TaxTMI 
TaxTMI 
2022 (7) TMI 640
X X X X Extracts X X X X
X X X X Extracts X X X X
....ort dated 31.03 2021 has inter aila, stated: a. That a Notice under Rule 129 of the Rules was issued by the DGAP on 15.05.2020, calling upon the Respondent to reply as to whether he admitted that the benefit of reduction in GST rate w.e.f. 01.01,2019, had not been passed on to his recipients by way of commensurate reduction in prices and if so, to suo moto determine the quantum thereof and indicate the same in his reply to the Notice as well as to furnish all documents in support of his reply, Further, corrigendum to the NOI dated 15.05.2020 was issued on 28.12.2020, in which the words "July, 2017 to March, 2019" were substituted by the words "October, 2018 to February, 2020" in pars 3 of the NOI dated 15.05.2020 b. That in response to the Notice and several reminder letters, the Respondent did not submit all the requisite documents on the due date. Hence. Summons dated 29.10.2021 under Section 70 of the CGST Act, 2017 read with Rule 132 of the Rules, were issued to the Respondent to submit all the relevant documents. In compliance to said summons, the Respondent submitted the relevant documents. c. That the period covered under investigation was from 01.01.2019 to 29.02.2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TR-3B returns for the period October, 2018 to February, 2020 for the State of Uttar Pradesh, Punjab, Madhya Pradesh and Gujarat. (ii) Movie wise & rate wise data for the screens namely Bhuj, Surendranagar for the State of Gujarat and Ghazipur, Nokia, Pilkhuwa and Raebareli for the State of Uttar Pradesh for the period October, 2018 to February, 2020. (iii) Movie wise & rate wise data for all screen in Kotkapura (Punjab) for the period October, 2018 to March, 2019. (iv) Movie wise & rate wise data for all screen in Kanpur DCR (Uttar Pradesh) for the period October, 2018 to September. 2019. (v) Movie wise & rate wise data for all screen in Hapur (Uttar Pradesh) for the period April, 2019 to February, 2020. (vi) Movie wise & rate wise data for the screens in Sangrur (Punjab) and Ratlam (Madhya Pradesh) for the period April, 2019 to February, 2020, (vii) Reconciliation of turnovers (Box Office, F&B & other sales) with GST Returns for the period December, 2018 to February, 2020. 3. The reference received from the National Anti-Profiteering Authority, various replies of the Respondent and the documents/evidence on record had been e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 01.01.2019 to 27.09.2019 as the said screen was not operational during the further period i.e, 28.09.2019 to 29.02 2020. In respect of screen in Hapur (Uttar Pradesh), the profiteering for the period 01.01.2019 to 31.03.2019 was already computed by the DGAP and upheld by the Authority vide Order No 15/2020 dated 12.03.2020 Therefore, profiteering in respect of screen in Hapur was computed for the further period i.e. 01.04.2019 to 29.02.2020 in the present report. e. The Respondent had submitted that he had different ticket prices for the movies depending on the factors namely Category of Movies, Movie Type (3D & Non-3D), Ticket type (DIAMOND, GOLD, PLATINUM and SILVER), Weekdays (Monday to Thursday), Weekends (Friday to Sunday), Show timings (Morning, Other than Morning Show) etc. In this regard it was submitted that the profiteering, if any, had been arrived at by comparing average selling prices for each of the 'unique combination of the above factors' such as "DIAMOND Weekdays Morning Show 3D" screened during the period 01.10.2018 to 31.12.2018 of pre-rate reduction period, and the prices post 01.01.2019 for the movies with the similar 'unique combination of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in GST rate had not been passed on to the recipients by way of commensurate reduction in the prices, in terms of Section 171 of the CGST Act, 2017. On the basis of above calculation as illustrated in table 'A' above, profiteering in case of all the screens being operated by the Respondent had also been arrived in similar way. g. The issue that remains was the determination and quantification of profiteering by the Respondent for failing to pass on the benefit of the reduction in the rate of GST on the goods supplied to his recipients, in terms of Section 171 of the CGST Act, 2017 From the session wise sale register made available by the Respondent, it appeared that the Respondent had increased the base prices of the tickets when the rate of GST was reduced from 28% to 18% and from 18% to 12% w.e.f. 01.01.2019, so that the commensurate benefit of GST rate reduction was not passed on to the recipients. On the basis of aforesaid pre and post-reduction GST rates and the details of outward taxable supplies (other than zero rated, nil rated and exempted supplies) of the service by way of admission to exhibition of cinematograph films during the period 01.01.2019 to 29.02.2020, as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....graph films where price of admission ticket was one hundred rupees or less" were reduced from 18% to 12% w.e.f. 01.01.2019, vide Notification No. 27/2018-Central Tax (Rate) dated 31.12,2018 stands confirmed against the Respondent. On this account, the Respondent had realized an additional amount to the tune of Rs. 2,66.99,340/- from the recipients in respect of all the screens operated by the Respondent during the period 01.01,2019 to 29.02.2020, which included both the profiteered amount and GST on the said profiteered amount. 5. The DGAP has also concluded that in view of the aforementioned findings, it appeared that Section 171 (1) of the CGST Act, 2017 requiring that "any reduction in rate of tax on any supply of goods or services or the benefit of FTC shall be passed on to the recipient by way of commensurate reduction in prices". had been contravened by the Respondent in the present case. 6. The above Report was carefully considered by this Authority and a Notice dated 17.06 2021 was issued to the Respondent to explain why the Report dated 31.03.2021 furnished by the DGAP should not be accepted and his liability for profiteering in violation of the provisions of Section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re not actually comparable. The approach adopted by the DGAP was flawed in as much as the attempt had been made to compare apples with oranges and the time frame chosen of long duration of 13 months being arbitrary. c. Period covered for working out the amount profiteered:- the amount of anti-profiteering had been calculated for all the movies post rate reduction until February 29, 2020. There were no rules to determine the 'anti- profiteering' amount and the time for which the pricing of supply is to be examined for the purposes. At the most in case the same movies had been screened pre and post rate reduction, and the benefit of the rate reduction had not been passed to the consumers one might had to examine the scope of anti-profiteering, However, the approach of comparing all the movies until February 29, 2020 post the reduction of rate was incorrect. Further, the present proceedings had been subjected to unrealistically long period of time. This was in fact against the very norm set up internally by the DGAP and had been regularly applied and followed by this Authority as well. The Respondent referred to the DGAP's supplementary report dated 22.01....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... had been changed to Rs. 130/- Earlier 28% was being charged on Rs. 110/- and now 18% was being charged on Rs 110/. 3. Old price of Rs. 230/-had been changed to Rs. 210/- Earlier 28% was being charged on Rs. 180/- and now 18% was being charged on Rs. 180/-. As could be seen in the above table, there had been a reduction in prices in certain classes and categories of tickets. The calculation of the DGAP had missed sight of these very obvious findings. There had been case where there was slight increase in prices due to varied reasons. (iii) Capital Expenditure incurred: The firm had incurred Capital expenditure on all the screens across India during the period 01.01.2019 to 29.02.2020 as below: Sr.No. Cinema Total 1. Bhuj 3,36,77,743 2. Ghazipur 82,21,325 3. Hapur 1,33,26,706 4. Kanpur 8,78,750 5. Kotkapura 4,94,600 6. Noida 10,79,878 7. Pilkhuwa 7,05,570 8. Surendranagar 1,21,04,634 9. Rae-barell 39,32,155 Total 7,44,21,360 The expenditure tabulated above was in respect of various capital expenditures such as the following: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....distributors: Another factor that affects pricing was the high percentage of share in the ticket revenue that was charged by the distributors. We procure the right to exhibit any movie from a producer/distributor and the price of the movie was decided by the producer/distributor based on the expected euphoria / buzz created around that movie and the factors mentioned above. Some of the movies where the cost of acquiring theatrical rights was high were as follows: Sr. No Name of Movie Rate 1. Bharat (Starring Salman Khan) 52.50% 2. Good Newzz (Starring Akshay Kumar) 52.50% 3. Avengers Endgame (Hollywood movie) 50.00% 4. Kalank (Starring Alia Bhatt, Varun Dhawan, Madhuri Dixit, Sanjay Dutt, Sonakshi Sinha etc.) 50.00% 5. Kesari (Starring Akshay Kumar) 52.50% 6. Gully Boy (Starring Ranveer Singh, Alia Bhatt) 52.50% As seen herein, high amount of collections of movie tickets was paid to distributors. In most cases, more than half of the collections of ticket prices were paid to distributors. Here, the cinema owner was obviously to charge more for the tickets. In such a scenario, the question of profiteerin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egal backing. The provisions of Section 171 of the CGST Act, 2017 on Anti-profiteering and Rules made thereunder had been passed by the Parliament, The Respondent could not proceed with an assumption that the Legislature enacting the statute had committed a mistake and where the language of the statute was plain and unambiguous. The Respondent was not at liberty to find a defect but to proceed on a footing to follow the intention of the Statute. If the view of the Respondent was accepted the whole exercise of the legislature would be an exercise in futility. Section 171 (1) of the Act, envisages that any reduction in the rate of tax or the benefit of ITC had to be passed on to the recipient by way of commensurate reduction in price. in other words, every recipient of goods or services had to get the benefit from the supplier and hence, this benefit had to he calculated for each and every product supplied. The investigation by the DGAP was conducted under the provisions of Section 171 of the Act read with Rule 129 of the CGST Rules, 2017, on the recommendation of the Standing Committee on Anti-profiteering and the Investigation Report was submitted to the Authority under Rule 129(6)....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cinema sector would in fact lead to erosion of justice in the name of uniformity. Therefore, It was submitted that there cannot be a fixed and ready to use methodology for all the cases of profiteering. c. Profiteering was arrived at strictly in terms of Rule 129 (2) of the CGST Rule, 2017, according to which the DGAP shall conduct investigation and collect evidence necessary to determine whether the benefit of reduction in the rate of tax on any supply of goods or services or the benefit of ITC had been passed on to the recipient by way of commensurate reduction in prices. Accordingly, it was stated that the examples of supply of photography services and hairstyling services could not be likened to the supply of services made by the Respondent Further, while calculating profiteering, consideration of no other factors of cost was provided under the Anti-Profiteering law. d. The period of investigation was normally taken from the date the Respondent was required to pass on the benefit on account of reduction in tax rate to the last date of preceding month of receipt of complaint from Standing Committee This practice had been uniformly followed in investig....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h the benefits of rate reduction and benefit of additional ITC to be passed to the customers had been granted by the Central as well as the State Governments by sacrificing their tax revenue in the public interest and hence the suppliers was not required to pay even a single penny from their own pocket and hence, they have to pass on the above benefits as per the provisions of Section 171 (1). Therefore, the provisions of Sec. 171 and Rule 126 are not violative of Article 14 & 19. The power to determine his own Methodology & Procedure had been delegated to the Authority under Rule 126 of the above Rules as per the provisions of Section 164 of the above Act. Such power was generally and widely available to all the judicial, quasi-judicial and statutory authorities to carry out their functions and duties The above delegation had been granted to the Authority after careful consideration at several levels. Since the functions and powers to be exercised by the Authority had been approved by the competent bodies, the same were legal and binding on the Respondent. f. During the course of investigation, the data/documents submitted by the Respondent were scrutinised and i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o further sub-classification of this service except where price of admission ticket was less than one hundred rupees or more. It was incorrect on part of the Respondent to claim that there was any mistake in understanding the services rendered by the Respondent. The contention of the Respondent that viewers come to the multiplex screens of the Respondent to watch a particular film of their choice and pay the admission charges to watch such particular film and no one would pay for entering multiplex screens only, had little to do with classification of service rendered by the Respondent. Further, the Respondent's contention that his main business was exhibiting cinematograph films for which the viewer's come and was not just giving admission to his multiplex screens, and thus, the service rendered by the Respondent was exhibiting cinematograph films that varied from film to film based on popularity, was also vague and untenable. In the investigation report, unique classification for categories and sub categories like type of movie (3D and non 3D), ticket type (DIAMOND, GOLD. PLATINUM and SILVER), Weekdays and Weekends and show timings for pre and post rate reduction....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The above rule was inserted vide Notification No. 31/2019-Central Tax, dated 28.06.2019 and had come into effect prospectively. b. The Authority had received a complaint dated 18.02.2019 from Shri Himanshu Sharma only for the cinema located in Hapur, Uttar Pradesh and not for the cinemas located all over India. During proceedings, the Respondent in his submissions had stated that it had several screens located all over India. However, since there was no legitimate complaint received for other cinemas, the DGAP could not initiate any inquiry. The Respondent had received Notice for initiation of investigation in the case of his several screens under Rule 133 of CGST Rules, 2019 on 15 05.2020 which evidently and clearly gives reference to the initial complaint received for the cinema located in Hapur, UP on 18.02,2019 Cause or event that triggered the department to issue all India notice for investigation had already occurred on 18^th February 2019. As on February 2019, Rule 133(5) of CGST Rules. 2017 had not come into effect. During February 2019, the authority had no powers to Suo mob, initiate any proceedings or investigation unless a complaint was received to ini....
X X X X Extracts X X X X
X X X X Extracts X X X X
....22 submitted the details of the Capital Expenditure incurred for the screens in Surendranagar. Hapur. Ghazipur and Raebareli. The Respondent stated that he had incurred Capital Expenditure throughout the Financial Year 2018-19 as also 2019-20. However, it was important to note that, Capital Expenditure budgets needed adequate preparations before commencement. Before starting any project, the Respondent had to analyse the scope of the project, work out realistic deadlines, and ensure that the whole plan was reviewed and approved. Thus. making any Capital Expenditure decision was of critical Importance to the financial health of a company. The Respondent had initiated the process of incurring the capital expenditure and also met for preliminary discussions several times for a number of cinemas in the FY 2018-19. The Respondent after taking into consideration the cost factors. the suppliers/vendors/contractors to whom the contract for the Capex was awarded, the time involved to complete the projects had incurred the capital expenditure in several states in FY 2018-19 and FY 2019-20. The Respondent had listed several work orders which were initiated in Oct/Nov 2018 and were complete....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dent on certain classes of tickets. The Respondent thereby decided to charge a higher amount on certain classes of tickets to recover the heavy capital expenses incurred. It was therefore obvious and reasonable that to run the business effectively, the firm would require increasing the cost of the tickets to recover the cost incurred and to evade any losses in the business. 12. This Authority has carefully perused all the submissions and the documents placed on record, and the arguments advanced by the Respondent. The Authority needs to determine as to whether there was any reduction in the GST rate and whether the benefit of reduction in the rate of tax was passed on or not to the recipients as provided under Section 171 of the CGST Act. 2017. Section 171 of the CGST Act provides as under - "(1). Any reduction in rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in prices." 13. The Authority finds that, as per the details and calculations given in Tables 'A' & 'B' above, the Respondent has been profiteering by way of increasing the base prices of the tickets (S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an those covered in the said report, it may, for reasons to be recorded in writing, within the time limit specified in sub-rule (1), direct the Director General of Anti-profiteering to cause investigation or inquiry with regard to such other goods or services or both, in accordance with the provisions of the Act and these rules. (b) The investigation or enquiry under clause (a) shall be deemed to be a new investigation or enquiry and all the provisions of rule 129 shall rnutatis mutandis apply to such investigation or enquiry." Interim Order No, 15/2020 dated 12.03.2020 to investigate other cinema screens situated in other states was issued after coming into force of Rule 133(5) w.e.f. 28.06.2019 Otherwise also, section 171 (2) empowers this Authority to examine whether a supplier has passed on the benefits of tax reduction or ITC irrespective of the provisions of Rule 133 (5) which is only explanation/clarification of Section 171 (2). Therefore. in view of the above mentioned Rule, the contentions raised by the Respondent are not tenable. 16. The Authority finds that, the Respondent also questioned the Methodology adopted by the DGAP for the calculation of profit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ning methodology to compute the benefit of additional ITC which would be required to be passed on to the buyers of such units. Further, the facts of the cases relating to the Fast Moving Consumer Goods (FMCGs). restaurants, construction and cinema houses are completely different and therefore, the mathematical methodology employed in the case of one sector cannot be applied in the other sector otherwise it would result in denial of the benefit to the eligible recipients. Moreover, both the above benefits have been granted by the Central as well as the State Governments by sacrificing their tax revenue in the public interest and hence the suppliers are not required to pay even a single penny from their own pocket and hence they have to pass on the above benefits as per the provisions of Section 171 (1). The Respondent was only required to maintain the same base prices of the tickets which he was charging before reduction in the rate of tax and then charge GST at the reduced rate of 18%. However, the Respondent had increased the base prices and thus he had not passed on the benefit of tax reduction. Hence. the Authority finds that, the above contention of the Respondent cannot be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pricing and positioning in the market. In this regard it is to mention that the various parameters related to FMCG, restaurants, construction and cinema sectors are completely different and at times mutually exclusive to each other. Applying the same mechanical/mathematical methodology of FMCG sector to a supplier of a cinema sector will in fact lead to denial of justice in the name of uniformity. Therefore, the above contention of the Respondent cannot be accepted. Profiteering has been ai rived at strictly in terms of Section 171 of the CGST Act. 2017, according to which the benefit of reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit has to be passed on to the recipients by way of commensurate reduction in prices. Accordingly, the examples of supply of photography services and hairstyling services cannot be likened to the supply of services made by the Respondent, Further, while calculating profiteering, consideration of other factors of cost is not provided under the Anti-Profiteering law. 20. The Respondent has also contended that the amount of profiteering has been calculated for all the movies post rate reduction unti....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... In this regard it is to mention that the main factor under consideration for the calculation of profiteering amount are base prices of tickets and not the factors like revenue to be paid to the distributors by the Respondent The provisions of Section 171 of the CGST, 2017 require a registered person under GST to pass on the benefit of additional ITC or reduction in rate of tax by way of commensurate reduction in the prices of goods or services supplied by him. Hence, it was the responsibility of the Respondent to comply with the provisions of Section 171 of the CGST Act, 2017 Therefore, the submission of the Respondent is untenable. 23. The Authority also finds that, the Respondent has also stated that he had incurred Capital Expenditure throughout the Financial Year 20113-19 as also 2019-20 for the screens located in Surendranagar, Hapur, Ghazipur, Raebarely. In this regard it is to mention that the main factor under consideration for determining the profiteered amount are base prices of tickets and not the factors like capital expenditure cost incurred by the Respondent. Furthermore, it is found that the reply of the Respondent that they have claimed to have incurred capital....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2.2020. On this account, the Respondent has realized an additional amount to the tune of Rs. 2,66,99,340/- from the recipients which included both the profiteered amount and GST on the said profiteered amount, Thus the profiteering amount is determined as Rs. 2.66,99,340/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent is therefore directed to reduce the prices of his tickets as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. The Respondent is also directed to deposit the profiteered amount of Rs. 2,66.99,340/- along with the interest to be calculated @ 18% from the date when the above amount was collected by him from the recipients tilt the above amount is deposited Since the recipients. in this case, are not identifiable, the Respondent is directed to deposit the amount of profiteering of Rs, 1,33,49,670/- in the Central Consumer Welfare Fund (CWF) and Rs. 88,27,769/- in the Uttar Pradesh State CWF, Rs. 45,21,139/- in the Gujarat State CWF and Rs. 762/- in the Punjab State CWF respectively. as per the provisions of Rule 133 (3) (C) of....