TaxTMI 
TaxTMI 
2020 (6) TMI 81
X X X X Extracts X X X X
X X X X Extracts X X X X
.... alleging profiteering by the Respondent on the supply of "Food Processor" (HSN: 85094090), by not passing on the benefit of GST at the time of implementation of the GST w.e.f. 01.07.2017. It was also alleged that the Respondent had indulged in profiteering in contravention of the provisions of Section 171 of the CGST Act, 2017. In this regard, the above Applicant had relied on two invoices issued by the Respondent, one dated 09.05.2017 (Pre-GST) and the other dated 22.12.2017 (Post-GST). 2. The above reference was examined by the Standing Committee on Anti-Profiteering and was further referred to the DGAP vide minutes of its meeting dated 02.07.2018 for detailed investigations under Rule 129 (1) of the CGST Rules, 2017. 3. The DGAP vide his report dated 26.09.2018 has stated that after scrutiny of the two invoices issued by the Respondent, it was observed that in the pre-GST era, the applicable tax rate on the product Food Processor" (HSN Code 85094090 was 26.24%, including Excise duty @ 12.5% (abatement @35% of MRP) and VAT @14.5%. On implementation of GST w.e.f. 01.07.2017, the GST rate on the said product was fixed at 28%. However, the invoice dated 22.12.2017, reli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd post-GST selling prices, in the absence of any invoice issued during the intervening period, pre-GST and post-GST MRPs, the details of which were indicated in the table above. The DGAP found that there was an increase in the rate of tax on "Food Processor" from 26.24% in the pre-GST era to 28% in the post-GST era. The DGAP also found that the Respondent did not increase the MRP of the product which was Rs. 5,795 during both the periods. Furthermore, Section 171 of the Central Goods and Services Tax Act, 2017 came into play in the event when there was a reduction in the rate of tax or increase in the input tax credit, the latter was not the subject matter of this inquiry as there was no reduction in the rate of tax in the present case, the provisions of the said Section 171 were not attracted in the instant case. 6. We have carefully examined the DGAP's report and the documents placed on record and find that the following issues were required to be settled in the present proceedings as per the provisions of Section 171 of the CGST Act:- I. Whether there was a reduction in the rate of tax on the product w.e.f. 01.07.2017? ll. Whether any benefit of reduction i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Respondent to reply as to whether he admitted that the benefit of rate reduction 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 to furnish all the supporting documents. Further, in the said Notice dated 09.01.2019, the DGAP allowed the Respondent to inspect the non-confidential evidence/ information relied upon in the Notice during the period 14.01.2019 to 16.01.2019 and the Respondent availed of the said opportunity on 16.01.2019 and collected copies of invoices of pre-GST and post-GST. The period covered by the DGAP in the current investigation is from 01.07.2017 to 31.12.2018. 12. The Respondent vide letters/e-mails dated 21.01.2019, 31.01.2019, 19.02.2019, 08.03.2019, 18.03.2019, 05.06.2019 and 25.06.2019 submitted following arguments before the DGAP: i. That the Maximum Retail Price (MRP) taken into consideration in the Notice of initiation was Rs. 5,795 instead of correct MRP of Rs. 4,795. Further, his business was engaged only in the trading of goods and did not have any manufacturing facility, and thereby, he was n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....able-'B' Particulars Actual tax cost applicable to the product Reference Pre-GST Post-GST Invoice No 6482538756 6482541444 Invoice date 09.05.2017 22.12.2017 Quantity Sold 2 4 MRP A 4,795 4,795 Basic Price to the distributor before discount per unit B 3,031 2,711 Countervailing duty CVD C=A*65%*12.5% 390 Basic Price (Excluding taxes) D=B-C 2,641 2,711 VAT @ 14.5% E=B*14.5% 439 GST@28% F=B*28% 759 Total Tax (Rs.) G=C+E or F 829 759 Total Tax (in %) H=G/D 31% 28% Cum Tax selling price (As per invoice) I=B+E or B+F 3,470 3,470 Gross amount J=Difference of D 70 Additional Credit Note post K = 9% of net realization 244 The net impact on the sale of the product L = J-K (174) Based on the above, Respondent inferred that he has passed on the adequate benefit to the customer by way of additional credit notes and hence there was no profiteering made on the impugned product sold to the QRS Retail Limited. 13. The Responde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The State-wise details of pre-GST tax incidence were furnished in Annexure-17 of the DGAP's Report. Therefore, the contention of the Respondent that the total tax incidence on the impugned product has increased in the post-GST period was not correct. 17. The DGAP has also reported that the Respondent also contended that the total amount of tax component included in the entire chain has increased post-GST implementation and he had computed the tax component by the reverse calculation on MRP by ignoring actual transaction value and discounts which were referred in Table-'A' supra. In this regard, the DGAP has drawn reference to Section 15 (1) of the Central Goods and Services Tax Act, 2017 which reads as "The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply." Further, Section 15 (3) (a) provides that the value of the supply shall not include any discount which is given before or at the time of the supply if such a discount has been duly rec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0. The DGAP further stated that Section 15 (3) of the Central Goods and Services Tax Act, 2017 states "The value of the supply shall not include any discount which is given- (a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and (b) after the supply has been effected, if- (i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and (ii) input tax credit as is attributable to the discount based on document issued by the supplier has been reversed by the recipient of the supply" Therefore, to exclude any discount after the supply has been affected, the supplier should produce an agreement of such a discount entered into at or before the time of such supply. Further, the discount should be specifically linked to the relevant invoice and the recipient should reverse the input tax credit attributable to such a discount. Since the aforesaid conditions had not been satisfied in this case, the discount claimed by the Respondent after the supply has been affected was liable to be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Report, it appeared that the basic price of the impugned product was increased after 01.07.2017. Thus, it appeared that by increasing the basic price of the impugned product consequent to the reduction in the rate of tax, the commensurate benefit of the implementation of GST was not passed on to the recipients. The total amount of profiteering covering the period 01.07.2017 to 31.12.2018 has been computed as Rs. 4,53,949/-. 24. The DGAP stated that Section 171(1) of the Central Goods and Services Tax Act, 2017, requiring that "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", has been contravened in the present case. 25. The above Report was considered by this Authority in its meeting held on 11.10.2019 and it was decided that the Applicants and the Respondent be asked to appear before this Authority on 07.11.2019. The Respondent was issued a notice on 16.10.2019 to explain why the above Report of the DGAP should not be accepted and his liability for violating the provisions of Section 171 of the CGST Act, 2017 should not be fixed. During the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was correct; that CGST Rules did not set any method for calculation of the benefit of reduction in the rate of tax or benefit of input tax credit that was required to be passed on to the recipients in terms of Section 171 of the CGST Act; that Section 171 of the CGST Act merely provided for the setting up of an Authority to examine whether input tax credits availed by any registered person or the reduction in the tax rate has resulted in a commensurate reduction in the price of the goods or services or both supplied by the Respondent; that in the absence of clarity regarding the whether the computation should be based on the price actually changed or not and on what level, i.e. entity level, state level, location level, product level, category level or stock-keeping unit (SKU) level, he had himself calculated the price change both at the entity level and the product level by comparing the weighted average price Pre-GST across India and weighted average price Post-GST across India and had found that there was no profiteering made by him at the time when the GST was introduced. iv. That the methodology adopted to compute the alleged profiteered amount did not take into acco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al Members there had to be at least two Judicial Members, however, the same had also not been provided for in Rule 122 of the CGST Rules, 2017 and hence the constitution of the present Authority violated various judgments of the Hon'ble Supreme Court and several High Courts and therefore, this Authority did not have requisite jurisdiction to proceed with the matter. He placed reliance on the judgment passed by the Hon'ble Supreme Court in the case of Union of India v. R. Gandhi President Madras Bar Association (2010) 11 SCC = 2010 (5) TMI 393 - SUPREME COURT, Madras Bar Association v. Union of India 2014 (308) ELT 209 (SC) = 2014 (9) TMI 821 - SUPREME COURT. He further submitted that this Authority has all the attributes of a Tribunal based on the following:- 1. Trappings of a court; 2. Power to decide lis; 3. Power to interpret provisions and statute; 4. The judicial power of the state; 5. A Chairman and Members; 6. The salary and conditions of employment have been fixed under the Statute; 7. Power to issue their own methodology and procedure. That given the aforesaid submissions, submitted that this Authority....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3 of the CGST Rules confer wide and unfettered powers on this Authority, which include the power of imposition of penalty and cancellation of registration under the Act. Rule 126 of the CGST Rules conferred power on this Authority to determine the methodology and procedure. The CGST Act was completely silent on several important aspects and the powers of this Authority have been mentioned only in the delegated legislation, i.e. CGST Rules. Such powers being substantive in nature, should have been prescribed by the legislature in the CGST Act itself. Therefore, the Rules have gone beyond the Act in empowering this Authority with wide and uncontrolled powers mentioned under Rule 133(3) of the CGST Rules. The powers vested on this Authority vide the said rules included severe consequences against the Assessee such as ordering a reduction in prices and cancellation of registration under the Act. The concept of 'delegatus non-potest delegare' which essentially means that a delegate cannot further delegate unless expressly or impliedly authorized applied in the present case. The Respondent further submitted that such sub-delegation was impermissible unless authorized by the parent legisl....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The Respondent had issued additional credit notes to the recipients and therefore the benefit of reduction in the rate of tax was passed to the recipient. 26. The above submissions of the Respondent were forwarded to the DGAP vide Order dated 25.11.2019 for clarifications under Rule 133(2A). The DGAP has filed his clarifications dated 06.12.2019 on the objections raised by the Respondent as follows: i. Para-A:- The benefit of reduction in the rate of tax has been passed on to the recipient by way of credit notes/rebates:- That the Concern raised by the Respondent had been duly addressed in Para-14 & 15 of his investigation report dated 14/20.08.2019 wherein It had been observed that credit notes issued by the Respondent were rebates issued on account of Logistics Rebate, Service Rebate and rebate on operating income and not on account of reduction in the rate of tax. ii. Para-B: Section 15 of the CGST Act 2017 does not have any applicability In the present case: In this regard, the DGAP Referred to Section 15 (1) read with Section 15 (3) (a) of the Central Goods and Services Tax Act, 2017 mentioned in the report dated 14/20.08.2019. The DGAP....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Thus the legal position was unambiguous and could be summed up as below:- (a) A supplier of goods or services must pass on the benefit of ITC or reduction in the rate of tax to the recipients by way of reducing the prices thereof paid by the recipient and (b) The law does not offer a supplier of goods and services the flexibility to suo-moto decide on any other modality to pass on the benefit of ITC or reduction in the rate of tax to the recipients. Therefore the law did not offer a supplier of goods and services flexibility to pass on the benefit of ITC or reduction in the rate of tax on one supply, say 'X' by reducing the prices of any other supply say 'Y'. The text of Section 171 of the CGST ACT 2017 was very clear according to which the benefit of reduction in tax rate has to be passed on each supply individually. Thus, if the Respondent has passed on excess benefit in respect of any supply to the recipient, the same could be adjusted against the profiteered amount about some other supply. v. Para-I: The DGAP has gone beyond its jurisdiction in exercising its right to further investigate the matter under Rule 133 (4) of the Central Goods an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to assess whether there was any benefit on account of reduction in the rate of tax or input tax credit and then benefit, if accrued, was required to be passed on to the recipient. The benefit accrued could be ascertained only by computing the impact of the difference in the rate of tax or credit availability. The said impact could be determined product-wise, service wise and entity wise, etc. In the absence of clarity about whether price change was required to be computed at the entity level, state level, location level, product level, category level or stock-keeping unit (SKU) level in the CGST Act and/or the CGST Rules, the Respondent had calculated the price change both at the entity level and product level and found that there was no profiteering made by Respondent at the time when GST was introduced. The Respondent had made the computation by comparing the weighted average price Pre-GST across India and weighted average price Post-GST across India and from the calculations, it could be concluded that there was no profiteering made on the impugned product. iv. That no guidelines had been framed to compute benefit accrued on account of rate reduction or input tax credi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ement entered into at or before the time of such supply and specifically linked to relevant invoices; and (ii) input tax credit as is attributable to the discount based on document issued by the supplier has been reversed by the recipient of the supply" Therefore, to exclude any discount after the supply had been made, the supplier should produce an agreement of such a discount entered into at or before the time of such supply. Further, the discount should have been specifically linked to the relevant invoice and the recipient should have reversed the input tax credit attributable to such a discount. Since the aforesaid conditions have not been satisfied in this case, the claim of the Respondent is not tenable and liable to be set aside. 30. The Respondent has argued that Section 15 of the CGST Act, 2017 is not applicable in the instant case. In this connection, we observe that as the GST is chargeable on actual transaction value after excluding any discount and therefore, to establish profiteering if any, Basic Price before discount cannot be considered and the Basic Price after discount (excluding duties) is the correct amount which should be taken into considerati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ise which is based upon the above parameters and hence it would vary from product to product 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 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 the Procedure and Methodology in detail. Further, 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. In one real estate project, date of start and completion of the project, price of the house / commercial unit, mode of payment of the price, stage of completion of the project, the timing of the purchase of inputs, rates of taxes, amount of ITC availed, total saleable area, area sold and the taxable turnover realized before and after the GST implementation would always be different from the other project and hence the amount of ben....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... position is unambiguous and summed up as below: (a) A supplier of goods or services must pass on the benefit of ITC or reduction in the rate of tax to the recipients by way of reducing the prices thereof paid by the recipient and (b) The law does not offer a supplier of goods and services and the flexibility to suo-moto decide on any other modality to pass on the benefit of ITC or reduction in the rate of tax to the recipients. Therefore the law does not offer a supplier of goods and services flexibility to pass on the benefit of ITC or reduction in the rate of tax on one supply, say 'X' by reducing the prices of any other supply say 'Y'. The text of Section 171 of the CGST ACT 2017 is very clear according to which the benefit of reduction in tax rate has to be passed on each supply individually. Thus, if the Respondent has passed on excess benefit in respect of any supply to the recipient, the same cannot be adjusted against the profiteered amount concerning some other supply. Therefore, the contention of the Respondent is baseless and frivolous and liable to be set aside. 33. The Respondent has also contended that the constitution of this Authority is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Council which is a constitutional body created under the 101st Amendment of the Constitution and the Central and the State Governments in their wisdom have not found it necessary to provide for a Judicial Member in this Authority due to its highly specialized and technical functions. 34. Similarly, in the case of Madras Bar Association v. Union of India 2014 (308) ELT 209 (SC) = 2014 (9) TMI 821 - SUPREME COURT, the constitutional validity of the National Tax Tribunal Act 2005 and the Constitution (Forty-Second) Amendment Act, 1976 was challenged on the ground of violating the basic structure of the Constitution. The National Tax Tribunal was vested with the power of adjudicating appeals which included a substantial question of law arising from the orders passed by the appellate authorities under the specific tax enactments. Before the 2005 Act, the jurisdiction to adjudicate these appeals lied with the jurisdictional High Court. Therefore, the facts of the case of Madras Bar Association Supra are also not applicable to the facts of the present case as no substitution of the jurisdiction of the Hon'ble High Courts has taken place under the CGST Act, 2017. Therefore, the se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enefit of ITC are enshrined in Section 171 (1) of the CGST Act, 2017 itself which states that "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." It is clear from the perusal of the above provision that it mentions "reduction in the rate of tax on any supply of goods or services" which does not mean that the reduction in the rate of tax is to be taken at the level of an entity/group/company for the entire supplies made by it. Therefore, the benefit of tax reduction has to be passed on at the level of each supply of Stock Keeping Unit (SKU) to each buyer of such SKU and in case it is not passed on the profiteered amount has to be calculated on each SKU. Therefore, the contention that the profiteered amount should be computed at the entity/group/company level is untenable. Further, the above Section mentions "any supply" i.e. each taxable supply made to each recipient thereby clearly indicating that netting off of the benefit of tax reduction by any supplier is not allowed. A supplier cannot claim that he has passed on more benefits to one customer, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for claiming that the present delegation is excessive. Since the functions and powers to be exercised by this Authority have been approved by the CGST Act 2017 and the Rules framed thereunder, these are legal and in keeping with the legal intent behind the anti-profiteering provisions in the CGST Act 2017. The Authority in the exercise of the powers delegated to it under Rule 126 has notified the Methodology and Procedure vide Notification dated 28.03.2018 which is also available on its website. However, it is submitted that no fixed/uniform mathematical methodology can be determined as the facts of each case differ. Therefore, the determination of the profiteered amount has to be done by taking into account particular facts of each case. 38. The Respondent has also contended that the DGAP has travelled beyond the jurisdiction of Rule 133 (4) in as much as the investigation should have been limited to the supplies of the impugned goods made to the retailer M/S QRS Limited only, are false and bereft of facts as in the initial investigation report dated 26.09.2018, comparison was made between the applicability of tax on the product "Food Processor" (HSN Code 85094090) pre-GST and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... report that the Respondent has profiteered an amount of Rs. 4,53,949, the state-wise break-up of which is provided in the Para-22 of this Order. Further, it is also observed that the DGAP has computed the amount of profiteering based on documents/data provided by the Respondent himself. Therefore, we hold that the Respondent has profiteered by an amount of Rs. 4,53,949/-. 41. It is evident from the details furnished in Annexure-17 & 18 that the profiteering is determined as Rs. 4,53,949/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent is therefore directed to reduce the price of the impugned product as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. The Respondent is also directed to deposit the profiteered amount of Rs. 4,53,949/- along with the interest to be calculated @ 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited. Since the recipients, in this case, are not identifiable, the Respondent is directed to deposit the amount of profiteering of Rs. 2,26,975/- in th....