TaxTMI 
TaxTMI 
2020 (1) TMI 1370
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....nti-Profiteering under rule 128(1) of the above Rules and it was decided to refer the matter to the DGAP to conduct a detailed investigation in the matter, in its meeting held on 13-12-2018. 2. The DGAP had issued Notice under rule 129(3) of the CGST Rules, 2017 on 15-1-2019 to the Respondent, to submit his 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 his recipients by way of commensurate reduction in prices and if so, to suo motu determine the quantum thereof and indicate the same in his reply to the Notice as well as to furnish all the documents in support of his reply. The Respondent was also afforded an opportunity to inspect the non-confidential evidences/information which formed the basis of the said Notice, during the period from 21-1-2019 to 23-1-2019, which the Respondent had availed and inspected the documents on 23-1-2019. 3. The DGAP has conducted the present investigation from 15-11-2017 to 31-12-2018. He had also sought extension of the time limit to complete the investigation from this Authority, which was granted to him. 4. The DGAP has stated that the Respondent had replied to the....
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....antity of the products and maintaining the pre-rate reduction MRP/selling price. d. That the Respondent requested that the following deductions should be considered while determining the quantum of profiteering, if any:- (i) Post Supply Price Reduction (Discount): Respondent claimed that he had passed on the benefit of GST rate reduction amounting to Rs. 75.70 Crore by way of issuing Credit Notes to his customers, viz. distributors/modern retailers etc. Since the exercise of determining the revised MRPs was time-consuming which could be made effective only from January, 2018, till such time, the revised MRP based GST discount claim system was in place and the price reduction in the range of 5% to 12.5% of the sale price was given to the distributors/modern retailers. The reduced prices to be charged by his distributors/modern retailers were duly communicated to them by the Respondent. The direct reduction in the prices of the products impacted by the GST rate reduction was given effect to after the revised MRPs were reflected on the packages. (ii) Price reduction and MRP reduction on package: The methodology adopted by the Respondent for calculating the r....
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....increased cost of the imported products. Besides, the costs of raw material, packing material, labour, transportation, rentals, advertising and other services had been continuously rising on account of factors like oil prices and foreign exchange rate fluctuations etc. Such increased costs were required to be factored in while determining the post GST rate reduction prices of the products. (vi) Loss of benefit on account of Area-Based Fiscal Incentives: Under the erstwhile Central Excise Duty regime, the manufacturers were entitled to the benefit of area-based fiscal incentives in respect of units operating in certain States, where the output Central Excise Duty was not payable, subject to the condition that no CENVAT credit would be allowed to such units on their procurements. The Respondent had set up a unit in Baddi, Himachal Pradesh and was availing the benefit of such area-based fiscal incentive. Further, his sub-contractors were also availing the benefit of these fiscal incentive. With the introduction of GST, upfront exemption from payment of tax was withdrawn and these units were required to pay GST, avail input tax credit and claim refund of a certain percentage o....
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.... to be taken away from the Respondent by requiring him to maintain the same prices perennially. The current investigation covering a period of 13 months from November, 2017 to December, 2018, was restricting the right of the Respondent to carry on business and therefore, was violative of his fundamental right enshrined under Article 19(1)(g)of the Constitution of India. g. The Respondent, vide his e-mail dated 25-6-2019, informed that he had revised the amount of net benefit passed on to his recipients by way of Post Supply Price Reduction (Discount), from Rs. 75.70 Crore to Rs. 73.59 Crore, due to review of his records. 5. The DGAP stated that the Respondent has submitted the following documents/information:- a. List of all GSTINs. b. GSTR-1 & GSTR-3B Returns for the period from October. 2017 to December, 2018 for all the registrations held all over India. c. Details of invoice-wise outward taxable supplies during the period from October, 2017 to December, 2018. d. Price Lists (pre and post November, 2017) for all the products, specifically indicating the SKUs impacted by GST rate reduction w.e.f. 15-11-2017. e. Sample copie....
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....ces for the month of Nov-17 85,00,000 4 5100028617 22-3-2018 Advertising Services for the month of Jan-17 55,00,000 5 5100058956 5-7-2018 Promo Claim for the month of May-18 2,97,73,412 6 5100040266 18-5-2018 Promo Claim for the month of Feb-18 2,00,05,348 7 5100077608 29-8-2018 Cloudtail India (P.) Ltd. Volume Incentive for the month of July-18 91,58,550 8 5100078260 5-9-2018 Volume Incentive for the month of June-18 85,00,000 9 5100058554 5-7-2018 Volume Incentive for the month of May-18 70,00,000 10 5100043401 3-5-2018 Shoppers Stop Ltd. Sponsorship Service 11,17,694 11 5100054358 14-6-2018 Lifestyle International (P.) Ltd. Brand Promotion Service 13,67,574 8. The DGAP has further stated that the said invoices/Credit Notes nowhere indicated that they were related to the benefit of reduction in the GST rate from 28% to 18% w.e.f. 15-11-2017. No SKU wise correlation could be made between the claim texts appearing in the calculations and the details of the invoice wise outward supplies submitted by the Respondent and as such the deduction claimed on....
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....ced tax rate. The increase in the cost of inputs/input services might be a factor for determination of price but this factor is independent of the output GST rate. 11. The DGAP has also intimated that it could not be argued that the elements of cost were affected by the downward revision of the output GST rate. With regard to the contention of the Respondent that as the reduced amount of refund (area based fiscal incentive) resulted in increase in cost, which was directly attributable to the reduced GST rate, the same should be considered for the purpose of the ongoing investigation into the alleged profiteering by him, it is contended by the DGAP that as per Notification No. 10(11/2017-DBA- 11/NER dated 5-10-2017, the eligible units were entitled to a refund of 58% of the CGST or 29% of the IGST paid through debit in the Cash Ledger Account, in terms of section 49(1) the Central Goods and Services Tax Act, 2017, after utilization of the input tax credit of the CGST or the IGST. Accordingly, prior to 15-11-2017, the Respondent was entitled to proportionate refund of CGST or IGST paid through Cash Ledger. w.e.f. 15-11-2017, the liability of the Respondent to make payment in cash ....
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....he raw material and packing materials are procured by the sub-contractor from the Respondent, it shall issue an invoice to the sub-contractor for the price of such raw material/packing material and the sub-contractor shall pay the amount in full to the Respondent within 30 days from the date of the invoice." Therefore, from the above the DGAP has claimed that it appeared that the supply of raw material/packing material which was impacted by the GST rate reduction w.e.f. 15-11-2017 (HSN- 3401 & 3402), would attract the provisions of section 171 of the Central Goods and Services Tax Act, 2017 read with Chapter XV of the Rules as these were to be treated as supply of goods by the Respondent. The Respondent has also contended that the FMCGs industry in which he operated, the units usually undertook periodic price revision every 5-6 months, considering the impact of various factors like change in costs and market outlook etc. 13. The DGAP has computed profiteering and stated that from the invoices made available by the Respondent, it appeared 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, so that the ....
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.... 16 Jharkhand 20 2,28,81,405 55,51,323 2,84,32,728 17 Karnataka 29 11,06,96,404 6,44,22,022 17,51,18,426 18 Kerala 32 2,55,67,497 67,41,449 3,23,08,946 19 Madhya Pradesh 23 3,48,69,472 1,69,49,615 5,18,19,087 20 Maharashtra 27 29,56,33,071 14,34,19,734 43,90,52,805 21 Manipur 14 24,26,847 39,69,400 63,96,248 22 Meghalaya 17 51,02,941 7,93,658 58,96,599 23 Mizoram 15 25,87,030 19,46,324 45,33,353 24 Nagaland 13 89,88,373 - 89,88,373 25 Orissa 21 2,34,53,000 73,48,432 3,08,01,432 26 Puducherry 34 18,60,641 - 18,60,641 27 Punjab 3 6,06,53,330 3,65,10,997 9,71,64,327 28 Rajasthan 8 5,06,39,630 2,25,80,087 7,32,19,717 29 Sikkim 11 33,90,135 - 33,90,135 30 Tamil Nadu 33 4,93,77,808 2,40,93,400 7,34,71,209 31 Telangana 36 4,35,23,595 2,44,69,926 6,79,93,521 32 Tripura 16 25,75,247 11,12,857 36,88,103 33 Uttar Pradesh 9 11,18,10,948 5,47,89,889 16,66,00,837 34 Uttara....
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....oduced locally in the factories based in Pune and Baddi and at sub-contract locations. Research and Innovation centres in Mumbai and Bengaluru had been created to meet the future requirements. 18. The Respondent has also stated that the goods manufactured by the him were distributed from the factory to the customers in the following manner: GST @28% (CGST of 14% and SGST of 14% or IGST of 28%) was applicable from 1-7-2017 to 14-11-2017 on most products supplied by the Respondent. The Central Government vide Notification No. 41/2017-Central Tax (Rate) dated 14-11-2017 has reduced the rate of CGST on many consumer goods including the goods supplied by the Respondent from 14% to 9%. Simultaneously, the State Governments have also issued notifications to reduce the SGST from 14% to 9% effective from 15-11-2017. The details of the products impacted by the aforesaid GST rate reduction with effect from 15-11-2017 along with the corresponding HSN codes are tabulated as under, as provided by the Respondent: Category Product HSN Impacted Category Hair Care Shampoo, Conditioner, Serum etc. 3305 Yes (except Hair Oil) Hair Color L'Oreal Paris, Garnier ....
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....e of 18% for all supplies made effective from November 15, 2017. 10-11-2017 to 30-11-2017 The Respondent prepared the plan immediately from the date of issue of notification to pass the net commensurate benefit through combination of price reductions in majority of the cases and by way of increase in quantity in respect of three product lines (shampoo, conditioner and colour naturals) considering the nature of SKUs, free higher grammage and higher post supply price reduction (discounts). The Respondent communicated the price reduction plan to its recipients from November 2017 onwards and also educated them of their obligations to ensure they further pass on the net benefits arising from GST rate reduction to their customers to ensure that the benefits reach the end consumers. The Respondent allowed price claims to the customers for the supplies made by the customers at reduced prices after GST rate reduction. The Respondent had advised the recipients to submit claims for this purpose to compensate them for the higher prices paid after GST rate reduction. The Respondent also ensured mass awareness about price reductions by publishing advertisements in leading newspape....
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.... in nature and therefore, could not be applied in perpetuity. Thus, he has submitted that the manner in which the provisions pertaining to anti-profiteering were being applied by the DGAP in his Report by arbitrarily selecting period of investigation and alleging profiteering has the effect of restricting the right of the Respondent to do business, a cherished fundamental right guaranteed by the Constitution of India. 22. The Respondent has also submitted that after the GST rate reduction from 28% to 18% for most of the products, he has undertaken a massive exercise to determine the prices to be charged in the light of the revised rate of tax and reflect the same on the packages by way of reduced MRPs and the methodology adopted for calculating the reduction in the price and the MRP required to be adopted was as follows, which was submitted before the DGAP:- a. To compute the taxes forming part of MRP in the pre-GST regime and under GST regime @ 18%, and to reduce the MRP to the extent required to maintain similar level of MRP less taxes in the supply chain, i.e. by comparing pre-GST MRP less taxes with MRP less taxes @ 18% GST. b. Tax cost considered in GST re....
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....d orders covering period of investigation of 2 to 5 months as has been explained by him in the following Table: Period of investigation adopted is arbitrary Period of investigation - 15th November 2017 to 31st December 2018 - extending over 14 months is arbitrary Orders passed by National Anti - Profiteering Authority (NAA) Party Order Number and Date Period covered Duration Sharma Trading Company 6/2018 dated 7-9-2018 15-11-2017 to 31-1-2018 3 months Hardcastle Restaurants (McDonald's) 14/2018 dated 16-11-2018 15-11-2017 to 31-1-2018 3 months Unicharm India (P.) Ltd. 43/2019 dated 28-6-2019 27-7-2018 to 30-9-2018 2 months Excel Rasayan (P.) Ltd. 2/2019 dated 16-1-2019 15-11-2017 to 31-3-2018 5months Health Bakers & confectioners 17/2018 dated 7-2-2018 15-11-2017 to 31-3-2018 5 months Accordingly, he has submitted that the period of investigation should be restricted to a shorter period. 24. The Respondent has also pointed out discrepancies resulting in reduction of alleged profiteering amount which are tabulated as under....
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....le was made after 14-11-2017 but with a different goods code than the one prevailing up to 14-11-2017, the DGAP as a second step has matched the description of said goods sold after 14-11-2017 with the description of goods prevailing up to 14-11-2017. It was the Respondent's understanding that the DGAP first performed Step 1, and where it could not find pre-rate reduction price based on Step 1, it performed Step 2. Similarly, where the pre-rate reduction price was not available even after performing Step 2, the DGAP went ahead with Step 3, and so on. 25. The Respondent has also submitted that while the DGAP has in his Report stated that he has adopted the average prices, the same was not true when it came to comparison on the basis of description. Instead of comparing the weighted average of all line items with same description, the DGAP has adopted the prices as per the first line item with the same description, for instance, the Respondent had supplied product GAR COL NAT SHADE 1 (having product code CNCFR100-DC) from his Gujarat registration to his customer in Gujarat (being a General Trade customer) at a per unit price of Rs. 127.17 excluding GST. Since the product code ....
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....DE 1 discussed earlier, which is as follows:- General Trade S. No. Goods Code Goods Description HSN MRP Date of Creation Quantity Taxable Amount Average price 425 CNCFR100-9B GAR COL NAT SHADE 1 33059040 175 29-Nov-16 1,116 127,199 113,98 426 CNCFR100-A0 GAR COL NAT SHADE 1 33059040 180 24-May-l7 2,267 265,770 117.23 427 CNCFR100-B0 GAR COL NAT SHADE 1 33059040 190 7-Jul-17 68,763 8,478,331 123.30 428 CNCFR100-D0 GAR COL NAT SHADE 1 33059040 190 7-Jul-17 448,600 55,435,512 123.57 429 CNCFR100-DA GAR COL NAT SHADE 1 33059040 190 27-Sep-17 70,444 8,670,157 123,08 From the above, the Respondent has stated that based on the date of creation of the code, the latest product with the description GAR COL NAT SHADE 1 which came to be sold by the Respondent was CNCFR100-DA which had a price of Rs. 123.30, Rs. 123.57 and Rs. 123.08 p. u. respectively and MRP of Rs. 190/-. He has also submitted that this was the price which was the latest prevailing price of the Respond....
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....ubmitted that from an examination of the methodology adopted by the DGAP in arriving at the base price, it appeared that while working on excel files DGAP has erroneously used the excel formula "vlookup" from base price master As a result of this excel formula error, the outcome was the first average price used from base price master instead of weighted average price at description level. As a result, the value used by DGAP was erroneously reflected as the first selling price from the base price master. 30. The Respondent has also stated that where the price was not available for the time period (01-10-2017 to 14-11-2017 product description), the DGAP has adopted price as per the time period (1-9-2017 to 30-9-2017 product description). The Respondent has further stated that the DGAP has identified certain products as comparable for computing profiteering without taking any inputs from the Respondent. For instance, the Respondent had sold product GN MEN Acnofight FW 50 ml with product code SYMAF050-70 at a per unit price of Rs. 61.93 (excluding GST). Since the said product code or sale of that description was not available in pre-rate reduction period, the DGAP has mapped product....
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....tes being issued by the Respondent. On the perusal of the computations made by the DGAP in the 35 files, it had been observed by the Respondent that for some line item invoices for which Credit Notes had been issued, the DGAP had not computed profiteering whereas for some line items, the DGAP had gone on to compute profiteering. In this regard, he submitted that once the goods were returned/incorrect invoicing was rectified, the original invoice value receivable from customer got reduced to the extent Credit Note had been issued. Accordingly, no profiteering should be computed in respect of invoices to the extent Credit Note had been issued for the same. 32. The Respondent has identified the original invoices pertaining to each of the Credit Notes and also the profiteering computed by the DGAP in respect of the invoices to the extent of Credit Notes issued for the same and submitted that alleged profiteering computed in respect of these items amounting to Rs. 65,20,961/- should be reduced from the total alleged profiteering. He has further submitted that the DGAP had computed profiteering in respect of some line items not impacted by reduction in the rate of GST w.e.f. 15-11-201....
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....nal meetings to analyse the pros and cons of various methods, checked the practices followed by the competitors in the industry etc., to find a way to pass on the benefit. This meeting was attended by the personnel from the various teams which included the CFO, division heads, members from supply chain team and the tax team etc. It was a co-ordinated effort on the part of the personnel from various departments to identify a solution. After serious deliberations, it was felt that post-supply price reduction was the most effective manner by which this benefit could be passed on and the same was continued till the time new artwork with revised MRP became ready. The process by which Respondent has granted post supply price reduction was as follows:- a. sales to customers. b. Customers make further sale to their customers at a discounted price to pass on the benefit of reduction in rate of GST. c. Such discount was claimed back by customers, effectively ensuring compliance for both the Respondent and the customer. 35. The Respondent has also submitted that in order to ensure that the reduced prices were passed on to the ultimate consumers and did not stay w....
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.... should be ensured that the benefits should be transferred to the ultimate customer." The relevant declarations from the Respondent's invoice are extracted below:- Declaration of post-supply discount: Considering the anti-profiteering provisions under GST, we will pass on the benefit with respect to the stock (manufactured/imported at ld MRP) sold to you, post supply of such stock when made by you to the retailer salons at the reduced price as shown above. Such benefit will be passed by way of clams. It should be ensured that the benefits should be transferred to the ultimate customer. "GST Price Reduction Declaration Considering the anti-profiteering provisions under GST, we are passing on the benefit of stock manufactured at old MRP sold to you. It should be ensured by you that these benefits should be transferred to the ultimate customer, by selling of the "Reduced MRP" mentioned on the invoice." Thus, from the above, the Respondent has claimed that he had passed on the benefit to his recipients by way of Credit Notes as required, while also ensuring that the benefit was further passed down the line even though the Respondent was not ob....
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....tomer for the above product worked out to Rs. 35.91 on a p. u. basis. This was the same product sold by the Respondent to the customer which could be seen from the invoice of the Respondent as follows: L'Oreal to customer invoice From the above Table, the Respondent has stated that there was clear correlation between the product sold by the customer to the retailer on which claim was made on the product sold by him to the customer. He has also stated that in the above invoice for the said product supplied by him, the DGAP had computed a p. u. profiteering of Rs. 33.69 which was incorrect and he was wrongly being accused of having profiteered by following the said methodology. 38. The Respondent has also stated that he had passed on the claim in respect of distributors by way of issuance of Credit Notes post claim made by the distributors and such Credit Notes contained specific description that the amount was for passing on the GST rate reduction benefit. A screenshot of the credit note issued by the Respondent to his distributor is as follows: In this regard, he has further submitted that the desired copies of Credit Notes (505 out of 12.214 credit notes) wer....
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....reported only the net turnover in his books of account as well as Financial Statements (viz. Profit and Loss Account). He has further claimed that the said amount was over and above the normal trade discount, if any, running at the time of such sale. In fact, these discount claims which were pertaining to GST had been specifically accounted in the Respondent's books of account as "GST price reduction claims" and the said discounts were netted off against the sale revenue of the Respondent, In fact, the Respondent's books of account had been audited and there was no objection by the auditors towards such accounting, as the said discounts were purely relating to the passing on the benefit of GST rate reduction. The Respondent has also submitted accounting for the Credit Notes and grouping of GST price reduction claims in the sale of products. 41. The Respondent has also contended that the method of passing on the reduction in the rate by way of post supply discounts was the most appropriate and feasible method wherein not only his immediate recipient received the benefit but the same was also passed on through the supply chain to the customers at the next stage. He has fur....
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.... absence of any prescribed methodology for passing on benefit of GST rate reduction, the Respondent had passed on the benefit by various methods. The same also included providing increased quantity of the same product at the same/reduced price per grammage. The Respondent as a part of the GST rate reduction had passed on the benefit through higher grammage on certain SKUs. In this regard, the Respondent claimed that this Authority in respect of FMCGs industry had taken the view that the benefit of GST rate reduction in the form of extra quantity/higher grammage for the same price definitely was a benefit to the consumers and that passing on extra quantity could be one of the modes of passing on the benefit. 44. The Respondent has further stated that in the present case, the Respondent had passed on the benefit of GST rate reduction by way of increasing the quantity of the product while retaining the same/reduced selling price including tax. As an illustration, the Respondent has submitted the following:- Customer type Product code Description Selling price incl. Tax Base price as per DGAP incl. Tax Profiteering as per DGAP New grammage Old grammage Gen....
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....the increased Customs Duty has led to increased cost of doing business in respect of the imported products w.e.f. 1st February. 2018. He has also said that in his submissions made before the DGAP, he had sought allowance for reduction in the alleged profiteering, if any, to the extent of such increase in the Customs Duty. The list of SKUs impacted by the increase in the Customs Duty rate and the increase in the Duty on per unit basis was provided in separate annexure to the DGAP and the increased Customs Duty on per unit basis on supply of these products from 1st March, 2018 was mapped separately in the line item wise details of the outward supply which was also provided as per the relevant annexure. In the cases where the prices were revised subsequent to such increase in the Customs Duty and considering other factors, the Respondent had asked for relief from computation of profiteering on those line items in his submissions but the same had not been considered by the DGAP. He has further submitted that an amount of Rs. 19,18,68,113/- representing the amount of profiteering (recalculated based on the average prices of products with latest MRPs) computed on these line items was req....
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....uired to maintain the base price of Rs. 69.14 and thereafter charge applicable GST of 18%. Accordingly, the ideal cum-tax price as per the DGAP could only be Rs. 81.59. It was the understanding of the Respondent that if he had not reduced the cum-tax price to Rs. 81.59, he could be charged for profiteering under section 171 of the CGST Act to the extent of Rs. 6.91 (that is, the difference between Rs. 88.50 and ideal cum-tax price of Rs. 81.59). Similarly, if the Respondent had reduced the cum-tax price to Rs. 85/-, allegation of profiteering on such product could have been to the extent of Rs. 3.41 (difference between Rs. 85/- and ideal cum-tax price of Rs. 81.59). In the instant case, the price including tax was Rs. 109.61 for sales made to the General Trade Customers (product BB Cream Miracle Skin Perfector 18 ml with product code SYCBB018-50). The DGAP had calculated profiteering to the extent of full difference between Rs. 109.61 and Rs. 81.59 i.e. Rs. 28.02. The Respondent however has submitted that allegation of profiteering (if any) on this SKU could be only to the extent of Rs. 6.91 and thereafter, the balance amount of Rs. 21.11 (if any, subject to revision in methodology....
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....7-Central Tax (Rate). Accordingly, the Respondent has also reduced the rate of GST charged from his customers from 28% to 18% in the invoices issued to them. The provisions of section 171 of the CGST Act and rules made thereunder were very clear that such benefit was to be passed on at an entity level and not at an SKU level. While the report of DGAP alleged profiteering at the SKU level, the Respondent had ensured passing of the benefit using various means. The Respondent has also said that he had also passed on the abovesaid benefit by allowing greater price reductions i.e. more than commensurate to the GST rate reduction on various impacted SKUs and stated that when looking from a different angle, the recipients who were his distributors had received the GST rate reduction benefit from Respondent sometimes slightly more and sometimes slightly less. However, while determining alleged profiteering on the other impacted SKUs, the DGAP has ignored such excess benefit passed on by the Respondent. 51. The Respondent has also contended that the DGAP has selectively applied the Anti-Profiteering provisions in the present case, where the Respondent had passed on benefit to the custome....
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....s. 56,01,05.432/-, considering weighted average price of products with latest MRPs. c. Price reduction more than required in cases where fiscal incentives have reduced: The Respondent has claimed that he has suffered reduced realization in cases where the fiscal incentives had reduced on account of reduction in GST rate from 28% to 18%. However, the Respondent has reduced prices of certain supplies more than required after considering the impact of reduced fiscal incentives. For instance, the Respondent was earlier realizing Rs. 100 from customer + Rs. 2 from Government by way of budgetary support. Although the budgetary support might have reduced to Rs. 0.5 due to GST rate reduction from 28% to 18%, the Respondent did not increase the prices or increased the prices less than Rs. 1.5 - reduction in the fiscal incentives (for instance, say price was increased to Rs. 101/- and no increase was taken to the extent of Rs. 0.5). The amount passed on by this measure alone was Rs. 15,37,84,257/-, considering weighted average price of the products with latest MRPs. 52. The Respondent has also submitted that if a customer was charged Rs. 2/- extra for 1 SKU and was provided a hig....
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....ctors. This loss on account of implementation of the GST during the period of investigation was Rs. 38,72,53,979/-. However, the same has been rejected by the DGAP on the ground that the Respondent was entitled to the same proportion of 58% of CGST component paid in cash as earlier and hence, the amount of refund had not reduced in relative terms. The DGAP had also stated that reduction in the refund could also be possible due to increased utilization of ITC without any factual finding on the same. It was incorrect on the part of the DGAP to have assumed reduction in cash payout and consequently reduced refund due to increased utilization of ITC. 54. He has also argued that due to reduction in the rate of tax from 28% to 18%, there was considerable reduction in the output GST paid by the Respondent. Further, the raw materials had also undergone a reduction in rate of GST from 28% to 18%. The Respondent has also given illustration showing the reduced refunds in absolute terms by comparing the refund available in the pre-reduction period with the refund available in the post-reduction period and claimed that the refund available under the new scheme in the GST regime was restricte....
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....the market and brand positioning and therefore these products should be excluded from computation of profiteering, if any. 58. He has further submitted that the DGAP vide para 22 of his Report has observed that the profiteered amount of Rs. 2,16,49,61,535 has been arrived at by comparing the customer type-wise average of the base prices of the impugned products sold during the period from 1-10-2017 to 14-11-2017, with the actual invoice-wise base prices of such products sold during the period from 15-11-2017 to 31-12-2018. The excess GST so collected from the recipients has also been included in the aforesaid profiteering amount. The Respondent has stated that while arriving at the total alleged profiteering amount, the DGAP had incorrectly inflated the pre-rate reduction price by adding 18% GST to it and compared it with the actual sale price including 18% GST, without adducing grounds as to why this amount has been added. The Respondent has further stated that such computation was incorrect. Whatever amount was charged as GST by the Respondent, the same has been duly deposited in the Government account. There has been no allegation that the amount termed as excess GST in the R....
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....nd deposited with the Government should be reduced from the alleged profiteering amount. 59. The Respondent has also argued that in the absence of any guidelines issued by this Authority, the Respondent understood that passing of the benefit of GST rate reduction through the above methods was in full compliance of section 171 of CGST Act. He has also submitted that the word "commensurate reduction" in the section denoted reduction in the price after taking into account all the factors which impacted pricing of goods and had the legislative intention been otherwise, instead of the word 'commensurate', the word 'equal' or equivalent' would have been used in this section. 'Commensurate' connoted proportionality and adequacy. The law did not prescribe as to how to determine whether a particular amount was commensurate as the legislature was conscious of the fact that pricing of goods was a complex exercise involving numerous factors and the price was based on contract and terms as agreed between the seller and the buyer. The price might be tentative and may get finalized at a later date which might be post supply. The price was not determinable i.e. at th....
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....ed in while examining whether section 171 was applicable or not, Further, increase in the quantity or grammage of goods supplied should also be considered while considering whether the benefit passed on was commensurate or not. It was for this such purpose that the word 'commensurate' has been used in section 171. The word 'any' has been used twice in section 171(1) which would mean tax reduction could be any percentage and it could be ad valorem, specific rate or combination of both i.e. any type of reduction. Any supply did not necessarily mean SKU level supply and at the most it may be interpreted as goods classified under a particular tariff heading/HSN code. He has also mentioned that section 171 used the words 'registered person' and when the same were read along with 'supply', it denoted that section 171 was applicable to the persons registered under CGST Act. The Respondent has not obtained registration SKU wise and the form GST REG-01 which was specified under the CGST Rules for obtaining registration sought details of the goods supplied and the words used were 'Please specify top 5 goods' and the table thereunder sought description ....
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....tomers etc. and therefore, in the unlikelihood of this Authority holding any amount as profiteered, appropriate orders might be passed to enable the Respondent to return such amount to his recipients and not the CWF. 64. The Respondent has also submitted that at the time of import or manufacture, the importer or manufacturer was under obligation to comply with various laws. Legal Metrology Act, 2009, cast obligation and placed a ban that the MRP could not be altered. While revision of MRP by affixing sticker was restricted in case of increase in such MRP, in the case of reduction in MRP, the law provided a window. He has also submitted that the CGST Act and the Rules made thereunder did not deal with affixation of MRP. Affixation of stickers with revised MRP and allied compliances were provided under the Legal Metrology Act, 2009 and the Legal Metrology (Packaged Commodities) Rules 2011. As per the provisions of rule 6(3) of the above Rules in respect of reduction in the MRP, it was permissible to affix sticker with revised lower MRP and ensure that the revised MRP did not cover the MRP declared earlier. The said rule provided discretion to the supplier regarding affixation of s....
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....and the rules framed thereunder. 65. The Respondent has also argued that the CGST Act or this Authority's Methodology and Procedure, 2018 did not prescribe any procedure and mechanism for determination and calculation of profiteering which amounted to violation of principles of natural justice. The 'Procedure and Methodology' issued on 19-7-2018 by this Authority only provided the procedure pertaining to the investigation and hearing. He has further argued that the most vital element under section 171 of the CGST Act was to determine whether benefit of reduction of tax rate or availability of input tax credit has been passed on by the registered person or not. This could be ascertained only by computing the impact of difference in the rate of tax or credit availability. The said impact could be ascertained product wise, service wise and entity wise etc. However, the said section or rules made thereunder or procedure laid down by this Authority were completely silent on this aspect of calculation/computation. In the absence of any framework or guidelines laid down by section 171 or the Rules made thereunder, different approaches might be followed by this Authority and....
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....s also submitted that from an examination of the methodology adopted by the DGAP in arriving at the base price, it appeared that while working on the excel files the DGAP has erroneously used the excel formula "vlookup" from base price master. As a result of this excel formula error, the outcome was the first average price used from base price master instead of weighted average price at description level. As a result, the value used by the DGAP was erroneously reflected as the first selling price from the base price master. While for most of the line items of sales where DGAP has computed profiteering as per Annexure-15 of DGAP's Report he has diligently followed the sequence but there were line items where the said sequence has not been followed, leading to inconsistency in the steps actually specified by the DGAP in his Report vis-a-vis the steps actually followed. For instance, the DGAP has specified that in Step 2, he has used the average price from 1-10-2017 to 14-11-2017 based on the description and in Step 3, he has used the average price from 1-9-2017 to 30-9-2017 based on product code. However, the Respondent has noticed that for few line items, while the price as per ....
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....parable description must be considered, instead of considering the price of 1 product code alone. The reduction in alleged profiteering on account of this factor alone would be Rs. 5.19 Crore which could be identified in each of the 35 excel sheets. 68. The Respondent has also mapped the data of product code creation against each of the line items in the pre-rate reduction pivot provided by the DGAP and took an example of the product with description GAR COL NAT SHADE 1 and claimed that the latest product with the description GAR COL NAT SHADE 1 which came to be sold by the Respondent was CNCFR100-DA which had a price of Rs. 123.08 p. u. He has also submitted that this was the price which was the latest prevailing price of the Respondent and not the prices of Rs. 113.98 or Rs. 117.23 which were prevailing for earlier SKUs which had become remnant and were being sold only till the time stocks lasted. He has further submitted that this price of Rs. 123.08 was the price which the Respondent intended to recover from his customers and accordingly, instead of adopting a weighted average of all the products with same description, the latest price prevailing in the pre-rate reduction pe....
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....ect of invoices to the extent Credit Note had been issued for the same. The Respondent has identified the original invoices pertaining to each of the Credit Notes and also the profiteering computed by the DGAP in respect of invoices to the extent of Credit Notes issued for the same and claimed that an amount of Rs. 65,20,961/- should be reduced from the total alleged profiteering. 70. He has also submitted that the DGAP has computed profiteering in respect of some line items of sales not impacted by the reduction in the rate of GST w.e.f. 15-11-2017. In respect of these products namely Hair Oil (HSN: 33059011) and Brushes (HSN: 96033020), the rate of GST prior to 15-11-2017 was 18% and the same continued thereafter and accordingly, there was no reduction in the rate of GST from 28% to 18% for these products. However, the DGAP has gone on to compute profiteering in respect of such products amounting to Rs. 14,45,267/- which should be reduced from the profiteered amount. He has also submitted that in respect of one line item of sale from Maharashtra to J & K, the quantity was incorrectly mapped as 0.07 instead of 432, which has led to alleged profiteering computation of Rs. 1,69,3....
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....7. He has also stated that he had examined some sample documents of Credit Notes which revealed that these were invoices raised by the Respondent's trade partners for provision of services like advertising, sales promotion, sponsorship and brand promotion etc. to the Respondent, which the Respondent had reimbursed by issuing Credit Notes. In one of such Credit Note No. 5100028622 dated 22-3-2018, the Respondent had mentioned an amount of Rs. 64,90,000/- (Base Price: Rs. 55,00,000/- plus 18% Rs. 9.90,000/-) against the Invoice raised by Nykaa E-Retail (P.) Ltd. for the Advertising Services for the month of January, 2017 and hence, the claim of the Respondent that the above Credit Note was issued on account of passing of benefit of reduction in the rate of tax which was absolutely incorrect and therefore denied. 75. On the issue of impact of Customs Duty Increase on the pricing the DGAP has submitted that the concern of the Respondent has been addressed in Para 18 of his Report dated 5-7-2019. 76. The DGAP has also submitted that the Respondent's claim that the business profits had also been treated as profiteered amount was not correct as the profiteered amount of each....
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....the above claim of the Respondent was contradictory to the submissions made by him wherein it has been submitted that the base price had been calculated by excluding the applicable GST. The DGAP has also submitted that section 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 the tax rate reduction to the recipients by way of commensurate reduction in price. Price included both, the base price and the tax paid on it. If any supplier had charged more tax from the recipients, the aforesaid statutory provisions would require that such amount be refunded to the eligible recipients or alternatively deposited in the CWF, regardless of whether such extra tax collected from the recipient had been deposited in the Government account or not. Besides, any extra tax returned to the recipients by the Respondent by issuing Credit Notes could be declared in the return filed by him and his tax liability shall stand adjusted to that extent in terms of section 34 of the CGST Act, 2017. Therefore, the option was always open to the Respondent to return the tax amount to the recipients by issuing Credit Notes and adjus....
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....n respect of the Respondent, as the profiteering has been quantified only on the goods supplied by the Respondent after 15-11-2017 and not on the goods lying in the distribution chain. 84. In response to the claim of the Respondent that no methodology for calculation of profiteering has been prescribed the DGAP has stated that section 171(1) reads as "Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices." Thus, the legal requirement was abundantly clear that in the event of a benefit of ITC or reduction in the rate of tax, there must be a commensurate reduction in prices of the any supply of goods or services. Therefore, the Respondent was under legal obligation to pass on the benefit. Anti-profiteering provisions were for the benefit of the recipients and each recipient must get benefit of reduction in the rate of tax or increase in the ITC on each and every supply of goods or services or both. Therefore, he was justified in applying the provisions of anti-profiteering at Product/SKUs level. 85. The Respondent has also stated that the DGAP has not appl....
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.... determined the profiteering for product sold in post-rate reduction period and this product was sold post-rate reduction period with MRP of Rs. 310/- only and accordingly he has determined profiteering of Rs. 27,72,970/- (for the state Delhi- General Trade). However, Respondent has submitted that as per approach (c) Weighted average price of latest MRP of Rs. 238.64/- should be adopted and profiteering reduced by Rs. 26,38,779/- and profiteering should be only Rs. 1,34,191/- [Rs. 27,72,970/- (-) Rs. 26,38,779/-]. 89. The DGAP has claimed that the above submission of the Respondent did not seem to be appropriate as the Respondent had sold 73,906 units @ Rs. 310/- MRP and only 30,465 units @ Rs. 335/- MRP during the pre-rate reduction period, which showed that both the MRPs were in market and neither was obsolete. The DGAP has submitted that if this Authority decided, it might consider approach (a) where Weighted Average Base Price of the product having same description with all the MRPs was to be adopted for pre-rate reduction base price to address the issue or adopting old MRP/first line item. Following the approach as per (a) above, and adopting weighted average base price of ....
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.... 28,18,815/- (-) Rs. 4,83,997/-] for the State- Delhi General Trade. He has further submitted that in case, approach (a) was to be considered, the total profiteering amount might get reduced by Rs. 19,75,12,265/- as against the amount of Rs. 30,51,84,398/- as claimed by the Respondent, for approach (c). 92. The Respondent has also suggested rectification of inconsistency in the sequence followed for some line items. The DGAP has stated in this regard that the methodology adopted by him had been explained in para 22 of his Report dated 5-7-2019 read with "Summary Sheet" of Annexure-15 of the said Report and he has diligently followed the same without any inconsistency. However, due to adoption of the average base price available at the first place in the same product (having multiple product codes), if the price was not obtained at Step-2 then, he had gone for Step-3 and so on. The DGAP has further submitted that the claims made by the Respondent before this Authority have merit and might be considered. The DGAP has further stated that to address the issue of adopting first line item or following incorrect sequence for few line items identified by the Respondent, this Authority a....
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....heets as enclosed in the Respondent's submissions, he has observed that, inadvertently, he had adopted pre-rate reduction MRP instead of pre-rate reduction base price from the Price List for a few transactions in the State of Delhi for Modern Trade Channel and compared it with the actual selling price and reported nil profiteering for such transactions. However, on correcting the error, profiteering to the tune of Rs. 46,02,070/- (after adjusting correct price adopted from Respondent's Price List for some line items) would be added to earlier reported profiteering amount. Although, the Respondent has identified such inadvertent mistake he had not pointed it out in his submission before this Authority. 97. The DGAP has further stated that on the basis of the above clarifications, if this Authority decided any or all the above submissions, the profiteering reported in his office Report dated 5-7-2019 might be revised as is given in the table below:- Table (Amount in Rs.) S. No. Particulars Amount Remark 1. Reported Profiteering as per DGAP's Report dated 5-7-2017 (A) 2,16,49,61,635/- Para-22 of Report 2. Less: Rectification....
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.... in the sequence followed by him in respect of certain line items in case it is so decided by this Authority. However, no explanation has been given why the above inconsistency cannot be rectified by him in case such an error has taken place. This Authority cannot pass any order on the above issue unless all the facts are placed before it by the DGAP along with the reasons why this inconsistency has taken place. 100. The DGAP has also stated vide Sr. No. 4 of the above Table that an amount of Rs. 5,18,75,235/- could be subtracted from the profiteered amount on the ground of rectification of the adopted average price on description wherever comparable product code was used subject to the approval of this Authority. However, no reasons have been given why the above approach was more appropriate as compared to the approach which was adopted by the DGAP while computing the profiteered amount vide his Report dated 5-7-2019. 101. It is clear from the above narration of the facts that the DGAP has left the rectification of the above claims on this Authority however; no grounds have been mentioned on the basis of which this Authority can decide why the above recommendations of the DG....
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....o the DGAP for including it in his Report. 106. A copy of this order be supplied to the DGAP and the Respondent. ============= Document 1 L'Oreal Distribution Chain 1. Baddi Factories 2. Chakan (Pune) 3. Sub-contractors (Uttarakhand, others) Direct Retailers (D-Mart, Big Bazaar, Reliance, Nykaa) Salons, etc. Multiple Factories Multiple DC/depot Registered in 20 states 13 GSTINs active Distributors Around 1300 Consumers Retailers Consumers Document 2 ORIGINAL FOR RECIPIENT L'OREAL INDIA PRIVATE LIMITED Division:CPD Address Sahs Enterprises Begumpur Kotala Road,Behrampur Ind! Estate,38th KM Mile Stone, JaipurHighway, Gurgaon 122001 Haryana GSTIN. 06AAACL0738K1ZL TAX INVOICE Invoice No. HR0017703882 Billed To Name: GOVIND SALES Address HNO 396, SEC-45, GF, NEAR DPS PUBLIC SCHOOL, GURGAON 122001 State. Haryana GSTIN: 06AGMPB7309R1ZX OTP Invoice Date: 23.01.2018 Shipped To Name GOVIND SALES Address: HNO 396, SEC-45, G.F, NEAR DPS PUBLIC SCHOOL, GURGAON 122001 State Haryana GSTIN: 06AGMPB7309R1ZX Your Reference Date of Supply: 23.01.2018 PO No. Manual....
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....11285720 Delivery No: 311357924 Place of Supply: Delhi Place of Delivery: Della E-Way Bill No.: E-Way Valid Date. Velucle No.: Contact No.: 124-4779000 Trans BLUE DART EXPRESS LTD LR RR GRNo. 50482731445 LR.RR. GR. Date: 27.12.2017 Factory Packed Cases. 74 Total No of Cases: 74 Total Repacked Cases: 00000 Total Unit. 3684 Total Weight Offer Desc 214,746-465 G Product Code Description of Goods HSN Code MR.P Q Uut Rate Total Value Discount (Rs Ut) (cases) (Rs Ut (Ra) Value (Ra) DMEELO-DO DGL Eye Studio Gel Liner 15190 Tarable Value (Ra) IGST Rate (a) Amost Document 5 ORIGINAL FOR RECIPIENT Credit Mane No CTS17000"> Billed To DELHI TRADE IG CO L'OREAL INDIA PRIVATE LIMITED Divanen CPD Address Navbharat Enterprise Khasta No. 70. Village saadullajab Near Gyan Jyou Vidhya Naketan.Sandulajasb. New Delhi 11000 D OSTIN: 07AC073KIZ Add 12. BASEMENT FLOOR EAST PATEL NAGAR ROAD, PATEL NAGAR, CENTRAL DELMI NEW DELHI 11000 State Del GSTIN TANTS Credas Note Date 16 02 2018 Shipped To Name DEL TRADE CO Adde CREDIT NOTE 12. BASEMENT FLOOR, EAS....