Cinema operator penalized for not passing GST rate reduction benefits to customers violating Section 171

Sh. Hrushrxesh, Director General of Anti-Profiteering, Central Board of Indirect Taxes And Customs Versus Asian Radhika Multiplex.

Sh. Hrushrxesh, Director General of Anti-Profiteering, Central Board of Indirect Taxes And Customs Versus Asian Radhika Multiplex. - TMI Issues Involved:
1. Allegation of not passing GST rate reduction benefits.
2. Computation methodology for profiteering.
3. Scope of investigation beyond the initial application.
4. Legal interpretation of Section 171 of the CGST Act.
5. Procedural fairness and natural justice.
6. Impact of increased operational costs on profiteering assessment.
7. Requirement of judicial members in the authority's constitution.
8. Inclusion of GST in profiteering amount.

Detailed Analysis:

1. Allegation of Not Passing GST Rate Reduction Benefits:
The case began with an application alleging that the Respondent did not pass on the benefit of GST rate reduction on movie admission tickets from 28% to 18% effective from 01.01.2019. The DGAP’s investigation revealed that the Respondent increased the base price of tickets to maintain the same cum-tax price, thereby not passing the benefit to consumers, contravening Section 171 of the CGST Act, 2017.

2. Computation Methodology for Profiteering:
The DGAP computed the profiteering amount based on the difference between the increased base price and the commensurate base price post-GST reduction. The total profiteering amount was determined to be Rs. 88,67,790/-. The Respondent argued that the computation should consider only movies running during the GST rate change period and that increased operational costs should be factored in. However, the Commission held that the benefit of GST rate reduction must be passed on to all consumers uniformly, irrespective of individual movie pricing or operational cost increases.

3. Scope of Investigation Beyond the Initial Application:
The Respondent contended that the investigation should not extend beyond the initial application filed by Applicant No. 1. However, the Commission clarified that Section 171(2) of the CGST Act empowers it to examine all supplies made by a registered person to ensure the benefit of tax reduction is passed on to all recipients, not just the complainant.

4. Legal Interpretation of Section 171 of the CGST Act:
The Respondent argued that the term 'commensurate reduction' should consider all pricing factors and that the term 'profiteering' was not defined in the Act. The Commission maintained that Section 171 clearly mandates passing on the benefit of tax reduction to consumers by reducing prices proportionately. The term 'commensurate' implies that the benefit must be reflected in the price reduction corresponding to the tax rate reduction.

5. Procedural Fairness and Natural Justice:
The Respondent claimed that the proceedings violated principles of natural justice as no show cause notice was issued before the investigation. The Commission found that the DGAP followed due process as per Rule 129(6) of the CGST Rules, 2017, and the Respondent was given ample opportunity to respond to the DGAP’s findings.

6. Impact of Increased Operational Costs on Profiteering Assessment:
The Respondent highlighted increased rent and the prohibition on collecting parking fees as factors not considered in the profiteering calculation. The Commission held that these operational cost increases do not justify not passing on the GST rate reduction benefits, as the primary consideration is the base price of tickets.

7. Requirement of Judicial Members in the Authority's Constitution:
The Respondent argued that the absence of judicial members in the NAA violates the Constitution. The Commission referenced various judgments to assert that quasi-judicial bodies like the NAA do not require judicial members and that its orders are subject to judicial review, ensuring adherence to natural justice principles.

8. Inclusion of GST in Profiteering Amount:
The Respondent contested the inclusion of GST in the profiteering amount. The Commission clarified that the Respondent collected excess GST from consumers due to inflated base prices, which contravenes Section 171(1) of the CGST Act. Therefore, the GST component was rightly included in the profiteering amount.

Conclusion:
The Commission concluded that the Respondent profiteered by not passing on the GST rate reduction benefit, amounting to Rs. 88,67,790/-. The Respondent is directed to deposit this amount along with interest into the Central and Telangana State Consumer Welfare Funds. Additionally, the Respondent is liable for penalties for contravening Section 171(1) of the CGST Act. The Commissioners of CGST/SGST Telangana are tasked with ensuring compliance with this order.