2018 (12) TMI 472 - NAPA - GST

Respondent found guilty of profiteering by not passing on GST rate reduction to customers.

Director General of Anti-profiteering, Central Board of Indirect Taxes & Customs, Versus M/s. J.P. and Sons,

The Respondent in the case was found guilty of not passing on the benefit of the GST rate reduction to customers by maintaining the same prices ... Profiteering - benefit of tax reduction not passed on - Johnson & Johnson Baby Shampoo 100 ml. - Johnson & Johnson Baby Powder 200 Gms - It was also alleged that instead of reduction, the base prices of the above two products were increased on and thus the Respondent had indulged in profiteering in contravention of the provisions of Section 171 of the CGST Act, 2017. Held that:- There is no doubt that the Respondent had increased the base prices of the products w.e.f. 15.11.2017, whereas he was required not to increase them and after charging GST @ 18%, he was legally bound to charge the reduced prices so as to pass on the benefit of reduced tax rate to his customers and hence he has indulged in profiteering. The Respondent had increased the base prices of 130 products which were supplied by him during the period between 15.11.2017 to 31.032018 and by doing so he had resorted to profiteering on account of increase in their base prices, Thus, it is established that the Respondent had acted in contravention of the provisions of Section 171 of the CGST Act. 2017 and had not passed on the benefit to his customers by commensurate reduction in the prices of these products. Accordingly, the amount of profiteering made by the Respondent is determined as ₹ 501,646/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent has vehemently argued that he had no control on the fixing of the base prices as well as the MRPs as both of them were fixed by J & J through the software which he was bound to follow as per the terms of the agreement executed by him with the above Company - However, it is apparent from the record that the Respondent is duly registered under the CGST/SGST Act, 2017 and he was hence bound to follow the Notification dated 14.11.2017 mentioned above vide which the rate of GST was reduced from 28% to 18% on 130 products which he was selling, He cannot escape the legal obligation which was imposed upon him by the above Notification by shifting his accountability on this ground. The Respondent has also not produced any evidence to show that he had made any correspondence with J & J to inform it that he was bound to reduce the prices due to reduction in the rate of tax and J & J should either not increase the base prices or compensate him for the benefit he was bound to pass on to his customers, therefore, it is quite apparent that he had deliberately charged the enhanced prices with an intention to pocket the amount which he was bound to pass on to the recipients. The Respondent is directed to reduce the prices of all the above products as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017 by making commensurate reduction in their prices keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients - The Respondent is also directed to deposit the profiteered amount of ₹ 5,01,646/- along with the interest to be calculated @ 18% from the date when the above amount was collected by him from his customers till the above amount is deposited. Penalty - Held that:- It is also established from the record that the Respondent has deliberately and consciously acted in contravention of the provisions of the CGST Act, 2017 by issuing incorrect invoices which is an offence under Section 122 (1) (i) of the above Act and hence he is liable for imposition of penalty under the above Section read with Rule 133 (3) (d) of the CGST Rules, 2017 - Although notice for imposition of penalty has already been issued to the Respondent on however, no formal oral or written submissions have been filed by the Respondent on the quantum of penalty. Therefore, keeping in view the principles of natural justice it would be appropriate to issue fresh notice asking him to explain why penalty should not be imposed on him for the above offence. Decided against respondent-assessee. Issues Involved:1. Allegation of not passing on the benefit of GST rate reduction.2. Investigation and findings by the Director General of Anti-Profiteering (DGAP).3. Respondent's defense and submissions.4. Determination of profiteering amount.5. Directions for the Respondent and further investigation.6. Liability for penalty.Detailed Analysis:1. Allegation of Not Passing on the Benefit of GST Rate Reduction:The case revolves around the allegation that the Respondent did not pass on the benefit of the GST rate reduction from 28% to 18%, effective from 15.11.2017, for two products: Johnson & Johnson Baby Shampoo 100 ml and Johnson & Johnson Baby Powder 200 Gms. The Respondent was accused of maintaining the same Maximum Retail Prices (MRPs) as before the tax reduction and instead increasing the base prices of the products, thus indulging in profiteering in contravention of Section 171 of the CGST Act, 2017.2. Investigation and Findings by the DGAP:The DGAP initiated an investigation as per Rule 129 (1) of the CGST Rules, 2017, based on the Standing Committee's request. The DGAP's report indicated that the Respondent increased the base prices of the products post the GST rate reduction, thereby not passing on the benefit to customers. The DGAP observed that the Respondent was legally bound to pass on the benefit of the reduced tax rate by selling the goods at the pre-reduction base prices plus the new GST rate of 18%.3. Respondent's Defense and Submissions:The Respondent argued that he was a distributor for Johnson & Johnson Pvt. Ltd. (J&J) and that the billing software, controlled by J&J, dictated the prices. He claimed that he could not modify the prices in the software and that J&J took a few days to update the software post the GST rate reduction. The Respondent also contended that he did not charge more than the MRPs mentioned on the products and that he was bound by the Distributor Agreement with J&J.4. Determination of Profiteering Amount:The DGAP's investigation revealed that the Respondent had increased the base prices of 130 products affected by the GST rate reduction, leading to a profiteering amount of Rs. 5,01,646/-. The Respondent's argument that the profiteering amount should be calculated based on the stock as of 14.11.2017 was rejected, as the illegal profit was made on all supplies between 15.11.2017 and 31.03.2018. The DGAP's calculation of the profiteering amount was deemed correct.5. Directions for the Respondent and Further Investigation:The Respondent was directed to reduce the prices of the products as per Rule 133 (3) (a) of the CGST Rules, 2017, and to deposit the profiteered amount of Rs. 5,01,646/- along with interest at 18% from the date of collection till the date of deposit. Since the recipients were not identifiable, the amount was to be deposited in the Consumer Welfare Fund of the Central and State Governments. The DGAP was also directed to investigate the quantum of profiteering made by the Respondent after 31.03.2018.6. Liability for Penalty:The Respondent was found to have issued incorrect invoices and compelled customers to pay additional GST on increased prices, violating Section 171 of the CGST Act, 2017. This act constituted an offense under Section 122 (1) (i) of the CGST Act, 2017, making the Respondent liable for a penalty. A fresh notice was to be issued to the Respondent to explain why a penalty should not be imposed.Conclusion:The judgment concluded that the Respondent had indulged in profiteering by not passing on the benefit of the GST rate reduction to customers and was directed to deposit the profiteered amount along with interest. The DGAP was instructed to conduct further investigations, and the Respondent was liable for a penalty for issuing incorrect invoices.