Investigation ordered on input tax credit issues with extended timeline for compliance

The Authority directed the DGAP to conduct further investigation on the issues of common input tax credit, verification of the claimed reversal, benefit of discounts, and accurate computation of the profiteered amount. The DGAP was given three months to complete this investigation and submit a detailed report, with the Respondent instructed to fully cooperate. The order was delayed due to the COVID-19 pandemic and was passed under the provisions of Notification No. 35/2020-Central Tax dated 03.04.2020.

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Issues Involved:

1. Allegation of not passing on the benefit of GST rate reduction.
2. Validity of DGAP’s investigation and methodology.
3. Calculation and verification of profiteering amount.
4. Reversal of common input tax credit.
5. Benefit of discounts.

Issue-wise Detailed Analysis:

1. Allegation of Not Passing on the Benefit of GST Rate Reduction:

The Standing Committee on Anti-profiteering requested the DGAP to investigate the allegation that the Respondent did not pass on the benefit of GST rate reduction from 12% to Nil on "Stayfree Sanitary Napkins" effective from 27.07.2018. The DGAP's investigation revealed that the Respondent increased the base prices of sanitary napkins when the GST rate was reduced, thereby not passing on the commensurate benefit to the recipients. The total profiteered amount was calculated to be Rs. 19,61,033/- for the period from 27.07.2018 to 31.03.2019.

2. Validity of DGAP’s Investigation and Methodology:

The Respondent raised several objections against the DGAP's investigation, including claims that the investigation was beyond the provisions of Section 171 of the CGST Act, 2017, and that the method adopted was unworkable due to dynamic pricing. The Respondent also argued that the investigation should be limited to the closing stock and that the period of investigation chosen by the DGAP was arbitrary. The DGAP responded by stating that the legislative intent behind Section 171 was to ensure the benefit of tax rate reduction was passed on by reducing prices, not merely by charging GST at a reduced rate.

3. Calculation and Verification of Profiteering Amount:

The DGAP calculated the profiteering amount by comparing the transaction values before and after the rate reduction. The Respondent argued that the DGAP had computed profiteering twice on the closing stock by treating it as new stock. The DGAP admitted that there were errors in the computation and agreed to re-investigate and recompute the profiteered amount, considering the discounts and ensuring no double counting of the closing stock.

4. Reversal of Common Input Tax Credit:

The Respondent claimed a reversal of common input tax credit amounting to Rs. 13,07,118/-. The DGAP acknowledged that this issue was not addressed in the initial report and agreed to verify the authenticity and veracity of the claimed reversal as per Section 17 (2) of the CGST Act, 2017 read with Rule 42 of the CGST Rules, 2017.

5. Benefit of Discounts:

The Respondent argued that discounts offered should be considered in the computation of profiteering. The DGAP agreed that discounts should be allowed as per Section 15 (3) of the CGST Act, 2017, and committed to verifying the details submitted by the Respondent and recomputing the profiteered amount accordingly.

Conclusion:

The Authority directed the DGAP to carry out further investigation on the issues of common input tax credit, verification of the claimed reversal, benefit of discounts, and accurate computation of the profiteered amount. The DGAP was given three months to complete this investigation and submit a detailed report. The Respondent was instructed to cooperate fully during this process. The order was delayed due to the COVID-19 pandemic and was passed under the provisions of Notification No. 35/2020-Central Tax dated 03.04.2020.

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