2019 (12) TMI 588 - NAPA - GST

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

The Respondent failed to pass on the benefit of GST rate reductions to consumers, not reducing prices accordingly and using an arbitrary methodology. The ... Passage of benefit of tax rate reduction by commensurate reduction in prices - anti-profiteering determination and quantification - methodology for computation of profiteering (SKU-wise comparison of pre- and post-rate prices) - set aside and deposit in Consumer Welfare Fund - interest on amount returned/deposited - jurisdiction and procedural compliance of anti-profiteering investigation - show cause for imposition of penalty under Section 171(3A) - monitoring and enforcement by Commissioners of CGST/SGSTAnti-profiteering determination and quantification - methodology for computation of profiteering (SKU-wise comparison of pre- and post-rate prices) - Whether the Respondent had profiteered and the quantum thereof - HELD THAT: - On consideration of the DGAP report, the Respondent's submissions and supplementary material, the Authority found that the Respondent had not passed on the benefit of GST rate reductions to recipients on a commensurate basis. The Authority accepted the DGAP's methodology of comparing pre and post rate reduction prices at the level of outward taxable supplies for each SKU and, after correcting identified errors, fixed the total amount of profiteering at Rs. 89,73,16,384 (revised computation in Annexures). The Authority rejected the Respondent's product category aggregation/netting methodology and its alternative contentions (discount codes, extra grammage, rounding/coinage, operational constraints) as inadequate to discharge the statutory obligation to pass the commensurate benefit on each supply. The illegally collected GST component was also included in the quantified profiteering. [Paras 121, 146, 161, 200]Profiteering established; quantified at Rs. 89,73,16,384.Set aside and deposit in Consumer Welfare Fund - interest on amount returned/deposited - Reliefs to be ordered in relation to the quantified profiteering and adjustment for amounts already deposited - HELD THAT: - The Authority directed the Respondent to reduce prices commensurately and to deposit the balance of the profiteered amount after adjusting the suo moto deposit already made in the Consumer Welfare Fund. Having adjusted the amount the Respondent had already deposited in the CWF, the Authority ordered deposit of the balance amount of Rs. 73,14,83,660 within three months, with interest at 18% from the dates the amounts were realised until deposit, and provided a State/UT wise breakup in the revised Annexure. The Commissioners of CGST/SGST were directed to monitor compliance and report within four months. [Paras 200, 202]Respondent directed to reduce prices commensurately; deposit Rs. 73,14,83,660 (after adjustment) with 18% interest; compliance to be monitored by Commissioners CGST/SGST.Methodology for computation of profiteering (SKU-wise comparison of pre- and post-rate prices) - passage of benefit of tax rate reduction by commensurate reduction in prices - Validity of the Respondent's asserted methodologies (category-level netting, passing benefit by extra grammage or by discounts) and admissibility of compliance costs as offsets - HELD THAT: - The Authority held that Section 171 requires passing the benefit by commensurate reduction in prices on every supply; therefore computations and verification must focus on SKU wise outward supplies. The Respondent's product category aggregation and netting off across SKUs was inconsistent with the statutory mandate and Article 14 considerations; passing benefit by extra grammage or unsubstantiated discounts was not accepted in the absence of corroborative evidence showing commensurate benefit on each SKU. Expenditure on re labelling/packaging or publicity was not permissible as an offset against consumers' entitlement where alternative measures (stickering/reprinting) were available and no statutory provision allowed such deductions. [Paras 109, 110, 111, 146]Respondent's category level methodology, grammage/discount defenses and claimed compliance costs disallowed for computation of profiteering.Jurisdiction and procedural compliance of anti-profiteering investigation - show cause for imposition of penalty under Section 171(3A) - Respondent's procedural and jurisdictional objections and consequential enforcement action - HELD THAT: - The Authority rejected the Respondent's objections that proceedings were without jurisdiction, that a prior prescribed application or screening was mandatory in the circumstances, or that principles of natural justice were violated. The OM directing provisional deposit and the Respondent's own communications acknowledging non passing of benefit justified initiation of investigation under the Rules; the Respondent was afforded copies of the DGAP report, opportunities of hearing and multiple chances to file evidence. While the Authority accepted that penal consequences may follow, it revised the profiteering figure and adjusted the amount already deposited; it directed issuance of a separate show cause notice under Section 171(3A) to afford opportunity to the Respondent to explain why penalty should not be imposed, and withdrew the earlier notice to the extent it proposed other penal provisions. [Paras 72, 74, 184, 201]Procedural and jurisdictional challenges rejected; a show cause notice for penalty under Section 171(3A) to be issued; earlier proposal invoking certain penal provisions withdrawn to that extent.Final Conclusion: The Authority found that M/s Nestle India Ltd. had not passed on the commensurate benefit of GST rate reductions on affected SKUs and quantified profiteering at Rs. 89,73,16,384. After adjusting amounts already deposited in the Consumer Welfare Fund, the respondent was directed to deposit the balance with 18% interest, reduce prices commensurately, and comply with monitoring directions; procedural and methodological objections were rejected and a show cause notice under Section 171(3A) was directed for initiation of penalty proceedings. 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.