2019 (3) TMI 430 - NAPA - GST

Retailer Ordered to Repay Profits from Unpassed GST Savings, Faces Penalties for Incorrect Invoices

The judgment found that the Respondent had not passed on the benefit of a GST rate reduction to consumers, resulting in profiteering. The Respondent was ... Pass on the benefit of reduction in rate of tax - commensurate reduction in prices - computation of profiteering on transaction value (cum-tax basis) - liability of registered supplier irrespective of MRP fixed by manufacturer - deposit of unidentifiable beneficiary amounts in Consumer Welfare Fund - penalty for issuing incorrect invoicesPass on the benefit of reduction in rate of tax - liability of registered supplier irrespective of MRP fixed by manufacturer - Whether the Respondent failed to pass on the benefit of reduction in GST rate from 28% to 18% to recipients and whether his obligation arises despite MRP being fixed by the brand owner - HELD THAT: - The Authority applied Section 171 read with Rule 127 and held that every registered supplier is obliged to pass on the benefit of reduction in rate of tax to recipients by way of commensurate reduction in prices. The fact that the MRP was fixed by the brand owner did not absolve the Respondent of this statutory obligation where the Respondent himself sold the product and was registered under GST. The DGAP's finding that the Respondent increased the per unit base price post rate reduction (from the average pre-rate-change base to the higher post-rate-change base) and thus did not pass on the benefit was accepted. [Paras 32, 35, 36]The Respondent failed to pass on the benefit of GST rate reduction and is liable despite the MRP being fixed by the manufacturer.Computation of profiteering on transaction value (cum-tax basis) - commensurate reduction in prices - deposit of unidentifiable beneficiary amounts in Consumer Welfare Fund - Methodology for computation of profiteering and the amount due, and the direction for deposition where beneficiaries are not identifiable - HELD THAT: - The Authority examined the DGAP's methodology which compared the nearest available pre-rate-reduction transaction prices with post-rate-reduction transaction prices to arrive at the commensurate selling price and compute profiteering on a cum-tax basis. It rejected the Respondent's contentions that (a) a wider pre-rate comparison period should have been used, (b) calculations should exclude tax because tax was deposited to Government, and (c) purchase price/entitled margin should be the sole yardstick. The Authority accepted DGAP's computation and determined the total profiteered amount as Rs. 10,79,813.28 for the period starting w.e.f. 15.11.2017 to 31.07.2018 and directed deposit of the amount, along with interest, into the Central and State Consumer Welfare Funds in the prescribed ratio where beneficiaries could not be identified. [Paras 8, 31, 36, 38, 39]Profiteering of Rs. 10,79,813.28 is determined for the period w.e.f. 15.11.2017 to 31.07.2018; the Respondent is directed to deposit the amount (with interest) into Consumer Welfare Funds as directed.Complaint admissibility by interested party - prima facie examination by Standing Committee - Whether the complaint was invalid because the complainant was not the actual purchaser or the complaint/invoice details were incomplete - HELD THAT: - The Authority noted Rule 128 and Rule 137 and held that any interested person (including persons not being the purchaser) may file a complaint. The Standing Committee had examined the application and found a prima facie case, and thus forwarding to DGAP for investigation was proper. The Authority also observed that requisite details such as manufacturer, seller, invoice and product were available and that the manually noted MRP was admitted to be correct by the Respondent. [Paras 33, 34]The complaint was admissible and the proceedings were not rendered infructuous by the complainant not being the actual purchaser.Penalty for issuing incorrect invoices - Whether the Respondent is liable for penalty for issuing incorrect invoices - HELD THAT: - Having found that the Respondent had profiteered by increasing the base price and collected excess amounts, the Authority concluded that the Respondent is liable under the penal provisions for issuing incorrect invoices. However, recognising principles of natural justice, the Authority directed that a show-cause/notice for hearing be issued before imposition of any penalty. [Paras 40]The Respondent is prima facie liable for penalty for issuing incorrect invoices; a notice for hearing on penalty is to be issued before any imposition.Final Conclusion: The Authority found that the Respondent (Cloudtail India Pvt. Ltd.) did not pass on the benefit of GST rate reduction and had increased base prices, computed profiteering of Rs. 10,79,813.28 for the period w.e.f. 15.11.2017 to 31.07.2018, directed deposit of that amount (with interest) into Central and State Consumer Welfare Funds in the prescribed ratio, and held the Respondent prima facie liable for penalty for issuing incorrect invoices while directing issuance of a notice for hearing before imposing penalty. Issues Involved:1. Allegation of not passing on the benefit of GST rate reduction.2. Examination of the complaint by the Standing Committee.3. Investigation by DGAP and findings.4. Respondent’s defense and submissions.5. Calculation of profiteering amount.6. Directions and penalties.Detailed Analysis:1. Allegation of Not Passing on the Benefit of GST Rate Reduction:The Applicant alleged that the Respondent did not pass on the benefit of the GST rate reduction from 28% to 18% for printing cartridges (HSN 8443) effective from 15.11.2017. The Applicant supported this claim with two sale invoices dated 04.10.2017 and 09.12.2017.2. Examination of the Complaint by the Standing Committee:The Standing Committee reviewed the complaint on 25.05.2018 and decided to refer the matter to the Directorate General of Anti-Profiteering (DGAP) for investigation.3. Investigation by DGAP and Findings:The DGAP issued a notice to the Respondent on 10.07.2018 and extended the investigation period to 07.10.2018. The DGAP found that the Respondent increased the base price of the product post-GST rate reduction, thus not passing the benefit to the recipients. The DGAP calculated the profiteered amount as Rs. 10,79,813.28.4. Respondent’s Defense and Submissions:The Respondent argued that:- They were merely retailers and had no control over the MRP set by the manufacturer (HP).- The increase in MRP was due to the increase in tax rates and customs duty.- The sales during the 'Great Indian Festival Sale' were at promotional prices, which were not comparable to regular sales.- The DGAP’s report ignored several key facts and submissions.- The complaint was against HP India, not the Respondent.5. Calculation of Profiteering Amount:The DGAP calculated the profiteering amount based on the increase in the base price post-GST rate reduction. The Respondent argued that the calculation should consider the entire period from 01.07.2017 to 14.11.2017 and the increase in procurement prices. The DGAP maintained that the calculation was based on the nearest pre-rate reduction prices.6. Directions and Penalties:The Authority directed the Respondent to:- Reduce the price of the product to reflect the GST rate reduction.- Deposit the profiteered amount of Rs. 10,79,813.28 along with 18% interest in the Consumer Welfare Fund (CWF) of the Centre and respective States.- Deposit the amount in a 50:50 ratio in the Central and State CWFs within three months.- The Respondent was also found liable for a penalty under Section 122(1)(i) of the CGST Act, 2017, for issuing incorrect invoices, and a notice for hearing regarding the penalty was to be issued.Conclusion:The judgment concluded that the Respondent had profiteered by increasing the base price post-GST rate reduction, thus not passing the benefit to the recipients. The Respondent was directed to deposit the profiteered amount in the CWFs and reduce the product price accordingly.