2020 (3) TMI 406 - NAPA - GST

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

Shri S.C. Grover, Director General of Anti-Profiteering, Indirect Taxes & Customs, Versus M/s. Garg Kitchen Collection,

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 ... Profiteering - supply of ‘Sujata Mixer Grinder 900W’ - Respondent had not passed on the benefit of reduction in the rate of GST on the impugned product supplied by him by way of commensurate reduction in price - contravention of Section 171 of the CGST Act, 2017 - penalty - HELD THAT:- The Respondent had increased the base prices of the goods when the rate of GST was reduced from 28% to 18% w.e.f. 27.07.2018, so that the commensurate benefit of GST rate reduction was not passed on to his recipients. Thus, by increasing the base price of the product the benefit of reduction in the tax rate was not passed on to the recipients by the Respondent and hence he has contravened the provisions of Section 171 of the CGST Act, 2017. The Respondent is therefore directed to reduce the prices of his products as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. The Respondent is also directed to deposit the profiteered amount of ₹ 30,153/- along with the interest to be calculated @ 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited in terms of Rule 133 (3) (b) of the CGST Rules, 2017 - Since, rest of the recipients in this case are not identifiable, the above Respondent is directed to deposit the amount of profiteering of ₹ 30,153/- along with interest in the Consumer Welfare Fund of the Central and the concerned State Governments as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017 in the ratio of 50:50 in the Central and State CWFs along with interest @ 18% till the same is deposited. Penalty - HELD THAT:- The Respondent has denied the benefit of rate reduction of the GST to the consumers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST Act, 2017 and therefore, he is apparently liable to penalty under the provisions of the above Section - Accordingly, a Show Cause Notice be issued to him directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him. 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.