Company fined for not passing GST rate reduction benefit to consumers, ordered to pay Rs. 8,50,442 to Consumer Welfare Fund

The Authority found that M/s. Vini Cosmetics Pvt. Ltd. did not pass on the benefit of the GST rate reduction from 28% to 18% to consumers, resulting in a profiteered amount of Rs. 8,50,442/-. The Respondent was directed to deposit this amount in the Consumer Welfare Fund and faced potential penalties under Section 171(3A) of the CGST Act, 2017. The delay in issuing the order was attributed to the COVID-19 pandemic, as per Notification No. 35/2020-Central Tax dated 03.04.2020.

---

---

Issues Involved:
1. Allegation of not passing on the benefit of GST rate reduction.
2. Determination of whether the benefit of GST rate reduction was passed on.
3. Computation of profiteered amount.
4. Directions for depositing the profiteered amount.
5. Penalty for contravention of Section 171 of the CGST Act, 2017.

Detailed Analysis:

1. Allegation of not passing on the benefit of GST rate reduction:
The Standing Committee on Anti-profiteering requested the Director General of Anti-Profiteering (DGAP) to investigate whether M/s. Vini Cosmetics Pvt. Ltd. passed on the benefit of GST rate reduction from 28% to 18% effective from 15.11.2017 on the product "Fogg Deo Fougere BX 150 ml" supplied to M/s. Big Bazaar.

2. Determination of whether the benefit of GST rate reduction was passed on:
The DGAP issued a notice to M/s. Vini Cosmetics Pvt. Ltd. to submit a reply regarding the passing of GST rate reduction benefits. M/s. Vini Cosmetics Pvt. Ltd. contended that they had passed on the benefit by reducing the base price and MRP of the product. They also communicated the price reduction to super stockists and provided stickers with reduced MRPs to be affixed on the unsold stock. However, the DGAP found that the Respondent (super stockist) had increased the base prices of the product when the GST rate was reduced, thereby not passing on the benefit to the recipients.

3. Computation of profiteered amount:
The DGAP computed the profiteered amount by comparing the average base prices of the product before and after the GST rate reduction. The calculation showed that the Respondent had increased the base price post-rate reduction, resulting in a net higher sales realization of Rs. 8,50,442/-. This amount included the excess GST collected by the Respondent from the recipients.

4. Directions for depositing the profiteered amount:
The Authority directed the Respondent to deposit the profiteered amount of Rs. 8,50,442/- in the Consumer Welfare Fund of the Central and Delhi State Governments, as the recipients were not identifiable. The amount was to be deposited within three months from the date of the order, along with 18% interest from the date of realization until the date of deposit. The concerned Commissioners of CGST/SGST were instructed to monitor the compliance of this order and submit a report within four months.

5. Penalty for contravention of Section 171 of the CGST Act, 2017:
The Authority observed that the Respondent had denied the benefit of tax reduction to customers, contravening Section 171(1) of the CGST Act, 2017, and thus profiteered. Consequently, a show cause notice was to be issued to the Respondent to explain why the penalty prescribed under Section 171(3A) should not be imposed.

Conclusion:
The Authority concluded that the Respondent had not passed on the benefit of the GST rate reduction and had profiteered to the extent of Rs. 8,50,442/-. The Respondent was directed to deposit the profiteered amount in the Consumer Welfare Fund and was liable for a penalty under Section 171(3A) of the CGST Act, 2017. The order was passed beyond the stipulated period due to the COVID-19 pandemic, in accordance with Notification No. 35/2020-Central Tax dated 03.04.2020.

---