2022 (9) TMI 252 - NAPA - GST

GST profiteering found on Juvederm products as company failed to pass rate reduction benefit from 28% to 18% to customers

NAPA held that respondents contravened section 171 of CGST Act by not passing GST rate reduction benefit from 28% to 18% on three Juvederm products to ... Profiteering - supply of three products - Juvederm Voluma with Licodaine - Juvederm Ultra Plus XC - Juvederm Ultra - benefit of reduction in the GST rate from 28% to 18% was not passed on to the recipients, by way of commensurate reduction in the price - contravention of section 171 of CGST Act - HELD THAT:- Every recipient of goods or services is entitled to the benefit of tax rate reduction by way of reduced prices and Section 171 does not offer the Respondent to suo-moto decide on any other modality to pass on the benefit of reduction in the rate of tax to his recipients. Therefore, any benefit of tax rate reduction passed on to a particular recipient or customer cannot be appropriated or adjusted against the benefit of tax rate reduction due to another recipient or customer. Hence, this methodology of 'netting off' cannot be applied in the present case as the customers have to be considered as individual beneficiaries and they cannot be compared with netted off. This Authority has also clarified in its various orders that the benefit cannot be computed at the product, service or the entity level as the benefit has to be passed on each supply of goods and services. This Authority determines that the amount profiteered by the Respondent No. 1 and No. 2 is Rs. 61,54,833/- and Rs. 28,50,72,358/- respectively. The amount profiteered by the Respondent No. 2 is inclusive of the amount profiteered by the Respondent No. 1. Hence, the Respondent No. 2 is liable to pass on the profiteered amount of Rs. 61,54,833/- to the Respondent No. 1 and thus, the Respondent No. 1 is liable to pass on this benefit of rate reduction due to the Applicant No. 1 and the remaining amount in the Central and concerned State Consumer Welfare Fund. Further, since the recipients (other than the Respondent No. 1) of the benefit of rate reduction are not identifiable, the Respondent No. 2 is directed to deposit the remaining profiteered amount of Rs. 27,89,17,525/- in two equal parts in the Central Consumer Welfare Fund and the concerned State Consumer Welfare Fund as per the provisions of Rule 133 (3) (c) of the CGST Rules 2017, along with interest payable @ 18% to be calculated from the dates on which the above amount was realized by the Respondent No. 2 from his recipients till the date of its deposit as prescribed and in accordance with the provisions of Rule 133 (3)(b) of the CGST Rules, 2017. The above amount of Rs. 27,89,17,525/- shall be deposited, within a period of 3 months from the date of passing of this order failing which it shall be recovered by the concerned CGST/SGST Commissioners. Penalty - HELD THAT:- It is evident from the narration of facts that the Respondents have denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus resorted to profiteering. Hence, they have, committed an offence under section 171 (3A) of the CGST Act, 2017 and therefore, they are liable to penal action under the provisions of the above Section. However, since the provisions of Section 171 (3A) come have come into force w.e.f. 01.01.2020, whereas, the period during which violation has occurred is w.e.f 01.07.2017 to 30.09.2019, hence the penalty prescribed under the above Section cannot be imposed on the Respondents retrospectively. This Order having been passed today falls within the limitation prescribed under Rule 133(1) of the CGST Rules, 2017. Issues Involved:1. Violation of Section 171 of the CGST Act, 2017.2. Passing on the commensurate benefit of reduction in the rate of tax.3. Breach of principles of natural justice.4. Absence of methodology for determining profiteering.5. Validity of DGAP's investigation against Respondent No. 1.6. Impact of Maximum Retail Price (MRP) regulations.7. Consideration of credit notes for profiteering calculation.8. Inclusion of additional products in profiteering calculation.9. Calculation methodology for profiteering.Detailed Analysis:1. Violation of Section 171 of the CGST Act, 2017:The judgment establishes that both Respondent No. 1 and Respondent No. 2 committed a violation of Section 171 by not passing the benefit of GST rate reduction from 28% to 18% to the recipients. The DGAP's investigation revealed that the base prices of the products were increased post-GST rate reduction, thus not passing the benefit of the reduced tax rate to the consumers.2. Passing on the commensurate benefit of reduction in the rate of tax:The judgment emphasizes that any reduction in the rate of tax must be passed on to the recipients by way of commensurate reduction in prices. The DGAP's methodology of comparing pre-rate reduction average base prices with post-rate reduction actual base prices was upheld as reasonable and in line with Section 171.3. Breach of principles of natural justice:Respondent No. 2 argued that the DGAP did not provide a hearing, violating principles of natural justice. The judgment clarifies that the DGAP, being an investigating agency, is not required to provide a hearing. However, the Respondents were given sufficient opportunity to present their case before the Authority.4. Absence of methodology for determining profiteering:The Respondents argued that there was no specific methodology provided for determining profiteering. The judgment clarifies that the methodology and procedure for passing on benefits are outlined in Section 171(1). The term 'commensurate' provides the extent of benefit to be passed on and is a mathematical exercise based on the rate of tax reduction and base price.5. Validity of DGAP's investigation against Respondent No. 1:Respondent No. 1 contended that the DGAP had no authority to investigate against them. The judgment refutes this, stating that the DGAP's scrutiny of invoices showed that Respondent No. 1 increased the base prices post-GST rate reduction, justifying the investigation.6. Impact of Maximum Retail Price (MRP) regulations:Respondent No. 1 argued that they could not alter the MRP fixed by the manufacturer. The judgment clarifies that the issue was not about altering the MRP but about reducing the base price when the GST rate was reduced, which Respondent No. 1 failed to do.7. Consideration of credit notes for profiteering calculation:Respondent No. 2 claimed that they issued credit notes amounting to Rs. 20,29,50,239/- to pass on the benefit. The judgment states that this claim was not substantiated with verifiable evidence, and thus, the credit notes could not be considered for reducing the profiteered amount.8. Inclusion of additional products in profiteering calculation:Respondent No. 2 argued that the DGAP included products not mentioned in the original complaint. The judgment clarifies that the DGAP is mandated to investigate all products on which the rate of tax has been reduced, thereby justifying the inclusion of additional products.9. Calculation methodology for profiteering:The judgment supports the DGAP's methodology of comparing pre-rate reduction average base prices with post-rate reduction actual base prices. It rejects the Respondents' argument for netting off negative values, emphasizing that each customer is entitled to the benefit of tax reduction on each purchase.Conclusion:The judgment concludes that both Respondents violated Section 171 of the CGST Act by not passing on the benefit of tax reduction. The total profiteered amounts were determined as Rs. 61,54,833/- for Respondent No. 1 and Rs. 28,50,72,358/- for Respondent No. 2. The Respondents are directed to pass on the profiteered amounts to the respective recipients and deposit the remaining amounts in the Consumer Welfare Funds. The DGAP is also directed to investigate profiteering in relation to all products where the GST rate has been reduced.