Retailer penalized for not passing GST exemption benefits on sanitary napkins, violating Section 171 CGST Act

NAPA determined that Respondent profiteered Rs. 2,096 by failing to pass on GST exemption benefits on sanitary napkins from July 2018 to October 2020, violating Section 171 of CGST Act. Respondent directed to deposit Rs. 2,094 in equal parts to Central and State Consumer Welfare Funds with 18% interest, and pass Rs. 1.78 plus interest to Applicant. Authority found contravention of Section 171(1) and ordered penalty notice under Section 171(3A) for the violation period.

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Issues Involved:
1. Whether the GST on sanitary napkins was exempted w.e.f. 27.07.2018.
2. Whether the benefit of such GST exemption was passed on by the Respondent to the recipients.
3. Determination and quantification of profiteering by the Respondent.
4. Compliance with Section 171 of the CGST Act, 2017.
5. Imposition of penalty under Section 171(3A) of the CGST Act, 2017.

Issue-wise Detailed Analysis:

1. GST Exemption on Sanitary Napkins:
The Central Government, on the recommendation of the GST Council, exempted GST on sanitary napkins w.e.f. 27.07.2018, as per Notification No. 19/2018 Central Tax (Rate) dated 26.07.2018.

2. Passing on the Benefit of GST Exemption:
Section 171(1) of the CGST Act, 2017 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 investigation revealed that the Respondent did not pass on the benefit of GST exemption to the recipients. Instead, the Respondent increased the base prices of sanitary napkins post-GST exemption, thereby not reducing the final price payable by the consumers.

3. Determination and Quantification of Profiteering:
The investigation covered the period from 27.07.2018 to 31.10.2020. The Respondent's sales data indicated that the profit margin on sanitary napkins increased post-GST exemption. For instance, the Respondent sold "Stayfree Advanced XL 1*14" at Rs. 155/- per unit (inclusive of 12% GST) even after the GST rate was reduced to NIL. The commensurate price should have been Rs. 153.22/-. The total profiteering amount for the closing stock of 2 units was Rs. 3.56/-. For fresh stock, the total profiteering amount was Rs. 2,092.02/-, making the total profiteering amount Rs. 2,095.58/-.

4. Compliance with Section 171 of the CGST Act, 2017:
The Respondent was found to have contravened Section 171(1) by not passing on the benefit of GST exemption. The Respondent agreed to deposit the profiteered amount of Rs. 2,095.58/- with the Government Exchequer, as the details of the customers to whom the benefit was to be passed were not available.

5. Imposition of Penalty under Section 171(3A) of the CGST Act, 2017:
The Respondent committed an offence under Section 171(3A) of the CGST Act, 2017, which became operational w.e.f. 01.01.2020. As the investigation period was from 27.07.2018 to 31.10.2020, the Respondent is liable for imposition of penalty. A notice was issued to the Respondent to explain why the penalty should not be imposed.

Order:
The Authority concurred with the DGAP report and determined that the Respondent profiteered by Rs. 2,095.58/-. The Respondent was directed to deposit Rs. 2,094/- in two equal parts of Rs. 1,047/- each in the Central Consumer Welfare Fund and the Uttar Pradesh Consumer Welfare Fund, along with interest @ 18%. The Respondent was also directed to pass on the benefit of Rs. 1.78/- along with interest @ 18% to the Applicant. The concerned jurisdictional CGST/SGST Commissioner was directed to ensure compliance with this order. The Authority also noted the extension of limitation periods by the Hon'ble Supreme Court due to the COVID-19 pandemic.

Conclusion:
The Respondent was found guilty of not passing on the benefit of GST exemption on sanitary napkins to the recipients, thereby contravening Section 171(1) of the CGST Act, 2017. The total profiteering amount was determined to be Rs. 2,095.58/-, and the Respondent was directed to deposit the amount with the appropriate authorities and pass on the benefit to the Applicant. The Respondent is also liable for a penalty under Section 171(3A) of the CGST Act, 2017.

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