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 recipients. Authority rejected netting off methodology, ruling each customer must receive individual benefit. Respondent No. 2 liable for Rs. 28,50,72,358 profiteering, must pass Rs. 61,54,833 to Respondent No. 1 and deposit remaining Rs. 27,89,17,525 in Consumer Welfare Funds with 18% interest. Penalty provisions under section 171(3A) not applicable retrospectively as violation occurred before provision's effective date.

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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.

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