TaxTMI 
TaxTMI 
2019 (12) TMI 510
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....red to as the product), by not passing on the benefit of reduction in the rate of tax on the impugned product, post introduction of GST w.e.f. 01.07.2017. in this regard; the Applicant No. 1 had relied on two invoices issued by the Respondent, one dated 31.05.2017 (pre-GST) and the other dated 04.08.2017 (post-GST), the details of which have been given in the Table below:- Table - A (Amount in Rs.) S.No. Name of the product supplied Pre-GST rate before 01.07.2017 Post GST rate on 01.07.2017 Difference (in Rs.) Invoice No. & Date Total Tax Total Price (in Rs.) Invoice No. & Date GST rate Total Price (in Rs.) 1. Washing Machine (EIena Aqua VX) (HSN-84501100) 3220057999 dated 31.05.2017 Central Excise duty @ 12.5% the MRP with 35% abetement + [email protected]% 18157/-(base price-13624/-) 3220059299 dated 04.08.2017 28% 23922 (base price-18689/ 5765/- (base price diff.-5065/-) 2. The said complaint was examined by the Standing Committee and vide minutes of its meeting dated 02.07.2018; it requested the DGAP to initiate investigation under Rule 129 (1) of the CGST Rules, 2017 and to conduct a detailed investigation in the matter. 3. In this connection, a Notice under Rul....
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....able basic value had been reduced and the tax incidence had increased after introduction of GST. He further stated that his factory was situated in Goa and the entire range of products was sold through his branches in different States. In the pre-GST period, the products were stock transferred to his various branches in other States by discharging applicable Central Excise Duty at the time of removal of goods from the factory and he did not charge VAT on the same. In lieu of CST on his stock transferred to other States, the Respondent was reversing the credit of VAT taken on the raw material/inputs used in the manufacture of the product which was amounting to Rs. 24.34 per unit of the product. 6. The Respondent also submitted the Table given below:- Table-B (Amount in Rs.) Details Pre GST period Post GST Period MRP 27,490.00 27,490.00 Excise duty 2,233.56 [email protected]% 3,481.27 G5T@28% 6,013.44 Total Taxes 5,714.83 6,013.44 Basic Price 21,775.17 21,476.56 Reduction in Basic Price 298.61 7. The Respondent also furnished the following documents to the DGAP:- i. Invoice-wise details of outwards taxable supplies of the product "Washi....
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....t there was a reduction in the rate of tax in respect of States mentioned at S. No. 1 to 16, post introduction of GST w.e.f. 01 07 2017. On the basis of aforesaid pre and post-GST tax rates and the details of outward supplies of the impugned product to the States mentioned at S, Nos. 1 to 16 of Table, during the period 01.07.2017 to 31.08.2018 furnished by the Respondent, the amount of net higher sale realization due to increase in the base price of the product, despite the reduction in the rate of tax post implementation of GST 01.07.2017, or, the profiteered amount was computed as Rs, 51, 04,002/-. The profiteered amount had been arrived at by comparing the State-wise average base price of the impugned product during the period 01,04.2017 to 30.06.2017, with the actual transaction-wise base prices during the period 01.07.2017 to 31.08,2018. 13. The DGAP also furnished a Table in respect of the place of supply of the total profiteered amount:- Table-D (Amount in Rs.) S.No. State Code State (Place of Supply) Profiteering (Rs.) 1. 1 Jammu & Kashmir 9261 2. 3 Punjab 16904 3. 5 Uttarakhand 4690 4. 8 Rajasthan 641 5. 9 Uttar Pradesh 28509 6. 10 Bihar 1998....
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....oice No. 3220057999 dated 31-05-2017 Invoice No. 3220059299 dated 04-08-2017 Base Price as per Invoice 24,009 21,476 Excise Duty [INR 2,234/- per unit considered by DGAP] (-) 2,234 - Base Price [excluding all tax elements] 21,776 21,476 Trade Discount as per invoice 2,881 2,786 Net Price Charged 18,894 18,690 (b) That even if the element of Central Excise Duty, as computed by the DGAP, was removed from the above Table computation, the base price charged under the GST was lower than the base price in the pre-GST regime; and the price of the product in pre and post-GST regime be analysed on the basis of the base prices and without considering discounts. The Respondent also cited the precedence of the outcomes in the case of Kerala State Screening Committee and another Vs. M/s Asian Paints Ltd. In Case No. 29/2018 decided on 27.12.2018 = 2019 (1) TMI 21 - NATIONAL ANTI-PROFITEERING AUTHORITY by the Authority, according to which base prices of the product in the pre and post GST regime shall be analysed and changes in price arising due to discounts, offered by the manufacturer from its margin, should not be considered for the propose of provisions of Section 171 of....
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....a pan India level and not based on prices charged in specific states and specific transactions, since the rationale for anti-profiteering provision was to check that benefit, if any, arising due to introduction of GST was passed on to end consumers and that the expression 'commensurate reduction in prices of the goods' as used in Section 171 of the CGST Act should have been considered for overall reduction in prices and that such expression should not be limited to specific transactions, as in each case the prices depended on independent negotiations with customers/ dealers. Further, he argued that there was no prescription either under the CGST Act or the Rules that GST benefits have to be seen for each State separately, The Respondent further submitted that independent changes in price in each and every sale transaction was not always due to tax factor and was not relevant for computing the overall impact of GST on a product and that each change in the negotiated price cannot be considered as profit arising due to GST. He added that a holistic approach ought to have been taken considering the overall scheme, intention and objective of anti-profiteering provision. (g) That even ....
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....were not comparable and during the pre GST as well as post GST period up to 07-06-2018, the MRP remained at Rs. 27,490/- and w.e.f. 08-07-2018, MRP of the impugned product has been changed to Rs. 28,490/-. (j) Once the aforesaid errors were corrected, the position would be as follows, he has claimed:- Table-G (Amount in Rs.) State Average price as per DGAP report Pre-GST [1st April '17 to 30th June '17] Post-GST [1st July '17 to 8th June '18] Difference between Pre & Post GST Average Prices Sales Realisation Quantity Sold Actual Average Price Sales Realisation Quantity Sold Actual Average Price A B C D=B/C E F G=E/F H=G-D Kerala 17,990 2,43,54,752 1,353 18,001 10,19,32,849 5,700 17,883 -118 Tamil Nadu 18,502 1,16,00,470 628 18,472 5,56,00,418 3,012 18,460 -12 Gujarat 18,435 71,31,167 392 18,192 2,78,89,002 1,550 17,993 -199 Karnataka 17,968 23,91,706 134 17,849 1,10,30,882 622 17,735 -114 Andhra Pradesh 18,248 12,94,720 71 18,235 61,62,499 341 18,072 -164 UP 18,375 12,41,765 68 18,261 46,49,206 260 17,882 -380 Telangana 17,511 2,26,275 13 17,406 26,36,271 150 17,575 169 Madhya Pradesh ....
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....8,556 - -6,16,043 18 07 Delhi 18,930 - -2,39,257 19 27 Maharashtra 18,427 - -91,926 20 21 Orissa 19,636 - -17,418 21 06 Haryana 19,035 - -136 22 02 Himachal Pradesh 18,508 - 1,321 Subtotal for balance 6 states (Not considered by DGAP] -9,63,458 Thus, it was clear that, the manner of computation adopted in the report submitted by DGAP was incorrect and the question of any profiteering on the product due to GST did not arise. (k) He also submitted that since any methodology and procedure for determining the anti-profiteering amount was not prescribed by Legislature, he could not be held liable in this regard. He also submitted that while the provisions were brought into effect from 01.07,2017, the Cabinet approved the creation of the posts of Chairman and Technical Members of the Authority on 16.11.2017 and the members were appointed on 28.11.2017. He also cited the Rule 126 of the CGST Rules, 2017 which empowered the Authority to determine the methodology and procedure for determination as to whether the reduction in rate of tax on supply of goods or services or benefit of input tax credit had been passed o....
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....n, etc., which had been totally ignored. (n) That the expansion of proceedings by DGAP beyond the state of Kerala was without jurisdiction and the submission of report by DGAP, without granting any opportunity for personal hearing to the Respondent, was against the principle of natural justice more so, since he had submitted all requisite documents and information as solicited by the DGAP. Also that the scope of the instant proceeding should have been restricted to the Applicant No. 1 and the registered person in respect of the said product. Both the initiation and conduct of proceedings under Rule 129 and order under Rule 133 was in respect of `the recipient" and a registered person'. He also stated that the use of the term 'the' clearly indicated that the reference was to a particular recipient of goods and services and not generally to all recipients. Further, as proceedings before the Authority were adversarial in nature, the proceedings had to be seen as being in respect of the Applicant No. 1 and a registered person and would not cover any other transaction. He also intimated that the matter had been referred by the Screening Committee in the State of Kerala based on certai....
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....s per Rule 126 of the CGST Rules, 2017, the Authority has been empowered to determine the methodology and procedure for determination as to whether the reduction in the rate of tax or the benefit of input tax credit has been passed on by the registered person to the recipients by way of commensurate reduction in prices. Regarding the contention of expansion of proceeding by DGAP was without jurisdiction and submission of report by DGAP without granting any opportunity for personal hearing to the Respondent was against the principle of natural justice, the DGAP mentioned that there was nothing in the existing statutory provisions which would confine the scope of investigation to the State in which profiteering had been alleged or to the dealer whose purchase invoice had been relied upon to allege profiteering. In the context of the Respondent's submission relating to the tax structure in different states during the pre & post-GST regime, the DGAP reported that Central Excise Duty incidence of 8.125% was as a percentage of the MRP (12.5% of 65% of MRP) and not as a percentage of the discounted base price, which was required to be compared with the post-GST tax rate of 28%. The DGAP i....
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....y transaction, thus would lead to the distorted results. He also explained the same with the illustration in Table given below:- Table J: Different tax rate if computed on discounted base price (Amount in Rs.) Product [Elena Aqua VX] Pittappillil Agencies Qrs Retail Limited Bismi Appliances Nandilath G Mart Invoice No. 3220057999 3220058338 3220058145 3220058411 Invoice Date 31-05-2017 27-06-2017 12-06-2017 30-06-2017 Base Price as per invoice (A) 24,009 24,009 24,009 24,009 Excise Duty [per unit considered by DGAP] 2,234 2,234 2,234 2,234 (B) Trade Discount as per Invoices (C) 2,881 3,822 4,562 4,322 Net Price Charged from customer [(D)=A-B-C] 18,894 17,953 17,213 17,463 VAT on product [E = (A-C)*14.5%] 2,299 2,927 2,820 2,855 Total taxes [F=B+E] 4,533 5,161 5,064 5,089 Effective tax rate [G=F/D*100] 24.0% 28.7% 29.4% 29.2% Explaining the table above, the Respondent submitted that the tax rates applicable on product during the pre-GST regime were Excise Duty @ 12.5% on 65% of MRP and VAT @ 14.5% on Actual Selling price. He added that since the two above mentioned taxes i.e., Excis....
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....s where post GST prices were lower than pre GST average price and had alleged profiteering for transactions where post GST price was greater than the pre GST Average price. This approach was incorrect as comparison of an average value 1 price with sales at above average values/price would always arithmetically result in a positive number even if the prices for that customer has been reduced post GST. (g) That the non-consideration of Large number of sale invoices where post GST discounted price were lower than average of pre-GST discounted base price, in itself showed that computation of profiteering in the report was erroneous and arbitrary. He also stated that the fact that DGAP had not replied to the several computational errors highlighted by him implied that such errors had been accepted by the DGAP. He also submitted his version of the calculation of profiteering based on comparison of prices for the pre and Post GST periods at Dealer level. (h) That the principle adopted by DGAP was actually an attempt to regulate the price and profit which was against the mandate of the provisions. (i) He also submitted the revised calculation based on comparison of prices for pre and....
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....9 22. In response to the above submissions of the Respondent, the DGAP, vide his Report dated 15.03.2019, reported that (a) The Respondent had mentioned that he had increased the MRP of the product from Rs. 26,990/- to Rs. 27,490/- in the month of March, 2017 and that the period considered for working out the average discounted base price during the pre-GST period was taken only from April, 2017 to June, 2017 and that the Respondent had also submitted that the Central Excise Duty of Rs. 2,234/-(@12.5% on 65% of the MRP of Rs. 27,4904 which was considered for computation of the pre-GST base price, was in respect of the new MRP of Rs. 27,490/-. However, the product sold during the period April, 2017 to June, 2017, were carrying the MRP of both Rs. 26,990/- and Rs. 27,490/-. The DGAP also reported that the Respondent had already submitted that whereas the Central Excise Duty on the product carrying the MRP of Rs. 26,990/- was Rs. 2193/-, the DGAP had taken an uniform Central Excise Duty of Rs. 2234/- for all the transactions which was @12 5% on 65% of the higher MRP, i.e. Rs. 27,490/-. The DGAP further reported that the Respondent had also stated that they were offering different t....
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....s and the details of outward supplies of the impugned product to the States mentioned at S. Nos. 1 to 15 of the table above, the amount of higher sale realization due to increase in the base price of the product, despite reduction in the rate of tax post implementation of GST w.e.f. 01.07.2017, or in other words, the profiteered amount had been separately calculated for the periods 01.07,2017 to 31.08.2018 and 01.07.2017 to 06.06.2018 (in view of increase in the MRP/base price w.e.f. 07.06.2018). The DGAP in his subsequent report dated 15.03.2019 has reported that the profiteered amount for the period from 01.07,2017 to 31.08.2018 comes to Rs. 67,28,592/- whereas the profiteered amount when worked out for the period from 01.07.2017 to 06.06.2018 works out to Rs. 37,97,663/-. The said state-wise profiteered amount has been arrived at by comparing the commensurate price on the basis of State-wise pre-GST average base price of the impugned product sold during the periods of 01.04.2017 to 30.06.2017, with the actual invoice-wise cum-tax prices during the post-GST period from 01.07.2017 to 31.08.2018 and separately for the period from 01.07.2017 to 06.06,2018, for facilitating a decisio....
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....g impact considering the invoice-wise cum-tax prices, i.e. total invoice price including taxes - which was clearly not the direction given by the Authority. (c) The DGAP had inter-alia failed to understand his submissions during the entire course of proceedings based on which the revised comparison for pre and post GST prices collected from each dealer was submitted exhibiting the effective tax rate (for each dealer) during pre GST and post GST period along with the impact of increased prices if any, collected from each dealer post GST. The Respondent further submitted that the stand point of the DGAP that the dealer wise statement submitted by him could not be considered as there are more than 1000 dealers to whom the Respondent have made supplies was unjustified. He further submitted the statement of price and tax charged from each dealer (customer) during the pre and post GST period. 24. In response, the DGAP vide his submissions dated 03.05.2019 and 11.06.2019 reported that all the issues raised by the Respondent in his submissions dated 22.04.2019 had already been discussed and stood clarified in his previous report dated 15.03.2019 submitted to the Authority. 25. The Resp....
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....he revenue has established conditions before raising and justifying a demand. Similar is the case in roping all persons within the tax net, in which event the State is to prove the liability of the persons, as may arise within the strict language of the law. There cannot be any implied concept either in identifying the subject of the fox or person of the liable to pay tax. That is why it is often said that subject is not be taxed, unless the words of the statue unambiguously impose tax on him, that one has to look merely at the words clearly stated and that there is no room for any intendment nor presumption as to tax. It is only the letter of the law and not the spirit of the law to guide the interpreter to decide the liability to tax ignoring any amount of hardship and eschewing equity in taxation. Thus, we may emphatically reiterate that if in the event of ambiguity in taxation liability statute, the benefit should go to the subject/Assessee." The Respondent also stated that the prices charged by him from his dealers post introduction of GST had actually reduced and the net impact of such price change was negative i.e., (-) Rs. 33,60,124/-. In few cases, difference of base pric....
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....t feasible to check the availability of the pre-GST invoices of the same dealer for same state with the post-GST invoices of the same dealer for the same SKU for same state. Thus, the basis adopted by the DGAP is correct. Further, the Authority is of the view that Section 171 of the CGST Act, 2017, puts the onus of passage of any benefit of the GST rate reductions or ITC to the recipient on the supplier. The keyword to be emphasised here is "commensurate reduction". The law expects that commensurate reduction to the extent of the rate reductions should be given by the Respondent. Any greater reduction in prices is entirely a business call taken by the Respondent well within his right and hence there is no ground to compensate him on this ground. The Respondent, while claiming this contention, has also claimed that the amount of profiteering was to be calculated entity-wise. However, this is not the correct interpretation of the law. The amount of profiteering has to be calculated by keeping the recipient at the centre. This implies that one particular recipient may have bought one product from the Respondent at a price which he was entitled to pay when the rates of tax were reduced....
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....eports and hence the argument advanced by the Respondent on the basis of the above judgement cannot be accepted. 32. The Respondent had also cited the decision of Hon'ble Apex court in the cases of Kunj Behari Lal & Ors. v. State of H.P., 2000 (3) SCC 40 = 2000 (2) TMI 826 - SUPREME COURT, in his support but it also do not come to the rescue of the Respondent since the present proceedings and the computation are strictly in accordance with the provisions of Section 171 (1) & (2) of the CGST Act, 2017 and facts of these cases are at variance with the instant case. We also observe that the provisions of Section 171 of the CGST Act, 2017 are aimed at ensuring that the recipient gets the commensurate benefit, in the form of reduction of price, in case of any tax rate reduction and/or incremental benefit of ITC (i.e. a sacrifice made by the Govt. from its tax kitty) and the method of interpretation of this provision is given in the text of Section 171 of the CGST Act, 2017 itself. We observe that the said provision clearly links profiteering to be a function of each supply of goods or services or both and hence, profiteering needs to be computed at the level of each invoice and not at ....
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....e Respondent is also untenable since the rate of tax was not increased as the Respondent had claimed i.e. from 26.40% to 28% in July 2017, instead there was a reduction in the rate of tax in respect of 15 out of 21 States w.e.f. 01.07.2017 as mentioned in the table K of this order. 36. Regarding another submission of the respondent that independent change in price in each and every case/ sale transaction was not always due to tax factor and was not relevant for analysing overall impact of GST on a product and each change in the negotiated price cannot be considered as profit arising due to GST. In this regard, profiteering has to be seen from the prism of the consumer and if he had to pay more than the commensurately reduced price, it amounts to profiteering. In fact, even if the tax has been paid in excess of the correctly leviable amount by the Respondent, the consumer has been deprived of the benefit of commensurate reduction in price, hence such an element of tax has been correctly included in the calculation of the profiteered amount. Hence, we uphold the DGAP's computation of the profiteered amount as apt and correct. This contention of the Respondent is liable to be rejecte....
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....he CGST Act, 2017 clearly states that "Any reduction in the 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 price". Therefore, the intention of the legislature is amply clear from the above provision which requires that the benefit of tax reduction or ITC is required to be passed on to the customers by commensurate reduction in prices. This Authority has been duly constituted under Section 171 (2) of the above Act and in exercise of the powers conferred on it under Rule 126 of the CGST Rules, 2017 has notified the 'Procedure & Methodology' for determination of the profiteered amount vide its Notification dated 28.03.2018. However, the mathematical methodology for determination of the profiteered amount has to be applied on case to case basis depending on the facts of each case and no fixed formula can be set for calculating the same as the facts of each case are different. It would also be appropriate to mention here that this Authority has power to 'determine' the methodology and not to 'prescribe' it as per the provisions of the above Rule and therefore, no set prescription c....
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....e observe that Section 15 (3) (a) provides that the value of the supply shall not include any discount which is given before or at the time of the supply, even if such discount has been duly recorded in the invoice issued in respect of such supply. Thus, GST is chargeable on actual transaction value after excluding any discount (conditional as well as unconditional) and therefore, for the purpose of computation of profiteering actual transaction value has to be considered for computation of profiteering amount. Thus, the price charged from customers is the base price which has been taken by the DGAP to arrive at the profiteering. The Respondent has mixed up two separate things, i.e. discounts and taxes, which is incorrect and not logical. 41. The Respondent has also claimed that the effective tax rate pre-GST was lower than GST rate in practically all the States and he further furnished the table giving the details of the pre-discounted tax rates of the product in pre-GST period (aggregate of ED, VAT, Entry Tax, Local Levies etc) to prove that the post-GST tax rate was more than the pre-GST tax rates. But this contention of the Respondent is not correct since the table K was prepa....
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....eriod of investigation as covered by the DGAP. Thus, the profiteered amount of Rs. 67, 28,592/- calculated by the DGAP can be relied upon, The DGAP also stated that in his report dated 06.12.2018, profiteering was computed on the 22 States which included J&K also, but since the Respondent had wrongly shown supplies to the State of J&K, thus, J&K was not considered for calculating the profiteered amount in the DGAP's report dated 15.03,2019. 44. Based on the above facts, it is established that the Respondent has acted in contravention of the provisions of Section 171 of the CGST Act, 2017 and has not passed on the benefit of reduction in the rate of tax to his recipients by commensurate reduction in the prices. Accordingly, the amount of profiteering is determined as Rs. 67,28,592/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent is therefore directed to reduce the prices of his products as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients, The Respondent is also directed to deposit the profiteered amount of Rs, 67, 28,592/- along with the ....