Respondent penalized for not passing GST rate reductions to consumers, profiteering amount upheld.

Director General of Anti-Profiteering, Central Board of Indirect Taxes and Customs Versus M/s. Nestle India Ltd.

Director General of Anti-Profiteering, Central Board of Indirect Taxes and Customs Versus M/s. Nestle India Ltd. - TMI Issues Involved:
1. Whether the Respondent passed on the benefit of GST rate reductions to the recipients.
2. Methodology adopted by the Respondent to pass on the GST benefits.
3. Calculation of profiteering amount by the DGAP.
4. Legal validity of the Anti-Profiteering measures under the CGST Act and Rules.
5. Compliance with principles of natural justice and procedural fairness.
6. Imposition of penalty on the Respondent.

Issue-wise Analysis:

1. Whether the Respondent passed on the benefit of GST rate reductions to the recipients:
The Respondent admitted to setting aside Rs. 12.6 Crore due to GST rate reductions but claimed to have passed on benefits through discounts and increased quantities. However, the DGAP found that the discounts were not specifically attributed to GST rate reductions and were part of the general discount pattern. The Respondent also failed to reduce MRPs or re-sticker them as required, thus not passing on the benefits to the consumers.

2. Methodology adopted by the Respondent to pass on the GST benefits:
The Respondent claimed to have passed on benefits at the aggregate product category level, considering sales contributions and lower-priced SKUs. However, the DGAP and the Authority found this methodology arbitrary and illegal, as benefits must be passed on each SKU to ensure every buyer receives the benefit. The Respondent's methodology was deemed to violate Section 171 (1) of the CGST Act and Article 14 of the Constitution.

3. Calculation of profiteering amount by the DGAP:
The DGAP calculated the profiteering amount by comparing pre and post-GST rate reduction prices for each SKU, finding that the Respondent had not reduced prices commensurately. The DGAP's methodology was found logical and in consonance with Section 171 (1) of the CGST Act. The final profiteering amount was determined to be Rs. 89,73,16,384/-, after adjusting for the Respondent's suo moto deposit of Rs. 16,58,32,723/-.

4. Legal validity of the Anti-Profiteering measures under the CGST Act and Rules:
The Respondent challenged the Anti-Profiteering measures, claiming excessive delegation and violation of Article 19 (1) (g) of the Constitution. However, the Authority found that the Rules were framed under Section 164 of the CGST Act with approval from the Parliament and the GST Council. The Authority's role is not to control prices but to ensure benefits of tax reductions and ITC are passed to consumers, thus not violating constitutional provisions.

5. Compliance with principles of natural justice and procedural fairness:
The Respondent alleged violation of natural justice due to the absence of a show cause notice. However, the Authority issued a notice on 16.10.2018, detailing allegations and proposed actions, and provided ample opportunity for the Respondent to defend himself. The proceedings were found to comply with principles of natural justice.

6. Imposition of penalty on the Respondent:
The Authority found the Respondent liable for profiteering and directed the deposit of Rs. 73,14,83,660/- along with 18% interest in the Consumer Welfare Fund (CWF) of the Central and State Governments. A show cause notice for penalty imposition under Section 171 (3A) of the CGST Act was also directed to be issued.

Conclusion:
The Respondent was found to have denied the benefit of GST rate reductions to consumers, resulting in profiteering. The methodology adopted by the Respondent was deemed arbitrary and illegal. The DGAP's calculation of the profiteering amount was upheld, and the Respondent was directed to deposit the profiteered amount with interest. The Authority also directed the issuance of a show cause notice for penalty imposition.