Medicine retailer profiteered Rs 1,54,138 by not passing GST rate reduction from 28% to 18% under Section 171(1)

NAPA held that a medicine retailer violated Section 171(1) of CGST Act by failing to pass on GST rate reduction benefit from 28% to 18% effective 15.11.2017 on ECLAT SERUM. Investigation period covered 15.11.2017 to 30.09.2019. Respondent did not reduce selling prices despite tax rate reduction, resulting in profiteering of Rs. 1,54,138. Authority directed price reduction per Rule 133(3)(a) to pass benefit to recipients. No penalty imposed as penal provisions came into force from 01.01.2020 while violation period was 01.01.2019 to 30.09.2019, and respondent deposited profiteered amount with interest. Application disposed.

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Issues Involved:
1. Whether the Respondent was required to pass on and has passed on the commensurate benefit of reduction in the rate of tax to his customers.
2. Whether there was any violation of the provisions of Section 171 (1) of the CGST Act, 2017 in this case.

Detailed Analysis:

Issue 1: Whether the Respondent was required to pass on and has passed on the commensurate benefit of reduction in the rate of tax to his customers.

The investigation by the Director General of Anti-Profiteering (DGAP) revealed that the GST rate on "Eclat Serum" was reduced from 28% to 18% effective from 15.11.2017. The Respondent was required to pass on this benefit to customers by reducing prices accordingly. However, the DGAP found that the Respondent did not reduce the selling price commensurately. Instead, the Respondent increased the base prices of the product, thereby not passing the benefit of reduced GST rates to the recipients.

The methodology for determining profiteering involved comparing the average base prices before and after the GST rate reduction. For instance, the average base price of "Eclat Serum 30GM" before the rate reduction was Rs. 898.32, and the commensurate selling price post-reduction should have been Rs. 1060. However, the actual selling price was Rs. 1260, indicating profiteering of Rs. 200 per unit. The total profiteering amount was calculated to be Rs. 1,54,138/-, which included Rs. 1000/- from the Applicant No. 1.

Issue 2: Whether there was any violation of the provisions of Section 171 (1) of the CGST Act, 2017 in this case.

Section 171 (1) of the CGST Act mandates that any reduction in the rate of tax on any supply of goods or services must be passed on to the recipient by way of commensurate reduction in prices. The DGAP's investigation confirmed that the Respondent did not comply with this provision. The Respondent's failure to reduce prices despite the reduction in GST rate constituted a violation of Section 171 (1).

The Respondent's argument that the rate reduction benefit was not passed on by his supplier was noted, and the DGAP was directed to investigate the entire supply chain to verify this claim. The Respondent agreed to pay the profiteered amount as computed by the DGAP and issued Demand Drafts for the amount, which were verified and confirmed by the DGAP.

Conclusion:

The Respondent was found to have contravened the provisions of Section 171 (1) of the CGST Act, 2017 by not passing on the benefit of reduced GST rates to the recipients. The total profiteered amount was determined to be Rs. 1,54,138/-, which the Respondent was directed to deposit along with interest. The DGAP confirmed that the Respondent had deposited the entire profiteered amount along with interest in the respective Consumer Welfare Funds. No penalty was imposed as the profiteered amount was deposited within the stipulated time frame. The DGAP was also directed to investigate the Respondent's supplier to ensure the benefit of the reduced GST rate was passed through the entire supply chain.

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