2019 (7) TMI 36 - NAPA - GST

Respondents penalized for not passing GST benefit on sanitary napkins, directed to deposit profiteered amount.

Shri C.P. Rao, Principal Chief Commissioner of Central Goods and Services Tax, Tamil Nadu & Puducherry, Sh. Sandeep Puri, Commissioner of Central Goods and Services Tax, Mumbai Director General of Anti-Profiteering, Indirect Taxes & Customs, Versus M/s. Unicharm India Pvt. Ltd., Corp. M/s Apollo Hospitals Enterprise Ltd.

The respondents failed to pass on the benefit of GST rate reduction on sanitary napkins to consumers, leading to profiteering. Respondent No. 1 was ... Profiteering - Sanitary Napkins - prices of the product not reduced despite reduction in the rate of GST on the said product from 12% to Nil w.e.f. 27.07.2018 - benefit of reduction in the rate of tax not passed on - denial of ITC (ITC) on account of reduction in GST rate - contravention of provisions of section 171 of CGST Act - whether there is any reduction in rate of tax on any supply of goods or services or the benefit of ITC has been passed on to the recipient by way of commensurate reduction in prices? - HELD THAT:- It is revealed that the Central Govt. vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018 the Government had reduced the rate of GST from 12% to NIL without ITC in respect of the The product with effect from 27.07.2018, the benefit of which was required to be passed on to the recipients as per the provisions of Section 171 of the CGST Act, 2017. From the above discussion and the invoices available, it is revealed that the base price of the product “Sofy Bodyfit XL 6S” was increased from ₹ 33.08/- to ₹ 37.05/-, when the rate of tax was reduced from 12% to NIL% with effect from 27.07.2018. Thus, increasing the base price of the product, post-GST rate reduction, the benefit of reduction in tax rate was not passed on to the recipients. The Respondent No. 2, who is the seller of the impugned product, had clearly increased the base price of the product as can be seen from the invoices. But as the benefit of ITC was not available to him post 27.07.2018, so the reversal of ITC on the closing stock was the extra cost on him. As can be seen from the records that reversal of ITC by him was more than excess realization on closing stock after denial of ITC benefit w.e.f. 27.07.2019, and therefore no profiteering can be established on his part and hence, we take the view that Section 171(1) is not attracted in respect of the Respondent No. 2 - Notwithstanding the fact that there had been reduction in MRP and the Respondent No. 1 had reduced his MRP, we find that it has not been commensurate with the net reduction in the rate of tax and that the benefit has not reached all the recipients which establishes contravention of the provisions of Section 171(1) of the CGST Act, 2017. It is absolutely clear even from a cursory perusal of the provisions of Section 171 that they are completely unambiguous and clear and hence there is hardly any scope for misinterpretation of the same. The intent of legislature shows that it proposes to hold the suppliers accountable for passing on the benefit of rate reduction as it is being given out of the public exchequer and any breach of the same will fall foul of the above Section. Thus the quantum of profiteering illegally obtained by the Respondent No. 1 is determined as ₹ 10,77,182.34/as per the details mentioned in para 11 supra in terms of the provisions of Rule 133 (1) of the CGST Rules, 2017 as the above Respondent has failed to pass on the benefit of rate reduction to his customers. Accordingly, the Respondent No. 1 is directed to reduce his prices by way of commensurate reduction keeping in view the reduced rate of tax which has been availed by him as per Rule 133 (3) (a). The Respondent No. 1 is further directed to deposit the above amount as per the provisions of Rule 133 (3) (c) in the ratio of 50:50 in the Central or the State Consumer Welfare Fund of all the States and UTS as mentioned in para 12 above, along with the interest @ 18% till the same is deposited within a period of 3 months. Penalty - HELD THAT:- Respondent had issued incorrect invoices while selling the above product to his recipients as he had incorrectly shown the base price without mentioning any specifics such as colour, texture, quality etc about the products being supplied with the sole intention of not having to pass commensurate benefit of reduction in rate of tax to his recipients. It is also established from the record that the Respondent has deliberately and consciously acted in contravention of the provisions of the CGST Act, 2017 by issuing incorrect invoices which is an offence under Section 122 (1) (i) of the above Act and hence he is liable for imposition of penalty - In the interest of natural justice before imposition of penalty a notice be issued to him asking him to explain why penalty should not be imposed on him. Application disposed off. Issues Involved:1. Whether the benefit of GST rate reduction on sanitary napkins from 12% to Nil was passed on to consumers by the respondents.2. Calculation of profiteering amount by the respondents.3. Compliance with Section 171 of the CGST Act, 2017.4. Validity of the DGAP's methodology in determining profiteering.5. Imposition of penalty on the respondents for issuing incorrect invoices.Detailed Analysis:Issue 1: Benefit of GST Rate ReductionThe respondents were accused of not reducing the prices of sanitary napkins despite the GST rate reduction from 12% to Nil effective from 27.07.2018. The DGAP's investigation revealed that the base price of the product 'Sofy Bodyfit XL 6S' was increased from Rs. 33.08 to Rs. 37.05 after the GST rate reduction, indicating that the benefit was not passed on to consumers. Respondent No. 1 claimed to have reduced the MRP and informed consumers through newspaper announcements, but the DGAP found that the base price increase negated the GST rate reduction benefit.Issue 2: Calculation of Profiteering AmountThe DGAP computed profiteering by comparing the pre-GST reduction base prices (increased by 12.7% due to loss of ITC) with the actual selling prices post-GST reduction. The profiteering amount for Respondent No. 1 was determined to be Rs. 10,77,182.34. For Respondent No. 2, the excess realization from the closing stock was Rs. 8,16,641, but since the ITC reversal cost was higher, no profiteering was established for Respondent No. 2.Issue 3: Compliance with Section 171 of the CGST Act, 2017Section 171 mandates that any reduction in tax rate must be passed on to consumers by way of commensurate reduction in prices. The DGAP's report and the Authority's analysis concluded that Respondent No. 1 did not comply with this requirement, as the base price increase post-GST reduction indicated deliberate profiteering. Respondent No. 2, however, was found to have complied due to the higher ITC reversal cost.Issue 4: Validity of DGAP's MethodologyRespondent No. 1 challenged the DGAP's methodology, arguing that it was based on 'mathematical calculations' not prescribed by the GST laws and did not consider losses. The Authority upheld the DGAP's methodology, stating that the calculation of profiteering was correct and necessary to ensure the benefit of tax reduction reached all recipients. The DGAP's focus was on whether the benefit was passed on, not on price fixing.Issue 5: Imposition of PenaltyThe Authority found that Respondent No. 1 issued incorrect invoices by not specifying details of the products, thus violating Section 122 (1) (i) of the CGST Act, 2017. Consequently, Respondent No. 1 was liable for a penalty under Rule 133 (3) (d) of the CGST Rules, 2017. A notice was issued to Respondent No. 1 to explain why the penalty should not be imposed.Conclusion:Respondent No. 1 was found guilty of profiteering by not passing the GST rate reduction benefit to consumers and was directed to deposit Rs. 10,77,182.34 along with interest into the Consumer Welfare Fund. Respondent No. 2 was not found guilty of profiteering due to higher ITC reversal costs. The DGAP's methodology was upheld, and a penalty notice was issued to Respondent No. 1 for issuing incorrect invoices.