TaxTMI 
TaxTMI 
2019 (7) TMI 36
X X X X Extracts X X X X
X X X X Extracts X X X X
...." hereinafter referred to as "the product" were 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 s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated based on the submissions of Respondent 1 that the net taxable turnover exclusively for the product was Rs. 186.77 crore during the period 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....2017 to 26.07.2018 ITC relevant to Taxable Turnover (F) = (A-D) 22.22 7. Ratio of ITC to Taxable Turnover (%) (E)=(F/E*100) 12.7% 11. The DGAP has further stated that on examination of the details of outward 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0510.70 19 WEST BENGAL (19) 66641.10 20 JHARKHAND (20) 8503 21 ODISHA (21) 12198.90 22 CHATTISGARH (22) 16574.30 23 MADHYA PRADESH (23) 18402.80 24 GUJARAT (24) 106992 25 DAMAN AND DIU (25) 95.26 26 DADRA AND NAGAR HAVELI (26) 31 27 MAHARASHTRA (27) 65425.90 28 KARNATAKA (29) 94168.20 29 GOA (30) 5297.67 30 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 an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om 12% to NIL w.e.f. 27.07.2018, he had passed on the benefit of reduction in the rate of tax in respect of the product "Sofy Bodyfit XL 6S" The product, in respect of which the present complaint has been filed, by way of commensurate reduction in price and at the time of reduction in MRP, the he had made announcements in the leading newspapers, clearly informing all the consumers that the MRP has been reduced due to decline in the rate of tax. Also, 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 ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....consumers on each and every unit of an item individually and it would not be taken into account in a holistic manner whether the manufacturer had intentionally profiteered on the products manufactured by him, and this finding and interpretation by the DGAP was contrary to the anti-profiteering provisions. Neither the Act nor the Rules provided any time frame within which commensurate reduction in prices was to be passed on. 20. The Respondent No. 1 has also 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 p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 24. It is revealed that the Central Govt. vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018 the Government had reduced the rate of GST from 12% to NIL without ITC in respect of the The product with effect from 27.07.2018, the benefit of which was required to be passed on to the recipients as per the provisions of Section 171 of the CGST Act, 2017. From the above discussion and the invoices available, it is revealed that the base price of the product "Sofy Bodyfit XL 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under Article 19 (1) (g). 29. The Respondent No. 1 has not furnished any evidence to challenge the calculation of the DGAP of Ratio of ITC to Taxable Turnover which is 12.7%. The computation followed by the DGAP by taking all the positive values and not considering negative values in calculation of the profiteered amount is correct as benefit has to be passed on to all the recipients of all the products. Also, very small difference in commensurate price and actual selling price amounts to 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 R....