Tax Management India. Com
                        Law and Practice: A Digital eBook ...
TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Articles News
Highlights
D. Forum
What's New
Sub-Menu

Share:      

        Home        
 
Article Section
Home Articles Goods and Services Tax - GST Dr. Sanjiv Agarwal Experts This
← Previous Next →

ANTI-PROFITEERING AUTHORITY- MATTER REMANDED TO DGAP FOR FURTHER INVESTIGATION

Submit New Article

Discuss this article

ANTI-PROFITEERING AUTHORITY- MATTER REMANDED TO DGAP FOR FURTHER INVESTIGATION
By: Dr. Sanjiv Agarwal
January 9, 2021
All Articles by: Dr. Sanjiv Agarwal       View Profile
  • Contents

In one of the complaints u/s 171 of CGST Act, 2017, while adjudicating, the NAA remanded the matter back to DGAP for further investigation and resubmission of report, something which is a commonly seen practice in appellate matters before tribunals and courts, a rare observation by National Anti-profiteering Authority.

DIRECTOR GENERAL OF ANTI-PROFITEERING VERSUS L'OREAL INDIA (P.) LTD. [2020 (1) TMI 1370 - NATIONAL ANTI-PROFITEERING AUTHORITY], it was alleged that the Respondent had not passed on the benefit of reduction in the rate of GST on the Fast Moving Consumer Goods (FMCGs) being supplied by it, when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017.

The matter was referred to DGAP for investigation who submitted its report dated 05.07.2019 followed by supplementary reports dated 11.12.2019 and 23.12.2019 covering the period from 15.11.2017 to 31.12.2018.

The respondent company was engaged in products for hair colour, hair care, make-up, skin care and luxury products. It had 20 GSTINs as supplier and 4 GSTINs as Input Service Distributor (ISD). Out of the said 20 GSTINs, he had stopped supplies to 7 GSTINs but these GSTINs were still registered for which he was filing NIL Returns.

The customers included- (a) General Trade (GT) or Distributors, (b) Modern Trade (MT), (c) E-commerce platforms, (d) Canteen Stores Department (CSD) and the said products were manufactured either by him (at factories situated in Baddi and Chakan) or by his contract manufacturers. He was also importing goods from outside India. The manufactured as well as the imported products were stock-transferred to various locations from where they were sold to various distributors, modern retailers and Canteen Stores etc.

The respondent submitted that since  neither Section 171 of the Central Goods and Services Tax Act, 2017 nor the Rules framed thereunder provided any guidelines as to how the benefit of reduction in the tax rate was to be passed on to the recipients, it had passed on the benefit of GST rate reduction to his recipients by adopting the following methods:-

  1. By reducing the prices of the impacted products.
  2. By issuing Credit Notes to his distributors for supplies made post-rate reduction at the old prices. In respect of Modern Trade  and E-commerce customers, the claims of GST rate reduction benefit were settled by way of invoices raised by them,
  3. By increasing the grammage / quantity of the products and maintaining the pre-rate reduction MRP/selling price.

It contended that the following deductions should be considered while determining the amount of profiteering :

(a) Post supply price reduction (discount)

(b) Price reduction and MRP reduction on package

(c) Higher grammage or  quantity increase

(d) New stock keeping units (SKUs) including supply of goods not impacted by GST rate reduction (e.g., Kajal, hair oil)

(e) Increase in cost including increase in basic customs duty and levy of social welfare surcharge

(f) Loss of benefit on account of area based fiscal incentives

(g) Sales made to canteen stores department (CSD)

(h) Sales made to sub-contractor and scrap sale

(i) Company transfer

The main issues to be examined were whether the rate of GST on the goods supplied by the Respondent was reduced from 28% to 18% w.e.f. 15.11.2017 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 Central Goods and Services Tax Act, 2017.

Respondent claimed that it had passed on the benefit of GST rate reduction to the extent of ₹ 73.59 Crore by way of issuing Credit Notes to his customers viz. distributors/modern retailers etc. A perusal of the claim documents (constituting 50% of total claim value) submitted by the Respondent revealed that these were invoices raised by the Respondent's trade partners for provision of services like advertising, sales promotion, sponsorship and brand promotion etc. to the Respondent, which the Respondent had reimbursed by issuing Credit Notes.

The said invoices/Credit Notes nowhere indicated that they were related to the benefit of reduction in the GST rate from 28% to 18% w.e.f, 15.11.2017. No SKU wise correlation could be made between the claim texts appearing in the calculations and the details of the invoice wise outward supplies submitted by the Respondent and as such the deduction claimed on account of payments made by the Respondent towards advertising, sales promotion, sponsorship and brand promotion services supplied by his trade partners, could not be considered as the benefit of GST rate reduction w.e.f. 15.11.2017. There was no proximity between the date of GST rate reduction and the date of the supply of the service and/or the Credit Notes. The method adopted by the Respondent for calculating the reduction in price and MRP by comparing the pre-GST MRP less pre-GST taxes with the post-GST MRP less GST @ 18%, for the reason that there was no increase in the price at the time of implementation of GST, was also not consistent with the provisions of Section 171 of the Central Goods and Services Tax Act, 2017.

The Respondent's decision not to increase the MRPs when the tax rates had increased at the time of implementation of the GST, was his voluntary and conscious business decision which could not form the basis for not passing on the benefit of subsequent GST rate reduction w.e.f. 15.11.2017, as the provisions contained in Section 171 of the Central Goods and Services Tax Act, 2017 did not provide for any means of passing on the benefit of reduction in the rate of tax or benefit of input tax credit other than by way of commensurate reduction in price. The claim of the Respondent that he had passed on the benefit of GST rate reduction on certain SKUs by increasing the quantity or grammage of the products while maintaining the earlier pre-rate reduction MRPs of such SKUs, was also not accepted.

The increase in the cost of raw materials/input services, if any, has no relevance in the context ot GST rate reduction w.e.f. 15.11.2017. Section 171 of the Central Goods and Services Tax Act, 2017 did not provide any scope for adjustment of increase in the cost against the benefit of reduced tax rate. The increase in the cost of inputs/input services might be a factor for determination of price but this factor is independent of the output GST rate.

The amount of net higher sales realization due to increase in the base prices of the impacted goods, despite the reduction in the GST rate from 28% to 18% or the profiteering amount came to ₹ 2,16,49,61,535/-, This said profiteered amount had been arrived at by the DGAP by comparing the customer type-wise average of the base prices of the impugned products sold during the period from 01.10.2017 to 14.11.2017, with the actual invoice-wise base prices of such products sold during the period from 15.11.2017 to 31.12.2018. The excess GST so collected from the recipients, was also included in the aforesaid profiteered amount as the excess price collected from the recipients also included the GST charged on the increased base price. The DGAP had concluded that the Respondent has increased the base prices after rate reduction from 28% to 18% w.e.f. 15.11.2017 and has contravened the provisions of Section 171 of the CGST Act, 2017.

The NAA considered the DGAP report and heard both, respondent and DGAP. The NAA observed that the DGAP has left the rectification of the above claims on this Authority however; no grounds had been mentioned on the basis of which this Authority can decide why the above recommendations of the DGAP should be accepted. In the absence of clear cut findings on the above issue the Authority could not pass reasoned and just order.

The Reports dated 05.07.2019 and 23.12.2019 furnished by the DGAP cannot be accepted and he was directed to cause further investigation on the above issues and furnish fresh Report in terms of Rule 133 (4) of the CGST Rules, 2017.

Further, the respondent did not furnished the following details pertaining to his claim of having passed on the benefit of rate reduction by increasing the grammage/volume of his products:

(i) Name of the SKU

(ii) Ease price of the SKU pre rate reduction with documentary evidence

(iii) Weight/volume of the SKU pre rate reduction with documentary evidence

(iv) Commensurate base price of the SKU post rate reduction with details of computations

(v) Commensurate increase in the weight/Volume required post rate reduction with computations

(vi) increase in the weight in grams/mls

(vii) Whether the increase is commensurate with the rate reduction

(viii) Date of passing on the benefit of tax reduction with documentary evidence

(ix) Amount of benefit of tax reduction passed on the SKU

(x) Amount of benefit of tax reduction passed on State/Union Territory wise

The Respondent was directed to supply the above information to the DGAP within a period of 30 days from the date of the order.

The DGAP was also directed to supply detailed list of the SKUs impacted by the rate reduction w.e.f. 15.11.2017 along with the pre rate reduction base price and the commensurate reduced base price post rate reduction with percentage of increase/reduction made by the Respondent in respect of such SKU.

 

By: Dr. Sanjiv Agarwal - January 9, 2021

 

 

Discuss this article

 
← Previous Next →

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Site Map - Recent || Site Map || ||