Cinema operator profiteered Rs 4.65 lakh by not passing GST rate cuts on movie tickets to customers

CCI held that the respondent cinema operator engaged in profiteering by failing to pass on GST rate reductions on movie tickets (from 28% to 18% for tickets above Rs. 100 and 18% to 12% for tickets below Rs. 100) effective January 1, 2019. The respondent profiteered Rs. 4,65,549 by maintaining selling prices despite tax reductions. CCI ordered the respondent to reduce ticket prices, deposit the profiteered amount with 18% interest in equal parts to Central and Telangana State Consumer Welfare Funds within three months, and directed CGST/SGST Commissioners to monitor compliance. No penalty was imposed as the relevant provision was not operative during the violation period.

---

---

Issues Involved:
1. Allegation of non-passing GST rate reduction benefit.
2. Examination of the Respondent's submissions.
3. Calculation of profiteering amount.
4. Legal implications and compliance.

Detailed Analysis:

1. Allegation of Non-Passing GST Rate Reduction Benefit:

The applicant alleged that the Respondent did not pass on the benefit of reduction in the GST rate on "Services by way of admission to exhibition of cinematograph films where price of admission ticket is one hundred rupees or less" from 18% to 12% w.e.f. 01.01.2019. Instead, the Respondent increased the base price to maintain the same tax-cum-selling price of the admission tickets. The DGAP conducted an investigation to determine whether the benefit of GST rate reduction was passed on by the Respondent to the recipients by way of commensurate reduction in price, in terms of Section 171 of the Central Goods and Services Tax Act, 2017.

2. Examination of the Respondent's Submissions:

The Respondent contended that the rate of admission tickets in Telangana is fixed by the Licensing Authority and that the theatre owner has no independent right to alter rates without permission. The Respondent obtained permission for enhanced rates in January and May 2019. The Respondent also argued that no benefit accrued to the theatre from the tax rate change, and that the government was directly receiving the revenue. The DGAP clarified that the legal requirement under Section 171 (1) of the CGST Act, 2017, mandates a commensurate reduction in prices in the event of a tax rate reduction.

3. Calculation of Profiteering Amount:

The DGAP found that the Respondent increased the base prices of the tickets when the GST rate was reduced. The investigation revealed that the benefit of GST rate reduction was not passed on to the recipients. The DGAP calculated the total profiteering amount as Rs. 24,25,630/-. However, after considering the Respondent's submissions, the DGAP re-calculated the profiteering amount to Rs. 4,65,549/-. This amount included both the profiteered amount and GST on the said profiteered amount.

4. Legal Implications and Compliance:

The Commission found that the Respondent had contravened Section 171 (1) of the CGST Act, 2017, by not passing on the benefit of GST rate reduction to the recipients. The Commission directed the Respondent to deposit the profiteered amount of Rs. 4,65,549/- along with interest to be calculated @ 18% from the date of collection till the deposit date. Since the recipients are not identifiable, the amount is to be deposited in the Central and Telangana State Consumer Welfare Funds. The Commission also noted that the penalty under Section 171 (3A) could not be imposed retrospectively for the period in question. Compliance with this order is to be monitored by the jurisdictional Commissioners of CGST/SGST, Telangana, under the supervision of the DGAP, with a compliance report to be submitted within four months.

---