2020 (9) TMI 775 - NAPA - GST

Respondent Violates CGST Act, Fails to Pass GST Benefits to Customers

The Respondent was found to have violated Section 171(1) of the CGST Act, 2017 by not passing on the GST rate reduction benefits to customers. The ... Profiteering - foot wear (Shoes) - allegation that the Respondent had not passed on the benefit of rate reduction when the rate of GST was reduced - contravention of provisions of Section 171 (1) of the CGST Act, 2017 - penalty - HELD THAT:- It has been revealed that the Respondent had not passed on the benefit of rate reduction when the rate of GST was reduced from 18% to 5% on foot wear, as per the provisions of Section 171 (1) of the CGST Act, 2017 for the period w.e.f. 27.07.2018 to 30.11.2018 and hence, the Respondent has violated the provisions of Section 171 (1) of the CGST Act, 2017. It is also clear from the record that the Respondent has also paid the entire profiteered amount in the Consumer Welfare Funds of the Central and the State Governments along with interest. It is also revealed from the perusal of the CGST Act and the Rules framed under it that no penalty had been prescribed for violation of the provisions of Section 171 (1) of the above Act, therefore, the Respondent was issued show cause notice to state why penalty should not be imposed on him for violation of the above provisions as per Section 122 (1) (i) of the above Act as he had apparently issued incorrect or false invoices while charging excess consideration and GST from the buyers. However, from the perusal of Section 122 (1) (i) it is clear that the violation of the provisions of Section 171 (1) is not covered under it as it does not provide penalty for not passing on the benefits of tax reduction and hence the above penalty cannot be imposed for violation of the anti-profiteering provisions made under Section 171 of the CGST Act - Since, no penalty provisions were in existence between the period w.e.f. 27 07 2018 to 30.11.2018 when the Respondent had violated the provisions of Section 171 (1), the penalty prescribed under Section 171 (3A) also cannot be imposed on the Respondent retrospectively. Accordingly, the notice dated 03.07.2019 issued to the Respondent for imposition of penalty under Section 122 (1) (i) is hereby withdrawn and the present penalty proceedings launched against him are accordingly dropped. Issues: Violation of anti-profiteering provisions, imposition of penalty under Section 122 of the CGST Act, 2017Violation of Anti-Profiteering Provisions:The case involved an investigation by the DGAP based on a complaint, revealing that the Respondent did not pass on the benefit of a GST rate reduction from 18% to 5% on footwear, violating Section 171(1) of the CGST Act, 2017. The DGAP found that the Respondent denied this benefit to customers, leading to an amount of Rs. 6,55,307 being deemed as profiteering. The National Anti-Profiteering Authority, after due consideration, issued a notice to the Respondent who was later found in violation of Section 171(1) and directed to pay the profiteered amount.Imposition of Penalty under Section 122:During the proceedings, it was noted that the Respondent not only collected extra amounts for footwear but also compelled customers to pay additional GST, potentially violating Section 122(1)(i) of the CGST Act, 2017. The Respondent was issued a notice to explain why penalties under Section 122 should not be imposed. The Respondent argued against the penalty, stating that the entire profiteered amount had been deposited in the Consumer Welfare Funds within the stipulated time. The DGAP confirmed this deposition, leading to a discussion on whether penalties should be imposed despite compliance.Analysis and Conclusion:Upon careful review, it was determined that the Respondent did violate Section 171(1) by not passing on the GST rate reduction benefits. However, it was highlighted that Section 122(1)(i) did not cover this specific violation, as it pertained to incorrect invoicing rather than anti-profiteering. Furthermore, as penalty provisions under Section 171(3A) were introduced post the violation period, retrospective penalties could not be imposed. Consequently, the penalty notice issued under Section 122(1)(i) was withdrawn, and penalty proceedings against the Respondent were dropped. The Respondent's compliance with depositing the profiteered amount and interest was acknowledged, leading to the conclusion that no penalty could be imposed for the anti-profiteering violation during the specified period.