2018 (12) TMI 1601 - NAPA - GST

Alleged Profiteering in Mirror Series Tiles Supply: No Contravention Found

The case involved allegations of profiteering by the Respondent in relation to the supply of 'Mirror Series Tiles' due to not passing on the GST benefit ... Anti profiteering - benefit of tax rate reduction - commensurate reduction in price - Section 171 of the CGST Act, 2017 - investigation under Rule 129(6) of the CGST Rules, 2017Benefit of tax rate reduction - anti profiteering - Whether there was a reduction in the rate of tax on the product in question w.e.f. 01.07.2017 or 14.11.2017 - HELD THAT: - The Authority accepted the DGAP's factual analysis showing that on implementation of GST w.e.f. 01.07.2017 the effective tax incidence on the product increased from the pre GST composite incidence (computed at 14.44%) to 28%, and therefore there was no reduction in the rate of tax w.e.f. 01.07.2017. The record does, however, reflect a later reduction in the statutory GST rate from 28% to 18% w.e.f. 14.11.2017, but no post 15.11.2017 sales invoices were produced or examined to assess the effect of that reduction on actual selling prices. The Authority thus determined that: (a) there was no reduction in tax on 01.07.2017 for the product as supplied by the respondent; and (b) a statutory rate reduction occurred w.e.f. 14.11.2017 but documentary evidence necessary to examine its pass through was not produced. [Paras 3, 4, 8]No reduction in the effective rate on 01.07.2017; statutory rate reduced w.e.f. 14.11.2017 but no invoices post 15.11.2017 were examined to assess pass through.Section 171 of the CGST Act, 2017 - commensurate reduction in price - Whether any benefit of reduction in the rate of tax was required to be passed on to the recipient - HELD THAT: - The Authority identified the legal requirement under Section 171 that any reduction in tax rate must be passed on to recipients by way of commensurate price reduction. Applying that principle to the facts, the Authority found that since there was no reduction in the effective tax incidence at the time of GST implementation (01.07.2017), no benefit arose to be passed on then. As to the subsequent statutory reduction of rate w.e.f. 14.11.2017, the applicant failed to produce post reduction invoices or other supporting documents to establish that the benefit was not passed on, precluding a finding of contravention in respect of that reduction. [Paras 6, 7, 8]No benefit arose to be passed on w.e.f. 01.07.2017; benefit arising from the 14.11.2017 rate reduction could not be adjudicated in the applicant's favour due to absence of post reduction documents.Investigation under Rule 129(6) of the CGST Rules, 2017 - anti profiteering - Whether the respondent passed on the benefit of the tax reduction to the recipient by commensurate reduction in prices - HELD THAT: - On the evidence examined by the DGAP and considered by the Authority, the base per unit price (exclusive of tax) charged by the respondent did not increase and, given the calculations reflecting higher tax incidence on implementation, there was no contravention of Section 171 at that stage. For the period after the 14.11.2017 rate reduction, the applicant did not furnish or subject to examination any invoices showing the respondent's post reduction selling prices; consequently the Authority could not conclude that the respondent failed to pass on the benefit. The DGAP's investigative conclusion that profiteering was not established was accepted by the Authority. [Paras 3, 4, 7, 8, 9]The respondent did not contravene Section 171 in respect of implementation of GST on 01.07.2017; alleged non pass through after 14.11.2017 was not established for want of post reduction invoices.Final Conclusion: The application alleging profiteering is dismissed. The Authority accepts the DGAP's finding that Section 171 of the CGST Act, 2017 was not contravened by the respondent in respect of the events w.e.f. 01.07.2017, and the applicant failed to establish non pass through in respect of the 14.11.2017 rate reduction for lack of examined post reduction invoices. Issues:1. Whether there was a reduction in the tax rate on the product from 01.07.2017 or 14.11.2017Rs.2. Whether any benefit of the tax rate reduction was required to be passed onRs.3. Whether the benefit of the tax rate reduction was actually passed on to the recipient through a reduction in pricesRs.Analysis:Issue I:The case involved an allegation of profiteering by the Respondent related to the supply of 'Mirror Series Tiles' due to not passing on the GST benefit upon its implementation from 01.07.2017 and a subsequent reduction in GST rate from 28% to 18% effective 14.11.2017. The investigation revealed that the applicable tax on the product pre-GST was CST @ 2% and Central Excise Duty @ 12.5% on 55% of the MRP. Post-GST implementation, the GST rate was initially set at 28% and later reduced to 18% from 15.11.2017. However, the absence of post-GST rate reduction invoices made it impossible to compare pre and post-rate revision actual selling prices accurately.Issue II:The report concluded that there was no contravention of Section 171 of the CGST Act, 2017, as the tax rate remained the same at 28% post-GST implementation, and the per unit price of the product excluding tax was not increased by the Respondent. Although the tax rate was reduced to 18% from 28% on 15.11.2017, no evidence was provided to show that this reduction was not passed on to the recipient, leading to the dismissal of the allegation of profiteering.Issue III:The Authority, after considering the DGAP's report and hearing from the Kerala Screening Committee, found that there was no reduction in the tax rate on the product from 01.07.2017. Additionally, there was no evidence to support the claim that the benefit of the tax rate reduction from 28% to 18% was not passed on to the recipient by the Respondent. Consequently, it was determined that the Respondent did not contravene Section 171 of the CGST Act, 2017, and the application was dismissed.In conclusion, the judgment highlighted the importance of passing on tax benefits to consumers and emphasized the need for clear documentation and evidence to support allegations of profiteering under the CGST Act, 2017.