DGAP directed to re-investigate GST rate reduction profiteering case; Authority orders revised investigation

The Authority directed the DGAP to re-investigate the case under Rule 133 (4) of the CGST Rules, 2017, comparing average pre-rate reduction base prices with actual post-rate reduction base prices of the impacted products. The DGAP confirmed that the Respondent increased base prices post-GST rate reduction without passing on benefits. The total profiteered amount remained at Rs. 3,76,360/-. The Authority found the DGAP's methodology inappropriate and ordered a revised investigation. The Respondent was instructed to cooperate. The order was delayed due to COVID-19, issued under Notification No. 35/2020-Central Tax dated 03.04.2020, with copies to both parties.

---

---

Issues Involved:
1. Allegation of profiteering by not passing on the GST rate reduction benefits.
2. Calculation of the profiteered amount by DGAP.
3. Respondent's claim on price variation due to color addition.
4. Re-investigation and re-calculation of profiteered amount.

Issue-Wise Detailed Analysis:

1. Allegation of profiteering by not passing on the GST rate reduction benefits:
The Applicant No. 1 alleged that the Respondent did not pass on the benefit of GST rate reduction from 28% to 18% on paints effective from 27.07.2018. Instead, the Respondent increased the base prices of the paints, denying the benefit of the commensurate reduction in the cum-tax price to the recipients. The Standing Committee on Antiprofiteering, upon prima facie satisfaction, referred the matter to the DGAP for detailed investigation.

2. Calculation of the profiteered amount by DGAP:
The DGAP's initial report dated 29.03.2019, covering the period from 27.07.2018 to 30.09.2018, found that the Respondent had increased the base prices of 151 out of 331 products post-GST rate reduction. The profiteered amount was calculated as Rs. 3,76,360/- based on the average prices of the products before and after the rate reduction. However, the DGAP did not provide a clear explanation of the calculation method used to arrive at the per-unit base prices.

3. Respondent's claim on price variation due to color addition:
The Respondent argued that the DGAP erred in calculating the profiteered amount based on average value per unit, as the prices varied due to the addition of colors to the base paint. The Respondent submitted that the DGAP's average value method was inappropriate and suggested calculating the profiteered amount based on the base price of the items or by comparing actual invoices of the pre and post-reduction periods. The DGAP, in a subsequent report dated 31.05.2019, stated that the information provided by the Respondent during the hearings was not submitted during the investigation.

4. Re-investigation and re-calculation of profiteered amount:
The Authority directed the DGAP to re-investigate and clarify the calculation of the pre-rate reduction per unit price, examine the Respondent's claim on price variation due to color addition, and provide a detailed calculation sheet. The DGAP's re-investigation report dated 10.10.2019 confirmed that the Respondent increased the base prices post-GST rate reduction and did not pass on the commensurate benefit to the recipients. The total profiteered amount was reaffirmed as Rs. 3,76,360/-.

However, the Authority found the DGAP's methodology of comparing average pre and post-rate reduction prices inappropriate and not in line with the provisions of Section 171 of the CGST Act, 2017. The Authority directed the DGAP to re-investigate the case under Rule 133 (4) of the CGST Rules, 2017, comparing average pre-rate reduction base prices with actual post-rate reduction base prices of the impacted products.

Conclusion:
The DGAP is to re-investigate and submit a revised report, and the Respondent is to assist in the investigation. The order was delayed due to the COVID-19 pandemic and issued under the provisions of the Notification No. 35/2020-Central Tax dated 03.04.2020. Copies of the order were to be supplied to both parties, and the case file was to be consigned after completion.

---