2020 (6) TMI 676 - NAPA - GST

Respondent penalized for profiteering post-GST rate reduction, directed to deposit amount and reduce prices

The Authority found that the Respondent engaged in profiteering by not reducing prices of 'Frozen Green Peas' and 'Frozen Sweet Corn' post-GST rate ... Anti-profiteering - commensurate reduction in prices - benefit of reduction in the rate of tax - input tax credit reversal - methodology for computation of profiteering (average pre-rate base price compared with invoice-wise post-rate base price) - penalty under Section 171(3A) of the CGST Act, 2017 - deposit in Consumer Welfare FundBenefit of reduction in the rate of tax - commensurate reduction in prices - anti-profiteering - Respondent did not pass on to recipients the benefit of GST rate reduction on specified frozen vegetables w.e.f. 01.01.2019 and thereby contravened Section 171(1) of the CGST Act, 2017. - HELD THAT: - The Authority found that the Central Government reduced GST on the impacted products to Nil w.e.f. 01.01.2019. The DGAP's investigation, supported by invoice and outward-supply data furnished by the Respondent, showed that instead of reducing prices commensurately the Respondent increased base prices on the eve of rate reduction. The Authority accepted the DGAP's conclusion that the Respondent thereby denied the benefit of tax reduction to each purchaser and committed profiteering in contravention of Section 171(1). [Paras 11, 12, 17, 25, 31]Contravention of Section 171(1) established; Respondent found to have resorted to profiteering for the period in question.Methodology for computation of profiteering (average pre-rate base price compared with invoice-wise post-rate base price) - commensurate reduction in prices - anti-profiteering - The methodology adopted by the DGAP to compute profiteering - using average pre-rate base prices (pre-reduction period) compared with actual invoice-wise post-rate base prices - is appropriate and may be relied upon. - HELD THAT: - The Authority examined the difficulties in direct pre/post comparison (different customers, discounts, non-identical purchases) and agreed with the DGAP that computing an average base price for the pre-reduction month and comparing it to invoice-wise post-reduction base prices ensures the benefit is measured for each sale. The approach prevents denial of benefit to individual purchasers and aligns with the requirement that tax reduction be passed to each recipient; the Authority also noted consistency with its prior orders and approved the methodology. [Paras 26]DGAP's methodology approved as reasonable, justifiable and in consonance with Section 171.Input tax credit reversal - benefit of reduction in the rate of tax - No adjustment was allowed for reversal of Input Tax Credit on closing stock because the Respondent had not reversed ITC as required; therefore denial of ITC was not given as a deduction in computing profiteering. - HELD THAT: - The DGAP noted, and the Respondent admitted, that no reversal of ITC on closing stock as on 31.12.2018 was made. As reversal under Section 17 read with Rules 42 and 43 would have created a cost, absence of such reversal meant the DGAP rightly did not allow any corresponding benefit while computing profiteering. The Authority sustained this treatment. [Paras 13, 27]No deduction for reversal of ITC; benefit of denial of ITC not given where reversal not done.Amount of profiteering - deposit in Consumer Welfare Fund - Total profiteered amount for the period 01.01.2019 to 30.06.2019 is determined as Rs. 2,33,515/-, and the Respondent is directed to deposit this amount with interest into the designated Central and State Consumer Welfare Funds. - HELD THAT: - On the basis of the DGAP's computation (comparison of pre-rate average base prices with invoice-wise post-rate base prices) and the outward-supply data submitted by the Respondent, the Authority accepted the computed net higher sales realization as the profiteered amount. The Authority directed reduction of prices in future and ordered deposit of the profiteered amount as per State-wise breakup with interest at 18% from the date of collection until deposit, to be made within three months, failing which recovery shall follow under CGST/SGST law. [Paras 16, 17, 30]Profiteered amount fixed at Rs. 2,33,515/-; directed deposit with 18% interest into Consumer Welfare Funds and to reduce prices going forward.Penalty under Section 171(3A) of the CGST Act, 2017 - Respondent is liable for penalty for contravention of Section 171 and a Show Cause Notice is to be issued calling for explanation why the prescribed penalty should not be imposed. - HELD THAT: - Having found contravention of Section 171(1) and that the Respondent has resorted to profiteering, the Authority concluded that the offence contemplated under Section 171(3A) is made out and directed issuance of a Show Cause Notice under the relevant provision read with Rule 133(3)(d) for imposition of penalty. [Paras 31]Show Cause Notice to be issued to the Respondent for penalty under Section 171(3A).Final Conclusion: The Authority accepted the DGAP's report, held that the Respondent failed to pass on the GST rate reduction benefit and engaged in profiteering, fixed the profiteered amount at Rs. 2,33,515/- for 01.01.2019 to 30.06.2019, directed deposit of that amount with 18% interest into the designated Consumer Welfare Funds and reduction of prices, and directed issuance of a Show Cause Notice for penalty under Section 171(3A). Issues Involved:1. Allegation of profiteering by not reducing the selling price of 'Frozen Green Peas' after GST rate reduction.2. Investigation and findings by the Director General of Anti-Profiteering (DGAP).3. Respondent's non-compliance and submissions.4. Calculation of profiteering amount.5. Determination of liability and penalty under Section 171 of the CGST Act, 2017.Detailed Analysis:1. Allegation of Profiteering:The Applicant No. 1 filed an application alleging that the Respondent did not reduce the selling price of 'Frozen Green Peas' when the GST rate was reduced from 5% to Nil effective from 01.01.2019, as per Notification No. 25/2018-Central Tax (Rate) dated 31.12.2018.2. Investigation and Findings by DGAP:The DGAP conducted a detailed investigation under Rule 129 (6) of the CGST Rules, 2017. The investigation covered the period from 01.01.2019 to 30.06.2019. The DGAP issued multiple notices and summons to the Respondent, who initially did not comply but later provided the required documents. The DGAP's report concluded that the Respondent did not pass on the benefit of the GST rate reduction to the recipients, thereby profiteering an amount of Rs. 2,33,515/-.3. Respondent's Non-Compliance and Submissions:The Respondent failed to submit the requisite documents on time and did not appear for summons initially. However, later, the Respondent submitted documents and accepted the profiteered amount of Rs. 2,33,515/- as computed by the DGAP. The Respondent claimed that the final price to the consumer remained the same because suppliers increased the base prices of the products, which increased the cost to the Respondent.4. Calculation of Profiteering Amount:The DGAP calculated the profiteering amount by comparing the average base prices of the impacted products before and after the GST rate reduction. The methodology involved comparing the average base price (without GST) before the rate reduction with the actual selling price (post-rate reduction). The DGAP found that the Respondent increased the base prices of the products to offset the GST rate reduction, thereby not passing the benefit to the recipients. The total profiteering amount was determined to be Rs. 2,33,515/-.5. Determination of Liability and Penalty:The Authority concluded that the Respondent contravened Section 171 (1) of the CGST Act, 2017, by not passing on the benefit of the GST rate reduction. The Respondent was directed to reduce the prices of the products and deposit the profiteered amount of Rs. 2,33,515/- along with 18% interest in the Central and State Consumer Welfare Funds of Andhra Pradesh and Telangana within three months. A Show Cause Notice was issued to the Respondent for imposing a penalty under Section 171 (3A) of the CGST Act, 2017.Conclusion:The Authority determined that the Respondent engaged in profiteering by not reducing the prices of 'Frozen Green Peas' and 'Frozen Sweet Corn' after the GST rate reduction. The Respondent was directed to deposit the profiteered amount and interest in the Consumer Welfare Funds and reduce the prices of the products. The Respondent was also liable for a penalty for violating Section 171 of the CGST Act, 2017. The Commissioners of CGST/SGST were instructed to monitor the compliance of this order.