TaxTMI 
TaxTMI 
2020 (5) TMI 286
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Respondent. The Applicant No. 1 had alleged that the Respondent did not reduce the selling price of the above product when the GST rate was reduced from 28 % to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 and he had kept the MRP of the above product unchanged at Rs. 9100/- and thus, the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in its price. The Standing Committee on Anti-profiteering had examined the aforesaid application in its meeting held on 22.03.2019 and forwarded the same to the DGAP for detailed investigation in terms of Rule 129 (1) of the above Rules. 2. The DGAP on receipt of the application and the supporting documents from the Standing Committee on Anti-profiteering, had issued Notice under Rule 129 (3) of the CGST Rules, 2017 on 09.04.2019 calling upon the Respondent to 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 price and if so, to suo-moto determine the quantum thereof and indicate the same in his reply to the Notice as well as f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... anti-profiteering provisions. (ii) Sales made to Canteen Stores Department (CSD): These sales were made at specially negotiated prices which had been agreed upon exclusive of GST and once fixed, the Respondent could sell the products at lesser price than the agreed price but not at a price higher than the fixed agreed price. The price fixed for CSD was lesser than the price at which the Respondent was selling his products in the open market. Thus, for the sales made to the CSD there was no reference point for comparison with the previous sales and also the sales made to the CSD had no impact of GST rate reduction as the said sales pertained to the sales made to the Government organizations. Therefore, the supplies made to the CSD should be excluded from the ambit of the ongoing investigation into alleged profiteering as they did not attract Section 171 of CGST Act, 2017. (iii) Scrap Sales: The prices negotiated for these sales were exclusive of GST and the GST applicable on the date of supply was charged on the negotiated prices. Therefore, the scrap sales should be excluded from the scope of the present investigation. (iv) Stock Transfers: They included the stock transfers....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w.e.f. 15.11.2017 vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 and the same had also not been contested by the Respondent. 11. The DGAP has also examined the provisions of Section 171 of the CGST Act, 2017 and submitted that the legal requirement in the event of benefit of ITC or reduction in rate of tax was that there must be a commensurate reduction in the prices of the goods or services. Such reduction could only be in terms of money, so that the final price payable by a recipient got reduced commensurate with the reduction in the tax rate or benefit of ITC. This was the only legally prescribed mechanism to pass on the benefits of ITC or reduction in the rate of tax to the recipients under the GST regime and there was no other method which a supplier could adopt to pass on such benefits. 12. The DGAP has further submitted that the Respondent's contention that his products were sold through different channels in the market like Franchisees, Hyper Markets, Departmental Stores, E-commerce platforms, Institutional sales and CSD etc. and the pricing pattern was different for each channel, therefore, the pricing for one channel should not be adopted for the pric....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ive proof of satisfaction of the conditions mentioned in Section 15 (3) (b) above, thus, the discounts given through credit notes were not liable to be excluded from the value and hence the benefit of discounts could not be given to the Respondent. He has further reported that the Respondent had not considered the discounts offered through credit notes during the period before 15.11.2017, for which the base prices were calculated and hence they were not liable to be considered in the subsequent period also. The DGAP has also intimated that the items mentioned at Sr. No. (i) to (v) above were not liable to be considered for calculation of the profiteered amount. However, the benefit of reduction in the value on account of credit notes issued subsequent to the issue of invoices did not appear to be admissible. 15. The DGAP has also contended that the methodology adopted for determining the amount of profiteering could be explained by illustrating calculation made in respect of a specific item i.e. "AMT PRESTON SP67 OXFORD BLUE" product sold through a particular channel i.e. Franchisee. Sale value of this product during the month of November, 2017 (pre-GST rate reduction) was taken a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed was the determination and quantification of profiteering by the Respondent, due to his failure 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 CGST Act, 2017. From the invoices and the details of the outward supplies made available by the Respondent, the DGAP has claimed that the Respondent has increased the base prices of the goods when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017, therefore, the commensurate benefit of GST rate reduction was not passed on to the recipients. The DGAP, on the basis of the aforesaid pre and post-reduction GST rates and the details of the outward taxable supplies (other than zero rated, nil rated and exempted supplies) of the impacted products during the period from 15.11.2017 to 31.03.2019, as furnished by the Respondent, has calculated the amount of net higher sales realization due to increase in the base prices of the impacted goods, despite the reduction in the GST rate from 28% to 18% or in other words, the profiteered amount as Rs. 25,73,82,482/-. The DGAP has furnished the details of the computation of the profiteered amount vide Annexure-18 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....f. 15.11.2017. Thus, by increasing the base prices of the goods consequent to the reduction in the GST rate, the commensurate benefit of reduction in the GST rate from 28% to 18%, was not passed on to the recipients and the total amount of profiteering covering the period from 15.11.2017 to 31.03.2019 has been worked out by the DGAP as Rs. 25,73,82,482/-. 20. The above Report was considered by this Authority in its meeting held on 26.09.2019 and it was decided to hear the Applicants and the Respondent on 24.10.2019. Accordingly, a show cause notice dated 30.09.2019 was issued to the Respondent asking him to explain why the Report dated 24.09.2019 furnished by the DGAP should not be accepted and his liability for violation of the provisions of Section 171 of the CGST Act, 2017 should not be fixed. 21. Six personal hearings were accorded to the parties on 24.10.2019, 13.11.2019, 02.12.2019, 19.12.2019, 03.01.2020 and 14.01.2020 out of which four hearings were attended by the Respondent. During the course of the hearings, none appeared for the Applicant No. 1 and 2. The Respondent was represented by Sh. Prateek P. Shah and Sh. Nitin Vijaivergia, Authorised Representatives. 22. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fiteering' as per the various dictionaries viz. the Oxford, the Black's Law, the major Law Lexicon and the Judicial Dictionary. He has also claimed that profiteering referred to the excessive, exorbitant and unjustifiable profits arising due to supply of essential goods. However, the DGAP had alleged that the Respondent had profiteered to the extent of GST which was charged on the profiteered amount and had further alleged that it violated the provisions of Section 171 of the CGST Act. But the DGAP had not provided any legal reasons for such inclusion of GST in the profiteered amount in his Report. 25. The Respondent has also contended that the quantum of benefit should have been computed by comparing the taxable value (i.e. turnover excluding GST) charged from the customers instead of value including GST. The GST amount collected on the differential base prices could not be construed as profiteering made by the Respondent as the same was duly deposited with the Central Government and not retained by the Respondent. However, the DGAP's Report had deviated from the basic principle of unjust enrichment (as such tax was duly deposited with the Government) and had applied GST of 18% o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the supply of the above product had taken place on the price mentioned on the website. 27. The Respondent has also contended that the scope of the DGAP's investigation should have been restricted to the product in respect of which the complaint was made and it could not be simply expanded to other products. He has further contended that as per Section 171 of the CGST Act, the emphasis was to pass on the reduction in price to 'the recipient'. Thus, the DGAP's attempt to cover all his products was beyond the scope of this investigation. Further, Rule 129 (3) of the CGST Rules, 2017 provided that the DGAP should issue notices to all the interested parties containing information of the relevant products including description of the goods. Thus, the above provision clearly implied that the scope of the investigation should be restricted to the goods against which the complaint was made as other products were neither mentioned in the application or the notice issued to him. 28. The Respondent has also averred that the provisions of Section 171 of the CGST Act, 2017 violated Article 19 (1) (g) of the Constitution. He has further averred that right to trade was a fundamental right ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isions would be a futile exercise. Reliance in this regard has been placed by the Respondent on the Hon'ble Apex Court's judgement passed in the case of CIT v. B. C. Srinivasa Shetty 1981 (2) SCC 460 = 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. The Hon'ble Court had held that the computation and charging provisions formed essence of any tax legislation and failure of the computation provision would automatically result in failure of the charging provisions. The Respondent has also cited the judgements passed by the Hon'ble Supreme Court in the cases of K. T. Moopil Nair v. State of Kerala AIR 1961 SC 552 = 1960 (12) TMI 76 - SUPREME COURT, Rai Ramkrishna v. State of Bihar AIR 1963 SC 1667 = 1963 (2) TMI 2 - SUPREME COURT, State of A. P. v. Nalla Raja Reddy AIR 1967 SC 1458 = 1967 (2) TMI 98 - SUPREME COURT, Vishnu Dayal Mahendra Pal v. State of U. P. (1974) 2 SCC 306 = 1974 (5) TMI 116 - SUPREME COURT and D.G. Gose and Co. (Agents) (P) Ltd. v. State of Kerala (1980) 2 SCC 410 = 1979 (9) TMI 189 - SUPREME COURT wherein it was held that where there was no machinery for assessm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 171 of the CGST Act, 2017 and Chapter XV of the CGST Rules, 2017, required the supplier of goods or services to pass on the benefit of tax rate reduction to the recipients by way of commensurate reduction in prices. Price received from the recipients included both, the base price and the tax paid on it. If any supplier increased his base price, it would result in increased base price and GST charged over and above it from the recipients, and the aforesaid statutory provisions would require that such amount be refunded to the eligible recipients or alternatively deposited in the Consumer Welfare Fund, regardless of whether such extra tax collected from the recipients had been deposited in the Government account or not. The Respondent's claim that the word profiteering had not been defined in Section 171 of CGST Act, 2017 and Rules made thereunder and hence the dictionary meaning given for profiteering should be taken as profiteering had no meaning as Section 171 stipulated that any reduction in the rate of tax or the benefit of input tax credit had to be passed on to the recipient by way of commensurate reduction in price, and this had been determined in the investigation Report.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oods or services supplied. He has further stated that there could not be any uniform methodology for determination of the quantum of benefit to be passed on. In Rule 126, the word used was 'determine' and not 'prescribe'. He has also submitted that this Authority has already notified the methodology and procedure under Rule 126 on 28.03.2018. He has also argued that the entire investigation was conducted under the provisions of Section 171 of the CGST Act, 2017 read with Rule 129 of the CGST Rules, 2017, as per the directions of the Standing Committee on Anti-profiteering and the investigation report was submitted to this Authority under Rule 129 (6) of CGST Rules, 2017. The Report furnished by him was only a finding, prepared on the basis of the document /replies/ statements given by the Respondent. Therefore, there was no violation of the right of the Respondent enshrined under Article 14 and Article 19 of the Constitution of India. The DGAP has further argued that the submission of the Respondent that the Show Cause Notice issued by this Authority was illegal was incorrect as Section 171 of the CGST Act, 2017, read with CGST Rules, 2017 empower this Authority to exercise such po....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 129 (1) was that where the Standing Committee was satisfied that there was prima facie evidence to show that the supplier has not passed on the benefit of reduction in the rate of tax or input tax credit to the recipients by way of commensurate reduction in prices, it would refer the matter to the DGAP. He has further stated that the Standing Committee had evidence, in the form of screen shot from the e-commerce website, limited to 'American Tourister Sky Tracer' Hard Trolley only and it did not have any other evidence on the other products. 37. The Respondent has also stated that the term 'Profiteering' had not been defined under the provisions of the CGST Act, 2017, thus, it has to be understood in the commercial parlance. It has further been stated by the Respondent that the quantum of benefit should have been computed by comparing taxable value (i.e. turnover excluding GST) charged from the customers instead of the value including the GST. The GST amount collected on the differential base prices could not be construed as profiteering made by the Respondent as the same was duly deposited with the Central Government and not retained by the Respondent. However, the DGAP's R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ories etc. It has also been observed that the Respondent is selling the above products through offline channels such as distributors, retailers and online channels. It has further been observed that the Respondent is making exports to his overseas customers, is also making inter-company stock transfers, is also selling to the CSD and is also supplying to the domestic market. 41. It is also revealed from the record that an application dated 30.07.2018 was filed before the Standing Committee on Anti-profiteering, under Rule 128 (1) of the CGST Rules, 2017, by the Applicant No. 1 alleging profiteering by the Respondent in respect of the supply of "American Tourister Sky Tracer HL Blue 68 cm Hard Trolley". The Applicant No. 1 had alleged that the Respondent had not reduced the selling price of the product when the GST rate was reduced from 28 % to 18% w.e.f. 15.11.2017 and had kept the MRP of the above product unchanged at Rs. 9100/- per piece 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. The Standing Committee on Anti-profiteering had examined the above application in its meeting held on 22.03.201....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ced from 28% to 18% w.e.f. 15.11.2017, with the actual post rate reduction base prices of these products appears to be correct, reasonable, justifiable and in consonance with provisions of Section 171 of the CGST Act, 2017 as it was not possible to compare the actual base prices prevalent during the pre and the post GST periods due to the reasons that the Respondent was (i) selling his products at different rates to different customers in the same channel (ii) the same customer may not have purchased the same product during the pre and the post rate reduction periods and (iii) a customer may have purchased a particular product during the pre rate reduction period and may not have purchased it in the post rate reduction period or vice versa. The average base prices have further been computed by considering the base prices which were prevalent during the period of 14 days w.e.f. 01.11.2017 to 14.11.2017 which give more accurate and representative value of the average base prices. However, the average pre rate reduction base prices were required to be compared with the actual post rate reduction base prices as the benefit required to be passed on each Stock Keeping Unit (SKU) to each ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red 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. (3). The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed. (3A) Where the Authority referred to in sub-section (2) after holding examination as required under the said sub-section comes to the conclusion that any registered person has profiteered under sub-section (1), such person shall be liable to pay penalty equivalent to ten per cent. of the amount so profiteered: PROVIDED that no penalty shall be leviable if the profiteered amount is deposited within thirty days of the date of passing of the order by the Authority. Explanation:- For the purpose of this section, the expression "profiteered" shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services of both." (Emphasis supplied) 44. Therefore, it is abundantly clear from even cursory reading of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ST from 28% to 18%. The above complaint is received from a member of Local Circles, Local Circles is India's leading Community Social Media Platform". A copy of the complaint received from Sh. Anil Mehta a member of the Local Circle mentioned above was also attached with the e-mail which stated as under:- "Profiteering Complaint against American Tourister/Samsonite I am thankful all members of the circles who have appreciated my efforts to bring profiteering under gst to light. Through my big bazar contact, I have been able to find the American tourister or rather samsonite has also been profiteering under gst. american tourister product AT Sky Tracer HL Blue 68 cm (hard trolley) had a MRP of 9100 on 30/10/17 when Big Bazar procured it under PO 8114960012. The same product was supplied by samsonite to big bazar on 11/12/17 after gst rate reduction under po 8115364220 and mrp was 9100 again (though gst rates were reduced from 28% to 18%) thats not all, assuming old packaging may still be lying with Samsonite one can still be ok, but when samsonite supplied to big bazar on 26/6118 i.e. 7 months after the rate reduction under po 4518446183 they still supplied with mrp 9100 w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....above claims of the Respondent are frivolous and hence they cannot be accepted. 47. The Respondent has also contended that it was well settled in the cases of M/s Miles India v. Assistant Commissioner of Customs 2002 TIOL 501 SC CUS = 1984 (4) TMI 63 - SC ORDER (Annexure-E) and M/s Northern Plastics Ltd. v. Hindustan Photo Films Mfg. Co. Ltd. 1991 (91) ELT 502 SC = 1997 (2) TMI 115 - SUPREME COURT that the creatures of the statute were bound by the respective powers and limitations prescribed under the statute. Accordingly, any authority could only exercise the powers conferred on it specifically under the provisions of the statue. In this context it would be appropriate to mention that the present investigation fully complies with the provisions of Rule 128, 129 and Section 171 of the above Act and hence the above judgements do not support the case of the Respondent as no illegality has been committed by the Standing Committee or the DGAP in the present case. 48. The Respondent has also contended that the scope of the DGAP's investigation should have been restricted to the product in respect of which the complaint was made and it could not be expanded to other products. In this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bility for coordinating anti-profiteering work with the National Anti-profiteering Authority, the Standing Committee and the State level Screening Committees." Therefore, it is clear from the above OM that the DGAP is required to investigate and collect evidence necessary to determine whether both the above benefits have been passed on or not. No restrictions have been imposed either under the CGST Act, 2017 or Rule 129 of the CGST Rules, 2017 which provide that the DGAP shall conduct investigation in respect of the complained goods or services only and he would not investigate those products against which no complaint has been lodged. The DGAP cannot condone commission of an offence committed in violation of the provisions of Section 171 (1) if it comes to his notice during the course of the investigation. Since, the DGAP is the investigating arm of this Authority any Report furnished by him to this Authority has to cover all the products in respect of which there has been denial of both the above benefits once they have come to his notice keeping in view that this Authority has jurisdiction to examine all such cases, determine the amount of benefit denied and provide relief to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t to trade. Neither the DGAP nor this Authority has mandate to direct the Respondent to fix his prices as per their directions nor they have directed so and hence all such claims made by the Respondent are farfetched and are not maintainable. 52. The Respondent has also placed reliance on the directions passed in in WP (C) 4213/2019 in the matter of M/s. Abbott Healthcare Pvt. Ltd. v. Union of India & others = 2019 (5) TMI 563 - DELHI HIGH COURT by the Hon'ble High Court of Delhi wherein the constitutional validity of the anti-profiteering provisions has been challenged. In this regard it is submitted that the above case is still pending before the Hon'ble Court and hence the order passed in the above case is of no assistance to the Respondent. 53. The Respondent has also pleaded that no precise procedure, methodology or principles have been laid down by this Authority as per Rule 126 of the CGST Rules, 2017 for passing on the benefits of tax reduction or ITC in terms of Section 171 of the above Act. In this regard it is mentioned that the 'Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and ITC has been clearly enunciated in Section 171 (1)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fit of tax reduction would depend upon the quantum of reduction in the rate of tax. Computation of commensurate reduction in prices is purely a mathematical exercise which is based upon the above parameters and hence it would vary from SKU to SKU or unit to unit or service to service and hence no fixed mathematical methodology can be prescribed to determine the amount of benefit which a supplier is required to pass on to a buyer. Similarly, computation of the profiteered amount is also a mathematical exercise which can be done by any person who has elementary knowledge of accounts. However, to further explain the legislative intent behind the above provision, this Authority has been empowered to determine the 'Procedure and Methodology' which has been determined by it vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017. However, no fixed formula, which can be applied universally on all the sectors or the SKUs or the services, can be set for passing on the above benefits or for computation of the profiteered amount, while determining such a "Methodology and Procedure" as the facts of each case are different. In the case of one real estate project, date of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....required to be the re-fixed by him as manufacturer and conveyed to his dealers. However, the Respondent had increased his base prices and continued to charge the same prices which he was charging before the tax reduction and had also not re-fixed his MRPs which he was bound to do in terms of Section 171 of the CGST Act, 2017 as well as the Legal Metrology Act, 2009. Hence, no principles, methodology and procedure or guidelines or elaborate mathematical calculations are required to be prescribed separately for passing on the benefit of tax reduction. The Respondent cannot deny the benefit of tax reduction to his customers on the above ground as Section 171 provides clear cut methodology and procedure to compute the benefit of tax reduction. Therefore, the above plea of the Respondent is frivolous and hence the same cannot be accepted. 54. The Respondent has also submitted that in the absence of machinery provisions, the entire proceedings under the anti-profiteering provisions would be a futile exercise. In this regard it is mentioned that no tax has been imposed under Section 171 of the above Act and hence no machinery is required for its computation and assessment. However, for p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at he has passed on the benefit of tax reduction. Perusal of the invoices shows that they have been issued by the Respondent in favour of M/s Future Retail Limited which is running the Big Bazar Stores, during the pre and the post rate reduction periods. However, it is revealed that the Respondent was charging Rs. 9100/- as MRP on the "American Tourister Sky Tracer HL Blue 68 cm Hard Trolley" during both the above periods which proves that the Respondent has not passed on the benefit of tax reduction on the above product. The Respondent has also not produced any evidence to establish that he has passed on the benefit in respect of his other products. Hence, the claim made by the Respondent on the basis of the above invoices is wrong and cannot be relied upon. 57. The Respondent has also contended that the quantum of benefit should have been computed by comparing the taxable value charged from the customers and an amount of Rs. 3,92,61,734.43 which was collected as GST by him and deposited in the Government treasury 58. Based on the above facts, it is established that the Respondent has acted in contravention of the provisions of Section 171 of the CGST Act, 2017 and has not passe....