2020 (8) TMI 772 - NAPA - GST

Profiteering - supply of Services by way of admission to exhibition of cinematograph films - allegation that the benefit of reduction in the rate of tax not passed on by way of commensurate reduction in price - contravention of section 171 of CGST Act - penalty - HELD THAT - The Respondent is registered in the State of Telangana under GSTIN 36AAACP4526DIZR and is mainly engaged in the business of sale of cinema tickets food and beverages and advertisement space. It is also revealed from the plain reading of Section 171 (1) of the CGST Act 2017 that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second about the passing on the benefit of the ITC. On the issue of reduction in the tax rate. it is apparent from the record that there has been a reduction in the rate of tax from 28% to 18% on Services by way of admission to exhibition of cinematograph films where price of admission ticket was above one hundred rupees and from 18% to 12% on Services by way of admission to exhibition of cinematograph films where price of admission ticket was one hundred rupees or less w.e.f. 01.01.2019. vide Notification No. 27/2018- Central Tax (Rate) dated 31 12.2018. Therefore. the Respondent is liable to pass on the benefit of both the tax reductions to his customers in terms of Section 171 (1) of the above Act. It is also apparent that the DGAP has carried out the present investigation w.e.f. 01.01.2019 to 31.07.2019. The mathematical methodology employed by the DGAP to compute the profiteered amount is correct appropriate reasonable and in consonance with the provisions of Section 171 (1) as the Respondent was selling tickets at various prices to his customers due to which the actual transaction value was required to be taken in to account to calculate the profiteered amount. The average base price computed by the DGAP was required to be compared with the actual base price of the ticket to ascertain whether the Respondent has passed on the benefit to each of his buyer or not. Therefore it would not have been correct to compare the average base prices pre and post rate reductions. Hence the mathematical methodology applied by the DGAP to compute the profiteered amount is justified and can be relied upon. Thus the profiteered amount is determined as Rs. 13, 51, 519/- for the period from 01.01.2019 to 06.01.2019 as mentioned in Table-B of the DGAP s Report dated 31.01.2020 as per the provisions of Section 171 (1) read with Rule 133 (1) of the CGST Rules 2017. The Respondent has reduced his prices commensurately w.e.f. 07.01.2019 in terms of Rule 133 (3) (a) of the above Rules therefore no further direction is required to be passed on this account. Further since the recipients of the benefit as determined above are not identifiable the Respondent has voluntarily deposited an amount of Rs. 13, 72, 181/-along with interest of Rs. 35, 865/- in the CWFs in accordance with the provisions of Rule 133 (3) (c) of the CGST Rules 2017. Penalty - HELD THAT - The Respondent has contravened the provisions of Section 171 (1) of the CGST Act 2017. However since the penalty prescribed under Section 171 (3A) of the CGST Act 2017 for violation of the above provisions has come in to force w.e.f. 01.01.2020 and the infringement pertains to the period from 01.01.2019 to 06.01.2019 and the Respondent has also deposited the profiteered amount alongwith the interest therefore no penalty is proposed to be imposed on the Respondent.

Summary

Issues Involved:
1. Whether the Respondent passed on the commensurate benefit of GST rate reduction to customers.
2. Whether there was any violation of Section 171 of the CGST Act, 2017 by the Respondent.

Issue-wise Detailed Analysis:

1. Whether the Respondent passed on the commensurate benefit of GST rate reduction to customers:

The Director General of Anti-Profiteering (DGAP) conducted an investigation based on a reference from the Standing Committee on Anti-Profiteering, alleging that the Respondent did not pass on the benefit of GST rate reduction from 28% to 18% for tickets priced above Rs. 100 and from 18% to 12% for tickets priced at Rs. 100 or less, effective from 01.01.2019. The investigation covered the period from 01.01.2019 to 31.07.2019.

The Respondent argued that they were operating in a regulated market where ticket prices were fixed by the Licensing Authority, and any deviation required prior sanction. Despite this, they claimed to have reduced ticket prices from 07.01.2019 and deposited the differential amount of Rs. 13,72,181/- into the Consumer Welfare Fund (CWF).

The DGAP's analysis revealed that the Respondent had not reduced the selling prices commensurately with the GST rate reduction from 28% to 18% and 18% to 12% for the period from 01.01.2019 to 06.01.2019. The Respondent increased the base prices to maintain the same selling prices, resulting in excess charges to customers. The DGAP calculated the profiteered amount to be Rs. 13,51,519/- for this period. However, from 07.01.2019 onwards, the Respondent reduced prices commensurately.

2. Whether there was any violation of Section 171 of the CGST Act, 2017 by the Respondent:

Section 171 (1) of the CGST Act, 2017 mandates that any reduction in tax rates must be passed on to the recipient by way of commensurate reduction in prices. The DGAP confirmed that the Respondent violated this provision by not reducing prices for the initial period from 01.01.2019 to 06.01.2019.

The Respondent's contentions that there were no specific guidelines or methodology prescribed under the CGST Act for passing on the rate reduction benefit were dismissed. The legal requirement under Section 171 (1) is clear that any reduction in tax rates must result in a commensurate reduction in prices.

The Respondent's argument that the Telangana State Regulations and the Andhra Pradesh Cinemas (Regulation) Act, 1955 governed ticket pricing and prevented immediate price reduction was also dismissed. The CGST/SGST Act, 2017, which governs GST rate reductions, supersedes state regulations.

The Respondent's claim that they had already passed on the benefit of GST rate reductions and therefore did not need to reduce prices further was also rejected. The evidence showed that the price reduction was only implemented after intervention by the Central GST Anti-Evasion Authorities.

Conclusion:

The Respondent was found to have contravened the provisions of Section 171 (1) of the CGST Act, 2017, by not passing on the benefit of GST rate reduction to customers for the period from 01.01.2019 to 06.01.2019. The profiteered amount was determined to be Rs. 13,51,519/-. However, since the Respondent had voluntarily deposited Rs. 13,72,181/- along with interest of Rs. 35,865/- into the CWF, no further action was required. No penalty was imposed as the penalty provisions under Section 171 (3A) came into force only from 01.01.2020, and the infringement pertained to an earlier period.

Order:

The order was passed considering the prevalent COVID-19 pandemic and the extension provided under Notification No. 55/2020-Central Tax dated 27.06.2020. Copies of the order were supplied to the Applicants, the Respondent, and the concerned Commissioner CGST/SGST Telangana for necessary action.