Monitor and TV supplier failed to pass GST rate cut benefits to consumers under Section 171

NAPA found that a supplier of monitors and TVs (screen size up to 32 inches) failed to pass on GST rate reduction benefits from 28% to 18% effective January 1, 2019, violating Section 171 of CGST Act, 2017. The profiteered amount was determined as Rs. 4,699 for the period January-June 2019. The respondent deposited the profiteered amount plus Rs. 1,500 interest in Consumer Welfare Funds. No penalty was imposed as the penalty provision became effective January 1, 2020, while the violation occurred in 2019. Application disposed of within prescribed time limitations.

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Issues Involved:

1. Violation of Section 171 of the CGST Act, 2017.
2. Quantum of profiteering.

Detailed Analysis:

Issue 1: Violation of Section 171 of the CGST Act, 2017

The case revolves around an application alleging that the Respondent did not reduce the selling price of "Monitors and TVs of screen size up to 32 inches" when the GST rate was reduced from 28% to 18% effective from 01.01.2019. The Applicant No. 1 provided two invoices as evidence. The DGAP initiated an investigation upon receiving the reference from the Standing Committee on Anti-profiteering, which decided to investigate whether the benefit of the GST rate reduction was passed on to the recipients.

The DGAP's investigation covered the period from 01.01.2019 to 30.06.2019. It was found that the Respondent did not reduce the selling price of the products despite the reduction in GST rates. The Central Government had indeed reduced the GST rate on these products from 28% to 18% effective 01.01.2019. The legal requirement under Section 171 (1) of the CGST Act, 2017 mandates that any reduction in the tax rate must be passed on to the recipient by way of a commensurate reduction in prices. This reduction must be in terms of money, ensuring that the final price payable by the recipient is reduced accordingly.

The DGAP's analysis showed that the Respondent increased the base price of the products after the GST rate reduction. This was illustrated with specific data and tables comparing pre and post-rate reduction prices. The investigation concluded that the Respondent had indeed increased the base price of "Monitors and TVs of screen size up to 32 inches" in six out of 144 invoices during the investigation period, resulting in a total profiteering amount of Rs. 4,699/-. This amount included the excess GST collected due to the increased base price.

The DGAP confirmed that the suppliers of the Respondent had passed on the benefit of the GST rate reduction to the Respondent. The Respondent had issued 124 invoices impacted by the GST rate reduction notification, and the profiteering was calculated accordingly.

Issue 2: Quantum of Profiteering

The DGAP's report calculated the profiteering amount by comparing the average base price of the products sold before the GST rate reduction with the actual selling prices post-rate reduction. The methodology used by the DGAP was found to be correct, appropriate, and reasonable. The Respondent did not challenge this methodology.

The profiteering amount was determined to be Rs. 4,699/- for the period from 01.01.2019 to 30.06.2019. The Respondent agreed with the DGAP's findings and deposited the profiteered amount of Rs. 4,699/- in the Consumer Welfare Funds (CWFs). Additionally, the Respondent voluntarily paid an interest amount of Rs. 1,500/-.

The DGAP verified the deposition of the profiteered amount but had not verified the interest amount paid by the Respondent. The Authority directed the DGAP to ensure that the interest is paid at the applicable rate and to submit a report confirming the payment within three months.

The Authority concluded that the Respondent had contravened the provisions of Section 171 (1) of the CGST Act, 2017. However, since the penalty provisions under Section 171 (3A) came into force on 01.01.2020, and the infringement period was from 01.01.2019 to 30.06.2019, no penalty was imposed on the Respondent.

Conclusion:

The Respondent was found to have violated Section 171 (1) of the CGST Act, 2017 by not passing on the benefit of the GST rate reduction to the recipients. The total profiteered amount was determined to be Rs. 4,699/-, which the Respondent deposited in the CWFs along with an interest amount of Rs. 1,500/-. The DGAP was directed to verify the interest payment. No penalty was imposed due to the timing of the penalty provisions coming into force.

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