2020 (3) TMI 558 - NAPA - GST

Respondent Fails to Pass Tax Benefit to Consumers, Ordered to Deposit Profiteered Amount in Consumer Welfare Funds

The Respondent failed to pass on the benefit of a tax reduction to consumers as mandated by Section 171 of the CGST Act. The Respondent increased base ... Profiteering - supply of Deodorant 'Wild Stone Deo Chrome BX 120 ml' - allegation that the Respondent had not pass on the benefit of reduction in the GST rate - contravention of section 171 of CGST Act - Penalty - HELD THAT:- The profiteered amount is determined as ₹ 21,84,79,790/- in terms of Rule 133(1) of CGST rules, 2017, during the period from 15-11-2017 to 31-03-2019 as has been computed by DGAP - This authority u/r 133(3)(a) of CGST Rules, 2017 orders that the respondent shall reduce his prices commensurately in terms of the rule. Penalty - HELD THAT:- It is evident that the respondent has denied the benefit of tax deduction to the customers in contravention of provisions of section 171(1) of CGST Act, 2017 and thus has profiteered as per the explanation attached to section 171 of the Act. Therefore, the respondent id apparently liable for imposition of penalty u/s 171(3A) of CGST Act - therefore a SCN should be issued to him to explain why the penalty should not be imposed. Further, this Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioners of CGST/SGST to monitor this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by this Authority is deposited in the CWFs of the Central and the State Governments as per the details given above. A Report in compliance of this order shall be submitted to this Authority by the concerned Commissioner within a period of 4 months from the date of receipt of this order. Issues Involved:1. Whether the Respondent is liable to pass on the benefit of tax reduction w.e.f. 15.11.2017 to his buyers.2. Whether there has been any violation of the provisions of Section 171 of the CGST Act, 2017 by the Respondent.3. If yes, then what is the quantum of profiteered amount.Detailed Analysis:1. Liability to Pass on the Benefit of Tax Reduction:The reduction in GST rate from 28% to 18% w.e.f. 15.11.2017 was mandated by Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017. The Respondent claimed to have reduced prices post-rate reduction and communicated the same to channel partners. However, the DGAP's investigation revealed that the Respondent increased the base price of products post-rate reduction, thereby not passing the benefit to consumers. For instance, the base price of 'Affair (BS) 150 ml' was increased from Rs. 115.72 to Rs. 127.81 post-rate reduction and later reduced to Rs. 120.91, which was still higher than the pre-rate reduction price.2. Violation of Section 171 of the CGST Act, 2017:Section 171 mandates that any reduction in the rate of tax or the benefit of ITC must be passed on to the recipient by way of commensurate reduction in prices. The DGAP's investigation concluded that the Respondent did not pass on the benefit of GST rate reduction to recipients and instead increased the base prices of products. The Respondent's claim that the investigation should be limited to the product 'Wild Stone Deo Chrome BX 120 ml' was rejected. The DGAP is empowered to investigate all products impacted by the tax rate reduction.3. Quantum of Profiteered Amount:The DGAP initially calculated the profiteered amount as Rs. 21,94,96,828/-, which was later revised to Rs. 21,84,79,790/- after considering sales returns. The DGAP used average base prices pre and post-rate reduction to determine profiteering. The Respondent's arguments about increased costs, competitive pricing, and seasonal changes were not accepted as valid reasons for not passing on the tax reduction benefit. The DGAP's methodology of comparing average base prices was deemed appropriate and consistent with the provisions of Section 171.Key Findings:- The Respondent increased base prices post-rate reduction, thereby denying consumers the benefit of reduced GST rates.- The DGAP's investigation covered all products impacted by the tax rate reduction, not just the product mentioned in the complaint.- The profiteered amount was determined to be Rs. 21,84,79,790/-, which the Respondent is directed to deposit in the Consumer Welfare Funds of the Central and State Governments along with 18% interest.Orders:- The Respondent is ordered to reduce prices commensurately.- The Respondent must deposit the profiteered amount of Rs. 21,84,79,790/- in the Consumer Welfare Funds within 3 months, along with 18% interest.- A show cause notice for the imposition of penalty under Section 171(3A) of the CGST Act, 2017, will be issued to the Respondent.- Commissioners of CGST/SGST are directed to monitor compliance and submit a report within 4 months.Conclusion:The judgment concludes that the Respondent violated Section 171 of the CGST Act by not passing on the benefit of GST rate reduction to consumers and is liable to deposit the profiteered amount along with interest.