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TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 1084
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....w.e.f 27.07.2018, vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018against Respondent no. 1 and Respondent No. 2 alleging that both the Respondents have not passed on the benefit of reduction in the GST rate from 12% to Nil w.e.f. 27.07.2018, levied vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018, on supply of "Sanitary Napkins" by way of commensurate reduction in prices in terms of Section 171 of the Central Goods and Services Tax Act, 2017. 2. The above issue was examined by the Standing Committee on Anti-profiteering in its meetings held on 06.09.2018 and 08.10.2018, wherein it was decided, to refer the matter to the Director 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 "Sanitary Napkins" had been passed on by the Respondents to the recipients. 3. The DGAP, after completing the investigation has submitted his report under Rule 129 (6) of CGST Rules, 2017 on 18.03.2019 pertaining to the period w.e.f. 27.07.2018 to 30.09.2018. 4. The DGAP has stated that a notice under Rule 129 of the C....
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....es of GSTR-3B Returns for the period July, 2017 to Sept. 2018. iii. Copies of sample invoices. iv. Price lists of the sanitary napkins. v. Outward sales data for the period April, 2018 to September, 2018. vi. GST registration cancellation certificate for Chandigarh. vii. Details of input tax credit and outward sales for the period 01.07.2017 to 26.07.2018. viii. Details of input tax credit availed, utilised and reversed for the period July, 2017 to July, 2018, covering all the products supplied. ix. Details of total outward sales covering all products for the period July, 2017 to July, 2018. x. Details of closing stock of sanitary napkins as on 26.07.2018. The DGAP further stated that the Respondent No. 2 made the following submissions before him:- a) He is only a dealer of sanitary napkins which he purchases from the manufacturer (Respondent No.1). The products are subject to affixation of MRP under the Legal Metrology Act and the Rules made thereunder. b) When the said good was subject to GST at the rate of 12%, the Respondent No. 1 had specified the MRP of "Stay free Secure Cotton Wings'....
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....s to the ultimate consumers, it was observed that the base price of the product had been increased and the final selling price of the product had remained the same despite the GST rate reduction. The DGAP relied on the following details which were provided by the Applicant No. 1 to prove the above point:- Table- A Period Pre 27.07.2018 Post 27.07.2018 Product Description A Stayfree Secure Cotton Wings (HSN Code 96190010) sanitary napkins Invoice No. B 15674CS0075875 15674CS0077149 Invoice Date C 19.07.2018 02.08.2018 MRP (Rs.) D 35.00 35.00 Discount offered on MRP(Rs.) E 01.75 01.75 Base price excluding GST (Rs.) F 29.69 33.25 GST Rate Charged (%) G 12% Nil GST Amount (Rs.) H = F*G 03.56 0.00 Selling Price after discount (Rs.) I = F + H 33.25 33.25 Difference in base price (Rs.) (33.25 - 29.69) = 03.56/- 8. The DGAP also mentioned that while determining the ratio of ITC in respect of sanitary napkins as a percentage of the taxable turnover from sanitary napkins supplied during the period July, 2017 to 26.07.2018, the ITC on closing stock as on 26.0....
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....d by comparing the said commensurate selling price with the actual invoice-wise selling price during the period 27.07.2018 to 30.09.2018. Accordingly. the amount of net higher realisation due to increase in base price beyond 9.4% has been worked out. The DGAP also mentioned that from outward supplies as submitted by the Respondent No. 1 for the period 27.07.2018 to 30.09.2018, it was found that he had sold 81 items during the said period and out of the said 81 items,73 items were sold by him during the period 01.07.2018 to 26.07.2018. After scrutiny of the Respondent No.1's outward supplies during the period April, 2018 to June, 2018, the DGAP noticed that the remaining 8 items (81-73) were sold during the period of April, 2018 to June, 2018 and accordingly the profiteered amount had been arrived at by comparing the commensurate prices of all the said 81 items with the actual selling prices or base prices of the said items sold during the period 27.07.2018 to 30.09.2018. The DGAP in his Report stated that the profiteered amount was estimated at Rs. 8,50,029/- for Canteen Stores Department (CSD) outlets and Rs. 42,61,68,552/-for outlets other than CSD outlets. The place of supply (S....
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....as on 26.07.2018, was sold out during the period 27.07.2018 to 30.09.2018 and the reversal of ITC on the closing stock held as on 26.07. 2018, as submitted by the Respondent No.2 to the DGAP was Rs. 21,95,941/- which has to be treated as cost to the Respondent No. 2 in respect of the supply of such stock in the post-GST rate reduction period. The DGAP therefore observed that since the cost / reversal of ITC was more compared to the excess realisation made during the period 27.07.2018 to 30.09.2018,the allegation of profiteering by the Respondent No. 2 was not sustainable. 12. After perusal of the DGAP's report, the Authority in its sitting held on 19.03.2019 decided to hear the Applicants and the Respondent No.1 on 04.04.2019 and accordingly notice was issued to him. Accordingly the hearing took place on 04 04.2019. On behalf of the ApplicantsNo.1 and 2 none appeared, the DGAP was represented by Sh. Manoranjan, Assistant Commissioner and the Respondent No. 1 was represented by Sh. Hardeep Singh Lamba, Associated Director Tax, Ms. Hitashree K., Manager Tax, Sh. Shashi Mathews, Sh. Vasu Nigam and Sh. Tarun Gulati, Advocates. On the request of the Respondent No.1 further hearings w....
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....mption Base price post-exemption % increase by J&J Base price pre-exemption Base price post-exemption % increase considered by DGAP A B C=(B-A)/A D E F=(E-D)/D G=F-C SF Secure XL Wings 6's 27.90 30.36 8.82% 21.25 30.36 42.86% 34.04% 3302007327 3302008171 <Basis not provided> 3302008171 SF Secure Cottony 7'5 22.32 22.32 0% 17.32 23.44 35.33% 35.33% 3302007327 3302008171 <Basis not provided> 3302008171 SF Secure Dry Wings 7's 23.92 25.89 8.25% 18.71 25.89 38.38% 30.13% 3302007327 3302008278 <Basis not provided> 3302008278 SF Secure DRY XL Wings 7's (Simplicity) 29.50 32.21 9.19% 24.38 32.21 32.12% 22.93% 2704019601 2704024125 <Basis not provided> 2704024125 14. The Respondent vide his written submissions dated 24.04.2019 has stated that he supplies his products through various distribution channels namely: a. General: which includes wholesale distributors across all the states and 80% of the sales are in th....
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....the domain of the tax authorities to sit in judgement on the manner in which the business was to be conducted. Reliance was placed on the decisions of the Hon'ble Supreme Court in the case of S.A. Builders ltd. vs. CIT (Appeals) (2007) 1 SCC 781 = 2006 (12) TMI 82 - SUPREME COURT & Hero Cycles (Pvt.) Ltd. vs. CIT, (2015) 16 SCC 359 = 2015 (11) TMI 1314 - SUPREME COURT where the principle of commercial expediency was interpreted. 17. He further submitted that the complaints on the basis of which the DGAP investigation was initiated were not maintainable and the proceedings which have been initiated on the basis of such complaints were completely without jurisdiction and deserved to be dropped as the complaints had not been supported with any credible evidence and had made an unfounded and unsubstantiated allegation against him and in the absence of any admissible evidence, there could have been no basis to arrive at a prima facie determination that the Respondent No. 1 had indulged in profiteering. 18. He further submitted that once the DGAP had arrived at a finding that the Respondent No. 1 had reduced the MRP of the goods concerned, as evidenced in Para 21 of the DGAP's Repo....
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.... CGST Act or the Rules. He also claimed that profiteered amount has been estimated by the DGAP without considering his methodology even though the he had made a specific request in his letters dated 01.03.2019 and 12.03.2019. 21. The Respondent No. 1 has relied upon the judgment of the Hon'ble Delhi High Court in CCE v. SG Engineers 2015 (322) ELT 204 (Del.) = 2013 (7) TMI 905 - DELHI HIGH COURT wherein it was held that where the order does not notice the relevant facts, it was a cryptic order without any reasons and such an order was not sustainable for violation of principles of natural justice. He submitted that there were various flaws and inconsistencies in the methodology adopted by the DGAP to compute the alleged profiteering as he had sold only 52 SKUs between 27.07.2018 to 30.09.2018 and the Report mentions 81 SKUs, which was incorrect and erroneous. 22. He further claimed that if he had broadly passed on more than the commensurate benefits of reduction of tax, then it should be considered as good compliance with respect to each customer without looking at the price of each SKU microscopically as has been sought to be done in the Report. He mentioned that pricing of ....
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....in the last invoice prior to 27.07.2018 as the base price prior to 27.07.2018 (i.e. the date from which GST rate reduction came into effect), which was justifiable as per him because if price had already been increased/decreased prior to the GST rate reduction, there would be no rationale of creating an artificial price by resorting to an average (that is, the average base price computed by the DGAP). This is also reasonable as the price after the GST rate reduction must be compared to the last prevailing price prior to such rate reduction. The DGAP had then compared this base price to the actual selling prices of the said SKUs supplied to the same customer in each of the invoices after the GST rate reduction to compute profiteering and replicated this exercise for each of the SKUs and, accordingly, computed profiteering at an SKU level for each of the customers. He had consolidated the data, as explained above, for a particular customer for all SKUs cumulatively and calculated the profiteering across SKUs sold to a particular customer and concluded that the benefit of Rs. 18,92,31,610/- was to be passed on which was more than the commensurate benefit required to be passed on by hi....
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....ate reduction. ii. He had taken a uniform extended period from 01.04.2018 to 26.07.2018 for calculating the pre rate reduction weighted average price. Based on the above methodology he claimed that he had passed on Rs. 4,66,33,038/- in excess of the commensurate benefit required to be passed on under Section 171 of the CGST Act in the case of sales made to all channels other than CSD and in case of CSD sales, he had passed on Rs. 36,53,181/- in excess of the commensurate benefit required to be passed on under Section 171 of the CGST Act, 2017. 29. He further contended that the approach adopted by the DGAP in the Report restricted the right of the Respondent No. 1 to carry on trade freely and amounted to price fixation by the authorities, which was not the intent of the legislation, neither the Constitutional provisions nor the CGST Act empowers the DGAP to get into the realm of price fixation at an individual product / SKU level and that the aim of Section 171 of the CGST Act, 2017 was not to fix price but to prevent profiteering. He said that the term 'profiteering' has been defined in Black's Law Dictionary, which was relied upon by the Hon'ble Supreme Court ....
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....provisions. He also submitted that the provisions of Section 122 to 127 were not applicable in as much as none of these provisions had been contravened by him. He therefore, submitted that penalty could not be imposed on him under Section 29, 122,123, 124, 125, 126 and 127 of the CGST Act read with Rule 21 and 133 of the CGST Rules. 2017. 32. With regard to the notice on penalty as to why his registration under the CGST Act should not be cancelled if the Authority accepted the findings of the Report, the Respondent submitted that Section 29 (2) (a) of the CGST Act, was only potentially applicable provision, which provided that a proper officer may cancel the registration of a person where a registered person has contravened the provisions of the CGST Act or the CGST Rules. Rule 21 (c) of the CGST Rules provided that the registration granted to a person was liable to be cancelled if the said person violated the provisions of Section 171 of the CGST Act or the Rules made thereunder. Rule 133(3)(e) of the CGST Rules also provided that where the Authority determined that a registered person has not passed on the benefit of the reduction in the rate of tax on the supply of goods to t....
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.... 36.We have carefully considered the Report of the DGAP and the submissions made by the Respondent No.1 and all other documents placed on record which reveal that the product "Sanitary Napkin" was exempted and attracted NIL rate of GST vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018, w.e.f 27.07.2018. However prior to 27.07.2018 this product attracted 12% GST with the benefit of ITC on the inputs and input services which was denied from 27.07.2018 as the product was exempted from levy of tax. The GST paid on the inputs and on input service post rate reduction was a cost to the supplier, hence the base prices of the products would increase to the extent of denial of ITC. Accordingly the DGAP based on the turnover and the ITC available to the Respondent had estimated the ratio of ITC to the taxable turnover as 9.4%. The DGAP vide Annexure 33 and 34 of his Report has arrived at the base prices after taking into account the average price of the product for the period w.e.f. 01.07.2018 to 26.07.2018 i.e. prior to GST rate reduction. These base prices have been loaded with 9.4% and accordingly recalibrated base prices per unit have been arrived at. These recalibra....
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....not deal with the price regulation instead the law envisages that the benefit of rate reduction is passed on to the recipient. Similarly in the case of S.A. Builders ltd. vs. CIT (Appeals) (2007) 1 SCC 781 = 2006 (12) TMI 82 - SUPREME COURT & Hero Cycles (Pvt.) Ltd. vs. CIT, (2015) 16 SCC 359 = 2015 (11) TMI 1314 - SUPREME COURT the Hon'ble Supreme Court was dealing with a case of income tax where in a given situation the petitioner was entitled to deduction of interest. In fact while dealing with commercial expediency the Supreme Court had categorically held that it all depended on the facts and circumstances of the respective case. Therefore the reliance placed on a judgement which was entirely different form the facts of the present case is of no use to the Respondent as far as this case is concerned. 39. The contention of the Respondent that the complaints are without jurisdiction is completely misplaced. As per Rule 128 of the CGST Rules the Standing Committee on receipt of an application either from an interested party or from a Commissioner or any other person can examine as to whether the provisions of Section 171 have been violated. In the present case the Application w....
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.... the rate of tax has been reduced and ITC allowed. Similarly, the mathematical methodology applied in the case of Fast Moving Consumer Goods (FMCGs) cannot be applied in the case of construction services. Therefore the question of prescribing any mathematical methodology does not arise but depending on facts of each case the Authority has been determining the mathematical methodology as per the provisions of the above Rule. 41. Further the Respondents claim that the profiteered amount should be entity based and not product based is absolutely irrelevant in as much as the reduction of the tax is on the product and not on the entity. The intention of the law is to benefit the consumer as and when the Government foregoes its revenue by reducing the taxes in the interest of the consumer. Therefore the question of setting off the extra benefit to one consumer as against the other does not arise at all. 42. The Respondent No. 1 has stated that the DGAP's Report does not lay down a proper methodology and has dealt with 81 SKUs when actually he has sold 51 SKUs. The DGAP in his Report dated 08.05.2019 has clearly stated that the difference in SKU has no relevance on the amount of pro....
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....of the right of the Respondent granted under Article 19 (1) (g).The reliance placed by the Respondent on the decision of the Supreme Court in the case of Islamic Academy of Education v. State of Karnataka (2003) 6 SCC 697, 774 = 2003 (8) TMI 469 - SUPREME COURT is also not relevant because Section 171 of the CGST Act is a new law that has been introduced in the GST era to protect the interest of the Consumers. The law or the Authority has not questioned the Respondents right to conduct business or to fix the prices of his products but ensures that the benefits provided by the Government through the Respondent are necessarily passed on. The question of retaining these benefits by the Respondent would deemed to be doing injustice to the consumers and thus depriving the consumers of the benefits extended through the Public Exchequer. 45. On perusal of Annexure-33 and 34 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 more than what he was entitled to increase, which clearly shows that he had deliberately in conscious disregard of the provisions of Section 171 of the above Act had resorted to profiteerin....