Respondent found guilty of profiteering in GST rate reduction case, directed to refund, face penalties

The Respondent was found to have profiteered by not passing on the benefit of a GST rate reduction on cinema tickets to consumers. The Directorate General of Anti-Profiteering (DGAP) calculated the profiteering amount to be Rs. 30,13,058/-, with the Respondent increasing base ticket prices post-GST rate reduction. The Respondent was directed to reduce ticket prices, deposit the profiteered amount with interest in Consumer Welfare Funds, and faced penalties under Section 171 of the CGST Act, 2017. Jurisdictional authorities were tasked with monitoring compliance within three months, with the order being delayed due to the COVID-19 pandemic.

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Issues Involved:
1. Alleged profiteering by not passing on GST rate reduction benefits.
2. Examination of whether GST rate reduction was passed on to recipients.
3. Calculation and determination of profiteering amount.
4. Penalty and compliance directives.

Issue 1: Alleged profiteering by not passing on GST rate reduction benefits.

The Applicant No. 1 filed an application alleging that the Respondent did not pass on the benefit of GST rate reduction from 28% to 18% effective from 01.01.2019 on cinema tickets. The DGAP conducted an investigation and reported that the Respondent increased the base prices of tickets instead of reducing the final price, thus not passing on the GST reduction benefit to consumers.

Issue 2: Examination of whether GST rate reduction was passed on to recipients.

The DGAP confirmed that the GST rate on "Services by way of admission to exhibition of cinematograph films where the price of admission ticket was above one hundred rupees" was indeed reduced from 28% to 18% effective from 01.01.2019. The legal requirement under Section 171 of the CGST Act, 2017 mandates that any reduction in tax rate must result in a commensurate reduction in prices. The DGAP reported that the Respondent did not pass on this benefit, as evidenced by the increased base prices of tickets post-GST rate reduction.

Issue 3: Calculation and determination of profiteering amount.

The DGAP calculated the profiteering amount by comparing the average base prices of tickets before and after the GST rate reduction. The Respondent had increased the base prices from Rs. 117.18 to Rs. 127.12 for 2D movies and from Rs. 195.32 to Rs. 211.86 for 3D movies. The DGAP determined that the Respondent had profiteered by Rs. 11.73 per ticket for 2D movies and Rs. 19.52 per ticket for 3D movies, resulting in a total profiteering amount of Rs. 30,13,058/-. The DGAP also noted that the Respondent adjusted the ticket prices commensurately only from 08.02.2019.

Issue 4: Penalty and compliance directives.

The Authority found that the Respondent had contravened the provisions of Section 171 of the CGST Act, 2017 by not passing on the GST rate reduction benefit. The Respondent was directed to reduce ticket prices and deposit the profiteered amount of Rs. 30,13,058/- along with 18% interest in the Central Consumer Welfare Fund (CWF) and Telangana State CWF. The Respondent was also liable for a penalty under Section 171 (3A) of the CGST Act, 2017. The jurisdictional Commissioners of CGST/SGST Telangana were directed to monitor compliance, and a report was to be submitted within three months.

The order was delayed due to the COVID-19 pandemic and was passed under the Notification No. 55/2020, Central Tax dated 27.06.2020. Copies of the order were supplied to the Applicants, Respondent, and Commissioners CGST/SGST for necessary action.

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