TaxTMI 
TaxTMI 
2019 (12) TMI 1082
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....e 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 replied to his Notice vide letters/e-mails dated....
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....-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, was also included in the aforesaid profiteered amount by the DGAP as the excess price collected....
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....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 wholesale distributors across all States. He sold his products to the wholesale distributors who sold them to retailers or other channel partners and approximately 80% of the sales were made to this category. b. Institutional Trade: Hospitals and medium and large institutions formed part of th....
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....y 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 pricing decision and hence, the cost of taxes was only one of the elements which determined the final price. 16. He has further contended that the prices at which products were sold to a distributor depended of which product channel it was a part of. Moreover, prices to a distributor would also depend on the offtake by such distri....
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.... 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 computed profiteering arbitrarily on a methodology which was not prescribed either under the CGST Act or the CGST Rules. The methodology adopted by him was also not allowed to be explained even though he had made specific request to explain the implications of the data and the methodology adopted by him. He has also contended that it was well-settled that granting of opportunity of hearing was ....
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....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 the products sold by him by considering product descriptions as the base. A total of 494 product descriptions have been analysed by the DGAP to arrive at the alleged profiteered amount and out of these 494 product descriptions, the DGAP has calculated nil profiteering on 188 product descriptions. he has also stated that the DGAP has incorrectly considered only those instances where there was an alle....
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....uring 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, there was no question of passing on any commensurate benefit of rate reduction in terms of money and hence, such transfers could not be included in the profiteered amount. 25. The Respondent has also averred that the stock transfer transactions were undertaken by him merely to facilitate the supply of products across the country and such transactions were not considered as 'sale', however, under the GST regime. these....
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....n 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 out rightly dropped. 28. The Respondent has also contended that after the perusal of Annexure-13 of the DGAP's Report, he has observed that the DGAP has adopted product descriptions as the criterion for comparing the prices of products prior to and after the GST rate reduction and accordingly, he has compared the prices of products with common product descriptions to compute the alleged profiteering. However, in the case of 79 product descriptions, the DGAP has adopted alt....
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....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/- Total amount of alleged profiteering (INR) 19,41,44,747/- 30. He has further submitted that it was clear from the above Table that the above products have different chemical compositions and were completely different products which could not be compared with each other and the products considered after the rate reduction were new products which have been launched in the market for the first time after 14.11,2017 and therefore, there could not be any profiteering on the products which were introduced for the first time after rate reduction. He has also pleaded that it has been a practice by the DGAP to not include new products while comput....
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....ted 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 Para 12 of the Report, where the DGAP could not find the sales of certain product descriptions during the period from 01.11.2017 to 14.11.2017, the DGAP has calculated weighted average base prices by considering the preceding months. Accordingly, where the DGAP could not find sales of certain product descriptions in the period from 01.11.2017 to 14.11.2017, the DGAP has proceeded to the month of September or October 2017. Therefore, instead of taking a uniform period for all the product descriptions in the pre-GST rate reduction period, the DGAP has taken different periods for different product descriptions without providing any reasonable or justifiable explanation. If the ....
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....al 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 account the above mentioned costs, including tax costs as well as non-tax costs. He has herefore, submitted that the DGAP has erred as the above mentioned tax as well as non-tax costs have not been taken into account while determining whether he has passed on the commensurate benefit of tax rate reduction. He has also submitted that an amount of Rs. 30,86,81,503/- which has been alleged to have been profiteered with respect to these variants of Powder products was incorrect. 36. He has also contended that the DGAP has failed to appreciate that the pricing of 'Baby Wipes' has been determined on completely different principles and the same could not be computed on the methodology adopted....
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....tc. 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 which he has not passed on to his customers from 02.02,2018 to August 2018 and the additional duty burden was absorbed by him. 40. The Respondent has further argued that the DGAP has failed to consider that pricing of products sold by the Medical Division was determined on the negotiations with respect to each independent supply and, therefore, the same could not be compared with each other and hence, the pricing to the distributors as well as the MRP was illusory. 41. The Respondent has also claimed that he has carried out his own computations which disclosed that he has passed on more than the commensurate benefit of tax rate reduction in terms of Section 171 of the CGST Act. The Resp....
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....h 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 adding the increased tax costs which he had incurred at the time of commencement of the GST to the actual base prices of the products prior to the tax rate reduction. He has also contended that he has then compared the ideal base price of a particular product description in the pre-rate reduction period to the actual selling prices of the said product description supplied to the same customer in each of the invoices after the GST rate reduction for the following periods to compute profiteering;- 15.11.2017 to 31.03.2018; 15.11.2017 to 31.07.2018, and 15.11.2017 to 31 12.2018. 44. He has further contended that this exercise for each of the product descriptions was carried out for computing pro....
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....ettled 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 price less than the MRP and thus any price arrived on the basis of the MRP alone was notional, not real, and could not form basis to determine "commensurate" reduction in price. He has also added that the DGAP has erred in adopting an average base price based on MRP without considering any of the relevant factors including the tax incidence prior to GST which interfered with the right to carry on trade and was violative of Article 19 (1) (g) and Article 300A of the Constitution of India. He has also alleged that the DGAP has proceeded on the presumption that Section 171 was a consumer protection measure whereas it was a business regulation measure and it was right of a registered person to balance his GST benefits and losses w....
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....e 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 also contended that he has also not violated the provisions of Section 122 to 127 of the CGST Act, 2017 and hence no penalty could be imposed on him. 49. The Respondent vide his submissions dated 04.09.2019 has submitted that he has undertaken revision in prices of his products from time to time due to various factors, such as inflationary pressures, increase in the cost of raw materials, operational costs, marketing expenses and other miscellaneous expenses and stated that there was no question of looking at any trend for price change as price changes happened due to prevailing facts and circumstances. He has further submitted that it was difficult to trace the price revision trend at the SKU product description level as th....
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....ication 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 Basic Customs Duty (BCD) was increased from 10% to 20% w.e.f. 02.02.2018 alongwith the Cost Accountant's Certificate. e) Details of invoice-wise outward taxable supplies during the period from July, 2017 to December, 2018, duly reconciled with GST Returns in the format sent after separately mentioning various distribution channels. f) Yearly price change cycle of ail the products alongwith date and supporting invoices pre and post MRP revision, 52. The Respondent vide his submissions dated 03.10.2019 has submitted the following in response to the additional data asked for as above:- a) That the rate of BCD for certain Aveeno and Neutrogena products was increased from 10% to 20% in terms of Clause 101 (a) read with the Second Schedule of the Finance Bill, 2018 w.e.f. 02.02.2019, a copy of the above Bill w....
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....tion 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 comparing the average of the base prices of the FMCGs products sold during the period from 01.11.2017 to 14.11.2017, with the actual invoice-wise base prices of such 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. The excess GST so collected from the recipients, was also included in the aforesaid profiteered amount as the excess price collected from the recipients also included the GST charged on the increased base price. Passing on of the excess benefit was not within the scope of investigation which was limited to the products where the commensurate benefit has not been passed on to the recipients. Excess benefit, if an....
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....s 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 being supplied by the Respondent from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 and hence, there is no dispute that the Respondent is required to pass on the benefit of above reduction in the rate of GST by commensurate reduction in prices of the products which he is admittedly supplying, as per the provisions of Section 171 (1) of the CGST Act, 2017. It is also apparent that the DGAP has calculated the profiteered amount or the amount the benefit of which has not been passed on by the Respondent due to increase in the base prices of the impacted goods or due to non commensurate reduction in the supplies made by the Respondent during the period from 01.07.2017 to 31.12.2018 as Rs. 2,30,40,74,132/- and this profiteered amount has been arrived at by the DGAP by comparing the average of the base prices of the impugned produc....
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.... 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 the CGST Act, 2017. The above Para states as under:- "(9) The Authority may inquire into any alleged contravention of the provisions of Section 171 of the Central Goods & Services Tax Act, 2017 on its own motion or on receipt of information from any interested party as defined in Rule 137 (c), person, body, association or on a reference having been made to it by the Central Government or the State Government." 60. Therefore, it is clear that on receiving the information from the Respondent which disclosed that the Respondent might have committed violation of the provisions of the above Section this Authority had referred the matter to the Standing Committee on Anti-Profiteering under Rule 128 (1) of the above Rules for ascertaining whether there was prima facie evidence to support the allegation of not passing on the benefit of tax reduction against the Respondent. Therefor....
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....cal 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 cannot be applied in the case of construction services. Even the mathematical methodology applied in two cases of FMCGs may be different due to the number of such goods and and the period during which the benefit of tax reduction has not been given. Therefore, no mathematical methodology is required to be fixed under the above Section to compute the benefit of tax reduction. 63. The Respondent has further claimed that as per Section 171 (3) of the Act this Authority 'shall exercise such powers and discharge such functions as may be prescribed". He has also stated that as per Section 2 (87) of the CGST Act, the word 'prescribed' shall mean as prescribed by the CGST Rules on the recommendations of the GST Council. Therefore, this Authority could discharge only such functions and exercise such powers as were specifically mentioned in the CGST Rules, In this regard it would be worthwhile to m....
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.... 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 Distribution Department of Consumer Affairs Legal Metrology Division Krishi Bhawan, New Delhi Dated: 16.11.2017 To, The Controller of Legal Metrology, All States/ UTS Subject: Labelling of MRP of pre-packaged commodities due to reduction in GST-reg. Reference is invited to this office letter No. WM-10(31)/2017 dated 29.9.2017 regarding declaration of MRP on unsold stock of pre-packaged commodities manufactured/packed/Imported prior to 1st July, 2017. Subsequent to that, Government has reduced the rates of GST on certain specified items. Consequent upon that, permission is hereby granted under sub-rule (3) of rule 6 of the Legal Metrology (Packaged Commodities) Rules, 2011, to affix an additional sticker or stamping or online printing for declaring the reduced MRP on the pre-packaged commodity. In this case also, the earlier Labelling/ Sticker of MRP will continue to be visible. Further, this relaxation will al....
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.....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 the distributor. Any preferential price offered to a distributors would increase his profit but it would have no impact on passing on the benefit of tax reduction as the ultimate price to be paid by a customer remained the same. 69. The Respondent has also made reference to the judgment of the Hon'ble Supreme Court passed in the case of Basant Industries v. Asst. Collector of Customs 1996 (81) ELT 195 (SC) = 1995 (1) TMI 89 - SUPREME COURT and it is respectfully submitted that the law settled in the above case is not applicable in the present case as the ultimate price being charged by the Respondent from the customers was the same irrespective of the fact that he had charged different prices from his distributors for the same products which shows that the benefit of tax reduction stood on a different footing which was required to passed on to each customer on each SKU. 70. He has also argued that the fixation of prices was subject to principle of 'commercial expediency' and it was for....
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....ed 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 Escorts Farms Ltd. v. Commissioner, (2004) 4 SCC 281 = 2004 (2) TMI 683 - SUPREME COURT in which the Hon'ble Supreme Court has held that opportunity of hearing could not be denied. However, it would be appropriate to submit here that the Respondent has been afforded full opportunity of hearing and hence the above cases do not help his case. He has also made reference to the judgment of the Hon'ble Delhi High Court passed in the case of CCE v. SG Engineers 2015 (322) ELT 204 (Del.) = 2013 (7) TMI 905 - DELHI HIGH COURT. However, as has been mentioned above the Respondent has been afforded due opportunity of defending himself and has been heard in detail hence there has been no violation of the principle of audi alteram partem and that of principles of natural justice. 74. The Respondent has also alleged that the DGAP had computed profiteering arbitrarily on a methodology which was not prescribed either under the CGST Act or the CGST Rules. As discussed supra no fixed mathematical methodology can be pr....
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....re-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 prior to 15.11.2017 as the base price prior to 15.11.2017 (i.e. the date from which GST rate reduction came into effect). Where such a price was not available till 01.07.2017 (i.e. the date of commencement of GST), he has taken the price available in the price list as on 14.11.2017 on the ground that if the price had already been increased/reduced prior to the GST rate reduction, there was no rationale of creating an artificial price by resorting to an average and the price after the GST rate reduction must be compared to the last prevailing price prior to such rate reduction. The Respondent after determining the pre reduction base price as has been stated above has factored in certain tax costs which he had allegedly borne at the time of commencement of the GST with effect from 01.07.2017 while computing the commensurate benefit required to be passed on. The Respondent has also taken in to account the losses which he had allegedly incurred at the time of introduction of GST w.e.f. 01.07.2017. Thereafte....
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....es 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 period. In any case if the GST rates were more than the pre GST tax rates the Respondent had full liberty to increase his prices w.e.f. 01.07.2017. If he had not done so it was his own business call and he cannot deny benefit of tax reduction to the customers when the rate was reduced w.e.f. 15.11.2017. The Respondent had also not added the tax cost and the losses suffered by him in the prices of his products between the period from 01.07.2017 to 14.11.2017 and it is surprising to note that he has chosen to add them w.e.f. 15.11.2017 when he was required to reduce his prices commensurate with the tax reduction. Such increase in the base prices could not have happened over night to exactly coincide with the reduction in the tax rate w.e.f. 15.11.2017. The Respondent has then compared the base prices calculated by him for the pre rate reduction period with the actual prices post rate reduction for the periods w.e.f. 15.11.2017 to 31.03.2018, 15.11.2017 to 31.07.2018 and 15.11.2017 to 31.12.2018 however, he has not given an....
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....efore, 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 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 rate reduction has been taken as 411 days and hence, the different approaches adopted by the DGAP were ex facie arbitrary when it was for the same Respondent. In this connection it would be appropriate to mention that the DGAP is required to compute the amount of profiteering till the benefit was not passed on. Since the DGAP had initiated the investigation vide his Notice dated 15.01,2019 (Annexure-6 of submissions dated 05.08.2019) he has rightly taken the period w.e.f. 15.11.2017 to 31.12.2018 and has found that the Respondent has not passed on the above benefit during the above period. In case the Respondent had passed on the benefit before 31.12.2018 the DGAP would not have extended the period of his investigation till the above date. Hence, the above objection of the Respondent is irrelevant. 81. The Respondent has also argued that the....
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....een 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 eligible buyers from the CWFs as the Respondent has not deposited it in the above Fund. Therefore, the above contentions of the Respondent are untenable and hence they cannot be accepted. 83. The Respondent has also contended that the DGAP has wrongly included the stock transfer transactions in the profiteered amount. However, perusal of the Report dated 24.06.2019 as well as the supplementary Report dated 26.11.2019 furnished by the DGAP shows that the Respondent has not supplied the details of the stock transfer transactions and the amount involved in them to the DGAP. The Respondent was also directed by this Authority to supply details of the outward taxable supplies made by him during the period from July 2017 to December 2018 but he has failed to supply the same. Therefore, there was no evidence before the DGAP or this Authority to consider these transactions while computing the profiteered amount. The Respondent has also claimed that since no monetary consideration had been paid on such transactions no commensurate reduction could ....
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.... 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 products during the course of the investigation or even when he was asked to do so by this Authority vide its order dated 24.09.2019. He has also not provided any evidence to prove that the chemical composition of the above 16 products was different and they were different products and were launched in the market for the first time after 14.11.2017. In the absence of cogent and reliable evidence the above contentions of the Respondent cannot be relied upon his mere assertion. 86. In this regard, the Respondent has also made reference to the Order dated 22.01.2019 passed by this Authority in the case of DGAP v. Satya Enterprises, Case No. 3/2019 = 2019 (1) TMI 1419 - NATIONAL ANTI-PROFITEERING AUTHORITY wherein it was held that newly introduced products were not considered for the computation of profiteering by the DGAP. He has also attached photographs of the newly introduced products post 14.11,2017 vide Annexure-17 of his submissions dated 05.08.2019. However, perusal of these photographs does not show that these products were newly in....
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....levant 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 started the investigation after having received the complaint against the Respondent from the Standing Committee on Anti-Profiteering on 07.01.2019 during which he had found that the Respondent had not reduced his prices due to rate reduction till the above date. The Respondent had also not produced any evidence to show that he had increased his prices during the above period. Therefore, the DGAP has rightly taken the above period for computing the profiteered amount and hence the contention of the Respondent made in this regard is not correct. 90. The Respondent has also alleged that while calculating the weighted average base prices in the pre-GST rate reduction period where the DGAP could not find the sales of certain product descriptions during the period from 01.11.2017 to 14 112017, he has considered the preceding months which was not uniform. However, the Respondent has not suggested any other method to calculate the pre rate reduction prices. It is apparent from the perusal of the Report dated 24.06.2019 filed by the DGAP that firstly he has....
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....t two locations, in Baddi (Himachal Pradesh) and Mulund (Maharashtra) on which Excise Duty and VAT was approximately 17.97% and there was additional cost of 2% on account of loss of CENVAT credit of Excise Duty, therefore, there was total tax cost of approximately 20%. He had also changed the packaging of Powder which had increased his costs by approximately 4%, 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 but the DGAP has not taken into account the above costs while determining the profiteered amount. However, perusal of the record shows that the Respondent has not produced any evidence to show that he has infact reduced his prices post rate reduction. On the other hand it is apparent from Annexure-13 submitted by the DGAP that the Respondent instead of reducing his prices has increased them and hence resorted to profiteering and has denied the benefit of such reduction. Therefore, an amount of Rs. 30,86,81,503/- which has been profiteered by the Respondent in respect of the above product cannot be excluded from the profiteered amount. Hence all the claims made by the Respondent in this regard are no....
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....e provisions of Section 171 (1) of the above Act only require the DGAP to consider the effect of tax reduction on the prices and they do not ask for taking in to account the costs and hence the same were not required to be considered by the DGAP. The Respondent had also not suffered any losses due to increase in the rates of GST at the time of coming in to force of the GST or even if he has suffered them it was his own business call not to increase his prices in case there was any increase in his costs the Respondent could have increased his prices on account of these costs any time between the period from 01.10.2017 to 14.11.2017 but he cannot claim that his costs had suddenly increased from 15.11.2017 when the rate reduction had become effective. Moreover, there could also not have been price increase in respect of the impacted products exactly equal to the amount of tax reduction. Therefore, it is apparent that the prices were not increased due to the above costs but they were increased to pocket the benefit which was to be passed on to the consumers. 96. The Respondent has also submitted that the DGAP has failed to consider that pricing of products sold by the Medical Division....
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..... In this connection it would be pertinent to mention that the provisions of Section 171 (1) of the above Act require a registered person to pass on the benefit of tax reduction or additional ITC to the recipient by way of commensurate reduction in the prices on every supply of goods and service and they no where state that the above person shall fix his prices as directed under the above Section. This Authority in terms of Section 171 (2) is also required to ensure that both the above benefits are passed on however, it has no mandate to act as a price regulator or price controller. The Respondent is totally free to fix his prices and earn profit and he is only required to pass on the above benefit which have been given to him by the Central and the State Governments by sacrificing their own revenue which he cannot appropriate against his profits, Therefore, the above Section in not violative of the provisions of Article 19 (1) (g) and Article 300A of the Constitution of India, hence, the above claim of the Respondent is untenable. 101. He has also contended that the DGAP has erred in adopting a notional base price and there was no intention of the Government to move away from the....
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....f tax is reduced it would automatically result in reduction in the MRP and hence the commensurate price would have to be reflected in the MRP to be charged from a customer, Hence, the above argument of the Respondent cannot be accepted. 104. He has also added that the DGAP has proceeded on the wrong presumption that Section 171 was a consumer protection measure whereas it was a business regulation measure. lt appears that the Respondent is labouring under a wrong impression that the above Section provides for regulation of business whereas its only aim is to the pass on both the benefits of tax reduction and ITC to the ultimate consumers by commensurate reduction in the prices. Both these benefits flow from the public exchequer and theft focus is customer and not the business. Therefore, the above contention of Respondent is incorrect. 105. The Respondent has also contended that this Authority has not been empowered under the CGST Act to impose any penalties. However, it would be appropriate to mention that Section 171 (3A) which is reproduced below provides power to this Authority to impose penalty:- "(3A) Where the Authority referred to in sub-section (2) after holding examin....
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....it gives the details of the MRPs for the year 2019, 2018, 2017 post rate reduction, 2017 pre rate reduction, 2016, 2015. 2014 and 2013 in respect of 75 Brand Combination levels whereas the Respondent was required to supply the MRPs at the SKU level of all the 498 impacted SKUs. The above Annexure also shows that the Respondent was charging less MRPs during the post GST period than the MRPs which were being charged by him during the pre GST period which is not borne out from the investigation carried out by the DGAP and computation of profiteered amount of Rs. 2,30,40,74,132/-. It is also clear from Annexure-13 submitted by the Respondent with his submissions dated 05.08.2019 that the Respondent has kept his post rate reduction prices deliberately at the same level which he was charging during the pre rate reduction period or has even increased them as compared to the pre rate reduction prices. Hence, the claim of the Respondent that he was regularly increasing his prices in a methodical manner is not correct and hence neither Annexure-2 nor Annexure-2A can be relied upon. 108. The Respondent has also submitted Annexure-3 enclosing photographs of his 16 products to claim that the p....
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....en increased for Neutrogena and Aveeno line of products from 10% to 20% w.e.f. 02.02.2018. (ii) MRP and Base price (without tax) of products Neutrogena and Aveeno from July, 2017 to December, 2018. (iii) Cycle of change in MRP of products Neutrogena and Aveeno from July, 2017 to December, 2018. (iv) Total impact on cost of all products after Basic Customs Duty was increased from 10% to 20% w.e.f. 02.02.2018 alongwith the Cost Accountant's Certificate. (v) Details of invoice-wise outward taxable supplies during the period from July, 2017 to December, 2018, duly reconciled with CST Returns in the format sent by the DGAP, after separately mentioning various distribution channels. (vi) Yearly price change cycle of all the products alongwith date and supporting invoices pre and post MRP revision. 111.The Respondent vide his submissions dated 03.10.2019 has submitted the following in response:- (a) That the rate of BCD for certain Aveeno and Neutrogena products was increased from 10% to 20% in terms of Clause 101 (a) read with the Second Schedule of the Finance Bill, 2018 w.e.f. 02.02.2018, a copy of the above Bill has been attached by him as Annexure-2. (b) He has also pr....
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.... and certify the information. he requested that he may be granted a period of six (6) weeks to provide the said information. He has further submitted that vide his submissions dated 04.09.20019 he has provided the MRP data of the key products at the Brand Combination level which was considered in the DGAP's Report dated 24.06.2019 alongwith sample invoices. He has also claimed 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. It is clear from the above submissions that the Respondent has not supplied the basic data which was required to establish the claims made by him in hi....