REDUCTION IN DISCOUNT IS NOT PROFITEERING: GST

[Dr. Sanjiv Agarwal]

Can reduction in discount offered by supplier of goods resulting in increase in price amounts to profiteering in contravention of section 171 of CGST Act, 2017 ? The answer is NO, as affirmed by National Anti-Profiteering Authority (NAA).

In Kerala State Screening Committee on Anti-profiteering and DGAP, CBIC, New Delhi v. Asian Paints Ltd., Kerala 2019 (1) TMI 21 - NATIONAL ANTI-PROFITEERING AUTHORITY ; , the NAA, vide its Order dated 27.12.2018, has ordered that where base price is increased due to reduction in discount, it does not amount to profiteering as discount is offered from the profit margin which does not form part of base price.  In the instant case, profiteering was alleged in supply of paint by not passing on the benefit of reduction in the rate of tax of GST at the time of implementation of the GST w.e.f. 01.07.2017 on the basis of two invoices, dated 20.06.2017 (pre-GST regime) and 09.11.2017 (post-GST regime). After examination by Standing Committee, it was referred to DGAP under Rule 129(1) of CGST Rules, 2017.

According to DGAP report, in the pre-GST era, the product ‘Paint (AP Apex Classic WT 10 LT (HSN Code 3209))’ attracted VAT @ 14.50% and the Central Excise Duty @ 12.50% on 70% of the MRP, in terms of Notification No. 49/2008-CE (N.T.), dated 24.12.2008. Following Table summarizes the rate, invoice details, base price, taxes etc:

Particulars			Period
Details		Reference	Pre-GST	Post-GST
1.	Product Description	A	Paint (AP Apex Classic WT 10 LT (HSN Code 3209)
2.	Invoice No.	B	13006429	KR1701110400
3.	Invoice Date	C	20.06.2017	09.11.2017
4.	MRP as per Annexure-7 (Rs.)	D	2.610	2,660
5.	Price before discount per unit (Rs.)	E	2,159	1,927
6.	Discount per unit (Rs.)	F	75.57	67.45
7.	Price after discount per unit (Rs.)	G=E-F	2,083.43	1,859.55
8.	Central Excise Duty @12.5% on 70% of MRP (Rs.)	H=(D*70%)*12.5%	228.38	-
9.	Base Price (Excluding duties & taxes) (Rs.)	I=G-H	1,855.05	1,859.55
10.	Tax Rate Charged (%)	J	14.50% VAT	28% GST
11.	Tax Amount (VAT or GST) (Rs.)	K=G*J	302.10	520.67
12.	Total Tax Amount (Rs.)	L=H+K	530.48	520.67
13.	Total Tax incident (%)	M=L/I	28.60%	28%
14.	Increase in Base Price	Diff in I	Rs.4.50/- (0.24%)

 

DGAP observed that total tax rate has been reduced from 28.60% to 28% post implementation of the GST. The DGAP submitted that the supplier had increased the base price of the above product from ₹ 1855.05/- to ₹ 1859.55/- resulting in an increase of ₹ 4.50/- which was very negligible i.e. 0.24%. Post-GST, the price before discount had been reduced from ₹ 2159/- to ₹ 1927/- and the discount offered was reduced from ₹ 75.57/- to ₹ 67.45/- i.e. by ₹ 8.12/- hence the post-GST increase in the base price was ₹ 4.50/-. This increase was only of 0.24% which was primarily on account of the reduction in the discount and such an increase couldn't qualify as profiteering due to reduction in the tax rate, thus, the provisions of Section 171 (1) of the CGST Act, 2017 relating to profiteering were not contravened in the instant case.

The NAA based on DGAP report, invoices etc, examined 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 recipient as provided under Section 171 of the CGST Act, 2017. It observed that supplier had increased the base price of the product from ₹ 1855.05/- to ₹ 1859.55/- resulting in an increase of ₹ 4.50/-. In this context, it was clear that the post-GST price before discount had been reduced from ₹ 2159/- to ₹ 1927/-. Also, the discount offered had been reduced from ₹ 75.57/- to ₹ 67.45/- i.e. by ₹ 8.12/- and hence post-GST, there was increase in the base price of ₹ 4.50/-. The increase in the base price was on account of the reduction in the discount.

NAA held that the reduction in discount doesn't amount to profiteering as the same was offered from its profit margin by the supplier and doesn't not form part of the base price and therefore, the supplier cannot be held guilty under Section 171 of the Act.

The complaint was accordingly dismissed.