NAPA finds retailer guilty of profiteering under Section 171 for not passing GST reduction benefit to consumers

NAPA held respondent liable for profiteering under Section 171 of CGST Act, 2017 for not passing GST rate reduction benefit on Maybelline foundation to consumers. Respondent increased basic price equivalent to tax reduction amount, constituting profiteering of Rs. 15,861. Authority directed price reduction, refund of Rs. 41 with 18% interest to applicant, and deposit of remaining Rs. 15,820 in Consumer Welfare Fund. Penalty proceedings under Section 122 also initiated for issuing incorrect invoices. Respondent's defenses regarding methodology absence and complaint procedure were rejected.

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Issues Involved:
1. Allegation of profiteering by not passing on the benefit of GST rate reduction.
2. Examination of the complaint's validity and procedural aspects.
3. Determination of the methodology for passing on the GST rate reduction benefit.
4. Legal implications and penalties for non-compliance.

Issue-wise Detailed Analysis:

1. Allegation of Profiteering:
The core issue revolves around the Respondent allegedly not passing on the benefit of GST rate reduction from 28% to 18% for the product "Maybelline FIT Me foundation." The Applicant No. 1 claimed that despite the GST reduction effective from 15.11.2017, the Respondent sold the product at the same retail selling price (RSP) of Rs. 525/-, implying profiteering of Rs. 41/- per unit. The DGAP's investigation confirmed that the Respondent had increased the basic price of the product to offset the GST reduction, thus maintaining the same RSP and resulting in profiteering of Rs. 15,861/- on the total units sold.

2. Examination of Complaint's Validity and Procedural Aspects:
The Respondent raised concerns about the validity of the complaint, claiming that the Standing Committee had returned one of the complaints due to insufficient information. However, the Committee clarified that the second complaint had all necessary details and was forwarded for investigation. The DGAP confirmed that the complaint was received and acknowledged by the Respondent's representative, dismissing the Respondent's claim of not being provided with the complaint copy.

3. Determination of Methodology for Passing on GST Rate Reduction Benefit:
The Respondent argued that no specific methodology had been prescribed under Rule 126 of the CGST Rules, 2017, for determining whether the benefit of tax reduction had been passed on. However, the Authority clarified that the methodology and procedure had already been prescribed and that the Respondent was responsible for calculating and passing on the commensurate benefit. The Respondent's claim that the benefit should not be passed on product-wise was rejected, emphasizing that each recipient must receive the benefit as per Section 171 of the CGST Act, 2017.

4. Legal Implications and Penalties for Non-Compliance:
The Respondent's actions were found to constitute a violation of Section 171 of the CGST Act, 2017, by not passing on the benefit of GST rate reduction. The Authority directed the Respondent to reduce the price of the product and refund the profiteered amount of Rs. 41/- to Applicant No. 1 with 18% interest. The remaining amount of Rs. 15,820/- was to be deposited in the Consumer Welfare Fund. The Respondent was also issued a show cause notice for the imposition of penalty under Section 122 of the CGST Act, 2017, and Rule 133 (3) (d) of the CGST Rules, 2017. Additionally, the DGAP was directed to investigate the Respondent's admission of not passing on Rs. 1,98,46,438/- to individual buyers.

Conclusion:
The judgment concluded that the Respondent had indeed engaged in profiteering by not passing on the GST rate reduction benefit to consumers, thereby violating Section 171 of the CGST Act, 2017. The Respondent was directed to make necessary refunds and deposits and was subject to further investigation and potential penalties for non-compliance.

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