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TMI Blog2024 (7) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,67.790/-as per the provisions of Section 171 read with Rule 133 (1) of the CGST Rules 2017 and accordingly the Respondent is directed to commensurately reduce the prices of movie tickets in line with the provisions of Section 171 (1) read with Rule 133 (3) (a) of the CGST Rules, 2017. Further, since the customers/ recipients, in this case. are not Identifiable, we direct the Respondent to deposit the profiteered amount of Rs. 88,67,790/-along with the interest to be calculated @ 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited, in two equal parts, in the Central Consumer Welfare Fund and the Telangana State Consumer Welfare Fund as per provisions of Section 171 (1) read with Rule 133 (3) (c) of the CGST Rules, 2017. The above amount shall be deposited by the Respondent within a period of 3 months from the date of receipt of this Order failing which the same shall be recovered by the Commissioner CGST/SGST as per the provisions of the relevant GST Act, 2017. Penalty - HELD THAT:- The Respondent has denied the benefit of rate reduction from 28% to 18% w.e.f. 01.01.2019 to his customers/recipients in contravention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and indicate the same in his reply to the notice as well as furnish all supporting documents Vide the said notice; the Respondent was also given an opportunity to inspect the non-confidential evidences/information during the period 23.06.2020 to 24.06.2020 which were furnished by the Applicant No. 1 The Respondent did not avail the same opportunity. ii. Vide e-mail dated 31 08.2020 the Applicant No 1 was afforded an opportunity to inspect the non-confidential documents/reply during 07.09.2020 to 08 09.2020. which were furnished by the Respondent. However, the Applicant No 1 did not avail the same opportunity. iii. The period covered by the current investigation was from 01.01.2019 to 30.04.2020. iv. In response to the Notice dated 02.06 2020, the Respondent submitted his reply vide letters and e-mails dated 14.07.2020, 17.08 2020. and 28.08.2020. v. Vide the aforementioned letters/emails, the Respondent submitted the following documents/information: a. Invoice-wise details of all outward taxable supplies of the movie admission tickets impacted by GST rate reduction w.e.f. 01.01.2019, during the period 01.11.2018 to 30 04 2020. b. Price List of the aforesaid movie admission tickets, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cum-tax price by increasing the base price of the tickets Therefore. in terms of Section 171 of the CGST Act, 2017. commensurate benefit of GST rate reduction from 28% to 18% in respect of Services by way of admission to exhibition of cinematography films was not passed on to the recipient is. x. Having established the fact of profiteering. the next step was to quantify the same on the basis of aforesaid pre/ post reduction in GST rates and the details of outward supplies for the period 01.11.2018 to 30.04 2020 submitted by the Respondent. it was observed that profiteering during the period from January 2019 to April 2020 from the sale of racket in the category mentioned in Table-B amounts to Rs. 88,67.790/-. The total amount of net higher sale realization due to increase in the base price of the movie ticket, despite the reduction in GST rate from 28% to 18% or in other words, the profiteered amount came to Rs. 88,67.790/-The details of Me computation are given in the Table-B below:- Table-B Sr. No. Admission ticket 01.01.2019 to 30.04.2020 Base Price charged (Rs.) Commensurate Base Price (Rs.) Excess amount charged per ticket (Rs.) Excess tax charged per ticket @ 18% Profiteerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above factors alongwith the GST rate reduction from 28% to 18% Further, the DGAP had been computing the profiteering amount separately for each and every project in construction sector on the basis of launching dates separate ITC and turnover etc Reliance might be placed on the cases Macrotech Developers v DGAP Heeranandeni DGAP Vatika Group v. DGAP. Gaursons Reattech v DGAP. In all the above case the DGAP had considered every project separately for the computation of profiteering and the NAA had also shown agreement with the DGAP. Therefore. in view of the above, it was submitted that in the instant case, every movie should be treated separately and profiteered amount, if any, should be computed only in respect of the movies which were going on during the GST rate reduction period. ii. When the GST was introduced i e., 01.07.2017, overall tax on the movie tickets was increased from 15% (Approx.) to 28%, i e, tax portion on the movie tickets was Increased by considerable amount of 13%. Further, the State Governments GO (Government Order) directed the Respondent to sell tickets at allowed prices inclusive of taxes. Therefore, he had continued to sell the tickets at Rs. 130/- eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly to the particular model of almirah. Reliance was also placed on the decision of a. Kerala Stare Screening Committee on Anti-Profiteering, DGAP v M/s. Pulimoottill Silks reported at 2019 (2) TMI 296-NAA b. Kerala State Screening Committee on Anti-Profiteering, DGAP, Central Board of Indirect Taxes Customs v. M/s Velbon Vitrified Tiles Pvt. Ltd. reported at 2019 (3) TMI 370 -NAA It was further submitted that the DGAP had incorrectly considered and equated one ticket of a movie with a ticket of other movie. The correct comparison would be between the tickets of same movie for pre-GST rate reduction and post-GST rate reduction. Thus, by virtue of application of the case laws cited above. it was submitted that the investigation had Incorrectly gone beyond the applicant Thus. in the light of the aforementioned discussion, the Report should be restricted to the Applicant who had fled the application to concerned committee. Accordingly. the investigation in respect of customers other than mentioned in the application deserves to be rejected. iv. The CGST Act read with the CGST Rules did not provide the procedure and mechanism of determination and calculation of profiteering. In absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 The law did not prescribe as to how to determine whether a particular amount was commensurate as the legislature was conscious of the fact that pricing of goods was a complex exercise involving numerous factors Price was based on contract and terms as agreed between the seller and buyer Commensurate reduction was not restricted to passing of benefit of tax rate reduction in monetary terms which was 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 was increased benefit to the recipient due to tax rate reduction. It should be seen whether the objective of Section 171 was being achieved or not. If the recipient got the benefit in monetary or non-monetary form proportionate to tax rate reduction. Section 171 was complied with The Respondent further submitted that he had not undertaken any activity which tantamount to profiteering The interpretation given to Section 171 and rules made th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profiteered amount without adducing grounds as to why this amount had been added This amount came to the tune of Rs. 13,52,861/- which had already been duly deposited with the GST authorities and was currently residing with the State exchequer. In this regard. reliance was placed on the case of R.S. Josh . Sales Tax Officer, Gujarat v. Ajit Mills twilled reported at (1977) 4 SCC 98. ix. The present proceedings had been issued in violation of principles of natural justice as show because notice had not been issued to the Respondent proposing the action to be taken by the NAA. Moreover, the Investigation was initiated basis the reference of the Standing Committee who, unilaterally, decided to forward the application filed by the Applicant No. 1 to the DGAP for investigation without giving any chance to Respondent to clarify or explain his side. The Rule 133 did not provide for issuance of a show cause notice to the person alleged as having contravened Section 171 before passing an order under Rule 133 Therefore. it was submitted that Rule 133 of the CGST Rules, to this extent was violative of principles of natural justice. Reliance is placed on the judgments of Hon ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarified that in the real estate, the main issue pertained to passing on the benefit of ITC. whereas in case of cinema. the issue pertained to reduction in rate of tax Further. in the real estate the complaint was made against one or two fiats, but all the flats of the said project were considered for computation of profiteering. Also, the time was not limited to the point when the complaint was lodged but the period of completion of project was taken for computation of profiteering. No fixed/ uniform mathematical methodology could be determined for all the cases of profiteering, as the facts and circumstances of each case as well as the nature of goods or services supplied in each case differ. ii. The State Government/ Police Commissioner only fixed the maximum rate of movie ticket. The cinema management was free to sell the tickets at the lower price e.g., in the event of reduction of taxes. The State Government/ Police Commissioner came into picture only when the cinema management wanted to increase the price of tickets beyond the maximum rate already fixed. There was no conflict with the State Government directives, but it seeks to extend the benefit given to the public on cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be correct. and therefore further investigation on the basis of documents submitted by the Respondent was carried out. The Respondent had also tried to equate the Anti-profiteering Application Form (APAF) as a show-cause notice which was incorrect. A Show-Cause Notice (SCN) could be issued under some provision of the Law or statute. The Respondent had not given any evidence to substantiate that a SCN was issued to him Al the applications of Anti-profiteering were examined by the Standing Committee/ Screening Committee and were rejected or accepted on the basis of evidence submitted by the interested Party. No SCN was issued at this stage. During the investigation carried out by the DGAP, an Investigation Report was prepared and submitted to the NAA and here also, no SCN was issued to the Respondent The power to issue SCN was vested with NAA only. iv. The GST Council. constituted under Article 279A of the Indian Constitution as a federal, constitutional body, comprising all the Finance Ministers of all the States and UTs and the Union Finance Minister, in his due wisdom had rightly not prescribed any specific guidelines/mechanism/methodology to determine profiteering in Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his intent and the same could not be construed to be factors which impact pricing of goods. Submission regarding interpretation of word profiteering:- In this context it was submitted that an explanation added to the provision of the Act was clarificatory in nature and had retrospective effect unless it overrides the basic provision of the Act. The Petitioner had also submitted that the interpretation of Section 171 had been done without considering the marginal notes. In this connection it was submitted that if the explanation defining the word profiteering was not considered then the purpose of the statute would be rendered in effective or purposeless. While construing a provision. full effect had to be given to the language used therein giving reference to the context and other provisions of the statute. If the construction given by the Petitioner was accepted then the provision of Section 171 would be reduced to a dead letter or useless lumber . vii. As per provisions of Section 171 of the CGST Act 2017 the Respondent was liable to be investigated till the time he has not passed on the benefit of tax reduction, as he could not misappropriate the above benefit. The Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied to the Respondent to file his rejoinder. The Respondent has submitted his rejoinder on 28.12.2020 wherein he has reiterated his earlier submissions along with the following additional grounds:- i. The DGAP should have computed the profiteering, if any, by considering the fact that the Rent of the premises of Cinema Hall had been increased by Rs. 68 Lakhs during the notice period. The premises owner had revised the Rent from Rs. 44,65,500/- in 30.11.2015 per month to Rs. 49,18,240/- per month in 01 01.2019 which clearly Indicated that there was a huge increase in the Rent of the premises by the owner. Further, this additional cost had to be borne by the Respondent. ii. Telangana Government had issued a Government Order dated 20-03-2018 restricting the multiplex owners from collecting the parking fee. In view of the above directions, the Respondent had been restricted from collecting the parking fee from the customers. This cancellation of parking tee collection had become new additional cost to the Respondent. The DGAP had not considered this fact of increase in the cost of the Respondent due to restriction on collection of parking fee in his investigation report. iii. Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. on recommendations of the Council by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in tome, to examine whether ITCs 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. (3). The Authority referred to in sub-section (2) shall exercise such powers end discharge such functions as may be prescribed. (3A) Where the Authority referred to in sub-section (2) after holding examination as required under the said sub-section comes to the conclusion the? any registered person has profiteered under sub-section (1), such person shall be liable to pay penalty equivalent to ten percent of the amount so profiteered: PROVIDED that no penalty shalt be leviable if the profiteered amount is deposited within thirty days of the date of passing of the Order by the Authority. Explanation . For the purpose of this section. the expression profiteered shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of introduction of GST, computation of profiteering would lead to grave Injustice to the Respondent. The Respondent further contended that the licensing authority under the Telangana Cinema (Regulation) Act, 1955 had been regulating the ticket prices through Government Orders. The last GO Ms 100 dated 26.04.2013 was challenged before the Hon ble High Court of Andhra Pradesh in in the case of Ramekrishna Glitterati vs State of Telangan a wherein the Hon ble Court vide order dated 31 10.2016 allowed theatre owners to charge a higher once on cinema tickets after informing the concerned authorities about the hiked prices. The Respondent has also contended that the DGAP failed to take into consideration that the prices being charged by the Respondent is within the maximum permissible limit set by the Regulating Authority. In this regard. it is to mention that the DGAP starts investigating only when Section 171 of CGST Act, 2017 is attracted i.e., when the Government issued notification leading to any reduction in rate of tax on supply of goods and services or a benefit of input fax credit . In the instant case, Notification No 27/2018-Central Tax (Rate) dated 31.12.2018 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he perspective of passing on the benefit to each recipient Further, the Respondent has cited several case laws of NAA to substantiate his claim that investigation could not go beyond the application to cover other customers. In this context, it is clarified that comparison of the cases cited and the case of Respondent is entirely different and cannot be compared. in the cases cited by the Respondent, further investigation was not conducted, as it was found that the allegation for contravention of Section 171 was incorrect; whereas in the present case the allegation for contravention of Section 171 has been found to be correct and therefore further investigation on the basis of documents submitted by the Respondent is carried out Therefore, in view of the above, the contention raised by the Respondent is not tenable and denied. 15. The Respondent has contended that in absence of the prescribed method of calculation of profiteering in the Act or the Rules or the procedure, the calculation and methodology used in the report is arbitrary and is in violation of principles of natural justice. In this connection, the Commission holds that as the Procedure and Methodology for passing on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h he has failed to do till 30.04.2020 Therefore the above contention of the Respondent is frivolous and hence it cannot be accepted. 16. The Respondent has contended that the present proceeding initiated by the Authority is not sustainable and are liable to be Cropped as there Is no Judicial member present in the composition/constitution of the Authority. In this regard. the Commission finds that as slated in Section 171 (2) of the CGST Act, 2017, the role of the Commission is to examine whether input lax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate deduction in the pace of the goods or services or both supplied by him The duties of the Commission have been further elaborated upon in Rule 127 of the Central Goods and Services Tax 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutory bodies like TRAI, Medical Council of India. Institute of Chartered Accountant of India etc. that perform quasi-judicial functions but do not have judicial members. Furthermore. Assessing Officers. CIT (Appeals) and the Dispute Resolution Panel under the Income Tax Act, 1961, all perform quasi-judicial functions, but there is no requirement that such members must possess either a law degree or have judicial experience. Therefore, the above contention of the Respondent is untenable and hence it cannot be accepted. 17. The Respondent has further contended that the interpretation given to Section 171 and rules made thereunder, by the DGAP without considering the marginal notes to Section 171 and heading of chapter XV of CGST Rules, is untenable and not correct. The Respondent further submitted that the term profiteering is not defined in the CGST Act or Rules made there under. In this connection. it would be pertinent to mention that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjective of the Goods and Services Tax regime which is to ensure that suppliers pass on the benefits of reduction in the rate of tax and Input Tax Credit to the consumers, especially since the Goods and Services Tax is a consumption-based tax (as adopted in India) and the recipient (consumer) practically pays the taxes which are included in the final price. Section 171 of the Act, 2017, therefore. Is not to be looked at as a price control measure but is to be seen to be directly connected with the objectives of the GST regime. Consequently, the word commensurate in Section 171 of the Act. 2017 means that whatever actual saving arises due to the reduction in rates of tax or the benefit of the Input Tax Credit, in rupee and paisa terms. must be reflected as equal or near about equal reduction in price. In other words, tax foregone by the authorities has to be passed on to the consumer as commensurate reduction in price. 18. The Respondent has further contended that the period covered under the investigation is from 01.01.2019 to 30.04.2020. The Report is silent on the grounds or reasons based on which such period is selected by the DGAP for investigation The period covered under inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Moreover. the investigation is initiated basis the reference of the Standing Committee who. unilaterally, decided to forward the application filed by the Applicant No. 1 to the DGAP for investigation without giving any chance to Respondent to clarify or explain his side. In this regard, The Commission finds that on perusal of Rule 129 (6) of the CGST Rules, 2017, it is clear that the DGAP shall complete the investigation within the prescribed time limit and upon completion of the investigation. furnish a report of its findings along with the relevant records to the Commission In the present case the DGAP after detailed investigation has submitted his Report dated 25.09.2020 On receipt of the above Report of the DGAP, the NAA has carefully considered the allegations made against the Respondent and issued show cause notice dated 01.10.2020 to him vide which he was directed to explain why the Report of the DGAP should not be accepted and his liability for profiteering should not be determined under Section 171 of the Act, 2017. The Report of the DGAP is also supplied to the Respondent alongwith all the annexures. The Respondent is also given opportunity to file his written submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 26 04.2013 was challenged before the Hon ble High Court of Andhra Pradesh in in the case of Ramakrishna Gliterrati vs. State of Telangana, wherein the Hon ble Court vide order dated 31.10.2016 allowed theatre owners to charge a higher price on cinema tickets after informing the concerned authorities about the hiked prices. The Respondent has also contended that the DGAP faded to take into consideration that the prices being charged by the Respondent are within the maximum permissible limit set by the Regulating Authority. The Commission finds that the licensing authority only fixes the maximum prices at which a movie ticket can be sold. Levy of GST is fixed by the GST Council which is a Constitutional body and all the State Governments are part of the GST Council. Section 171 of the CGST Act, 2017 and Rules made thereunder is limited to the extent of passing on benefit of rate reduction which the Respondent has to comply with. The fixing of the prices by the State Government or the licencing authority does not grant a waiver from applicability of the GST Act. The Respondent has erroneously relied upon the Interim Orders of Hon ble High Court of Telangana dated 22.08.2019 and 22.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sitating the setting off of prices reductions Therefore, the case law sought to be relied upon is of no help to the Respondent. 24. The argument advanced by the Respondent that Rule 133 (3) mentions a recipient and not recipients is baseless as the same is contrary to Section 13 (2) of General Clauses Act 1897 which states words in singular shall include the plural. 25. The Commission finds that, as per the details and calculations in Tables A B above, the Respondent had been profiteering by way of increasing the base prices of the tickets (Services) and by not reducing the selling price of the tickets (Services) and commensurately, despite reduction in GST rate on Services by way of admission to exhibition of cinematograph films where price of ticket was one hundred rupees or above, from 28% to 18% w.e.f. 01.01.2019. From the Table B above, it was evident that the base prices of the admission tickets were Indeed increased as a result of which the benefit of reduction in GST rate was not passed on to the recipients by way of commensurate reduction in prices charged. The total amount of profiteering covering the period of 01.01.2019 to 30.04.2020. was Rs. 88,67.790/-. 26. Based on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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