2020 (3) TMI 406 - NAPA - GST

Business profiteered by not passing on GST rate reduction, ordered to refund with penalty

The Respondent failed to pass on the benefit of a reduced GST rate from 28% to 18% on goods supplied, resulting in a profiteered amount of Rs. 30,153/- as ... Passage of benefit of tax rate reduction by way of commensurate reduction in price - profiteering under Section 171 of the CGST Act, 2017 - computation of profiteered amount including tax on increased base price - deposit of profiteered amount in Consumer Welfare Fund and interest - show cause for penalty under Section 171(3A) of the CGST Act, 2017Passage of benefit of tax rate reduction by way of commensurate reduction in price - profiteering under Section 171 of the CGST Act, 2017 - Reduction of GST rate on the impugned product and the obligation to pass on the benefit to recipients - HELD THAT: - The Authority found as a fact that the Central Government reduced the GST rate applicable to the impugned product from 28% to 18% with effect from 27.07.2018, and that under Section 171(1) of the CGST Act, 2017 any reduction in rate of tax must be passed on to recipients by way of a commensurate reduction in price payable in money. The Authority concluded that no alternative method other than commensurate reduction in price satisfies the statutory requirement and that this legal obligation applied to the respondent for supplies made after 27.07.2018. [Paras 9, 10, 20]GST rate on the product was reduced w.e.f. 27.07.2018 and the respondent was obliged to pass the benefit by way of commensurate reduction in price under Section 171(1).Computation of profiteered amount including tax on increased base price - Whether the respondent passed on the benefit of the rate reduction or increased base prices resulting in profiteering; and the quantum of profiteering - HELD THAT: - On examination of the respondent's outward sales data, invoices and returns, the DGAP compared pre-rate-reduction average base prices (01.07.2018 to 26.07.2018 or 01.04.2018 to 30.06.2018 where applicable) with actual invoice-wise base prices during 27.07.2018 to 28.02.2019. The DGAP included GST charged on increased base prices in the computation. The analysis showed that the respondent had increased base prices when the GST rate fell, thereby denying the commensurate benefit to recipients. The DGAP computed the total profiteered amount for the period 27.07.2018 to 28.02.2019 and reported the sum as Rs. 30,153/-, a computation which the Authority accepted. The respondent had accepted the DGAP report in his later submissions. [Paras 11, 12, 23]The respondent did not pass on the benefit and the profiteered amount for 27.07.2018 to 28.02.2019 is Rs. 30,153/- as computed by the DGAP and accepted by the Authority.Deposit of profiteered amount in Consumer Welfare Fund and interest - directions under Rule 133 of the CGST Rules, 2017 - Reliefs and directions to be issued for restitution of benefit and deposit of the profiteered amount - HELD THAT: - Relying on the DGAP's findings and Rule 133(3) provisions, the Authority directed the respondent to reduce prices in accordance with Rule 133(3)(a) so that the benefit of tax-rate reduction is passed on going forward. For restitution where recipients are not identifiable, the Authority directed deposit of the computed profiteered amount in the Consumer Welfare Fund of the Central and concerned State Governments in equal proportion (50:50), along with interest at 18% from the date of collection until deposit, as mandated by Rule 133(3)(b) and (c). Time limits for deposit and recovery were also prescribed by the Authority. [Paras 24, 25]Respondent to reduce prices as per Rule 133(3)(a) and deposit the profiteered amount with interest in the Central and State Consumer Welfare Funds (50:50), within the time prescribed; recovery procedure if not complied with.Show cause for penalty under Section 171(3A) of the CGST Act, 2017 - Whether proceedings for imposition of penalty should be initiated - HELD THAT: - The Authority concluded that denial of the benefit of the rate reduction to consumers amounted to profiteering in contravention of Section 171(1), thereby attracting liability under Section 171(3A). Consequently, the Authority directed issuance of a Show Cause Notice to the respondent to explain why the penalty prescribed under Section 171(3A) read with Rule 133(3)(d) should not be imposed. [Paras 26]A Show Cause Notice to be issued to the respondent seeking explanation why penalty under Section 171(3A) read with Rule 133(3)(d) should not be imposed.Final Conclusion: The Authority found that GST on the impugned product was reduced effective 27.07.2018 and that the respondent failed to pass the commensurate benefit to recipients, resulting in profiteering of Rs. 30,153/- for the period 27.07.2018 to 28.02.2019; the respondent is directed to reduce prices, deposit the profiteered amount with 18% interest into the Central and State Consumer Welfare Funds (50:50) within the prescribed time, and to answer a Show Cause Notice for penalty under Section 171(3A). Issues Involved:1. Whether the rate of GST on the goods supplied by the Respondent was reduced from 28% to 18% w.e.f. 27.07.2018.2. Whether the benefit of such reduction in the rate of GST had been passed on by the Respondent to his recipients, in terms of Section 171 of the CGST Act, 2017.Issue-wise Detailed Analysis:Issue 1: Reduction of GST RateThe DGAP confirmed that the Central Government, on the recommendation of the GST Council, reduced the GST rate on the goods supplied by the Respondent from 28% to 18% w.e.f. 27.07.2018 via Notification No. 18/2018-Central Tax (Rate) dated 26.07.2018. This reduction applied to the product in question, 'Sujata Mixer Grinder 900W'. The Respondent did not contest this fact.Issue 2: Passing on the Benefit of GST ReductionThe DGAP examined whether the Respondent passed on the benefit of the reduced GST rate to his customers as required by Section 171 of the CGST Act, 2017, which mandates a commensurate reduction in prices. The investigation revealed that the Respondent had increased the base prices of the goods when the GST rate was reduced, thereby not passing on the benefit to the customers. The DGAP calculated that the total profiteered amount during the period from 27.07.2018 to 28.02.2019 was Rs. 30,153/-, which included the GST charged on the increased base prices.The Respondent contended that he was unaware of the GST rate reduction initially and had deposited the excess GST collected with the government. He argued that he had not profiteered as the excess GST was deposited, and the customers could claim a refund. However, the DGAP clarified that the benefit of the GST reduction must be passed on to the customers through a reduction in prices, not through other means like discounts or refunds.The DGAP further noted that the Respondent's submissions, including his claim of offering discounts, were considered but found irrelevant in determining whether the GST reduction benefit was passed on. The DGAP concluded that the discounts were part of a discretionary business strategy and not a method to pass on the GST reduction benefit.Judgment:The Authority concluded that the Respondent contravened Section 171(1) of the CGST Act, 2017, by not passing on the benefit of the GST rate reduction to the customers. The Respondent was directed to reduce the prices of his products and deposit the profiteered amount of Rs. 30,153/- along with interest at 18% from the date of collection until the deposit date. The amount was to be deposited in the Consumer Welfare Fund of the Central and State Governments in a 50:50 ratio. The Respondent was given three months to comply, failing which the amount would be recovered by the concerned GST Commissioners.Additionally, the Respondent was found liable for a penalty under Section 171(3A) of the CGST Act, 2017, for denying the benefit of the GST rate reduction to consumers. A Show Cause Notice was issued to the Respondent to explain why the penalty should not be imposed.The judgment emphasized the legal requirement for businesses to pass on the benefits of GST rate reductions to consumers through price reductions, reinforcing the anti-profiteering provisions of the CGST Act, 2017.