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 profiteering of Rs.90,90,310 for 15.11.2017-31.12.2018, and the profiteered amount must be deposited in the Consumer Welfare Fund. The imposition of interest was declined because the 18% interest provision became operative only from 28.06.2019 and fiscal liabilities cannot be applied retrospectively; therefore no interest was directed. Penalty under the penal provision was also not imposed because that provision came into force from 01.01.2020 and cannot be applied retroactively to the violation period.

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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.

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