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2019 (12) TMI 1082
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....roducts being supplied by him, when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017. 2. The DGAP had issued Notice under Rule 129 (3) of the CGST Rules, 2017 on 15.01.2019 to the Respondent, to submit his reply as to whether he admitted that the benefit of reduction in the GST rate w.e.f. 15.11.2017, had not been passed on to the recipients by way of commensurate reduction in prices and if so, to suo moto determine the quantum thereof and indicate the same in his reply to the Notice as well as furnish all documents in support of his reply. The Respondent was also afforded an opportunity to inspect the non-confidential evidences/information which formed the basis of the said Notice, during the period 21.01.2019 to 23.01.2019, which the Respondent had availed and inspected the documents on 23.01.2019. 3. The DGAP has also mentioned that the time period of the present investigation was from 15.11.2017 to 31.12.2018.1-le has also sought extension of time to complete the investigation from this Authority, which was granted to him till 06.07.2019 in terms of Rule 129 (6) of the above Rules vide order dated 19.03.2019. 4. The DGAP has also stated that the Respondent....
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....ate of GST was reduced from 28% to 18% w.e.f. 15.011.2017. On the basis of aforesaid pre and post-reduction GST rates and the details of outward taxable supplies (other than zero rated, nil rated and exempted supplies) of the impugned products during the period from 15.11.2017 to 31.12.2018, as furnished by the Respondent to the DGAP, the DGAP has concluded that the amount of net higher sales realization due to increase in the base prices of the impacted products, despite the reduction in the GST rate from 28% to 18% or in other words, the profiteered amount came to Rs. 2,30,40,74,132/-. The DGAP has also claimed that the profiteered amount has been arrived at by comparing the average of the base prices of the impugned products sold during the period from 01.11.2017 to 14.11.2017, with the actual invoice-wise base prices of the products sold during the period from 15.11.2017 to 31.12.2018. The reference base prices of the products which were not sold during the period from 01.11.2017 to 14.11.2017, were taken from the sales data for the period from July, 2017 to October, 2017 and the price list submitted by the Respondent to the DGAP. The excess GST so collected from the recipients....
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....2019. On behalf of the Applicant none appeared during the course of the hearings and the Respondent was represented by Sh. Hardeep Singh Lamba, Associate Director (Tax), Smt. Hitashree K., Tax Manager, Sh. Tarun Gulati, Sh. Shashi Mathews and Sh. Vasu Nigam, Advocates. The hearing fixed on 17.07.2019 was postponed to 05.08.2019 on the request of the Respondent who had appeared on this date and filed his submissions. The next hearing was fixed on 23.08.2019 however, the Respondent had sought adjournment. Hearing was held on 04.09.2019 during which the Respondent had filed additional submissions. The Respondent had further filed his submissions on 03.10.2019. 11. The Respondent in his submissions dated 05.08.2019 has submitted that he was primarily engaged in the manufacturing and selling of various goods, consumer healthcare products, medical devices and pharmaceutical products in India and he has been present in India for almost 70 years and has pan-India operations covering over 22 States. He was supplying the products across markets through various distribution channels. which could be broadly categorised as under:- a. General Trade: This distribution channel included....
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....te reduction in prices' and It ought to be noted that the statute did not prescribe any method of computation by which amount of profiteering could be computed. He has further claimed that in terms of Section 171 (3) of the CGST Act, it was provided that the Authority "shall exercise such powers and discharge such functions as may be prescribed". Section 2 (87) of the CGST Act defined the word 'prescribed' to mean as prescribed by the CGST Rules on the recommendations of the GST Council. Therefore, this Authority can discharge only such functions and exercise such powers as are specifically mentioned in the CGST Rules. 15. The Respondent has also contended that the pricing of products was a complex exercise and products were usually not priced individually and in isolation at a unit level and in a free market, several considerations such as those of demand and supply, fixed and variable costs, prices of raw materials, logistics, product range, product mix, supplier's position in the market, entity level operational costs, market situation, inflation, consumer segments, costs and benefits at the entity level, division level, and product category level were all influencers of any ....
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..... Reliance in this regard was placed on the decisions of the Hon'ble Supreme Court given in the cases of S.A. Builders Ltd. v. CIT(Appeals) (2007) 1 SCC 781 = 2006 (12) TMI 82 - SUPREME COURT and Hero Cycles (Pvt.) Ltd. v. CIT (2015) 16 SCC 359 = 2015 (11) TMI 1314 - SUPREME COURT where the principle of 'commercial expediency' has been reiterated. Accordingly, he has claimed that fixing of an ideal selling price common for all categories of sales was not proper as the products continued to be sold through different categories which could not be averaged. He has further claimed that the actual prices could not be ignored and hence presumptive calculations based on the averages were not prescribed under the law, 18. He has further argued that he was not afforded opportunity to present his own methodology as per which pricing of his products was arrived at and to explain the transactions entered into between him and his recipients i.e.. distributors and other partners, no personal hearing or an opportunity to explain his case or give alternative data was granted to him prior to issuance of the Report by the DGAP even after request. The Respondent has also alleged that the DGAP had ....
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....ed the supplies made to all the product distribution channels, including CSD and non-CSD channels, into a common group while computing the pre-rate reduction prices and compared the same with the post-rate reduction prices, which showed clear arbitrariness wherein the same investigating agency was adopting different methodologies in similar cases without any reasonable justification. 20. He has further argued that with respect to the rate reduction announced vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018, the DGAP had considered a post rate reduction period of approximately 65 days. whereas, in the present investigation, the period post the rate reduction has been taken as 411 days and hence, the different approaches adopted by the DGAP were ex facie arbitrary and confiscatory. more so when it were for the same Respondent. 21. He has also alleged that there were several flaws and inconsistencies in the methodology adopted by the DGAP to compute the alleged profiteering. ln the absence of a prescribed methodology it was an arbitrary exercise of power by the DGAP. He has further alleged that the DGAP has calculated total profiteering of Rs. 230,40,74,132/- on....
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....o the Respondent's recipients and the said transactions have already been included in the turnover on which profiteering has been calculated by the DGAP and if such stock transfer transactions were also separately included while computing profiteering it would lead to double counting of profiteering with respect to the same products. ii. If such goods were not supplied to the recipients after stock transfer during the period considered in the Report, such transactions would be beyond the scope of the investigation period in the present case. 24. The Respondent has also submitted that DGAP's finding of profiteering with respect to stock transfers was directly contrary to the DGAP's own interpretation of Section 171 of the CGST Act as given in Para 11 of his Report in which he has stated that there must be a commensurate reduction in the prices of goods or services and such reduction could only be in terms of money so that the final price payable by a recipient got reduced. He has further submitted that in the case of stock transfers no monetary consideration was paid by the recipients as they were merely different offices / depots I warehouses of the Respondent and hence....
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....edit, the value declared in the invoice shall be deemed to be the open market value of the goods or services." 27. On the basis of the above Rule, the Respondent has submitted that he has adopted the valuation mechanism prescribed in the second proviso to Rule 28 of the above Rules and, accordingly, he has adopted notional value for his stock transfer transactions which was 70% of the price charged for such goods. He has further stated that any determination under Section 171 of the CGST Act could only be based on actual prices and considering that the stock transfer transactions have taken place at a notional value and not at actual prices, for such supplies the prices at which stock transactions have taken place were not relevant for the purposes of examining profiteering under Section 171 of the CGST Act. He has also claimed that the DGAP has alleged profiteering of Rs. 95.86 Crore with respect to stock transfer transactions which was contrary to the statutory provision of Section 171. He has also stated that out of the total profiteering calculated at Rs. 230,40,74,132/- an amount of Rs. 81,24,04,813/- after giving adjustment of excess tax paid to the Government ought to be ....
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....P 09-01-2018 1,62,06,332/- 6. JB No More Tears Shampoo 100 ml BMR JB NMT Shampoo (TBP) 100ml-B 18-12-2017 1,44,49,936/- 7. JB No More Tears Shampoo 200 ml BMR JB NMT Shampoo (TBP) 200ml-B 11-01-2018 1,08,67,375/- 8. Johnson's Baby Lotion 500 ml BMR Ecom JB Lotion 500ml Pump Pack 14-06-2018 15,43,051/- 9. Johnson's Baby Lotion 500 ml BMR JB Lotion 50ml (TBP)-Sample - B 18-12-2017 14,54,334/- 10. Johnson's Baby Lotion 500 ml BMR JB Lotion 500ml Pump Pack TBP 19-02-2018 3,74,025/- 11. JB Lotion 500 ml + JB Cream 50g Free BMR JB Lotion 500ml + JB Cream 50g Free - B 09-01-2018 2,27,296/- 12. JB TTT 500 + JB Lotion 100ml Free BMR JB TTT Wash 500ml + JBL 100 Free - B 09-01-2018 1,77,372/- 13. JB Lotion 500 ml BMR SAPR - Alliance JB Lotion 500 ml Pump Pack TBP 17-08-2018 1,689/- 14. Johnson's Baby Lotion 200 ml BMRm JB Lotion 200ml- B TBP 18-12-2017 1,007/- 15. Johnson's Baby Lotion 100ml BMR JB Lotion 100ml- B TBP 18-12-2017 544/- 16. Johnson's Baby Lotion 50 ml (Sample) BMR JB Lotion 50ml(TBP)- Sample - B 18-12-2017 305....
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.... calculation of the weighted average base prices in the pre-rate reduction itself was flawed and erroneous on various grounds as has been explained by him below:- i. Insofar as the computation of weighted average prices in the pre-GST rate reduction period included the stock transactions, the same was erroneous as such stock transfer transactions could not be taken into account as such supplies were valued on a notional basis in terms of Rule 28 of the CGST Rules and were not based on the actual prices. As the goods which were stock transferred were thereafter supplied by the branch office/depots/warehouses to the recipients, the DGAP has calculated the alleged profiteering on the same goods. ii. The period of 411 days was an extraordinarily long period for profiteering to be calculated and that the DGAP was proceeding on the basis that the Respondent was not entitled to increase his prices over a period of time and by doing so the DGAP has failed to appreciate that the businesses reviewed their prices from time to time. iii. The period taken for calculating the weighted average base prices in the pre-GST rate reduction period was erroneous. As per ....
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....admitted fact that the pricing of products was dependent on the expenses incurred by him and therefore, increase in expenses and increase in costs has to be considered. 35. The Respondent has also claimed that with respect to various variants of Powder sold by him, the same were being manufactured at two locations, in Baddi (Himachal Pradesh) and Mulund (Maharashtra). On an average, the effective tax cost of manufacture and sale of these Products (i.e. Excise Duty and VAT) was approximately 17.97% and there was an additional cost of 2% on account of loss of CENVAT credit of Excise Duty which was not available to him at his manufacturing unit at Baddi, therefore, there was a total tax cost (including loss of ITC) of approximately 20%. He has further claimed that after the commencement of GST, he had undertaken change in the packaging of these variants of Powder products which has led to a further escalation in costs by approximately 4% as packaging constituted approximately 90% of the cost of the overall product in case of Powder. After the tax rate reduction while the rate of GST has come down from 28% to 18%, he has reduced the prices of Powder products after taking into accoun....
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....he transition from the earlier tax regime to an altogether new tax regime. As per the DGAP 's own report, he has mentioned that a total of 494 product descriptions were impacted by the rate reduction due to which he was burdened with various additional costs, including change in the IT systems, marketing costs and operating costs etc. He has further claimed that he has absorbed such increased tax costs not only during the implementation of the GST but also during the present rate reduction. He has also submitted that there were also certain additional costs which he had to bear on a regular basis, including inflation related increase in costs of raw materials, ingredients and services etc. which were factored in while determining the prices of the products, which the DGAP has not considered. 39. The Respondent has also argued that he was importing two finished products viz. Neutrogena and Aveeno line of products and the rate of Basic Customs Duty (BCD) on these products was increased from 10% to 20% w.e.f. 02.02.2018 vide Clause 101 (a) of the Finance Bill, 2018. Being non-creditable in nature, this increased BCD has resulted in increase in the cost of imported products for him ....
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.... factored in certain costs which he has borne at the time of commencement of the GST with effect from 30.06.2017, while computing the commensurate benefit required to be passed on. 43. He has further submitted that the net indirect tax costs on the products supplied by him were lower prior to the introduction of GST. After the GST was increased, all products covered under the present investigation saw an increase in the tax costs, however, he had continued to bear the losses of the increased tax costs. He has also claimed that he was committed to the intention of the Government and the GST Council that the public should not be burdened due to the increase in tax rates and therefore, even though he was suffering increased losses due to the increased tax rate, he had not changed his prices and accordingly, at the time of rate reduction he had factored in these losses and, accordingly, passed on the benefit of tax rate reduction to his recipients. Thereafter, he has computed the ideal base prices which he could have fixed for his products after the commencement of GST, considering the higher rate of GST. He has further claimed that these ideal base prices has been calculated by add....
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....e product description level without considering his costs the DGAP has resorted to price administration. He has also claimed that mere rate reduction would not result in price reduction without considering increase in costs and the business of a registered dealer was required to be seen as a whole for the provisions of Section 171. 46. He has also submitted that the term 'profiteering' has been defined in Black's Law Dictionary which was relied upon by the Hon'ble 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 was defined as "taking advantage of unusual or exceptional circumstances to make excessive profits" and that it was well settled that the right to reasonable profit was a part of right to trade and any methodology prescribed under Section 171 could not be dehors a reasonable profit that may be earned or costs incurred by an enterprise. He further submitted that the MRP only indicated a price above which the goods could not be sold and it could not be considered I assumed as the price realized by a person for all his sales and it was a general commercial practice to sell goods at pric....
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....ndent no penalty could be imposed as per the law settled in the case of Hindustan Steel Ltd. v. State of Orissa 1978 (2) ELTJ 159 (SC) = 1969 (8) TMI 31 - SUPREME COURT. 48. He has also submitted that the Notice has directed him to show cause as to why his registration under the CGST Act should not be cancelled. ln this regard he has submitted that Section 29(2)(a) of the CGST Act, provided that a proper officer might cancel the registration if 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 the recipient by way of commensurate reduction in prices, the Authority may order cancellation of registration. He has further submitted that he has not violated the provisions of Section 171 and hence his registration could not be cancelled. He has....
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....ction were different which could not be compared. He has also attached Annexure-4 to substantiate that the Powder being manufactured in Baddi was different than the Powder being manufactured in Mulund and there was no tax benefit at Mulund and hence, the prices fixed could not be compared. The Respondent has also stated that he has enclosed the details of the profiteered amount as per his own calculations in Annexure-13 of his submissions dated 05.08.2019 which showed that he has passed more benefit than he was required to pass on. 51. The Respondent has also stated that the DGAP vide his e-mail dated 23.09.2019 had requested for the following information from the Respondent which was also called from the Respondent by this Authority vide order dated 24.09.2019:- a) Copy of Notification vide which Basic Custom Duty has been increased for Neutrogena and Aveeno products from 10% to 20% w.e.f. 02.02.2018. b) MRP and Base price (without tax) of products Neutrogena and Aveeno from July, 2017 to December, 2018. c) Cycle of change in MRP of products Neutrogena and Aveeno from July, 2017 to December, 2018. d) Total impact on cost of all products after....
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....that he was in the process of preparing the said data for all the products which were under consideration in the above Report dated 24.06,2019. As far as supporting invoices for the said price changes in case of all the products under consideration were concerned, he submitted that the invoices related to numerous Brand Combinations for a period of 7 years and in certain cases, the invoices had been archived and he was in the process of acquiring copies of the invoices from his warehouses at various locations across the country where such invoices have been archived. He requested that he may be granted a period of six (6) weeks to provide the said information. 53. The DGAP was also directed to file clarifications on the submissions made by the Respondent who vide his Report dated 26.11.2019 in respect of clubbing of the supplies made to all the product distribution channels, CSD and non-CBD supplies in a common group while computing the profiteering, during the course of investigation, has stated that the Respondent has not submitted the details of all the distribution channels separately. 54. The DGAP has further stated that the profiteered amount has been arrived at by comp....
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....) of products Neutrogena and Aveeno pre & post 02.02.2018 and cycle of change in MRPs of products Neutrogena and Aveeno from July, 2017 to December, 2018 to the NAA on 04.10.2019 but he has not submitted the details of supplies made to various distribution channels and other information in support of his claim. 57. We have carefully considered the Reports furnished by the DGAP and the submissions made by the Respondent and all other documents placed on record and it is revealed that the Respondent is manufacturing and selling consumer general products, healthcare products, medical devices and pharmaceutical products and is operating in 22 States of India. It is also revealed that the Respondent is supplying his products through various distribution channels like (i) General Trade which included wholesale distributors and retailers (ii) Institutional Trade like hospitals and CSD (iii) Key/ Modern Trade which comprises of large retail chains and e-commerce operators (iv) Others, sales not forming part of the above channels and (v) Exports. 58. It is further revealed that the Central Government, on the recommendation of the GST Council, has reduced the GST rate on the products b....
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....s not possible to affix them as the Notification was issued in this regard only on 16.11.2017 and the whole process was time consuming and could not be taken immediately, He had also informed that once the product was sold he was not responsible for affixing stickers. He had also supplied the Stock Taking Unit (SKU) wise details of the pre and post rate reduction of MRPs which showed that in respect of some of the SKUs the reduction in the MRPs was not commensurate with the rate reduction which might involve profiteering in terms of Section 171 of the CGST Act, 2017. Therefore, this Authority had suo moto decided to forward the letter dated 28.09.2018 and the enclosures attached with it to the Standing Committee on Anti-Profiteering to take necessary action under Rule 128 (1) of the CGST Rules, 128 vide its letter dated 09,10.2018 (Annexure-5 of submissions dated 05.08.2019). It would also be relevant to state here that this Authority as per Para 9 of the 'Methodology & Procedure' notified by it on 28.03.2018,under the powers given to it under Rule 126 of the CGST Rules, 2017,has jurisdiction to take suo moto cognizance of the contravention of the provisions of Section 171 (1) of t....
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....ove Section had not prescribed any method of computation by which the profiteering can be computed. It would be appropriate to mention here that the provisions of Section 171 (1) of the CGST Act, 2017 are absolutely clear in this regard which require that the Respondent was legally obliged to pass on the benefit of rate reduction by commensurate reduction in the prices which meant that he was required to compute the MRPs in respect of each SKU after the rate of tax had been reduced and show it on each SKU. The above computation is a simple mathematical calculation which needs no prescription either under the above Act or the Rules. However, the above mathematical computation or methodology for determination of the benefit of tax reduction has to be applied on case to case basis depending on the facts of each case and no one mathematical formula can be fixed for computing it. The mathematical methodology used in respect of the case where the rate of tax has been reduced and ITC not allowed cannot be applied in the case where the rate of tax has been reduced and ITC allowed. Similarly, the mathematical methodology applied in the case of FMCGs like the present case of the Respondent c....
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....the Respondent and not the wholesale distributors or retailers, is entirely responsible for fixing the MRPs as only he can fix, round off and print the MRPs per the provisions of Rule 6 of the Legal Metrology (Packaged Commodities) Rules, 2011 which states as follows:- "(m) 'retail sale price' means the maximum price at which the commodity in packaged form may be sold to the ultimate consumer and the price shall be printed on the package in the manner given below : 'Maximum or Max. retail price Rs........../Rs........ inclusive of all taxes or in the form MRP Rs........./Rs..........incl. of all taxes after taking into account the fraction of less than fifty paise to be rounded off to the preceding rupee and fraction of above 50 paise and upto paise to the rounded off to fifty paise." 65. The Respondent was also required to stamp or re-sticker or reprint the MRPs on all the SKUs on which rate of tax was reduced in terms of the letter written by the Ministry of Consumer Affairs, Food and Public Distribution, Govt. of India on 16.11.2017 which reads as follows:- "WM-10(31)/2017 Government of India Ministry of Consumer Affairs, Food and Public Distributio....
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....odology but the Respondent cannot packet the benefit of tax reduction which has been granted by the Central and the State Governments out of their own tax revenue to the ordinary consumers and therefore, the Respondent is legally bound to demonstrate that he has passed on the above benefit by commensurate price reductions. The Respondent is also not required to pay the benefit from his own money and hence he should have no problem in passing on the same. 68. He has further contended that the prices at which the products were sold to a distributor depended of several factors and the same product might have different prices when sold through different product channels even though the printed MRP was the same for each product at the retail channels. He has also submitted a Chart to prove his contention. However, it is apparent from the Chart submitted by him that the MRP in respect of JB Oil 100ml Monsoon-B was Rs. 94/- whereas the base price varied from Rs. 65.52, Rs. 66.32 and Rs, 63.52 to the distributors. However, the above contention of the Respondent is fallacious as the benefit has ultimately to be passed on to the consumer and it does not matter what price was charged to th....
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....our. 72. The Respondent has also claimed that no personal hearing was granted to him by the DGAP. In this regard it is mentioned that the DGAP is not required to give opportunity of hearing to the Respondent as there is no such provision in the CGST Rules, 2017. However, the DGAP was required to issue notice to the Respondent as per the provisions of Rule 129 (3) of the above Rules which he has given on 15.01.2019 (Annexure-6 of Respondent's submissions dated 05.08.2018) and therefore, he has complied with the provisions of the above Rules, However, this Authority has granted him full opportunity of hearing during which the Respondent has been heard at length and he has also filed his written submissions on 05.08,2019, 04.09.2019 and 03.10,2019, as per the provisions of Para 6 the Methodology & Procedure framed by this Authority on 28.03.2018 read with Rule 133 (2) of the above Rules. Therefore, the Respondent cannot claim that he has been denied opportunity of hearing. 73. He has also cited the judgments of the Hon'ble Supreme Court passed in the cases of Dharampal Satyapal Ltd. v. Dy. Commissioner of C. Ex. 2015 (320) ELT 3 (SC) = 2015 (5) TMI 500 - SUPREME COURT and Escort....
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.... not possible to compare the actual pre rate reduction prices with the post rate reduction prices for every customer as the same customer may not have bought the same goods during the pre and the post reduction periods. A customer may also not have purchased goods in the pre rate reduction period at all and may have bought them in the post reduction period or vice versa. The DGAP was required to compare the pre rate reduction prices with the actual post reduction prices as the benefit was required to be passed on to each buyer and it could not have been calculated by computing the average base prices post rate reduction. The above mathematical methodology adopted by the DGAP is logical, reasonable, correct and is in consonance with the provisions of Section 171 (1) of the CGST Act, 2017 and hence the same can be relied upon. 75. The Respondent has further alleged that the methodology adopted by him was not allowed to be explained. Perusal of the methodology adopted by the Respondent as per Annexure-13 of his submissions dated 05,08,2019 shows that he has taken in to consideration the price of a particular product description sold to a particular customer in the last invoice prio....
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....king purchase from him through different channels. Taking the maximum base price from an invoice or from the price list has resulted in reducing the amount of benefit when compared with the post GST base price. the DGAP has computed the average pre rate reduction base prices after taking in to account all the invoices issued to different customers which gives more representative measure of the base prices than the prices computed by the Respondent. The Respondent has then added the tax costs and the losses which he had allegedly incurred at the time of the introduction of the GST w.e.f. 01.07.2017 and then arrived at the pre rate reduction ideal base prices. In this connection it would be relevant to mention that the Respondent has given no justification for adding tax costs. The Respondent could also not have added the alleged losses in the pre rate reduction base prices which he has stated to have incurred when the rate of GST was increased w.e.f. 01.07.2017. The above claim of the Respondent is incorrect as the GST rates were fixed after taking in to account the pre GST Central and the State Tax rates and were almost equal to the tax rates which were prevalent during the pre GST....
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....ct and hence the same cannot be accepted. 78. The Respondent has also submitted that the approach adopted by the DGAP in his Report was completely arbitrary and there was no uniformity in the mechanism adopted by the DGAP while examining allegations of profiteering. However, it is clear from the facts mentioned above that infact the approach adopted by the Respondent while claiming to pass on the benefit of tax reduction was arbitrary and the approach of the DGAP was valid and correct. 79. He has also argued that the DGAP in one of his investigations has separated the CSD and non-CSD supplies while computing the benefit of tax reduction, however, in the present case, he had not done so. In this connection it would be relevant to mention that the Respondent had not furnished the channel wise details of the outward taxable supplies to the DGAP inspite of the specific request made by the DGAP during the course of the investigation and hence there was no reason for him to separately consider the CSD and non CSD supplies. Therefore, the allegation made by the Respondent on this ground is baseless. 80. He has further argued that with respect to the rate reduction made vide Notif....
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....GST of Rs. 35,14,68,936/- in the profiteered amount which has been deposited with the Government. In this connection it would be appropriate to mention that the Respondent has not only collected excess base prices from the customers which they were not required to pay due to reduction in the rate of tax but he has also compelled them to pay additional GST on these excess base prices which they should not have paid. By doing so the Respondent has defeated the vary objective of both the above Governments which aimed to provide benefit of rate reduction to the general public. The Respondent was legally not required to collect the excess GST and therefore, he has not only violated the provisions of the CGST Act, 2017 but has also acted in contravention of the provisions of Section 171 (1) of the above Act as he has denied the benefit of tax reduction to them by charging excess GST. Had he not charged the excess GST the customers would have paid less price while purchasing goods from the Respondent and hence the above amount has rightly been included in the profiteered amount as it denotes the amount of benefit denied by the Respondent. The above amount can also not be paid to the eligi....
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....te reduction as Annexure-16 with the profiteered amount. Perusal of the record shows that the Respondent had not supplied the details of all the impacted goods SKU wise inspite of his having been asked to do so by the DGAP and by this Authority vide its order dated 24.09,2019. Hence, the DGAP has compared the prices of similar products pre and post rate reduction. The Respondent has also not supplied the SKU number wise details of his products while selling the same product through different channels which he was specifically asked to supply. The Respondent has also failed to produce any reliable evidence to prove his above claim during the present proceedings and hence mere attaching of a list cannot be relied upon unless he had submitted SKU number wise details of the products. 85. He has also submitted a list of 16 product descriptions claiming that the DGAP has compared completely different products as the products considered prior to GST rate reduction have a different chemical composition from the products considered after the GST rate reduction. ln this connection it would be relevant to mention that the Respondent has not supplied the SKU number wise details of the above....
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.... to compare the actual pre and post rate reduction prices as the same recipients had not purchased the same products during the two periods and one recipient may not have bought any products from the Respondent either in the pre or the post rate reduction period. Hence, the above arguments of the Respondent are flawed and therefore, the same cannot be accepted. 88. He has also stated that since the weighted average prices included the stock transfer transactions the same were erroneous. In this regard it would be pertinent to mention that the Respondent had neither supplied the details of the stock transfer transactions during the investigation nor supplied them on the specific direction of this Authority given on 24.09.2019 and hence the above claim of the Respondent is incorrect. 89. The Respondent has further stated that the period of investigation of 411 days was extraordinarily long and the DGAP had proceeded on the assumption that the Respondent was not entitled to increase his prices over a period of time. On this issue it would be relevant to mention that the DGAP has conducted investigation from 15.11.2017 when the tax rate was reduced till 31.12.2018 when he had sta....
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....actors at different points had affected his costs which had resulted in price increase, In this connection it would be pertinent to mention that the provisions of Section 171 (1) of the above Act required the Respondent to pass on the benefit of tax reduction to the consumers only and have no mandate to look in to fixing of prices of the products which the Respondent was free to fix. If there was any increase in his costs the Respondent should have increased his prices between the period from 01.07.2017 to 14.11.2017 however. it cannot be accepted that his costs had increased on the intervening night of 14/15.11.2017 when the rate reduction had happened which had forced him to increase his prices exactly equal to the reduction in the rate of such tax. Such an uncanny coincidence is unheard off and hence there is no doubt that the Respondent has increased his prices for appropriating the benefit of tax reduction with the intention of denying the above benefit to the consumers. 93. The Respondent has further submitted that Powder was being manufactured at two locations, in Baddi (Himachal Pradesh) and Mulund (Maharashtra) on which Excise Duty and VAT was approximately 17.97% and t....
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....ove product throughout all the States without taking in to account the area-based exemption. The Respondent has himself admitted in his submissions dated 05.08.2019 that he has not reduced the price of the above product when rate of tax was reduced on it from 28% to 18% w.e.f. 15.11.2017 and hence the DGAP has rightly computed the profiteered amount of Rs. 10, 84, 91,611/- on the Baby Wipes. Therefore, the claim of the Respondent that he has passed on excess benefit of Rs. 4,40,98,185/- on the Baby Wipes as has been shown in Annexure-13 prepared by him is also incorrect. Based on the above reasons all the above claims made by the Respondent are frivolous and hence the same cannot be accepted. 95. The Respondent has also claimed that the DGAP ought to have considered the additional costs including change in IT systems, marketing costs, operating costs. inflation, increase in the cost of raw materials and ingredients and services etc. which were factored in while determining the prices of the products, which the DGAP has not considered. As discussed above the provisions of Section 171 (1) of the above Act only require the DGAP to consider the effect of tax reduction on the prices ....
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....nd therefore, the objections raised by the Respondent on this ground are frivolous. 98. He has also stated that the sales details submitted by him to the DGAP for May 2018, were incorrect therefore, while making computations as per his methodology, he has corrected them. However, the Respondent has not submitted any such details during the course of the proceedings and hence the above claim of the Respondent could not be accepted. 99. He has further stated that in the absence of any prescribed methodology any methodology which was compliant with the provisions of Section 171 should be accepted. As discussed above the methodology adopted by the Respondent is neither bonafide nor in consonance with the provisions of Section 171 (1) of the above Act and hence, the same cannot be accepted. 100. The Respondent has also claimed that the anti-profiteering provisions were in the nature of anti-abuse provisions which could not restrict the right to carry on trade freely in terms of Article 19(1)(g)and Article 300A of the Constitution of India and earn reasonable profit. In this connection it would be pertinent to mention that the provisions of Section 171 (1) of the above Act requi....
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....1 of the above Act which states as under:- "Explanation : For the purposes of this section, the expression "profiteered" shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of ITC to the recipient by way of commensurate reduction in the price of the goods or services or both Therefore, it is clear that the above Section speaks about passing on of the above two benefits only which has no connection with the definition given in the Black's Law Dictionary and hence it no where affects the right of the Respondent to earn profit 103. He has further submitted that the MRP only indicated a price above which the goods could not be sold and could not form basis to determine "commensurate" reduction in price. In this regard it would be pertinent to state that the Respondent is legally required to fix the MRP as per the provisions of the Legal Metrology Act, 2009 under which he cannot sell his products at more than the MRP which includes the incidence of GST also in case the rate of tax is reduced it would automatically result in reduction in the MRP and hence the commensurate pric....
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....d not frame a regulation as that would not be in accord with the statutory provisions. Since, this Authority has been conferred power under the above Act to impose penalty the above case is not being followed. He has also argued that since there was no deliberate defiance of law by the Respondent no penalty could be imposed as per the law settled in the case of Hindustan Steel Ltd. v. State of Orissa 1978 (2) ELTJ 159 (SC) = 1969 (8) TMI 31 - SUPREME COURT. Since, the Respondent is still to be heard on the quantum of penalty after the present case is decided the above case cannot be relied upon at this stage. 107. The Respondent vide his submissions dated 04.09.2019 has stated that it was difficult to trace the price revision trends at the SITU product description level as the same may have changed in the past. He has also enclosed Annexure-2 stating that he has collated the MRP data at the Brand Combination level which included various SKUs. He has also enclosed invoices of the key Brand Combinations vide Annexure-2A to substantiate the MRP mentioned in Annexure-2. Perusal of Annexure-2A shows that it gives the details of the MRPs for the year 2019, 2018, 2017 post rate reducti....
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....he Respondent has also stated that he has enclosed the details of the profiteered amount as per his own calculations in Annexure-13 of his submissions dated 05.08.2019 which showed that he has passed More benefit than he was required to pass on. However, as has already been discussed above the Respondent has failed to produce any evidence to show that he is not enjoying area based benefit at Baddi and he was charging less prices for the products being manufactured by him at Baddi. Perusal of Annexure-13 prepared by the D AP shows that the Respondent has arbitrarily increased the prices of the Powder and Baby Wipes and has thus resorted to profiteering and hence the prices mentioned in Annexure-4 are hypothetical and incorrect and hence the same cannot be relied upon. 110. The Respondent was asked by the D AP vide his e-mail dated 23.09.2019 and this Authority vide its order dated 24.09.2019 to submit the following information so as to take in to consideration the objections raised by him during the course of the present proceedings:- (i) Copy of the Notification vide which Basic Customs Duty (BCD) has been increased for Neutrogena and Aveeno line of products from 10% to....
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.....02.2018 and there was no increase in respect 8 products. Accordingly, the above claim of the Respondent cannot be relied upon. (c) He has also submitted the MRP data for Neutrogena and Aveeno products from July 2017 to December 2018 at a Brand Combination level as per Annexure-4. He has also claimed that it was difficult to trace the price revision trend at a SKU / product description level as the same might have changed in the past. Accordingly, he has collated the MRP data at a Brand Combination level which included various SKUs within the said level. Again the details of cycle of change in the MRPs have not been given SKU wise and the above Annexure also does not show any trend and hence the same cannot be considered. (d) He has further stated that he was making supplies through various channels such as (i) General Trade (ii) Institutional Trade (iii) Key/Modern Trade (iv) others and (v) Exports and was in the process of analysing the trade wise taxable supplies from July, 2017 to December, 2018 and getting the same certified from a Cost Accountant. Considering the nature of the information sought as well as the time required by the Cost Accountant to verify a....
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....(a) of the above Rules. The Respondent is also directed to deposit an amount of Rs. 2,30,40,74,132/-in the CWF of the Central and the concerned State Government, as the recipients are not identifiable, as per the provisions of Rule 133 (3) (c ) of the above Rules alongwith 18% interest payable from the dates from which the above amount was realised by the Respondent from his recipients till the date of its deposit. The above amount shall be deposited within a period of 3 months from the date of passing of this order failing which it shall be recovered by the concerned Commissioners CGST/SGST. The State/Union Territory wise amount of benefit to be deposited in the concerned CWF is as under:- Table S. No. State Code State Profiteered Amount (Rs.) 1 02 Himachal Pradesh 33,02,17,775 2 03 Punjab 8,47,46,490 3 05 Uttarakhand 1,23,42,666 4 06 Haryana 2,08,76,240 5 07 Delhi 9,66,05,932 6 08 Rajasthan 3,27,78,720 7 09 Uttar Pradesh 54,05,98,573 8 10 Bihar 7,38,65,910 9 18 Assam 8,44,00,366 10 19 West Bengal 15,31,51,571 11 20 Jharkhand 2,85,72,59....