TMI Blog2022 (7) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... ount 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. Penalty - HELD THAT:- It has also been found that the Respondent has denied the benefit of rate reduction to his customers/recipients in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and resorted to profiteering and hence, committed an offence under section 171 (3A) of the CGST Act, 2017. Therefore, he is liable for the imposition of penalty under the provisions of the above Section Accordingly, a notice be issued to him directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him for the profiteered amount collected from 01.01.2020 to 29.02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tue of, Notification No. 65/2020-Central Tax dated 01.09.2020 and Notification No. 91/2020-Central Tax dated 14.12.2020 issued by the Central Government under Section 168A of the Central Goods and Service Tax Act. 2017 where it was provided that, any time limit for completion or compliance of any action, by any authority, had been specified in, or prescribed or notified under Section 171 of the said Act, which falls during the period from the 20 th day of March, 2020 to the shall be extended up to the 31 st day of March, 2021 . e. That in reply to the Notice dated 15.05.2020 and subsequent letters/emails the Respondent submitted his reply vide letters and e-mails dated 26.08.2020, 24.09.2020. 08.10.2020, 13.11.2020, 12.01.2021, 22.01.2021, 18.02.2021. 19.03.2021, 24.03.2021, 25.03.2021 and 30.03.2021. The reply of the Respondent received by the DGAP has been, inter-alia, summed up below: (i) That he was engaged in the business of running chain of multiplexes in India. The Respondent during the relevant time had screens operational in Kotakpura district of Punjab, Hapur, Ghazipur, Raebareli Kanpur and Pilkhuwa district of Uttar Pradesh and Surendranagar Bhuj districts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admission to exhibition of cinematograph films where price of admission ticket was above one hundred rupees were reduced from 28% to 18% and Services by way of admission to exhibition of cinematograph films where price of admission ticket was one hundred rupees or less were reduced from 18% to 12% w.e.f. 01 01.2019 and if so, whether the benefit of such reduction in the rate of GST had been passed on by the Respondent to his recipients, in terms of Section 171 of the CGST Act, 2017. b. The Central Government, on the recommendation of the GST Council. reduced the GST rate on Services by way of admission to exhibition of cinematograph films where price of admission ticket was above one hundred rupees from 28% to 18% and Services by way of admission to exhibition of cinematograph films where price of admission ticket was one hundred rupees or less from 18% to 12% w.e.f. 01.01.2019, vide Notification No. 27/2018- Central Tax (Rate) dated 31.12 2018. c. It was important to examine Section 171 of CGST Act, 2017 which governs the anti-profiteering provisions under GST. Section 171 (1) reads as Any reduction in rate of tax on any supply of goods or services or the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the calculation in respect at a specific 'unique combination of the above factors' as listed in para-12 of the Report, by deriving an average base price (after discount) for each specific 'unique combination of the above factors' by taking the total collection during the period 01.12.2018 to 31.12.2018 (pre-GST rate reduction) for the unique category divided by the number of tickets sold during the period for the unique category. The average base price of the ticket was compared with the actual selling price of the tickets similar in each aspect sold during post- GST rate reduction i.e., on or after 01.01.2019 as illustrated in the table- 'A' below: Table- A' (Amount in Rupees) Sr.No. Description Factors Pre Rate Reduction (01.10.2018 to 31.12.2018) Post Rate Reduction (From 01.01.2019) 1. Multiplex Name A Seven Sky (Bhuj, Gujarat) 2. Unique Category B DIAMOND Weekdays Morning Show 3D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 furnished by the Respondent, the amount of net higher sales realization due to increase in the base prices of the impacted service, despite the reduction in the GST rate or in other words, the profiteered amount comes to Rs. 2,66,99, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to exhibition of cinematograph 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 violatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been created were 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged on Rs. 100/- and now 12% was being charged on Rs. 100/. 2. Old price of Rs. 140/- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Kalank was a multi-starrer, It had A-listers such as Alia Bhatt, Varun Dhawan, Madhuri Sanjay Dutt, Sonakshi Sinha etc. Such multi-starrers again were sold at higher rates compared to normal movie tickets, 5. Tanhaji starred Ajay Devgan . Also, it was a historical movie describing the valour of the Great Maratha warrior Tanhaji Malusare. Hence. it was priced higher due to star-cast and interest of audience. 6. 'War was another multi-starrer. It had Hrithik Roshan Tiger Shroff' in the lead. Plus, it was an action-packed movie. Hence it was expected to do well. Thereby affecting prices. (v) Percentage of share in revenue of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire proceedings and the resultant amount of alleged profiteered amount was misconceived There was no amount of profiteering and the DGAP had flawed in his exercise of calculation in as much as a longer period of time was taken for the same and moreover, assumptions taken were also flawed or without considering the business and the factual matrix of the case. 7. Copy of the above submissions dated 21.07.2021 filed by the Respondent was supplied to the DGAP for supplementary Report under Rule 133 (2A) of the CGST Rules. 2017. The DGAP filed his clarifications on the Respondent's submissions dated 27.07.2021 vide supplementary Report dated 25.03 2022 and had clarified:- a. The case of Abbott Healthcare Private Ltd. Anr. Vs. UOI had not attained finality, its ratio cannot be applied to the instant case, Further, challenging the constitutional validity of Section 171 of the CGST Act. 2017 (on Anti-profiteering) and Rules made thereunder was erroneous and without any legal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder as the facts of each case are different for different sectors as well as in same sector also. Hence. no fixed mechanism could have been provided for in the Act or Rules. However, it was submitted that the Methodology and Procedure had been notified by the Authority vide his Notification dated 28.03.2018 under Rule 126 of the CGST Rules. 2017. Further, any fixed methodology prescribed for all cases could have led to chaos. For example, a real estate project involves various parameters like percentage of completion of project, different proportion of ITC availed because of different purchase pattern of inputs like cement, steel, fittings, etc.. area sold; taxable turnover etc before or after the GST implementation. Similarly, various parameters in cases 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned in the above Section gives the extent of benefit to be passed on by way of reduction in the prices which had to be computed in respect of each product based on the tax reduction as well as the existing base price (price without GST) of the product. The computation of commensurate reduction in prices was purely a mathematical exercise which was based upon the above parameters and hence it would vary from product to product and hence no fixed mathematical methodology could be prescribed to determine the amount of benefit which a supplier was required to pass on to a recipient or the profiteered amount. However, to give further clarifications and to elaborate upon this legislative intent behind the law, the Authority had been empowered to determine/expand the Procedure and Methodology in detail. One formula which fits all cannot be set while determining such a 'Methodology and Procedure as the facts of each case were different Moreover, both 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in the rate of tax to the recipients. The Respondent does not have the liberty to increase the base prices and maintain the same selling price when there was reduction in the rate of tax. In such a case, the Respondent was obliged to reduce the base prices commensurate with reduction in tax rate so that the due benefit of recipients was passed on to them in terms of Section 171 of the CGST Act, 2017. The variations in prices on account of demand of film, class, weekdays, and weekends might depend on cost factors. which were not factored in while computing profiteering under Section 171 of the CGST Act, 2017. The mandate of the DGAP was not to go into the Cost components. h. For the contention raised by the Respondent regarding the factors determining price of a ticket. It was submitted that Under the HS Code 9996 the impugned service had been classified as services by way of exhibition of cinematograph films'. There was no 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2017: According to Rule 133(5)(a) of CGST Rules, 2017, Notwithstanding anything contained in sub-rule (4). where upon receipt of the report of the Director General of Anti-profiteering referred to in sub-rule (6) of rule 129, the Authority had masons to believe that there had been contravention of the provisions of section 171 in respect of goods or services or both other than 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 mutatis mutandis apply to such investigation or enquiry. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,04.2021 till 23.02.2022, and that the minimum quorum was restored only w.e.f. 23.02.2022 and hence the matter was taken up for further proceedings vide Order dated 10.03.2022 and the Respondent was granted hearing in the matter on 10.052022 through Video Conferencing, 10. The hearing in the matter through Video Conferencing was held on 10.05.2022. It was attended by Shri Rajat Talati, Chartered Accountant and Shri Arjun Bhandari, Chief Financial Officer for the Respondent and Shri Marsh Shrivastava, Superintendent for the DGAP. During the hearing the Respondent has re-iterated his earlier written submissions dated 21.07.2021 and 15.04.2022. The Respondent during hearing further requested time till 16.05.2022 to file his written submissions against the Report of the DGAP which have been filed by the Respondent vide his email dated 16.05.2022. 11. The Respondent vide his submissions dated 16.05.2022 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oofing (Acoustic system) c. Air conditioners d. New projectors e. Auditorium seats f. New screen g. Popcorn vending machines, counters, kitchen appliances etc. h. Other furniture. Mures i. Plumbing work j. Fire-fighting equipment Theatres must evolve with value-added benefits and experiences that could not be duplicated anywhere else. The sound quality and the brie viewing experience were augmented. The new age customers were willing to shell out big bucks for a premium experience, but they increasingly wanted a theatre that delivered for the price being charged. The Respondent had incurred heavy capital expenditure to enable the consumers to enjoy an enhanced experience of viewing movies. Taking into consideration the above factors, it was managements' decision to charge a higher amount by the Respondent 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the amendment in Rule 133(5) of CGST Rules, 2017 which came in effect only from 28,06.2020. The Respondent has also contended that the cause or event that triggered the Authority to issue all India Notice for investigation had already occurred on 18.02.2019 As in February 2019, Rule 133(5) of CGST Rules. 2017 had not come into effect. In this regard it is to mention that the Sub Rule (5) to Rule 133 of the CGST Rules, 2017 was inserted vide Central Tax Notification 31/2019 dated 28.06.2019 which states that ;- (5) (a) Notwithstanding anything contained in sub-rule (4), where upon receipt of the report of the Director General of Anti-profiteering referred to in sub-rule (6) of rule 129, the Authority has reasons to believe that there has been contravention of the provisions of section 171 in respect of goods or services or both other than 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mensurate' mentioned in the above Section gives the extent of benefit to be passed on by way of reduction In the prices which has to be computed in respect of each product based on the tax reduction or availability of additional ITC as well as the existing base price (price without GST) of the product The computation of commensurate reduction in prices is purely a mathematical exercise which is based upon the above parameters and hence it would vary from product to product and hence no fixed mathematical methodology can be prescribed to determine the amount of benefit which a supplier is required to pass on to a recipient or the profiteered amount. One formula, which fits all, cannot be set while determining such a 'Methodology and Procedure as the facts of each case are different. Therefore, no set parameters can be fixed for determining 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 12.03.2020 . The Authority finds that average base price for each specific unique combination of the above factors* (i.e. 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 period is required to be compared to arrive at the quantum of profiteering by taking the total collection during the period 01.10.2018 to 31.12.2018 for the unique category. The average base price of the tickets was compared with the actual selling price of the tickets post GST rate reduction. Therefore the contention of the Respondent is not tenable as the computation is based on the material facts and not on assumptions. 19. The Authority finds that the Respondent has also made averment that supply of goods and supply of services have different nature which affects their 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 wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewers 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 will pay for entering multiplex screens only. In this regard, the Authority finds that, the above contention made by the Respondent has little to do with classification of service rendered by the Respondent. Further, the Respondent's contention that his main business is exhibiting cinematograph films for which the viewers come and is not Just giving admission to its multiplex screens, and thus, the service rendered by the Respondent is exhibiting cinematograph films that vary from films to films based on their popularity, is also vague and untenable. 22. It is also revealed that, the Respondent has stated that the high percentage of share in the ticket revenue is charged by the distributors. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on to the recipients by way of commensurate reduction in prices charged (including lower GST @ 18%). The total amount of profiteering covering the period of 01.01.2019 to 29.02.2020. comes to Rs. 2,66,99,340/-, 25. This Authority based on the facts discussed above has found that the Respondent has resorted to profiteering by way of either increasing the base prices of the service while maintaining the same selling prices or by way of not reducing the selling prices of the service commensurately, despite a reduction in GST rate on Services by way of admission to exhibition of cinematograph films where price of admission ticket is above one hundred rupees from 28% to 18% and Services by way of admission to exhibition of cinematograph films where price of admission ticket was one hundred rupees or less were reduced from 18% to 12% w.e.f. 01.01.2019 to 29.02.2020. 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 CGS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofiteering, if any, for the period post February, 2020 has not been examined and calculated. Therefore, the DGAP is directed to compute profiteering w.e.f. 01.03.2020 till the date the Respondent has passed on the benefit of tax reduction. 29. Further, the Hon ble Supreme Court, vide its Order dated 23.03,2020 in Suo Moto Writ Petition (C) No. 3/2020 while taking suo moto cognizance of the situation arising on account of Covid-19 pandemic, has extended the period of limitations prescribed under general law of limitation or any other special laws (both Central and State) including those prescribed under Rule 133(1) of the CGST Rules, 2017, as is clear from the said Order which states as follows:- A period of limitation in all such proceedings, irrespective of the limitation prescribed under the general law or Special Laws Whether condonable or not shall stand extended w.e.f. 15th March 2020 till Niftier order/s to be passed by this Court in present proceedings. Further, the Hon'ble Supreme Court, vide its subsequent Order dated 10.01.2022 has extended the period(s) of limitation till 28.02,2022 and the relevant portion of the said Order is as follows:- The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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