2025 (10) TMI 57 - HC - GST

Anti-profiteering order upheld: manufacturers cannot evade passing GST rate cuts by increasing quantity while keeping MRP unchanged

HC upheld the impugned anti-profiteering order, finding that manufacturers/retailers cannot avoid passing on GST rate reductions by increasing quantity ... Profiteering - Constitutional validity of Section 171 of the Central Goods and Service Tax Act, 2017 and the corresponding Rule 126 of the Central Goods and Service Tax Rules, 2017 - benefit of GST rate reduction not passed on to consumers, by increasing the base price and keeping the MRP unchanged - HELD THAT:- In Reckitt Benckiser [2024 (1) TMI 1248 - DELHI HIGH COURT] is concerned, it has been categorically observed that increase in volume or weight or supply of additional free material by any schemes would not be sufficient to satisfy the requirement of passing on the benefit availed to the consumers. This Court is of the opinion that all schemes which may have been in operation, ought to have been recalibrated with the reduction in GST rates. There may be some transitional problems, however, the purpose of the reduction in GST rates cannot be defeated. Such problems are nothing but those for which the manufacturers and retailers ought to be prepared for. For eg., upon immediate reduction of GST rates, the product MRP may be the same, but the GST component has to be reduced, even if it means that the product is being sold for less than the MRP. The term MRP means `Maximum Retail Price’ and thus sale below the said price is permissible. It is only sale above the said price which is impermissible. But to ensure that the GST benefit is not passed on, increasing the quantity of the product unknowingly and charging the same MRP is nothing but deception. The consumer’s choice is being curtailed. The non-reduction of price cannot be sought to be justified on the ground that the quantity has been increased or that there was some scheme which justifies the increase in price. In the opinion of this Court, such an approach would defeat the entire purpose of reduction of GST rates and the same cannot be permitted. It is clear that the purpose of the ‘anti-profiteering mechanism’ is to safeguard consumers' interests and guarantee that businesses would transfer the benefits of lower tax rates and input tax credits to the final consumers. This Court is of the opinion that the impugned order deserves to be upheld. Accordingly the amount of Rs. 5,55,126/- shall be transferred to the Consumer Welfare Fund. Petition disposed off. Issues: (i) Whether the constitutional challenge to Section 171 of the Central Goods and Services Tax Act, 2017 and the corresponding Rules, 2017 is maintainable; (ii) Whether the impugned National Anti-Profiteering Authority order finding profiteering by the distributor in respect of Vaseline VTM 400 ML is sustainable on merits; (iii) Whether penalty proceedings for violation of Section 171 are applicable in the present case.Issue (i): Constitutional validity of Section 171 of the Central Goods and Services Tax Act, 2017 and Rules 122, 124, 126, 127, 129, 133 and 134 of the Central Goods and Services Tax Rules, 2017.Analysis: The provisions were earlier upheld in the batch judgment led by Reckitt Benckiser India Pvt. Ltd. v. Union of India, which held the anti-profiteering statutory framework and the Rules to be intra vires. The prior determination on validity is applied to the present challenge, leaving only merits of specific orders to be adjudicated.Conclusion: The constitutional challenge is rejected; the provisions are valid.Issue (ii): Validity on merits of the NAPA order holding that the distributor profiteered by not passing on the GST rate reduction (and by increasing base price), and the direction to deposit the determined amount into the Consumer Welfare Fund.Analysis: The factual matrix shows unchanged MRP with an increased base price after reduction of GST rate from 28% to 18%, resulting in no commensurate reduction in price to end consumers. The anti-profiteering framework requires that benefit of rate reduction or ITC reach the recipient by way of commensurate reduction in price. Explanations based on increased grammage or promotional schemes were examined and found insufficient to negate requirement of price reduction or to justify maintaining the same sale price while increasing undisclosed quantity.Conclusion: The NAPA order is upheld; the determined profiteered amount of Rs.5,55,126/- shall be transferred to the Consumer Welfare Fund.Issue (iii): Applicability of penalty proceedings under the CGST Act for the violation of Section 171 in this case.Analysis: Rule-making power and penal provisions under Section 164 and Rule 133 are legally permissible. However, prior authoritative guidance and practice, including withdrawal/non-pressing of penalty show-cause notices in similar pre-Section 171(3A) cases, render penalty proceedings in this context not applicable.Conclusion: Penalty proceedings are not pressed in this case.Final Conclusion: The petition is dismissed; the challenge to statutory validity fails and the impugned anti-profiteering order is sustained with directions for deposit to the Consumer Welfare Fund while penalty proceedings shall not be pursued in the circumstances.Ratio Decidendi: Where a reduction in tax rate or benefit of input tax credit occurs, the statutory mandate requires a commensurate reduction in the price paid by the recipient; maintaining the same MRP while increasing undisclosed base price or quantity does not satisfy the requirement and permits anti-profiteering measures including repayment to consumers or deposit into the Consumer Welfare Fund.