TaxTMI 
TaxTMI 
2020 (12) TMI 91
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....Vs of screen size up to 32 inches" despite reduction in the rate of GST from 28% to 18% w.e.f. 01.01.2019. The Applicant No. 1 had also alleged that the product "LG LED TV" having value of Rs. 12,600/- was sold at a lower price after the reduction in the GST rate from 28% to 18% w.e.f. 01.01.2019 levied vide Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018 but without commensurate reduction in the price. The Applicant No. 1 had further alleged that the Respondent had not passed on the benefit of reduction in the rate of tax in respect of the impugned product to the extent of 10% (28%-18%) by commensurate reduction in price as has been furnished in Table-'A' given below:- Table-'A' (Amount in Rs.) Product Description LG LED TV Before 01.01.2019 Base Price 9843.75 Tax Rate 28% Tax Amount 2756.52 Total 12,600 On or after 01.01.2019 Base Price 10169.49 Tax Rate 18% Tax Amount 1803.51 Total 12,000 Price Without Profiteering ought to be Base Price 9843.75 Tax Rate 18% Tax Amount 1771.88 Total 11614.74 Alleged Profiteering Profiteered Amount per unit 385.26 The Above Applic....
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....2019-Central Tax (Rate) dated 28.06.2019 it had been clearly stated that any action seeking to expand the scope of investigation had to follow the procedure prescribed under Rule 133 (5) and should be treated as a new investigation or enquiry following the procedure prescribed under the CGST Act and the Rules. Such investigation could be initiated only based on the written findings of this Authority on the submissions of the DGAP. The DGAP could not suo moto expand the scope of investigation without following the procedure laid down in the CGST Rules, 2017. b) The orders of the Hon'ble High Court of Delhi in the case of M/s. Reckitt Benckiser India (P) Ltd. v. Union of India & others in WP(C) 7743/2019 dated 19.07.2019 = 2019 (7) TMI 1135 - DELHI HIGH COURT and 22.08.2019 could be relied on wherein the Hon'ble High Court has granted an absolute stay on the proceedings initiated by the DGAP in as much as the DGAP had suo moto sought details of products not under investigation without following the procedure prescribed under Rule 133 of the CGST Rules, 2017. c) There had been sale of two type of Power Banks falling under HSN 8507 - Lithium Ion and Lithium Polymer. The Notificat....
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....e on the goods supplied by the Respondent from 28% to 18% w.e.f. 01.01.2019, vide Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018. 7. The DGAP has also claimed that the Respondent has relied on the orders of the Hon'ble High Court of Delhi passed in the case of M/s. Reckitt Benckiser India (P) Ltd. v. Union of India & others in WP(C) 7743/2019 dated 19.07.2019 = 2019 (7) TMI 1135 - DELHI HIGH COURT, wherein the Hon'ble High Court has granted relief that only the enquiry as far as the complained product was concerned would continue till final disposal of the petition. The DGAP has intimated that there was no stay/directions issued on the present proceedings. The DGAP has further clarified that it was an interim relief only and not final judgement, so its ratio was not applicable in this case. 8. The DGAP has further informed that since it was a case of reduction in the rate of tax, it was important to examine the provisions of Section 171 (1) of the CGST Act, 2017, to ascertain whether the present case was a case of profiteering or not. 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 shal....
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....g GST) L=K/J 22,400/- 13. Excess amount charged or Profiteering M=L-G 551/- 12. Total Profiteering N=J*M 551/- 10. The DGAP has also claimed from the Table above that the Respondent had not reduced the selling price commensurately of the "LG LED 32LJ573D TV', (HSN code 8528 7220), when the GST rate was reduced from 28% to 18% w.e.f. 01.01.2019, vide Notification No. 24/2018 Central Tax (Rate) dated 31.12.2018 and hence, the Respondent has profiteered an amount of Rs. 551/- on a particular invoice and thus the benefit of reduction in GST rate was not passed on to the recipient by way of commensurate reduction in the price, in terms of Section 171 of the CGST Act, 2017. On the basis of the calculation as illustrated in Table-'B' above, profiteering in case of all the impacted goods of the Respondent has also been arrived at in the similar way. 11. The DGAP has further claimed from the HSN Code wise summary data that the Respondent was dealing in total 150 HSN Codes, out of which 8 HSN Codes were impacted by GST rate reduction Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018. The DGAP has also noticed from t....
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....unt of Rs. 37,89,550/-. Details of the above items along with profiteered amount have been furnished in Table- 'C' given below:- Table- 'C' (Amount in RS.) S.No. Product Description HSN/SAC Telangana Andhra Pradesh Total Quantity (In No.) Profiteering (In Rs.) Quantity (In No.) Profiteering (In Rs.) Quantity (In No.) Profiteering (In Rs.) 1 MI 10000mAH POWER BANK 2i BLACK 85076000 1,031 113,735 61 5,818 1,092 119,553 2 MI 10000mAH POWER BANK 2i RED 85076000 38 2,830 1 112 39 2,942 3 MI 20000mAH POWER BANK 2i WHITE 85076000 220 29,299 12 803 232 30,102 4 SONY ACCESSORIES PS4 DUAL SHOCK BL 95049090 8 7,056 - - 8 7,056 5 SONY POWERBANK 10000mah CP-V10B/BC 85076000 4 680 - - 4 680 6 SONY POWERBANK 20000MAH CP-V20A/BC 85076000 1 1,975 - - 1 1,975 7 SONY POWERBANK 5000mah CP-E5VPX/WC 85076000 3 390 1 100 4 490 8 SONY POWERBANK 8700mah BLK CP-V9/B 85076000 1 450 - - 1 450 9 SONY POWERBANK 8700mah WHT CP-V9/W 85076000 1 1....
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....n submissions dated 18.02.2020 in which he has submitted that - I. The DGAP in his Report has failed to consider the unique pricing nature of the retail industry and the allegations of profiteering were baseless:- The Respondent has stated that the DGAP has considered the sale of the product LG LED TV before and after 01.01.2019 for the purpose of investigation and while computing the "Prices without Profiteering ought to be" the base price prevailing before 01.01.2019 was taken into consideration. In this regard, the Respondent has also stated that the base price varied from transaction to transaction as the final sale price completely depended on the customer's bargaining power i.e. the price at which the customer was willing to purchase the product. The Respondent has further stated that the DGAP has been comparing two base prices that would not be same at any given point of time. He has illustrated that the DGAP has considered the base price of LG LED TV as Rs. 9,843.75/-, which was sold before 01.01.2019 and Rs. 10,169.49/- for the TV which was sold on or after 01.01.2019. II. Multiple prices for a product in a given period:- The Respondent has also submitted....
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....transactions in addition to the above, of the same product where the profiteering was either zero or negative. III. Factors that have affected the unique pricing of the Industry:- a. The Respondent has also argued that considering the reduction in the prices of the products, there were many factors which affected the final sale prices of the products sold by the Respondent viz.. b. The MRPs are fixed by the manufacturer:- The Respondent has also added that he has purchased the products from the vendors like Samsung and Sony etc. The base price of the purchased product and its Maximum Retail Price (MRP) at which the product could be sold was fixed by the manufacturer. The Respondent has no control on the fixing of the base price as well as the MRPs. However, the Respondent could sell at any price below MRP but not more than the MRP. It was quite evident from his submissions that no product was sold by him beyond the MRP. c. Final sale price depends on Customer's bargaining power - The Respondent has also stated that the manufacturer fixed the MRP of the product, however, the final price at which the product was sold completely depended on customer....
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...., the term Profiteering has been elaborated to mean - "to make or seek to make an excessive or unfair profit, especially illegally". VI. The Respondent has also referred to Section 171 of CGST Act/SGST Act, 2017 and argued that he had neither the intention to make or seek to make an excessive or unfair profit, especially illegally nor made any unfair profit and he had passed on the benefit of commensurate reduction in price of the product to the end customer. VII. Applicability of Rule 133 (5) and M/s. Reckitt Benckiser India (P) Ltd. v. UOI:- The Respondent has also contended that initially he had received notice for submission of details of sale of Televisions up to 32 inches, the TVs which were impacted by the GST rate reduction Notification No. 24/2018 dated 31.12.2018. The scope of investigation at the later point of time was expanded by the DGAP without any prior intimation and he was directed to submit the details of all the products impacted by the aforesaid notification. In this regard, the Respondent has stated that as per Rule 133 (5) of the CGST Rules, 2017 it was provided that if upon the receipt of the Report of the DGAP, this Authority had identifie....
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.... the Hon'ble High Court has stayed this Authority's orders for inter-alia examining the constitutional validity of the anti-profiteering provisions, vide order dated 13.03.2019. X. The Respondent has further submitted that given the fact that the provisions were still under review by the jurisdictional High Court, the proceedings against him should be kept in abeyance till such time the Hon'ble High Court has passed final order. XI. The Respondent has also argued that the interim orders of the Hon'ble High Court on constitutional validity of an Act were deemed to be binding in the case of jurisdiction. He has also drawn attention to the judgment of the Hon'ble Apex Court passed in the case M/s. Kusum Ingots & Alloys Ltd. v. Union of India (2004) 6 SCC 254 = 2004 (4) TMI 342 - SUPREME COURT wherein it was held that "...An order passed on writ petition questioning the constitutionality of a Parliamentary Act whether interim or final keeping in view the provisions contained in Clause (2) of Article 226 of the Constitution of India, will have effect throughout the territory of India subject of course to the applicability of the Act". XII. Computing profiteeri....
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....duct sold after 01.01.2019 fell in between those minimum and maximum limits. The electronic retail industry has always sold the products below the MRPs and only the maximum price for a product (the least discounted from the MRP) ought to be used as the correct representative price and not the average sale price. In this regard, for the purpose of computation of minimum and maximum limits, he has picked top 15 products as sample from Annexure-20 which have contributed to the highest profiteering component. Further, for the products identified, he has considered sales net of sale returns including erroneous sales or where the customers had returned the products during the period from October, 2019 to December, 2019 and has identified the minimum and maximum sale prices prevailing during the aforementioned period. He has also verified whether the sale prices prevailing during the above period were falling in between the limits so identified. The Respondent has further stated that the prices at which the products were sold at any point of time during the period from January, 2019 to June, 2019 were falling in between the minimum and maximum limits as per Annexure-3. He has also submitt....
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....rror was identified immediately and reversal entry's been passed for the same on 01st July2019. 198,751 In this regard, the Respondent has submitted a copy of entry passed in the books of account and credit note issued as evidence and requested that the transaction has been erroneously included in the computations and the same should be removed from the calculations for profiteering. XVII. Products falling under HSN 8507 6000 and HSN 9504 9090 were classified as not impacted:- The Respondent has also claimed that the following products listed in Table-C of the Report were not impacted by the rate reduction:- • MI Power Banks; • Sony Power Banks; • Stuffcool Power Banks; and • Sony Play station accessories. MI. Sony and Stuffcool Power Banks:- The Respondent has further claimed that there have been sales of two types of Power Banks falling under HSN Code 85076000 - Lithium Ion and Lithium Polymer. The GST rate Notification No. 24/2018 dated 31.12.2018 had reduced the rate on Lithium Ion Power Banks from 28% to 18% with effect from 01.01.2019. All MI, Sony and Stuffcool Power Banks were Lithium....
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....sions dated 19.02.2020 did not form part of computation of base prices prevailing in pre-GST period given in Annexure-20 of the DGAP's Report dated 23.12.2019. b. The DGAP has also claimed that although the Respondent has no direct influence over revision of MRPs of external brands, he was still in a position to revise his retail selling prices as he had taken input tax credit on the purchase of such products. Therefore, he should not sell the products at the MRPs and instead, reduce the retail selling prices to pass on the benefit of reduction in GST rate from 28% to 18% w.e.f. 01.01.2019 to the customers as the retail selling prices of the products were decided by the Respondent within the MRPs printed on the products. The DGAP has further claimed that the Respondent was a separate GSTN holder as an independent entity and therefore, he was duty bound to comply with all the provisions including provisions of Section 171 of the above Act and the rules made there under. c. The DGAP has also clarified that the discount offered by the Respondent has been duly considered and profiteering has been arrived at by comparing the average base prices (after discount) during ....
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....herein the average price was not a representative of the correct price of the product as arbitrary and unfair:- The DGAP has also claimed that justification for the average base price pre-rate reduction comparison with the actual invoice wise price post-rate reduction method adopted by the DGAP has been explained in Para-18 and 20 of his Report dated 23.12.2019. Further, in many such cases where the pre-rate reduction price was not available from the Sale Register, the Respondent was asked to submit the pre-rate reduction base price charged prior to 31.12.2018. The base price so submitted by him was taken for the computation of profiteering by the DGAP. Further, the DGAP has considered average base price (after discount) during the period from 01.12.2018 to 31.12.2018 which was a normal period of business. h. The DGAP has also stated that he has excluded all the transactions for which credit notes were issued for sale returns by mapping the credit notes with original sale invoices. However, for a specific transaction highlighted by the Respondent, the DGAP had inadvertently computed profiteering amounting to Rs. 1,98,751/-, for which credit note was issued later on. On per....
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....t dated 01.06.2020 wherein he has reiterated his earlier contentions and additionally submitted that: - I. The DGAP has accepted comparing of the random invoices issued in May, 2018 and January, 2019 for the sale of product LG LED TV before and after 01.01.2019 for the purpose of initiation of profiteering investigation. The LG LED TV brand and model in the impugned invoice pertained to less than 24 inches model which was not impacted by the rate change Notification dated 31.12.2018 and therefore, the basis of initiating the proceedings for profiteering against the Respondent on the basis of the above invoices was without any legal or factual basis. II. The Respondent has also submitted the newspaper cuttings through which the discount schemes during the FY 2017-18, FY 2018-19 and FY 2019-20 were launched to establish the business model followed by him and to support the fact that the schemes, discounts and offers were prevailing every year during the period from October to December. III. The Respondent has further submitted that he had launched various discount schemes during the various parts of the year for various festivals and many other events. Howe....
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.... Deccan Chronicle Happy New Year Annex-3 2 26.01.2019 Deccan Chronicle Biggest Republic Day Offer Annex-4 3 02.02.2019 09.02.2019 16.02.2019 02.03.2019 Deccan Chronicle Off Seasons Prices Annex-5 4 09.03.2019 10.03.2019 Deccan Chronicle 37^th Anniversary Annex-6 5 05.04.2019 06.04.2019 Deccan Chronicle Ugadi Offers Annex-7 6 05.05.2019 Deccan Chronicle Akshaya Tritiya Offers Annex-8 7 08.06.2019 Deccan Chronicle World Cup Fever Annex-9 The DGAP has also claimed from the above Table that these were regular business promotions which were run on regular basis. The DGAP has also claimed that as has already been clarified by his letter dated 01.06.2020, the period considered by the him for average base prices (after discount) i.e. from 01 .12.2018 to 31.12.2018, was a normal period of business. 19. The Respondent has further filed submissions dated 07.08.2020 in response to the DGAP's Supplementary Report dated 08.07.2020 wherein he has reiterated his earlier pleadings and additionally submitted that LG LED TV 24LJ470 brand was not impacted by the GST rate reduct....
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....y 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." 22. 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 'Electronic Mart' having GSTIN 36AAFCE1683D1ZT. The Respondent has wide presence in the States of Andhra Pradesh and Telangana and operates from around 36 retail stores across these States. It is also revealed from the plain reading of Section 171 (1) supra that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and ....
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....ducts which were sold by the Respondent w.e.f. 01.01.2019 to 30.06.2019. In respect of the products which were not sold during the period w.e.f. 01.12.2018 to 31.12.2018, the Respondent was asked to furnish the average base prices and the prices so given by him were compared with the actual post rate reduction base prices. 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 factors such as the MRPs of the products were fixed by the manufacturers, the prices were dependent on the bargaining power of the customers, he was offering large discounts during festival seasons and the prices were dependent on the discounts offered by the E-Commerce Companies etc. and (ii) a customer may have purchased a particular product during the post rate reduction period which he may not have purchased in the pre rate reduction period. The Respondent has himself admitted in his submissions dated 18.02.2020 that the prices charged by him differed on account of the above factors and there could be two differe....
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....nexure-20 of the investigation Report. The excess GST charged from the recipients has also been included in the profiteered amount. The place of supply-wise break-up of the total profiteered amount of Rs. 37,89,550/- has been furnished vide Table-D supra in respect of 2 States. The above profiteered amount has been reduced to Rs. 34,34,008/- vide subsequent Report dated 01.06.2020 of the DGAP. The above methodology employed by the DGAP for computing the profiteered amount appears to be correct, reasonable, justifiable and in consonance with the provisions of Section 171 of the CGST Act, 2017. The above mathematical methodology has also been approved by this Authority in respect of all such cases of reduction in the rate of tax. Therefore, the above mathematical methodology can be safely relied upon. 25. The Respondent has claimed that the DGAP in his Report has failed to consider the unique pricing nature of the electronic retail industry and the allegation of profiteering was baseless as various factors had affected the final sale prices of the products sold by him like the MRPs were fixed by the manufacturers. However, the above contention of the Respondent is not correct as e....
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....cannot be below the price paid by him to the manufacturer plus his profit margin. Since, the Respondent has himself admitted that he was charging different prices from his customers there was no other alternative available to the DGAP except to compute the average base prices of the products being sold by him in the pre rate reduction period and then to compare them with the actual base prices so as to assess whether the Respondent has passed on the benefit of tax reduction or not. Therefore, the above claim of the Respondent is incorrect. 27. The Respondent has also contended that discounts offered by the E-Commerce Companies were also affecting his prices as he was required to give matching discounts. In this regard it would be relevant to mention that the E-Commerce Companies were mere intermediaries and they were not suppliers of the products as they were only providing platform to the sellers to offer their products online and were entitled to collect commission. They were offering discounts on behalf of the wholesalers who were also bound by the provisions of Section 171(1) to pass on the benefit of tax reductions. The dealers who were selling their products on the E-Comme....
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....December, 2018 to June, 2019. Therefore, it is quite apparent that the Respondent was duly informed that he would be investigated for all the products on which the rate of tax has been reduced and accordingly he was directed to supply the above information. Hence, the above claim of the Respondent is incorrect as the Respondent had prior notice for investigation of all the impacted products. 30. The Respondent has further averred that he could not have been investigated in respect of the other products except the product in respect of which the complaint was made unless this Authority had passed an order as per Rule 133 (5) of the CGST Rules, 2017. In this connection it would be relevant to refer to Section 171 (1) and (2) of the CGST Act, 2017 which state as under:- "(1) 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. (2) The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether i....
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.... all the State Legislatures and of the GST Council which is a constitutional body established under 101^st Amendment of the Constitution and the express approval of the Central Government and the State Governments. There is no provision in the above Act or the Rules which provides that the investigation shall be limited to the products against which complaint has been received. On the contrary every product on which the rate of tax has been reduced is required to be investigated by the DGAP and report submitted to this Authority to determine whether the above benefits have been passed on as per the provisions of Section 171 (1) of the above Act. Rule 133 (5) is a mere clarification of the provisions of Section 171 (2) and hence, the DGAP has rightly conducted investigation on all the products in respect of which the rate of tax was reduced with prior notice to the Respondent and hence, no order was required to be passed under Rule 133 (5) by this Authority. The Respondent cannot get away by appropriating the benefit which he is legally bound to pass, on the ground that no complaint has been made in respect of the other products, as the benefit is not to be paid by him out of his ow....
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....ere generally lowest as December was a festive season month. The DGAP has considered the average sale prices of the products during the month of December, 2018 for comparison with the actual sale prices during the period from 01.01.2019 to 30.06.2019 which has resulted in excess profit which has been wrongly considered as profiteering. In this context, it would be pertinent to mention that one or the other festive season or festival is always going on in the country throughout the year and the month of December has no specific relevance in this regard. Therefore, it cannot be claimed that in this month the selling prices are the lowest. The Respondent has not produced any evidence to show that his prices in the previous month of November, 2018 were more than the prices which he has charged in the month of December, 2018. The advertisements attached as Annexure-2 by the Respondent with his submissions pertain to 23.12.2017 and hence they carry no weight in support of the contentions of the Respondent that his prices were lowest in December, 2018. Moreover, such advertising campaigns are being launched by the Respondent in the ordinary course of his business which do not form the bas....
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.... above plea of the Respondent in not convincing. 38. The Respondent has further pleaded that the DGAP has wrongly claimed that the LG LED TV 24LJ470 was impacted by the GST rate reduction w.e.f. 01.01.2019 vide Notification No. 24/2018 Central Tax (Rate) dated 31.12.2018. In this regard, the Respondent has submitted that the above model was 24 inches (60.96 cm) television which was subject to GST @28% till 27.07.2018 and thereafter it was reduced to 18% vide Para C (xii) of Notification No. 18/2018 Central Tax (Rate) dated 26.07.2018. The Respondent has also contended that the LG LED TV 24LJ470 was within 68 cm. and the same was evidenced from the model specifications on the vendor's website. The Respondent has further submitted that the comparison of sample invoices issued in May, 2018 and January, 2019 pertaining to the above model has wrongly been formed as the basis for anti-profiteering investigation by the DGAP. In this regard, perusal of Annexure-I attached by the DGAP with his clarifications dated 08.07.2020, which is screen shot of the website of the Respondent, shows that the LG LED 24LJ470 TV was a 24 inches model which was impacted by the GST rate reduction w.e.f. 01....
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....ansactions for which credit notes were issued for sales returned by mapping the credit notes with the original sale invoices. However, in respect of the above transaction he has inadvertently computed profiteering amounting to Rs. 1,98,751/- for which credit note was issued later on. On perusal of credit note No. 1210/19E/SR-164 dated 01.07.2019 submitted by the Respondent, the DGAP has observed that invoice No. 1210/19E/S-8562 dated 30.06.2019 (Telangana State) was cancelled and therefore, profiteering amounting to Rs. 1,98,751/- should be reduced from the total profiteered amount of Rs. 37,89,550/-. Accordingly, the above claim of the Respondent is accepted as the DGAP has inadvertently computed profiteering amounting to Rs. 1,98,751/- on a transaction for which credit note was issued later on and accordingly, an amount of Rs. 37,89,550/- is directed to be reduced from the profiteered amount. 41. The Respondent has also stated that he had inadvertently mapped the Sony Play Station accessories as non-impacted in the submissions made before the DGAP. However, he had charged GST @18% from 01.01.2019 giving effect to the GST rate reduction Notification No. 24/2018 dated 31.12.2018....
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....sed to Rs. 34,34,008/-, the place (State) of supply-wise break-up of which has been furnished below:- S.No. Name of State State Code Profiteering (Rs.) 1 Telangana 36 30,51,396 2 Andhra Pradesh 37 3,82,612 Grand Total 34,34,008 44.Given our above findings the profiteered amount is determined as Rs. 34,34,008/-, details of the computation of which are given in Annexure-20 of the DGAP's Report dated 23.12.2019 and the clarification Report of the DGAP dated 01.06.2020, in terms of Section 171 (1) read with Rule 133 (1). 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. 34,34,008/- in two equal parts each in the Central Consumer Welfare Fund and the Consumer Welfare Funds (CWFs) of the States mentioned supra as per the provisions of Rule 133 (3) (c) of the above Rules, since the recipients are not identifiable. The above amounts shall be deposited along with 18% interest payable from the dates from which the above amount was realized by the Re....