Cinema operator violated section 171 CGST Act by not passing GST rate reduction benefit to customers

NAPA found respondent cinema operator violated section 171 of CGST Act by not passing GST rate reduction benefit to customers. When GST on movie tickets (100 or less) reduced from 18% to 12% effective 01.01.2019, respondent maintained same selling prices while increasing base prices, resulting in profiteering of 1,31,754. NAPA directed respondent to reduce ticket prices commensurately and deposit profiteered amount with 18% interest in equal parts to Central and State Consumer Welfare Funds. No penalty imposed as specific penalty provisions under section 171(3A) came into force only from 01.01.2020, making retrospective application impermissible.

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Issues Involved:
1. Allegation of profiteering by the Respondent.
2. Investigation process by the DGAP.
3. Determination of profiteering and quantification.
4. Compliance with Section 171 of the CGST Act, 2017.
5. Directions for depositing the profiteered amount.

Issue-wise Detailed Analysis:

1. Allegation of Profiteering by the Respondent:
The primary issue was the allegation that the Respondent did not pass on the benefit of the GST rate reduction from 18% to 12% on "Services by way of admission to exhibition of cinematography films where the price of admission ticket was one hundred rupees or less" effective from 01.01.2019. Instead, the Respondent increased the base prices of the tickets to maintain the same cum-tax selling prices as in the pre-rate reduction period.

2. Investigation Process by the DGAP:
The DGAP conducted a detailed investigation under Rule 129 of the CGST Rules, 2017, based on an application filed by Applicant No. 1. The investigation covered the period from 01.01.2019 to 30.09.2019. Despite multiple notices and summons, the Respondent did not submit the requisite records/documents. The jurisdictional GST office provided month-wise details of outward taxable supplies, category-wise price lists, sample tickets, and GSTR-1 and GSTR-3B returns.

3. Determination of Profiteering and Quantification:
The DGAP observed that the Respondent maintained the same cum-tax prices for all categories of tickets (Balcony- Rs. 70, 1st Class- Rs. 50 & Third Class- Rs. 10) after the GST rate reduction, resulting in profiteering. The methodology adopted to compute profiteering was in 'lump sum' due to the Respondent not maintaining class/category-wise details. The total profiteering amount was determined to be Rs. 1,31,754/- for the period from January 2019 to September 2019.

4. Compliance with Section 171 of the CGST Act, 2017:
Section 171 mandates that any reduction in the rate of tax on any supply of goods or services should be passed on to the recipient by way of commensurate reduction in prices. The Respondent's failure to reduce the base prices of the tickets despite the GST rate reduction was a clear contravention of this provision. The Respondent's argument that there was no variation in his price list before and after the GST rate reduction was not accepted as it was an admission of the charges framed.

5. Directions for Depositing the Profiteered Amount:
The Authority directed the Respondent to deposit the profiteered amount of Rs. 1,31,754/- along with interest at 18% from the date of collection till the date of deposit. The amount was to be deposited in two equal parts in the Central Consumer Welfare Fund (CWF) and the Telangana State CWF within three months from the date of receipt of the Order. The Commissioners of CGST/SGST Telangana were directed to monitor the compliance of this Order under the supervision of the DGAP.

Conclusion:
The Respondent was found to have contravened Section 171 of the CGST Act, 2017, by not passing on the benefit of the GST rate reduction to the recipients. The total profiteering amount of Rs. 1,31,754/- was determined, and the Respondent was directed to deposit this amount along with interest in the respective Consumer Welfare Funds. The Order was passed within the limitation period prescribed under Rule 133(1) of the CGST Rules, 2017, considering the exclusion of the period from 15.03.2020 to 28.02.2022 due to the COVID-19 pandemic as per the Hon'ble Supreme Court's directions.

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