2020 (6) TMI 110 - NAPA - GST

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 ... Profiteering - supply of Fogg Deo Fougere BX 150 ml - allegation that the benefit of tax reduction not passed on - contravention of section 171 of CGST Act - Penalty - HELD THAT:- It is revealed that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on the impugned good “Fogg Deo Fougere BX 150 ml” from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017 - Central Tax (Rate) dated 14.11.2017. It is also revealed that the DGAP has calculated the amount of net higher sales realization due to increase in the base price of the impacted good/products, despite the reduction in the GST rate from 28% to 18% as ₹ 8,50,442/- only (inclusive of the excess GST collected by the Respondent from his recipients) in respect of the Respondent. The said profiteered amount had been arrived at by the DGAP by comparing the average of the base prices of the impacted goods sold during the period 01.07.2017 to 14.07.2017, with the actual invoice-wise base prices of such goods/products sold by the Respondent during the period from 15.11.2017 to 31.03.2019. The profiteered amount is determined as ₹ 8,50,442/- (inclusive of the GST) as per the provisions of Rule 133 (1) of the above Rules as has been computed vide Annexure-25 of the Report dated 24.09.2019. Accordingly, the Respondent is directed to reduce his prices commensurately in terms of Rule 133 (3) (a) of the above Rules. The Respondent is also directed to deposit an amount of ₹ 8,50,442/- in the Consumer Welfare Fund of the Central and the Delhi State Governments, where the Respondent has made his supplies, as the recipients are not identifiable, as per the provisions of Rule 133 (3) (c ) of the above Rules alongwith 18% interest payable from the dates from which the above amount was realised by the Respondent from his recipients till the date of its deposit. Penalty - HELD THAT:- The Respondent has denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171(1) of the CGST Act, 2017 and has thus profiteered as per the explanation attached to Section 171 of the Act. Therefore, he is apparently liable to be penalised as per Section 171 (3A) of the CGST Act, 2017. Therefore, a show cause notice be issued directing him to explain why the penalty prescribed under the above sub-Section should not be imposed on him. 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.