9911796707
TMI Blog2018 (9) TMI 1640X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Committee constituted under Rule 128 of the above Rules alleging that the Respondent had not passed on the benefit of reduction in the rate of tax by lowering the price of "Maybelline FIT Me foundation", (here-in-after referred to as the product) which she had purchased from him, when the Goods and Services Tax (GST) was reduced from 28% to 18% on this product on 15.11.2017. She had also alleged that she had bought the above product from the Respondent @ Rs. 525/- per unit vide tax invoice No. 1230010554 on 22.11.2017 which included GST @ 18%. She had also claimed that the Respondent had indulged in profiteering in contravention of the provisions of Section 171 of the CGST Act, 2017 and hence appropriate action should be taken against him. 2. The above application was examined by the Standing Committee on Anti-Profiteering and was referred to the DGAP, vide the minutes of it's meeting dated 29.11.2017 for detailed investigations under Rule 129 (1) of the CGST Rules, 2017. 3. The DGAP had called upon the Respondent to submit his reply on the allegation levelled by the Applicant No. 1 and also to suo moto determine the quantum of benefit which he had not passed on during the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by the Respondent within the MRP which was printed on the back of the product. 7. The DGAP has further stated that the Respondent had sold 46 units of the product carrying MRP of Rs. 550/- during the period between 01.11.2017 to 14.11.2017 wherein the basic price per unit excluding GST of the product was Rs. 410/- per unit and the RSP charged inclusive of 28% GST was Rs. 525/- per unit. The product was bought by the Applicant No. 1 from the Respondent on 22.11.2017 vide tax invoice No 1230010554 for Rs. 525/-, in which the basic price per unit was increased from Rs. 410/- to Rs. 445/- as a result of which the RSP charged inclusive of 18% GST came out to be Rs. 525/- which was equal to the RSP which was being charged by the Respondent before the rate of tax was reduced w.e.f. 15.11.2017. The DGAP has also maintained that if the reduction in the GST rate from 28% to 18% had been taken into consideration the RSP charged inclusive of 18% GST would have been maximum of Rs. 484/- per unit, therefore it was evident that profiteering of Rs. 41/- per unit (Rs. 525 - Rs. 484) and profiteering of Rs. 779/- on total 19 units (Rs. 41x19= Rs. 779/-) was made by the Respondent. The DGAP has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argava, Advocate, Sh. Tarun Gulati, Advocate and Ms. Jayashree Parthasarathy, Consultant. 10. The Respondent has filed his first written submissions on 03.05.2018 in which he has stated that the minutes of the meeting of the Standing Committee held on 29.11.2017 showed that there were two complaints filed by the Applicant No. 1. He has also submitted that it was recorded by the Standing Committee that the complaint mentioned at Serial No. 1 of the Annexure attached to the minutes had only tax invoice attached with it and hence the complaint was returned on the ground that not enough information was provided by the complainant to initiate action and therefore, she was free to make fresh complaint with adequate evidence. The Respondent has also submitted that against Serial No. 30 of the above Annexure, the Committee had recorded that the Respondent was not passing on the benefit of reduced GST from 28% to 18% and forwarded the complaint to the DGSG for necessary action. He has also claimed that Annexure-1 which had been referred to as the application by the complainant had been provided to the Respondent which comprised of the invoice and product label only and he had not been prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e word, "commensurate" which showed that the intent was to take the overall facts and circumstances into consideration, as otherwise the word "equivalent" would have been used to mandate exact measurement of benefit to be passed on. He has further argued that Article 19 (1) (g) of the Constitution granted him right to carry on trade or business and to fix prices and earn profits which could not be subjected to unreasonable restrictions under Section 171. He has also contended that there was no bar on considering the change in the rate / GST benefit accruing to a registered person as a whole where the registered person was engaged in supply of different goods / services and an individual product or service could not be isolated to determine compliance with the above provisions. He has further contended that the alleged benefits arising on an individual product could not be seen in isolation and the same were to be considered in terms of the regime introduced, the overall costs of GST implementation, other businesses carried out by the dealer and upon factoring in of various costs/ losses incurred at an entity level on his range of products. He has also alleged that neither the const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying tax on the units sold was incorrect. The Respondent has also maintained that the product which was mentioned in the complaint was out of the pre-GST stock and hence, there was no profit much less any profiteering. He has further maintained that even if a notional calculation was made for the products where the benefit of rate reduction had not directly been passed on, such notional amount would be at Rs. 3,66,47,019 in which an amount of Rs. 1,98,46,438/- might not have been passed on to the individual buyers but an amount of Rs. 10,06,42,391/- had been passed on to the customers subsequently. 13. The Respondent has also claimed that the DGAP's findings in paras 14 to 17 of the Report were based on an erroneous presumption that the base price had been increased and hence the benefit of rate reduction had not been given which had no factual or legal basis as the DGAP had completely ignored the actual cost of goods and the net margin earned by the Respondent prior to the introduction of GST which alone could determine the so called base price. He has further claimed that as the Respondent was holding substantial pre-GST stock, it was necessary to compare the net margin earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as submitted by him. He has further submitted that the calculation of an assumed base price by reducing 28% tax was incorrect and instead the actual cost of the product and the margin he was making prior to the introduction of GST should have been seen to calculate the base price which would have made it clear that there was no profiteering as there was no increase in the margin of the Respondent. He has also claimed that where the product had been sold at a price lesser than the alleged ideal price, those figures could not have been ignored but the same ought to have been considered as he had passed on the additional benefit to other customers and the Respondent had not earned a higher gross margin. He has further claimed that if the increase in the operating expenses by 16% was considered then at the net margin level he had made a lower margin and hence there was no question of profiteering. He has also contended that similar wrong presumptions had been made by the DGAP in Para 16 of the Report in respect of the product which was being sold at the MRP of Rs. 575/- which were completely wrong. 14. The Respondent has also stated that in Para 17 of the Report it had been observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard v. Indraprastha Gas Limited & Ors. (2015) 9 SCC 209 it had been held that if on reading of the statute in entirety, a power did not flow, a delegated authority could not frame a regulation as that would not be in accord with the statutory provisions nor would it be for the purpose of carrying on the provisions of the Act. He has also claimed that the Report did not recommend imposition of any penalty and interest and hence the same could not be imposed. 15. Clarification was sought from the Standing Committee on the issues raised by the Respondent in respect of the two complaints made by the Applicant No. 1. The Committee vide it's reply dated 20.07.2018 has intimated that it had received two complaints from the above Applicant which were considered by it in it's meeting held on 29.11.2017. The Complaint mentioned at Sr. No. 1 of the minutes of the meeting consisted of a photograph of the invoice which was forwarded by the DGAP through email intimating that the complaint was attached however, no complaint was attached except the photo of the invoice which showed that a number of items were purchased from the Respondent but the name and address of the above Applicant or the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/- per unit which he was charging before 15.11.2017. Had the Respondent not increased the basic price of Rs. 410/- per unit; the RSP of the product would have been Rs. 484/- per unit including GST of 18%. There was no reason for the Respondent to increase the basic price exactly equal to the amount by which the rate of tax had been reduced. This change in the basic price was also done by him w.e.f. 15.11.2017 the day from which the rate of tax was reduced. Therefore, there is no doubt that the whole exercise of increasing the basic price was done by the Respondent with malafide intention of not passing on the benefit of tax reduction to his customers. Although the Respondent was selling the product of a foreign brand owner the MRP of which he could not have decided still he was legally bound to pass on the benefit of tax reduction to his local customers as he had claimed benefit of ITC. Any discount offered by the Respondent on the product can also not be taken to have been given in lieu of the reduction in the rate of tax as such discounts are regular trade practices. Hence it is clear that the Respondent had not passed on the benefit of reduction in the rate of tax to the Applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DGAP. The name and address of the above Applicant and the nature of the complaint was also not mentioned and hence the Committee had rightly refused to take cognizance of this complaint and returned it to the DGAP for filing fresh complaint. However, in the second complaint mentioned at Sr. No. 30 of the minutes there was a written application with full name, email address, product label, invoice and gist of the allegation and hence this complaint was rightly considered by the Committee and sent to the DGAP for investigation. A copy of this complaint was also supplied to Sh. Sayan Bandhopadhyay representative of the Respondent on 06.01.2018 as is clear from the receipt issued by him and hence the allegation made by the Respondent that he was not supplied copy of the complaint on the basis of which the present proceedings had been launched is not correct. It is also apparent from the reply filed by the DGAP on 19.06.2018 that no APAF-1 form had been prescribed when the above Applicant had lodged her complaint on 23.11.2017 and hence there was no question of filing the complaint in the above Form and hence this averment of the Respondent is also not correct. 20. The Respondent has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with passing on of the commensurate benefit as is arrived at after calculation of the impact of rate reduction on the MRP of a product. There is further no restriction on the right of the Respondent to conduct trade as per Article 19 (1) (g) of the Constitution as Section 171 only requires him to pass on the above two benefits and does not require him to get any licence or seek approval to conduct trade or fix prices of the products being sold by him. The Respondent must remember that the Government has thought is appropriate in the public interest to reduce the rate of tax on the products being sold by him by sacrificing its own revenue and therefore, he is bound to pass on this benefit to his customers and by no stretch of imagination he can pocket this reduction to the detriment of the ordinary consumer. 21. The Respondent has also claimed that he was not supplied copy of the complaint and was also not heard by the DGAP however, both these claims are not borne out from the facts of the present proceedings and hence they cannot be accepted as the Respondent has been provided copy of the complaint and the DGAP has afforded him due opportunity of defending himself and hence the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed on immediately as reasonable time was required for doing so and since the profiteered amount was only Rs. 15,861/- the proceedings should be dropped. He has also raised objection against imposition of penalty on the ground that no substantial liabilities could be created under the CGST Rules, 2017 in the absence of specific provisions in the CGST Act. 22. As is evident from the narration of the facts mentioned above the Respondent had enhanced the basic price of both the shades of the product which was exactly equal to the amount by which the GST on them had been reduced and hence there is no doubt that the Respondent had resorted to profiteering amounting to Rs. 15,861/- which includes profiteering of Rs. 41/- made by him from the Applicant No. 1, which constitutes violation of the provisions of Section 171 of the above Act. It is also established that the Respondent had issued incorrect invoices while selling the product to his customers as he had not correctly shown the basic price which he should have legally charged from them which is an offence under Section 122 (1) (i) of the CGST Act, 2017 and hence he is liable for imposition of penalty under the above Section. Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X
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