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2019 (3) TMI 430
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....re there was no reduction in the price (inclusive of GST @ 18%) charged from the recipients. In support of his allegation, the Applicant No. 1 had submitted copies of the two sale invoices of "HP 678 L0S24AA Combo Pack Ink Advantage Cartridges (Black & Tri Color) B00UHG8BFl" (hereinafter referred to as the product) dated 04.10.2017 and 09.12.2017, issued by the Respondent. This complaint was forwarded to the Standing Committee for necessary action. 2. The complaint was examined by the Standing Committee on Antiprofiteering in its meeting held on 25.05.2018, wherein it was decided, as per the minutes of the meeting dated 08.06.2018, to refer the matter to the Directorate General of Anti-Profiteering (DGAP) to initiate an investigation and collect evidence necessary to determine whether the benefit of reduction in the rate of tax on the said product had been passed on by the Respondent to his customers or not. 3. The DGAP after completing the investigation has submitted his report under Rule 129 (6) of the CGST Rules, 2017 on 19.09.2018. The Report states that a notice under Rule 129 of the CGST Rules, 2017 was issued on 10.07.2018, calling upon the Respondent to submit his rep....
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....€¢ Copies of GSTR-1I and GSTR- 3B for the period November, 2017 to July, 2018. • Copies of two sample sale and purchase invoices of the goods under investigation for the period from July, 2017 to July, 2018. The Respondent also submitted that they had not purchased this product after December, 2017. 6. The DGAP in its report has further informed that during the period between 01 .10.2017 to 31.12.2017, the Respondent had sold 16,248 units of the above product whereas the sales figure had dropped to only 251 units during the period from January, 2018 to July, 2018. An e-mail dated 06.09.2018 was sent to the Respondent by the DGAP to indicate the reasons behind such substantial reduction in the sales. The Respondent, vide his e-mail dated 07.09.2018, submitted that he had stopped dealing with certain products including printer cartridges, towards the end of 2017 and he had sold only the leftover stock during the subsequent months. 7. The DGAP has submitted that the Respondent was required to sell the said goods at the pre 15.11.2017 base price and charge lower GST @ 18% on such base price, to pass on the benefit of reduction in the rate of tax from 28% to 18% w....
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....ce was issued to all the interested parties. But the hearing was postponed to 29.10.2018 on the request of the Respondent received vide his mail dated 22.10.2018. On 29.10.2018 Mr. Rahul Sharma and Mr. Sachin Taparia appeared on behalf of the Applicant No. 1 while the DGAP was represented by Ms. Gayatri Verma, Deputy Commissioner, and the Respondent was represented by Ms. Sheena Saveen, Sr. Manager Deloitte, Mr. Ankit Mundra, Sr. Tax Manager Cloudtail India Pvt. Ltd., Mr. Mahesh Jaisraj CA, Partner Deloitte and Ms. Sangita Prakash CA, Manager Deloitte. On the request of the Respondent, further hearings were granted on 26.11.2018 and 05.12.2018. 11. The Respondent has filed detailed written submissions on 22.11.2018 and 29.11.2018. In his submissions dated 22.11.2018, referring to the DGAP Report, the Respondent has submitted that he had already filed his reply vide his letter dated 06.08.2018 before the DGAP. In addition, he had made the following submissions with respect to the Report submitted by the DGAP. He has claimed that the DGAP has framed the Report on certain assumptions which were incorrect and several key aspects and facts having bearing on the investigation which wa....
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....extracted below: "We observed that the complaint is against Cloudtail India Pvt. Ltd. and not HP India Pvt. Ltd., the manufacturer of the product. Our understanding is that the manufacturer is responsible for publishing MRPs on boxes and we observe that despite change in GST rates the boxes didn't reflect the revised MRPs directly or via a price sticker." Amount in Rs. Particulars Invoice dated October 4, 2017 (during sale period) Invoice dated December 9, 2017 MRP 1,076 1,158 Sale price* 688.28 911.86 Discount* 34.38 45.59 Net sale price* 653.87 866.27 Purchase price* 696.46 798.00 Actual price difference (42.59) 68.27 Price difference % on sales price (6.51%) 7.88% Price difference % on MRP (3.96%) 5.90% *Exclusive of GST/ taxes 15. The Respondent referring to the two invoices (shown in the table given above) filed by the Applicant No. 1 has also claimed that he had no control over the MRP affixed by the Brand owner i.e. HP India and he was just a retailer dealing with the products manufactured or imported by the brand owner. He has further claimed that the product in question had not....
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....Effective post-GST incidence of taxes - 34.4 23.9 Change in effective rate 18.9% (10.5%) MRP of product** 1,076 1,239 1,158 16. The Respondent has also stated that he had clearly demonstrated that the margin earned in respect of the invoice dated 09.12.2017 was only 5.9% of the MRP as against the entitled margin of 15.83% of MRP. He has also further stated that it was common in the retail business (including ecommerce) to offer discretionary discounts to customers during the "festival sales period" and these discounts were largely guided by market practices but were also discretionary. Depending upon the sale period, inventory position, competitor strategy, market penetration, customer loyalty or other similar factors, retailers like him chose to provide voluntary discounts/benefits to their customers. These benefits were discretionary and the sellers were under no statutory obligation to provide them or to withdraw them. The Respondent has also claimed that he was fully entitled to sell the product at the MRP printed on the package but had chosen to provide certain discretionary, non-statutory benefits to his customers. 17. The also su....
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....ally took about 3-4 months for the product imported to move from HP India to the Distributors and then to the retailers to be sold finally to the end customer through the supply chain. Further, the Respondent had submitted that he had purchased 23,307 units in the month of July 2017 and August 2017 from Savex Technologies Private Ltd. and Compuage Infocom Limited at Rs. 696.78 and there was no purchase post August 14, 2017 and before the date of sale, i.e., October 4, 2017. The above two companies had stocks of the products as of July 1, 2017 which were sold to the Respondent in July 2017 and August 2017 which were further resold by him to the various customers including the above Applicant in the months of July 2017, August 2017, September 2017 and October 2017. The said goods sold by him might have contained pre-GST MRP or post-GST MRP. Specifically, the product sold to the above Applicant, the same pertained to the pre-GST stock as the same had MRP of Rs. 1,076 which was applicable till June 30, 2017 as was evident in the complaint filed by the above Applicant. He has also claimed that since the MRP affixed on the stock purchased by the above Applicant on October 4, 2017 was Rs.....
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....de in November 2017 (net of sales returns) (4,613) Stock as on November 30, 2017 2,899 Supplies made from December 1, 2017 to December 9, 2017 including supplies to the Applicant 753 Thus, it has been contended that because the Applicant No. 1 did not make any purchase of product with MRP of Rs. 1,239, it appeared to him that there had been an increase in the MRP. However, the fact was that the MRP had been reduced from Rs. 1,239 to Rs. 1,158. He has also produced the details of purchases as given below to substantiate his claim which is authenticated with the CA certificate. Amount in Rs. Period Total purchase cost (excluding taxes) Qty purchased Purchase price per unit* (B) (C) D = (B)/(C) July 1, 2017 to August 14, 2017 1,92,39,708 27 ,625 696.46 October 31, 2017* 6,96,460 1,000 696.46 October 25, 2017 to December 14, 2017 25,59,186 3,207 798.00 2,24,95,354 31,832 *Purchase on October 31, 2017 is pertaining to a one-off single invoice for purchases made from the Distributor. 20. The Respondent has claimed that the DGAP's Report notes that the average ....
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....e seen that the actual price difference earned by him was much below the entitled margin as has been computed in the table below:- Particulars Invoice dated October 4, 2017 (Note 1) Invoice dated December 2017 (Note 2) MRP 1,076 1,158 Sale price** 688.28 911.86 Discount** 34.38 45.59 Net sale price** 653.87 866.27 Purchase price** 696.46 798 00 Actual price difference* (42.59) 68.27 Actual price difference % on sales price (6.51 7.88% Actual price difference % on MRP (3.96%) 5.90% Entitled margin 144 183 Entitled margin % on MRP 13.40% 15.83% *Price difference is solely the difference in the sale price and purchase price. This is before factoring other direct and indirect expenses. ***ExcIusive of GST/ taxes Note 1 - Invoice issued against order dated September 23, 2017 - During the "Great Indian Festival sale" - wherein the company gives additional discounts Note 2 - Invoice issued against order dated December 6, 2017 - During "normal sales" wherein discounts are offered at lower levels Actual average Price difference on sales post November 15, 2017 Amount in Rup....
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....y the above Applicant had clearly captured the order date as September 23, 2017, which fell within the duration of the Great Indian Festival sale. 24. The Invoice dated December 9, 2017 pertained to a sale which was made during the business as usual, when there was no promotion on Amazon and no exceptional discounts were being provided. Therefore, the Respondent has claimed that they were not comparable invoices. He has further claimed that the discounts offered during the Great Indian Festival were non-binding, without any statutory obligation and after exercising the discretion available to him and withdrawal of these discounts would not amount to profiteering as the products had been sold at a price much lower than the price reduced on account of GST rate reduction. The Respondent has also argued that there was no prescribed mechanism either under the CGST Act or the CGST Rules for the procedure to be followed for determining the amount of profiteering. The methodology was determined on a case-to-case basis as might be deemed fit by the Authority and therefore in the case of the Respondent the Authority should consider the fact that on an online marketplace where it was commo....
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....en arrived at based on sales details for the period October 1, 2017 to November 14, 2017 alone, as could be seen from the table given below. Instead the average base price per unit for the period prior to the rate change should have been calculated on all the sales made from July 1 , 2017 to November 14, 2017. The average base price per unit in respect of sale of the product from July 1, 2017 to November 14, 2017 was Rs. 710.78 and not 705.90, as has been stated in the DGAP Report and out of the 5,028 units sold between November 15, 2017 to July 31, 2018, 584 units sold between November 14, 2017 to December 22, 2017 had been sold at a price of Rs. 786.44 or lesser. Sales during 1.10.17 to 14.11.17 (GST 28%) Sales during 15.11.17 to 31.07.18 (GST @ 18%) Commensurate price Profiteering Average base price after discount Qty. Sold Average base price after discount Qty. Sold Actual selling price B C D E F =118% of D G=118% of B H=[F-G] 705.90 11,471 887.90 5028 1047.72 832.96 214.76 He has also stated that the amount profiteered per unit, as computed in the report is also incorrect. At the time of calculation of the....
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....rage base price per unit after discount*(A) 887.90 887.90 Average base price per unit after discount**/***(B) 705.90 710.78 Profiteering per unit 181.00 177.26 Quantity sold 5,028 5,028 Total amount profiteered 9,15,096.00 8,91,263.28 *Based on sales made between November 15, 2017 to July 31, 2018 **Based on sales made between October 1, 2017 to November 14, 2018 ***Based on sales made between July 1, 2017 to November 14, 2018 3. Reduction in amount profiteered after considering sales returns Amount in Rs. Particulars Amount Amount Average base price per unit after discount* (A) 887.90 887.90 Average base price per unit after discount** (B) 710.78 710.78 Profiteering per unit 177.26 177.26 Quantity sold 5,028 4,414 Total amount profiteered 8,91,263.28 7,82,425.60 *Based on sales made between November 15, 2017 to July 31, 2018 * *Based on sales made between July I, 2017 to November 14, 2018 Rectified table as provided by the Respondent Product Sales during 1.10.17 to 14.11.17 (GST @28%) Sales during 15.11.17 to 31.07.18 (GST@18%) Comme....
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.... by not providing/ withholding several key details relevant to the case, the above Applicant and the DGAP had disregarded the spirit and purpose of the anti-profiteering provisions under the CGST Act, 2017. 31. The DGAP, in response to the written submissions of the Respondent, filed a rejoinder on 03.12.2018 and 06.12.2018, making the following observations:- a. With regard to the issue raised by the respondent that the complaint filed by the Applicant was incomplete, inadequate and not accurate, the DGAP quoting Rule 128(1) of the CGST Rules, 2017, has stated that the present application was examined by the Standing Committee in its meeting held on 25.05.2018, and it was decided to forward it to the Directorate General of Anti-profiteering for investigation after satisfying that prima facie case about anti-profiteering was made out. b. With regard to the Respondents submission that the applicant had not provided any proof regarding the MRP of the product disputed in the complaint and that MRP had been manually mentioned, even after confirming that the applicant isn't a purchaser of the goods, the DGAP quoting Rule 129 (1) of the CGST Rules, 2017, has stated that the ....
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....ed based on sales data for the period 01.07.2017 to 14.1 1 .2017, the DGAP has submitted that Section 171 (1)of the Central Goods and Service Tax Act, 2017 required that "a reduction in 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, as the complaint related to the allegation of the benefit of reduction in tax rate from 28% to 18% w.e.f. 15.11.2017 not having been passed on, the nearest available pre rate reduction prices have been compared and the profiteering amount has been computed accordingly, in the investigation report dated 19.09.2018. f. With regard to amounts to be compared should have been excluding the taxes, the DGAP has stated that the price paid by the recipient included both the base price and also the tax charged on it. Therefore, any excess base price or tax collected from the recipients must be returned to the recipients and where the recipients were not identifiable, the same was required to be deposited in the Consumer Welfare Fund. With regard to the sale returns not considered, the DGAP has submitted that at time of the report the t....
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....Committee shall, upon being satisfied that the supplier has contravened the provisions of Section 171, forward the application with its recommendations to the Standing Committee for further action". Further Rule 137 (c) of the CGST Rules reads that "interested party" includes- a. suppliers of goods or services under the proceedings; and b. recipients of goods or services under the proceedings; c. any other person alleging, under sub-rule (1) of rule 128, that a registered person has not passed on the benefit of reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices. 34. As seen from the relevant rules above, it is clear that anyone alleging profiteering can file a complaint. So it is not necessary that the complainant has to purchase the products. Moreover, all the details, such as manufacturer, seller, invoice, price and the product name are available so the question of not considering the complaint does not arise at all. Even the MRP that is written manually happens to be the correct MRP, as has been admitted by the Respondent. Therefore, the Stand....
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....ercentage on selling price had increased from 17.56% to 18.68%. This statistics itself clearly shows that when the MRP reduced from Rs. 1 , 239 to Rs. 1,158, the procurement price remaining the same and with GST rate of tax being reduced from 28% to 18%, the Respondent had increased his selling price by Rs. 13.39 per unit and on this increased price GST of 18% has also been collected. As claimed by the Respondent he could not take advantage of the reduction in the rate of tax to increase his profit margins. The benefit of reduction in rate of tax has to be necessarily passed on to the recipients. Moreover, the DGAP has rightly taken the transaction value of the supplier which was the price that was charged by the Respondent from his recipients which excluded the impact of discounts. 37. The Respondent has further submitted that there had been an increase in the procurement price after introduction of GST with rate of tax being 28% on the products in question. The rate of change of tax from 28% to 18% had been w.e.f. 15.11.2017. Therefore, the DGAP should have considered all the sales made between 01.07.2017 to 14.11.2017, instead of taking the details for the period w.e.f. 01.10....
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....the above product as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017 by making commensurate reduction in the prices, keeping in view the reduction in the rate of tax. The Respondent is also directed to deposit the profiteered amount along with interest at 18% when the above amount was collected by him from his recipients till the date of deposit. The Applicant No. 1 has admitted that the product was not purchased by him hence the question of refund does not arise. Hence the Respondent is directed to deposit the entire amount of Rs. 10, 79,813.28 in the Consumer Welfare Fund of the Centre and the respective States as per the provisions of Rule 133 (3) (c) of CGST Rules, 2017. Further the Respondent is directed to deposit the above amount as per the provisions of Rule 133 (3) (c) in the ratio of 50:50 in the Central and the State Consumer Welfare Funds. Accordingly the Respondent is directed to deposit an amount of Rs. 5,39,906.64 in the Central CWF and the balance in the State CWFs as given below. The above amount shall be deposited within a period of 3 months from the date of receipt of this order. S. No State Qty Nos. Profiteering per Unit Profiteerin....
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....s were reduced from 28% to 18% MRP by HP was increased) Details of reduction in Tax Rate/ Benefit of Input Tax Credit (ITC) (Please Tick-V) D.1 Whether the benefit of reduction in tax rate has been passed on (Please enclose evidence like copies of Invoice, Price List etc.). D.2 Whether the benefit of ITC has been passed on (Please enclose evidence) D3# Additional information, if any. - Increased MRP post GST reduction (GST - 18%) Yes Yes Document 2 Order Date: 23.09.2017 SL No Description HP 678 10524AA Combo-Pack Ink Advantage Cartridges (Buck and TC; BOUHGBF HSN 8443 TOTAL Amount in Words: Net Unit Prick Discount Quantity Eight Hundred And Thirty-six Point Nine Five only Invoice Date: 04.10.2017 Tax Tax Tax Total Amount Rate Type Amount Amount 18.08 181695 For Cloudtail India Private Limited: Authorized Signatory Document 3 AS Contact Number A4-mail ID AS Proof of identity (Please Ticks) she Aadhar Cand Voter 10 @mail.com Paumanent Account Number PAN Card Oring Licenca Paispert Ration Card having shotograph of the appl Any other roof of dentity (Specify) ....