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TMI Blog2025 (1) TMI 392X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in prices, is relevant to the underlying objective of the Goods and Services Tax which is to ensure that manufacturer/suppliers pass on the benefit of reduction in the rate of tax to the consumers, especially since the Goods and Services Tax is a consumption-based tax and the recipient (consumer) practically pays the taxes which are included in the final price. The tax foregone by the authorities has to be passed on to the consumers as commensurate reduction in price. The Respondent was legally required to reduce, re- fix and display the MRPS of the impacted SKUs commensurately w.e.f. 15.11.2017 and was also legally required to affix sticker or stamp or online print the reduced MRPS on the stock lying with him as on 15.11.2017. By doing so the Respondent would have passed on the benefit of tax reduction to the ultimate consumers who bear the burden of tax as per the provisions of Section 171 of the CGST Act, 2017. Conclusion - Since the final price paid by the end consumer has not been reduced commensurately, as per Section 171, the Report of the DGAP stating that the Respondent has not violated the provisions of Section 171 of the CGST Act, 2017 cannot be accepted. The DGAP i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of 11 SKUs and increased the quantity of goods in respect of 8 SKUs. In respect of 8 SKUs, the same were discontinued in the post rate reduction period. The DGAP further stated that the Respondent had not reduced MRPS of all the impacted SKUs commensurately w.e.f. 15.11.2017 after the rate of tax was reduced. ii. That Respondent had not affixed sticker or stamped or online printed the MRPS on the stock lying with him or his dealers as on 15.11.2017. The DGAP stated that the Respondent passed on the benefit of tax rate reduction to his recipient (distributors) wherein there was no increase in base price as on 15.11.2017 and reduced rate of tax had been charged. iii. That the Respondent had charged 18% GST after tax rate reduction w.e.f. 15.11.2017 onwards and maintained the same base price as it existed during the pre tax rate reduction period. iv. That the price of crude oil was around $52/barrel in April, 2017 and around $60/barrel in November, 2017 as per the data available in website www.macrotrends.net. The data had also been verified from other website viz. www.indexmundi.com and www.investing.com etc., where also the prices of crude oil in April, 2017 November, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reduction to his recipient by way of commensurate reduction in prices. The said section, referred to the recipient and not to the end consumer. The Respondent had passed on the commensurate benefit of rate reduction to his recipient (distributors) by way of commensurate reduction in price (transaction value). 3) The DGAP further stated that as per the Legal Metrology Act and Rules the provision for affixing sticker for reduced MRP had already been made in the Rule 6(3) of the Legal Metrology Rules, 2011 (LMR) which mandated that: it shall not be permissible to affix individual stickers on the package for altering or making declaration . However, its provision said that for reducing MRP a sticker with the revised lower MRP might be affixed. Further, vide order no WM-10(31) 2017 dated 16.11.2017, permission had been granted to affix an additional sticker or stamping or by online printing for declaring the reduced MRP. The DGAP stated that a plain reading of the Rule 6(3) of the LMR order dated 16.11.2017 revealed that affixing of individual sticker was generally not strictly enforced but an option had been given to either affix or stamp or online print in order to declare reduced M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased from $52 in April 2017 to $60 per Barrel in November, 2017 due to which the Respondent had increased his prices. However, perusal of the investigation report showed that the prices of the various SKUs had been increased by the Respondent immediately after tax reduction which prima facie lead to believe that these prices had been increased to circumvent the provisions of Section 171 of the CGST Act, 2017. 4. The Respondent filed his submissions vide letter dated 11.08.2023 vide which he inter-alia stated as below: - i. That the Company had revised and reduced the MRP of the impacted SKUS except the five SKUs. The Circular was issued to all the distributors that there was no change in the present selling price to the distributors and it was instructed that the effect of the rate reduction benefit be appropriately communicated to the trade/customers. ii. Under Rule 6(3) of the legal Metrology (Packaged Commodities) Rules, 2011, the Respondent was not under compulsion to affix sticker or stamp. iii. The Respondent was selling the finished product to his distributors at selling price decided on transaction basis. Therefore, the contention that the benefit of tax reduction was not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Respondent that the Crude Oil prices were increased internationally was true but to a certain extent since the prices were increasing during April, 2017 to November, 2017 and not only during the month of November, 2017 and the half yearly price were due during October/November itself and the Respondent increased prices after rate revision in the month of December, 2017. 6. The Commission considered the DGAP's clarifications dated 27.09.2023 and forwarded a copy of the same vide OM dated 11.10.2023 to the Respondent for filing his rejoinder. The Respondent filed his rejoinder dated 03.11.2023 and reiterated his earlier submissions. 7. The Commission vide OM dated 28.11.2023 forwarded the Respondent's rejoinder dated 03.11.2023 to the DGAP for providing clarifications under Rule 133(2A) of the CGST Rules, 2017. The DGAP filed his clarification vide letter dated 14.2.2024 and reiterated his earlier submissions. 8. The Commission considered the DGAP's clarifications dated 14.2.2024 and vide OM dated 05.06.2024 directed the DGAP to calculate profiteering on the following three points :- i. Where the Respondent had not reduced, re-fixed, and displayed the MRPs of the impact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 27.01.2023 submitted by the DGAP under Rule133(4) of the Rules and the submissions made by the Respondent and clarifications made by the DGAP. 11. Vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 the GST rate on the 'Detergent Powder' and 'Scouring Bar' was reduced from 28% to 18% w.e.f. 15.11.2017. Therefore, the Respondent is liable to pass on the benefit of tax reduction to the consumers as per the provisions of Section 171 of the CGST, Act, 2017. 12. The relevant provisions of the law to decide the matter in the given facts and circumstances as discussed hereinabove are as under:- Section 171 of CGST Act 2017 states that :- (1) 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. (2) The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the Explanation to Section 171 of the Act, 2017 to 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 tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both. According to Collins English Dictionary Complete and Unabridged, 12th Edition 2014, the word commensurate means I. having the same extent or duration; 2. corresponding in degree, amount, or size, proportionate: 3. able to be measured by a common standard, commensurable. The word 'commensurate' has been used in several judgments of the Supreme Court for laying down yardsticks in different contexts, from determining the rightfulness of the posting of a public servant, to assessing the correctness of criminal sentencing and calculating maintenance amounts indicating that the Courts too have a clear and definite understanding of this word. 99. The obligation of effecting/making a commensurate reduction in prices, as mentioned hereinabove, is relevant to the underlying objective of the Goods and Services Tax regime which is to ensure that suppliers pass on the ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ublic exchequer in favor of the consumers cannot be appropriated by the manufacturers, traders, distributors etc. When the Goods and Services Tax rate gets reduced the final price paid by the recipient requires to be reduced. The obligation of effecting/making a commensurate reduction in prices, is relevant to the underlying objective of the Goods and Services Tax which is to ensure that manufacturer/suppliers pass on the benefit of reduction in the rate of tax to the consumers, especially since the Goods and Services Tax is a consumption-based tax and the recipient (consumer) practically pays the taxes which are included in the final price. The tax foregone by the authorities has to be passed on to the consumers as commensurate reduction in price. 15. The Respondent is selling Detergents and Scouring Bars as pre- packaged commodities, therefore, the provisions of Section 18 of the Legal Metrology Act, 2009 duly apply on him. Section 18 of the Legal Metrology Act, 2009 states that :- (1) No person shall manufacture, pack, sell, import, distribute, deliver, offer, expose or possess for sale any pre-packaged commodity unless such package is in such standard quantities or number and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elaxation will also be applicable in the case of unsold stocks manufactured/packed/ imported after 1st July 2017 where MRP would reduce due to a reduction in the rate of GST post 1st July 2017. 3. This order would be applicable up to 31st December. 2017. Yours faithfully (B.N.Dixit) Director of Legal Metrology Tel:011-23389489/Fax,-011-23385322 Email: [email protected] Copy to: All Industries/Industry Associations/Stake Holders 16. In view of the above, the Respondent was legally required to reduce, re- fix and display the MRPS of the impacted SKUs commensurately w.e.f. 15.11.2017 and was also legally required to affix sticker or stamp or online print the reduced MRPS on the stock lying with him as on 15.11.2017. By doing so the Respondent would have passed on the benefit of tax reduction to the ultimate consumers who bear the burden of tax as per the provisions of Section 171 of the CGST Act, 2017. 17. The DGAP vide its report dated 27.01.2023 has stated that out of 32 impacted products, MRP was not reduced in 5 SKUs. In respect of other impacted SKUs, the Respondent had reduced MRP in respect of 11 SKUS, increased the quantity of goods in respect of 8 SKUs and 8 8SKUs were disconti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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