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 while keeping MRP unchanged. Such recalibration schemes do not satisfy the requirement to pass on tax benefits and constitute deception; sale below MRP is permissible and GST component must be reduced even if the retail price falls below MRP. The court ordered the contested recovery of Rs. 5,55,126 to be transferred to the Consumer Welfare Fund and disposed of the petition.

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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.

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