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of <h1>Distributor held liable under s.171 CGST for not passing GST rate cut; ordered to deposit Rs.3,31,879 under s.57</h1> <h3>Director General of Anti-Profiteering, Central Board of Indirect Taxes & Customs Versus M/s. Raj & Company.</h3> Director General of Anti-Profiteering, Central Board of Indirect Taxes & Customs Versus M/s. Raj & Company. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the respondent (a distributor) profiteered by failing to pass on the benefit of reduction in GST rate from 28% to 18% for specified cosmetic products during the period 01.04.2018 to 31.12.2018, in contravention of Section 171 of the CGST Act, 2017. 2. Whether the amount of profiteering calculated against the respondent duplicates or is subsumed by profiteering already calculated/confirmed against the manufacturer, such that separate liability against the distributor must be negated or adjusted. 3. Whether the distributor's reliance on manufacturer-controlled billing software and on asserted lack of control over base prices/MRPs absolves the distributor from the obligation to pass on the benefit of tax-rate reduction under Section 171. 4. Relief and quantification: if profiteering is established, whether and to what extent the respondent must deposit the calculated amount with interest into the consumer welfare fund, and the procedural requirement for compliance reporting. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether the distributor profiteered by not passing on GST rate reduction (01.04.2018-31.12.2018) Legal framework: Section 171(1) CGST Act imposes an obligation on suppliers to pass on any reduction in the rate of tax (or benefit of ITC) to recipients by way of commensurate reduction in prices; Section 171(2) and Rule 133 CGST Rules deal with calculation and consequences; Rule 129/133 regulate DGAP investigations and re-investigation. Precedent treatment: The Tribunal relied on the principle as explained by the Delhi High Court in Reckitt Benckiser (considered and applied). That decision holds the presumption that tax reduction should lead to commensurate price reduction is rebuttable but requires cogent evidence to offset it; NAA's role is to ensure passing-on of tax benefit and not to adjudicate commercial reasons unless convincingly demonstrated by supplier. Interpretation and reasoning: DGAP compared pre-rate-reduction average base prices with post-reduction actual base sale prices for goods supplied by the distributor during the investigation period and found base prices increased post-reduction, resulting in no commensurate cum-tax price reduction to consumers. Illustrative calculations for specific SKU (LP HEX 6 OIL Shampoo 360 ml) demonstrated excess per-unit amount charged and aggregate profiteering. The Tribunal accepted that the distributor's unit sale prices remained unchanged and that the reduction in GST rate was undisputed. The Tribunal applied the rebuttable-presumption doctrine: in absence of cogent, unambiguous evidence justifying offsetting commercial factors, the initial presumption of non-passing of benefit stands. Ratio vs. Obiter: Ratio - where a supplier's base prices increase post-rate-reduction and no cogent evidence justifies offsetting commercial factors, the supplier is obliged to pass on the tax-rate benefit and may be held to have profiteered; application of comparison methodology (pre-rate average base price v. post-rate actual base price) is an acceptable method for quantification when one-to-one correlation of purchases and supplies is infeasible. Obiter - general remarks on market/commercial factors available to suppliers, reiterating limits from precedent. Conclusion: The Tribunal held that the distributor did not rebut the presumption and was guilty of not passing the benefit; quantified profiteering for the period 01.04.2018-31.12.2018 as Rs. 3,31,879/-, directing deposit with interest at 18% into the consumer welfare fund. Issue 2: Whether profiteering against distributor duplicates amount confirmed against the manufacturer Legal framework: Anti-profiteering liability is supplier-specific under Section 171; Rule 133(4) permits re-investigation where duplication risk exists; DGAP and the Authority must avoid double recovery for the same end-consumer benefit. Precedent treatment: The earlier NAA interim direction referred the matter for re-investigation to ensure no duplication with the larger manufacturer case. The Tribunal considered DGAP's re-investigation report and analysis of apportionment issues. Interpretation and reasoning: DGAP demonstrated that (a) profiteering calculations for the distributor were independently derived from the distributor's own sales data for goods sold during the investigation period; (b) profiteering apportioned to the distributor in the manufacturer's investigation covered different datasets (goods purchased by distributor), and a one-to-one mapping between purchases from manufacturer and distributor's supplies is not possible; (c) therefore, duplication or double-confirmation could not be established. DGAP quantified that the manufacturer's apportioned amount for April-December 2018 differed from the distributor's independently calculated amount because of differing bases and sale/purchase timing mismatches. Ratio vs. Obiter: Ratio - where independent investigations use distinct datasets and no reliable one-to-one correlation exists between manufacturer's confirmed profiteering and distributor's supplies, the distributor's separate liability may stand without constituting duplication. Obiter - practical difficulties in tracing goods along the chain and descriptive invoice differences are noted but not dispositive. Conclusion: The Tribunal accepted DGAP's reasoning that duplication could not be established materially and that separate profiteering quantified against the distributor did not amount to double recovery; thus the distributor's liability remained valid for the amounts calculated. Issue 3: Whether reliance on manufacturer-controlled billing software and contractual terms absolves the distributor Legal framework: Section 171 imposes supplier-level obligation. Distribution agreements and billing arrangements may inform control but do not displace statutory duty to pass on tax benefits. Precedent treatment: The Tribunal relied on the earlier NAA finding (and its non-challenge) and on the Reckitt dicta that suppliers are free to set base prices but must pass on benefits of tax reduction unless cogent justification for offsetting is shown. Interpretation and reasoning: The distributor argued that use of manufacturer software ('Suvidha') and manufacturer-set MRPs prevented him from passing on the rate reduction. DGAP and the Tribunal rejected this defence: use of proprietary software is a choice of the distributor and alternative billing mechanisms exist; the distribution agreement expressly permits the distributor to vary selling price and offer discounts below MRP at its sole discretion; previous NAA order had already rejected the software/control contention and was not challenged. The Tribunal held that contractual clauses (7.1 & 7.6) confirm distributor discretion to sell below MRP and to offer discounts - therefore the distributor cannot shift statutory obligation to the manufacturer. Ratio vs. Obiter: Ratio - contractual or software arrangements that permit distributor discretion in pricing do not absolve the distributor of the statutory duty under Section 171; absence of a challenge to prior adverse findings weakens any subsequent reliance on the same defence. Obiter - commentary that suppliers could raise cogent evidence of genuine commercial reasons to rebut presumption if available. Conclusion: The defence based on manufacturer control/software and MRPs failed; distributor remained liable to pass on benefit and to deposit the determined amount. Issue 4: Relief, quantification, interest, and compliance procedure Legal framework: Section 171 consequences include deposit of profiteered amount and interest; procedural directions for recovery/reporting are available under CGST Rules. Interpretation and reasoning: Having upheld DGAP's quantification methodology and findings, the Tribunal directed payment of Rs. 3,31,879/- plus interest at 18% p.a. for the period of collection (01.04.2018-31.12.2018) into the consumer welfare fund maintained under Section 57 CGST Act, within three months, failing which the amount shall be recovered by the jurisdictional CGST/SGST Commissioner. A compliance report is to be submitted by the concerned Commissioner within four months. Ratio vs. Obiter: Ratio - where profiteering is established and no effective rebuttal exists, the supplier shall deposit the quantified amount with interest into the consumer welfare fund and comply with reporting timelines; recovery mechanisms apply if payment is not made. Obiter - none beyond procedural instructions. Conclusion: The Tribunal ordered deposit of Rs. 3,31,879/- with 18% interest into the consumer welfare fund within three months and directed compliance reporting within four months; recovery mechanisms to be invoked if non-compliant.
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