2019 (5) TMI 560 - NAPA - GST

Respondent found guilty of not passing GST rate reduction benefits to consumers, ordered to pay Rs. 9,75,078.

The Respondent in the case was found to have engaged in profiteering by not passing on the benefit of a GST rate reduction from 28% to 18% to consumers, ... Anti-profiteering obligation under Section 171 of the CGST Act, 2017 - commensurate reduction in price on reduction of tax rate - bench-marking pre-rate-reduction base price for computation of profiteering - calculation of profiteered amount by comparison of pre-rate and post-rate basic prices - deposit of profiteered amount with interest into Consumer Welfare Fund under Rule 133(3)(c) - issuance of incorrect tax invoices and offence under Section 122(1)(i) of the CGST Act, 2017 - imposition of penalty and issue of show-cause notice under CGST rulesAnti-profiteering obligation under Section 171 of the CGST Act, 2017 - commensurate reduction in price on reduction of tax rate - Whether the Respondent contravened Section 171 by not passing on the benefit of GST rate reduction from 28% to 18% w.e.f. 15.11.2017 - HELD THAT: - The Authority held that Section 171 mandates that any reduction in rate of tax must be passed on to recipients by way of a commensurate reduction in prices. The Respondent's contention that because he had not increased prices when GST was introduced, he need not reduce them on the subsequent rate cut was rejected. The Authority accepted the legal proposition that benefit of tax rate reduction must be passed on in absolute terms so that the final price payable by the consumer is reduced commensurately with the tax rate reduction, and therefore the Respondent's explanation based on migration from VAT to GST and promotional pricing did not absolve him of the statutory obligation to pass on the benefit. [Paras 10, 20]Respondent has contravened Section 171 by failing to pass on the benefit of the reduction in GST rate and thus has profiteered.Bench-marking pre-rate-reduction base price for computation of profiteering - calculation of profiteered amount by comparison of pre-rate and post-rate basic prices - Whether the DGAP's method and computation of the profiteered amount is correct - HELD THAT: - The Authority accepted the DGAP's approach of taking the average basic price during the reference pre-rate-reduction window (transactions from 01.11.2017 to 14.11.2017) as the benchmark and comparing it with actual basic prices during 15.11.2017 to 31.08.2018 to determine the excess net realization. The Respondent's objections - that promotional discounted prices during the Onam scheme or the transition from VAT to GST rendered the benchmark inappropriate - were considered and rejected. On that basis the DGAP's Annexure calculating the profiteered amount at Rs. 9,75,078/- was held to be correctly prepared. [Paras 10, 21]DGAP's computation of profiteered amount at Rs. 9,75,078/- is accepted as correct.Deposit of profiteered amount with interest into Consumer Welfare Fund under Rule 133(3)(c) - Relief and monetary direction to remedy the profiteering - HELD THAT: - The Authority directed the Respondent to deposit the profiteered amount of Rs. 9,75,078/- along with interest at 18% into the Consumer Welfare Fund (CWF) of the Central and concerned State Governments in the ratio of 50:50, in accordance with Rule 133(3)(c) of the CGST Rules, 2017. The Authority recorded the Respondent's confirmation that 50% had been deposited and ordered deposit of the balance within three months, failing which recovery proceedings through field formations of Central and State GST Authorities shall follow and the respective Commissioners were directed to monitor implementation. [Paras 21, 22]Respondent directed to deposit the profiteered amount with interest into the Central and State Consumer Welfare Funds (50:50) within three months, failing which recovery shall be initiated.Issuance of incorrect tax invoices and offence under Section 122(1)(i) of the CGST Act, 2017 - imposition of penalty and issue of show-cause notice under CGST rules - Whether the Respondent issued incorrect invoices and is liable to penalty under the CGST Act - HELD THAT: - The Authority found that the Respondent had issued incorrect invoices by not correctly showing the basic price which he should have legally charged, thereby compelling customers to pay additional GST on the increased price and withholding the benefit that should have been passed on. This conduct was held to constitute an offence under Section 122(1)(i) of the CGST Act, 2017. Consequently, the Respondent was held liable for imposition of penalty under the said provision read with Rule 133(3)(d) of the CGST Rules, 2017, and the Authority directed that a show-cause notice be issued to the Respondent to explain why penalty should not be imposed. [Paras 23]Findings recorded that incorrect invoices were issued and a show-cause notice be issued seeking reasons why penalty under Section 122(1)(i) should not be imposed.Final Conclusion: The Authority held that the Respondent failed to pass on the benefit of the GST rate reduction and profiteered; accepted the DGAP's computation of Rs. 9,75,078/- as the profiteered amount; directed deposit of that amount with 18% interest into the Central and State Consumer Welfare Funds in equal shares within three months (with recovery and monitoring directions if not complied with); and directed issuance of a show-cause notice for imposition of penalty for issuing incorrect invoices under Section 122(1)(i) of the CGST Act, 2017. Issues Involved:1. Allegation of profiteering by not passing on the benefit of GST rate reduction.2. Examination of compliance with Section 171 of CGST Act, 2017.3. Determination of the quantum of profiteering.4. Respondent's defense regarding promotional discounts and price adjustments.5. Calculation of the profiteered amount and its deposition.6. Imposition of penalty for issuing incorrect invoices.Issue-wise Detailed Analysis:1. Allegation of Profiteering:The case was initiated based on an allegation that the Respondent did not pass on the benefit of GST rate reduction from 28% to 18% on the product 'Glass Kit Hood Curved Black-90 Cm GHK 900CS Electric Chimney' as required by Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017, thus indulging in profiteering in contravention of Section 171 of the CGST Act, 2017.2. Examination of Compliance with Section 171 of CGST Act, 2017:Section 171(1) of the CGST Act, 2017 mandates that any reduction in the rate of tax on any supply of goods or services must be passed on to the recipient by way of commensurate reduction in prices. The DGAP's investigation revealed that the Respondent increased the base price of the product from Rs. 6113.79 to Rs. 7369.20 when the GST rate was reduced from 28% to 18%, thereby not passing on the benefit of the reduced tax rate to the consumers.3. Determination of the Quantum of Profiteering:The DGAP calculated the profiteered amount by comparing the average basic price of the product during the period 01.11.2017 to 14.11.2017 with the actual basic prices during the period 15.11.2017 to 31.08.2018. The DGAP concluded that the Respondent had profiteered an amount of Rs. 9,75,078/- by not reducing the prices commensurately with the reduction in the GST rate.4. Respondent's Defense Regarding Promotional Discounts and Price Adjustments:The Respondent argued that the prices during the Onam festival (10.08.2017 to 31.10.2017) were promotional and could not be compared with off-season prices. He claimed that the effective tax rate during the VAT period was around 18%, and despite the GST rate increasing to 28%, he did not increase the price for the dealer. The Respondent also contended that the DGAP's comparison of prices was flawed as it did not consider the promotional discounts.5. Calculation of the Profiteered Amount and Its Deposition:The DGAP's report, which was accepted by the Authority, stated that the Respondent had increased the base price of the product post-GST rate reduction, leading to a profiteered amount of Rs. 9,75,078/-. The Respondent agreed to deposit this amount in the Consumer Welfare Fund (CWF). The amount was to be split equally between the Central and State CWFs, with the Respondent directed to deposit Rs. 4,87,539/- to each fund along with interest at 18%.6. Imposition of Penalty for Issuing Incorrect Invoices:The Authority found that the Respondent issued incorrect invoices by not showing the correct base price, thereby compelling customers to pay additional GST on the increased price. This action contravened the provisions of the CGST Act, 2017, making the Respondent liable for a penalty under Section 122 (1) (i) of the Act. The Authority directed the issuance of a show-cause notice to the Respondent to explain why a penalty should not be imposed.Conclusion:The Respondent was directed to deposit the profiteered amount of Rs. 9,75,078/- along with interest at 18% into the Central and respective State Consumer Welfare Funds within three months. The Respondent was also directed to reduce the price of the product to pass on the benefit of the reduced GST rate to the recipients. The case was to be monitored by the respective Commissioners of CGST/SGST to ensure compliance.