TaxTMI 
TaxTMI 
2020 (3) TMI 184
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....ering by the Respondent, in respect of supply of "Samsung 80 CM (32 inches) HD ready LED TV 32FH4003". The above Applicant alleged that the Respondent did not reduce the selling price of "Samsung 80 CM (32 inches) HD ready LED TV 32FH4003", when the GST rate was reduced from 28% to 18% w.e.f. 01.01.2019, vide Notification No.24/2018 Central Tax (Rate) dated 31 12 2018 and the price of the product remained the same after tax reduction and thus the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in the price, in terms of Section 171 of the Central Goods and Services Tax Act, 2017. 2. The Standing Committee in its meeting held on 11.03.2019, decided to refer the same to the DGAP in terms of Rule 129 of the Rules to conduct a detailed investigation in the matter. The DGAP issued a notice under Rule 129 of the Rules calling upon the Respondent to submit his reply as to whether he admitted that the benefit of reduction in the GST rate w.e.f. 01.01.2019, had not been passed on to his recipients by way of commensurate reduction in price and if so, to suo-moto determine the quantum thereof and indicate the same in his reply to the....
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....ters such as volume and order size, etc. d. The Respondent stated that the sales were made to Canteen Stores Department (CSD) at a specially negotiated price. As a process, the Respondent negotiated an exclusive Index price for a product with CSD and once fixed, while the Respondent could sell the products at a price lesser than the fixed agreed price, it could not sell the products at a price higher than the agreed price. Generally, the price agreed with CSD was lesser than the price at which the Respondent sold such goods in the open market/trade. 5. Vide the aforementioned letters/e-mails, the Respondent submitted the following documents/information to the DGAP: a) GSTR-1 & GSTR-3B returns for the period from November, 2018 to March, 2019. b) Details of invoice-wise outward taxable supplies during the period November, 2018 to March, 2019. c) Sample copies of the invoices, pre & post 01.01.2019. d) Purchase register and sample Purchase Bills. 6. The DGAP stated that the main issues for determination were whether the rate of GST on the "Samsung 80 CM (32 inches) HD ready LED TV 32FH4003" supplied by the Respondent was reduced from....
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....en reduced from 28% to 18%. Thus, it became apparent to the DGAP that the complaint was against the Respondent and not against the two intermediate suppliers, as had been claimed by the Respondent. (ii) Further, the DGAP has reported that in the application (complaint) of the Applicant No. 1, the name of the supplier was mentioned as M/s Samsung India Electronics Pvt. Ltd. Further, against Sr.No. C-5 of the APAF form, it was mentioned that after GST rate applicable on the said goods was reduced from 28% to 18% in January, 2019. the MRP of Samsung 80 cm (32 inches) HD Ready LED TV 32FH4003 had remained the same. To authenticate his contention, the Applicant No. 1 had included screenshots of certain e-commerce portals such as amazon etc. The DGAP has further stated that though these screenshots carry an entry of sold by____, it was not relevant as both, the Applicant No. 1, and the Standing Committee had mentioned that the subject complaint was against the Respondent. i.e. M/s Samsung India Electronics Pvt. Ltd. 9. The DGAP has further reported that the Respondent, vide his Notice dated 08.04.2019, was asked to provide the details of all the outward taxable supplies of the prod....
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....uction (Before 01.01.2019 Post Rate Reduction (From 01.01.2019) 1. Product Description (Item Code A UA32N4003ARXXL 2. Channel B Other Regional Retail Partners - Moderate volume 3. Period C December, 2018 4. Total quantity of item sold D 577 5. Total taxable value E 8492605 6. Average base price (without GST) F=E/D 14718.55 7. GST Rate G 28% 18% 8. Commensurate Selling price (post Rate reduction) H=G*1.18 17367.89 9. Invoice No. I 32S4I0020610 10. Invoice Date J 02.01.2019 11. Total quantity (above invoice) K 1 12. Total Invoice Value M 17834 13. Actual Selling price (Post rate reduction) N=M/K 17834 14. Difference O=N-H 466.11 From the above table, the DGAP has derived that the Respondent did not reduce the selling price of the "Samsung 80 CM (32 inches) LED TV UA32N4003ARXXL", even when the GST rate was reduced from 28% to 18% w.e.f. 01.01.2019, vide Notification No.24/2018 Central Tax (Rate) dated 31 ....
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....ted 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. 12. The DGAP concluded that the amount of profiteering by the Respondent on account of contravention of provisions of Section 171 of Central Goods and Services Tax Act, 2017, was Rs. 37,85,342/-. The place (State or Union Territory) of supply chain-wise break-up of the total profiteered amount of Rs. 37,85,342/- as provided by the DGAP is furnished in the Table below: Table-2 (Amount in Rupees) Sr.No. State Name State Code LED TV (Rs.) Power Banks (Rs.) Total (Rs.) 1 Jammu & Kashmir 1 10201 0 10201 2 Himachal Pradesh 2 3081 0 3081 3 Punjab 3 67223 3593 70816 4 Chandigarh 4 1560 0 1560 5 Uttarakhand 5 18002 0 18002 6 Haryana 6 243115 0 243115 7 Delhi 7 74390 4997 79388 8 Rajasthan 8 83155 0 83155 9 Uttar Pradesh 9 315668 0 315668 10 Bihar 10 63059 0 63059 11 Sikkim 11 283 0 283....
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....et factors such as size of business, operating cost. location and logistics etc., prices for B2B sales were negotiated with each customer on a case to case basis depending upon various parameters such as volume and order size etc. 15. He submitted that for B2C sales made to end consumers, the following six broad channel structures were used: * Modern Retail - The products were sold to the chain stores having Pan India presence, which directly sold to the end customers. * Regional Retail - These products were sold to the retailers having presence in specific regions. These retailers directly sold to the end customers. * Distributor - These products were sold to the distributors, where in-turn, sold then the small dealers/ retailers for making sales to the end customers. * Brand Shops - These were exclusive stores dealing only in Samsung products. * Direct Dealers - There were dealers who in-turn sold to the end customers. * Online - These products were sold to partners for making sales through their online marketplace portals. Within the above supply channel structures, there could be multiple sub-channels, depending on fac....
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.... no change in the sale price of the Respondent (before GST) and the impact of GST rate change was accordingly passed on to the dealers. The Respondent also stated that in order to ensure passing on the benefit of GST rate change, the Respondent had also sent out communications to his dealers for Television/Monitor and Power Banks requesting his dealers to pass on the benefit of GST rate change to the end customers on inventory held in stock. He also submitted that he had exercised all due diligence, within his control, to ensure that GST benefits were appropriately passed on across the supply chain. 18. The Respondent also submitted that it was well settled law that creatures of a statute were bound by the respective powers and limitations prescribed under the statute. Accordingly, any authority may only exercise the powers conferred on it specifically under the provisions. He has also stated that he understood that an Application dated 18 February 2019 was filed by The Applicant No.1 alleging profiteering on the part of the Respondent based on two screenshots of 32" LED television with Model No. 32FH4003 ('the subject product') being sold on a third party online marketplace i.e....
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....this regard, the Respondent also submitted that the Applicant No. 1 had only submitted screenshots of price being listed on an online marketing portal and no evidence, whatsoever, has been adduced by him to substantiate that the 'supply' has actually taken place at the price mentioned therein. He stated that the MRP mentioned on the third party online marketing portals was not governed by him (the Respondent) and was beyond his control. In view of this, the complaint made by the Applicant No.1 against him was arbitrary and did not stand the scrutiny of law and on this ground alone, the present investigation against the Respondent should be dropped. 22. The Respondent also submitted that Section 171 of the CGST Act mandated that anti profiteering proceedings have to be qua a 'supplier' as well as the product' being supplied. In support of his contention, he has cited the decision of the Hon'ble Delhi High Court in the case of M/s. Abbott Healthcare Pvt. Ltd. Vs Union of India & others = 2019 (5) TMI 563 - DELHI HIGH COURT, wherein it has been held that the investigation should be limited to the product in question and should not be extended to other products being sold by the sup....
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....of the value, inclusive of the GST element. He further contended that the GST amount, collected on the differential base price, could be construed as profiteering, since the said amounts had been duly deposited as GST, with the Government and had not been pocketed by him. He averred that the DGAP's Report has deviated from the basic principle of unjust enrichment (as such tax was duly deposited to the Government) and has applied GST @ 18% on the GST benefit amount required to be passed on. 25. The Respondent has also submitted that Section 171 of the CGST Act violated Article 19(1)(G) of the Constitution in as much as the Right to trade was a fundamental right, guaranteed under Article 19 (1) (g) of the Constitution of India and this included the right to determine prices, and such right could be taken away without any explicit authority under the law passed by the Parliament or State legislature under Entry 34 of the Concurrent List (List III) of the Seventh Schedule to the Constitution of India He has also added that only in exceptional cases, and in respect or only a few specified goods, the Government has enacted laws to control prices which did not include the goods supplie....
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....at though the CGST Act and the CGST Rules empowered this Authority to lay down the methodology for determining the manner in which the benefit of reduced GST rate or enhanced credit was to be passed on to the recipient, no precise computation methodology or principles have been laid down by this Authority. The methodology to be prescribed by the Authority must capture the basic principles that would be relevant to all the industries keeping in view the common trade practices. This would ensure that Section 171 of the CGST Act was interpreted in a uniform manner across all tax payers. He added that such methodology was the crux of Section 171 of the CGST Act because the same would ensure equity, consistency and uniformity in defining the scope of Section 171 of the CGST Act. 27. He further submitted that in the absence of machinery provisions, the entire proceedings would be a futile exercise. He has placed reliance on the Apex Court decision in the case of CIT vs. B.C. Srinivasa Shetty = 1981 (2) TMI 1 - SUPREME COURT, wherein, the question of imposition of tax on capital gains on the goodwill of a newly commenced business was involved. In that case the Apex Court had held that ....
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....rent, non-capricious, unbiased, without favouritism or nepotism, in pursuit of promotion of healthy competition and equitable treatment. It should conform to the norms which are rational, informed with reasons and guided by public interest, etc. All these principles are inherent in the fundamental conception of Article 14. This is the mandate of Article 14 of the Constitution of India." He submitted that in the absence of any methodology or guidelines for computation of profiteering under the GST laws, the present proceedings against the Respondent should not be continued further. 30. The above said submissions of the Respondent contained were forwarded to the DGAP. in response, the DGAP vide his report dated 25.11.2019, has stated the following:- a) If the investigation was restricted to the alleged product only, then the recipients who have not made an application/complaint would never get the benefit of the rate reduction and there was no stipulation in the law to restrict the investigation only to the alleged product. b) The supply channel wise profiteering method has been adopted in the course of the investigation and that the same was the suitable meth....
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....ch is 7.8125% on GST inclusive price) resulting in reduction in prices to the dealers. This contention of the Respondent is not acceptable as passing on the benefit of rate reduction has to be commensurate and as can be seen from the Table-1 above, the Respondent clearly did not reduce his base prices as per the rate reduction from 28% to 18%. Also, in the section 171(1) of the CGST Act, 2017, the word "commensurate" is mentioned which gives the extent of benefit to be passed on by way of reduction in the prices which has to be computed in respect of each product based on the tax 4-51 reduction or additional ITC available as well as the existing base price (price without GST) of the product or unit. In this case, it can be clearly seen that the prices of the goods affected by rate reduction were not decreased commensurately, hence, violating section 171 (1) of the above Act. 34. The Respondent has also contended that he is not the "supplier" of the goods for the transaction in question and the suppliers were two separate dealers namely 'Jumbo Distributors Pvt. Ltd'. and 'EP Electronic Paradise Pvt. Ltd' On perusal of the complaint of The Applicant No.1 it is revealed that the na....
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.... the CWFs as the Respondent has not deposited it in the above Fund. Therefore, the above contention of the Respondent is untenable and hence it cannot be accepted. 36. He also submitted that the approach followed by the DGAP was neither mentioned in the CGST Act nor prescribed/ clarified by the Government, He also mentioned that the approach adopted by DGAP was completely arbitrary and should be struck down. However, it is clear from the facts mentioned above that in fact 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. In this regard, it is mentioned that no fixed mathematical methodology can be prescribed for computing the amount of benefit which is required to be passed on under the provisions of Section 171 (1) of the above Act as such computation will vary from case to case based on the facts. However, in the present case the DGAP has compared the average of the base price of the "Samsung 80 CM (32 inches) LED TV and Power Bank" sold during the period from 01.11.2018 to 31.12.2018, with the actual invoice-wise base prices of "Samsung 80 CM (32 inches) LED TV ....
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....n gives the extent of benefit to be passed on by way of reduction in the prices which has to be computed in respect of each product based on the tax reduction or additional ITC available as well as the existing base price (price without GST) of the product or unit. The computation of commensurate reduction in prices is purely a mathematical exercise which is based upon the above parameters and hence it would vary from product to product and unit to unit hence no fixed mathematical methodology can be prescribed to determine the amount of benefit which a supplier is required to pass on to a recipient or the profiteered amount. However, to give further clarifications and to elaborate upon this legislative intent behind the law, this Authority has been empowered to determine/expand the Procedure and Methodology in detail. It is also worthwhile to mention that the "Methodology and Procedure" has been notified by this Authority vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017. However, one formula which fits all cannot be set while determining such a "Methodology and Procedure" as the facts of each case are different. The facts of the cases relating to the Fa....
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....iate against his profits. Therefore, the above Section in not violative of the provisions of Article 19 (1) (g) of the Constitution of India, hence, the above claim of the Respondent is untenable. 40. The Respondent has also claimed that pricing for B2C sales is highly dynamic and varies depending upon channel structure and other market factors such as size of business, operating cost, location, and logistics, etc. 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 before 31.12.2018, however, it cannot be accepted that his costs had increased on the intervening night of 31.12.2018/01 01.2019 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 approp....