PROFITEERING ON SUPPLY OF TILES UPHELD WHEN BASE PRICE INCREASED

[Dr. Sanjiv Agarwal]

If the rate of GST is reduced and base price of product is increased, it appears to be a blatant contravention of section 171 of the CGST Act, 2017 and there can not be two views on the same.

In Re: Mohammad Azid Ramzani v. Adarsh Marbles  2019 (6) TMI 1337 - NATIONAL ANTI-PROFITEERING AUTHORITY;  a complaint was made wherein it was alleged that the supplier had not passed on the benefit of reduction in the rate of tax from 28% to 18% w.e.f. 15,11.2017, granted vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017, as it had increased the base price of the “Vitrified Tiles” from Rs. 750/- in the pre-rate reduction period to Rs. 814/- in the period post implementation of the Notification dated 14.11.2017. Since the supplier had increased the MRP of the product after the rate of tax was reduced on it, it had indulged in profiteering in contravention of the provisions of section 171 of the CGST Act, 2017.

The complaint was referred to DGAP for investigation. It was evident from the invoices submitted, that by increasing the base price of the product from Rs. 750/- to Rs. 814/-, the benefit of the GST rate reduction was not passed on. The base prices of the tiles were increased although there was a reduction in the GST rate from 28% to 18% w.e.f. 15.11.2017. Thus, by increasing the base prices consequent to the reduction in the GST rate, the commensurate benefit of reduction in GST rate from 28% to 18% was not passed on to the recipients. Thus, the total amount of profiteering covering the period 15.11.2017 to 30.06.2018, was Rs. 54,67,149.

The NAA observed that supplier had increased the base price of the product from Rs. 750/- to Rs. 814/-, when the rate of tax was reduced from 28% to 18% with effect from 15.11.2017. Thus, by increasing the base price of the product, post-GST rate reduction, the benefit of reduction in tax rate was not passed on to the applicant by the supplier.

It noted that profiteering is not acceptable in the trade if it is illegally derived by appropriating the benefits which are granted by the Government from the public funds to the consumers.

The amount of profiteering was determined as Rs. 54,67,149 as per the provisions of rule 133(1) of the CGST Rules, 2017. It was directed to reduce the prices of products 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 and deposit the profiteered amount of Rs. 54,67,149/- along with the interest to be calculated @ 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited.

It was further directed to refund an amount of Rs. 75/- (750 x 1.28 = 960 -750 x 1.1.8 = 885) to applicant along with the interest @ 18%. Since rest of the recipients in this case are not identifiable, the respondent is directed to deposit the amount of profiteering of Rs. 27,33,537/- in the Central Consumer Welfare Fund (CWF) and Rs. 27,33,537/- in the Uttar Pradesh State CWF as per the provisions of rule 133(3)(c) of the CGST Rules, 2017, along with 18% interest within a period of 3 months from the date of receipt of order.

The supplier had also issued incorrect invoices while selling the above product to his recipients as it had incorrectly shown the base prices and had also compelled them to pay additional GST on the increased prices through the incorrect tax invoices which would have otherwise resulted in further benefit to the recipients. It was also established from the record that the supplier 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 it is liable for imposition of penalty.