2020 (5) TMI 265 - NAPA - GST

Respondent ordered to refund Rs. 6,91,121 for profiteering under CGST Act.

The Respondent was found to have profiteered by not passing on the benefit of Input Tax Credit (ITC) as mandated under Section 171 of the CGST Act, 2017. ... Benefit of input tax credit - commensurate reduction in price - profiteering - passage of benefit only by reduction in price under Section 171 of the CGST Act, 2017 - order for return of amount with interest - imposition of penalty under Section 171(3A) of the CGST Act, 2017Benefit of input tax credit - commensurate reduction in price - profiteering - passage of benefit only by reduction in price under Section 171 of the CGST Act, 2017 - Whether the Respondent failed to pass on the benefit of input tax credit to the applicant by way of commensurate reduction in price and thereby profiteered - HELD THAT: - The Authority found that GST came into force on 01.07.2017 and certain pre GST taxes (credit of which was not available earlier) became available as ITC under GST, requiring suppliers to pass the additional benefit to recipients by way of commensurate reduction in price. The Respondent had issued a pre GST quotation and effected supply after GST introduction. The import took place on 13.07.2017 when CVD and SAD had been replaced by IGST, the credit of which was available; consequently the embedded CVD that would have been non creditable in the pre GST regime was no longer a burden. The Authority accepted the DGAP's calculation that the base price should have been reduced by the amount of CVD embedded in the earlier quotation and, after correcting a typographical error in the billed amount, determined the amount of profiteering as Rs. 6,91,121/-. The Authority applied Section 171(1) and its explanation, holding that the only legally prescribed mode to pass the benefit is by commensurate reduction in price and that the Respondent had not complied with that requirement. The Respondent has, however, refunded the profiteered amount to the applicant; interest at 18% is still due from the date of collection until payment, to be paid within three months or recovered as provided by law. [Paras 26, 27, 28, 36, 37]Respondent contravened Section 171(1); profiteering fixed at Rs. 6,91,121/-, respondent directed to pay interest at 18% from date of collection until payment.Passage of benefit only by reduction in price under Section 171 of the CGST Act, 2017 - benefit of input tax credit - Whether providing additional accessories to the applicant constituted passing on the benefit of ITC - HELD THAT: - The Authority held that Section 171(1) mandates the passing of benefit of ITC by way of commensurate reduction in price and does not allow alternative modes of passing the benefit. The Respondent's assertion that additional accessories were supplied instead of reducing price was unsupported by documentary evidence and therefore unacceptable. [Paras 25, 32]Claim that benefit was passed by supplying additional accessories rejected; benefit must be passed by reducing price.Benefit of input tax credit - order for return of amount with interest - Whether the applicant's contentions regarding cesses, liability to GST on the supply and disparity between assessable value and sale price affected the determination of profiteering - HELD THAT: - The Authority accepted the DGAP's explanation that the Education Cess and Secondary & Higher Education Cess were not leviable on the import at the relevant time and thus were not to be included in the profiteering computation. It further observed that the quotation was exclusive of VAT and the actual supply occurred after GST implementation; the applicant could claim ITC of GST paid and therefore suffered no adverse tax impact. Disparity between assessable customs value and the contract price, and the respondent's profit margin, were held irrelevant to computation under Section 171, which assesses profiteering by reference to passing on ITC or rate reductions. [Paras 20, 29, 30, 31]Contentions about cesses, GST leviability and disparity in assessable value are not tenable and do not affect the profiteering determination.Final Conclusion: The Authority determined that the Respondent contravened Section 171(1) by not passing the benefit of input tax credit; profiteering quantified at Rs. 6,91,121/-, which has been refunded by the Respondent, and the Respondent is directed to pay interest at 18% from the date of collection until payment; a show cause notice for penalty under Section 171(3A) is to be issued and the Commissioners of CGST/SGST are to monitor compliance. Issues Involved:1. Allegation of profiteering by the Respondent.2. Calculation of the benefit of Input Tax Credit (ITC) under GST.3. Determination of the profiteered amount.4. Compliance with Section 171 of the CGST Act, 2017.5. Respondent's request for waiver of interest.6. Imposition of penalty under Section 171 (3A) of the CGST Act, 2017.Detailed Analysis:1. Allegation of Profiteering by the Respondent:The Applicant No. 1 alleged that the Respondent charged 18% GST on a quoted price of Rs. 1,40,00,000 for a 'Used Heidelberg Speed Master Offset Press' without passing on the benefit of ITC, contravening Section 171 of the CGST Act, 2017. The DGAP investigated and found that the Respondent should have reduced the base price to reflect the benefit of ITC after GST implementation.2. Calculation of the Benefit of ITC under GST:The DGAP noted that GST subsumed various taxes, including CVD and SAD, which were not creditable in the pre-GST regime. Post-GST, the ITC of GST was available, necessitating a reduction in the base price of goods. The Respondent did not adjust the base price despite the availability of ITC, leading to profiteering. The DGAP calculated the benefit of ITC by comparing the pre-GST and post-GST tax liabilities.3. Determination of the Profiteered Amount:The DGAP calculated the profiteered amount by determining the reduction in base price due to the non-applicability of CVD and the availability of ITC on IGST. The initial calculation showed a profiteering amount of Rs. 6,71,121. However, after correcting a typographical error regarding the billed price (Rs. 1,65,20,000 instead of Rs. 1,65,00,000), the profiteered amount was revised to Rs. 6,91,121. The DGAP provided detailed calculations to substantiate this amount.4. Compliance with Section 171 of the CGST Act, 2017:The Authority found that the Respondent violated Section 171 by not passing on the benefit of ITC to the Applicant No. 1 through a commensurate reduction in price. The Respondent's argument of providing additional accessories instead of reducing the price was rejected as it did not comply with the legal requirement of Section 171.5. Respondent's Request for Waiver of Interest:The Respondent requested a waiver of interest on the profiteered amount, citing lack of knowledge about anti-profiteering provisions. The Authority denied this request, stating there was no legal provision to waive the interest. The Respondent was directed to pay interest at 18% from the date of collection until the amount was refunded.6. Imposition of Penalty under Section 171 (3A) of the CGST Act, 2017:Given the Respondent's contravention of Section 171, the Authority determined that the Respondent was liable for a penalty under Section 171 (3A). A Show Cause Notice was to be issued to the Respondent to explain why the penalty should not be imposed.Conclusion:The Authority concluded that the Respondent had profiteered by not passing on the benefit of ITC as required under Section 171 of the CGST Act, 2017. The Respondent was ordered to refund the profiteered amount of Rs. 6,91,121 along with interest at 18% to the Applicant No. 1. The Respondent's request for waiver of interest was denied, and a Show Cause Notice for penalty imposition was to be issued. The Commissioners of CGST/SGST were directed to monitor compliance with this order.