Cinema operator guilty of profiteering by not passing GST rate cuts to customers on movie tickets

NAPA held that a cinema operator engaged in profiteering by failing to pass on GST rate reductions on movie tickets effective January 1, 2019. The GST rate was reduced from 28% to 18% for tickets above Rs. 100 and from 18% to 12% for tickets Rs. 100 or below. The respondent increased base ticket prices instead of reducing selling prices commensurately, resulting in profiteering of Rs. 12,83,999 from January 2019 to April 2020. NAPA directed the respondent to reduce ticket prices, deposit the profiteered amount with 18% interest, and issued notice for penalty proceedings under Section 171(3A) of CGST Act, 2017.

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Issues Involved:
1. Allegation of profiteering by not passing on the benefit of GST rate reduction.
2. Examination of the Respondent's contention regarding ticket pricing fixed by the State Government.
3. Determination of profiteering and quantification.
4. Examination of the Respondent's claim regarding the 'Exceptional Category' tickets.
5. Consideration of the Respondent's argument about revenue sharing with distributors.
6. Imposition of penalty under Section 171(3A) of the CGST Act, 2017.

Detailed Analysis:

1. Allegation of Profiteering by Not Passing on the Benefit of GST Rate Reduction:
The DGAP received two applications alleging that the Respondent did not reduce the prices of cinema tickets despite a reduction in GST rates from 28% to 18% and 18% to 12% effective from 01.01.2019. Instead, the Respondent increased the base prices to maintain the same cum-tax selling prices of the admission tickets.

2. Examination of the Respondent's Contention Regarding Ticket Pricing Fixed by the State Government:
The Respondent argued that the prices of cinema tickets were fixed by the Government of Telangana and could not be altered irrespective of tax rates. However, the DGAP found that the Respondent was free to sell tickets at lower prices in the event of a tax reduction. The State Government only fixed the maximum rate, and the Respondent was required to pass on the benefit of tax reduction to consumers.

3. Determination of Profiteering and Quantification:
The DGAP's investigation revealed that the Respondent increased the base prices of tickets post-GST rate reduction, thereby not passing on the benefit to consumers. The total profiteered amount was calculated as Rs. 97,02,945/- for the period from 01.01.2019 to 30.04.2020. The Respondent admitted liability for the 'Regular Category' seats but contested the 'Exceptional Category' tickets.

4. Examination of the Respondent's Claim Regarding the 'Exceptional Category' Tickets:
The Respondent argued that the 'Exceptional Category' did not exist before 01.01.2019, and the ticket prices were fixed considering the prevailing GST rate of 18%. The DGAP found that the Respondent did not provide sufficient evidence to support this claim. The matter relating to the 'Exceptional Category' needs to be re-investigated by the DGAP.

5. Consideration of the Respondent's Argument About Revenue Sharing with Distributors:
The Respondent contended that 49.65% of the revenue from ticket sales pertained to distributors. However, the DGAP found that the responsibility to comply with Section 171 of the CGST Act, 2017, lay with the Respondent, and the argument was rejected.

6. Imposition of Penalty Under Section 171(3A) of the CGST Act, 2017:
The Respondent argued that no penalty should be imposed as the issue arose from a bona fide understanding of the law. However, the Authority found that the Respondent had denied the benefit of rate reduction to customers, thereby committing an offence under Section 171(3A) of the CGST Act, 2017. The Respondent is liable for a penalty for the profiteered amount determined for the period from 01.01.2020 to 30.04.2020.

Orders:
1. The Respondent is directed to reduce the prices of regular category tickets as per the provisions of Rule 133(3)(a) of the CGST Rules, 2017.
2. The Respondent is to deposit the profiteered amount of Rs. 12,83,999/- along with interest at 18% from the date of collection till the deposit date.
3. The Respondent is to refund Rs. 11.73/- each to Applicant Nos. 1 & 2 with interest at 18%.
4. The remaining profiteered amount is to be deposited in the Central Consumer Welfare Fund (CWF) and Telangana State CWF.
5. The DGAP is directed to re-investigate the matter relating to the 'Exceptional Category' admission tickets.
6. The jurisdictional Commissioners of CGST/SGST Telangana are to monitor the compliance of this Order.

Conclusion:
The Authority found that the Respondent engaged in profiteering by not passing on the benefit of GST rate reduction to consumers for regular category tickets and directed appropriate actions including refunds, deposits, and re-investigation for the 'Exceptional Category' tickets.

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