AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (3) TMI 371
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....s, 2017. The brief facts of the present case are that an application dated 22.01.201d was filed by the Applicant No. 1 before the Standing Committee constituted under Rule 128 of the above Rules alleging that the Respondent No. 1 had not passed on the benefit of reduction in the rate of tax as he had increased the MRP of "Melaglow Rich (Niacinamide) Depigmentation & Glow Restoration Cream' (here-in-after referred to as the product) from Rs. 365/- to Rs. 415/- per unit post implementation of the GST. He had also submitted an image of the label of the product, which showed that the MRP of the product was mentioned as Rs. 365/- per unit however, another pasted sticker on the label indicated that the "MRP post CST" was Rs. 415/- per unit, which amounted to an increase of Rs. 50/- per unit post implementation of the GST. The label also disclosed that the product was marketed by the Respondent No. 1 and manufactured by the Respondent No. 2. The Applicant No. 1 had further informed vide his email dated 10.07.2018 that the above product was purchased by him from the Respondent No. 3. The Applicant No. 1 had also claimed that since the Respondents had increased the MRP of the product after ....
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....dent No. 1 on 18 10.2018. 5. The DGAP had requested for granting extension in time to complete the investigation up to 08 11 2018 which was allowed by this Authority under Rule 129 (6) of the above Rules, vide its order dated 31.07.2018. The present investigation pertains to the period between 01.07.2017 to 31 .07.2018. 6. The DGAP in his Report has stated that the Respondent No. 1 in reply to his notice had supplied information regarding period-wise applicable tax structure, MRP and the selling price of the product vide his letter dated 25.07.2018, the details of which are mentioned in the table given below:- Period Excise Duty Rate Avg VAT/ GST Rate MRP (Rs.) Abbott's Actual Selling Price (excluding VAT/ GST) (Rs.) pre-GST (Upto 06.05.2016) Central Excise Duty exemption till 06.05.2016 as the product was manufactured at Baddi Plant (Area-based exemption under Notification No. 49/2003-CE and 50/2003-CE dated 10 06.2003) 12.5% 348 222.72 Pre-GST (07.05.2016 to March, 2017) 12.5% on abated MRP of 65% = 8.13% of MRP 12.5% 348 222 72 Pre-GST (April, 2017 to June, 17) 12 5% on abated MRP of 65% = 8.13% of MRP 12 5% 365 2....
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.... copy of the Central Excise invoices, evidencing payment of CED post 06 05 20 Id and the Respondent No. 2 vide his e-mail dated 19.09.2018 had informed that the product was being manufactured for him by from the job worker viz. M/S Helios Pharmaceuticals at its manufacturing facility located in Village Malpur, P.O. Bhud, Baddi, Teh. Nalagarh, Distt.-Solan, Himachal Pradesh- 173205 and the CED was being paid by M/s. Helios Pharmaceuticals. The Respondent No. 2 had also submitted the desired invoices and the documents to the DGAP 10. The DGAP has further intimated that vide his reply dated 27.07.2018, the Respondent No. 3 had submitted that he had purchased the product from M/S Aditya Pharmaceuticals (Distributor of Respondent No. 1) at a price of Rs. 259 38/- exclusive of taxes. The Respondent No. 3 had also submitted his purchase tax invoice No. Sl/17-18/28781 dated 27.01.2018 issued by M/s. Aditya Pharmaceuticals, showing the MRP as Rs. 415/-. M/s Aditya Pharmaceuticals had also provided its purchase invoice No. 3194078993 dated 28.10.2017 issued by the Respondent No. 1, mentioning the MRP as Rs. 415/- 11. The DGAP has also informed in his Report that the Central Government ....
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....ase price, to pass on the benefit of reduction in the rate of tax, however, it was apparent from the sales data submitted by him that the per unit base price of the product was increased w.e.f. 01.07.2017 after the GST had come in to force, from Rs. 202 06 to Rs. 230.90 (average base price for the sales made during the period 01 07 2017 to 31.07.2018). The DGAP has further submitted that since the Respondent No. 1 was a supplier registered under the GST, he was legally bound to pass on the benefit of reduction in the rate of GST to his customers immediately w.e.f. 01.07.2017 and 15.11.2017 however, by increasing the base price of the product and also by increasing the cum-tax price charged from the recipients post GST, the benefit of GST rate reduction was not passed on by the Respondent No. 1 to his customers. Therefore, the DGAP has concluded that in respect of the above product, supplied by the Respondent No. I during the period between 01.07.2017 to 31.07.2018, the amount of profiteering came to Rs. 96,59,716.26/- on account of increase in its base price as had been furnished in Annexure-15 by him. 15. The above Report was received on 25 10.2018 and was considered by the Aut....
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....ther intimated that with effect from 07.05.2016, the product attracted CED, @12.5% on the abated MRP (65% of the MRP), which amounted to duty rate of 8.125%. He has also contended that the average rate of VAT applicable on the sale of the product was 12 5%. He has also supplied the summary of the applicable tax structure on the product during the pre-GST and the post-GST regime which is mentioned in the table given below:- Applicable tax structure on the Product Period Central Excise duty (CED) Central Excise rate Avg. VAT/ GST Rate MRP (Rs.) AHPL's Actual Selling Price (Rs.) Pre-GST period (Up to 06.05.2016) Exempted from Central Excise Duty, as the product was manufactured at a manufacturing facility in Baddi (availing area based exemption) 0% 12.50% 348 222.72 Pre-GST Period (From 07.05.2016 to March 2017) Attracted Central Excise Duty 12.5% on abated MRP of 8.125 effective rate 12.50% 348 222.72 Pre-GST Period (March 2017 to June 2017) Attracted Central Excise Duty 12.5% on abated MRP of 8.125% 12.50% 365 233.60 Post GST Period (from 01.07.2017 to 14.11.2017) 0% 28% 415 233....
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....ncluded within the scope of the term "rate of tax" had to be determined. He has also claimed that Section 9 of the CGST Act, 2017 and Section 5 of the Integrated Goods and Services Tax (IGST) Act, 2017 i.e. the charging provisions, stated that there shall be levied a "tax' called the CGST or the IGST on all the intra/inter-state supplies of goods or services or both thus, in these Sections, the term "tax" had expressly been mentioned as CGST/IGST/SGST. He has further claimed that the term "tax" has been used in the charging provisions to denote the tax levied on the taxable event of "supply", and not to any other tax or duty levied on a taxable event other than "supply" and hence the term "tax" did not cover a tax imposed on a taxable event other than supply" hence, a tax on the manufacture of goods viz. the CED or a tax on the sale of goods i.e. the Central Sales Tax (CST) or the VAT did not fall under its ambit. 23. He has further drawn attention to Section 14 of the CGST Act, 2017 and averred that the term 'change in the rate of tax' used therein was limited to the change in the rate of COST leviable under the above Act and the same could not be extended to cover pre-GST taxe....
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.... further pleaded that wherever the legislature intended to refer to the provisions of the erstwhile indirect tax enactments, the term 'existing law' had been used, however, in Section 171 there was no reference to any tax levied under the "existing law". 25. The Respondent No. 1 has also submitted that the legal maxim contemporanea exposito, which was used by the courts to interpret any ambiguous law was applicable in this case also. The Respondent No. 1 has also argued that the Authority on its website had published its mandate and had also defined profiteering in reply to the FAQs however, the same did not have the force of the law. He has further cited the judgments of the Hon'ble Supreme Court passed in the cases of: (i) K. P. Varghese v. Income Tax Officer 1982 SCR (1) 629 = 1981 (9) TMI 1 - SUPREME COURT (ii) Desh Bandhu Gupta and Co. v. Delhi Stock Exchange Association Ltd. (1979) 3 SCR 373 = 1979 (2) TMI 175 - SUPREME COURT OF INDIA and (iii) Spentex Industries Ltd. v. CCE 2015 (324) E.L.T. 686 (S.C.) = 2015 (10) TMI 774 - SUPREME COURT and submitted that the legislative intent behind section 171 was to empower the Authority to investigate cases of profiteering ....
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....e above formulation, the pre-GST rate worked out to be 24.62% and since the rate of GST applicable on the product w.e.f. 01.07.2017 was 28%, there was no reduction in the rate of tax as was clear from the following table:- Particulars Effective rate computation as per the DGAP Report Correct method of effective rate computation Central Excise Duty 29.66 29.66 CST 1.88 1.88 VAT (upto the stage of Abbott's sale price) 29.2 29.2 VAT (in the distribution chain beyond sale by Abbott i.e. in subsequent sales) 0 11.36 (A) Numerator - Total Tax 60.74 72.10 (B1) Denominator - Abbott's sales price minus taxes 233.60 - 60.74= 202.06 --- (B2) Denominator - MRP of the product (i.e. Rs. 365/-) minus all applicable taxes --- 365 - 72.10 = 292.90 Effective tax rate A/B1 = 60.74/202.06 = 30.06% A/B2 = 72.10/292.90 - 24.62% 29. The Respondent No. 1 has further submitted that the computation had been done without thorough understanding of the pricing structure of the product and the tax computation method under the prevailing indirect tax laws. He has also contended that by following an arbitrary computa....
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....otherwise he was increasing the price annually. He has further argued that the base price of the product was maintained at the same level, pre-GST and post GST. 32. The Respondent No.1 has also pleaded that he had compensated losses of his trade partners by paying approx. Rs. 6 Lakhs due to introduction of GST. He has also submitted the details of MRP of his product and that of other companies to claim that not only he but they had also increased their MRPs.- Competition Brand Name MRP Pre-GST MRP @ 28% GST MRP @ 18% GST Melaglow Rich 20 gm 365 415 382 Biluma 15 gm 395 435 401 Kojivit Ultra 20 gm 326 357 367 Advan 10 435 470 430 Advan 20 560 590 560 33. In his submissions dated 24.12.2018, the Respondent No. 1 has stated that post CED exemption, he had not passed on the cost of excise to the consumer by way of price increase and charging of the same at the time of the implementation of the GST it had been viewed by the DGAP as increase in the base price although he was entitled to charge the cost of excise duty post May 7, 2016. 34. In his submissions dated 24.12.2018 the Respondent has claimed that....
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....e GST was to subsume multiple central and state taxes to reduce the costs of doing business and while doing so there should not be exorbitant rise in the prices. To curb the tendency of undue enrichment by the suppliers of goods and services on account of and on the eve of implementation of the GST Section 171 (1) of the CGST Act, 2017 was enacted which states that "a 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." Therefore, It is clear from the plain reading of the above provision that any reduction in the rate of tax should result in commensurate reduction in the price w.e.f. 01.07.2017, the date from which the above Act has come in to force so that there is no profiteering by the suppliers at the expense of the consumers in case the rate of tax is reduced post GST and in case it is not done the supplier shall be liable for breach of the above provision. It is also clear from the perusal of Section 174 of the CGST Act, 2017 and Section 173 of the State GST Acts, 2017 that the Central and the State Acts which imposed CED, CST as well as the VAT have ....
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....rm "tax" as used in the above Sections does not apply on the CED, CST or the VAT as it applies only on the "supply" of goods and services. A bare perusal of Section 7 of the CGST/SGST Acts, 2017 shows that "supply" includes "sale" also and as per Section 2 (21) of the IGST Act, 2017 the supply shall have the same meaning as has been assigned to it under Section 7 of the CGST Act, 201 T As CED forms part of the price of the product on which VAT is leviable therefore, all of them viz. CED CST and VAT are equally applicable on the taxable event of "supply" as supply includes sale also. The provisions of Section 14 of the above Acts pertain to the "time of supply" with reference to the "rate of change in the tax" and not to the reduction in the rate of tax and hence they are being wrongly quoted by the above Respondent in his support. Therefore, both the rates of tax applicable pre-GST and post-GST can be compared and in case there is reduction in the rate of tax post-GST the same falls under the preview of Section 171 (1) of the above Act. 38. Section 171 (2) of the above Act read with Rule 127 of the CGST Rules, 2017 empowers this Authority to examine whether the benefits of tax r....
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....ve no binding force of a statutory law and hence the above maxim can not be invoked by the Respondent in his support. 41. Also, the legal maxim of contemporanea exposito is applicable in construing ancient statutes, but not for interpreting acts which are comparatively modern. In the legal jurisprudence, the maxim of contemporanea exposito was invented to interpret the provisions of statues made centuries earlier. In English courts, the legal maxim has been used to interpret the laws made in the Victorian times but according to the latest contemporary legal usages assigned o those provisions it has been rarely used. In this respect, the landmark case of J. K. Cotton Spinning and Weaving Mills Ltd. and another v Union of India and Others, AIR 1988 SC 191 = 1987 (10) TMI 51 - SUPREME COURT OF INDIA, is worth mentioning. In this case, the learned counsel had relied on the judgement passed in the case of K.P. Varghese v. the Income Tax Officer, Ernakulam AIR 1981 SC 1922 = 1981 (9) TMI 1 - SUPREME COURT (also cited by the Respondent No. 1). on which the Hon'ble Supreme Court had observed that in K. P. Varghese case there was ambiguity and a word was capable of two constructions henc....
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....230.90 does not amount to passing on the benefit of reduction in the rate of tax. The DGAP has rightly computed that the rate of tax of 30.06% was applicable till 30.06.2017 which was reduced to 28% after introduction of the GST on the above product vide para 14 of his Report which can be fully relied upon. 43. The Respondent No. 1, in his submission dated 19.11.2018, has said that he had not increased the base price and the DGAP's calculation was factually incorrect as it was based on the wrong assumption that there was reduction in the rate of tax post-GST. He has also claimed that the increase in the MRP by 4.89% was made in March, 2017 due to increase in the rate of GST and the withdrawal of the discount which he was giving due to cessation of the CE exemption. But the Respondent No. I's submissions fall Short Of establishing this fact as it is apparent from the record that he had increased the base price of the product-from Rs. 202 06 (Rs. 233.60 Rs. 29.66 CED-Rs. 1.88 CST) to Rs. 230.90 per unit w.e.f. 01.07 2017 whereas he should not have increased it and supplied the product by charging 28% GST w.e.f. 01.07.2017 and 18% w.e.f. 15.11.2017 to pass on the benefit of tax red....
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.... increased from Rs. 202.06 to Rs. 230.90 per unit which resulted in increasing of the selling price amounting to denial of not passing the benefit of tax reduction to the customers. We have carefully gone into the computation of the profiteered amount made by the DGAP the details of which have been furnished by him in Annexure-15 attached with his Report and find that the calculation made by the DGAP in this regard is correct and the same can be fully relied upon. Thus, the total amount the benefit of which was denied to the recipients by the Respondent No. 1 or the profiteered amount during the period w.e.f. 01.07.2017 to 31.07.2018, comes to Rs. 96,59,716.26/-. The Respondent No. 1 has also himself agreed to deposit this amount along with the applicable interest, vide his submission dated 24 12 2018 before this Authority. 48. Accordingly, the Respondent No. 1 is directed to reduce the price of above mentioned product as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, by making commensurate reduction in its price, keeping in view the reduction in the rate of tax w.e.f 01.07.2017 and 15.11 2017 so that the benefit is passed on to the recipients Since the Applican....
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....erry 264 4,111.775 21 Punjab 8,534 1,53,999.4 22 Rajasthan 7,045 1,22,741.8 23 Tamil Nadu 15,001 2,62,438.2 24 Telangana 16,636 3,07,438.4 25 Tripura 315 5,586.68 26 Uttar Pradesh 20,681 3,45,324.3 27 Uttarakhand 3,117 57,059.39 28 West Bengal 25,173 4,65,503.9 Total amount to be deposited in State Consumer Welfare Funds 2,76,873 48,29,858 49. The above amount shall be deposited within a period of 3 months by the Respondent No. 1, from the date of receipt of this order, failing which the same shall be recovered by the concerned Commissioners of the Central and the State GST, as per the provisions of the CGST/SGST Acts, 2017 under the supervision of the DGAP and shall be deposited as has been directed vide this order. A detailed Report shall also be filed by the concerned Commissioners of the Central and the State GST indicating the action taken by them within a period of 4 months from the date of this order. 50. Since, the present investigation in to the issue of not passing on the benefit of reduction in the rate of tax by the Respondent No. 1 has been conducted w.e....