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CLASSIFICATION OF GOODS RELEVANT FOR ESTABLISHING PROFITEERING: A CASE ON SUPPLY OF POWER BANKS

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CLASSIFICATION OF GOODS RELEVANT FOR ESTABLISHING PROFITEERING: A CASE ON SUPPLY OF POWER BANKS
Dr. Sanjiv Agarwal By: Dr. Sanjiv Agarwal
December 31, 2020
All Articles by: Dr. Sanjiv Agarwal       View Profile
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Classification of goods and services is crucial to levy of tax and also in determining rate of tax. This is so because if the rate is reduced in any HSN Code but the goods are classified in some other code, it will be very difficult to determine whether it is a fit case to pursue anti-profiteering allegation or not. In one of the complaints of allegation of not passing on the benefit of rate reduction, it was observed that the rate of GST was not reduced in the HSN Code to which supply of goods pertained (Power Banks in this case).

SHRI RAHUL SHARMA ON BEHALF OF M/S LOCAL CIRCLES INDIA PVT LTD., DIRECTOR GENERAL OF ANTI-PROFITEERING, INDIRECT TAXES & CUSTOMS, VERSUS M/S. XIAOMI TECHNOLOGY INDIA PVT. LTD [2020 (2) TMI 667 - NATIONAL ANTI-PROFITEERING AUTHORITY] , a complaint was made to Standing Committee stating that the respondent company had resorted to profiteering in respect of supply of “Xiaomi-Ml Power Bank 2i Red (10000 mAh)”. It was also alleged that the Respondent had maintained the same selling price for the said Power Bank despite reduction in the GST rate from 28% to 18% effected vide Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018, which came into force on 01.01.2019 and that the Respondent had not passed on the benefit of this reduction in the GST rate to its recipients by way of commensurate reduction in the price of the Power Bank as envisaged under Section 171 of the CGST Act 2017.

The complaint was referred to DGAP for investigation to determine whether the benefit of reduction in the rate of tax or ITC had been passed on by the Respondent to it recipients in terms of Rule 129(1) of the CGST Rules, 2017. DGAP submitted its report on 28.08.2019.

The company submitted that it was charging GST 18% before 01 Jan 2019 and continued to charge GST at 18% after 01 January 2019 for the said Power Bank supplied by him, classifying the same under HSN 8507 60 00. It also submitted that amendments effected vide notification No. 24/2018-Central Tax (Rate) dated 31 December 2018 did not lead to any reduction in the rate of tax applicable to the said Power Bank and accordingly the price of the said Power Bank remained unchanged. Further, classification of Power Bank under HSN 8507 60 00 was adopted by it on a conservative basis, although it believed that the impugned product merited classification under HSN 8504 40 90 as a static convertor. It had already filed an Advance Ruling application in the state of Karnataka on this matter. It further stated that since all his supplies of the said Power Bank were classified under HSN 8507 60 00 in the periods before and after 01 January 2019 there was no reduction of tax rate in respect of the supplies made by it.

It contended that anti-profiteering provisions could not be applied to the case as there was no reduction in the rate of tax for the said Power Bank. The following table in relevant :

Particulars

Before Amendment

After Amendment

Difference

Base Price

761.86

761.86

0

GST Rate

18%

18%

0

GST

137.14

137.14

0

Total

899

899

0

Invoice and Numbers

3535296 and 3559133

3614473 And 3616581

 

According to DGAP report, the price changed by the Respondent had remained same before and after 01.01.2019 and there was no reduction in the rate of GST being charged by it. The Respondent had classified the said Power Bank under HSN 8507 60 00 and the same following the Notification No. 18/2018-Central Tax (Rate), wherein under entry “S. No. 376AA, Chapter Heading HSN 8507 60 00, Description of Goods Lithium-ion Batteries”, as had been inserted in Schedule III thereby attracting 18% GST. Hence, rate of tax in respect of the said Power Bank remained unaffected by coming into force of Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018. Section 171 of CGST Act, 2017 which governs the anti-profiteering provisions under the GST regime, reads as “Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.” Therefore, the DGAP found that the provisions of Section 171 of the Central Goods and Services Tax Act, 2017 are not attracted.

The ambit of the current investigation was limited to determine if the Respondent had not passed on the benefit of reduction in the GST rate on Power Banks, from 28% to 18% w.e.f. 01.01.2019 in terms of Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018 and the scope of investigation did not cover any previous instance of reduction of tax rate including the rate reduction effected vide Notification No. 18/2018-Central Tax (Rate) dated 26.07.2018. The DGAP concluded that the provisions of Section 171 (1) of Central Goods and Services Tax Act, 2017, relating to profiteering, are not attracted.

The NAA considered the report of the DGAP and observed that power bank was being classified under the HSN 8507 60 00 and supplies of the said power bank, described as “Lithium-ion Batteries”, were being effected in line with entry at S. No. 376AA, of Notification No. 18/2018-Central Tax Rate dated 26.07.2018, whereby the GST being levied @ 18% w.e.f. 26.07.2018. The entry after coming into force of Notification No. 24/2018-Central Tax (Rate) had no effect on the tax rate leviable on the said power bank, HSN 8507 60 00, being supplied by the Respondent.

It did not found the subject complaint to be a case of profiteering as had been alleged by the complainant. The scope of investigation/proceedings was limited to the issue of profiteering only and not to the issue of classification.

It was therefore, held that the allegation of the complainant is not tenable and therefore, the application alleging violation of provisions of Section 171 of the CGST Act, 2017 was dismissed. It can be inferred that correct classification of the goods (HSN Code) is necessary to adjudicate the allegation of anti-profiteering u/s 171 of the CGST Act 2017, as rightly done in this case.

 

By: Dr. Sanjiv Agarwal - December 31, 2020

 

 

 

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