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2018 (12) TMI 1599
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....s (CGST), 2017 requesting that his identity should not be disclosed. The above Applicant through his application had complained that although the Goods & Service Tax (GST) had been reduced from 28% to 18% on a large number of products w.e.f. 15.11.2017, the Respondent had not reduced the Maximum Retail Prices (MRPs) of the products which were being sold by him. The Applicant No. 1 had also alleged that the Respondent had increased the base prices of his products, so that the MRPs continued to be the same even after reduction in the rates of GST. He had also enclosed a copy of the letter dated 21.11.2017 written by the Respondent to his Redistribution Stockists (RSs) stating that he will be recovering the excess Input Tax Credit (ITC) on the stocks of his brands lying with them as on 15.12.2017 and the benefit of tax reduction shall be passed on to the end consumers through reduction in the MRPs or through fill level increases. He had further informed vide his e-mail dated 25.01.2018 (Annexure-3) that the Respondent had started the process of recovery. Another application against the Respondent vide e-mail dated 17.11 .2017 (Annexure-4) was filed before the Standing Committee by the....
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....r dated 14.05.2018 (Annexure-10) both the Applicants No. 1 & 2 were provided an opportunity to inspect the non-confidential evidences/reply furnished by the Respondent, which was not availed by them. He has also intimated that since the analysis of data was complex and voluminous, he had requested for extension of time for completing the investigation which was given upto 17.06.2018 by the Standing Committee, vide minutes of it's meeting dated 14.03.2018 in terms of Rule 129 (6) of the CGST Rules, 2017. He has further intimated that the investigation was conducted for the period w.e.f. 15.11.2017 to 28.02.2018 only. 4. The Report further submits that the Respondent vide his reply dated 25.01.2018 (Annexure-12) had intimated that he was India's largest Fast Moving Consumer Goods (FMCG) Company and was engaged in the manufacture and supply of consumer goods comprising of four major categories, viz. Home Care, Personal Care, Foods and Refreshments. The DGAP has also submitted that the Respondent was manufacturing and supplying over 3200 Stock Keeping Units (SKUs) which were being sold through Redistribution Stockists (RSS), Modern Trade (MT) and the Canteen Stores Departmen....
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....on account of GST rate reductions vide his letters dated 25.01.2018 and 05.03.2018 (Annexure-12 & 13). He has further informed that the Respondent had claimed deduction on PD due to the pricing initiatives w.e.f. 15.11.2017 which had resulted in reduction in the MRPs or increase in the grammage. The Respondent had also requested for deduction due to TTSD as he had floated various promotional schemes through the MT as an interim measure to give benefit of tax reductions. The DGAP has also stated that the Respondent had claimed deduction on account of FD because of proportionate reduction in the refund amount which he was getting due to area-based exemptions. The DGAP has further stated that the Respondent vide his letter dated 05.03.2018 (Annexure-13) had submitted that the amount of higher sales realization due to the rate changes for the month of January, 2018 for General Trade and MT was Rs. 151.19 Crores out of which a deduction of Rs. 136.58 Crores has been claimed on account of PD, TTSD and FD along with writing off of packing material with old MRPs worth Rs. 7.78 Crores and accordingly the net amount of higher sales realization of Rs. 6.83 Crores was calculated by him. The DG....
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.... old MRPs printed packing material as the MRPs had been reduced and therefore, he was entitled to claim deduction of the value of the written off packaging material from the higher sales realization. The DGAP has further stated that the Respondent had claimed deductions due to the reduction in the area-based exemptions on the SKUs which were impacted by the rate reductions and which were being manufactured in his units based in Uttarakhand, Himachal Pradesh and Assam as they were entitled to budgetary support or the refund granted under the DIPP Notification No. 10(1)/2017-DBA-II/NER dated 05.10.2017, which was calculated with reference to the CGST/IGST paid after utilization of the ITC and the higher was the amount of CGST/IGST paid, the higher was the refund which reduced his cost of production. The DGAP has also informed that the Respondent had submitted that before 15.11.2017, his units were entitled to proportionate refund of 58% of the CGST paid @ 14% but now due to the reduction in the GST rate from 28% to 18%, the proportionate refund of 58% was to be computed for CGST paid @ 9% which had reduced his entitlement for refund and increased the cost of production. The DGAP has ....
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.... such reduction in the rates of tax was passed on to the consumers in terms of Section 171 of the GST Act, 2017, and (c) If not, what was the quantum of profiteering by the Respondent. 9. The DGAP's report states that the Central Government, on the recommendation of the GST Council, had reduced the GST rates on several products from 28% to 18% and from 18% to 12% vide Notification No. 41/2017-Central Tax (Rate), dated 14.11.2017 with effect from 15.11.2017. The Report also states that the Respondent had suo moto, even before the issue of notice had admitted that he could not pass on the benefit of reduction in the tax rates to the consumers and therefore it was established that the Respondent had failed to pass on the benefit of the reduction in the rates of tax to his consumers in terms of the Section 171 of the CGST Act, 2017. In his report the DGAP has also acknowledged that the Respondent had himself determined the amount of profiteering and had deposited the amount determined by him in the CWF after claiming certain deductions on account of various deployments. 10. The Report of the DGAP highlighting the relevant provision of Section 171 (1) of the CGST Act, 2017 ....
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....n reduced refund in the absolute terms. He had also contended that since the Respondent was still eligible to get the same proportionate refund of actual CGST/IGST paid in cash as was available to him prior to the reduction in the rates of GST, there was no loss in absolute terms to him. Therefore, he has concluded that the claim of the Respondent for deduction on account of FD was not maintainable. The claim of the Respondent to deduct the cost of written off packing material having old printed MRPs was also not admitted as the DGAP has held that vide letter No. dated 16.11.2017 issued by the Ministry of Consumer Affairs, Food and Public Distribution, Govt. of India it was clearly provided that there would be affixing of additional stickers or stamping or online printing for declaring the reduced MRPs. The Report also states that CGST Act, 2017 did not provide for allowance on account of the cost of packing material against the reduction in the price on account of lower GST rates. The Report concluded that the deductions claimed by the Respondent were not supported by any legal provisions and therefore they were inadmissible. 13. The Report after examining the Statements of Aud....
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....he benefit of rate reductions by the Respondent there has been a sharp increase in his prices 15. While quantifying the extent of profiteering for the period w.e.f. 15.11.2017 to 28.02.2018, the Report states that the total number of items affected by the reduction in the rates of GST were 12,016 comprising of 1836 base packs. The DGAP has also stated that out of the above items, 11,820 items comprising of 1814 base packs constituting 99.71% of the sale value of the total impacted Items were affected by the rate reduction from 28% to 18% and the balance 196 items comprising of 22 base packs constituting 0.29% of the sale value of total impacted Items were affected by the GST rate reduction from 18% to 12%. Therefore he has concluded that the amount of net higher sales realization on account of increase in the base prices of the products after the reduction in the GST rates either from 28% to 18% or from 18% to 12%, or the total amount of profiteering was Rs. 419.67 Crores. The DGAP has also furnished detailed calculations of the profiteered amount vide Annexure-25 in which he has given the details of all the items which were impacted by the rate reductions. The Report further cl....
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....ined in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely:- Provided that where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs, then, such registered person shall, subject to such conditions, limitations and safeguards as may be prescribed, including that the said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient, be allowed to take credit at such rate and in such manner as may be prescribed. " (emphasis supplied) 18. The DGAP has contended that as per the above provision, the Respondent was bound to pass on the credit availed through TRAN-2 statements by reducing the prices to be paid by the recipients. He has further contended that the Respondent was asked to furnish copies of the invoices to show that the benefit of credit had been passed on to the customers, but the Respondent had failed to do so. The DGAP has also averred that after examining the sale reports for the months of November and December, 2017 it was found that the Respond....
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....On 27.07.2018 the Applicants No. 1 & 2 did not appear but the Respondent was represented by Shri Srinivas Phatak, Chief Finance Officer, Ms. Shikha Gupta, Head Tax, Shri S. Moorthy, Manager, Shri C. S. Lodha, Advocate, Sh. Dev Bajpai, Head Legal, Sh. Radhakrishnan Menon, Associate, Sh. Gopalan Pasupati, Manager, Corporate Affairs and Smt. Gayatri, Deputy Commissioner and Sh. Bhupender Goyal, Assistant Director (Cost) represented the DGAP. 21. In his submissions dated 27.7.2018, the Respondent referring to the anti-profiteering provisions has stated that for the first time, anti- profiteering provisions were introduced by Section 171 of CGST Act, 2017 and the Government had constituted the National Anti- Profiteering Authority (NAA) and conferred it with specific powers under Chapter XV of the CGST Rules, 2017. According to the Respondent Rule 126 which states as under gives power to the Authority to determine the methodology and procedure:- "Rule 126: Power to determine the methodology and procedure: The Authority may determine the methodology and procedure for determination as to whether the reduction in the rate of tax on the supply of goods or services or the benefit of....
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....te reduction in the prices or not, but he has claimed that the above "Methodology and Procedure" dealt only with the procedural aspects and did not deal with the issue of 'Methodology of determination' which was the crux of Rule 126. He has also stated that the Methodology alone was a guiding factor which could help to decide the question of profiteering as per Section 171 and Rule 126. Therefore, the Respondent has requested that in the interest of justice, equity and fairness, his case should be taken up for adjudication by the Authority only after formulating the methodology as contemplated by Rule 126 and the report submitted by the DGAP should be examined in the light of such methodology. He has also intimated that he had voluntarily deposited a sum of Rs. 124.04 Crores on 21.06.2018 in the CWF on the assumption that he was required to pay the said amount in addition to the amount of Rs. 36.19 Crores (Total Rs. 160.23) collected from his 3494 RSs, being excess amount earned by them on the stocks held by them as on 15.11.2017 which should sufficiently demonstrate his bonafides. The Respondent has also tried to support his claims by giving various examples through which ....
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....9;s intent and conduct under the given circumstances keeping in view it's complexity of the operations and feasibility of implementing various alternatives etc. were critical and important factors before judging it's actions as honest and bonafide or as dishonest and contumacious resulting in undue gain to it. He has also contended that the spirit of the law was required to be considered before deciding as to whether the actions taken by the company were in the best interests of the economy and the consumers or were in any manner intended to benefit the company itself. He has further contended that considering the enormity of operations and the logistical difficulties, he did all that was possible to sub-serve the intent of the Government in passing on of the benefits to the consumers. He has also claimed that his bonafide intentions should be judged by the fact that he had kept the apex functionaries of the Government informed and that he had not gained even a rupee extra, leave aside profiteering and his actions could not be called unethical, immoral or contumacious. 24. The Respondent has also submitted that vide his letters dated 21.11.2017 and 04.12 2017, he had inf....
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....gnored the intent, object and purpose of the above provision. Referring to the various judicial pronouncements of the Apex Court he has stated that the modern trend was to construe a statute purposively with the intent of ascertaining the object and intent of the law and to so harmoniously interpret the provision that it furthered the intent, object and purpose of the statute and hence a law intended to check profiteering must be purposively construed. He has also claimed that the emphasis of the Section was on non-retention of benefit of tax rate reduction by the manufacturer/dealer and passing it on to the recipient and not on the mode of such passing on whereas the Report had taken the literal meaning and prescribed only one mode of passing on the benefit by way of commensurate reduction in the prices. He has claimed that as long as it was clearly demonstrated by a manufacturer/dealer that the benefit had been effectively passed on, the mode was not the determinant factor and whether such a manufacturer/dealer had enriched himself illegally or has been honest enough in passing on the benefit in accordance with prevalent trade practice had to be looked into. He has also submitted....
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....trology (Packaged Commodities) Rules, 2011 (LM Rules) which provide for rounding off of the price to prevent coinage issues, he has submitted that such rounding off was prescribed in respect of the general packs and not in respect of the value-based packages and the application of the above mentioned Rules to such packages would lead to absurdity. He has also quoted Rule 2 (m) of the above Rules which states as under:- "retail sale price", means the maximum price at which the commodity in packaged form may be sold to the ultimate consumer and the price shall be printed on the package in the manner given below; "Maximum or Max. retail price Rs............./Rs.............inclusive of all taxes or in the form MRP Rs.........../Rs...............incl.; of all taxes taking into account the fraction of less than fifty paisa to be rounded off to the preceding rupee and fraction of above 50 paise and up to 95 paise to the rounded off to fifty paise;" Quoting an example of his product Clinic Plus Shampoo, the Respondent has submitted that the price of a sachet of tie above Shampoo which was priced at Rs. 1/- would need to be reduced to 0.92 paise to give effect to the rate reductio....
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....ciated the issue in it's proper perspective as when the goods were sold to the MT, the base prices were revised because the old packages which were lying in the pipeline on the date of announcement of the GST rate reduction carried the old MRPs and he had suggested to the MT dealers who were the "recipients" of his goods that since the packages carried the old MRPs, if they were to reduce the prices for the consumers, then they would be reimbursed. He has claimed that this was a suitable method to pass on the benefit to the consumers as MT dealers were large in number and were organized. He has claimed that the MT dealers had agreed and accordingly the excess amount in base prices recovered from them was reimbursed and therefore, while calculating the profiteered amount he had rightly deducted the amounts which were already passed on to the MT dealers however, The DGAP despite agreeing that the reimbursement was given to the MT had disallowed any such deduction. The Respondent has also submitted that he has passed on the benefit of the rate reductions by way of reimbursement through the debit or credit notes and the actual figures from the GST returns should be taken into accou....
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.... MRPs, the existing packing materials with old MRPs printed on it had to be written off and he had consciously decided not to comply with the fixing of new MRPs through stickers as they could easily be removed from poly packs and the benefits would not flow to the consumers which was in the best interest of the consumers. The Respondent has claimed that he had provided the list of the written off packing material location-wise along with the audited certificates issued by the Chartered Accountants and therefore he was rightly eligible to claim this deduction of Rs. 7.80 Crores on account of writing off of the packaging material. 30. The Respondent through the following illustration has claimed that if the base price would have remained unchanged; the GST deposited would have been Rs. 12.80 however, In view of the increase in the base price, an additional GST of Rs. 1.10 had already been paid by him to the Government. He has also stated that the DGAP had not appreciated that extra GST collection as a result of increase in the base price which had already been deposited with the Government and thus the Government had received more GST than what it would have received had there bee....
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....onsumers. The Respondent has also claimed that the DGAP had not appreciated that the introduction of GST had necessitated key accounting changes. He has also contended that increase/decrease in the profit of a Company was influenced by multiple factors such as volume, mix, cost of materials, inflation and overhead efficiencies etc. and not just sales growth. 34. The Respondent has further submitted that the voluntary offer made by him on account of excess realization has been termed as "profiteering". He has also claimed that his conduct of coming forward and voluntarily offering the differential tax amount for deposit has been misconstrued and it only implied that the DGAP had approached the matter with a preconceived mind to conclude that the Respondent had violated the anti-profiteering provisions. He has also submitted that the DGAP's Report had alleged a profiteering of Rs. 419.67 Crores and the said amount was required to be recovered since the provisions of Section 171 had been contravened however, the computation of the above amount was based on the quantity and value of the outward taxable supplies across 12,016 items as per the GSTR-I return data filed for the peri....
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....existing in the pre-GST regime and hence such taxes or duties did not qualify as input tax under the definition given in the Act and accordingly, the TRAN-2 credit could not be considered as ITC under the above Act. He has also contended that Section 171 dealt with passing of the benefit of the ITC but given that the Tran-2 credit did not qualify as ITC under the above Act, Section 171 could not be invoked and accordingly, TRAN-2 amount could not be added to the amount of alleged profiteering under Section 171. Quoting the relevant provisions of the transitional credit the Respondent has claimed that a depot of a manufacturer was not required to be registered under the previous tax regime because the Excise Duty (ED) was required to be paid only at the time of clearance from the factory and there was no requirement for registration of such depots, however, post GST, when goods were removed from such depots, the GST was required to be paid and hence they were required to be registered and therefore Section 140 (3) of the above Act allowed a registered depot to avail credit of the finished goods held in stock as on 30.06.2017 only if the conditions mentioned therein were satisfied. T....
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....realization if the difference between the base prices actually received was compared with the base prices that should have been charged. He has also submitted Auditor's certificate of Rs. 119.67 Crores which has been claimed as grammage benefit along with the details of the same. He has also produced some advertisements and letters from the MT sector to prove that promotional schemes were passed on to the customers. 38. The Respondent was directed to show cause vide notice dated 29.08.2018 why penalty should not be imposed on him for violation of the provisions of the CGST Act, 2017 in reply to which vide his submission dated 14.09.2018 the Respondent has stated that the penalty could be imposed only after the determination of profiteering against him. He has further submitted that the penalty could be imposed only when his action was contumacious and actuated by desire to cheat the revenue however, in the present case it was evident that within six days of the GST rate changes, he had approached the Chairman, CBIC to ensure that he fulfilled the mandate of the law and then he had acted in accordance with the guidance received. He has also claimed that he had also ensured th....
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....f which were provided to the DGAP to substantiate that the schemes were run to pass on the GST benefit along with the credit note details. He has further submitted that his credit/debit notes demonstrated that the benefit was passed on and he was not legally obliged to confirm whether the benefit was further passed by the MT to it's consumers however, his key MT dealers had confirmed that the benefit had been further passed on. The Responded has also argued that his offer of voluntarily deposit of the excess realization of base prices made to the Chairman was not an after-thought due to the complaint filed against him. He has further submitted that he had written to the Chairman within 6 days of the rate changes on 21.11.2017 stating the principle to be adopted in passing on the benefit to the consumers, based on which he had deposited an amount of Rs. 59.94 Crores and Rs. 59.04 Crores vide his letters dated 04.12.2017 and 08.01.2018 respectively in the CWF. The Respondent has also contended that he had come to know that a complaint had been filed by an anonymous applicant on 10.01.2018 when he has received notice for initiation of investigation under Rule 129 of the CGST Rules....
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....ich the latest price or grammage was available at a product level and hence, all grammage changes were clearly known to the RSS via software. He has further submitted that due to clerical mistake he had provided wrong value of grammage deployment and it should be read as Rs. 118.68 Crores instead of Rs. 119.67 Crores. 42. Vide submissions dated 14.11.2018 earlier submissions made by the Respondent were reiterated and details relating to Rs. 118.68 Crores i.e. the benefit of GST rate reductions passed on by way of increased grammage in the format sought by the Authority were provided. 43. The Authority had sought certain clarifications from the DGAP who vide his Report dated 31st August 2018 has reiterated his findings made in the original Report dated 15.06.2018. He has also submitted that in the case of CSD the benefit of reduced rate of tax was extended since there was no price increase. The DGAP has also admitted that Rs. 3.80 Crores were erroneously included in the alleged profiteered amount on account of the sales made to the CPF and the CRPF. Further vide his Report dated 25.09.2018 the DGAP has clarified that a list of 99,281 products mapped with Consumer Buying Unit (....
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....his customers by increasing the base prices w.e.f. 15.11.2017 the day from which the rate reductions had come in to force. This increase was either exactly equal to the benefit of rate reductions or was more than such reductions. The Respondent had no ground to increase the base prices except that he wanted to appropriate the benefit of tax reductions. Had his intentions been bonafide he should not have increased his base prices and instructed his RSS to reduce their prices. The rates of tax were recommended to be reduced by the GST Council in it's meeting held on 10.11.2017 and within a period of 4 days the Respondent had manipulated his software by increasing the base prices of as many as 12,016 items instead of only reducing the rates of tax which would have compelled his RSS to lower the prices commensurate with the reduction in the rates. Further the Respondent has himself admitted that had he not increased the base prices as were existing on 14.11.2017 and had charged GST @ 18% instead of 28% the total sales realization would have been Rs. 5454.10 Crores as against the actual realization of Rs. 5774.80 Crores reflected in his Returns and hence he had made extra realisatio....
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....eneral methodology can be prescribed for the same. The basic aim is to ensure that both the benefits of reduction in the rate of tax and ITC are passed on to the consumers by commensurate reduction in the prices. As per the provisions of the above Rule the Authority has power to 'determine' and not 'prescribe' the methodology. During the course of the present proceedings the Respondent was repeatedly asked to suggest alternate methodology if he was not satisfied with the computation of the profiteered amount made by the DGAP but the Respondent has failed to do so. The Respondent has also calculated the profiteered amount himself and deposited the same in the CWF which clearly shows that he was aware of the concepts of profiteering, commensurate and reduction in the prices. Therefore, all the objections raised by him in this behalf are frivolous and cannot be accepted. 47. The Respondent has also referred to the dictionary meaning of profiteering and claimed that he had not resorted to profiteering. However, it is quite clear from the record that he had illegally and wrongly increased the base prices of the products on which the rates of tax had been reduced w.e.f....
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....tification was applicable to all the products in the pipeline irrespective of the fact that they were manufactured on or before the issue of the notification. This letter was challenged by Glaxo Smithkline Pharmaceuticals Limited in the Hon'ble High court of Karnataka which had upheld the contention of the Inspector while a similar case was decided in favour of the manufacturer by the Hon'ble High Court of Delhi. Both these cases were appealed before the Hon'ble Supreme Court. The argument of the Id. Additional Solicitor General before the Hon'ble Supreme Court was that the scheme of the two DPCOs, 1987 and 1995 was very clear that once the price was notified for a formulation, the sale to the consumer could only be at the notified price and it was an absolute obligation on all persons not to sell any formulation to any consumer at a price exceeding the price which was the MRP price. The Id. Additional Solicitor General also argued that the words "carried into effect" read with "within 15 days" indicated the outer limit and there could not be two different prices in the distribution chain. The benefit of the price reduction would mandatorily have to be passed on to ....
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....ces of the community, much needed life-sustaining foodstuffs and life-saving drugs is diabolic. It is a menace which has to be fettered and curbed. One of the principal objectives of the Essential Commodities Act, 1955 is precisely that. It must be remembered that Article 39 (b) enjoins a duty on the State towards securing that the ownership and control of the material resources of the community are so distributed as best to sub-serve the common good". Thus the Hon'ble Supreme Court held that "the view of the Delhi High Court is fundamentally flawed and clearly wrong in light of our foregoing discussion. The Karnataka High Court has taken the correct view and the same is upheld. We, accordingly, dismiss the appeals preferred by the manufacturer/distributor and allow the appeals of the Union of India". As per the law settled in the above case the Respondent was bound to reduce the prices on the products being sold by him w.e.f. 15.11.2017 and in case he was not able to do so he should have immediately deposited the profiteered amount in the CWF which he had failed to do promptly as has been outlined in the paras supra. The Hon'ble Court had also taken strong exception to ....
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....t had given no choice to his customers and forced them to accept the additional quantity by paying more price, tax and profit margin whereas they should have got the benefit of tax reduction in the shape of commensurate reduction in the prices as per the provisions of Section 171 of the Act. The claim made by the Respondent that he could not have reduced the prices of the value- based packs as he was required to round off their prices as per the provisions of the LM Rules is also not correct as he could have deposited the excess price charged by him in the CWF till he was able to increase the quantity proportionate to the reduction in the tax rates which he had not done immediately after there was reduction in the rates of tax and had done so after a lapse of a considerable period of time. 52. It is also revealed that on 21.11.2017 the Respondent had written to the Chairman CBIC explaining the principles which were adopted by him while passing on the benefit of tax reduction to the consumers and after suo-moto estimating the quantum of higher realization on account of rate reduction the following amounts were deposited by him in the CWF:- Date Period Amount in Crores ....
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....with you in the spirit of extending the best value to the trade and the end consumers Your Truly, Mohit Sud General Manager, Customer Development, Central 54. Perusal of the above letter shows that the Respondent had admitted that the rate of GST had been reduced on the products which were being sold by him. He had also mentioned in this letter that when the GST was implemented w.e.f. 01.07.2017 he had reimbursed the differential tax due to incremental cost on account of the closing stock which was held by the RSS as on 30.06.2017. He had also intimated that due to reduction in the rate of tax the ITC available to the RSS on the stocks existing with them as on 15.11.2017 would be higher and they would be paying output tax at lower rate. He had also mentioned that the benefit of such rate reduction would have to be passed on to the consumers through the MRP reductions/increased fill levels and hence he would be recovering the excess ITC from them and account for it separately and the same would be passed on to the consumers. 55. In this connection it would be appropriate to refer to Section 22 of the CGST Act, 2017 which states that every supplier shall be liable to b....
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.... the incremental cost on account of the closing stocks existing with them as on 30.06.2017. It also appears that the Respondent had deposited the above amount in the CWF as an afterthought after he had come to realize that a complaint had been made against him for not reducing the prices and for recovering the excess ITC. The best course available to the Respondent in this case would have been to write to his RSS to pass on the benefit of tax reduction to the customers and claim ITC on the input tax paid by them @ 28% which the Respondent had failed to do and hence the claims made by the Respondent through the above letter and similar letters written to the CBIC and the DGAP cannot be believed and relied upon. 56. Initially vide Annexure 5 of his written submissions dated 10.08.2018, the Respondent had furnished the following statement as has been shown in the Table-3 given below, which showed that the amount actually collected in excess was Rs. 480.91 Crores and after deducting the fiscal incentives denied to him he had claimed that the net excess realization had been Rs. 435 Crores. But the DGAP has estimated an amount of Rs. 419.67 Crores as the profiteered amount other than ....
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....valuate and address each and every deduction claimed by the Respondent in his written and oral submissions. Hence every individual deduction claimed by the Respondent is being discussed in detail in the following paragraphs to arrive it at the right amount profiteered by the Respondent. 60. Admissibility of TRAN-2 Credit as deduction: The DGAP in his Report has included Rs. 76.06 Crores of the transitional credit, claimed by the Respondent through TRAN-2 statements in February 2018, in the profiteered amount. The DGAP is of the view that since this was the additional ITC, made available to the Respondent, he should have passed the benefit of it to the recipients according to Section 171 of the CGST Act, 2017. The DGAP has based his opinion on the proviso to Section 140 (3) of the CGST Act, 2017. The relevant excerpts of which are reproduced below:- Section 140. (3) A registered person, who was not liable to be registered under the existing law, or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of notification No. 26/2012-Service Tax, dated the 20th June, 2012 o....
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....der section 136 of the Finance Act, 2001, in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day." 61. While rebutting the DGAP's view on TRAN-2 credit as profiteered amount, the Respondent, in his written reply dated 14.09.2018, has contended that in the notice dated 10.01.2018 issued by the DGAP under Rule 129 of the CGST Rules, 2017, no allegation was levelled on account of TRAN-2 credit availed by the Respondent and therefore it was beyond the scope of this investigation. He has also claimed that as per Section 140 (3) and the definition of ITC given in the Act, TRAN-2 credit would fall outside the scope of the definition of ITC. The Respondent has also claimed that the TRAN-2 credit did not fall under the purview of Section 171 as it dealt with passing on the benefit of ITC whereas the TRAN-2 credit pertained to the credit in respect of the inputs held in stock as on 30.06.2017. On examining the DGAP's notice dated 10.01.2018, it is found that in para 3 of the notice it has been categorically mentioned that "you are hereby requested to reply to this notice on or before 25.01.2018 stating whether ....
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....d documents. There is no doubt that transitional credit is on eligible taxes and duties that are relevant to the pre-GST period, as claimed by the Respondent, however, one has to read the relevant provision along with the Rule 117 of CGST Rules 2017, which clearly states that this credit which is availed under Section 140 (3) is nothing but the ITC available under the GST. Rule 117 is reproduced below:- 117. (4) (a) (i) A registered person who was not registered under the existing law shall, in accordance with the proviso to sub-section (3) of section 140, be allowed to avail of input tax credit on goods (on which the duty of central excise or, as the case may be, additional duties of customs under sub-section (1) of section 3 of the Customs Tariff Act, 1975, is leviable) held in stock on the appointed day in respect of which he is not in possession of any document evidencing payment of central excise duty. (ii) The input tax credit referred to in sub-clause (i) shall be allowed at the rate of sixty per cent on such goods which attract central tax at the rate of nine per cent or more and f01ty per cent. for other goods of the central tax applicable on supply of such goods aft....
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....nvestigation. 63. In the instant case, the fact that the Respondent has availed the TRAN-2 credit of Rs. 76.06 Crores is not in dispute as he has failed to produce any evidence to prove, either before DGAP or before the Authority that this benefit of Tran-2 credit has been passed on by way of reduced prices. Moreover, the Respondent, on page 23, point (d) of his written submissions dated 14.09 2018 has mentioned that the law did not mandate passing of TRAN-2 credit, which is not correct and hence his contention cannot be accepted. In the light of the above facts, it can be concluded that the Respondent has not passed on the benefit of TRAN-2 credit to any of his recipients, which under Section 140 (3) read with Section 171 of the Act, he was required to pass on. Therefore, the plea of the Respondent to claim this amount of Rs. 76.06 Crores of Tran-2 credit as a deduction from the profiteered amount is rejected and the above amount is held to be the ITC the benefit of which was denied to his recipients by the Respondent. 64. Admissibility of grammage benefit as deduction: On the one hand, the Respondent has claimed that the benefit of extra quantity which has been passed on to....
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....ue-based products of lower denominations can be sold with different grammage thus allowing the supplier to adopt flexible quantities. Therefore, the Authority is of the view that passing on extra quantity could be one of the modes of passing on the benefit especially considering the fact that reducing the prices on low value products could be cumbersome and sometimes impractical. The Respondent in his submissions dated 27.09.2018 has claimed that he had passed total benefit of Rs. 119.67 Crores in the shape of additional grammage out of which an amount Rs. 67.03 Crores was directly proportional to the reduction in the tax rates while an amount of Rs. 39.94 Crores has been in excess of the rate reductions and an amount of Rs. 12.69 Crores was less than the GST rate reductions. The Respondent has produced a letter from his Auditors and sample advertisements to show that the benefit of rate reductions was passed on either by way of reduction in the MRPs or through the higher grammage. These advertisements dated 15.11.2017, 16.11.2017, 25.12.2017 and 29.12.2017 state that they were published with the following messages viz. 'Ghata GST Badi Bachat', 'get the benefits of redu....
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.... supplied by him to his customers on the existing prices, out of which it has been claimed by him that grammage benefit worth Rs. 66.90 Crores had been passed commensurate to the GST rate reductions, the benefit of Rs. 12.69 Crores was less than the GST rate reductions and the benefit of Rs. 39.08 Crores was more than the GST rate reductions. As discussed above the Respondent was directed to supply the required information in the following format:- Format to Corroborate the Grammage Benefit as a Non-Profiteering Measure 66. Grammage benefit given more than the GST rate reduction: The Respondent in his written submissions dated 22.10.2018 has claimed a deduction of Rs. 39.08 Crores on account of the prices reduced more than the GST rate reduction. The Respondent claims that on some products and SKUs, he has reduced the effective selling prices by more than he was actually mandated to, due to the GST rate reductions. Hence, a total amount of Rs. 39.08 Crores, he argues, should be deducted from the net profiteered amount as had been calculated by the DGAP. The DGAP in its report has rejected this claim of the Respondent. 67. The Authority is of the view that Section 171 of th....
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....of the calculation of the profiteered amount. Hence ho deduction can be allowed on them. 4. In respect of 6 products, the Respondent had passed on the benefit but more than the respective amount of profiteering computed by the DGAP for each of these products, hence, the deduction can be given but to the extent of DGAP's calculated amount of profiteering only. 5. In respect of 73 products, the Respondent has passed the benefit but less than the respective amount of profiteering calculated by the DGAP for each of these products, hence, the deduction can be given but limited only to the amount of benefit actually passed on. 6. 28 products have been shown in the negative in the Sales Register which means that they were Sales Returned. Hence, no deduction can be given. 7. 191 products, having negative values, i. e. the Sales Returned were not shown in the Sales Register which means they are not even the part of the profiteered amount. Hence, no grammage benefit can be given. 8. 16 products were already being sold prior to 15.11.2017 but under different CBI-J codes, with same grammage benefit to be given due to GST reductions. Hence, no deduction can be allowed. 9. ....
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.... paid and it is a flawed picture being projected by the Respondent by claiming that he was in loss in the absolute terms. The DGAP is right in his assessment that there was no loss in absolute terms to the Respondent, since he was still eligible to get the same proportionate refund of actual CGST/IGST paid in cash as was available to him prior to the reduction in the rates of GST. Moreover, there exists no direct correlation between the MRP of the product (which is same over all-India) and the area based exemption benefit. The claim of the Respondent to the extent of Rs. 45.31 Crores is not justified in as much as there is no evidence to show that the products manufactured with these concessions were sold at a lower rate. Also, there is no evidence to show that these products are different from the products manufactured in other areas and were sold at the old MRPs. The products whether manufactured with concessions or without concessions are being sold at the same price. Admittedly, these prices were not reduced inspite of rate reductions. Therefore the claim of the Respondent is not legally sustainable and is thereby rejected. 70. Reimbursement to the Modern Trade:- The Respond....
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....thereby finds his claim short of any credence and hence the same cannot be accepted. 71. Packing material write off: The Respondent has also asserted that he should be given the benefit of the cost which he had to incur in writing off the packaging material which he had to dispose of, as it could no longer be used after the GST rate changes. He has also claimed that he had to write off the packaging material worth Rs. 7.80 Crores. The DGAP's Report finds that the Govt. of India had allowed the manufactures to use the old packing material and to affix the revised MRP while the original MRP was visible. The Auditors report submitted by the Respondent through his written submission dated 27.09.2018 also mentions the grammage only and there is no mention of writing off of the existing packing material. The Respondent, on Page 14 of his reply, dated 14.09.2018, has also contended that "stickering though legally permissible was operationally nearly impossible." (emphasis supplied). However, It is to note that operational difficulty in following a law can never be a ground for disobedience of law. The law was very clear when it gave the suppliers the relief to do re-stickering inst....
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.... have gone down from Rs. 128/- to Rs. 118/- and in case the supplier increases the base price to Rs. 108.47, and then charges Rs. 19.53 as GST at the rate of 18%, thereby making the selling price again equal to Rs. 128/- then this is a clear cut case of profiteering. Although, the supplier here might have paid the extra tax of Rs. 1.53 to the Government but he cannot claim this as a deduction from his profiteered amount as the recipient has paid Rs. 1.53 more than the amount he was supposed to pay. This entire sum of Rs. 1.53 amounts to profiteering done by the supplier. The Anti-profiteering provisions specified in the CGST Act and Rule 127 of the CGST Rules make it amply clear that the recipients get their rightful due in the form of reduction in the prices on account of reduction in the GST tax rates. Therefore, this Authority is of the view that since, the recipients of the Respondent have been compelled to pay extra GST which should be included in the profiteered amount. Hence, the Respondent's claim to deduct this amount is dismissed. 73. Sales to CPF and CRPF: The Respondent, in his written and oral submissions, has stated that he had sold his goods through CSD and cl....
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....has provided details of sales of semi-finished goods made to the third party manufacturers and from the details provided it appears that the prices have increased post 15.11.2017 inspite of rate reductions in taxes. His claim that these were not the final products but were further used in the manufacture of final product will not hold good in as much as the goods were final products from his end though it is an input to the third party manufacturers. As per Annexure-12 & 13 of his written submissions dated 09.08.2018 the Respondent has provided details of return of one product namely Coffee but for other products no evidence has been provided to prove that these goods were returned to him for further processing. In the case of Coffee also, the Respondent has not been able to provide any clear and conclusive proof to establish that the sent and the received back goods pertained to the same Batch or were exchanged during the same period of time. The Respondent has also not claimed that the prices had been reduced and his only claim is that it was a semi- finished product. Therefore the claim of the Respondent to the extent of Rs. 2.63 Crores made on this ground cannot be accepted. ....
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....s shall be deposited by him in the Central CWF as this amount pertains to the Central taxes and the duties. 77. Accordingly, the Authority determines that as per the data available on record the Respondent has profiteered an amount of Rs. 455.92 Crores (419.67 + 36.19 + .06) on account of denial of benefit to his customers due to the reduction in the rates of tax. He has also availed an amount of Rs. 78.97 Crores as TRAN-2 credit the benefit of which has also not been passed on by him. Therefore, the Respondent in all has profiteered an amount of Rs. 534.89 (419.67 + 36.19 + .06 + 78.97) Crores. Out of the amount of Rs. 455.92 Crores the deductions claimed by the Respondent are allowed only for an amount of Rs. 68.77 Crores on account of grammage benefit and Rs. 3.80 Crores for the supplies made to the CPF & the CRPF. Therefore, after allowing the above deductions of Rs. 72.57 (68.77 + 3.80) Crores, an amount of Rs. 383.35 (455.92-72.57) Crores is confirmed as the amount the benefit of which has been denied by the Respondent to his customers. Accordingly as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017 fifty percent of the amount of Rs. 383.35 Crores i.e. Rs. 19....
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....ring being very well aware of the law and the rules which warranted him to pass on the benefit of GST rate reductions. Further he has also consciously and illegally recovered the excess realisation which was due to his RSS as ITC and thereby denied the benefit of tax reductions to the customers. He has further acted in conscious disregard of the obligation which was cast upon him to pass on the benefit of GST rate reductions. Instead he had deliberately increased the base prices by enhancing them equivalent to the amount of GST rate reductions in order to keep the old MRPs in place or not reduced them proportionately to the benefit of tax reductions, accordingly he has committed an offence under section 122 (1) (i) of the CGST Act, 2017 by issuing incorrect invoices to his customers and thus penal provisions under the above Act are required to be invoked against him. A notice dated 29.08.2018 was issued to the Respondent to explain why penalty should not be imposed under the above provisions. The Respondent vide his reply dated 14.09.2018 has submitted that in so far as the proposal to invoke penal provisions for imposition of penalty and cancellation of registration was concerned ....
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....e passed on due to GST rate reduction Extra grammage actually given as benefit Commensurate (Yes/No) If documentary any proof available to evidence the cause-effect relationship between GST rate reduction and Grammage increase. (It should not be a continuation of any ongoing business promotion activity) It should be substantiated with documentary evidences. Document 4 Summary of Grammage Benefit Sr. No. Row Labels No. of Products Value of extra grammage Benefit to be given supplied in Rs. Sum of Value of extra grammage given (even more than GST rate reduction) Already being sold pre 15.11.2017, 1 14 12,76,46,825 0 72762206.64 under same CBU code 2 Disallowed due to Non-reflection in Sales Register 7 1,58,91,857 0 1929945.301 3 Increase in Grammage, benefit can be given as per DGAP Profiteering computation 6 40389333.31 1,36,90,573 24260527.77 4 Increase in Grammage, benefit can be given as HUL asked 73 951793343.7 67,40,60,177 277733167 Sales Return, ....