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2018 (12) TMI 473

Profiteering - benefit of tax reduction not passed on to the recipients - Nestle Munch Nuts 32 Gm. Chocolate - Cadbury Dairy Milk Chocolate - contravention of Section 171 of CGST Act, 2017 - Held that:- It is clear that the Respondent had increased the base price by ₹ 1.56 per unit in respect of the Nestle Munch Nuts 32 Gm. Chocolate and ₹ 3.13 for the Cadbury Dairy Milk Chocolate and hence the MRP charged on both the products had remained ₹ 20/- and ₹ 40/- per unit respectively before and after the reduction in the rate of tax. Therefore, it is established that the Respondent had in fact increased the base prices of these Chocolates and sold them at the same MRPs which he was charging before the reduction in the rate of tax instead of reducing the same and had hence not passed on the benefit of such reduction to the Applicant. - The Respondent has vehemently argued that he had no control on the fixing of the base prices as well as the MRPs as he was charged increased base prices by his Distributors Viz. M/S CTC and M/S NE and hence the Respondent could not make any changes in the base prices and the MRPs - Held that:- It is apparent from the record that .....

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er Goyal Assistant Director (Costs) for the Applicant No. Mrs. Monika Goel and Sh. Rajesh Kumar Soota, Advocates for the Respondent. ORDER 1. The present Report dated 18.06.2018 has been received from the Director General of Safeguards, now Director General of Anti-Profiteering (here-in-after referred to as the DGAP) after detailed investigation under Rule 129 (6) of the Central Goods & Services Tax (CGST) Rules, 2017. The brief facts of the case are that vide his application dated 29.11.2017 the Applicant No. 1 had complained to the Standing Committee, constituted under Rule 123 (1) of the above Rules alleging that although the GST rate applicable on the Chocolates had been reduced from 28% to 18% w.e.f. 15.11.2017, the Respondent had not reduced the prices of 2 products viz. the Nestle Munch Nuts 32 Gm. Chocolate and the Cadbury Dairy Milk Chocolate (here-in-after referred to as the products) and had thus not passed on the benefit of such rate reduction to him. He had also submitted the pre rate reduction invoice No. 299238 dated 10.11.2017 and the post rate reduction invoice No. 311392 dated 16.11.2017 which showed that both the above products were sold by the Respondent @ & .....

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Chocolate 15.63 28% 20.00 Cadbury Dairy Milk Chocolate 31 .25 28% 40.00 311392 16.1 1.2017 Nestle Munch Nuts 32 Gm. Chocolate 16.95 18% 20.00 Cadbury Dairy Milk Chocolate 33.90 18% 40.00 Pre 15.11.207 Post 15.11.2017 Description of product Base Purchase price (Rs.) Base Sale price (Rs.) Margin of Profit Base Purchase Price (Rs.) Base Sale price (Rs.) Margin of profit A B C D=(C-B)/B E F G=(F-E)/E Nestle Munch Nuts 32 Gm. Chocolate 14.01 15.63 11.50% 15.20 16.95 11.50% Cadbury Dairy Milk Chocolate 27.90 31.25 12.00% 30.27 33.90 12.00% 3. The DGAP's Report has submitted that the Respondent had also filed Purchase & Sale invoices from November 2017 to March 2018, copies of the GSTR-3B from November, 2017 to March, 2018 along with copies of GSTR-I from November, 2017 to February, 2018 but did not provide the details of the invoice-wise outward supplies. The DGAP after examining the facts of the case has reported that vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 the o rate of tax on Chocolates was reduced from 28% to 18% w.e.f. from 15.11.2017. The Report also mentioned that from the sale invoices of the Distributor of Cadbury Chocolates viz. M/s. Chandna Tr .....

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this increased price vide invoice dated 16.11.2017 at the same MRP of ₹ 40/- which he had paid on 10.11.2017. Thus the report submitted that from the above facts it was evident that the Respondent had sold the above products at higher prices inspite of rate reduction and had not passed on the benefit of rate reduction to the above Applicant. 4. The DGAP's Report further stated that from the records submitted by the Respondent it was revealed that he had purchased 910 units of Nestle Munch Nuts 32 Gm. and 4646 units of Cadbury Dairy Milk Chocolate during the period between 15.11.2017 to 31.03.2018. He has also reported that the Respondent had failed to supply the details of the invoices of the outward supplies pertaining to the above period and hence he had presumed that the above quantity of the Chocolates was sold by him during the period between 15.11.2017 to 31.03.2018. The DGAP had therefore, concluded that the Respondent had resorted to profiteering of ₹ 15,958/- as per the details given in the table below. He has also reported that the Respondent had profiteered an amount of ₹ 4.69 from the Applicant No. 1 vide invoice date 16.11.2017 while selling two .....

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he had reduced the rate of tax on the chocolates from 28% to 18% w.e.f. 15.11.2017 as per the Notification No. 41/2017- Central Tax (Rate) dated 14.11.2017. He has also claimed that he did not intend to benefit on account of tax reduction and had not contravened the provisions of Section 171 (1) of the CGST Act, 2017. He has also quoted the case of Dinesh Mohan Bhardwaj v. Vrandavaneshwree Automotive (P) Ltd. (2018) 67 GST 429/92 taxmann.com 360 = 2018 (4) TMI 1377 - THE NATIONAL ANTI-PROFITEERING AUTHORITY (NAA) decided by this Authority on 27.03.2018 stating that the entire scheme of GST was ITC based i.e. the recipient of the goods and services took credit of the GST paid by him on the purchase of goods and services and used such ITC while discharging GST output tax liability on supply of goods and services and since no additional ITC was available to him he was bound to enhance the base prices of the above products. 7. The Respondent has also claimed that he had purchased Cadbury Dairy Milk Chocolates from M/S CTC at the base price of ₹ 27.90 per unit before15.11.2017 and at the base price ₹ 30.27 per unit after 15.11.2017. He has further claimed that since the Dist .....

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benefit of tax reduction as he had not received any such benefit and his statutory obligation under Section 171 of the CGST Act, 2017 would arise only on the receipt of the benefit. The Respondent has also stated that the calculation of the profiteered amount in para 13 of the Report as ₹ 1.56 per unit in the case of Nestle Munch Nuts 32 Gm. bars calculated as a difference between the actual MRP and the ideal MRP (Rs. 20 - 18.44) was wrong as the profit if any should be calculated on the increase in the base price i.e. ₹ 1.32 per unit (Rs. 16.95 - ₹ 15.63). The Respondent has further stated that the assessment of profit of ₹ 3.13 per unit in the case of Cadbury Dairy Milk Chocolate as a difference between the actual MRP and the ideal MRP (Rs. 40 - ₹ 36.87) was also incorrect as the amount of profit if any should be calculated on the increase in the base price i.e. ₹ 2.65 per unit (Rs. 33.90 - 31.25). He has also claimed that the amount of profiteering shown by the DGAP in para 15 of the Report was wrong as he had purchased 944 units of Nestle Munch Nuts 32 Gm. and 4515 units of Cadbury Dairy Milk Chocolate during the period between 15.11.2017 to .....

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scounts to pass on the benefit of rate reduction. On 21.08.2018 Mr. Rajesh Chandna on behalf of M/S CTC and Sh. Rajeev on behalf of M/S appeared for the hearing. Both the above Distributors vide their written submissions stated that their billing softwares were fully managed/controlled by the manufacturers viz. M/S Mondelez India Foods Private Ltd (Cadbury) & M/S Nestle Limited India respectively and they couldn't make any change in them expect that of quantity. They also claimed that the GST rate reduction benefits were passed on by them to the Respondent in the form of discounts which had also been reflected in their invoices. Additionally M/S CTC vide his written submissions dated 30.08.2017 contended that the sale invoicing of the products was done through the Company billing software and all the rates & reductions were decided through the Company server system and he could not add/alter/delete any rates/discounts in the Company's billing software. He further submitted that the above Company had provided him discount on his closing stock as on 15.11.2017 and after getting the same in the billing software, he had passed it on to his respective retailers on the di .....

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% to 18% in respect of the above two products viz. the Nestle Munch Nuts 32 Gm. Chocolate and the Cadbury Dairy Milk Chocolate with effect from 15.11.2017, the benefit of which was required to be passed on to the recipients by the Respondent as per the provisions of Section 171 of the above Act. 15. It is also revealed from the perusal of the tax invoice dated 10.11.2017 issued by the Respondent in favour of the Applicant No. 1 that he had sold one unit of Nestle Munch Nuts 32 Gm. Chocolate at the base price of ₹ 15.63 and after levying GST @ 28% realised MRP of ₹ 20/- from him. It is also revealed from the above invoice that the Respondent had charged ₹ 31.25 per bar for the Cadbury Dairy Milk Chocolate and sold it @ MRP of ₹ 40/after realising GST of 28%. Perusal of the tax invoice dated 16.11.2017 shows that the Respondent had charged base price of ₹ 16.95 per unit for the Nestle Munch Nuts 32 Gm. Chocolate and after levying GST @ 18% had again charged MRP of ₹ 20/- and for one bar of Cadbury Dairy Milk Chocolate he had charged base price of ₹ 33.90 and after charging 18% GST the MRP realised by him from the above Applicant was ₹ 4 .....

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ain that since he had not received the benefit from his Distributors and hence he would not pass on the same as he was bound by the provisions of Section 171 being a registered dealer under the above Act. Mere charging of 18% GST after 15.11.2018 cannot be construed to have resulted in the passing of the benefit unless the MRPs were reduced and the base prices were maintained. The claim of the Respondent that his profit margins had remained the same is also not tenable as he had not only increased the base prices but had also earned additional margin on the enhanced prices. He had further forced his customers to pay additional GST on the increased base prices otherwise the customers should have got further benefit of reduced base prices. The Respondent has also cited the case of Dinesh Mohan Bhardwaj supra in his support however the facts of the present case are different than that case as the complainant in the above case had been given the benefit of ITC whereas in the present case the Applicant No. 1 was to be given the benefit of tax reduction and hence the Respondent cannot claim any relief on account of the above case. Therefore, the above contentions of the appellant cannot .....

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The Respondent has claimed that only 944 units of Nestle Munch Nuts 32 Gm. Chocolate and 4515 units of the Cadbury Dairy Milk Chocolate were purchased by him during the period w.e.f. 15.11.2017 to 31.03.2018 however, he has not produced the tax invoices to prove his contention and hence the claim made by the Respondent cannot be relied upon. 20. It is also on record that the Respondent vide his written submissions dated 23.08.2018 has voluntarily admitted that he had profiteered to the extent of ₹ 1295/- on the stock which was lying with him On 14.11.2017 and had also deposited the same in the CWF. Therefore, there is absolutely no doubt that the Respondent has resorted to profiteering and has not passed on the benefit of tax reduction to his customers. 21. It is clear from the narration of the facts stated above that the Respondent has indulged in profiteering in violation of the provisions of Section 171 of the CGST Act, 2017 and has not passed on the benefit of reduction of tax as per the Notification dated 14.11.2017 supra in respect of the above products to his customers and therefore, he is liable for action under Rule 133 of the CGST Rules, 2017, the relevant provision .....

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s order failing which the same shall be recovered by the DGAP and refunded or deposited as has been directed above. Since the present investigation has been carried out for the period between 15.11.2017 to 31.03.2018 the DGAP is directed to conduct further investigation in respect of the sales made by the Respondent after the above period to assess the amount of profiteering made by the Respondent and submit report accordingly. 23. It is also established from the above facts that the Respondent had issued incorrect invoices while selling the above products to his customers as he had not correctly shown the basic prices which he should have legally charged from them. The Respondent had also forced them to pay additional GST on the increased prices and had also earned additional profit through the incorrect tax invoices which would have otherwise resulted in further benefit to the customers in the shape of reduced prices. It is also established from the record that the Respondent has knowingly 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 he is liabl .....

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