2020 (8) TMI 601 - NAPA - GST

Respondent Guilty of Profiteering, Ordered to Deposit Profits, Reduce Prices

Director-General of Anti-Profiteering, Central Board of Indirect And Taxes And Customs Versus M/s. Lite Bite Travel Foods Pvt. Ltd.

Director-General of Anti-Profiteering, Central Board of Indirect And Taxes And Customs Versus M/s. Lite Bite Travel Foods Pvt. Ltd. - TMI Issues Involved:1. Alleged profiteering by the Respondent due to non-passing of GST rate reduction benefit.2. Methodology and computation of profiteering.3. Respondent's defense on various grounds including commercial expediency, pricing control, and methodology.4. Compliance with Section 171 of the CGST Act, 2017.Detailed Analysis:1. Alleged Profiteering:The core issue was whether the Respondent had passed on the commensurate benefit of the GST rate reduction from 18% to 5% effective from 15.11.2017 to his customers. The DGAP's investigation revealed that the Respondent had increased the base prices of his products post-GST rate reduction, thereby not passing on the benefit to the consumers. The investigation covered the period from 15.11.2017 to 30.04.2019, and it was found that the Respondent had increased the base prices of 94 items, leading to a net higher cum-tax price incidence on consumers.2. Methodology and Computation of Profiteering:The DGAP used a methodology where the average base prices before the rate reduction were compared with the actual post-rate reduction base prices. The Respondent's claim that there was no prescribed methodology under the CGST Act or Rules was countered by the DGAP, stating that the computation was based on the data provided by the Respondent and the legal requirement of passing on the benefit of tax reduction as per Section 171 of the CGST Act, 2017. The DGAP's methodology was found to be reasonable, justifiable, and consistent with the provisions of Section 171.3. Respondent's Defense:The Respondent raised several defenses, including:- Lack of a prescribed methodology for computing profiteering.- Increase in costs due to various factors like raw materials, rent, and manpower.- The franchise agreement with Subway India controlling prices.- The principle of 'commercial expediency' and the right to determine prices.- The argument of 'netting off' where excess benefit passed to some customers should offset the shortfall to others.The Authority found these defenses untenable. It was clarified that the benefit of tax reduction must be passed on each SKU/unit to each customer, and netting off was not permissible as it would deny the benefit to individual customers. The Respondent's claim of increased costs coinciding exactly with the date of tax rate reduction was found implausible.4. Compliance with Section 171 of the CGST Act, 2017:Section 171 mandates that any reduction in the tax rate or benefit of ITC must be passed on to the recipient by way of commensurate reduction in prices. The Respondent's failure to do so was a violation of this provision. The Authority directed the Respondent to reduce his prices commensurately and deposit the profiteered amount of Rs. 61,67,097/- in the Consumer Welfare Funds of the Central and Maharashtra State Governments along with interest. The Respondent was also liable for penal action under Section 171(3A) of the CGST Act, 2017.Conclusion:The Authority concluded that the Respondent had indeed profiteered by not passing on the benefit of the GST rate reduction to his customers, thus violating Section 171 of the CGST Act, 2017. The order directed the Respondent to deposit the profiteered amount and reduce his prices, ensuring compliance with the anti-profiteering provisions.