Cinema operator held liable for profiteering by not passing GST rate reduction benefits to consumers

CCI held that a cinema operator engaged in profiteering by not passing on GST rate reduction benefits (28% to 18%) on movie tickets above Rs. 100 from January to April 2019. The operator profiteered Rs. 54,44,642 and was directed to deposit this amount with 18% interest in equal parts to Central and Telangana State Consumer Welfare Funds. The operator must reduce future ticket prices to pass on tax benefits to consumers. No penalty was imposed as the relevant penal provision was not in effect during the violation period.

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Issues Involved:
1. Whether the GST rate on "Services by way of admission to exhibition of cinematograph films" was reduced from 28% to 18% and from 18% to 12% w.e.f. 01.01.2019.
2. Whether the benefit of such reduction in the rate of GST was passed on by the Respondent to the recipients in terms of Section 171 of the CGST Act, 2017.
3. Whether the Applicant has the locus standi to file the application alleging profiteering by the Respondent.
4. Whether the Respondent abided by the provisions of Section 171 in passing on the benefit of rate reduction to the recipients.
5. Whether the price of movie tickets being market-driven can justify the increase in base prices.
6. Whether the Respondent's financial losses justify the increase in base prices.
7. Whether the calculation of profiteered amount by the DGAP was correct.
8. Whether the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) affects the proceedings.

Issue-wise Detailed Analysis:

1. Reduction in GST Rate:
The GST rate on "Services by way of admission to exhibition of cinematograph films" was reduced from 28% to 18% for tickets priced above one hundred rupees and from 18% to 12% for tickets priced at one hundred rupees or less w.e.f. 01.01.2019, as per Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018. This reduction required the Respondent to pass on the benefit to the recipients by reducing the prices accordingly.

2. Passing on the Benefit of GST Reduction:
The investigation revealed that the Respondent did not reduce the selling price commensurately for the movie tickets when the GST rate was reduced. Instead, the Respondent increased the base price of the tickets, thereby maintaining the same cum-tax selling price. This practice resulted in profiteering, as the benefit of the GST rate reduction was not passed on to the recipients in terms of Section 171 of the CGST Act, 2017.

3. Locus Standi of the Applicant:
The Commission held that the Applicant has the locus standi to file the application alleging profiteering. Under Rule 129(2) of the CGST Rules, the DGAP is required to investigate a complaint filed by an interested party/person to ascertain whether the benefit of tax reduction or ITC has been passed on to the recipients. The DGAP is legally bound to investigate and bring the facts before the Commission for determination of those benefits to the eligible recipients.

4. Compliance with Section 171:
The Respondent contended that they had complied with Section 171 by reducing the tax rate from 28% to 18%. However, the investigation concluded that the Respondent increased the base price of the tickets, thus not passing on the benefit of the tax reduction to the recipients. The Commission found that the Respondent had profiteered by not reducing the selling price commensurately, despite the reduction in the GST rate.

5. Market-driven Prices:
The Respondent argued that the price of movie tickets is market-driven and controlled dynamically based on various factors. The Commission found that the profiteering was determined by comparing average selling prices for each unique combination of factors before and after the GST rate reduction. The Respondent did not reduce the selling price commensurately, resulting in profiteering.

6. Financial Losses:
The Respondent claimed that financial losses justified the increase in base prices. The Commission held that financial losses cannot form the basis for not passing on the benefit of the GST rate reduction. The Respondent admitted to increasing the base price of movie tickets, thereby not passing on the benefit of rate reduction to the ticket buyers, contravening Section 171 of the Act.

7. Calculation of Profiteered Amount:
The Respondent contended that the DGAP erred in calculating the profiteered amount by considering all films screened with different screening timings, costs, and other factors at the same level. The Commission found that the DGAP's methodology of comparing average selling prices for each unique combination of factors was appropriate. The total profiteered amount was determined to be Rs. 54,44,642/-.

8. Moratorium under IBC:
The Respondent stated that a moratorium on proceedings was imposed by the NCLT order dated 14.07.2023. The Commission noted that Section 14 of the IBC provides for a moratorium on proceedings against the corporate debtor. However, the Commission held that there is no bar on initiating proceedings to assess the amount payable by the Respondent for violation of Section 171(1) of the CGST Act, 2017. The proceedings to recover any amount from the Respondent cannot be initiated due to the moratorium.

Conclusion:
The Commission directed the Respondent to reduce the prices of cinema tickets, keeping in view the reduction in the rate of tax, and to deposit the profiteered amount of Rs. 54,44,642/- along with interest in the Central and Telangana State Consumer Welfare Funds. The Commission also directed the DGAP to file its claim in the matter for necessary recovery and realization due to the Respondent being under insolvency proceedings. The jurisdictional Commissioners of CGST/SGST Telangana were directed to monitor the Order under the supervision of the DGAP.

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