TaxTMI 
TaxTMI 
2019 (3) TMI 430
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....sive 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 reply as to whether he admitted that the benefit of ....
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.... 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.e.f. 15.1 1.2017. The DGAP has further submitted, as a supplier registered under the GST, it was the....
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.... 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 was submitted in response to the notice of the DGAP had been completely ignored. He has also claimed that by not providing an analysis of how his submissions were incorr....
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....anufacturer 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 been imported by him. Quoting the circulars of the Legal Methodology department, he has claimed that as per the provisions of the Legal Metrology Act, 2009, it was the duty of the manufacturer/ importer to determine the MRP and to affix MRP....
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....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 submitted that in compliance with the anti-profiteering regulations, the brand owner, HP India had reduced the MRP of the product from Rs. 1,239 to Rs. 1,158, post the reduction in the rate of tax in November 2017. He has also emphasised that at no given point of time the Respondent had sold the above product at a pri....
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....gies 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. 1 ,076, it could be deduced that the product is pre-GST stock and therefore it was clear that the MRP of the product was not increased from Rs. 1,076 to Rs. 1,158 after rate reduction in November 2017 and the said product was never sold above the reduced MRP by the Respondent. He has also claimed that though the MRP ....
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.... 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 per unit base price was increased from Rs. 705.90 (which is the average base price for sales made during the period from October 1, 2017 to November 14, 2017) to Rs. 887.90 (which is the average base price for the sales made during the period from November 15, 2017 to July 31, 2018) as is given in the Table B of the DGAP Report. This approach according to him was grossly incorrect as it completely ignores the fact that the ke....
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.... % 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 Rupees Particulars Amount Average selling price including taxes post-rate change (as arrived in the report based on sales made for the period November 15, 2017 to July 31, 2018) 1,047.72 Less: Taxes (GST @ 18%) 159.82 Average selling price excluding taxes 887.90 Purchase price 798.00 Price difference 89.90 Price difference % of selling price 10.3% 22. The Respondent has also stated that in the retail industry, margins were negotiated with the distributors/manufacturers using MRP of the products....
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.... 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 common practice to issue discounts, the fact that the product was a discounted one should not be ignored. 25. It is also submitted that the procurement price had increased from Rs. 696 to Rs. 798 in the month of October 2017, and if the Respondent had continued to sell at the average base price of Rs. 705.90, as envisaged by the DGAP, he would have incurred a loss. For the 5,028 units sold by him during the period November 15, 2017 to July 31, 2018, they would have incurred a loss of Rs. 4,62,576 as could be seen from the table below:- Amount In Rs. Particulars Amount Average base ....
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....ember 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 profiteered amount, the DGAP has arrived at commensurate price (determined in column G of table given below) vis-a-vis actual sales price per unit for sales made during the period November 15, 2017 to July 31, 2018 (determined in column F of table given below). Both of these prices are cum-tax prices. Sales during 1.10.17 to 14.11.17 (GST@28%) Sales during 15.11.17 to 31.07.18 (GST 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 11471 887.90 5028 1047.72 832.96 214.76 28. The Respondent ....
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....14 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%) Commensurate price Profiteering Total profiteering (Rs.) Average base price after discount Qty. Sold Average base price after discount Qty. Sold Actual selling price A B C D E F=118% of D G=118% of B H=[D-B] I=[H*E] HP 678 L0S24AA Combo-pack Ink Advantage cartridges (Black and Tri-Colour) 710.78 11471 887.90 4414 1047.72 832.96 177.26 7,28,425.60 29. On 29.11.2018 the Respondent further filed additional submissions stating that the application filed by the Applicant No. 1 was incomplete, inadequate and not accurate. He has also stated that a key fact that had emerged during the hearing was that the above Applicant was not the actual purchaser of the product which was admitted by the Applicant himself during the proceedings on November 26, 2018. Reiterating his earlier submissions he has stated that the present application was inc....
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....d 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 present complaint was examined by the Standing Committee in its meeting held on 25.05.2018, wherein the complaint was found fit for investigation and it was decided to forward the same to the DGAP for investigation. c. The complainant had enclosed copies of invoices issued by the Respondent since the transaction invoice was issued by M/s. Cloudtail India Pvt. Ltd., the investigation was carried out against the Respondent. With regard to the issues that MRP was decided by the brand owner and there had been change in MRP post GST implementation, the DGAP submitted that the profiteering has been calculated on the transaction value (after discount) provided by the Respondent. The DGAP has further stated that since MRP was inclusive of all taxes and profit margin, the same had not been considered as the base price for calculation purpose. With regard to entitled margins the DGAP has stated that this had been alre....
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....cipients 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 time of supply of such quantity (whether pre or post GST rate revision) could not be determined. 32. We have considered the Report of the DGAP and the submissions made by the Respondent and other materials placed on record. The mandate of the Authority as per Section 171 of the CGST Act, 2017 read with Rule 127 of the CGST Rules, 2017 is to examine and determine as to whether- i) any reduction in rate of tax on any supply of goods or services or the benefit of ITC has been passed on to the recipient by way of commensurate reduction in prices, ii) to identify the registered person who has not passed on the benefit of reduction in the rate of tax on supply of goods or services or the benefit of ITC to the recipient by way of commensurate reduction in prices. 33. The Respondent has raised the following objections on the complaint itself which are being dealt in the following paras:- (i) Firstly, the Respondent, as discuss....
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.... 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 Standing Committee has rightly forwarded the same to the DGAP and the DGAP has accordingly completed its investigation and filed his Report. 35. Now coming to the issue on merits, the Respondent, referring to the invoices filed by the Applicant No. 1, has claimed that he had nothing to do with the MRP as it had been fixed by HP India, the brand owner. This argument of the Respondent is vitiated by the fact that the GST envisages that every supplier is to be registered and every registered Supplier is bound by Section 171 of the CGST Act, 2017, to pass on the benefit of reduction in tax. In the present case, we are concerned with the supplier and the supplier here is the Respondent who has increased the price even after reduction in the GST rate of tax. The passing of the benefit by the distributor or retailer does not rest on the fact that the manufacturer or his supplier should have passed on the same benefit to him first. 36. The Respondent has further alleg....
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....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. 01.10.2017 to 14.11.2017 alone. He has claimed that if the data from 01.07.2017 to 14.11.2017 was considered the average base price per unit would be Rs. 710.78 and not Rs. 705.90 and based on this he had arrived at total profiteered amount of Rs. 7,82,425.60 taking into account the sale returns of 614 units. The Respondent has not disputed the base price arrived at by the DGAP for the period 15.11.2017 to 31.07.2018 which is Rs. 887.90. His only objection is that the comparable period should also be from 01.07.2017 to 14.1 1.2017 since many of the old MRP products were also being sold during this period. Perusal of Annexure-13 of the Report of the DGAP shows that he has rightly calculated the base price of the product based upon the average sale price charged by the Respondent between the period from 01 .10.2017 to 14.1 1.2017 and hence the contention of the Respondent made in this behalf cannot be accepted. With regard to the sale returns of 614 units the Respondent....