cost of Rs. 14,10,48,577 (Column BH - heading 'Increased Custom Duty Paid w.e.f. March 18-Total') to L'Oreal, which is a significant change in business environment as applicable for such imported products and hence, such SKUs must be removed from the computation of profiteering at least from the date of increase in Customs Duty rate. Both GST and Customs Duty are the taxes payable by L'Oreal directly linked to the product. E.4 The Respondent further submitted that in previous 5 years, there was no increase in Customs Duty rate of products imported and traded as such. As and when the Customs Duty had reduced, the market f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has profiteered from a transaction, the increase in Customs Duty has added significant cost on supply of very same products on which the GST rate has been reduced. It is submitted that both the benefit of GST rate reduction and the increase in Customs Duty are pursuant to changes in tax structure made by the Government only. Accordingly, the said increase in Customs Duty must be offset against the profiteering alleged by DGAP. An illustration of products wherein profiteering has been computed by DGAP whereas simultaneous Customs Duty has increased is provided below (for channel type GT from 20. Maharashtra_GT file): Illustration for Product 1: Product Code BLSPA500-10 with product description Blond Studio Platinum Amm-Free 500GM Sr. No. Invoice date Actual sale price per unit Commensurate sale price as per DGAP Profiteering p.u. as per DGAP Customs Duty p.u. (before 01.02.2018) Customs Duty p.u. (post 01.02.2018) Increase in Customs Duty p.u. 4335 19-11-17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that such increased Customs Duty be allowed to be deducted against the profiteering alleged by DGAP in respect of line items of sale of import products. E.9 The Respondent placed reliance on the order of NAA in Case no. 3/2018 of Sh. Kumar Gandhary vs KRBL Limited [2018-VIL-02-NAA], wherein the NM has decided that cost increase needs to be considered for the purpose of determining profiteering, if any: 7. It is also revealed from the perusal of the tax invoices submitted by the Respondent that there was an increase in the purchase price of paddy in the year 2017 as compared to its price during the year 2016 which constitutes major part of the cost of the above product, It is further revealed from the record that the Respondent had increased the MRP of his product from Rs. 540/- to Rs. 585/- which constituted increase of 8.33% keeping in view the increase in the purchase price. Therefore, due to the imposition of the GST on the above product as well as the increase in the purchase price of the paddy there does not appear to be denial of benefit of ITC as has been alleged by the Applicant as there has been no net benefit of ITC available to the Respondent which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in alleged profiteering due to increase in Customs Duty needs to be examined independent of any price change. It is a matter of fact that the Customs Duty has increased substantially. Therefore, when the Government has reduced the rate of tax from 15.11.2017 and increased Customs Duty on imported goods from 02.02.2018, the DGAP ought to have offset such increased Customs Duty against the alleged profiteering. E.14 The DGAP has stated that the order of this Authority in Sh. Kumar Gandhary vs. KRBL Ltd. (Case No. 03/2018) does not support the Respondent as in the said case, there was an increase in rate of tax and hence section 171 of the CGST Act was not applicable, whereas in the present case, the rate of tax has been reduced. The Respondent does not agree with the said observation of DGAP. This Authority has specifically considered increase in the cost of inputs as a factor while deciding the case, as can be seen from the extract of this Authority's order in para above. Further, it has been noted that there was an increase in rate of tax in the said case. The Respondent submits that even in the Respondent's facts, there is an increase in rate of Customs Duty. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent of the 10% of the pre-rate reduction base price, which reflects the reduction in GST rate from 28% to 18%. In other words, it is respectfully submitted that there can be no allegation of profiteering in excess of the 10% reduction as any amount charged in excess thereof represents the profit of the supplier over which Section 171 of the CGST Act does not confer jurisdiction on the Authority. F.6 In the above illustration, it appears that the Respondent was supplying the product BB Cream Miracle Skin Perfector 18m1 for INR 69.14 in the period prior to GST rate reduction, charging applicable 28% GST on the price of INR 69.14. Accordingly, cum-tax price for the supply of such SKU was INR 88.50 in the pre-rate reduction period. Based on the calculation methodology adopted by the DGAP, it appears that the Respondent was required to maintain the base price to INR 69.14 and thereafter charge applicable GST of 18%. Accordingly, the ideal cum-tax price as per DG could only be INR 81.59. F.7 It is the understanding of the Respondent that in the above example, if the Respondent had not reduced the cum-tax price, it could be charged for profiteering under Section 171 of the CGST A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation as per Annexure-15 of DG) of submission dt. 24.10.2019. F.11 In view of the above, the Respondent submitted that the amount alleged as profiteered is required to be reduced to the extent as mentioned above. F.12 Further, the Respondent submitted that the above differences in pre-rate reduction price and actual sale price is mainly occurring due to usage of description as one of the basis for comparison of prices. The Respondent submitted that there are SKUs where due to the price of promotional SKU with same description being lower, the comparable price is low, due to which excess profiteering has been computed. Price of promotional SKU is always lower than the regular price of a product. The price of said promotional SKUs cannot be considered as comparable to prices of normal SKUs charged post GST rate reduction. Post the consumer promotion time period is expired the price of the product return back to regular price as a usual business practice. The Respondent had even submitted a list of SKUs on which it was running promotions in the month of October-November 2017 in the price list submitted to DG vide Annexure-6 to letter dt. 18.02.2019 and had also made an aver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... = INR 128 and the rate subsequently reduced from 28% to 18%, the Respondent may be required to make the price INR 100 + 18% = INR 118. If the Respondent does not reduce prices and keeps them as it is (i.e. INR 128), it may at the most be said to have profiteered by INR 10 (INR 128 - INR 118). Similarly, if the Respondent reduces price by say INR 3, it may be said to have profiteered by INR 7 (INR 125 - INR 118). However, if the Respondent increased the prices to say INR 135, it cannot be said that the difference between INR 135 (price post rate reduction incl. 18% GST) and INR 128 (price pre-rate reduction incl. 28% GST) is also on account of reduction in rate of GST. Only INR 10 (128-118) may be attributed to reduction in rate of GST and the profiteering, if any, should be capped to the extent of reduction in rate of tax. The allegation of profiteering cannot be INR 17 when the reduction in rate of tax is only to the extent of INR 10. The Respondent provided detailed illustration along with detailed calculations on this issue of computation of profiteering in excess of GST rate reduction, for which no response has been found in DGAP's replies dt. 11.12.2019 or 23.12.2019, or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.11.2017 vide Notification No. 41/2017-Central Tax (Rate). Accordingly, the Respondent also reduced the rate of GST charged from its customers from 28% to 18% in the invoices issued to them G.2 The Respondent submitted that it is fully aware of its obligation of passing on the benefit of reduction in GST rates to the recipients under Section 171 of the CGST Act. The provisions of Section 171 of the CGST Act and rules made thereunder are very clear that such benefit is to be passed on at an entity level and not at an SKU level. While the report of DG alleges a profiteering at SKU level, the Respondent submits that it had ensured passing of benefits using various means, which have already been submitted before the DG and also reproduced in this submission. G.3 The Respondent has also passed on the above said benefit by allowing greater price reductions i.e. more than commensurate to the GST rate reduction on various impacted SKUs. Looking from a different angle, in the present case, the recipients who are our distributors have received the GST rate reduction benefits from Respondent sometime slightly more and sometimes slightly less. In other words, our distributors (recipient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dumping margins and thereby arrive at higher dumping margins for Indian exporters. Government of India objected to this approach of European Commission and the matter was taken to the Dispute Settlement Body of the World Trade Organization which held in favour of Government of India. In an appeal filed by the EU before the Appellate Body, the Appellate Body held that the practice of not netting off of positive dumping margin and negative dumping margins was not correct. G.8 Thus, the Government of India succeeded before the WTO Appellate Body that positive and negative dumping margins must be taken together and therefore got lower dumping margin for Indian exporters. European Commission accepted the decision and revised dumping margin not only for bed linens cases but also for all other cases against India. G.9 In this regard, the Respondent submitted that it has passed on more than required amounts by following means: a. Higher reduction in per unit price of the goods sold: This is a flat reduction in price of the goods by more than 7.8% reflected on the invoice itself. For instance, if the Respondent was selling the goods at INR 100 + 28% GST = INR 128 and as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ality basis has been returned to customer and has not been charged extra, it should not matter that an extra amount of INR 2 was charged. As long as the customer receives the benefit (whether on 1 SKU or another), it cannot be construed that the Respondent has profiteered. G.11 Accordingly, negative price variations as discussed above should also be considered for determining alleged profiteering (if any). The value of excess benefit passed on other SKUs by this measure aggregates to INR 139.98 crores (139,98,01,877), (considering weighted average price of products with latest MRP), which should be reduced from the alleged profiteering computation. This is without prejudice to submissions of the Respondent that the allegation of profiteering is not sustainable. G.12 The DGAP in its reply dated 11.12.2019 has stated that the legal position is unambiguous and can be summed up as follows: i. A supplier of goods or services must pass on the benefit of ITC or reduction in the rate of tax to the recipients by way of reducing the prices thereof paid by the recipients; and ii. The law does not offer a supplier of goods and services any flexibility to suo moto decide on any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit is passed on to the same customer by Respondent and also received by the customer, the same should be adjusted from total profiteering. The Respondent places its reliance on the case of Dai Ichi Karkaria Ltd 1999 (112) ELT 0353 SC , wherein the Supreme Court observed the following: 24. We think it is appropriate that the cost of the excisable product for the purposes of assessment of excise duty under Section 4(1)(b) of the Act read with Rule 6 of the Valuation Rules should be reckoned as it would be reckoned by a man of commerce. We think that such realism must inform the meaning that the Courts give to words of a commercial nature, like cost, which are not defined in the statutes which use them. A man of commerce would, in our view, look at the matter thus : I paid Rs. 100/- to the seller of the raw material as the price thereof. The seller of the raw material had paid Rs. 10/- as the excise duty thereon. Consequent upon purchasing the raw material and by virtue of the Modvat scheme, I have become entitled to the credit of Rs. 10/- with the excise authorities and can utilise this credit when I pay excise duty on my finished product. The real cost of the raw material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner in the meantime. [Emphasis supplied] G.19 Thus, the Respondent submits that the methodology of zeroing adopted by the DGAP is incorrect and is required to be set aside for the grounds mentioned supra. In the absence of any findings in this regard in the DGAP's report u/r 133 (4) dated 28.08.2020, the Respondent requests to accept Respondent's submissions. G.20 The DGAP has merely reiterated its stand as provided earlier in its clarification dated 11.12.2019. Accordingly, the Respondent reiterates its above submissions. The Respondent has provided reference to Bed Linen case supra in respect of dumping duties, wherein the Government of India had itself opposed ignoring the negative amounts (i.e. zeroing) and successfully appealed before the WTO Appellate Body. Further, the Respondent submitted that the Hon'ble Delhi High Court observed in Johnson Johnson supra that comparing average price with actual price while ignoring negative needs consideration and accordingly stayed the impugned order. The Respondent placed reliance on the case of Dai Ichi Karkaria supra, decided by the Hon'ble Supreme Court. The DGAP has not offered any comments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of refund has not reduced in relative terms. The DG has also stated that reduction in refund could also be possible due to increased utilization of ITC without any factual finding on the same. It is incorrect on part of the DG to have assumed reduction in cash payout and consequently reduced refund due to increased utilization of ITC. H.5 In this regard, the Respondent submitted that due to reduction in rate of tax from 28% to 18%, there is a considerable reduction in the output GST paid by the Respondent. Further, the raw materials have also undergone a reduction in rate of GST from 28% to 18. For sake of ready reference and easy understanding an illustration showing the reduced refunds in absolute terms is given below, by comparing refund available in pre-reduction period with refund available in post-reduction period: H.6 From the above illustration, it can be seen that the refund available under the new scheme in the GST regime is restricted to specified percentage of tax paid by cash after utilizing input tax credit. Accordingly, if the tax payout in cash reduces, the amount of refund allowable also gets reduced. H.7 In this regard, the Respondent submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in outward supply of products H.10 Accordingly, the Respondent has reworked the quantum of reduced refund solely on account of reduction in rate of tax from 28% to 18% without considering loss on account of refund restricted to 58% of CGST/29% of IGST instead of Respondent 's expectation of 100% refund of CGST/50% refund of IGST. The refund reduced solely on account of reduction in rate of tax from 28% to 18% works out to INR 16.76 crores (16,75,98,492), which should be adjusted while arriving at profiteering, if any. H.11 The Respondent submitted that with the reduction in GST rates w.e.f. 15.11.2017, the tax payout directly reduced, resulting in reduced refund in absolute terms. Hence, the absolute reduction in refund allowable (even though refund is still allowed at the same proportion of 58% of CGST paid in cash) is directly attributable to reduced GST rates and hence, the value of reduced refund should be reduced from the alleged profiteering (if any) to determine the net impact of the GST rate reduction on the Respondent . H.12 The DGAP in its reply dt. 11.12.2019 stated that the concern of the Respondent is duly addressed in para-19 of its report dt. 05.07.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t description CN. Unidose Sh. No. 1 Black Sr. No. Invoice date Actual sale price per unit incl. GST Commensurate sale price as per DGAP Profiteering g p.u. as per DGAP Budgetary support (after 15.11.2017) Budgetary support (before 15.11.2017) Reduction in Budgetary support 25 16-11-17 66.69 61.48 5.21 1.57 3.03 1.46 H.17 In the absence of any findings in this regard in the DGAP's report u/r 133 (4) dated 28.08.2020, the Respondent requests to accept Respondent's submissions. The Respondent once again submits that the refund reduced solely on account of reduction in rate of tax from 28% to 18% works out to INR 16.76 crores (16,75,98,492), which should be adjusted while arriving at profiteering, if any. H.18 The DGAP has merely reiterated its stand as provided earlier in its report dated 05.07.2019. Since the DGAP has not dealt with the submissions mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -wise average of the base prices of the impugned products sold during the period 01.10.2017 to 14.11.2017, with the actual invoice-wise base prices of such products sold during the period 15.11.2017 to 31.12.2018, and that the GST collected from the recipients on such alleged profiteering was also included in the total profiteering amount, as the DGAP alleged that the excess price collected from the recipients also includes the GST charged on the increased base price. J.2 The Respondent submitted that while arriving at the total alleged profiteering amount, the DG has incorrectly inflated the pre-rate reduction price by adding 18% GST to it and comparing it with the actual sale price including 18% GST, without adducing grounds as to why this amount has been added. J.3 Whatever amount was charged as GST by the Respondent, the same has been duly deposited in government account. There has been no allegation that the amount termed as excess GST in the Report is not GST per se and that such excess tax has not been paid to the government. J.4 Assuming, without admitting, that the Respondent has profiteered and GST has been collected thereon and said GST is to be paid in Consumer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The word commensurate reduction in the Section denotes reduction in price after taking into account all factors which impact pricing of goods. Had the legislative intention been otherwise, instead of the word 'commensurate', the word 'equal' or 'equivalent' would have been used in this Section. 'Commensurate' connotes proportionality and adequacy. K.3 There may be multiple prices for the same supply at different points of time viz., one before the supply and one after the supply when the price is finalized based on terms of sale like discounts or price reductions based on schemes, turnover, etc. To cover such situations, the word 'prices' is used in Section 171. The law also uses the word 'any' before supply of goods and the same has been used to denote singular as against the plural for price. K.4 Commensurate reduction is not restricted to passing of benefit of tax rate reduction in monetary terms which is normally the price. Section 171 does not use the words 'pass on the benefit by reduction in price'. The effect of commensurate reduction in price is increased benefit to the recipient due to tax rate reduction. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r: i. The fact that the term equivalent has not been used itself shows the intention of the legislature to provide for adjustment of various other factors affecting the pricing of products. ii. The term prices is used in plural form, any interpretation of the same to mean only one selling price would defeat the very purpose of usage of the term in plurality. L. AMOUNT, IF ANY, HELD AS PROFITEERED, CAN BE REFUNDED TO RECIPIENTS. L.1 The Respondent in its submissions dated 04.11.2019 submitted that it has not violated Section 171 and rules made thereunder and the allegation of profiteering consequent to GST rate reduction is not sustainable. In the unlikely event of the Authority holding that some amount has been profiteered by the Respondent, then the same will be refunded by the Respondent to its recipients. L.2 Rule 133 of CGST Rules provides that where the Authority determines that a registered person has not passed on the benefit of the reduction of rate of tax, the Authority may, inter alia, order return to the recipient an amount equivalent to the amount not passed on. It further provides for deposit of such amount in Consumer Welfare Fund constituted unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the goods or services or both supplied; L.6 In the instant case, the distributors, modern trade, e-commerce customers of Respondent are liable to pay consideration for the supply of goods. They are acting on a principal to principal basis by purchasing the goods from the Respondent for making further sales. These customers are not acting as agents between the Respondent and the final consumer. The Respondent does not have any direct transaction with the consumer, i.e. the consumer is not liable to pay consideration directly to the Respondent. L.7 The Respondent submits that section 171 of the CGST Act uses the term recipient which is defined in the CGST Act. Thus, when the definition is provided in the Act itself, the DGAP cannot adopt a different interpretation. Section 171 does not use the term consumer . Thus, by construing recipient to be the consumer, the DGAP is substituting the term used by the legislature. The Respondent submits that the legislature has consciously used the term recipient which has been defined in the CGST Act. When a defined term has been used in a provision, the meaning has to be derived from the said definition only and no other meaning c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing MRP for a period of three months w.e.f. from 1st July 2017 to 30th September 2017. M.4. The Respondent submitted that Rule 6(3) deals with affixation of sticker with revised lower MRP without reference to person who is empowered in this regard. The only condition is that such sticker should not cover the MRP declaration already made by the manufacturer or packer. Therefore, it can be said that such sticker can also be affixed by persons like distributors, dealers or retailers. The law recognizes that the product may be anywhere in the distribution channel and all such persons like dealers and retailers may affix sticker to show reduced MRP. M.5. As submitted above, in case of increase in MRP, relaxation was granted to manufacturers, importers and packers by the above said circular dated 04.07.2017 to affix sticker to declare changed MRP on unsold stock as existing on 1st July, 2017. In case of reduction of MRP, all persons including dealers and retailers have been provided the discretion to affix stickers as per Rule 6(3). In respect of reduction of MRP on the goods lying with dealers and others, law has taken into account practical considerations. It is not possible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Injury) Rules, 1995 have been notified, under which the applicable principles such as determination of injury, evidence of dumping and calculation of non-injurious price have been provided in detail. b. The CGST Act itself prescribes detailed guidelines to determine value of supplies under Section 15 supplemented by Rules 27 to 35 of the CGST Rules. This is not left to the subjective determination of the authorities to be decided on a case to case basis. c. Section 19(3) of the Competition Act, 2002, lays down the factors to be taken into consideration while determining whether an agreement has an appreciable adverse effect. O. IN THE ABSENCE OF ISSUANCE OF SHOW CAUSE NOTICE, PROCEEDINGS INITIATED ARE IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. O.1 The present proceedings have been issued in violation of principles of natural justice as show cause notice has not been issued to the Respondent proposing the action to be taken by the NM. O.2 The first principle of natural justice viz., audi alteram part-ern requires that the person concerned should be heard. In other words, nobody should be condemned unheard. Hon'ble Supreme Court in the case of Can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The written submissions filed by the Respondent were forwarded to DGAP for clarifications under Rule 133(2A) of the Rules. The DGAP vide his report dated 05.11.2020, inter-alia, has clarified on the relevant paras of the Respondent's submissions dated 20.10.2020 as under:- a. The contention of the Respondent that he has not retained any benefit from the reduction in rate of GST and hence has not profiteered is incorrect and hence denied. The DGAP has carried out detailed investigation concluding that the Respondent has profiteered amounting to Rs. 186.40 Crores during the period 15.11.2017 to 31.08.2018, which is based on the documents/information submitted by the Respondent. Further, the computation of aforesaid profiteering is clearly outlined in the Report itself. b. It was contended by the Respondent that the methodology adopted by DGAP of comparing the average price pre-rate reduction with actual post-rate reduction price is not equitable comparison, is erroneous, without logical reasoning and required reconsideration. The Methodology adopted by the Respondent should be considered as correct. In this regard, it has been submitted by DGAP that the average b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y single price i.e. the lowest of the all prices or the highest of all prices because when the highest price is taken then there may not be any profiteering and when the lowest price is taken for comparison then there may be very high profiteering or incorrect profiteering. Further, a random selection of a price of any invoice could have led to unreasonable profiteering amount. (ii) Comparison of Actual to Actual price for same product for same Consumer This method had a limited scope as the price of single consumer was also found to be different in different invoices during a single day or during a period of one month. Further, this could have led to a situation when in the pre rate reduction period a consumer who had not purchased any product could have been deprived of the benefit which the Legislature intended to pass on to all the recipients. The profiteering, in terms of Section 171 of the Act, if any, needs to be calculated independently for each and every transaction as each purchaser is entitled to get the benefit on each supply from the supplier. For example, if a consumer Y purchases an impacted product in post rate reduction period and claims that he shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verage price of pre rate reduction with average price of post rate reduction, for computation of profiteering, will lead to a situation where a person/consumer who had paid Rs. 97/- or Rs. 101/- in post rate reduction will not be given any benefit of profiteering even though he may have or may not have purchased goods in pre rate reduction at a rate less than Rs. 95. Even a new purchaser who purchased goods at Rs. 97/- in post rate reduction would not get any benefit of profiteering. From the above it is observed that the method of computation of profiteering on Actual to Actual or Average to Average price failed to serve the purpose of extending the benefit to each consumer on each transaction as enshrined under Section 171 of the CGST Act, 2017. Thus, by taking Average to Actual method, it is ensured that (i) All transactions are covered for the purpose of calculation/computation of profiteering (ii) Anyone who has actually paid higher price gets the benefit of rate reduction. (iii) The intent and purpose of the Legislature for including a new Section 171 in the CGST Act, 2017 is fulfilled. Thus the methodology of comparing the average price pre-rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approach (a) above is adopted or by Rs. 30,39,43,079/- in case approach (b) above is adopted or by Rs. 30,51,84,398/- in case approach (c) is adopted. In this regard, it is submitted that Respondent has sold some products with same description in multiple product codes with different MRPs. However, these MRPs are prevailing in pre-rate reduction period and not obsolete. For this we shall take an example of the product with description MAJIREL (NEW) SHADE NO 4; for General Trade Channel, the details are furnished in table below: S.No. Product Code Product Description HSN MRP Quantity Taxable Amount Average Price 2439 MRCIP400-70 MAJIREL (NEW) SHADE NO. 4 33059040 310 73,906 163,20,873 220.83 2440 MRCIP400-80 MAJIREL (NEW) SHADE NO. 4 33059040 335 30,465 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 310 1,01,854 224,92,710 220.83 2436 MRCIP300-80 MAJIREL (NEW) SHADE NO.3 33059040 335 23,106 55,14,061 238.64 Total 1,24,960 2,80,06,771 224.12 In the post rate reduction period, DGAP has adopted the pre-rate reduction base price as Rs. 220.83/- (available at first place) and determined the profiteering for product sold in post-rate reduction period amounting to Rs. 28,81,815/- (for the state Delhi- General Trade). However, Respondent submitted that as per approach (c) Weighted average price of latest MRP of Rs. 238.64/- should be adopted and profiteering reduced by Rs. 26,17,512/- resulting into profiteering of Rs. 2,64,303/-[Rs. 28,81,815/-(-) Rs. 26,17,512/-]. The above submission of the Respondent is not appropriate as Respondent has sold 1,01,851 units of Rs. 3 10/- MRP and only 23,106 units of Rs. 335/- MR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hannel) then, DGAP proceeds for Step-3 and so on to find the pre-rate reduction base price for computation of profiteering. Therefore, the claim made by the Respondent before the Authority that Weighted Average Base Price of the product having same description is available at step two itself have merit and accordingly the profiteering is to be revised. However, to address the issue of following incorrect sequence for few line items identified by the Respondent due to adopting first line item, as discussed above, approach (a) where Weighted Average Base Price of the product having same description with all the MRPs is the correct approach to be adopted for pre-rate reduction base price and accordingly, the total profiteering will further reduce by an amount of Rs. 4,80,88,937/- as against Rs. 5,28,32,173/- claimed by the Respondent, for approach (c). (iii). Adoption of average price of description wherever comparable product code is used: In addition to the steps mentioned in point (ii) above, where after applying step four, pre-rate reductions prices were still not found, DGAP proceed to step five six where comparable product were used (having minor difference in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of VLOOKUP function (used to lookup a value in a table by matching on the first column) in MS-Excel, which in case of duplicate values, find the first match when the match mode is exact. However, the Respondent contented that if the aforesaid product code SYMAF050-00 having product description AcnoFight Facewash 50 ml is a correct comparable, then all the other products viz. SYMAF050-30 and SYMAF050-40 having the same description AcnoFight Facewash 50 ml should also be considered as correct comparable and accordingly, the average price of all the codes having the same comparable description must be considered instead of considering the price of 1 product code alone. The above contention of the Respondent have merit and as already discussed in detail in point- (i) above, considering the approach (a) where Weighted Average Base Price of the product having same description with all the MRPs is adopted for pre-rate reduction base price, the total profiteering will further reduce by an amount of Rs. 5,18,75,235/- as against Rs. 5,72,41,346/- claimed by the Respondent, for approach (c). Further, the submission of the Respondent that they would be selling only products with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 05.07.2019), the Respondent has submitted sample credit notes (505 out of total 12,214 Credit Notes) issued to his General Trade Customers to substantiate his claim of passing on the benefit of 51.93 crores to the General Trade Customers. On examination of these credit Notes, it is observed that most of these are issued towards TRADE SCHEMES . Moreover, the said credit notes nowhere indicated that those were related to the benefit of reduction in the GST rate from 28% to 18% w.e.f. 15.11.2017. No SKU-wise correlation could be made between the claim texts appearing in the credit notes and the details of invoice-wise outward supply submitted by the Respondent. Besides, it is observed that Credit notes were issued even prior to reduction in rate of tax. In one of such credit note no. 520383546 dated 14.09.2017 (While rates were reduced w.e.f. 15.11.2017), the Respondent has claimed to pass on the benefit of reduction in rate of GST amounting to Rs. 7,05,138/- issued to M/s. Ankita Enterprises for the Trade Schemes. Further, the GSTIN details of the Respondent and customers were nowhere mentioned in the credit note. Copy of said credit note is enclosed as Annex-1 and snapshot is fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er directions of the Authority contained in para-103 of aforesaid Internal order no. 05/2019 dated 03.01.2020, DGAP has examined the documents submitted by the Respondent regarding his claim of passing on the benefit of reduction in rate of tax by increasing the grammage/volume and observed that there were formula errors in three columns viz. Column-BA Commensurate Base Price with Grammage including GST,' column-BB Grammage Benefit-Gross and column-BC Grammage Benefit-Net restricted to Alleged Profiteering incl. GST . However, on specific pointing out, the Respondent inadvertently revised and corrected only two columns i.e. column BB BC. Therefore, the formula error in Column-BA Commensurate Base Price with Grammage including GST remains in the 2 files submitted by the Respondent vide their e-mail dated 22.08.2020. The same was examined and corrected by DGAP in their working sheets. Accordingly, considering the approach (a) where Weighted Average Base Price of the product having same description with all the MRPs to be adopted for pre-rate reduction base price (as discussed in para-12(i) above, the Respondent has passed on the benefit of reduction in rate of tax by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Any 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. Thus, the legal requirement is abundantly clear that in the event of a benefit of ITC or reduction in rate of tax, there must be a commensurate reduction in prices of the any supply of goods or services. Therefore, Respondent is under legal obligation to pass on the benefit of ITC or reduction in rate of tax by way of commensurate reduction in price of each and every supply of goods or services. Anti-profiteering provisions are for the benefit of the recipients and each recipient must get benefit of reduction in rate of tax or increase in ITC on each and every supply of goods or services or both. Further, the transactions where base price is not increased were excluded from the computation of profiteering. i. As regard to the contention of the Respondent that higher benefit passed on in respect of certain SKUs not considered, it was clarified that the concern raised by the Respondent has been duly addressed vide DGAP letter of even no. 3075 dated 11.12.2020 which are reproduced below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uly addressed in Para-19 of the DGAP's report dated 05.07.2019. k. As regard to the contention of the Respondent that profiteering should not be computed for luxury products, it was clarified that the concern raised by the Respondent has been duly addressed vide DGAP's letter of even no. 3075 dated 11.12.2020 which is reproduced below: Section 171 of the Central Goods and Services Tax Act does not make any differentiation between necessity and luxury products. DGAP's investigation report covers all the products which were impacted by the GST rate reduction w.e.f. 15.11.2017 which attract the provisions of Section 171 of the Central Goods and Services Tax Act, 2017 read with Chapter XV of the Rules as these were to be treated as supply of goods by the Respondent. The transactions excluded by DGAP are addressed in para-20 of DGAP Report dated 05.07.2019. I. As regard to the contention of the Respondent that profiteered amount has been incorrectly inflated in the report by adding GST and the same is not sustainable it was clarified that the concern raised by the Respondent has been duly addressed vide DGAP's letter of even no. 3075 dated 11.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicate the benefit of reduction in rate of tax has to be passed on for each and every supply. The word registered person has been used as Section 171 of the CGST Act, 2017 cannot be applied on suppliers who are not registered under the GST Act, and it is clear from the word recipient (in singular) that the benefit has to be passed on each and every recipient, who may buy a single SKU also. Thus, the profiteering has to be determined at the SKU-level. The text of the law is very clear according to which the benefit of reduction in rate of tax has to be passed on to each recipient on every supply. Thus, there is no scope for interpretation of the marginal notes. n. As regard to the contention of the Respondent that amount, if any, held as profiteered, can be refunded to recipients, it was clarified that the concern raised by the Respondent has been duly addressed vide DGAP's letter of even no. 3075 dated 11.12.2020 which is reproduced below: In this regard, it is submitted that the benefit must be passed on to the recipient who has borne the incidence of such amount i.e. the end customers. In the present case the recipients of the Respondent are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the absence of any prescribed methodology of calculation of profiteering in the CGST Act, the CGST Rules or the procedure prescribed by NAA, the proceedings are liable to be dropped, it was clarified that the contentions of the Respondent made in these paras are wrong as the Report has been prepared in accordance with the provisions of Section 171 of CGST Act, 2017. The main contours of the 'Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and the benefit of ITC are enshrined in Section 171 (1) of the CGST Act, 2017 itself which states that 'Any 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. It is clear from the perusal of the above provision that it mentions reduction in the rate of tax on any supply of goods or services which does not mean that the reduction in the rate of tax is to be taken at the level of an entity/group/company for the entire supplies made by it. Therefore, the benefit of tax reduction has to be passed on at the level of each supply of Stock Keeping Unit (SKU) to each buyer of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l hearings in the matter were scheduled on 24.12.2020 and 18.01.2021. However, the subsequent proceedings in the matter could not be completed by the Authority due to lack of required quorum of members in the Authority during the period 29.04.2021 till 23.02.2022, and that the minimum quorum was restored only w.e.f. 23.02.2022 and hence the matter was taken up for further proceedings vide Order dated 24.02.2022. 7.1 Personal hearing in the matter took place on 5.5.2022, which was attended by Shri V. Laxmikumaran, Advocate; Shri K. Sreekant, Advocate; Shri Darshan Maccher, CA, Shri Mahesh Morye, Shri Rohit Gupta and Shri Anand Nagda on behalf of the Respondent and Shri Lal Bahadur, Assistant Commissioner for DGAP. During the personal hearing, the learned advocate made a PowerPoint presentation and reiterated his submissions made earlier. The Respondent requested for one week's time to file consolidated written submissions including purchase order/design placed on the suppliers of packing material to affect delivery of increased grammage, etc., 7.2 The Respondent vide letter dated 12-05-2022 informed that he has already filed consolidated written submission vide email d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the Respondent is liable to pass on the benefit of tax reduction to the customers as per the provisions of Section 171. A list of the goods which were impacted by the above rate reduction is given as under:- Category Product HSN Impacted Hair Care Shampoo, Conditioner, Serum etc. 3305 Yes (except Hair Oil) Hair Color L'Oreal Paris, Garnier 3305 Yes Skin Care Cream 3304 Yes Make Up Kajal, Maybelline, etc., 3304 Yes (except Kajal) Luxury Products Giorgio Armani, Diesel, etc. 3303 Yes 9.1 It is an admitted fact that the GST rates on several products manufactured and sold by the Respondent were reduced vide Notification No 41/2017-CT dated 14.11.2017 and notifications issued by the State governments. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y DGAP. However, DGAP has investigated the whole matter and has submitted two reports dated 05.07.2019 and 28.08.2020 and came to a conclusion that the Respondent has profiteered an amount of Rs 186.39 crores. 9.3 Having perused and examined all relevant documents like DGAP's reports dated 05.07.2019 and 28.02.2020; elaborate and voluminous submissions of the Respondent dated 14.9.2019, 20.10.2020 and consolidated submission dated 26.11.2020 including grounds mentioned in those submissions and the submissions made during the course of personal hearing, the Authority finds that following points/issues need decision:- a. Whether proceedings are time-barred under the provisions of Rule 133? b. Whether in absence of any prescribed methodology in the CGST Act to calculate profiteering or the procedure prescribed by Authority, the whole proceedings are arbitrary and liable to be dropped? c. Whether period of investigation has been selected in arbitrary manner? d. Whether base price discrepancies have resulted in inflated profiteered amount? e. Whether claim of benefits like discounts or by way of price reduction post supply of goods to recipients by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of Rule 133 (1) of the CGST Rules, 2017 the Authority was required to pass order within six months by 04.01.2020 as the report from the DGAP was received on 5.07.2019 as the fresh time limit of six months was not available under Rule 133 (4) otherwise the proceedings would never come to an end. In this regard it would be pertinent to note that the I.O. No. 05/2020 dated 03.01.202 0 under Rule 133 (4) directing the DGAP to conduct further investigation in the present case was passed as the Authority could not have passed a reasoned and just order on the said Report dated 05.07.2019, after considering the Respondent's submissions and personal hearings. The Respondent has also submitted the dates and events of the present proceedings to prove his above contention, however, perusal of the record shows that the Report from the DGAP was received on 05.07.2019 and the respondent was directed to appear on 02.08.2019 however, he had sought repeated adjournments for filing replies and had taken a period of about 5 months w.e.f. 30.07.2019 to 01.01.2020 to file the same. The Respondent has not explained why the above period of 5 months should be counted in the period of 6 months pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This Authority is fully competent to direct the DGAP to furnish clarifications under Rule 133(2A) or order further investigation as per Rule 133 (4) on the basis of the reasonable grounds which have been duly mentioned in the above I.O. and the Respondent cannot dictate what order is to be passed in the proceedings pending before it to arrive at just and reasonable decision. Since the issues raised in the above I.O. were distinct and separate and were not raised by the Respondent the Authority was fully entitled to order further investigation as per Rule 133 (4). The Respondent further has no ground to misconstrue the provisions of Rule 133 (5) and claim that the period of 6 months was not available for conducting further investigation under Rule 133 (4). Such a claim would be against the principles of natural justice as during every fresh investigation due opportunity has to be given to the interested parties including the Respondent and the DGAP to collect fresh evidence and seek replies from the parties. Therefore, the above claim of the Respondent is unacceptable. 10.3 The Respondent has also claimed that Para 10 of the Guidelines dated 04.10.2019 issued by the Authority w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport under Rule 133 (1) would tantamount to amendment in Rule 133 (4) on the lines of Rule 133 (5), which this Authority could not do as the power to amend rules was available only with the Central Government. In this regard it would be pertinent to mention that, as discussed in Para supra, this Authority has only clarified the position which already exists in Rule 133 (1) and hence such a clarification cannot amount to amendment of Rule 133 (4). Moreover, as per the power conferred on this Authority under Rule 126, which has been framed under Section 171 (3) and 164 of the above Act, this Authority is competent to clarify vide Para 10 of the above Guidelines that the Report furnished by the DGAP after further investigation ordered under Rule 133 (4) shall be treated as a fresh Report under Rule 133 (1) and accordingly order on such Report can be passed within a period of 6 months. Therefore, there is no requirement of modifying the above Para and hold that the present proceedings are time barred as it does not amount to amendment in Rule 133(4) in line with Rule 133(5). 10.5 Further, this Authority under Section 171 (3) of the above Act has been empowered by Rule 126 to dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r failure to adhere to the prescribed time limits. In the given situation, it is imperative to examine as to whether the said provisions under Rules 133 are mandatory or directory. 10.7 The question as to whether any provision of a statute is mandatory or directory depends upon the intent of the Legislature and not upon the language in which the intent is clothed. The meaning and intention of the legislature must govern which is to be ascertained not only from the phraseology of the provision but also by considering its nature, its design and consequences which would follow from construing it the one way or other, as observed by the Apex Court in some of the judgement. It is an admitted fact that anti-profiteering provisions provided under the CGST Ad are a beneficial enactment with a view to provide relief to the common person, where the government sacrifices its revenue. 10.8 The Authority finds that the statute has not provided for any consequences for failure to adhere to the time limit and it has not provided that in case of such failure of time limit, the whole proceedings would be null and void. Hon'ble Supreme Court in the case of Rajsekhar Gogoi v State of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind the object of the statute and adopt an interpretation which would further such cause in light of attendant circumstances. To put it simply, the procedural law must act as a linchpin to keep the wheel of expeditious and effective determination of dispute moving in its place. The procedural checks must achieve its end object of just, fair and expeditious justice to parties without seriously prejudicing the rights of any of them. Reliance in this regard is further placed on the following judgement of the Hon'ble Supreme Court in the case of P.T: Rajan v. T. P. M. Sahir and Ors. (2003) 8 SCC 498:- 48. It is well-settled principle of law that where a statutory functionary is asked to perform a statutory duty within the time prescribed therefore, the same would be directory and not mandatory. (See Shiveshwar Prasad Sinha v. The District Magistrate of Monghur Anr. AIR (1966) Patna 144, Nomita Chowdhury v. The State of West Bengal Ors. (1999) CLJ 21 and Garbari Union Co-operative Agricultural Credit Society Limited Anr. V. Swapan Kumar Jana Ors. (1997) 1 CHN 189). 49. Furthermore, a provision in a statute which is procedural in nature although employs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of 28%. Instead of doing that he has raised his prices over night as is evident from the discussion made in the subsequent paragraphs. Respondent was simply required to maintain the base prices of the SKUs which he was charging before the rate reduction and charge GST @18% instead of 28% and no method was required to be prescribed by the Government to pass on the benefit of tax reduction. He was to replace only one entry of GST in his billing software from 28% to 18% w.e.f. 15.11.2017. If the Respondent could change several entries in his software to increase the base prices w.e.f. 15.11.2017 he could have very easily replaced one entry of rate reduction. No guidelines and methodology or elaborate mathematical calculations are required to be prescribed separately under Rule 126 for passing on the benefit of tax reduction or for computation of the profiteered amount. 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. 11.2 The Respondent was also required to fix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and had continued to sell his products at the pre rate reduction MRPs and therefore, his unconvincing arguments cannot be relied upon. It is reiterated that as per Section 171 (1) reduction in prices is the only legally permissible method for passing on the benefit of tax reduction. 11.3 The 'Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and ITC or for 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 input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. It is clear from the plain reading of the above provision that it mentions reduction in the rate of tax or benefit of ITC which means that if any reduction in the rate of tax is ordered by the Central and the State Governments or a registered supplier avails benefit of additional ITC, the same have to be passed on by him to his recipients since both the above benefits are being given by the above Governments out of their tax revenue. It also provides that the above benefits are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 product to product 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. 11.6 Computation of the profiteered amount is a mathematical exercise which can be done by any person who has knowledge of accounts and mathematics as per the Explanation attached to Section 171. 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 products or the services, can be set for passing on the above benefits or for computation of the profiteered amount, as the facts of each case are different. 11.7 This Authority under Rule 126 has been empowered to 'determine' Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould mean each supply made to each customer. Since the Respondent is making supplies at the SKU level, he has to pass on the benefit on each such supply at the SKU level. The Respondent is not making supplies and charging prices at the HSN Code or entity level, hence he cannot pass on the benefit at such Code or entity level. As per the provisions of Section 171 (1), each recipient is entitled to the benefit of tax reduction at each SKU level and in case he is denied the benefit on the ground that it is to be passed at the HSN Code or entity level, then it would amount to infringement of Section 171 (1) as well as Article 14 of the Constitution. 11.9 The Respondent has also submitted that the DGAP's interpretation of the term 'any' supply as 'each and every' supply was wholly misplaced and therefore, if a recipient has been supplied 2 SKUs and if any additional price charged on 1st SKU has been offset by passing on higher benefit on the 2nd SKU, then the profiteering should be determined after offsetting the higher benefit passed on to the very same recipient. The above claim of the Respondent is highly misplaced as the benefit has to be passed on each SKU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the commencing date of the investigation. As regard to the end date of investigation, the date would be dependent upon timing of receipt of complaint/application alleging profiteering by registered person or till the benefit of reduction is passed to recipients . Obviously, in such case the end date would be last day of the previous month, whereby details relating to taxable incomes and other information as contained in the GSTR 1 and /or GSTR-3B could be analysed and scrutinised. However, if there has been an increase in the taxes or duties which impacted the profiteering amount, the Respondent is expected to demonstrate the said effect by producing verifiable documents. In the instant case, the Respondent has claimed that there has been increase in the Customs Duty on the imported material of his in February 2018, adjustment of which the profiteered amount was required to be done: This aspect of increase in Customs Duty impact will be discussed in the subsequent paragraphs. 12.2 It is logical to expect that the Respondent is liable to be investigated till the date he can prove that he has passed on the benefit of tax reduction. Since, the details of complaint made agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom his own pocket while passing on the benefit of tax reduction and hence he should have no objection on the period of investigation. He cannot be investigated beyond the date from which he has passed on the benefit. His plea to restrict the period of investigation only means that he wants to appropriate the amount of benefit. Therefore, no provision is required to be made either under Rule 126 the Guidelines to fix the period of investigation as different registered persons may or may not have passed on the benefit from the same date and hence they would be required to be investigated till the time they have passed on the benefit which may be different in different cases. There is no question of the Respondent being brought under the price control regime as there is no such provision under Section 171(1). 12.4 The Respondent has also argued that period of investigation of around 14 months vis-a-vis investigation period of around 2 to 5 months in respect of some other registered person is discriminatory in nature. However, the Respondent has not provided any detail as to when the complaint/application in respect of these registered persons was received by the DGAP. The Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent has not passed on the above benefit. Therefore, there was specific allegation of profiteering made against the Respondent vide the above notice as he was asked to explain whether he admitted that the benefit of tax reduction had not been passed on by him and if so he should suo moto determine the same. The investigation could only have been done till December 2018 as it could not been done in respect of future months, as a specific reference period was required for it. The offence could also not have been presumed to be continued to have been committed in future. The Respondent had not raised any objection against the investigation being conducted till 31.12.2018 before the DGAP and hence his present objection is merely an afterthought. Conducting of investigation till 31.12.2018 causes no discrimination to the Respondent as it has been established after investigation that he has not passed on the benefit till 31.012.2018. It is absolutely clear from the provisions of Section 171 (1) that any 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. and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... storted picture of pre-and post GST rate reduction prices. It is argued by the Respondent that prices to various customers within the same channel i.e. distributors, modern retail customer, etc. may vary from time to time based on commercial considerations. The DGAP has contended that he has worked out the profiteered amount by comparing the weighted average price with the actual price as other method of actual to actual comparison or average to average comparison would either deny benefit to the new customer or benefit to each and every supply of each recipient would not be available. 13.2 The Authority finds from the submission of the Respondent that transactions involved during the period of investigation are voluminous. It has been further submitted by the Respondent through various tables that for a single day, the selling price to the same buyer for the same product may vary for variety of reasons. Obviously, it would lead to a situation whereby devising any methodology for working out the profiteered amount would be a challenging task and assistance of the various mathematical models may have to be critically examined and a particular model has to be adopted for arrivin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pre-rate reduction base price during the period 1.09. 2017 to 30.9.2017 of comparable products having minor difference in description and product code has been made with the actual price post rate reduction. 13.4 The above mentioned methodology adopted by the DGAP is suited to the case of Respondent, where he has been dealing with multiple products of different sizes, quantity with different type of buyers, where the price of any product for same day for the same buyer may be different. This fact of different MRPs for the same product to the same buyer even in the single day has been admitted by the Respondent. In view of the above said facts and in the given circumstances this Authority finds that the DGAP has critically examined various methodologies suggested by the Respondent and the most suited methodology has been adopted and all required rectification of the profiteered amount has been made in the Report dated 28.8.2020. 13.5 The Respondent has given certain tabulation in respect of some of his products in the written submissions to challenge the methodology adopted by the DGAP. As mentioned in the earlier paragraphs that the submissions made by the Respondent we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Affairs, Food and Public Administration is discussed at para 11.2 on pre-page. Accordingly, the above submission of the Respondent is untenable. 13.8 The Respondent has also alleged that there were discrepancies in the calculation of profiteering as net price of SKU (Gross price net of discounts) prior to reduction of tax was compared with the gross price of SKU post reduction of tax in respect of certain SKUs, which has resulted in reduced margins on the products, has not been considered. It would emerge from the Report dated 05.07.2019 that the computation of the profiteered amount has been made by comparing the transaction value of the SKU charged by the Respondent during the pre and post reduction periods as has been provided under Section 15 (1) excluding the amount of discounts as per Section 15(3)(a), both of which state as under:- 15(1) 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. 15(3) The value of the suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy in their possession or in the transit. The Respondent has relied upon the minutes of the meeting dated 19.12.2017 held in this regard and also the email dated 25.11.2017. It was also claimed by the respondent that credit notes were issued to the distributors/customers and service invoices were issued by the modern retail/e-commerce customers. The Respondent has submitted sample copies of the credit notes and invoices to the DGAP and scanned copies of some of them have been displayed on the previous pages. The DGAP in his report has countered the claim of the Respondent in as much as that no SKU-wise correlation can be established and that benefit to the distributors is on account of various trade schemes and that one credit note is dated 14.9.2017 showing benefit passed on for the rate reduction, whereas the rates were reduced from 15.11.2017. The DGAP has also found that documents submitted by the Respondent claiming to be passing on benefit to modern retail/e-commerce customers, relates to advertising services. The Respondent has countered the above said observation of the DGAP by claiming that the SKU wise correlation has been submitted to the DGAP but has not been considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A close look at these two documents would reveal the following:- i. The document dated 14.9.2017 has been issued from the Bangalore office of the Respondent and is titled as CREDIT NOTE. It has document No 520383546 dated 14.9.2017 for M/S Ankita Enterprises Hyderabad for an amount of Rs. 705137.58. It is with respect to the claim number CTS17000100 dated 14.9.2017. The description given in the credit note is TRADE SCHEMES-CPD. ii. The document dated 21.02.2018 has been issued from the Hyderabad office of the Respondent and titled CREDIT NOTE. In place of Document No. and Document Date (as seen in credit Note dated 14.9.2017); this document has Credit Note No. CTS17000100 and Credit Note date 21.02.2018. This document has PO No as CTS17000100 and PO date 21.02.2018. This document is for M/S Ankita Enterprises Hyderabad for an amount of Rs. 705137.58. iii. If one compared these two documents, it would emerge that the basis of these documents is one document i.e. CTS17000100. While in the document dated 14.9.2017, it has been stated as 'claim' in the other document it has been mentioned as 'PO' (perhaps purchase order). All other relevant i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... = INR 35.91 per unit Claim made by customer on L 'Or al and processed by L 'Or al C.14. The claim made by customer on L'Oreal shows the very same invoice line item sold by customer to retailer. C 15. The claim made by customer for the above product worked out to INR 35.91 on a p.u. basis. This is the same product sold by L'Or al to customer which can be seen from the invoice of L'Or al as follows: It may be seen from the tax invoice No MH0017714319 dated 27.12.2017 that the product DGL Eye Studio Gel Liner having MRP of Rs. 550 was sold to M/S Delhi Trading Co. The unit rate indicated is of Rs. 365.40. It is claimed by the Respondent that the same product was sold by M/s. Delhi Trading Co. to the retailer at the reduced MRP of Rs. 500. However, it has been sold at the rate of Rs. 395 per unit by M/S Delhi Trading Co. It is claimed that he has offered a discount of Rs. 1723.47. It is not understood as to how the unit price of the product has been increased from Rs. 365.40 to Rs. 395 by the customer of Respondent i.e M/S Delhi Trading Co. It would appear from the above said documents that the unit price was raised by the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion above that they pertained to GST rate reduction only. Therefore, the DGAP's observation is incorrect. The Respondent submits that the benefit has been passed on account of GST rate reduction only. As one would see from the above said credit note that it was billed to M/S Ankita enterprises and credit note is dated 16.4.2018 for the PO No. CTS1700105 dated 16.4.2018. The description given is and claimed as 'GST PRICE REDUCTION- CPD'. It may also be noted that Respondent in earlier paragraph 5.4 has claimed as under: Jan 2018 onwards The process of MRP change as well as increase in grammage on packs started in November 2017 itself, and as the old MRP printed inventory was phased out and the fresh stock with reduced MRP on artwork became ready, it started to hit shelves from January 2018 onwards. The Respondent reduced the prices on invoices issued to its recipients commencing January 2018 onwards for majority of products, and also increased grammage for some. The Respondent offered discounts in the form of post supply price reductions till the time MRP reduction or higher grammage was given. The po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chemes announced from time to time, as the net price alone reflected the actual consideration towards the supply, realized by the Respondent. In this regard it would be worthwhile to state that the evidence submitted by the Respondent in his support was either the invoices issued by his distributors which mentioned the description as Advertising Services with HSN Code 998366 or the Credit Notes issued by the Respondent. Therefore, it is absolutely dear that the amount paid by the Respondent to his distributors was on account of the services rendered by them for promotion or advertisement of his sales and has nothing to do with passing on of the benefit. The Respondent cannot make arguments against the factual record and entries made in the invoices. The Respondent has also appeared to have resorted to misclassification of accounts by making such a claim. The benefit could have been passed on by simply maintaining the pre rate reduction prices and then charging GST on them @18%. Such a claim is being made by the Respondent deliberately to palm off the incentive given by him for sale promotion as passing on of the benefit. The benefit was required to be passed on by commensurate re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on by way of commensurate reduction in prices to the recipient. The Respondent has made an attempt to expand the interpretation of two words in the above said provision, namely, 'commensurate' and 'prices'. It is claimed by him that commensurate should not only mean with respect to the monetary terms but should include other factors like increase in quantity/grammage sold. As per the Respondent, increase in quantity of grammage would be coming within the definition of commensurate reduction in prices. 15.2 The Authority does not find from the facts or the evidences collected by the DGAP or any document/evidence given by the Respondent whereby it can be proved that the products sold by the Respondent are per gram or per kilogram. In fact, from the photographs of advertisements submitted by the Respondent, one doesn't find as to whether the consumer was consciously made aware of specific number of excess grammage being offered to them due to reduction in the tax rate. None of the photographs or evidence indicates that the products sold were with price fixed with respect to grammage. It is also not a case, where the price of the product is mentioned in imm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware of the fact that certain additional quantity of the product has been filled in the package, which he/she has been routinely using. If he is not being made consciously aware of the fact that additional quantities have been given to him in the same price, he would continue to use it in the same fashion and manner, consuming the same within the same cycle, which he had been using in the past, especially when additional quantity given is not significant. For example, if a consumer has developed a habit of pouring some approximate quantity of shampoo on head or palm through the mouth of bottle, he would continue to do the same in approximate manner, without measuring the same in grams. Further, if consumer spreads toothpaste on toothbrush upto some length, he would continue to do the same, irrespective of the fact as whether the mouth of the tube has been marginally reduced or increased. The Authority finds from the copy of the meeting dated 21.12.2017 ( as pasted below) that the Respondent has claimed to have increased the grammage from 65 grams to 71.5 grams ( i.e, 6.5 grams, less than a Tola) in some cases and in other cases it is around 20- 36 grams (except one case, where incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd has admitted that reduction in the rate of tax or benefit of ITC can only be passed in the shape of commensurate reduction in the price as per the provisions of section 171. As observed by the Authority the provisions of section 171 are very' simple and generate no ambiguity so as to resort to any construction for its interpretation. 15.7 Hence, this Authority, based on the discussions above, holds that increase in grammage, if any, is not in any way equivalent or akin to commensurate reduction in prices. The Authority finds that the statutory provisions under Section 171 mandate only commensurate reduction in price as the only method of passing on the benefit of reduction in rate of tax or availability of Input Tax Credit and there is no scope for any exception. 15.8 Even if, it is assumed that commensurate price reduction would include increase in grammage, then it would be worthwhile to consider the following:- a. Vide Para 103 of the I. O. dated 03.01.2020, the Respondent was directed to supply the following details to establish his claim that he had passed on the benefit of tax reduction by increasing the quantity of his SKUs: (i) Name of the SKU. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of GST and hence the above minutes cannot be relied upon. d. The Respondent has also claimed in his above reply that he was required to increase grammage by 8.48% ,however; he has increased it by 10%, 18.18% and 41.30% without explaining why he has done so. The only plausible explanation appears to be the demand of the consumers and not passing on the benefit of tax reduction. The Respondent is running business for profit and hence such generous increase in the grammage appears to be without any basis and only an attempt to justify passing on the benefit of GST. e. Perusal of Entry No. 1 of Annexure-2 supplied by the Respondent with his reply dated 03.02.2020 in respect of State of Delhi shows that the extra Grammage on account of commensurate reduction was to be 30.53 grams as per Column DC whereas the actual Grammage passed on is 36.00 Grams as per Column DD. In respect of State of Maharashtra, perusal of Entry No. 182 shows that grammage of 54.27 grams was required to be passed as commensurate benefit as per Colum DC however, 64.00 grams have been passed as per Column DD. Similar is the situation in respect of transactions of all the other States and Union Territories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Customs Duty p.u. (before 01.02.2018) Customs Duty p.u. (post 01.02.2018) Increase in Customs Duty p.u. 4335 19-11-17 1276.56 1176.82 99.74 53.98 155319 14-03-18 1276.56 1176.82 99.74 115.30 61.32 Illustration for Product 2: Product Code DCFFN021-00 with product description Dream Cushion Fdn 21 Nude Sr. No. Invoice date Actual sale price per unit incl. GST Commensurate sale price as per DGAP Profiteering p.u. as per DGAP Customs Duty p.u. (before 01.02.2018) Customs Duty p.u. (post 01.02.2018) Increase in Customs Duty p.u. 731 18-11-17 783.17 721.99 61.19 24.64 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduct, claiming to be having impact of Customs Duty have remained same. It was claimed by the Respondent that new set of MRP were introduced by them from the beginning of January, 2018 to take into effect the decrease in the GST rates. However, as per the above illustrations submitted by the Respondent, the selling rates of the products have remained the same during the month of November, 2017 and March, 2018. Hence, the Authority finds that the Respondent has been economical with the truth and has been submitting information and data which is inadequate, unreliable and unsubstantiated. The Authority is in agreement with the conclusion of the DGAP. 16.3 The above finding by this Authority is further corroborated while analysing the claims of the Respondent that an amount of Rs 19.18 Crores needs to be reduced from the calculated amount of profiteering worked out by the DGAP by claiming that the details are available in 35 Excel sheets at column BH- heading 'Increased Customs Duty paid w.e.f.- March 18-Total'. Those 35 Excel sheets do not have any heading of bills of entry number, date, value, duty, description of goods, etc. It is also not clear as to whether the impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 said 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 purchasing goods 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 above Respondent. It would also be appropriate to state here that price includes GST. The profiteered amount can also not be paid from the GST deposited in the account of the Central and the State Governments by the Respondent as the above amount is required to be deposited in the Consumer Welfare Funds (CWFs) as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017 along with the interest. Therefore, the above contention of the Respondent is untenable and hence it cannot be accepted. The Respondent has also referred to the cases of R. S. Joshi Sales Tax Officer and Dai Ichi Karkaria 1999 (112) ELT 0353 SC in his support, however, in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as the profiteered amount. If this methodology is applied the Respondent would be entitled to subtract the amount of benefit which he has not passed on one product from the amount of benefit which he has claimed to have passed on the other product, which will result in complete denial of benefit to the customer who has purchased a particular product on which no benefit or less benefit has been passed on. Hence, the methodology of 'netting off' cannot be applied in the case of tax reduction and the methodology of 'Zeroing' has to be applied as the customers have to be considered as individual beneficiaries and they cannot be dumped as goods and netted off against each other. This Authority has also clarified in its various orders that the benefit cannot be computed at the product, service or the entity level as the benefit has to be passed on each SKU, unit and service as per the provisions of Section 171 (1). Hence, the above contention of the Respondent is not correct as the Respondent cannot insist on not applying the methodology of Zeroing' as 'netting off' would amount to violation of the provisions of Section 171 of the above Act as well as Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been reduction in the area based fiscal incentives as a result of reduction in the rate of GST, which has resulted in reduced margins on the products which should be reduced from the profiteered amount. In this regard perusal of the record shows that as per the Notification No. 10(0/2017-DBA-11/NER dated 05.10.2017, the unit of the Respondent based in industrially backward area of Himachal Pradesh was entitled to refund of 58% of the CGST or 29% of the IGST paid through debit through the cash ledger account, as per the provisions of Section 49(1) the CGST Act, 2017, after utilization of the input tax credit of the CGST or the IGST. Therefore, prior to 15.11.2017, the Respondent was entitled to the refund of CGST or IGST paid in cash as per the above percentages. Post 15.11.2017, the liability of the Respondent to make payment in cash has reduced due to reduction in the rate of GST and accordingly, the amount of refund has also reduced. However, there has been no loss to the Respondent as he was still entitled to get refund of the CGST @58% or IGST @29% if paid in cash, as per the Notification dated 05.10.2017, as was available to him prior to the reduction in the rate of GST fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmined against him, it should be given to the recipients and in this case the recipients are identifiable i.e. distributors, modern trade retailers, etc. It is also argued that the determined amount of profiteering should not be credited into the Consumer Welfare Fund, by virtue of the fact that the recipients, to whom the goods were supplied by him, are easily identifiable. In support of the said contention, the Respondent has placed reliance upon the definition of recipient under section 2 of the CGST Act, 2017. 21.1 The Authority has discussed the object and intention of the Government in enactment of the provisions under section 171 of the CGST Act 2017 and the rules made thereunder in the earlier paragraphs. As mentioned earlier, this beneficial clause of the Act provides for transfer of the sacrifice of the Government revenue to the common person or the end users. The Respondent in his defence has informed that he has distributors, modern trade retailers, ecommerce and canteen stores as his customers. All these customers i.e. distributors, modern trade retailers, e-commerce and canteen stores, etc may have certain business agreements amongst them but ultimately the produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22.1 The above contention of the Respondent is not correct. Perusal of Rule 129(6) of the CGST Rules, 2017 makes it clear that the DGAP shall complete the investigation and upon completion of the investigation, furnish a report of its findings alongwith the relevant records to this Authority. In the present case, the DGAP after detailed investigation has submitted his Report dated 05.07.2019 to this Authority. A copy of this Report was provided to the Respondent to file his replies. The Authority after hearing the Respondent and analysing the Report dated 05.07.2019, directed the DGAP to conduct investigation under rule 133 (4) of the Rules. On receipt of the Report dated 28.8.2020 of the DGAP, this Authority has carefully considered the allegations made against the Respondent and by Notice dated 08.09.2020, provided a copy of the said Report to the Respondent vide which the Respondent was directed to file their reply to the said Report so that the profiteered amount, if any, may be determined by this Authority. The Report of the DGAP was supplied to the Respondent along with all the annexures. The Respondent was also given opportunity to file his consolidated written submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CGST Act, 2017 provides for the role of this Authority as to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him. The duties of this Authority have been further elaborated in Rule 127 of the CGST Rules, 2017 which reads as follows:- 127. Duties of the Authority.- It shall be the duty of the Authority,- (i) to determine whether any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit has been passed on to the recipient by way of commensurate reduction in prices; (ii) to identify the registered person who has not passed on the benefit of reduction in the rate of tax on supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices; (iii) to order, (a) reduction in prices; (b) return to the recipient, an amount equivalent to the amount not passed on by way of commensurate reduction in prices along with interest at the rate of eighteen percent, from the date of collection of the high ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constituted under the Telecom Regulatory Authority Act, 1997 but does not have a Judicial Member. Section 3 of the said Act provides for the composition of the Authority. Again, the Medical Council of India has been constituted under the Indian Medical Council Act, 1956. The various disciplinary powers which it exercises under the Act can be said to be quasi-judicial in nature but it does not require a Judicial Member in its Council. The constitution and composition of the Council is provided in Section 3 of the said Act. The Institute of Chartered Accountants of India has been constituted under the Chartered Accountants Act, 1949. The ICAI also exercises quasi-judicial functions over its registered members and can pass orders which have far reaching consequences affecting the rights of Chartered Accountants but even its composition does not require a Judicial Member's presence. Its composition is provided in Section 9 (2) of the above Act and the same does not include a mandatory Judicial Member. 23.3 Similarly, the Assessing Officers, Commissioners of Appeal under the Income Tax Act, 1961 and the CGST Act, 2017, the Authorities on Advance Rulings under both the above Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ensure that both the benefits of tax reduction and ITC which are the sacrifices of precious tax revenue made from the kitty of the Central and the State Governments are passed on to the end consumers who bear the burden of tax. 24.1 The Respondent has also stated that in a few cases the DGAP has computed profiteering which was in excess of the reduction in the GST rate. He has further stated that the allegation of profiteering could only be to the extent of reduction in the price as a result of reduction in the GST rate. It is also submitted by him that the additional increase in price was attributable to the business profits of the Respondent which was not within the scope of Section 171. The above claim of the Respondent is not tenable as while passing on the benefit of tax reduction he on the one hand is claiming to reduce the prices commensurately and on the other hand he is withdrawing the benefit by stating that the increase in price was on account of business profits. This ingenious argument advance by the Respondent amounts to not passing on the benefit of tax reduction and hence the amount so claimed to be business profit is required to be added in the profiteered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal and does not amount to excessive delegation. It is also mentioned that the Rule 122 only prescribes the qualifications of the members of the Authority whereas its constitution has been duly provided in Section 171 (2). Further it has been specifically provided in Section 171 (3) that The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed. and hence, the functions and powers conferred on this Authority under Rule 127 also have mandate of the Parliament, the State Legislatures, the Central and the State Governments as well as of the GST Council and hence the conferring of powers and functions under the above Rules on this Authority does not tantamount to excessive delegation. 26. The Authority also notes that Respondent has claimed that he has passed on benefit of Rs 276.48 crores (as mentioned in paragraph 5.5), the details of which are as under: SN Particulars Amount (In Crs) 1 Post-suppIy discount due to GST rate reduction 73.59 2 Increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2580.5 4 04-CHANDIGARH 6893721.5 5 05-UTTARAKHAND 7100816 6 06-HARYANA 47912787.5 7 07-DELHI 115297375 8 08-RAJASTHAN 30411173.5 9 09-UTTAR PRADESH 71118682.5 10 10-BIHAR 16505833.5 11 11-SIKKIM 1539554.5 12 12-ARUNACHAL PRADESH 1242155 13 13-NAGALAND 3710035.5 14 14-MANIPUR 2408754 15 15-MIZORAM 1963784 16 16-TRIPURA 1546872.5 17 17-MEGHLAYA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 171 (1) during the period from 15.11.2017 to 31.12.2018, and therefore, he is liable for imposition of penalty under the provisions of Section 171 (3A) of the above Act. However, perusal of the provisions of the said Section 171 (3A) shows that it has been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019 and it was not in operation during the period from 15.11.2017 to 31.12.2018 when the Respondent had committed the above violation. Hence, the said penalty under Section 171 (3A) cannot be imposed on the Respondent retrospectively. Accordingly, notice for the imposition of penalty is not required to be issued to the Respondents. 30. The concerned Central and the State GST Commissioners are directed to ensure that the above said amount is got deposited along with the interest with in the specified period under the supervision of the DGAP failing which the same shall be recovered by them as per the provisions of the CGST/SGST Acts. The action taken by them in pursuance of this Order shall be reported by them within a period of 4 months from the date of this Order. 31. Since the present investigation has been conducted for the peri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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