TMI Blog2018 (11) TMI 1073X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. The quantum of denial of benefit due to the reduction in the rate of tax and the benefit of ITC availed by the Respondent which was required to be passed on to the customers or the amount of profiteering done by the Respondent is determined as ₹ 7,49,27,786/- under the provisions of Rule 133 (1) of the CGST Rules, 2017 as the Respondent has failed to pass on both the above benefits to his customers - The above amount is inclusive of the extra GST which the Respondent had forced the customers to pay due to wrong increase in his basic prices otherwise the prices to be paid by them should have further got reduced by the amount of the GST illegally charged from them. The Respondent is directed to reduce his prices by way of commensurate reduction keeping in view the reduced rate of tax and the benefit of ITC which has been availed by him as per Rule 133 (3) (a). Since the complainants are not identifiable in this case the Respondent is further directed to deposit the above amount as per the provisions of Rule 133 (3) (c) in the ratio of 50:50 in the Central or the State CWFs of all the 10 States mentioned in para 12 above, along with the interest @ 18% till the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anti-Profiteering and were referred to the DGAP vide the minutes of it's meetings dated 29.11.2017 and 20.12.2017 for detailed investigation under Rule 129 (1) of the CGST Rules, 2017. 3. The DGAP had called upon the Respondent to submit reply on the allegation levelled by the Applicants No. 1 to 4 and also to suo moto determine the quantum of benefit which he had not passed on to the consumers during the period between 15.11.2017 to 31.01.2018. The above Applicants were given an opportunity to inspect the non-confidential evidences/reply furnished by the Respondent between 24.05.2018 to 25.05.2018. However, the Applicants did not avail of this opportunity. 4. The Respondent had submitted his reply on 05.01.2018 vide Annexure11 and denied the allegations levelled against him and claimed that the benefit of reduction in the rate of tax had been neutralised due to withdrawl of Input Tax Credit (ITC) to him. The Respondent had furnished the required information/documents to the DGAP vide his letters dated 12.01.2018, 17.01.2018, 22.01.2018, 24.01.2018, 29.01.2018, 07.02.2018, 09.02.2018, 16.02.2018, 22.02.2018, 23.02.2018, 05.03.2018, 09.03.2018, 19.03.2018, 26.03.2018, 06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15%. He has further contended that he could not avail ITC worth ₹ 8.70 Crores for the months of July to October, 2017 and could avail it only after 15.11.2017. He has also submitted that the quantum of ITC not shown in the GSTR 3B would increase from ₹ 8.70 Crores to ₹ 9.33 Crores and would further increase by 50 Lakhs after all the inward supplies were accounted for which would prove that he had not profiteered. He has further contended that prices of some premium products had been reduced from 11% to 22%. e. That the rent for the restaurants in the shopping malls was charged on fixed or variable or semi-variable basis which was approximately 3.5% of the incremental turnover and was payable at the end of the year and since the bills for the same would be raised only at the year-end, he would not be eligible to claim ITC on such variable rent and he would suffer an estimated loss of ₹ 22.78 Lakhs. f. That for the computation of availability of ITC, additional ITC for the period from July, 2017 to 14.11.2017 should be a minimum of ₹ 10 Crores. The Respondent has also claimed that the transitional credit mentioned in TRAN-I statement filed by him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m before 15.11.2017 whereas they should have been charged the lower price after commensurate reduction due to reduction in the rate of tax and hence they were denied the benefit which had become due to them. 8. The DGAP has made detailed calculation of profiteering vide Annexure37 of his report. He has also compared the ITC which was available to the Respondent till 14.1 1.2017 with the outward taxable supplies made till the above date. He has calculated the ITC from the period from 01.07.2017 to 31.10.2017 as the details of the closing stock as on 14.1 1.2017 and the ITC on such stock were not available in the GSTR-3B return of November, 2017 filed by the Respondent. The DGAP has also intimated that date wise outward taxable turnover was also not supplied by the Respondent up to 14.1 1.2017. The DGAP while determining the ITC as a ratio of the total taxable turnover of the Respondent has taken into account the ITC for the period from July, 2017 to October, 2017, as was shown in the GSTR3B, which has been adjusted by adding the amount of ITC which was availed in the month of November, 2017 as per GSTR-3B return and by excluding the amount of tax which was paid on inter unit bran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied by him to neutralise the effect of denial of ITC after the rate reduction. The DGAP had compared the pre and post GST rate reduction prices of the items sold during the period between 15.11.2017 to 31.01.2018 and after taking into account the entire quantity of the products sold during the above period, had found that the Respondent had increased the average output taxable value i.e. the base price by 10.45% to offset the denial of input tax credit of 9.11% as was evident from Annexure-36 of the report. Therefore, the DGAP had concluded that the Respondent had not passed on the benefit of reduction in the rate of tax from 18% to 5% as he had increased the base prices by more than 9.11% to 10.45% i.e. more than the denial of ITC in respect of 1,730 items out of total 1,844 items i.e. 93.82% of the total items supplied by him before and after 15.11.2017. 12. The DGAP has also stated that on the basis of the pre and post reduction in the GST rates, the impact of the denial of ITC and the details of the outward supplies made during the period between 15.11.2017 to January, 2018, as per the GSTR-I or GSTR-3B returns of the Respondent, the amount of net higher sale realization d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also been claimed by the Respondent that the DGAP had admitted that there was no incremental ITC available and therefore no benefit was to be passed on by the Respondent. He has further claimed that despite admission that Section 171 nowhere aimed at price regulation and it's purpose was only to ensure that benefit of reduction in the rate of tax or ITC was passed on to the recipients by way commensurate reduction in the prices, the DGAP had gone in to the computation of base price by invoking the marginal note, i.e. Anti-Profiteering Measure which was illegal. He has further claimed that as per the settled law pronounced on the interpretation of the statutes, marginal notes were considered as internal aid to construction and while construing such provisions, the first and the foremost rule was of literal construction and in case the provision was unambiguous and the legislative intent was clear, the other rules of construction were not be called into aid since they were to be called for aid only when the legislative intention was not clear. The Respondent has also cited the law settled in the cases of Commissioner of income Tax v. Calcutta Knitwears (2014) 6 SCC 444, Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DGAP had lost sight of the true meaning of the word profit . 16. The Respondent has also pleaded that the DGAP had concluded that the turnover had increased by 24,81 ,33,857/- solely due to the increase in the base prices by 10.45%, which could not be taken as profit accruing to the Respondent as there was increase in the (a) Royalty, as the Respondent was paying royalty to M/S McDonald's India Pvt. Ltd. which was 3.99% of the restaurant turnover and amounted to incremental royalty of 99,00,540/- on the incremental turnover attributed solely to the price increase during the year 2017-18 (b) Variable rent, which was 3.29% of the restaurant turnover, whereby he had paid an incremental rent of 81 ,63,604/- on the incremental turnover attributed solely to price increase during the above year and (c) Other variable expenses like payments made to various service providers and during the year 201718, such expenses were 0.96% of the restaurant turnover and he had paid incremental expenses of 23,82,085/- on the incremental turnover attributable solely to the price increase. He has further pleaded that on the incremental revenue of 24,81,33,857/-, he had incurred incremental cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sual or exceptional circumstances to make excessive profits Black's Law Dictionary Make or seek to make an excessive profit Shorter Oxford English Dictionary Profiteering would mean taking advantage of unusual or exceptional circumstances to make excessive profits. Islamic Academy of Education vs State of Karnataka The Respondent has further pleaded that he had not made excessive and/ or unreasonable profit as he was hardly making a profit, as the tax incremental cost computed by the DGAP was 9.11% as against the incremental price margin of 9.43%. and hence he had benefited only by 0.32%. He has also averred that the increased tax cost warranted revision in the prices to offset the tax cost and in case he increased the prices by ? 100, he would only get 00.28 after paying out royalty, variable rent and the outside services and therefore, the prices must be at least increased by 10.09% [9.11*100/0.902] and not 9.11% as had been calculated by the DGAP to recover the tax cost. He has further averred that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r-unit branch transfers of 49,26,86,384/- on which GST of 7,30,30,443/- was paid which had been wrongly excluded while computing the ratio of ITC denial to taxable turnover being mere book entries as he had suffered incremental cost on the mark up price. He has further pleaded that he had availed of ITC of 6,46,90,974/- on the inward supplies of 47, which were used to make outward inter-unit branch transfers valued at 50,90,43,209/- on which GST of 7,03,22,927/- was paid and thus, he had paid additional GST of 56,31 ,954/- on inward supplies which had been denied to him by the DGAP. He has also alleged that the period of investigation had been arbitrarily taken from 1 July 2017 to 31 October 2017 On the ground that the break-up of the closing stock of inputs and the ITC on the closing stock as on 14 November 2017 was not available in the GSTR-3B of November 2017 and the date wise outward taxable turnover for the month of November 2017 was not provided by the Respondent to compute the taxable turnover for the period between 1 November 2017 - 14 November 2017. The Respondent has claimed that he had supplied the ITC Register w.e.f. 01.07.2017 to 30.11.2017 on 19.01.2018 and 22.03.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iteered amount and also due to the reason that the DGAP had calculated the profiteered amount @ 105%, i.e. base price + 5% GST when the 5% GST had already been deposited in the Government account and not retained by him and hence, no profiteering could be alleged. He has also admitted that on the basis the above submissions, the amount of alleged profiteering stood reduced to ₹ 3, 17,03,988/-. 22. The Respondent has also contended that the relevant provisions of the CGST Act, 2017 or the CGST Rules, 2017 did not prescribe the methodology to be followed by the registered suppliers in order to comply with the anti-profiteering requirements. He has further contended that Rule 126 of the above Rules authorised this Authority to determine the methodology and procedure to decide whether the reduction in the rate of tax or the benefit of input tax credit had been passed on by the registered person to the recipient by way of commensurate reduction in prices, however, no such methodology had been notified by it till date. He has also pleaded that Section 171 and Rule 122-137 being part of a taxing statute, could not be enforced in the absence of machinery provisions for computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such invoices which were dated on or before 14 November 2017 but accounted in the books of account on or after 14 November 2017, he should be allowed to avail the same. He has further stated that he was barred from taking benefit of ITC on inward supplies received after 14 November 2017 as per Section 12 and 13 of the CGST Act, 2017 which could not be construed as curtailing his vested right of availing the ITC for the inward supplies received on or before 14 November 2017. He has also cited the cases of (i) Eicher Motors Ltd. v. Union of India 1999 (1) SCR 295 (ii) Samtel India Ltd. v.Commissioner of Central Excise (2003) 11 SCC 324 and (iii) Binani Cement Ltd v. Commissioner of Central Excise 2002 (143) E.L.T. 577 (Tri. - Del.) in his support. 25. The Respondent has also alleged that the DGAP had claimed that since the gross price has remained identical for the period up to 14 November 2017 and w.e.f. 15 November 2018 therefore, he had resorted to profiteering however, It was an undisputed fact that the Respondent had revised his base price both upward as well downward due to denial of ITC therefore, the gross price charged had remained static. He has also claimed that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso submitted that Respondent had carried forward Transitional Credit of ₹ 5.18 Crore on 1 st July, 2017 for the stock held on 30.06.2017 and also ITC of ₹ 4.61 Crore availed in the months of Sep. and Oct. 2017 pertained to the period prior to the month in which the credit was availed. He had also calculated ratio of denial of Input Tax Credit to the net outward taxable turnover which came to be 9.81% considering only the months of September-October, 2017. The DGAP has further submitted that the ITC in respect of the inter-unit branch transfers was not considered because the output tax liability on outward taxable turnover had also been excluded from the period between 1-14 November, 2017. He has also claimed that the Respondent had submitted SKU wise summary of supplies and not B2C invoices for outward taxable supplies and random check of the invoices revealed that in some cases, ITC was availed by him without being in possession of the invoices on the date of availing of ITC which was in contravention of the provisions of Section 16 (2) (a) of the CGST Act, 2017 and thus was not allowed. The DGAP has also claimed that he was justified in applying the anti-profiteering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember, 2017 as per the GSTR-3B return and excluding the amount of tax paid on inter-unit branch transfer as per sales register and the ITC pertaining to the period before July, 2017 which was availed during the period of July, 2017 to October, 2017 as per GSTR-3B returns. He has also stated that Section 16 (2) the CGST Act, 2017 prescribed certain conditions for entitlement for availing ITC and w.e.f. 15.11.2017, the Respondent was not allowed to avail ITC in terms of Notification No. 46/2017- Central Tax (Rates) dated 14.11.2017, therefore, he was not eligible to take benefit of ITC w.e.f. 15.11.2017 on the strength of invoices received after 15.11.2017. The DGAP has also claimed that the ITC of ₹ 85,27,917 was not disallowed but was not considered while computing the ratio of denial of ITC to net turnover as this credit pertained to the period prior to implementation of GST which had no bearing on the supplies made during the period from July, 2017 to October, 2017. He has further stated that as the Respondent had received the tax invoices after 15.11.2017 hence he was not eligible to avail the ITC in terms of the Notification dated 14.11.2017, therefore the same could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also contended that price included both basic price and also the tax charged on it and therefore, any excess amount collected from the recipients amounted to profiteering which must be returned to the recipients or deposited in the CWF. 31. We have carefully considered the material placed on the record and have also heard both the parties and it is revealed that the Central Govt. vide it's Notification No. 26/2017-Central Tax (Rate) dated 14.11.2017 had reduced the rate of GST being charged on the Restaurant Services from 18% to 5% w.e.f. 15.11.2017 with the stipulation that the suppliers of these services would not be able to obtain benefit of ITC from the above date. 32. It is also revealed from the perusal of Section 171 quoted above that (i) any reduction in the rate of tax on any supply of goods or services or (ii) the benefit of ITC shall be passed on to the recipient by way of (iii) commensurate reduction in prices. Since there has been reduction in the rate of tax in respect of the above services as per the Notification dated 14.11.2017 the benefit of reduction was required to be passed on to the consumers. Similarly the benefit of ITC availed by the supplier w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in the case of the contracts of sale which had been entered in to prior to the change in the rate of tax or grant of benefit of ITC and both the parties had agreed to such change as per the provisions of Section 64 A of the Sale of Goods Act, 1930. Perusal of the above Section shows that it's provisions are not applicable in view of the specific provisions of Section 171 which stipulate that both the benefits have to be passed on as and when they are given to the customers by the Government out of its own revenue which has nothing to do with the contract between the two parties. Therefore, the contention of the Respondent made in this regard is frivolous. It is also clear from the provisions of Section 171 that it has given mandate only to ensure that the benefits of rate reduction and ITC are passed on to the consumers and it has no provisions for interference in the process of price fixing as has been alleged by the Respondent and hence there is no question of violation of the right of the Respondent granted under Article 19 (1) (g) nor of the laws framed for regulation of prices as per List Ill of Schedule Vll of the Constitution. Both the claims made by the Respondent in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealised his usual margin of profit which he was charging but had also pocketed the amount which he was bound to pass on to his customers due to reduction in the rate of tax and benefit of ITC. The Respondent must remember that the benefit of reduction in the rate of tax as well as the benefit of ITC have been given by the Central as well as the State Government by sacrificing their own revenue in favour of the general public and the Respondent has no right to appropriate them. The Respondent has himself admitted that the DGAP had calculated the ratio of denial of ITC to total taxable turnover as 9.11% whereas it was 9.43% as per his own assessment and hence he had profiteered by 0.32% which demolishes his entire defence of having not profiteered. The amount of profiteering assessed by the DGAP cannot be described as miniscule as it has been earned by fleecing millions of customers. 37. It is also apparent from the record that the DGAP has calculated the ratio of ITC to the total taxable turnover pertaining to the period between July, 2017 to October, 2017 as 9.11% on the basis of the GSTR-3B returns filed by the Respondent. However, he has claimed that the above ratio should hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich could only be done on the basis of the audited financial statements. This contention is absolutely wrong as the Respondent had overnight increased the prices w.e.f. 15.11.2017 the day from which the rate of tax was reduced. Further, the increase was exactly equal to the amount by which the tax had been reduced and the same MRP which was being charged on 14.11.2017 was also charged on 15.11.2017. Perusal of the tax invoice dated 07.11.2017 enclosed with the complaint shows that the Respondent had charged ₹ 120.34/- as base price for one piece of Regular Mccafe Latte and ₹ 21.66/- as 18% CGST+SGST and thus an amount of ₹ 142/- was charged for the above item. Vide invoice dated 15.11.2017 the base price was increased by ₹ 14.90/- to ₹ 135.24/- and ₹ 6.76/- were charged as CGST+SGST @ 5% and the above product was supplied at the same MRP of ₹ 142/-. Therefore, it is clear that the base price was increased by 12.38% which is more than the ratio of denial of ITC of 9.11%. The Respondent had not only compelled his customers to pay extra base price of ₹ 3.94/- per item and he had also forced them to pay extra GST of ₹ 0.20/- and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Toubro Ltd. (2016) 1 SCC 170 is not applicable as specific and adequate anti-profiteering machinery has been provided under the above Act and the Rules to enforce the above provisions. The averment of the Respondent regarding excessive delegation to the Authority for framing methodology is also not tenable as the delegation has been done in exercise of the powers conferred under Section 164 of the Act on the recommendation of the GST Council which is a body established under the Constitution. It is humbly submitted that the judgement passed in the case of Indian Aluminium Co. Ltd. and Anr. v. The State of Bihar and Ors. 1994 (1) PLJR is not being followed as the delegation has been made in accordance with the provisions of the CGST Act, 2017. It would also be appropriate to mention here that the computation of the profiteered amount under Section 171 has to be done on the basis of the facts of each case and hence no general methodology and procedure can be prescribed for the same. Moreover, the word used in Rule 126 is to 'determine' and not to 'prescribe' the methodology and procedure. The basic aim is to ensure that both the benefits of reduction in the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Lakhs which he could not avail. In this connection it is made clear that the Authority is not the appropriate forum before which such issue can be raised. The Respondent can always approach the competent forum to redress his grievance of denial of ITC as per the provisions of Section 12, 13 and 16 of the above Act. He may also cite the judgements rendered in the cases of (i) Eicher Motors Ltd. v. Union of India 1999 (1) SCR 295 (ii) Samtel India Ltd. v. Commissioner of Central Excise (2003) 11 SCC 324 and (iii) Binani Cement Ltd v. Commissioner of Central Excise 2002 (143) E.L.T. 577 (Tri. - Del.) before such forum. 43. After the perusal of Annexure-32 it is established beyond any doubt that the Respondent had increased the base prices on the intervening night of 14/15th November, 2017 by an average of 10.45% in respect of 1,730 products out of the 1,844 products which comes to about 93.82% which clearly shows that he had deliberately in conscious disregard of the provisions of Section 171 of the above Act had resorted to profiteering as he had no ground whatsoever to increase his prices on the eve of tax reduction. The cases of Commissioner of Income Tax v. Vadilal Vallubhai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pass on both the above benefits to his customers. The above amount is inclusive of the extra GST which the Respondent had forced the customers to pay due to wrong increase in his basic prices otherwise the prices to be paid by them should have further got reduced by the amount of the GST illegally charged from them. Depositing of the extra GST in the Govt. account can not absolve the Respondent of the allegation that he had compelled them to pay more price than what they should have paid and hence it amounts to denial of benefit under Section 171 of the above Act. 47. Accordingly, the Respondent is directed to reduce his prices by way of commensurate reduction keeping in view the reduced rate of tax and the benefit of ITC which has been availed by him as per Rule 133 (3) (a). Since the complainants are not identifiable in this case the Respondent is further directed to deposit the above amount as per the provisions of Rule 133 (3) (c) in the ratio of 50:50 in the Central or the State CWFs of all the 10 States mentioned in para 12 above, along with the interest @ 18% till the same is deposited, within a period of 3 months. The concerned Central and State GST Commissioners are dir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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