TaxTMI 
TaxTMI 
2020 (3) TMI 695
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....he Respondent to the recipients. The DGAP in his report dated 13.12.2018 had stated that the Respondent did not pass on the benefit of the reduction in the tax rates to his recipients by way of commensurate reduction in prices, in terms of Section 171 of the CGST Act, 2017. In the said report, the DGAP reported that the Respondent had contravened the provisions of Section 171 (1) of the CGST Act, 2017. 2. This Authority, after analysis of the submissions placed on record, decided to accord hearing to the concerned parties. During the hearings held on 28.01.2019, 13.02.2019 and 13.03.2019. the Respondent had submitted that there were inconsistencies in the DGAPs calculation of profiteering as there were certain SKUs profiteering on which had been computed twice or thrice and in respect of 6 SKUs on which rate had been reduced from 18% to 12% the reduction had been considered from 18% from 12% by the DGAP. 3. This Authority. after considering the submissions of the Respondent, had found discrepancies in the report of the DGAP dated 13.12.2018 which are as mentioned below:- a. The Report had not covered all the SKU's which were impacted by the rate deduction in the period between ....
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....ed by the Respondent was reduced from 28% to 18% & 18% tol2% w.e.f. 15.11.2017 and if so. whether the benefit of such reduction in the rates of GST had been passed on by the Respondent to his recipients, in terms of Section 171 of the Central Goods and Services Tax Act, 2017. It was observed by the DGAP that the Central Government, on the recommendation of the GST Council vide Notification No. 41/2017-Central Tax (Rate) dated 14.11 2017, had reduced GST rate on a number of goods supplied by the Respondent from 28% to 18% & from 18% to 12% w.e.f. 15.11.2017, which has not been contested by the Respondent. 7. The DGAP also stated that it was important to examine Section 171 of the Central Goods and Services Tax Act, 2017 which governed the anti-profiteering provisions under GST. Section 171 (1) reads as "any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices." Thus. the legal requirement was abundantly clear that in the event of the benefit of input tax credit or reduction in the rate of tax, there must be a commensurate reduction in the prices of the goods or s....
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....s, Distributors, Super Distributors, Super Stockist AASTHA, Scrap Dealers, buyers from Modern Trade, E-Commerce platforms. Bulk sale division. Dairy division. Swadeshi Smridhi Card (SSC), Canteen Service Company (CSC). Arogaya Kendras, Chikitsalayas, Central Police Canteen (CPC). Salt Distributors, Canteen Stores Department (CSD), Rice Distributors, other group companies. Jobworkers, etc.. Accordingly, the DGAP has done the calculations of profiteering category-wise. 10. The DGAP has also stated that from the invoices made available by the Respondent, it appeared to him that the Respondent had increased the base prices of the goods when the rate of GST was reduced from 28% to 18% & 18% to 12% w.e.f. 15.11.2017, so that the commensurate benefit of GST rate reduction was not passed on to the recipients. 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 all the products during the period 15.11.2017 to 31.03.2019 as furnished by the Respondent to the DGAP, the amount of net higher sales realization due to increase in the base prices of the impacted goods. despite the reduct....
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....ed and his liability for profiteering under Section 171 of the CGST Act, 2017 should not be fixed. On the request of the Respondent hearing was adjourned to 16.10.2019. On behalf of the Applicant none appeared whereas the Respondent was represented by Sh. Y.D. Arya, CFO, Sh. Aayush Varshney, Manager, Sh. Manish Gaur, Smt. Purvi Asati, and Smt. Disha, Advocates. Further hearings were held on 06.11.2019, 22.11.2019. 13.The Respondent filed submissions dated 16.10.2019, 06.11.2019, 22.11.2019 and 10.02.2020 and stated that the impugned proceedings initiated against him by this Authority under Section 171 of the CGST Act were not maintainable and therefore, should be dropped forthwith. Further, the DGAP's report based on such proceedings was also liable to be rejected. 14. The Respondent submitted that Section 171 of the CGST Act provided for the passing of benefit of input tax credit or reduction in the rate of tax on supply of goods or services to the recipients by way of commensurate reductions in prices and that a new clause (3A) as well as an explanation has been added to Section 171 of CGST Act vide which penalty has been prescribed in case profiteering was resorted to by a reg....
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....efit of reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices." Rule 129 of the CGST Rules provided for the initiation and conduct of proceedings and it was clear that in case where the Standing Committee was satisfied that there was a prima facie evidence to show that the benefit of reduction of rate of tax has not been provided to the recipient, it would refer the matter to DGAP for a detailed investigation. Thereafter, the DGAP would conduct the investigation and would collect evidence for determining the contravention of Section 171 of the CGST Act. Before the initiation of an investigation by the DGAP, a notice was required to be sent to the interested party containing the requisite information. Further, the DGAP was required to provide evidence presented by one interested party to other interested parties, participating in the proceedings. Furthermore, the DGAP was required to furnish a report of his findings along with relevant records to this Authority after completion of the investigation. 17. He submitted that in the present case, from the minutes of the meeting, it ....
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....ality or preference, which is not founded on reason and is actuated by self-interest - whether pecuniary or personal. 19. Further, he submitted that on 'bias', Halsbury Laws of England has stated as follows - "At common law the rule is applied in two broad categories of case: (1) where an adjudicator has either a direct pecuniary or proprietary interest in the outcome of the matter or case otherwise by reason of a direct personal interest be regarded as being a party to the action, and (2) where either by reason of a different forms of, interest or by reason of his conduct or behavior there is a 'real danger' of 'bias' on his part. In the former category an automatic and irrefutable, presumption is raised, in the latter category the test of apparent bias is satisfied. Even if the disqualifying effect of a pecuniary has been removed by statute, it is still material to consider whether the nature of that interest gives rise to a real danger of bias." 20. He submitted that the present proceedings were initiated against the Respondent by this Authority vide an email dated 22.02.2018 alleging that it was 'reported' to the Authority that the Respondent has not passed on the ben....
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....2. He further placed reliance on the case of Hardcastle Restaurants Pvt. Ltd. vs. Union of India 2019 (10) TMI 864 (especially para Nos. 30 and 31), wherein the Hon'ble High Court had discussed the importance of fairness and transparency in the decision-making process and held that for a newly established Authority, fair decision making should be the guiding principle. 23. He further submitted that in the instant case, the complaint of non-passing of benefit of reduction in rate of tax to the recipients by the Respondent had been received by the Standing Committee from this Authority in terms of Rule 128 of the CGST Rules as was clear from the minutes of the meeting of the Standing Committee. Further, the Respondent was first contacted by this Authority with regard to this matter on 22.02.2018 vide an email from the Chairman of the Authority vide which the Respondent was requested to appear before the Authority in regard to the alleged profiteering by the Respondent. He also submitted that as was clear from the foregoing paragraphs, this Authority could not be both the adjudicating authority as well as an interested party in the present case. Thus. the Authority was not legally co....
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....3 (1) TMI 999 - SUPREME COURT, wherein it was held that the authority was required to act within the four corners of the Act conferring power to it. Thus, he concluded that the Authority neither could take suo moth action against the Respondent nor could ask for any documents/information in this regard. In the instant case, the Authority has erred in taking suo moto action against the Respondent by providing a complaint of alleged profiteering by him to the Standing Committee as well as by asking the Respondent to appear before itself vide email dated 22.02.2018. 25. The Respondent also submitted that Rules 128 and 129 of the CGST Rules provide complete procedure to be followed for exercising jurisdiction and for initiating the proceedings against any registered person under Section 171 of the CGST Act. The complete step by step procedure as stated by the Respondent is mentioned below:- a) The first step was the receipt of an application by either the Screening Committee or Standing Committee, from any person/interested party/Commissioner alleging profiteering by any registered person. b) The second step was the examination of such application along with the accompanying evid....
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....to the Screening Committee or the Standing Committee alleging any profiteering against the Respondent. Neither the DGAP's report nor the notice in question referred to any such application or complaint by any interested party against the Respondent. Thus, he submitted that the very fundamental requirement which gave jurisdiction to this Authority to initiate proceedings against the Respondent was not satisfied in the present case. Thus, the entire proceedings initiated against the Respondent were ex facie without jurisdiction and hence. liable to be quashed on this score itself. 27. He further submitted that, it was settled legal position that when the law required a particular thing to be done in a particular manner. it has to be done in that manner alone and all other manners of doing it were strictly prohibited. He stated that this principle had been applied and followed by the Hon'ble Apex Court consistently in a number of judgments. Relying upon. The case of Nazir Ahmad vs. King Emperor LR 63 IA 372 = 1936 (6) TMI 11 - PRIVY COUNCIL. and applying the principles laid down in Taylor vs. Taylor (1876) 1 Ch.D 426, the Hon'ble Apex Court in State of Uttar Pradesh vs. Singhara Sing....
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....passed on to the recipient by way of commensurate reduction in prices. Rules 128 (1) of CGST Rules, as amended. provides that - '(1) The Standing Committee shall, within a period of two months from the date of the receipt of a written application or within such extended period not exceeding a further period of one month for reasons to be recorded in writing as may be allowed by the Authority, in such form and manner as may be specified by it. from an interested party or from a Commissioner or any other person, examine the accuracy and adequacy of the evidence provided in the application to determine whether there is prima-facie evidence to support the claim of the applicant that the benefit of reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit has not been passed on to the recipient by way of commensurate reduction in prices." 31. He stressed that on the basis of the aforementioned provision, it could be seen that the time limit for the Standing Committee to undertake the examination of accuracy and adequacy of evidence of an application was 2 months, extendable by a month. In the instant case. The complaint filed by the Applicant ....
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....ints bring out prima facie case for investigation by the DG Safeguards therefore these are referred to DG Safeguards for further investigation." 33. Further, the Respondent has placed reliance on the case of Nand Kishore Naik vs. Sukti Dibya AIR 1953 Ori 240 wherein it was held that the use of the word 'prima facie' would indicate that there was no possibility of an alternative construction being put on the Act, for it was on the face of its prospective and also placed reliance on the case of Martin Burn Ltd. v. R. N. Banerjee AIR 1958 SC 79 = 1957 (9) TMI 65 - SUPREME COURT (especially para No. 27). He submitted that in the present case, when the complaint (if any) was not available with the Standing Committee, a mere reference by this Authority to the Standing Committee in regard to alleged profiteering by the Respondent would not constitute a complaint in terms of Rule 128 of CGST Rules. Further, the Standing Committee had erred in holding that there was a prima facie case that the benefit of reduction in the rate of tax had not been passed by the Respondent to the recipient and consequently it erred in referring the matter to the DGAP for further investigation. 34. The Respon....
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.... methodology provided for adherence to the principles of natural justice by this Authority while exercising its functions and duties. 37. The Respondent also submitted that as per Rule 122 of the CGST rules, this Authority should consist of the following:- i. A Chairman who has held a post equivalent to Secretary to Government of India and ii. Four Technical Members who were or have been Commissioners of State Tax or Central Tax for at least a year. 38. He argued that it was imperative to note that the Commissioners of State Tax or Central Tax held an administrative position and there could not be said to have professional qualification of law along with experience in practicing the same. Thus, the Technical Members consisting of Commissioners of State Tax or Central Tax would not be able to interpret the law on a regular basis and adjudicate the cases properly. In this regard, he placed reliance on the case of Madras Bar Association vs. Union of India 2014 (308) ELT 209 (SC) = 2014 (9) TMI 821 - SUPREME COURT (especially Para Nos. 83, 84 and 85), wherein it had been held by the five-judge bench of the Hon'ble Supreme Court that appointment of non-judicial members for underta....
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.... Exhibit-10) a. Description of SKU is Kesh Kanti Hair Cleanser Natural 200 ML b. Item Code of SKU is 1131 c. Quantity of SKU in the said invoice is 10800 d. Average base price during the period 01.11.2017 to 14.11.2017 (exclusive of GST) (A) = Rs. 47.07 e. Average base price during the period 01.112017 to 14.11.2017 (inclusive of GST) (B) = Rs. 47.07 + 18% of 47.07 = 55.5426 = 55.54 f. Selling price as per the invoice (exclusive of tax) (C) = Rs. 51.30 g. Selling price as per the invoice (inclusive of GST) (D) = Rs. 51.30 + 18% of 51.30 = Rs. 60.53 h. Total discount as per the credit note = Rs. 64800 i. Discount per unit as per the credit note = Rs. 64800 / 10800 = Rs. 6 j. Actual Selling price considering the discount (inclusive of GST) (D) = Rs. 60.53 - Rs. 6 = Rs. 54.53 k. Alleged Profiteering per unit as per the DGAP (E) = Difference of Selling price calculated by DGAP (inclusive of GST) and Average base price during the period 01.112017 to 14.11.2017 (inclusive of GST) = (ID) (B) = Rs. 60.53 - 55.54 = Rs. 4.9914 l. Alleged Profiteering of 10800 units as per the DGAP (F) = E *10800 = Rs. 4.9914 * 10800 = Rs. 53907.12 m. Profiteering per unit as per th....
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....ted that this cashback given by the Respondent to the customers on each recharge was a cost to him vide which the Respondent supplied a product at a price lower than the normal selling price. This cashback was nothing, but a form of discount given to the customers for using the SSC as a form of payment while buying the goods belonging to the Respondent. In order to explain this scheme, the following illustration was used by the Respondent- A customer purchases the SSC top-up of Rs. 4000/-. The customer now became eligible to the additional cash back of 5%. Thus, with this Card, he could buy goods worth Rs. 4200/, Thus, this scheme was a way of discount which was extended to the customers at the time of purchase of the SSC top-up but the DGAP while calculating the profiteering amount failed to consider the cashback (discount) due to which, the profiteering calculated had been arrived at a higher side than the actual profiteering (if any). He reiterated that Section 15 of the CGST Act also allowed deduction in respect of the discount in order to arrive at the transaction value. Accordingly, he submitted that while taking the invoice value for the period of November 2017, the reduced/....
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....f 44.26 = Rs. 52.23 vii. Selling price calculated by DGAP (inclusive of GST) (C) = Total taxable amount in invoice / total units = Rs. 10197.32/1 = Rs. 56.65 viii, Profiteering per unit as per the DGAP (D) = Difference of Selling price calculated by DGAP (inclusive of GST) and Average base price during the period 01.112017 to 14.11.2017 (inclusive of GST) (C) - (B) = Rs. 56.65 - Rs. 52.23 = Rs. 4.43 ix. Profiteering of 180 units as per the DGAP (F) = (D) * (I) = Rs. 4.43 * 180 = Rs. 796.50 x. Credit Note No.! Return Invoice No. 170000099 dated 07.12.2017 xi. Quantity returned as per the credit note/return invoice = 180 xii. Effective quantity sold as per the invoice = O xiii. Profiteering per unit (if any) as per the invoice (H) = 0 xiv. Profiteering of 180 units (if any) as per the invoice (J) = xv. The difference in the profiteered amount calculated by DGAP and profiteered amount as per the invoice (if any) (K) = (F) - (J) =Rs. 796.50 - 0 = Rs. 796.50 Thus, from the above, he submitted that the DGAP had inadvertently taken the quantity of SKUs as per the first invoice without considering the sales return data, as the base quantity in respect of a particular SKU....
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.... = 2014 (9) TMI 821 - SUPREME COURT * Rojer Mathew vs. South Indian Bank Limited and Ors. 2018 (13) GSTL 129 (SC) = 2018 (5) TMI 726 - SUPREME COURT * Gujarat Urja Vikas Nigam Limited vs. Essar Power Limited (2016) 9 SCC 103 * L. Chandra Kumar vs. Union of India (1997) 3 SCC 261 = 1997 (3) TMI 90 - SUPREME COURT * R.K. Jain vs. Union of India (1993) 4 SCC 119 = 1993 (5) TMI 23 - SUPREME COURT * Commissioner of Income Tax Bangalore vs. B.C. Srinivasa Setty (1981) 2 SCC 460 = 1981 (2) TMI 1 - SUPREME COURT * Eternit Everest Ltd. vs. UOI 1997 (89) E.L.T. 28 (Mad.) = 1996 (6) TMI 90 - MADRAS HIGH COURT 46. He submitted that the DGAP, while calculating the alleged profiteering, had erred by not taking into consideration the discounts given by way of secondary and retailer schemes to the customers. In this regard, he stated that there were three kinds of schemes given by the Respondent to his customers. which are discussed in brief below:- a) Primary Scheme - the discounts under this scheme were directly given to the Super Distributors (SD) on the invoices. b) Secondary Scheme - the discounts under this scheme were given by the SD to the distributors at the time of furth....
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....had enclosed with his submissions vide which the total discount given by him to his customers during the relevant period by virtue of secondary and retailer schemes came to Rs. 15,12,63,538/-. 48. Further, he submitted that the total turnover during the relevant period on which profiteering had been calculated by the DGAP was Rs. 784,79.26,951.491-, which had been arrived at by the sum of the sales value mentioned in each of the invoices in respect to which profiteering has been calculated. Thus, from the above, he submitted that it was evident that the DGAP had erred by not deducting the discount amount of Rs. 15,12,63,538/- from the total turnover of Rs. 784 79,26,951.49/- while calculating the profiteering amount and thus, the profiteering amount calculated by the DGAP was on a higher side. 49. He also submitted that the Respondent was required to pass on the benefit of tax rate reduction, if any, to his recipients, i.e. to super distributors and distributors etc., only, which was done by him as shown in Exhibit-14 in his submissions dt. 22.11.2019. 50. He submitted that the DGAP had calculated the profiteering by taking an average of the sale prices for each category of Resp....
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....ala vs. Jubilant Foodwork Ltd. 2019 (024) GSTL J43 (N.A.P.A.) = 2019 (2) TMI 295 - NATIONAL ANTI-PROFITEERING AUTHORITY. In view of the above, he submitted that the DGAP had erred firstly by taking the average net realization of the period 01.11.2017 to 14.11.2017 as a base price for calculating the profiteering and secondly. if the average net realisation of period 01.11.2017 to 14.11.2017 had been taken as a basis then the same should have been compared with average net realisation of the period 15.11.2017 to 31.03.2019 to arrive at profiteering amount. 53. He submitted that the CGST Act read with the CGST Rules did not provide the procedure and mechanism of determination and calculation of profiteering. In absence of the same, the calculation and methodology used in the impugned report was arbitrary and was in violation of principles of natural justice. He further submitted that Rule 126 of the CGST Rules contained provisions regarding the power to determine the methodology and procedure. As per Rule 126. This Authority has power to determine the methodology and procedure for determination as to whether the reduction in rate of tax on the supply of goods or services or the bene....
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.... COURT, has held that where there was no machinery for assessment, the law being vague, it would not be open to the assessing authority to arbitrarily assess to tax the subject. It was further held that where the statute provided no procedural machinery for assessment or levy of tax or where it was confiscatory, the Court would be justified in striking it down as unconstitutional. This judgment also referred to a long line of decisions where it has been held that imposition of tax in absence of prescribed machinery and prescribed procedure would partake the character of a purely administrative affair and could be challenged as contravening Article 19 (1) (f) of the Constitution of India. He also submitted that on the same analogy the determination of quantum of profiteering imposing liability on the Respondent has to be based on machinery provisions and the procedure, in the absence of which Section 171 of the CGST Act, becomes constitutionally invalid. He submitted that it was well settled in the taxation law that the absence of the method of computation of quantum of tax payable would result in the levy itself being declared as invalid. He also submitted that in the present case ....
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....o be found out whether the benefit has been passed on by 'commensurate' reduction in prices. He submitted that it was necessary to find interpretation of the term 'commensurate' appearing in Section 171. by which the reduction in rate of tax should be passed on to the recipient by reduction in prices. Further, such reduction must be exact/equal to the reduction in tax rate or benefit of input tax credit granted. However. the Legislature. in its own wisdom has qualified reduction by using the word 'commensurate'. In this regard. the Respondent referred to the following dictionary meanings of the word 'commensurate':- * Random House Compact Unabridged Dictionary, Special Second Edition: Having the same measure: of equal extent or duration. 2. Corresponding in amount, magnitude or degree...3. Proportionate, adequate. 4. Having a common measure * The New International Webster's Comprehensive Dictionary of the English Language, Deluxe Encyclopaedic Edition Commensurable 2. In proper proportion: proportionate. 3. Sufficient for the purpose or occasion. 4. Adequate; of equal extent * The Compact Edition of the Oxford English Dictionary Having the same measure; of equal extent,....
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....re sold in India. The European Commission applied their usual practice of not netting off the positive and negative dumping margins. In fact. they applied 'zero' (0) for negative dumping margins and cumulated only positive dumping margins and thereby arrive at higher dumping margins for Indian exporters. Government of India objected to this approach of European Commission and the matter was taken to the Dispute Settlement Body of the World Trade Organisation which held in favour of Government of India. In an appeal filed by the EU before the Appellate Body, the Appellate Body held that the practice of not netting off of positive dumping margin and negative dumping margins was not correct. Thus, the Government of India succeeded before the WTO Appellate Body that positive and negative dumping margins must be taken together and therefore got lower dumping margin for Indian exporters. European Commission accepted the decision and revised dumping margin not only for bed linens cases but also for all other cases against India. He submitted that the position taken by the Government of India before the WTO forum, was binding on the DGAP in calculating the alleged 'profiteering'. While cal....
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....t was silent about the period until when the Respondent would be investigated for alleged profiteering, if any. This could lead to an inference that in the absence of any specified time period, an increase in the price, if any, undertaken by the Respondent would be considered as profiteering till the time Respondent was in business. It could even imply that in case if. in the future, the Respondent decided to increase the prices of his goods (due to any commercial reason) it would attract anti-profiteering provisions. 62. The Respondent submitted that such exercise was contrary to the true intent and spirit of the anti- profiteering provisions contained in the CGST Act which by their very essence were transitionary in nature and therefore, could not be applied in perpetuity. Thus, he submitted that the manner in which the provisions pertaining to anti-profiteering were being applied by the DGAP in his report by arbitrarily selecting period of investigation and alleging profiteering has the effect of restricting the right of the Respondent to do business, a cherished fundamental right guaranteed by the Constitution of India. He has also claimed that as a supplier he had considered ....
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....r submitted that in case of one of his products, i.e. 'Saundarya Aloevera Gel'. The MRP of the product was increased on 07.02.2019. While computing the profiteering, the DGAP has taken the average selling price of this product for the period from 01.11.2017 to 14.11.2017 and compared it with the price of the the said product as on 07.02.2019 which has a gap of 14 months. He further submitted that the amount of profiteering in respect of the sales of this product itself, has been worked out by the DGAP, as Rs. 3,87,13,966/-. 64. He submitted that frequent price increases were very common in the consumer goods industry. Keeping in mind the short shelf-life of the products and their nature (necessity), the Respondent and his competitors undertook frequent price revisions of the product. It was reiterated that various factors played a decisive role in it However, he submitted that the DGAP had not factored the reasons while computing the profiteering. Further, the increase in the cost of production of the product has also not been considered in his calculation. In this regard, the Respondent submitted that the costs of raw material, packing material, advertisement, transportation cost....
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....ring amount had already been deposited with The Government and there has been no factual dispute on this aspect, addition of 18% GST to calculate the alleged profiteering amount was incorrect and was not sustainable and was liable to be rejected. In The light of the aforementioned discussion, the Respondent submitted that on re-computation of the alleged profiteering amount, after extending the benefit of cum-tax to him, the alleged profiteering amount should further be reduced by Rs. 15,55.47.176/-. The calculation w.r.t. the same is provided below:- Work Sheet in respect of other states Particulars Selling price Base price Difference Gross Amount excluding tax 6,08,06,06,883.22 5,38,61,20,961.19 69,44,85,922.03 GST at revised rates 1,09,27,53,917.63 96,82,12,602.49 12,45,41,315.13 Inclusive of tax amount 7,17,33,60,800.85 6,35,43,33,563.68 81,90,27,237.17 Uttarakhand State Working Particulars Selling price Base price Difference Gross Amount excluding tax 1,76,73,20,068.27 1,58,90,34,225.45 17,82,85,842.82 GST at revised rates 30,88,46,906.49 27,78,41,046.06 3,10,05.860.43 Inclusive of tax amount 2.07,61,66,974.76 1,86.68,75,271....
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.... incorrect. In this regard, he has placed reliance on the case of Ankit Kumar Bajoria vs. M/s. Hindustan Unilever Limited 2019 (21) GSTL J74 (N.A.A.) = 2018 (12) TMI 1599 - NATIONAL ANTI-PROFITEERING AUTHORITY, wherein this Authority has accepted the argument of grammage being a correct way, in terms of Section 171 of CGST Act, of passing of benefit of commensurate reduction in the rate of tax. Hence, the finding of the DGAP to the extent that commensurate reduction in prices in terms of Section 171 of the CGST Act could only be in terms of money was incorrect. 69. The Respondent had summarized the arithmetical errors made in the calculations, in the DGAP's report as is mentioned below:- i. Profiteering in terms of incorrect rate reduction from 28% to 18% instead of 18% to 12% The DGAP while calculating the profiteering amount had considered the reduction of rate in terms of 28% to 18% rather than 18% to 12% with respect to 7 SKUs. Consequently, on rectification of this error, the alleged profiteered amount would be reduced by Rs. 35,16,943.76/-. ii. Profiteering calculated in terms of incorrect quantity (i.e. carton basis instead of unit basis). In a substantial number of inv....
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....the alleged profiteering would be reduced by Rs. 11,78,01,972.54/-. vii. Profiteering in terms of non-consideration of discounts given though secondary and retailer schemes He submitted that the DGAP while calculating the profiteering amount had failed to consider the discounts given vide the secondary and retailer schemes, which during the relevant period came to Rs. 15,12,63,538/- out of the total turnover of Rs. 784,79,26,951.49/- on which the profiteering was calculated by DGAP. 70. The above submissions of the Respondent were forwarded to the DGAP for his Report and the DGAP vide his Report dated 06.01.2020 has rectified some arithmetical errors and reported as under:- I. Profiteering in terms of incorrect rate reduction from 28% to 18% instead of 18% to 12%:- The DGAP stated that the Respondent had submitted the revised invoice sales data during the hearing before this Authority and as per this contention of the Respondent, profiteering has been revised by the DGAP. II. Profiteering calculated in terms of incorrect quantity (i.e. carton basis instead of unit base): - In this regard, the DGAP stated that during the course of the investigation, the Respondent had ....
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....iscount after the sale has been effected, if (i) such discount was given in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoice: & (ii) Input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply. Since the discount given through secondary and retailer scheme were not specifically linked to relevant invoices. the benefit could not be given for the reduction in value. In any case. the other two conditions were also not satisfied. 71. The DGAP submitted that after rectification and consideration of new facts raised by the Respondent. the issue that remained was the determination and quantification of profiteering by the Respondent for failing to pass on the benefit of the reduction in the rate of GST on the goods supplied to his recipients, in terms of Section 171 of the Central Goods and Services Tax Act, 2017. From the invoices made available by the Respondent. it appeared to the DGAP that the Respondent increased the base prices of the goods when the rate of GST was reduced from 28% to 18% & 18% to 12% w.e.f. 15.11,2017, so....
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....t's contention that the methodology adopted by the DGAP for calculating the profiteering was not correct and suffered from various flaws was not correct since this Authority was the statutory authority to determine methodology and procedure as per Rule 126 of CGST Rules, 2017 in exercise of its powers given under section 164 of CGST Act, 2017. The DGAP only investigated the complaint on the basis of documents/ information submitted by the Respondent. 72. The DGAP further stated that the Respondent's statement that profiteering should have been calculated considering the change in the rate of tax pre and post-GST and change in prices thereof. when the tax burden increased from 14.5%VAT to 28% GST and there was no increase in the prices of impacted SKUs by him. The Respondent had also mentioned that due to the introduction of GST, he had to bear additional GST burden of Rs. 48 59,41.402/- due to the increase in the rate of tax from 14.5% in the pre-GST period to 28% when GST was rolled out. In reply to this, the DGAP mentioned that the CGST Act did not offer the supplier of goods or services, any flexibility to suo moto decide on any other mode of passing on the benefit of reduction....
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....t the intention of passing on the benefit but did not state whether the said benefit had actually been passed on. 75. A copy of the above report of the DGAP was also given to the Respondent and he was provided an opportunity of hearing on 27.01.2020, but the Respondent took adjournment and then another opportunity of hearing was granted to the Respondent on 10 02.2020. which the Respondent availed and made submissions dated 10 02.2020. In his submissions the Respondent reiterated his previous submissions and replied in the following manner in respect of some of the technical points:- S.No. Grounds by Respondent in submissions dated 22.11.2019 DGAP's comments Respondent's response to DGAP's comments 1. There has been no profiteering by the Respondent and hence, the entire proceedings are illegal and liable to be dropped. That the DGAP has conducted his investigation within the scope of Section 171 of the CGST Act, 2017, and has submitted his report basis for the information and documents submitted by the Respondent. The Respondent claimed that vide this reply the DGAP has not made the combined computation of the factors stated by him in his submissions, rather made an un-re....
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.... the end result of both is same i.e. sales return. The only difference is in terms of the method of sales return. 4. The DGAP while calculating the alleged profiteered amount has failed to consider the discount given by the Respondent through secondary and retailer schemes. That the discounts given through secondary & retailer schemes were not specifically linked to invoices in question thus, the benefit cannot be given for the reduction in value. Further, in terms of Section 15(3)(b) of CGST Act, the said discount didn't fulfil the twin conditions i.e. (i) such discount is not established in terms of an agreement entered into at or before the time of such supply and is not specifically linked to the relevant invoice; and (ii) ITC as is attributable to the discount on the basis of document issued by the supplier has not been reversed by the recipient of the supply. He submitted that the discounts given by way of secondary and retailer schemes are not given directly on the invoices rather through credit notes. Furthermore, in regard to compliance in terms of Section of CGST Act, he submitted that the said secondary and retailer schemes were already ....
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....d" 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 input tax credit to the recipient by way of commensurate reduction in the price of the goods or services of both.'' 78. It is revealed from the perusal of the record that the Central Government, on the recommendation of the GST Council, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017, had reduced the GST rate on a number of goods supplied by the Respondent from 28% to 18% and from 18% to 12% w.e.f. 15.11.2017. 79. It is also revealed that the DGAP vide his report dated 13.09.2019 has calculated the amount of net higher sales realization due to increase in the base prices of the impacted good, despite the reduction in the GST rate from 28% to 18% and from 18% to 12% as Rs. 1,03,20,08,903/-. The said profiteered amount has been arrived at by the DGAP by comparing the actual invoice-wise base prices of impacted products sold during the period 15.11.2017 to 31.03.2019 with the average base prices of these products sold during the period 01.11.2017 to 14.11.2017. The excess GST so collected from the recipients ....
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....tral Government may. on recommendations of the Council, by notification. constitute an Authority, or empower an existing Authority. or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him." Therefore, it is clear from the above Section that this Authority has suo moto power to examine all such cases of tax reductions where the benefit is required to be passed on. Further, Rule 127 (1) of the CGST Rules, 2017 defines the duty of the Authority as, "to determine whether any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit has been passed on to the recipient by way of commensurate reduction in prices:" and Rule 127 (ii) of the CGST Rules. 2017 provides, "to identify the registered person who has not passed on the benefit of reduction in the rate of tax on supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices;" it is clear fro....
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....tions. Therefore, the claim of the Respondent that there was no information before the Standing Committee to take action is not correct. Further, Since, this Authority had referred to the matter on suo moto cognizance no complaint in the prescribed format APAF-1 was required to be filed. Hence. the reliance placed by the Respondent on the following cases does not hold good. considering the facts of the present case:- * Canara Bank vs. Debasis Das (2003) 4 SCC 557 = 2003 (3) TMI 664 - SUPREME COURT * Ashok Kumar Yadav vs. State of Haryana 1985 4 (SCC) 417 = 1985 (5) TMI 243 - SUPREME COURT * Mohinder Singh vs. State 2013 SCC Online J&K 7 * Taylor vs. Taylor (1876) 1 Ch.D 426, * State of Uttar Pradesh vs. Singhara Singh AIR 1964 SC 358 = 1963 (8) TMI 43 - SUPREME COURT * Kanwar Natwar Singh vs. Director of Enforcement 2010 (262) ELT 15 (SC) = 2010 (10) TMI 156 - SUPREME COURT * State of Madhya Pradesh vs. Chintaman Sadashiva Waishampayan AIR 1961 SC 1623 = 1960 (11) TMI 130 - SUPREME COURT * Rajam Industries Pvt. Ltd. vs. Addl. D. G. D.C.E.I. Chennai 2010 (255) ELT 161 (Mad.) = 2010 (6) TMI 249 - MADRAS HIGH COURT * Lekhraj vs. Commissioner of C. Ex. & S.T. Allahaba....
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....3 (2) of the above Rules. Further, it was observed by this Authority that the Respondent had brought new facts to the notice of this Authority during the course of hearing. Therefore, the case was referred back to the DGAP by this Authority for further investigation vide Order dated 14.03.2019 under Rule 133 (4) of the CGST Rule, 2017. The DGAP had re-investigated the case in light of fresh objections raised by the Respondent and revised the profiteering amount from Rs. 1,76.02,33,343/- to Rs. 1,03,20,08.9031- vide his revised investigation Report dated 13.09.2019 Accordingly. The Respondent was again served Show Cause Notice dated 19.09.2019 and granted full opportunity of hearing. The Respondent was again granted four opportunities of hearing on 04.10.2019. 16.10.2019, 06.11.2019 and 22.11.2019 out of which he has attended three hearings and has filed written submissions dated 16.10.2019, 06.11.2019 and 22.11.2019. All the submissions were supplied to the DGAP for clarification under Rule 133 (2A). Accordingly. the DGAP has considered the fresh submissions filed by the Respondent and has again revised the profiteered amount from Rs. 1.03.20,08,903/- to Rs. 75.08,64.019/-. The Res....
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....erefore, the following cases cited by the Respondent in this respect do not help him:- * Madras Bar Association vs. Union of India 2014 (308) ELT 209 (SC) = 2014 (9) TMI 821 - SUPREME COURT * Rojer Mathew vs. South Indian Bank Limited and Ors. 2018 (13) GSTL 129 (SC) = 2018 (5) TMI 726 - SUPREME COURT * Gujarat Urja Vikas Nigam Limited vs. Essar Power Limited (2016) 9 SCC 103 * L. Chandra Kumar vs. Union of India (1997) 3 SCC 261 = 1997 (3) TMI 90 - SUPREME COURT * R. K. Jain vs. Union of India (1993) 4 SCC 119 = 1993 (5) TMI 23 - SUPREME COURT * Commissioner of Income Tax, Bangalore vs. B.C. Srinivasa Setty (1981) 2 SCC 460 = 1981 (2) TMI 1 - SUPREME COURT * Eternit Everest Ltd. vs. UOI 1997 (89) E.L.T. 28 (Mad.) = 1996 (6) TMI 90 - MADRAS HIGH COURT 85. The Respondent has further argued that the CGST Act and the Rules made thereunder did not prescribe any procedure or mechanism for calculation of profiteering due to which the DGAP had arbitrarily adopted a methodology that best suited his motives. In this regard, it is submitted that the 'Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and ITC has been clearly mentioned in Sec....
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....ules. 2017. However, no fixed formula which fits all the cases of profiteering can be set while determining such a "Methodology and Procedure" as the facts of each case are different. In one real estate project, date of start and completion of the project, price of the house/commercial unit. mode of payment of price stage of completion of the project, rates of taxes, amount of ITC availed, total saleable area, area sold and the taxable turnover realised before and after the GST implementation would always be different than the other project and hence the amount of benefit of additional ITC to be passed on in respect of one project would not be similar to another project. Therefore, no set parameters can be fixed for determining methodology to compute the benefit of additional ITC which would be required to be passed on to the buyers of such units. Moreover this Authority under Rule 126 has power to 'determine' Methodology & Procedure and not to 'prescribe it. However, fixation of commensurate price is purely a mathematical exercise which can be easily done by a supplier keeping in view the reduction in the rate of tax and his price before such reduction or the availability of addit....
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....tional input tax credit. In the instant case, it is observed that 'cash back' schemes do not have any relation with the reduction in the tax rate and such schemes are being run by FMCG manufacturers for promotion of their sales. Therefore. this argument of the Respondent is not tenable. Further, it is clear from the DGAP's investigation Report that the Respondent has increased the base prices after rate reduction and did not reduce the MRPs of his products that shows that he has unlawfully pocketed the amount. which the Government had sacrificed for the welfare of the common consumers. Hence, the DGAP has rightly not given the benefit of the cash back scheme to the Respondent. Non-consideration of Sales Return by way of Purchase - While investigating the matter, the DGAP has observed that the Respondent could not match the sales and return invoices hence he could not consider this submission of the Respondent. In this regard, it can be clearly seen from the submissions of the Respondent that there was no proper correlation between the return invoices and the sale invoices. Further, the Respondent could not prove that the recipients had reversed the input tax credit in lieu of ret....
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.... any supply" which connotes each taxable supply made to each recipient thereby clearly indicating that a supplier cannot claim that he has passed on more benefit to one customer therefore he would pass less benefit to another customer than the benefit which is actually due to that customer. Each customer is entitled to receive the benefit of tax reduction or ITC on each SKU or unit purchased by him. Therefore, the profiteering calculated SKU-wise is correct and the objection raised by the Respondent in this regard is not acceptable. 88. The Respondent has claimed that he has passed on the benefit of rate reduction to his recipients by sending the mails to his distributors to pass on the benefit to the consumers by reducing prices. However. As a manufacture the Respondent has not refixed the MRP's of his products as he was entirely responsible for fixing them as only he could 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 th....
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....utors and retailers who had continued to sell his products at the pre rate reduction MRPs. Therefore. it is clear that the Respondent has not passed on the benefit of rate reduction to the consumers and has committed violation of the provisions of Section 171 (1) of the above Act. 90. The Respondent has also argued that the additional burden borne by the Respondent as the GST paid by him on the profiteering amount has not been considered. 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 the 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 very objective of both the above, Governments which aimed to provide the 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 ....
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....t be applied in the present case as the customers have to be considered as individual beneficiaries and they cannot be compared with dumped goods and netted off. This Authority has also clarified in its various orders that the benefit cannot be computed at the product, service or the entity level as the benefit has to be passed on each supply of goods and services. Hence, the above contentions of the Respondent are not correct as the Respondent cannot apply the above methodology of netting off as has been approved in the above Report of the WTO as it would result in denial of benefit to the customers which would amount to violation of the provisions of Section 171 of the above Act as well as Article 14 of the Constitution. Hence, this contention of the Respondent is not in line with the spirit of law and cannot be accepted. 92. The Respondent has contended that the profiteering amount, if any should not be credited to the CWF, but should be given back to consumers. In this regard, letter and spirit of Anti-Profiteering law is to passed on the benefit to end consumers. Therefore. it is clear from the Section 171 of the CGST Act. 2017 that whenever Government reduces the tax rate on....
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....he above benefits. Under Rule 136 this Authority can get its orders monitored through the tax authorities of the Central or the State Governments. Hence, there is more than the adequate machinery required to implement the Anti-Profiteering measures and therefore, the Respondent cannot allege that no machinery has been provided to implement the above measures. 94. The Respondent has also contended that the time period taken by the DGAP for investigation was arbitrary. In this regard it would be pertinent to refer to Section 171 (1) which provides that the benefit of tax reduction is required to be passed on by the Respondent which implies that the Respondent is liable to be investigated till the date he has not passed on the benefit of tax reduction. The Respondent has failed to provide proof of having passed on the benefit till 31.03.2019. On this issue it would be relevant to mention that the DGAP has conducted the investigation from 15.11.2017 when the tax rate was reduced till 31.03.2019 when he had started the investigation during which he had found that the Respondent had not reduced his prices due to rate reductions till the above date. Had the Respondent passed on the benef....
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....vening night of 14.11.2017/15.11.2017 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. The Respondent has referred to case of Kumar Gandharv vs. KRBL Ltd. 2018-VIL-02-NAA = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY, wherein he has claimed that inflation has been accepted as a reason for price increase by this Authority however, the same is not correct as the rate of tax was increased in this case and not reduced. Further. he has relied on the case of Hardcastle Restaurants Pvt. Ltd. 2018-VIL-11-NAA = 2018 (11) TMI 1073 - NATIONAL ANTI-PROFITEERING AUTHORITY and NP Foods 2018-VIL-08-NAA = 2018 (10) TMI 1338 - NATIONAL ANTI-PROFITEERING AUTHORITY and it has been stated that the loss of input tax credit has been factored-in for determination of net profiteering. In this context, it is pertinent to mention that in the above cases the benefit of ITC was denied ....
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.... has nowhere interfered with the business decisions of the Respondent and therefore, there is no violation of Article 19 (1) (g) of the Constitution. 100. Based on the above facts the profiteered amount is determined as Rs. 75,08,64,019/- as per the provisions of Rule 133 (1) of the above Rules as has been computed vide Revised Annexure-8 of the Report dated 06.01.2020. Accordingly, the Respondent is directed to reduce his prices commensurately in terms of Rule 133 (3) (a) of the above Rules. The Respondent is also directed to deposit an amount of Rs. 75,08,64,019/- 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/SCST. The State/Union Territory wise amount of benefit to be deposited in the concerned CWF is as under:- Table Amount in Rs S.No....