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2019 (7) TMI 36 - NAPA - GSTProfiteering - Sanitary Napkins - prices of the product not reduced despite reduction in the rate of GST on the said product from 12% to Nil w.e.f. 27.07.2018 - benefit of reduction in the rate of tax not passed on - denial of ITC (ITC) on account of reduction in GST rate - contravention of provisions of section 171 of CGST Act - whether there is any reduction in rate of tax on any supply of goods or services or the benefit of ITC has been passed on to the recipient by way of commensurate reduction in prices? - HELD THAT:- It is revealed that the Central Govt. vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018 the Government had reduced the rate of GST from 12% to NIL without ITC in respect of the The product with effect from 27.07.2018, the benefit of which was required to be passed on to the recipients as per the provisions of Section 171 of the CGST Act, 2017. From the above discussion and the invoices available, it is revealed that the base price of the product “Sofy Bodyfit XL 6S” was increased from ₹ 33.08/- to ₹ 37.05/-, when the rate of tax was reduced from 12% to NIL% with effect from 27.07.2018. Thus, increasing the base price of the product, post-GST rate reduction, the benefit of reduction in tax rate was not passed on to the recipients. The Respondent No. 2, who is the seller of the impugned product, had clearly increased the base price of the product as can be seen from the invoices. But as the benefit of ITC was not available to him post 27.07.2018, so the reversal of ITC on the closing stock was the extra cost on him. As can be seen from the records that reversal of ITC by him was more than excess realization on closing stock after denial of ITC benefit w.e.f. 27.07.2019, and therefore no profiteering can be established on his part and hence, we take the view that Section 171(1) is not attracted in respect of the Respondent No. 2 - Notwithstanding the fact that there had been reduction in MRP and the Respondent No. 1 had reduced his MRP, we find that it has not been commensurate with the net reduction in the rate of tax and that the benefit has not reached all the recipients which establishes contravention of the provisions of Section 171(1) of the CGST Act, 2017. It is absolutely clear even from a cursory perusal of the provisions of Section 171 that they are completely unambiguous and clear and hence there is hardly any scope for misinterpretation of the same. The intent of legislature shows that it proposes to hold the suppliers accountable for passing on the benefit of rate reduction as it is being given out of the public exchequer and any breach of the same will fall foul of the above Section. Thus the quantum of profiteering illegally obtained by the Respondent No. 1 is determined as ₹ 10,77,182.34/as per the details mentioned in para 11 supra in terms of the provisions of Rule 133 (1) of the CGST Rules, 2017 as the above Respondent has failed to pass on the benefit of rate reduction to his customers. Accordingly, the Respondent No. 1 is directed to reduce his prices by way of commensurate reduction keeping in view the reduced rate of tax which has been availed by him as per Rule 133 (3) (a). The Respondent No. 1 is further directed to deposit the above amount as per the provisions of Rule 133 (3) (c) in the ratio of 50:50 in the Central or the State Consumer Welfare Fund of all the States and UTS as mentioned in para 12 above, along with the interest @ 18% till the same is deposited within a period of 3 months. Penalty - HELD THAT:- Respondent had issued incorrect invoices while selling the above product to his recipients as he had incorrectly shown the base price without mentioning any specifics such as colour, texture, quality etc about the products being supplied with the sole intention of not having to pass commensurate benefit of reduction in rate of tax to his recipients. It is also established from the record that the Respondent has deliberately and consciously acted in contravention of the provisions of the CGST Act, 2017 by issuing incorrect invoices which is an offence under Section 122 (1) (i) of the above Act and hence he is liable for imposition of penalty - In the interest of natural justice before imposition of penalty a notice be issued to him asking him to explain why penalty should not be imposed on him. Application disposed off.
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