2026 (1) TMI 764 - AT - GST

Cinema ticket pricing failure to pass GST rate reduction, profiteering Rs 11,88,482 including GST; interest waived

Whether respondent violated Section 171 CGST by not passing on GST rate reduction: Section 171 imposes an affirmative obligation to pass tax-rate ... Profiteering - not passing on the benefit of reduction in the rate of GST on admission to cinema halls - contravention of provisions of Section 171 of the Central Goods and Services Tax Act, 2017 - HELD THAT:- Section 171 casts a clear obligation to pass on the benefit of reduction in the rate of tax by way of commensurate reduction in prices, and any such reliance on State-level cinema regulation statutes or governmental orders fixing only the maximum permissible ticket rates is, at best, a procedural and regulatory framework and not, by itself, a cogent basis to justify complete non-passing of tax benefits to consumers. A mere plea that they have acted in accordance with the State cinema law or that its tariffs were approved/within the notified ceiling cannot, explain why prices were not reduced even for a single day after the GST rate cut—or how such conduct can be reconciled with the central anti-profiteering mandate; Central law prevails, and the Respondent's compliance with State procedural limits cannot justify retention of tax benefits. There is no clear statutory methodology; international practice and inconsistency in DGAP approaches make the proceedings arbitrary; “commensurate reduction” must consider wider commercial factors - the statutory mandate under section 171 of the CGST Act is that any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. The provision does not freeze or regulate the base price of the supplier in the abstract, but requires that the benefit of the tax reduction must reach the ultimate consumer through an objectively commensurate reduction in the consideration actually charged for the supply. In interpreting section 171, the Hon’ble Delhi High Court in Reckitt Benckiser India Pvt. Ltd. vs. Union of India, [2024 (1) TMI 1248 - DELHI HIGH COURT] has held that while a supplier is at liberty to set and vary base prices in accordance with commercial and economic factors and applicable laws, such increase in base price must be a genuine exercise and not a mere pretence to appropriate the benefit of tax reduction. The Court has clarified that any presumption of reduction in prices is rebuttable; however, if the supplier asserts other factors as justification, such factors must be established on a cogent basis and cannot be employed as a device to circumvent the obligation of commensurate reduction contemplated under section 171. GST component should not be treated as profiteering since it was remitted to Government; investigation period should be shorter to reflect changing costs. The Respondent's contention that the GST component (quantified at approximately Rs. 69,455/-, comprising excess GST per ticket such as Rs. 0.53/- for Maharaja Circle Rs. 0.37/- for Dress Circle, and Rs. 0.15/- for First Class) ought to be excluded from the profiteered amount since all collected GST was duly remitted to the Government exchequer without any loss to public revenue, is wholly untenable and contrary to the statutory scheme under Section 171 of the CGST Act. Section 171 mandates the pass-through of tax rate reduction benefits to the recipient/consumer through commensurate reduction in the total price charged (base price + tax thereon); the consumer suffers the economic detriment of paying the inflated all-inclusive ticket price, irrespective of whether the supplier remits the embedded GST portion to the exchequer. The legislative intent, as upheld in Mallikarjuna Cinema Hall [2025 (9) TMI 1045 - GSTAT NEW DELHI], is to ensure that the entire benefit reaches the ultimate consumer, precluding unjust retention by the supplier; thus, the profiteered amount comprises both the excess base price charged and the GST collected on such excess base. Interest under Rule 133(3)(c) is only prospective from 28.06.2019 - interest liability arises only pro-rata for the three days within the investigation period falling on or after 28.06.2019 (i.e., 28.06.2019 to 30.06.2019), computed on 3/181 of the total profiteered amount of Rs. 11,88,482/- which sum is negligible and, in line with the Mallikarjuna precedent, waived in exercise of discretion. No interest is payable for the period prior to 28.06.2019. Interest and penalty - HELD THAT:- There is no flaw in the DGAP's methodology for computation profiteered amount under Section 171 of the CGST Act, there is no single fixed formula that fits every case, especially in the cinema business, where factors like different movies, show timings, weekdays vs. weekends, and ticket classes vary from hall to hall and case to case. It is pertinent to note that the Respondent never disputed the numbers or method of computation in Tables A and B during the hearings before the Bench - Respondent has contravened the provisions of Section 171 of the CGST Act by not passing on the benefit of reduction in GST rates commensurately to the recipient and thus the Respondent has profiteered an amount of Rs. 11,88,482/- - Further, it is held that no penalty under Section 171(3A) of the CGST Act is imposable, because that provision came into force only after 01.01.2020, long after the violation period ended. The jurisdictional Commissioners of CGST and SGST, along with the DGAP, will monitor the compliance this order. A report in compliance of this order shall be submitted to this Tribunal by the concerned Commissioner within a period of four months from the date of receipt of this order - A copy each of this order shall be supplied to the Respondent and to the concerned Commissioner CGST / SGST for necessary action. Issues: (i) Whether the Respondent contravened Section 171 of the CGST Act by not passing on the benefit of GST rate reduction and profiteered an amount of Rs. 11,88,482/-; (ii) Whether interest and penalty are payable on the profiteered amount and if so from which date.Issue (i): Whether the Respondent contravened Section 171 of the CGST Act by not passing on the benefit of GST rate reduction and profiteered an amount of Rs. 11,88,482/-.Analysis: The statutory mandate requires passing the benefit of tax rate reduction to recipients by commensurate reduction in the total price charged (base price plus tax). The adopted method computes a commensurate base price by applying the reduced GST rate to the pre-reduction all-inclusive price and compares it with the actual post-reduction base price for each ticket category. The DGAP's Tables A and B apply this method across ticket classes; the Respondent did not dispute the methodology or the figures and failed to produce contemporaneous approvals or cogent evidence (such as authenticated permissions for price increases or quantified cost escalations) to rebut the presumption that the tax benefit should have been passed on. Project-wise treatment analogous to real estate was rejected because cinema ticket sales constitute a continuous supply, not discrete projects.Conclusion: The Respondent contravened Section 171 and profiteered an amount of Rs. 11,88,482/-, confirmed in full in favour of the Revenue.Issue (ii): Whether interest and penalty are payable on the profiteered amount and if so from which date.Analysis: The amendment introducing an interest liability under Rule 133(3)(c) was notified vide Notification No. 31/2019 dated 28.06.2019. Absent express retrospective language, the presumption against retrospectivity applies and the interest provision operates prospectively. Pre-amendment period does not attract the newly introduced interest liability. Penalty under Section 171(3A) came into force after the violation period and thus is not imposable. The amount of interest pro rata for the three days from 28.06.2019 to 30.06.2019 is negligible and discretionary waiver was applied.Conclusion: No interest is payable for the period prior to 28.06.2019; interest liability arises, if at all, only pro-rata for 28.06.2019 to 30.06.2019 and is waived; no penalty under Section 171(3A) is imposable.Final Conclusion: The DGAP's computation and methodology for determining profiteering under Section 171 are upheld; the Respondent's contentions are rejected and the profiteered amount of Rs. 11,88,482/- is to be deposited into Consumer Welfare Funds as directed.Ratio Decidendi: Where a tax rate reduction occurs, the supplier must pass the benefit to consumers by a commensurate reduction in the total price charged (base price plus tax); in the absence of cogent contemporaneous evidence to rebut the presumption, increase or non-reduction of base price resulting in higher all-inclusive prices constitutes profiteering under Section 171 and includes the tax collected on the excess.