Respondent's Profiteering Post-GST Rate Reduction Leads to Penalties

Sh. Kiran Chimirala, Director General Anti-Profiteering, Central Board of Indirect Taxes and Customs Versus M/s. Jubilant Foods Works Ltd.

Sh. Kiran Chimirala, Director General Anti-Profiteering, Central Board of Indirect Taxes and Customs Versus M/s. Jubilant Foods Works Ltd. - 2019 (24) G. ... Issues Involved:
1. Allegation of profiteering by not passing on the benefit of GST rate reduction.
2. Examination of the increase in base prices of products post-GST rate reduction.
3. Calculation and determination of the profiteered amount.
4. Methodology for determining and calculating profiteering.
5. Compliance with principles of natural justice.

Detailed Analysis:

1. Allegation of Profiteering:
The Applicant No. 1 alleged that the Respondent did not pass on the benefit of GST rate reduction from 18% to 5% effective from 15.11.2017, instead increased the base prices of products, thereby nullifying the benefit of tax reduction. The Respondent was accused of profiteering by maintaining the same consumer prices post-tax reduction.

2. Examination of Price Increase:
The DGAP's investigation revealed that the Respondent had increased the base prices of 314 out of 393 items after the GST rate reduction, thus not passing on the benefit to consumers. The Respondent admitted to increasing the base prices of Medium Veg Pizza and Garlic Bread post-tax reduction. The DGAP found that the Respondent had increased the base prices more than the permissible limit to offset the denial of ITC.

3. Calculation of Profiteered Amount:
The DGAP calculated the profiteered amount to be Rs. 41,42,97,635/- by comparing the base prices before and after the GST rate reduction and considering the denial of ITC. The profiteered amount included Rs. 5.65/- specifically from the Applicant No. 1. The DGAP's detailed analysis showed that the Respondent had increased prices by more than the permissible 5.59% in respect of 170 items, leading to profiteering.

4. Methodology for Determining Profiteering:
The Respondent argued that no specific methodology was prescribed for calculating profiteering, leading to arbitrary results. However, the Authority clarified that the methodology varies across industries and products, and the calculation should ensure that the benefit of tax reduction and ITC is passed on to each recipient. The DGAP used average sales realization for computation, which was justified under Section 15 of the CGST Act, 2017.

5. Compliance with Principles of Natural Justice:
The Respondent claimed violation of natural justice as no show cause notice was issued. However, the Authority noted that the Respondent was duly notified and given opportunities to present submissions and defend against the allegations. The Respondent's detailed submissions and hearings demonstrated that the principles of natural justice were upheld.

Conclusion:
The Authority concluded that the Respondent did not pass on the benefit of GST rate reduction to consumers and engaged in profiteering. The Respondent was directed to refund the profiteered amount to the Applicant No. 1 and deposit the balance in the Consumer Welfare Funds. The Authority also directed further investigation to ensure compliance post-31.05.2018 and issued a show cause notice for imposing penalties under Section 122 (1) (i) of the CGST Act, 2017.