TaxTMI 
TaxTMI 
2020 (11) TMI 105
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....ower Banks" supplied by him. In the application, it was also alleged by the Applicant No. 1 that the Respondent did not reduce the selling prices of the DSLR Cameras and Power Banks, when the GST rate was reduced from 28% to 18% w.e.f. 01.01.2019, vide Notification No. 24/201 a-Central Tax (Rate) dated 31.12.2018 and thus, the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in the prices. Along with the application, the Applicant No. 1 had also submitted copies of the invoices, report of the jurisdictional Deputy Commissioner (GST) and signed worksheet of the Respondent. 2. The DGAP has also stated that the Standing Committee on Antiprofiteering had examined the aforesaid application and upon being prima facie satisfied, had decided to refer the same to the DGAP to conduct a detailed investigation in the matter in terms of Rule 129 (1) of the CGST Rules, 2017. 3. The DGAP in his Report has further stated that on receipt of the said reference from the Standing Committee on Anti-profiteering on 26.06.2019, a notice under Rule 129 (3) was issued on 12.07.2019, calling upon the Respondent to reply as to whether he admitted....
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.... aforementioned e-mails/letters, the Respondent had submitted the following documents/information:- (a) List of all GSTIN registrations. (b) Copies of GSTR-1 and GSTR-3B Returns for the period from December 2018 to June 2019. (c) Details of invoice-wise outward taxable supplies for the impacted products during the period from September, 2018 to June, 2019. (d) Sample copies of invoices, pre and post 01.01.2019. (e) Total outward sales for the period from December, 2018 to June, 2019. 9. The DGAP has also informed that the reference from the Standing Committee on Anti-Profiteering, the various replies of the Respondent and the documents/evidence on record has been carefully examined. The main issues for determination were whether the rate of GST on the products being supplied by the Respondent was reduced from 28% to 18% w.e.f. 01.01.2019 and if so, whether the commensurate benefit of such reduction in the rate of GST had been passed on by the Respondent to his recipients, in terms of Section 171 of the CGST Act, 2017. 10. The DGAP has further informed that the Central Government, on the recommendation of the GST Council, had reduce....
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....ion A Canon DSLR 200D Dual Kit (18-55/55-250) 2. Notification No. B 24/2018-CentraI Tax (Rate) dated 31.12.2018 4. Total quantity of item sold C 263 5. Total taxable value D 10515535.70 6. Average base price (without GST) E=D/C 39983.03 7. GST Rate F 28% 18% 8. Commensurate Selling price (post Rate reduction-with GST) G=E*1.18 47179.97 7. Invoice No. H SLA 162030002234 8. Invoice Date I 17.01.2019 9. Total quantity (above invoice) J 1 10. Total Invoice Value K 49460.31 11. Actual Selling price per unit (post rate reduction-with GST) L=K/J 49460.31 12. Excess amount charged or profiteering M=L-G 2280.34 13 Total Profiteering N=M*J 2280.34 12. The DGAP has further mentioned that as per the Table-A, it was clear that the Respondent had not reduced the selling price of the "Canon DSLR 200D Dual Kit (18-55/55-250) Camera", when the GST rate was reduced from 28% to 18% w.e.f. 01.01.2019, vide Notification No. 24/2018 Central Ta....
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.... 749887 4 07 Delhi 3838960 5 08 Rajasthan 42931 6 09 Uttar Pradesh 702994 7 19 West Bengal 27159 8 23 Madhya Pradesh 352 9 24 Gujarat 2965100 10 27 Maharashtra 5805543 11 29 Karnataka 1896266 12 30 Goa 32010 13 33 Tamil Nadu 1230982 14 36 Telangana 1587602 Grand Total 19121441 16. It has also been intimated by the DGAP that the allegation of the Applicant No. 1 that the base prices of the impacted goods were increased when there was a reduction in the GST rate from 28% to 18% w.e.f. 01.01.2019 and hence, the benefit of such reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in prices stood confirmed against the Respondent as per the details furnished in Annexure-21. Thus, the Respondent by increasing the base prices of the goods subsequent to reduction in the GST rate has not passed on the commensurate benefit of reduction in the GST rate from 28% to 18% to the recipients and thus, he has contravened the provisions of Section 171 of the CGST Act, 2017. Therefore, the total amount....
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....ice or for calculating profiteering. d. That the business as a whole alongwith external variable factors needed to be considered, while determining the impact (if any) of profiteering on account of reduction in GST rate Accordingly, business minded approach needed to be adopted while interpreting the provisions of Section 171 (1) of the CGST Act, especially when the Legislature had not given any defined guidelines or methodology for computation of profiteering. e. That the DGAP has considered product level sale prices of December, 2018 month for comparison. The Respondent was engaged in retail business of electronic goods. December was a festive season for the electronic goods retail industry. The Respondent ran various discount schemes and offers with upfront price reductions to lure the customers and increase his sales during this period. Accordingly, during the month of December the sale prices for all the products were generally lowest considering the festive season. Immediately post festive season i.e. upon completion of promotion/discount schemes, base prices of the products were restored to their regular sale prices. While computing the proposed profiteerin....
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....n Rate Entry description Rate 8507 Entry 139: Electric accumulators, including separators thereof, whether or not rectangular (including square) other than lithiumion battery 28% Entry 139: Electric accumulators, including separators thereof, whether or not rectangular (including square) other than lithium-ion battery and other lithium-ion accumulators including lithium-ion power banks 85076000 Entry 376AA: Lithium-ion battery 18% Entry 376AA: Lithium-ion battery 1 18% 8507 NA Entry 376AAA: Lithiumion accumulators (other than battery) including lithium-ion power banks 18% h. That the Power Bank consisted of lithium-ion battery and circuit such as charge management system and voltage booster. Vide Notification No. 18/2017 dated 26.07.2018, Entry No. 139 was amended and Entry No. 376AA was inserted to levy CST @18% on lithium-ion battery. Accordingly, electric accumulators other than lithium-ion battery continued for GST levy @ 28%. Subsequently, vide Notification No. 24/2018 dated 31.12.2018, Entry No. 139 was further amended and Entry No. 376AAA was inserted to levy CST @ 18% on lithium-ion based Power Banks. Accord....
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.... passed on the commensurate benefit earned due to reduction in GST rate. k. That while computing profiteering, the DGAP had compared the average invoice value of a product sold during December, 2018 with actual invoice value of product sold during the period from January, 2019 to June, 2019. The DGAP had completely ignored other business factors impacting the sale price of the said electronic goods during the period under consideration, such as discount schemes run during December, 2018, competition pricing, e-commerce platform pricing, cost of the products, tax cost involved and other variable expenses etc. The proposed profiteering to the extent of Rs. 85,92,356/- has been computed erroneously, as important parameters have not been considered. Accordingly, the proposed profiteering amount of Rs. 1,91,21,441/- needed to be reduced by Rs. 85,92,356/-. l. That while computing profiteering, the DGAP has not considered the following important parameters which are required to be taken in to account:- Table Sr.No. Particular Proposed demand amount (Amount in INR) Annexure 1. Para 14.1-Excess GST collected has been paid to Government 29,16,750 ....
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....r Welfare Funds (CWFs) were also maintained by them, the profiteered amount to that extent should not be recovered from the Respondent. o. That the DGAP has not considered the Sale return transactions (i.e. credit notes issued by the Respondent) towards sale transactions for the period from January 201 9, to June, 2019. The Respondent had also submitted the details of Sales Register alongwith credit note details on 05.12.2019 to the DGAP. The acknowledgement for submission of the said letter was attached as Annexure-5. However, the said credit note details formed part of the computation prepared by the DGAP and had been ignored while computing the profiteering amount. A summary of the sale returns transactions has been furnished by the Respondent as has been mentioned below:- Period Credit note (taxable value) Credit note (GST) Credit Note (total value) Profiteering demand January 2019 to June 2019 7,15,86,988 1,28,85,656 8,44,72,645 28,75,832 p. That issuance of the credit notes has resulted into cancelation of the sale transactions. Accordingly, there could not be profiteering with respect to parent invoices for which credit notes h....
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....ominal profits, as compared to the regular profit. The said nominal profit earned was not even sufficient to recover the variable costs incurred by the Respondent. Hence, there wasn't any question of profiteering in the present case. Accordingly, the profiteering to the extent of Rs. 47,74,651/- had been computed erroneously and the same needed to be dropped. Even if the demand needed to be computed, the same was required to be computed as per the comparison between the actual purchase cost and the sale price and not between the sale price of December, 2018 and the actual sale price. Accordingly, at least the demand to the extent of Rs. 14,86,332/- and the total proposed demand of Rs. 85,92,356/- had been wrongly computed in the Report which needed to be dropped. 19. Supplementary report was sought from the DGAP on the issues raised by the Respondent vide his above-mentioned submissions dated 03.02.2020 and the DGAP vide his Report dated 27.02.2020 has stated:- a. That every supplier of goods and services was free to increase the price of his supply depending upon the various components affecting the cost of production/supply. But under the provisions of Section 171 of ....
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....ed on by way of reduction in prices and the benefit was appropriated by the supplier, it amounted to profiteering. The act of profiteering had nothing to do with the profit making or the loss making status of the supplier. Even a supplier having overall loss in his business could have profiteered by denying the benefit which ought to have been passed on to the recipients. Even a loss making entity or supplier could indulge in profiteering and conversely, a profit making entity could pass on the due benefit to the recipients, in terms of Section 171 of the CGST Act, 2017. In the instant case, the issue involved was that the Respondent had not passed on to the recipients the benefit of reduction in tax rate by not reducing the prices of the products commensurately. d. That with the implementation of GST w.e.f. 01.07.2017, the Government vide Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017 had prescribed a GST rate of 28% on the goods listed in Schedule IV of the said Notification. As per Sl. No. 139 of Schedule IV, the goods described as "Electric accumulators, including separators thereof, whether or not rectangular (including square)" falling under Chapter Hea....
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....f Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018 the issue of classification of Power Bank under Chapter Heading 85.07 got settled and accordingly it had dismissed the appeal filed by M/s. Xiaomi Technology India Pvt Ltd. Even if some litigation was going on with regard to the rate of GST, it did not justify increase in the base prices with intent to set off the benefit. e. That Section 171 mandated that any benefit of reduction in the rate of tax or the benefit of ITC which has accrued to a supplier must be passed on to the consumers, as both were concessions given by the Government and the suppliers were not entitled to appropriate such benefits. Further, as per Rule 126 of the CGST Rules, 2017, this Authority had been empowered to determine the methodology and procedure for determination as to whether the reduction in the rate of tax or the benefit of ITC had been passed on by the registered person to the recipients by way of commensurate reduction in prices, The extent of profiteering had to be arrived at on a case to case basis, by adopting suitable method based on the facts and circumstances of each case as well as the nature of goods or services suppli....
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....plier had charged more tax from the recipients, the aforesaid statutory provisions would require that such amount be refunded to the eligible recipients or alternatively be deposited in the Consumer Welfare Funds, regardless of whether such extra tax collected from the recipients has been deposited in the Government account or not. Besides, any extra tax returned to the recipients by the supplier by issuing credit notes could be declared in the returns filed by such supplier and his tax liability would stand adjusted to that extent in terms of Section 34 of the CGST Act, 2017. Therefore, an option was always available to the Respondent to return the tax amount to the recipients by issuing credit notes and adjusting his tax liability for the subsequent period to that extent. Therefore, it was clear that the profiteered amount would also include the excess tax (GST) paid by the customers/recipients. h. That the Respondent had submitted the details of sale returns during the investigation and the same were duly considered by the DGAP in his Report. Accordingly, the sales return data was excluded from the profiteering sheet and the same could be verified from the profiteering ....
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....e period from 01.01.2019 to 30.06.2019 whereas the time limit for issuance of credit notes towards excess GST collected in respect of the period from 01.01.2019 to 31.03.2019 had lapsed on 30.09.2019, as per Section 34 (2) of the CGST Act, hence, the Respondent was unable to issue the credit notes refunding the excess GST amount for the above period and to adjust the same against his GST liability for the subsequent period. b. That the Respondent had submitted credit note wise sales return information (alongwith supporting information for parent sale invoices) vide his letter dated 05.12.2019 and 04.02. 2020 (Annexure 5 to the said letter). The same had been again attached as Annexure-A with this letter. The DGAP had shared the computation worksheet dated 23.12.2019, providing computation of proposed demand which did state credit note transactions details in Column 'T', however, the DGAP had missed to provide adjustment of tax reversal on credit notes towards invoices issued during the period from 01.01.2019 to 30.06. 2020 as has been shown hereunder:- Gross profiteering demand without giving adjustment of sales return (Column 'U' to 'Y') Gross profiteering demand if adjus....
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....ounted/reduced prices (which were much below the regular sale prices of the products). With respect to such products, the Respondent had made nominal profits, as compared to regular profit. The said nominal profit earned was not enough to recover the variable costs incurred by the Respondent. Hence, there was no question of profiteering in the present case. Further, product level profiteering amount computed as per the DGAP's Report was higher than the actual nominal profit earned by the Respondent. Accordingly, with respect to said transactions, even if profiteering demand was to be computed, the same should be restricted to the extent of actual profit earned by the Respondent (nominal profit considering the cost price was higher than the base price computed). Accordingly, the proposed demand to the extent of alleged gross profiteering amounting to Rs. 11,09,736/- (Net profiteering amounting to Rs. 9,40,454/-) needed to be dropped. In support of his claim, the Respondent has submitted (Annexure-C) sale transactions alongwith transaction level cost (Annexure-3), excel worksheet as well as screenshot from the SAP system confirming the invoice wise sale value and cost mentioned in An....
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....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." 23. It is also observed from the record that the Respondent is engaged in retail trading of electronic goods from his stores under the brand name 'CROMA'. It is also revealed from the plain reading of Section 171 (1) of the CGST Act, 2017 that it deals with two situations on....
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....ion base prices of these products. It was not possible to compare the actual base prices prevalent during the pre and the post GST rate reduction periods due to the reasons that the Respondent was (i) selling his products at different prices to different customers based on the various business and external factors such as demand and supply, competitor's pricing, e-commerce market place, location of the stores, brand prices and manufacturer's pricing policy etc. (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 Respondent has himself admitted in his submissions dated 03.02.2020 the prices charged by him differed from store to store and period to period. Therefore, the average pre rate reduction prices of 153 products were computed by the DGAP, which were being sold by the Respondent, as is evident from the Annexure-21 attached with his Report, on the basis of which commensurate base prices post rate reduction were calculated in respect of the....
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.... The above contention of the Respondent is frivolous as the 'Procedure and Methodology for passing on the benefits of reduction in the rate of tax and ITC or computation of the profiteered amount has been outlined in Section 171 (1) of the CGST Act, 2017 itself which provides 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 plain reading of the above provision that it mentions "reduction in the rate of tax or benefit of ITC" which means that if any reduction in the rate of tax is ordered by the Central or the State Governments or a registered supplier avails benefit of additional ITC post GST implementation, the same have to be passed on by him to his recipients since both the above benefits are being given by the above Governments out of their scarce and precious tax revenue. It also provides that the above benefits are to be passed on any supply i.e. on each Stock Keeping Unit (SKU) of each product or unit of construction or service to every buyer and in case they are not passed on, the quantum of denial of these benefit or ....
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....rson who has elementary knowledge of accounts and mathematics. However, to further explain the legislative intent behind the above provision, this Authority has been authorised to determine the 'Procedure and Methodology' which has been done by it vide its Notification dated 28.03.2018 under Rule 126 of the CCST Rules, 2017. However, no fixed mathematical formula, in respect of 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, as the facts of each case are different. In the case of one real estate project, date of start and completion of the project price of the flat/shop, mode of payment of price or instalments, stage of completion of the project, rates of taxes pre and post GST implementation, amount of CENVAT credit and ITC available, total saleable area, area sold and the taxable turnover received before and after the GST implementation would always be different from 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 the other project. Therefore, no set procedure or mathematical methodology can be framed for det....
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....arately for passing on the benefit of tax reduction. The Respondent cannot deny the benefit of tax reduction to his customers on the above ground and enrich himself at the expense of his buyers as Section 171 provides clear cut methodology and procedure to compute the benefit of tax reduction and the profiteered amount. Therefore, the above plea of the Respondent is wrong and hence, it cannot be accepted. 27. The Respondent has further contended that the sale prices of the products depended upon various business and external factors such as demand and supply, competition pricing, ecommerce market place, location of the store, brand prices and competition pricing etc. which the DGAP has failed to appreciate. In this connection, it would be pertinent to mention that the provisions of Section 171 (1) of the above Act require the Respondent to pass on the benefit of tax reduction to the customers only and have no mandate to look into fixing of prices of the products which the Respondent is free to fix. If there was an increase in his costs the Respondent should have increased his prices before 01.01.2019, however, it cannot be accepted that his costs had increased exactly on the int....
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....crifice of tax revenue made by the Government, is passed on to the customers who actually bear the burden of the tax and it is not pocketed by the Respondent. Therefore, the Respondent is free to fix his prices and profit margins however, under the pretext of such freedom he cannot misappropriate the benefit of tax reduction which has been granted to him from the public exchequer. The Respondent has also failed to explain how he has increased his prices abruptly w.e.f. 01.01.2019 unless it was with the intention to deny the benefit of tax reduction to the customers. Neither the DGAP nor this Authority has interfered with the business choices made by the Respondent and hence the above contention of the Respondent is not correct. 30. The Respondent has also argued that on account of introduction of new technology and better cameras, the demand for digital cameras had reduced and in order to clear the stock of the same, the Respondent had been selling the said products below the cost prices or at the sale prices lower than the regular sale prices resulting in loss or nominal profits. As per the books of accounts the total profit earned from the sale of the digital cameras was equiv....
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....inciples. In this connection it would be pertinent to mention that Section 171 of the CGST Act, 2017 does not provide for price administration or price regulation. The DGAP has only computed the profiteered amount the benefit of which the Respondent has not passed on to his customers. Neither the DGAP nor this Authority have acted as price administrators or price regulators as the process of price fixation adopted by the Respondent has not been examined nor the Respondent has been asked to fix his prices as per their directions and hence, there has been no infringement of fundamental right of the Respondent to free trade and principles of free market prices. The Respondent is completely free to fix his prices and profits but under the garb of free market prices he cannot pocket the benefit of tax reduction to enrich himself at the expense of the unorganised, voiceless and vulnerable customers. Therefore, the above averment of the Respondent cannot be accepted. 33. The Respondent has also argued that while determining the average base prices of the products sold during the month of December, 2018 the DGAP has completely ignored business factors impacting the sale prices of the im....
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....uded in the profiteered amount as it denotes the amount of benefit denied by the Respondent. The above amount can also not be paid to the eligible buyers or deposited in the Consumer Welfare Funds from the Government accounts as there is no such provision in the above Act. Further, in terms of Section 34 of the CGST Act, 2017, the Respondent could have returned the extra GST charged to the recipients by issuing credit notes and declared it in his Returns and his tax liability would have stood adjusted to that extent. The contention of the Respondent that he could not claim the benefit of credit notes issued during the period of January, 2019 to March, 2019 as the limitation prescribed had expired in September, 2019 is also not tenable as the Respondent cannot claim ignorance of the above period of limitation. Therefore, the above contention of the Respondent is untenable and hence it cannot be accepted. Accordingly, an amount of Rs. 29,16,750/- collected as excess GST cannot be reduced from the profiteered amount. 35. The Respondent has also contended that while calculating the profiteering, the DGAP has not considered the Sale Returns transactions i.e. credit notes issued by th....
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.... cases where the Respondent has sold his products at less than the pre rate reduction base prices there is no question of computing profiteering on those products. The profiteered amount has been calculated only on those products where the Respondent has charged more base prices during the post reduction period than the average base prices charged during the pre rate reduction period. As is clear from the Table mentioned in the supplementary Report dated 27.02.2020, filed by the DGAP that the Respondent vide Annexure-II alongwith his claims made vide Annexure-B has tried to show that the cost price of the Power Bank was almost double of its commensurate selling price. While the commensurate base price of the Power Bank was Rs. 385.94, the actual sale price was Rs. 418.84, the cost price has been claimed to be Rs. 774.03. By no stretch of imagination such an unreasonable claim can be accepted. Similar claims have been made by him in respect of other products also. The Respondent has not produced any evidence during the course of the present proceedings which can establish the exorbitant moving cost prices claimed by the Respondent. The screen shots of the SAP system can also not be ....
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....the SAP system also do not prove his claim of moving costs as the Respondent can make any entries in the system. All the purchase costs incurred by the Respondent on the products sold during the pre rate reduction period have already been taken in to account while computing the average base prices and hence there is no ground to claim that they have increased subsequently. The Respondent cannot claim increase in his costs to deny the benefit of tax reduction. There is also no evidence of giving discount on the sold goods as these sales have been admitted to be normal sales by the Respondent himself vide Annexure-C. Therefore, the above claim of the Respondent is not tenable and hence, an amount of Rs. 14,86,332/- cannot be reduced from the profiteered amount. 38. Given our above findings the profiteered amount is determined as Rs. 1,91,21,441/-, details of the computation of which are given in Annexure-21 of the DGAP's Report dated 23.12.2019. Accordingly, the Respondent is directed to reduce his prices commensurately, as indicated in the above mentioned Annexure, in terms of Rule 133 (3) (a) of the above Rules. The Respondent is also directed to deposit an amount of Rs. 1,91,21....