2018 (12) TMI 1599 - NAPA - GST

Respondent breached GST rate rules, profiteered Rs. 383.35 Crores, ordered to deposit in Consumer Welfare Fund.

Sh. Ankit Kumar Bajoria, Sh. Subramanian Manjeri Ramanathan, Director General Anti-Profiteering, Central Board of Indirect Taxes & Customs Versus M/s Hindustan Unilever Limited

Sh. Ankit Kumar Bajoria, Sh. Subramanian Manjeri Ramanathan, Director General Anti-Profiteering, Central Board of Indirect Taxes & Customs Versus M/s ... Issues Involved:1. Whether the rates of GST were reduced in respect of the products supplied by the Respondent w.e.f. 15.11.2017.2. If the rates were reduced, whether the benefit of such reduction in the rates of tax was passed on to the consumers in terms of Section 171 of the GST Act, 2017.3. If not, what was the quantum of profiteering by the Respondent.Issue-wise Detailed Analysis:1. Reduction in GST Rates:The Central Government, on the recommendation of the GST Council, reduced the GST rates on several products from 28% to 18% and from 18% to 12% effective from 15.11.2017. The Respondent admitted that the GST rates on the goods supplied by him were reduced w.e.f. 15.11.2017.2. Passing on the Benefit of GST Rate Reduction:The Respondent failed to pass on the benefit of the reduction in the rates of tax to his consumers. Instead of reducing the prices commensurately, the Respondent increased the base prices of his products, thus maintaining the same selling prices even after the reduction in GST rates. This was evident from the fact that the Respondent manipulated his software to increase the base prices of 12,016 items from 15.11.2017. The DGAP's investigation revealed that the Respondent had not reduced the MRPs or increased the fill levels as claimed. The DGAP's report emphasized that Section 171 of the CGST Act, 2017 mandated that any reduction in the rate of tax or benefit of input tax credit must result in a commensurate reduction in prices, which the Respondent failed to comply with.3. Quantum of Profiteering:The DGAP's investigation determined that the Respondent had profiteered an amount of Rs. 419.67 Crores by increasing the base prices of products after the reduction in GST rates. Additionally, the Respondent availed an amount of Rs. 76.06 Crores as TRAN-2 credit, which was not passed on to the consumers, resulting in a total profiteering amount of Rs. 495.73 Crores. The Respondent had deposited Rs. 124.04 Crores in the Consumer Welfare Fund (CWF), but this was not sufficient to cover the entire profiteered amount.Admissibility of Deductions Claimed by the Respondent:1. Grammage Benefit:The Respondent claimed that he passed on the benefit of GST rate reduction by supplying additional quantity (grammage) of products for the same price. The Authority allowed a deduction of Rs. 68.77 Crores on account of grammage benefit, considering it as a legitimate mode of passing on the benefit in the FMCG sector.2. Area-based Fiscal Incentives:The Respondent claimed a deduction of Rs. 45.31 Crores due to the reduction in area-based incentives. However, the Authority rejected this claim, stating that the Respondent was still eligible for the same proportionate refund of actual CGST/IGST paid in cash, and there was no loss in absolute terms.3. Reimbursement to Modern Trade:The Respondent claimed a deduction of Rs. 26.37 Crores for trade discounts reimbursed to Modern Trade dealers. The Authority rejected this claim as the Respondent failed to provide credible evidence that the benefit was passed on to the end consumers.4. Packing Material Write-off:The Respondent claimed a deduction of Rs. 7.80 Crores for the cost of writing off old packaging material. The Authority rejected this claim, stating that the law allowed re-stickering of old MRPs, and the Respondent's decision to write off the packaging material was a business call, not a legal requirement.5. Tax Collected on Profiteered Amount:The Respondent claimed a deduction of Rs. 57.80 Crores for the extra GST collected on the increased base prices. The Authority rejected this claim, stating that the extra amount collected from the recipients was part of the profiteering and could not be deducted.6. Sales to CPF and CRPF:The Respondent claimed a deduction of Rs. 3.80 Crores for sales made to CPF and CRPF at base rates excluding GST. The Authority allowed this deduction as there was no increase in the base prices for these supplies.7. Sales of Semi-finished Goods:The Respondent claimed a deduction of Rs. 2.63 Crores for sales of semi-finished goods to third-party manufacturers. The Authority rejected this claim as the Respondent failed to provide conclusive proof that the goods were returned for further processing.8. ITC Credit Collected from RSs:The Respondent collected Rs. 36.19 Crores from his Redistribution Stockists (RSs) as excess realization on closing stocks. The Authority held this amount as profiteered and directed it to be deposited in the CWF.Final Determination:The Authority determined that the Respondent had profiteered an amount of Rs. 455.92 Crores on account of denial of benefit to customers due to the reduction in GST rates. Additionally, the Respondent availed Rs. 78.97 Crores as TRAN-2 credit, which was not passed on to consumers, resulting in a total profiteering amount of Rs. 534.89 Crores. After allowing deductions of Rs. 68.77 Crores for grammage benefit and Rs. 3.80 Crores for supplies to CPF and CRPF, the net profiteering amount was Rs. 383.35 Crores. The Respondent was directed to deposit this amount along with interest in the Central and State Consumer Welfare Funds (CWFs) within three months. The DGAP was also directed to conduct further investigation to ascertain if the Respondent had passed on the benefit of tax reductions for all products sold.