2026 (2) TMI 273 - AT - GST

GST rate reduction on instant noodles found to have been denied to consumers; profiteered amount ordered deposited in Consumer Welfare Fund.

GST rate reduction on certain noodles triggered a presumption of profiteering; invoicewise comparison by DGAP found baseprice increases and established ... Passing on benefit of tax reduction - rebuttable presumption of profiteering - determination of profiteering by invoice-wise base price comparison - imposition of interest on profiteered amount and non-retroactivity of fiscal liability - penalty u/s 171(3A) and temporal operation of penal provision - deposit of profiteered amount in Consumer Welfare Fund - HELD THAT:- It is undisputed that the GST rate on instant noodles falling under HSN 1902 was reduced from 18% to 12% with effect from 15.11.2017 vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017. The Respondent revised its prices with effect from 16.11.2017. However, the DGAP’s invoice-wise analysis reveals that the Respondent increased the base prices of several affected SKUs in the post-rate-reduction period as compared to the pre-rate-reduction period of 01.11.2017 to 14.11.2017. As per Rule 133 (3) (c) of the CGST Rules, the provision for imposition of interest at the rate of 18% on the profiteered amount became operative only upon the coming into force of the CGST (Amendment) (Fourth) Rules, 2019, i.e., with effect from 28.06.2019. In the present case, the alleged profiteering occurred much prior to the said date. In view of the settled legal position laid down by the Constitution Bench of the Hon’ble Supreme Court in M/s. Vatika Township Pvt. Ltd. [2014 (9) TMI 576 - SUPREME COURT (LB)] which categorically holds that fiscal provisions imposing additional liability cannot be applied retrospectively unless expressly provided, we are of the considered opinion that this is not a fit case for directing the Respondent to pay any interest on the profiteered amount. It is evident from the facts that Respondent has denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus committed an offence under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty under the provisions of the above Section. However, since the provisions of Section 171 (3A) have come into force w.e.f. 01.01.2020 whereas the period during which violation has occurred is w.e.f. 15.11.2017 to 31.12.2018, hence the penalty prescribed under the above Section cannot be imposed on Respondent retrospectively. Thus, the Report submitted by the DGAP is accepted to the extent that respondent has profiteered an amount of Rs. 90,90,310/- only for the period of 15.11.2017 to 31.12.2018. However, I am refraining from imposing any interest or penalty on this amount as explained above in Para 17 & 18. Further, the Respondent is directed to deposit the profiteered amount as aforesaid in Consumer Welfare fund created by Centre and States equally as per the table ‘B’ supra. Accordingly, the case is Disposed of. A report in compliance of this order shall be submitted to DGAP and the concerned CGST/SGST Commissioner/s within a period of 4 months from the date of receipt of this order. Issues: (i) Whether the Respondent denied the benefit of GST rate reduction from 18% to 12% to recipients by not effecting a commensurate reduction in prices and, if so, the quantum of profiteering; (ii) Whether interest and penalty can be imposed on the profiteered amount for the period 15.11.2017 to 31.12.2018.Issue (i): Whether the Respondent denied the benefit of GST rate reduction and the determination of the amount of profiteering.Analysis: DGAP compared invoice-wise base prices in the pre-rate-reduction period (01.11.2017 to 14.11.2017) with invoice-wise base prices in the post-rate-reduction period (15.11.2017 to 31.12.2018). Where direct sales in the reference pre-period were absent, sequential earlier months were used. Documentary material, including price-revision circulars and invoices, and DGAP calculations (Annex-11) were considered alongside the respondent's submissions on input cost increases and market conditions. The presumption under Section 171 that tax reduction must be passed on is rebuttable by cogent contemporaneous evidence of cost increases; the respondent's evidence was examined against the specific timing and quantum of price and cost changes and found not to justify the increase in base prices contemporaneous with the tax reduction.Conclusion: The Respondent denied the benefit of GST rate reduction; profiteering of Rs. 90,90,310/- for the period 15.11.2017 to 31.12.2018 is confirmed in favour of the Revenue.Issue (ii): Whether interest and penalty are payable on the profiteered amount for the relevant period.Analysis: Rule 133(3)(c) (as amended) making interest payable at 18% became effective from 28.06.2019. Section 171(3A) prescribing penalty came into force w.e.f. 01.01.2020. The temporal applicability of these fiscal provisions was assessed in light of the period of alleged profiteering (15.11.2017 to 31.12.2018) and the principle that fiscal liabilities imposing additional burdens cannot be applied retrospectively unless expressly provided.Conclusion: Interest and penalty are not imposed on the profiteered amount for the period 15.11.2017 to 31.12.2018.Final Conclusion: The DGAP's report is accepted to the extent that the Respondent profiteered Rs. 90,90,310/-; the respondent is directed to deposit this amount in the Consumer Welfare Fund (Centre and States equally); interest and penalty are not directed due to non-retrospective application of the relevant fiscal provisions.Ratio Decidendi: A supplier who increases base prices contemporaneously with a statutory reduction in tax must justify the increase by cogent, contemporaneous evidence of cost escalation; absent such justification, the presumption under Section 171 that the benefit of tax reduction be passed on leads to a finding of profiteering, and fiscal penalties or interest enacted after the profiteering period cannot be imposed retroactively unless expressly made retrospective.