2025 (9) TMI 1045 - AT - GST

Authority upholds finding that respondent profiteered Rs 16,50,166 by not passing GST reduction on cinema tickets; ordered deposit

GSTAT, New Delhi - AT upheld the DGAP finding that the respondent profiteered Rs.16,50,166 by not passing on the GST rate reduction on cinema tickets ... Profiteering - not passing on the reduction of rates of GST, on cinema tickets for exhibition of cinematography films, to the consumers - role of market dynamics and factors not in the control of the Respondent which is led to a denial of commensurate reduction of prices to the ultimate consumer - levy of interest as per the amended clause (c) of Sub Rule 3 of Rule 133 of CGST Rules, 2017 is retrospective in effect or prospective in effect - HELD THAT:- The Legal Maxim, “NOVA CONSTITUTIO FUTURIS FORRNAM IMPONERE DEBET NON PRAETERITIS”, means a new law ought to regulate what to follow, not the past, and such presumption operate unless shown to the contrary by express provision in the Statute or otherwise discernable by necessary implication in Monnet ISPAT and Energy Ltd., vs UOI, [2012 (7) TMI 1097 - SUPREME COURT] wherein the Supreme Court has held that there is no indication in Section 17/A of mines and minerals (Developments and Regulation) Act, 1957 or the amending act of 1987, which inserted Section 17/A that Parliament intended to undo the State of Affairs prior of 1987 by virtue of the same. Therefore, by applying the presumption prospectivity the Supreme Court held that the Provision was effective from 1987 and has no retrospective operation. Taking the legal question from the different angle the courts in India as well as in United Kingdom has always held that whenever any Act or enactment effects any vested rights or impede a new burden on a person or impose existing application on one person against another person or class of person or society in general, then unless a contrary is provided in the statute itself by express provision or is clearly decipherable by necessary implication then such law effecting substantive right shall have prospective operation. The facts are not disputed in this case and GST Act came into force 01.07.2017 and reduction of rate was with effect from 01.01.2019. The period under investigation by the DGAP is between 01.01.2019 to 30.06.2019. If it is taken as a time continuum, the effective date of the aforesaid clause enabling the Authority to impose 18% on the profiteered amount falls on 28.09.2019. So out this period, period, i.e., between 01.01.2019 to 30.06.2019, 3 days viz., 28.06.2019, 29.06.2019 and 30.06.2019 comes under the purview of the provision which empowers the Authority to impose 18% interest on the profiteered amount - since it is a continuing and recurring cause of action, cause of action being violation of sub-section (1) of Section 171 of the CGST Act, by the Respondent, the profiteered amount for the entire period, should be subjected to 18% interest. The other argument is that this Authority do not have the jurisdiction impose interest on the profiteered amount for the period that falls prior to 18.06.2019. We are of the considered opinion that, the interest of 18% has to be applicable for 3 days i.e. 28.06.2019, 29.06.2019 and 30.06.2019 and accordingly order should be passed. The report of the DGAP is accepted and it is held that the Respondent has profiteered a sum of Rs. 16,50,166/- only by not passing on the benefit of reduction of the rates of GST on tickets sold for admittance in to the Theatre for exhibition of cinematography films to the consumers. Therefore, it is directed that the Respondent shall deposit an amount of Rs. 16,50,166/- only along with the interest at the rate 18 % on Rs. 27,350.817 [Rs. 16,50,166/ = only divided by 181 (one eight one), multiplied by 3 (three)] rounded off to Rs. 27,350/- calculated from 01.01.2019, with annual rests. The amount shall be divided into parts two parts, half of it along with interest as calculated above is to be deposited in the Consumer Welfare Fund(s) created by Centre. The rest will be deposited in the Consumer Welfare Fund(s) created by State of Telangana within one month. If the Telangana Consumer welfare fund has not been created yet then, half of the portion to be deposited by the Respondent in the in the Consumer Welfare Fund (s) created by the centre instead. ISSUES PRESENTED AND CONSIDERED 1. Whether the supplier of cinema exhibition services profiteered by not passing on commensurate reduction in ticket prices consequent to reduction in GST rates for the period 01.01.2019 to 30.06.2019. 2. Whether state legislation, government orders and a High Court direction fixing maximum ticket prices and permitting notification of proposed fares absolve a supplier from liability under Section 171 of the CGST Act for not reducing prices commensurately. 3. Whether market dynamics, cost increases or other commercial factors justify a supplier's failure to pass on the benefit of reduced tax rates to consumers under Section 171. 4. Whether the power to direct payment of interest at 18% under amended clause (c) of sub-rule (3) of Rule 133 CGST Rules (inserted by Notification No.31/2019 dated 28.06.2019) is retrospective or prospective and, if prospective, from which date it applies. 5. The appropriate remedial order under Section 171 and allied rules once profiteering is established (quantification and disposition of amounts and interest). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Profiteering by non-passage of tax reduction Legal framework: Section 171(1) CGST Act requires that any reduction in rate of tax or benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. Precedent treatment: The Tribunal relied on authoritative interpretation that Section 171 creates a rebuttable presumption in favour of passing on benefit and that suppliers may set base prices subject to genuine commercial justification; the Delhi High Court decision in Reckitt Benckiser (cited in the judgment) is treated as reinforcing that suppliers must justify any variance from commensurate reduction. Interpretation and reasoning: The DGAP's calculation method (Tables A and B) converting pre- and post-rate figures into base prices and computing excess base price and corresponding excess tax was undisputed by the supplier. The supplier admitted in written submissions an intention to realize additional profit by keeping consumer prices constant despite tax reduction. Admission is treated as substantive evidence; no material was produced to rebut or explain the increase in base price. Ratio vs. Obiter: Ratio - where (i) tax rate reduction is undisputed, (ii) supplier does not dispute the computation showing increased base prices post-reduction, and (iii) supplier admits profit-seeking conduct without cogent justification, profiteering under Section 171 is established. Conclusion: The Tribunal accepts the DGAP report and holds that profiteering of Rs.16,50,166 was made for the period 01.01.2019-30.06.2019 by not passing on the benefit of GST rate reduction. Issue 2 - Effect of State law, Government orders and High Court direction on liability under Section 171 Legal framework: Section 171 is a central statutory obligation under CGST; where central law and rules apply to GST incidence and passing of benefit, conflicting local measures are subordinate. Precedent treatment: The Tribunal applied principles of central predominance and requirement that any local regulation does not permit contravention of central tax obligations; precedent cited on precedence (general legislative hierarchy) supports this approach. Interpretation and reasoning: State Cinemas Act, Government Orders and the High Court's directions fixed maximum ticket prices and permitted theatre owners to set fares within limits, but did not confer a right to retain benefits of reduced central tax rates or to treat certain maintenance charge components as outside GST without statutory basis. The Committee/monitoring mechanism imposes ceilings but leaves discretion to owners; that discretion does not operate as a legal justification to withhold commensurate price reduction mandated by Section 171. The Rs.3 maintenance charge is subject to GST under central law and must be included in output tax liability and price determinations. Ratio vs. Obiter: Ratio - local price-fixing regime that prescribes maxima and requires notification of intended fares does not authorize contravention of Section 171; it does not absolve suppliers from passing on tax reductions. Conclusion: State law and orders do not absolve the supplier of liability under Section 171 for not reducing prices commensurately. Issue 3 - Market dynamics, costs and the meaning of 'commensurate' in Section 171 Legal framework: Section 171 requires a commensurate reduction; the word 'commensurate' allows consideration of commercial and economic factors but does not permit arbitrary retention of tax benefit. Precedent treatment: The Delhi High Court (Reckitt Benckiser) recognized that suppliers may set base prices influenced by commercial factors but must justify deviations from commensurate reduction on cogent grounds; the presumption in favour of passing on is rebuttable but requires evidence. Interpretation and reasoning: The Tribunal accepts that pricing is influenced by market forces (inflation, costs, OTT competition, rent etc.), but holds that such factors must be demonstrated with cogent evidence to rebut the presumption. Here the supplier did not provide contemporaneous, cogent justification or rebut the DGAP's undisputed calculations and admissions. An admission in written submissions that the supplier sought to recover profits in a competitive market is treated as substantive evidence of intent to retain benefit. Ratio vs. Obiter: Ratio - commercial factors can be considered in assessing whether reduction is 'commensurate', but mere assertions without documentary or cogent evidentiary support are insufficient to rebut statutory presumption. Conclusion: Market dynamics and cost factors were not established to justify non-passage; therefore they do not negate profiteering in this case. Issue 4 - Temporal effect of amended power to impose 18% interest (Rule 133(3)(c) amendment) Legal framework: Notification No.31/2019 (28.06.2019) amended Rule 133(3)(c) to add authority to direct interest at 18% on amount determined; separate Notification appointed 01.04.2020 as commencement date for certain other amendments; general presumption in statutory interpretation disfavors retrospectivity (CIT v. Vatika and other authorities cited). Precedent treatment: The Tribunal referred to its earlier decision (DGAP v. Procter & Gamble) and to constitutional and Supreme Court principles that new onerous liabilities are ordinarily prospective unless clear legislative intent indicates retrospectivity; the Tribunal applied those precedents. Interpretation and reasoning: The amendment by Notification No.31/2019 is an enabling/penal provision imposing a new burden (interest) and therefore should be construed prospectively. The Amending Rule came into effect on its date of publication (28.06.2019); the Tribunal rejects the argument that the interest provision commences only on 01.04.2020. However, because the amendment is prospective, interest at 18% can be directed only for the period on or after the amendment's effective date; the profiteering period under investigation predated the amendment except for three days (28-30 June 2019). Applying principles against retrospectivity, the Tribunal finds it not appropriate to impose interest for the entire period 01.01.2019-30.06.2019; interest at 18% is applicable only for the three days falling on or after 28.06.2019. Ratio vs. Obiter: Ratio - the 18% interest power conferred by the 28.06.2019 amendment operates prospectively from 28.06.2019 and cannot be applied retrospectively to periods prior to that date; where amendment creates a new onerous obligation, retrospective application is not justified absent clear legislative intent. Conclusion: Interest at 18% is not payable for the whole investigated period; it applies only to amounts attributable to 28, 29 and 30 June 2019. In the facts of this case, the Tribunal exercises discretion not to direct wholesale interest beyond that limited period. Issue 5 - Remedy and quantum Legal framework: Where profiteering is established, the authority may direct deposit of the profiteered amount and direct other reliefs including deposit into Consumer Welfare Funds as provided by rules and practice under Section 171 and Rule 133. Precedent treatment: The Tribunal accepted DGAP's quantification method (Tables A and B) and the undisputed totals; reliance on preceding authorities on calculation methodology and on admissions as binding evidence was applied. Interpretation and reasoning: The DGAP's undisputed computation quantified profiteering at Rs.16,50,166. The Tribunal directed deposit of the full amount and directed interest at 18% on the portion attributable to the three days (computed by proportionate method), with half of the aggregate to be deposited in the Central Consumer Welfare Fund and half in the State Consumer Welfare Fund (or central fund if state fund not constituted). Compliance reporting and timelines were specified. Ratio vs. Obiter: Ratio - where profiteering is established by undisputed computation and lack of rebuttal, the authority should order deposit of the quantified amount and may apportion deposits to consumer welfare funds; limited retrospective interest follows Issue 4 ratio. Conclusion: The Tribunal accepts DGAP's quantification and orders deposit of Rs.16,50,166, plus 18% interest on the apportioned sum for the three days (rounded to Rs.27,350), to be split between Central and State Consumer Welfare Funds; compliance report to be filed within four months.