TaxTMI 
TaxTMI 
2019 (7) TMI 36
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.... not reduced by the Respondent No. 1 and Respondent No. 2, despite reduction in the rate of GST on the said product from 12% to Nil w.e.f. 27.07.2018. 2. The above issue was examined by the Standing Committee on Anti-profiteering in its meeting held on 06.09.2018, wherein it was decided, to refer the matter to the Directorate General of Anti-Profiteering (DGAP) to initiate detailed investigation in the matter and collect evidence necessary to determine whether the benefit of reduction in the rate of GST on supply of the products had been passed on by the Respondents to the recipients. 3. An Application dated 02.08.2018, under Rule 128 of the CGST Rules, 2017 was also filed by the Applicant No. 2 against the Respondent No.1 for selling of the product at the same price even after rate reduction w.e.f 27.07.2018. The same was forwarded to the DGAP after it was examined in the meeting held by the Standing Committee on 08.10.2018. 4. The DGAP, after completing the investigation has submitted his report under Rule 129 (6) of CGST Rules, 2017 on 29.03.2019 pertaining to the period w.e.f. 27.07.2018 to 30.09.2018. 5. The DGAP has stated that a notice under Rule 129 of the CGST Rules, 2....
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....d 01.07.2017 to 26.07.2017 which included the value of closing stock of The product as on 30.06.2017, i.e., Rs. 11.8 crore, and the net ITC of Rs. 25.65 crore was availed by him during the period 01.07.2017 to 26.07.2018 for the product which did not include ITC on the closing stock of The product as on 30.06.2017. It is also stated that the value of closing stock of raw materials, packing materials and finished goods for sanitary protection business as on 26.07.2018, was Rs. 25.25 crore and on account of the closing stock as on 26.07.2018, ITC of Rs. 3.43 crore which was reversed. 9. The DGAP further stated that, the Respondent No. 2 submitted to him that for the stocks purchased prior to 27.07.2018, a dealer could not alter the MRP but the fact that the MRP was being reduced from Rs. 39/- to Rs. 38/-, was communicated to him by the Respondent No. 1 and he had sold the goods at the revised MRP of Rs. 38/-, in compliance with the relevant rules and regulations. He has further informed that as he was not eligible to retain the ITC in respect of the stock held as on 26.07.2018 and consequently, had realised that the loss of ITC would become cost to him and would increase the purchas....
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....d supplies during the period 01.07.2018 to 30.09.2018, as submitted by the Respondent No. 1, it was observed by him that the base prices of the product were different for different channels/category of supply and also varied for the same channel/category of supply. The Respondent Further stated that prior to GST rate reduction w.e.f. 27.07.2018, the base price at which the Respondent sold "Sofy Body Fit XL 6P" to Canteen Stores Department (CSD) was between Rs. 24.21 to Rs. 27.12 and for outlets other than CSD, the base price of the same product was between Rs. 25.49 to Rs. 29.33 and therefore, the average base prices of supplies to CSD and other than CSD outlets had been considered separately for calculation of the base prices during the pre-GST rate reduction period. 12. The DGAP has computed profiteering in respect of the Respondent No. 1 by comparing the commensurate post GST rate reduction base price with the base price at which the product had actually been sold during the period 27.07.2018 to 30.09.2018. The commensurate base price or selling price post reduction in GST rate from 12% to Nil w.e.f. 27.07.2018, has been arrived at by the DGAP by increasing the pre-GST rate red....
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.... KERALA (32) 41393.80 31 TAMIL NADU (33) 63119.90 32 PUDUCHERRY (34) 971.51 33 ANDAMAN AND NICOBAR ISLANDS (35) 0 34 TELANGANA (36) 47737.80 35 ANDHRA PRADESH (NEW) (37) 41673.80 Total 1077182/- 13. The DGAP, in respect of the Respondent No. 2 has stated that from the details of outward supplies of the product during the period 01.07.2018 to 30.09.2018 made available by the Respondent No. 2, it was clear that he had increased the base prices of the goods in question when the rate of GST was reduced from 12% to Nil. And on account of the reduction in GST rate from 12% to Nil w.e.f. 27.07.2018, the ITC reversed on the closing stock held as on 26.07.2018 would become cost to the Respondent No. 2, also as he would not get any ITC once rate of GST on The product was reduced from 12% to Nil and his input was also his final product or output. Hence, the Respondent No. 2 would not have to pay any GST on supply of the product and thus, the profiteering would be limited to closing stock on which credit was available in the pre-GST rate reduction period. The excess realisation from the closing stock (as on 26.07.2018) sold during the period 27.07.2018 to 30.09.2018, as comp....
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....with reduction in rate of tax he was denied the benefit of ITC on the inputs and input services, as a result of which the input tax paid on the inputs and services had become cost to him, and taking this cost into consideration he had suitably revised the prices of the product and issued declaration in the newspapers. 16. Respondent No. 1 has further submitted that he had intimated the dealers about the price reduction due to GST and claimed that the Report of the DGAP was not in terms of any guidelines or principles laid down under the Rules and as such, the same was in violation of the Rules and was unsustainable and that he had actually passed on the reduction in prices by commensurate reduction in prices of his products after adjusting for loss of ITC due to exemption notification which had become a cost to him. He has further submitted that he had passed on more than the rate of reduction in taxes and has actually suffered a loss of Rs. 2.52 crores, he has also claimed such method has been either prescribed in the CGST Act or the Rules to make commensurate reduction in price and no Methodology and Procedures has been framed by the NAA to determine the same. 17. Respondent No....
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....stated that the Notice dated 04.04.2019 issued by the Authority proposed to invoke the penal provisions under Section 29, 122, 123, 124, 125, 126 and 127 of the CGST Act, 2017 read with Rule 21 and 133 of CGST Rules, 2017 which was unsustainable and unconstitutional. He has also stated that the proposal to impose penalty under Rule 133 for alleged profiteering was also unconstitutional as the power of penalty conferred under Rule 127 and 133 suffer from the vice of excessive delegation and was ultra vires the Constitution for violation of Article 14 and 19(1) (g) of the Constitution. The term "commensurate reduction in price" had not been defined under the Act or the Rules, and the Authority has also not prescribed any such principles or safeguards in the Methodology and Procedure, 2018 framed by it to determine whether there was a benefit from the reduction in price or the method of calculation of the quantum of benefit. 21. The Respondent No. 1 has also contended that the Authority in Case No.3/2018 Sh. Kumar Gaurav Vs. KRBL Limited = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY had held that increase in the price of paddy, which was an input for basmati rice has to b....
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.... 6S" was increased from Rs. 33.08/- to Rs. 37.05/-, when the rate of tax was reduced from 12% to NIL% with effect from 27.07.2018. Thus, increasing the base price of the product, post-GST rate reduction, the benefit of reduction in tax rate was not passed on to the recipients. 25. The Respondent No. 2, who is the seller of the impugned product, had clearly increased the base price of the product as can be seen from the invoices. But as the benefit of ITC was not available to him post 27.07.2018, so the reversal of ITC on the closing stock was the extra cost on him. As can be seen from the records that reversal of ITC by him was more than excess realization on closing stock after denial of ITC benefit w.e.f. 27.07.2019, and therefore no profiteering can be established on his part and hence, we take the view that Section 171(1) is not attracted in respect of the Respondent No. 2. As such, we do not find any merit in the application filed by the Applicants in respect of the Respondent No. 2 and accordingly the same is dismissed. 26. Further, we observe that the Respondent No. 1 claims to have passed on the benefit of reduction in the rate of tax by reducing MRP. However on perusal o....
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....profiteering as it results in considerable amount of realisation to the Respondent. 30. After the perusal of Annexure-31 of the DGAP report, it is established beyond any doubt that the Respondent No. 1 had increased the base price w.e.f. 27.07.2019 which clearly shows that he had deliberately in conscious disregard of the provisions of Section 171 of the above Act had resorted to profiteering as he had no ground whatsoever to increase his prices on the eve of tax reduction. 31. In view of the above discussion the quantum of profiteering illegally obtained by the Respondent No. 1 is determined as Rs. 10,77,182.34/as per the details mentioned in para 11 supra in terms of the provisions of Rule 133 (1) of the CGST Rules, 2017 as the above Respondent has failed to pass on the benefit of rate reduction to his customers. Accordingly, the Respondent No. 1 is directed to reduce his prices by way of commensurate reduction keeping in view the reduced rate of tax which has been availed by him as per Rule 133 (3) (a). The Respondent No. 1 is further directed to deposit the above amount as per the provisions of Rule 133 (3) (c) in the ratio of 50:50 in the Central or the State Consumer Welfar....