Ruling: Liability for Not Passing on GST Reduction Benefit Upheld

Sh. Rahul Sharma, M/s Local Circles India Pvt. Ltd. and Director General of Anti-Profiteering, Central Board of Indirect Taxes & Customs, Versus M/s J.K. Helene Curtis Ltd. And M/s Shree Sai Kripa Marketing,

Sh. Rahul Sharma, M/s Local Circles India Pvt. Ltd. and Director General of Anti-Profiteering, Central Board of Indirect Taxes & Customs, Versus M/s J.K. ... Issues Involved:
1. Allegation of non-passing of GST rate reduction benefit by M/s Raymond Ltd.
2. Jurisdiction and procedure followed by DGAP.
3. Calculation methodology for profiteering.
4. Period of investigation.
5. Discounts and credit notes in profiteering computation.
6. Impact of GST on pre and post-rate reduction prices.
7. Constitutionality of Anti-Profiteering provisions.
8. Penalty imposition under Section 171 (3A).

Detailed Analysis:

1. Allegation of Non-Passing of GST Rate Reduction Benefit:
The complaint alleged that M/s Raymond Ltd. did not pass on the benefit of GST rate reduction from 28% to 18% on "After-Shave Lotion Park Avenue Good Morning 50 ml," maintaining the MRP at Rs. 115 per unit. The DGAP's investigation revealed that the product was supplied by Respondent No. 2 after purchasing it from Respondent No. 1. Both respondents failed to pass on the benefit of tax reduction as required under Section 171 of the CGST Act, 2017.

2. Jurisdiction and Procedure Followed by DGAP:
The Respondent No. 1 contended that the DGAP lacked jurisdiction to expand the investigation beyond the initial complaint against M/s Raymond Ltd. However, the authority clarified that the DGAP is mandated to investigate all cases where tax reduction benefits are not passed on, as per Section 171 (2) and Rule 129 of the CGST Rules, 2017. The DGAP acted within its jurisdiction by investigating both respondents.

3. Calculation Methodology for Profiteering:
The DGAP used average base prices of products pre-rate reduction and compared them with actual post-rate reduction base prices. The Respondent No. 1's claim of passing on a 7.81% discount was found insufficient as the required reduction was 10%. The methodology of comparing average pre-rate reduction prices with actual post-rate reduction prices was deemed correct and in line with Section 171 of the CGST Act, 2017.

4. Period of Investigation:
The Respondent No. 1 argued that the investigation period of 16 months and 16 days was arbitrary. The authority justified the period from 15.11.2017 to 31.03.2019, as the respondent failed to provide evidence of passing on the benefit within this period. The DGAP's investigation period was found reasonable and necessary to ensure compliance.

5. Discounts and Credit Notes in Profiteering Computation:
The Respondent No. 1's claim of passing on the benefit through discounts was rejected as discounts did not meet the conditions under Section 15 (3) of the CGST Act, 2017. The authority emphasized that the benefit must be passed on through commensurate price reduction. Credit notes issued for reasons other than tax reduction were not considered in profiteering calculations.

6. Impact of GST on Pre and Post-Rate Reduction Prices:
The Respondent No. 1's argument that the profiteered amount included GST was dismissed. The authority clarified that the excess GST collected from customers due to increased base prices must be included in the profiteered amount as it represents the benefit denied to customers.

7. Constitutionality of Anti-Profiteering Provisions:
The Respondent No. 1 challenged the constitutionality of Section 171 and related rules, claiming they violated Articles 14 and 19 (1) (g) of the Constitution. The authority refuted this, stating that the provisions ensure the benefit of tax reduction reaches consumers and do not impose price control, thus not infringing on the respondent's right to trade.

8. Penalty Imposition Under Section 171 (3A):
The authority found both respondents liable for profiteering and directed them to deposit the profiteered amounts along with interest in the Consumer Welfare Funds (CWFs) of the Central and State Governments. Show Cause Notices were issued to both respondents for the imposition of penalties under Section 171 (3A) of the CGST Act, 2017.

Conclusion:
The authority confirmed that both respondents failed to pass on the benefit of GST rate reduction and engaged in profiteering. They were directed to reduce prices, deposit the profiteered amounts with interest in the CWFs, and were issued Show Cause Notices for penalties. The methodology and period of investigation were upheld, and the respondents' constitutional challenges were dismissed.