2025 (9) TMI 531 - AT - GST

Hotel failed to pass GST rate cut for Oct 1, 2019-Jun 30, 2020; profiteering Rs. 31,28,631 under Section 171

GSTAT New Delhi (AT) found that a hotel accommodation service provider failed to pass on GST rate reduction for 01.10.2019-30.06.2020, attracting Section ... Profiteering - Hotel Accommodation Service Provider - failure to pass the benefit of reduction in the Rate of GST for the service provided, as per Notification No. 20/2019 (as tabulated below) dated 30.09.2019 with effect from 01.10.2019 for the period 01.10.2019 to 30.06.2020 - Section 171 of the Central Goods and Services Tax Act, 2017 - rebuttable presumptions - HELD THAT:- The Delhi High Court in the case of Reckitt Benckiser Pvt. Ltd. Vs. union of India and others [2024 (1) TMI 1248 - DELHI HIGH COURT], held that there is initial but rebuttable presumption that whenever there is a reduction in rate of GST, there should be a commensurate reduction of prices in the products i.e. goods or services, and if there is no reduction in price, there has been a profiteering by the Respondent. It is definitely rebuttable presumption but at the same time the supplier cannot use the expression of market dynamics or market forces as mere device to circumvent the statutory obligation of reducing pricing in a commensurate manner. In order to rebutt the presumption, it must establish by cogent basis, that is, by clear and unambiguous materials / evidences / documents that because of market forces the prices were increased. In this case we find no such cogent materials / evidences / documents to rebutt the presumption that is arising against the Respondent. The Learned Tax Professional appearing virtually appearing on behalf of the Respondent raised the issue that during covid-19 the rate of room rents were increased because of additional cost incurred by them for the requirement of additional cleanliness to combat the threat of corona virus. Such additional costs were included in the room rent - there is no such plea or submission made therein. It appears to us that the submissions made by the Respondent on this count for rising in prices because of the covid pandemic and to combat it, is rather a castle of air than a real substance. Moreover, it is a clear after thought and not supported by an iota of materials. It is already held in several cases that Section 171 of the CGST Act 2017 is in fact a benevolent provision though it may have some penal consequences. The Indian parliament in its wisdom thought it proper to ensure that any reduction in rates of GST and / on the benefit of the ITC should always be given to the ultimate consumer and for that a provision has been made for enforcing this benevolent principal of law. In that view of the matter, we are of the opinion that no restrictive and parochial interpretation is admissible in such cases - the Respondent has profiteered an amount of Rs. 31,28,631/- only and same is to be paid by the Respondent along with the interest at the rate of 18% per annum from the date of collection of higher amount i.e. 01.10.2019 till realisation of the amount to be deposited in Consumer welfare fund created by Centre and States equally. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether, in respect of a reduction in the rate of GST on hotel accommodation services effective 01.10.2019, the supplier failed to pass on the benefit of tax rate reduction to recipients by not effecting a commensurate reduction in prices and thereby committed 'profiteering' under Section 171 of the CGST Act for the period 01.10.2019 to 30.06.2020. 2. Whether the methodology adopted by the investigative authority-computing average pre-reduction base prices (over up to three months) for each distinct room-plan/occupancy channel and comparing transaction-wise post-reduction invoiced base prices against those averages-is lawful and appropriate for determining profiteering under Section 171. 3. Whether commercial/market dynamics (seasonality, demand fluctuations), cost increases (including alleged COVID-19 related hygiene costs), or other legitimate commercial reasons can rebut the statutory presumption of profiteering arising from non-reduction of prices after a tax rate cut. 4. Whether the findings of the investigative authority, including exclusion of non-comparable bills and transaction-wise computation of excess charged amounts, are supported by the record and justify an order for recovery with interest and deposit into consumer welfare fund. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Existence of profiteering where supplier did not reduce declared base prices after GST rate reduction Legal framework: Section 171(1) CGST Act mandates that any reduction in tax rate or benefit of input tax credit shall be passed on to recipients by way of commensurate reduction in prices. The statutory language applies 'on any supply' and 'to the recipients', supporting an entitlement of each recipient to his due benefit. Precedent treatment: The Court referenced the principle recognized by the Delhi High Court in Reckitt Benckiser (noting a rebuttable presumption that a reduction in GST rates ought to result in commensurate reduction of prices and absence of such reduction prima facie indicates profiteering). The decision is treated as persuasive authority endorsing the presumption and requirement of cogent evidence to rebut it. Interpretation and reasoning: The Tribunal read Section 171 as creating an initial presumption: when tax rate falls, the supplier must reduce the price commensurately. This presumption is rebuttable but requires cogent, contemporaneous documentary evidence to show legitimate reasons for higher base prices. Mere assertions of market dynamics or later-made justifications (after opportunity to present evidence) are insufficient. The Tribunal emphasised that the statutory mandate is benevolent-benefits conferred by the State must reach consumers-and cannot be circumvented by generalized commercial explanations without supporting materials. Ratio vs. Obiter: Ratio - the Tribunal applied Section 171 to hold that non-reduction of base prices after rate cut establishes prima facie profiteering; burden to rebut rests on supplier with cogent evidence. The reliance on Reckitt Benckiser as supporting authority forms part of the binding reasoning of the decision. Conclusion: The Tribunal concluded that the supplier profiteered, as prices remained unchanged or were increased in many transactions after 01.10.2019 and the respondent failed to produce cogent contemporaneous evidence to rebut the presumption of profiteering. Issue 2 - Legality and appropriateness of the DGAP's methodology (pre-reduction average vs transaction-wise post-reduction comparison) Legal framework: Section 171 requires passing on benefit 'by way of commensurate reduction in prices' on any supply. Calculation methodology must identify the commensurate price for each supply/recipient to determine shortfall. Precedent treatment: The investigative practice of using average pre-reduction base price (computed over up to three months immediately prior to rate reduction) per channel of supply, and comparing transaction-wise post-reduction invoiced base price against that benchmark, has been consistently adopted by the investigating authority and accepted by the Tribunal. The Tribunal relied on prior practice and judicial acceptance of transaction-wise assessment to prevent cross-subsidisation across recipients. Interpretation and reasoning: The Tribunal found the DGAP's methodology logically coherent and legally permissible because Section 171's phraseology contemplates transaction-wise benefit passing. Computing an average pre-reduction base price over a short, recent period stabilises pre-reduction reference prices against normal transaction variability and creates a reasonable benchmark. Post-reduction assessment must be transaction-wise since benefit accrues to each recipient individually and cannot be offset across other transactions. Ratio vs. Obiter: Ratio - the Tribunal endorses the transaction-wise comparison methodology and the use of a short pre-reduction averaging window (up to three months) as a valid and pragmatic method for quantifying profiteering under Section 171. Conclusion: The DGAP's methodology was held to be valid and the computations based on average pre-reduction base price compared with transaction-wise post-reduction invoices were appropriate for determining profiteering. Issue 3 - Admissibility of market dynamics, seasonal variations or COVID-related additional costs as a rebuttal to profiteering Legal framework: Burden lies on the supplier to rebut the presumption of profiteering with cogent, contemporaneous evidence showing that price changes were legitimately attributable to factors other than appropriation of tax benefit. Precedent treatment: The Tribunal recognized that market dynamics and genuine cost increases can, in principle, rebut the presumption if supported by clear documentary evidence. The Reckitt principle requires clear and unambiguous materials to establish legitimate causes for non-reduction or increase in base price. Interpretation and reasoning: The Tribunal examined the record and found no contemporaneous, cogent documentation demonstrating that price increases were driven by market forces or additional COVID-compliance costs. The COVID-related hygiene cost plea was raised late and without supporting materials; it was treated as an afterthought and rejected. Generalized claims that hotel pricing fluctuates or that prices were not 'increased' (because GST billed separately) do not satisfy the statutory requirement to pass on a commensurate reduction in price. Ratio vs. Obiter: Ratio - mere assertions of market dynamics or post-hoc cost explanations are insufficient; the supplier must produce clear documentary evidence to rebut the presumption. Obiter - recognition that genuine cost increases may rebut the presumption if properly substantiated. Conclusion: The respondent's commercial/seasonal and COVID-related contentions failed to rebut the presumption of profiteering for want of cogent evidence; therefore such contentions were rejected. Issue 4 - Exclusion of non-comparable transactions and computation of aggregate profiteering; remedies and directions Legal framework: Profit on each supply is to be assessed transaction-wise; only comparable transactions across pre- and post-reduction periods are to be used to measure excess charged; isolated or non-comparable bookings (e.g., bulk wedding bookings, unmatched plan types) may be excluded where there is no appropriate comparator. Precedent treatment: The Tribunal accepted the investigative authority's practice of excluding non-comparable bills where the booking circumstances were unique and no matching pre- or post-reduction transaction existed for the same category/plan/occupancy. Interpretation and reasoning: The DGAP identified and excluded specific invoices that were non-comparable (e.g., group/marriage bookings and transactions without pre-reduction counterparts) to avoid erroneous computation. For comparable transactions (1,890 invoices) the DGAP computed aggregate excess charged of Rs. 31,28,631 (excluding and then including applicable GST component per transaction as part of quantification). The Tribunal found the selection, exclusions and arithmetic computations supported by the record and consistent with Section 171's transaction-wise entitlement scheme. Ratio vs. Obiter: Ratio - the Tribunal approved exclusion of non-comparable transactions and upheld the aggregate computation methodology leading to quantified profiteering for recoverable relief; it further directed recovery with interest and deposit into the consumer welfare fund. Conclusion: The Tribunal affirmed the DGAP's computed profiteering amount of Rs. 31,28,631 for the specified period, ordered recovery with interest at 18% per annum from 01.10.2019 until realisation, and directed deposit into the Consumer Welfare Fund (Centre and States equally), with compliance reporting to the Tribunal within four months.