TMI Blog2018 (12) TMI 1599X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 171 of the CGST Act, 2017 by resorting to profiteering. The basic aim is to ensure that both the benefits of reduction in the rate of tax and ITC are passed on to the consumers by commensurate reduction in the prices. As per the provisions of the above Rule the Authority has power to 'determine' and not 'prescribe' the methodology. During the course of the present proceedings the Respondent was repeatedly asked to suggest alternate methodology if he was not satisfied with the computation of the profiteered amount made by the DGAP but the Respondent has failed to do so. The Respondent has also calculated the profiteered amount himself and deposited the same in the CWF which clearly shows that he was aware of the concepts of profiteering, commensurate and reduction in the prices. Therefore, all the objections raised by him in this behalf are frivolous and cannot be accepted. The Respondent has also referred to the dictionary meaning of profiteering and claimed that he had not resorted to profiteering. However, it is quite clear from the record that he had illegally and wrongly increased the base prices of the products on which the rates of tax had been reduced w.e.f. 15.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reduction - Held that:- The Authority is of the view that Section 171 of the CGST Act, 2017, puts the onus of passage of any benefit of the GST rate reductions or ITC to the recipient on the supplier. The keyword to be emphasised here is "commensurate reduction". The law expects that commensurate reduction to the extent of the rate reductions should be given by the Respondent. Any greater reduction in prices is entirely a business call taken by the Respondent well within his right and hence there is no ground to compensate him on this ground - The amount of profiteering has to be calculated by keeping the recipient at the centre. This implies that one particular recipient may have bought one product from the Respondent at a price which he was entitled to pay when the rates of tax were reduced but simultaneously there is another recipient who has paid more than what he was supposed to pay for some another product of the Respondent. The additional benefit given to one recipient cannot be offset with the denial of benefit to another recipient, as this is not the spirit of the law - the Respondent's claim for deduction of ₹ 39.08 Crores on account of the more benefit given to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly enriching himself at the cost of the end-consumer. His claim that he had provided various discounts to the MT dealers to further pass on the benefit to the consumers is not established as it is not evidenced by any credible documentary evidence. Further the consumer would have never got the benefit of tax reductions unless the MRP was revised by the Respondent on the packs and the bar codes were changed, which does not seem to have happened. The Authority, thereby finds his claim short of any credence and hence the same cannot be accepted. Packing material write off - Held that:- The law was very clear when it gave the suppliers the relief to do re-stickering instead of incurring additional cost on new packaging material. It was a business call taken by the Respondent to not do re-stickering and rather go for fresh packing material. It is an admitted fact by the Respondent that vide office letter No. WM-10(31)/2017, dated 16.11.2017 issued by the Ministry of Consumer Affairs, Food and Public Distribution, it was clearly allowed by the Government to refix the stickers - this Authority finds that the deduction claimed by the Respondent, on account of packing material write off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit of GST rate reductions. Further he has also consciously and illegally recovered the excess realisation which was due to his RSS as ITC and thereby denied the benefit of tax reductions to the customers - Since the Respondent has been held guilty of profiteering and has also been found to have violated the provisions of Section 122 (1) (i) of the CGST Act, 2017 a fresh notice be issued to him asking him to explain why penalty should not be imposed on him. Decided against respondent. - Case No. 20/2018 - - - Dated:- 24-12-2018 - Sh. B. N. Sharma, Chairman, Sh. J. C. Chauhan, Technical Member And Ms. R. Bhagyadevi, Technical Member None for the Applicants No. 1, 2 3., Smt. Gayatri, Deputy Commissioner and Sh. Bhupender Goyal, Assistant Director (Costs) for the Applicant No. 4. Sh. Srinivas Phatak, Chief Finance Officer, Ms. Shikha Gupta, Head Tax, Sh. S. Moorthy, Manager, Sh. C. S. Lodha, Advocate, Sh. Dev Bajpai, Head Legal, Sh. Radha Krishnan Menon Associate and Sh. Gopalan Pasupati, Manager, Corporate Affairs for the Respondent. ORDER 1. The brief facts of the present case are that an application through e-mail dated 26.11.2017 (Annexure-I) was fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the Standing Committee. 2. The DGAP after detailed investigation has submitted his Report on 15.06.2018 along with his subsequent reports dated 31.08.2018 and 25.09.2018. In his initial report dated 15.06.2018 the DGAP has stated that on the receipt of the minutes dated 29.11.2017 (Annexure- 2) from the Standing Committee, notice under Rule 129 of the CGST Rules, 2017 was issued on 10.01.2018 calling upon the Respondent to submit his reply whether he admitted that the benefit of reduction in the rates of tax had not been passed on by way of commensurate reduction in the prices. The Respondent was also asked to suo moto determine the quantum of benefit not passed on and intimate the same. The Report further states that the Respondent had determined the amount of profiteering suo moto and come forward to deposit an amount of ₹ 59.94 Crores for the period w.e.f. 15.11.2017 to 30.11.2017 vide his letter dated 04.12.2017 addressed to the Chairman, Central Board of Excise and Customs now re-designated as Central Board of Indirect Taxes and Customs (CBIC). Vide his subsequent letter dated 08.01.2018 addressed to the Chairman, the Respondent had offered to deposit an amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grammage. The DGAP has further stated that the Respondent had also claimed that he had to write off packing material having old MRPs printed on it worth ₹ 10.50 Crores and replace it with new packing material which was claimed by him as deduction out of the profiteered amount. The Respondent had also claimed that his contract with the CSD did not include taxes and hence, he had not earned any amount due to reduction in the GST rates. The DGAP has also informed that the Respondent had admitted that the higher sales realization due to GST rate changes, for two channels comprising of (i) General Trade and (ii) MT was ₹ 185.40 Crores for the months of November and December, 2017, ₹ 151.19 Crores for the month of January 2018 and ₹ 135 87 Crores for the month of February 2018, however the Respondent had claimed deductions on account of the discounts, writing-off of the packing material, PD, TTSD and FD and deposited an amount of ₹ 118.80 Crores for the months of November and December 2017 in the CWF. 5. The DGAP has also intimated that the Respondent was asked to supply information/ documents/ record which he had supplied vide Annexures 12-22. 6. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CWF. The DGAP has also intimated that the Respondent vide his letter dated 10.04.2018 had also informed that he had recovered an amount of ₹ 36.19 Crores from his RSS, as against the amount of ₹ 30.85 Crores deposited by him on 05.03.2018 in the CWF and hence he was willing to deposit the balance amount of ₹ 5.34 Crores in the above Fund. The DGAP has also stated that the Respondent had claimed that since there were no guidelines prescribed for determination of the profiteered amount he had calculated the impact on the sales realizations after deducting the various expenses and deployments due to the action taken by him after the rate reductions. The Respondent had also quoted the statement issued by the Indian Accounting Standards Board that 'Profit was a general term for the excess of revenue over related cost', and also cited the two judgements of the Hon'ble Supreme Court passed in the cases of Badridas Daga v. CIT 34 ITR 10 (SC)= 1958 (4) TMI 2 - SUPREME COURT and CIT v. Meghalaya Steels Ltd. (2016) 67 taxmann.com 158 (SC)= 2016 (3) TMI 375 - SUPREME COURT in his support. The DGAP has also claimed that the Respondent had interpreted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Total Gross Sale Value (GSV= Net Sale Value + Pricing deployment): 880.95 1,512.58 1,867.52 1,676.31 5,937.36 4. GST Benefit: -General Trade 55.57 95.90 115.93 105.97 373.38 -Modern Trade 15.77 26.61 35.26 29.90 107.54 5. Total GST Benefit (A): 71.34 122.50 151.19 135.87 480.91 6. Less: -Pricing Deployment - 36.01 115.03 129.01 280.05 -TTS Deployment 1.59 19.08 8.60 -2.90 26.37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reduction in the rates of tax to his consumers in terms of the Section 171 of the CGST Act, 2017. In his report the DGAP has also acknowledged that the Respondent had himself determined the amount of profiteering and had deposited the amount determined by him in the CWF after claiming certain deductions on account of various deployments. 10. The Report of the DGAP highlighting the relevant provision of Section 171 (1) of the CGST Act, 2017 which reads that 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 , has emphasized that any benefit of ITC or reduction in the rates of tax must result in 'commensurate reduction in the prices' of the goods and the services. The Report further states that Section 171 does not provide the supplier of goods and services any other means of passing on the benefit of reduction in the rates of tax or benefit of ITC and therefore all suppliers of goods and services must pass on the benefits in terms of absolute reduction in the prices and flexibility to suo moto decide on any other mode of passing on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l stickers or stamping or online printing for declaring the reduced MRPs. The Report also states that CGST Act, 2017 did not provide for allowance on account of the cost of packing material against the reduction in the price on account of lower GST rates. The Report concluded that the deductions claimed by the Respondent were not supported by any legal provisions and therefore they were inadmissible. 13. The Report after examining the Statements of Audited Financial Results for the Financial Years 2015-16, 2016-17, 2017-18 and the quarters ending December 2015, December 2016, December 2017, March 2016, March 2017 and March 2018 which were published by the Respondent, has mentioned that post 15.11.2017, there was a sharp increase in the profits made by the Respondent without a corresponding increase in the sale of the products inspite of his claim that the cost of production had risen after reduction in the rates of GST as per the Table given below:- Table Period Sale of products Profit before exceptional items tax Change in Sale and Profits Sale amount in Crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their closing stock. Therefore, the DGAP has concluded that due to non-passing of the benefit of rate reductions by the Respondent there has been a sharp increase in his prices 15. While quantifying the extent of profiteering for the period w.e.f. 15.11.2017 to 28.02.2018, the Report states that the total number of items affected by the reduction in the rates of GST were 12,016 comprising of 1836 base packs. The DGAP has also stated that out of the above items, 11,820 items comprising of 1814 base packs constituting 99.71% of the sale value of the total impacted Items were affected by the rate reduction from 28% to 18% and the balance 196 items comprising of 22 base packs constituting 0.29% of the sale value of total impacted Items were affected by the GST rate reduction from 18% to 12%. Therefore he has concluded that the amount of net higher sales realization on account of increase in the base prices of the products after the reduction in the GST rates either from 28% to 18% or from 18% to 12%, or the total amount of profiteering was ₹ 419.67 Crores. The DGAP has also furnished detailed calculations of the profiteered amount vide Annexure-25 in which he has given the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely:- Provided that where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs, then, such registered person shall, subject to such conditions, limitations and safeguards as may be prescribed, including that the said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient, be allowed to take credit at such rate and in such manner as may be prescribed. (emphasis supplied) 18. The DGAP has contended that as per the above provision, the Respondent was bound to pass on the credit availed through TRAN-2 statements by reducing the prices to be paid by the recipients. He has further contended that the Respondent was asked to furnish copies of the invoices to show that the benefit of credit had been passed on to the customers, but the Respondent had failed to do so. The DGAP has also averred that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent by granting personal hearing on 20.07.2018 at 11 AM, which was postponed to 27.07.2018 on the request of the Respondent. On 27.07.2018 the Applicants No. 1 2 did not appear but the Respondent was represented by Shri Srinivas Phatak, Chief Finance Officer, Ms. Shikha Gupta, Head Tax, Shri S. Moorthy, Manager, Shri C. S. Lodha, Advocate, Sh. Dev Bajpai, Head Legal, Sh. Radhakrishnan Menon, Associate, Sh. Gopalan Pasupati, Manager, Corporate Affairs and Smt. Gayatri, Deputy Commissioner and Sh. Bhupender Goyal, Assistant Director (Cost) represented the DGAP. 21. In his submissions dated 27.7.2018, the Respondent referring to the anti-profiteering provisions has stated that for the first time, anti- profiteering provisions were introduced by Section 171 of CGST Act, 2017 and the Government had constituted the National Anti- Profiteering Authority (NAA) and conferred it with specific powers under Chapter XV of the CGST Rules, 2017. According to the Respondent Rule 126 which states as under gives power to the Authority to determine the methodology and procedure:- Rule 126: Power to determine the methodology and procedure: The Authority may determine the methodol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reduction in the rate of tax on the supply of goods has been passed on by a registered person to the recipient by way of commensurate reduction in the prices or not, but he has claimed that the above Methodology and Procedure dealt only with the procedural aspects and did not deal with the issue of 'Methodology of determination' which was the crux of Rule 126. He has also stated that the Methodology alone was a guiding factor which could help to decide the question of profiteering as per Section 171 and Rule 126. Therefore, the Respondent has requested that in the interest of justice, equity and fairness, his case should be taken up for adjudication by the Authority only after formulating the methodology as contemplated by Rule 126 and the report submitted by the DGAP should be examined in the light of such methodology. He has also intimated that he had voluntarily deposited a sum of ₹ 124.04 Crores on 21.06.2018 in the CWF on the assumption that he was required to pay the said amount in addition to the amount of ₹ 36.19 Crores (Total ₹ 160.23) collected from his 3494 RSs, being excess amount earned by them on the stocks held by them as on 15.11.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umacious conduct on the part of a company whereby it earned disproportionately large and unfair profit. The Respondent has claimed that a company's intent and conduct under the given circumstances keeping in view it's complexity of the operations and feasibility of implementing various alternatives etc. were critical and important factors before judging it's actions as honest and bonafide or as dishonest and contumacious resulting in undue gain to it. He has also contended that the spirit of the law was required to be considered before deciding as to whether the actions taken by the company were in the best interests of the economy and the consumers or were in any manner intended to benefit the company itself. He has further contended that considering the enormity of operations and the logistical difficulties, he did all that was possible to sub-serve the intent of the Government in passing on of the benefits to the consumers. He has also claimed that his bonafide intentions should be judged by the fact that he had kept the apex functionaries of the Government informed and that he had not gained even a rupee extra, leave aside profiteering and his actions could not be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be passed on. The Respondent has also submitted that the interpretation of Section 171 of CGST Act, 2017 made by the DGAP was too literal and completely ignored the intent, object and purpose of the above provision. Referring to the various judicial pronouncements of the Apex Court he has stated that the modern trend was to construe a statute purposively with the intent of ascertaining the object and intent of the law and to so harmoniously interpret the provision that it furthered the intent, object and purpose of the statute and hence a law intended to check profiteering must be purposively construed. He has also claimed that the emphasis of the Section was on non-retention of benefit of tax rate reduction by the manufacturer/dealer and passing it on to the recipient and not on the mode of such passing on whereas the Report had taken the literal meaning and prescribed only one mode of passing on the benefit by way of commensurate reduction in the prices. He has claimed that as long as it was clearly demonstrated by a manufacturer/dealer that the benefit had been effectively passed on, the mode was not the determinant factor and whether such a manufacturer/dealer had enriched hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges, giving of higher grammage was the most optimal and feasible solution from the perspective of the consumers. Referring to the provisions of the Legal Metrology (Packaged Commodities) Rules, 2011 (LM Rules) which provide for rounding off of the price to prevent coinage issues, he has submitted that such rounding off was prescribed in respect of the general packs and not in respect of the value-based packages and the application of the above mentioned Rules to such packages would lead to absurdity. He has also quoted Rule 2 (m) of the above Rules which states as under:- retail sale price , means the maximum price at which the commodity in packaged form may be sold to the ultimate consumer and the price shall be printed on the package in the manner given below; Maximum or Max. retail price Rs............./Rs .inclusive of all taxes or in the form MRP Rs ../Rs ...incl.; of all taxes taking into account the fraction of less than fifty paisa to be rounded off to the preceding rupee and fraction of above 50 paise and up to 95 paise to the rounded off to fifty paise; Quoting an example of his product Clinic Plus Shampoo, the Respondent has submitted that the price o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the disallowance of deduction claimed on trade discounts reimbursed by the Respondent to his dealers of MT amounting to ₹ 26.37 Crores he has stated that the DGAP had not appreciated the issue in it's proper perspective as when the goods were sold to the MT, the base prices were revised because the old packages which were lying in the pipeline on the date of announcement of the GST rate reduction carried the old MRPs and he had suggested to the MT dealers who were the recipients of his goods that since the packages carried the old MRPs, if they were to reduce the prices for the consumers, then they would be reimbursed. He has claimed that this was a suitable method to pass on the benefit to the consumers as MT dealers were large in number and were organized. He has claimed that the MT dealers had agreed and accordingly the excess amount in base prices recovered from them was reimbursed and therefore, while calculating the profiteered amount he had rightly deducted the amounts which were already passed on to the MT dealers however, The DGAP despite agreeing that the reimbursement was given to the MT had disallowed any such deduction. The Respondent has also submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on this account. He has also stated that when the incentive value was reduced it would necessitate an offsetting increase in the base price and therefore the increase in he base price to the extent of reduction in the incentive value could not form part of the profiteering computation. 29. The Respondent has also claimed that in order to expedite the passing of the benefits to the consumers wherever possible by way of revised MRPs, the existing packing materials with old MRPs printed on it had to be written off and he had consciously decided not to comply with the fixing of new MRPs through stickers as they could easily be removed from poly packs and the benefits would not flow to the consumers which was in the best interest of the consumers. The Respondent has claimed that he had provided the list of the written off packing material location-wise along with the audited certificates issued by the Chartered Accountants and therefore he was rightly eligible to claim this deduction of ₹ 7.80 Crores on account of writing off of the packaging material. 30. The Respondent through the following illustration has claimed that if the base price would have remained unchanged; th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by him, such sales of the semi-finished goods needed to be excluded. He has claimed that an amount of ₹ 2.6 Crores was erroneously included in the computation of the alleged profiteered amount which was required to be deducted. He has also submitted sample copies of the invoices to and from the contract manufacturers for the same product in support of his claim. 33. The Respondent has further submitted that despite inflationary pressures, he has passed on the full benefits of the GST rate reductions and has not increased his prices until February, 2018. He has taken objection to the DGAP's Report which has alleged that the Respondent had made extra profit due to the rate reduction without corresponding increase in the sales and this was due to the GST benefits which had not been passed on by him to the consumers. The Respondent has also claimed that the DGAP had not appreciated that the introduction of GST had necessitated key accounting changes. He has also contended that increase/decrease in the profit of a Company was influenced by multiple factors such as volume, mix, cost of materials, inflation and overhead efficiencies etc. and not just sales growth. 34. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the allegations were based and since the notice did not allege anything on the TRAN-2 credit it could not form part of the investigation. He has further submitted that the TRAN-2 credit was available in respect of the inputs held in stock as on 30.06.2017 whereas the ITC under he GST was available upon fre taxes that were charged on supply of goods/services after 01.07 2017. He has claimed that based on the reading of Section 140 (3) as well as the definitions of Input tax and the Input tax credit given under the CGST Act, 2017, it was clear that the TRAN-2 credit was on account of the stocks held prior to the GST implementation which could clearly not be regarded as a supply of goods on which CGST/SGST/UGST/IGST could have been charged. He has further claimed that the taxes or duties on such stocks were paid under the laws existing in the pre-GST regime and hence such taxes or duties did not qualify as input tax under the definition given in the Act and accordingly, the TRAN-2 credit could not be considered as ITC under the above Act. He has also contended that Section 171 dealt with passing of the benefit of the ITC but given that the Tran-2 credit did not qualify as ITC unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05.03.2018 10.04 2018 01.01.2018 to 28.02.2018 5.06 Total 124.04 Table-2 (in Rs. Crores) 1 Benefit passed on through extra grammage 119.67 2. Benefit given to Modern Trade 26.37 3. Packing material written off in view of rate change 7.80 4. Loss of fiscal incentive entitled for recoupment 45.31 5. Deposited with Consumer Welfare Fund 124.04 Total 323.19 Extra collection by the Company (5774.80 5454.10) 320.70 Excess Paid 2.5 37. The Respondent has further submitted that if he had kept the unit base prices of all the packs unchanged as they prevailed on 14.11.2017, and had charged CST @ 18% instead of 28%, the base prices so recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change whatsoever. He has also attached a certificate from the statutory auditors confirming the correctness of ₹ 320.70 Crores being the maximum amount on account of excess realization due to GST rate reductions w.e.f. 15.11.2017. The Respondent has further submitted that the computation of grammage deployment of ₹ 119.67 Crores was provided by him to the DGAP on a monthly basis. Details of which were as below:- (in Rs. Crores) Letter dated Annexure No. Grammage deployment 05th March 2018 3 11.35 09th March 2018 2 48.12 10th April 2018 2 60.19 119.67 40. The Authority had also asked him to resubmit the details of grammage deployment in the format of Annexure-25 prepared by the DGAP however, he had failed to do so. The Respondent has also claimed that the increase in the grammage was done in response to the GST rate reductions and not during the regular course of business. He has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GAP, vide his letter dated 22.02.2018, that he had still not made any recovery from the RSS as he was awaiting guidance from the DGAP on the modalities of passing on the benefits. He has also mentioned that based on the query from the DGAP, his inference was that the DGAP wanted him to recover this benefit from all the RSS. He has further claimed that he had kept the CBIC and the DGAP informed at every step and explained his approach with respect to the matter relating to the recovery from the RSS on account of the transition stocks. He has also contended that he had walked the extra mile to help recover the amount expeditiously and deposit it with the CWF although he had no legal right to do so. 41. Vide his submission dated 22.10.2018 the Respondent has submitted the details of the products impacted by the GST rate reductions and the date of grammage increase for each product and details of publicity of this grammage increase alongwith newspaper advertisements, screen shots of Company's Website, electronic and digital advertisements, advertisements on the E-commerce website, and the advertisements on the packs. He has also submitted that he had issued a letter dated 21 .11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced the GST rates w.e.f. 15.11.2017 on several goods from 28% to 18% and from 18% to 12% vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017. The main products being sold by the Respondent on which these rates were reduced have been shown in the table below:- Sl. No. Category Major Brands Tax Rate till 14.11.2017 Tax Rate after 15.11.2017 1. Personal Wash Lux, Dove, Pears, Lifebuoy 28% 18% 2. Hair Care Clinic Plus, Dove, Sunsilk 28% 18% 3. Skin Care Cosmetics Fair Lovely, Ponds, Vaseline, Lakme 28% 18% 4. Deodorants Axe, Rexona 28% 18% 5. Fabric Wash Surf Excel, Rin, Wheel, Sunlight 28% 18% 6. Household Care Vim, Domex, CIF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this amount of ₹ 320.70 Crores can be termed as extra realization as this in fact is the amount the benefit of which has been denied by the Respondent to his customers. The Respondent has also admitted that he had deposited an amount of ₹ 124.04 Crores in the CWF on 04.12.2017, 08.01.2018, 09.03.2018 and an amount of ₹ 36.19 Crores on 10.04.2018 which he had recovered from his RSS, therefore, the Respondent has himself admitted that he had resorted to profiteering as only the profiteered amount could be deposited in the CWF. Perusal of the Audited Financial Results published by the Respondent also shows that during the year 2017-18 after the rates of tax were reduced his sales had increased only by 2% but his profits had increased by 19%, during the quarter ending December, 2017 his sales had increased by 2% but his profits had increased by 28% and during the quarter ending March, 2018 his sales had increased by 3% whereas his profits had increased by 24% whereas during the year 2016-17 before the rates of tax were reduced his sales had increased by 3% and his profits had also increased by 3%. Therefore, it is established that the increase in his profits was enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction had come in to force. Therefore, it is established that he had earned disproportionately large and grossly unfair profit by exploiting an unusual situation in which the rates of tax had been reduced and hence his act squarely falls within the definition of profiteering being unethical, immoral, illegal, malafide and contumacious. 48. The Respondent quoting 2 cases decided by the Hon'ble Supreme Court viz. Badridas Daga v. CIT 34 ITR 10 (SC)= 1958 (4) TMI 2 - SUPREME COURT and CIT v. Meghalaya Steels Ltd. (2016) 67 taxmann.com 158 (SC)= 2016 (3) TMI 375 - SUPREME COURT has submitted that profit has to be understood in a sense in which no commercial man would misunderstand it and the net profit could only be calculated by deducting from the sale price of an article, all elements of cost which go into manufacturing or selling it. It is respectfully submitted that the above cases are not relevant in the facts of the present case in as much as Section 171 of the CGST Act, 2017 does not deal with profit it only applies in the case of profiteering. Profiteering as laid down in the CGST law read with the CGST Rules only implies that whenever there is reduction in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt the reduction became operative and therefore there could not be one price that was operational at the end-point of the distribution chain and another price upstream in the distribution chain. It was also argued that it was possible that certain stock has been purchased at the higher and revised price and was lying with the distributor or wholesaler or retailer but once the revised price came into effect, this stock became unsellable at the higher price, and the losses or reductions needed to be absorbed somewhere in the distribution chain. How the manufacturers/distributors and dealers, inter-se, make arrangements for these losses to be absorbed, depends on the specific contractual and credit arrangements. It was emphasized that paramount consideration of the Central Government was that the revised price must be carried into effect in so far as the consumer was concerned and it was for the manufacturers and distributors to make appropriate arrangements how the unsold stock was dealt with. It was the submission of the Id. Additional Solicitor General that the relabeling was permitted under the law governed by the Legal Metrology Act, 2009. The Hon'ble Supreme Court in its ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent has to bear the consequences of the profiteering as per the provisions of the CGST Act, 2017. 50. The Respondent has also claimed that he had informed the Chairman CBIC vide his letters dated 21.11.2017 and 04.12.2017 that he was sincere in passing on the benefit of tax reduction where ever it was possible and would suo-moto deposit the excess realization in case it was not possible to do so. However, it is apparent from the record that the Respondent had tried to mislead the authorities by making false claims as he had acted quite contrary to the claims which were made by him in his above letters. Instead of passing on the benefits he had increased the base prices, had compelled the customers to pay more price than what they were legally required to pay, had forced them to pay additional GST on the increased prices and also earned extra margins on the enhanced prices. He had even illegally compelled his RSS to deposit the ITC which they could have legally claimed due to reduction in the rates of tax which would have resulted in commensurate reduction in the prices and therefore, all the claims of having passed on the benefit of tax reduction sincerely and faithf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount in Crores 04.12.2017 15.11.2017 to 30.11.2017 59.94 08.01.2018 01.12.2017 to 31.12.2017 59.04 05.03.2018 10.04.2018 01.01.2015 to 28.02.2018 5.06 Total 124.04 53. It is further revealed that on 21.11.2017 the Respondent had written the following letter to his RSs:- Hindustan Uniliver Limited, Uniliver House, B D Sawant Marg Chakala, Andheri East Mumbai 400099 Tel +91 (22) 39830000 Web: www.hul.co.in CIN: 115140MH1933PLC002030 Date: 21st November 2017 To: All the Redistribution Stockist (RS) of Hindustan Uniliver Limited Dear Business Partner, Sub: Revision in GST rates with effect from 15.11.2017 and passing o benefits to end consumers. We thank you very much for your continued support during the GST implementation. As you are aware, basis the recent Centre [CGST/IGST] and State Government [SGST] Notifications, the GST rates for some of our categories like Washing Powder, Dish Wash, Skin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount for it separately and the same would be passed on to the consumers. 55. In this connection it would be appropriate to refer to Section 22 of the CGST Act, 2017 which states that every supplier shall be liable to be registered under this Act in the State or the Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds Rs. There is also no dispute that the RSS were registered suppliers and as per section 16 of the above Act they were entitled to take credit of the input tax charged on any supply of goods or services or both received by them from the Respondent. Since the tax was paid at 28% on the stocks which the RSS had as on 15.11.2017 they were required to sell it at the rate of 18% and claim ITC and hence they would have passed on the benefit of reduction in the GST tax rates to the customers. But by issuing the above letter the Respondent has not only denied ITC to his RSS but has also restrained them from passing on the benefit of reduction of tax rates to their customers. On specific query raised during the proceedings the Respondent was asked to intim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Crores and after deducting the fiscal incentives denied to him he had claimed that the net excess realization had been ₹ 435 Crores. But the DGAP has estimated an amount of ₹ 419.67 Crores as the profiteered amount other than ₹ 76.06 Crores of TRAN-2 credit. The Respondent later has filed the following details as shown in the Table-4 below claiming that if the deductions claimed by him were considered, the excess amount collected by him was only ₹ 121.11 Crores while he had deposited ₹ 124.04 Crores:- Table -3 Statement submitted by the Respondent (Table-4) 57. According to the latest figures as given in the Table-5 below, the Respondent admits that he had collected in excess an amount of ₹ 320.70 Crores (5774.80 - 5454.10) as the price component and an amount of ₹ 57.80 Crores as tax component (1039-981.20). This amount of ₹ 320.70 Crores has been collected by increasing the base prices and selling at the original MRPs even after reduction of tax rates from 28% to 18% for all the products except coffee which was reduced from 18% to 12%:- Table-5 S.No. Items ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rive it at the right amount profiteered by the Respondent. 60. Admissibility of TRAN-2 Credit as deduction: The DGAP in his Report has included ₹ 76.06 Crores of the transitional credit, claimed by the Respondent through TRAN-2 statements in February 2018, in the profiteered amount. The DGAP is of the view that since this was the additional ITC, made available to the Respondent, he should have passed the benefit of it to the recipients according to Section 171 of the CGST Act, 2017. The DGAP has based his opinion on the proviso to Section 140 (3) of the CGST Act, 2017. The relevant excerpts of which are reproduced below:- Section 140. (3) A registered person, who was not liable to be registered under the existing law, or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of notification No. 26/2012-Service Tax, dated the 20th June, 2012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . While rebutting the DGAP's view on TRAN-2 credit as profiteered amount, the Respondent, in his written reply dated 14.09.2018, has contended that in the notice dated 10.01.2018 issued by the DGAP under Rule 129 of the CGST Rules, 2017, no allegation was levelled on account of TRAN-2 credit availed by the Respondent and therefore it was beyond the scope of this investigation. He has also claimed that as per Section 140 (3) and the definition of ITC given in the Act, TRAN-2 credit would fall outside the scope of the definition of ITC. The Respondent has also claimed that the TRAN-2 credit did not fall under the purview of Section 171 as it dealt with passing on the benefit of ITC whereas the TRAN-2 credit pertained to the credit in respect of the inputs held in stock as on 30.06.2017. On examining the DGAP's notice dated 10.01.2018, it is found that in para 3 of the notice it has been categorically mentioned that you are hereby requested to reply to this notice on or before 25.01.2018 stating whether you admit that the benefit of reduction in tax rate or input tax credit has not been passed on to the consumers by way of commensurate reduction in price . Therefore, the alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, however, one has to read the relevant provision along with the Rule 117 of CGST Rules 2017, which clearly states that this credit which is availed under Section 140 (3) is nothing but the ITC available under the GST. Rule 117 is reproduced below:- 117. (4) (a) (i) A registered person who was not registered under the existing law shall, in accordance with the proviso to sub-section (3) of section 140, be allowed to avail of input tax credit on goods (on which the duty of central excise or, as the case may be, additional duties of customs under sub-section (1) of section 3 of the Customs Tariff Act, 1975, is leviable) held in stock on the appointed day in respect of which he is not in possession of any document evidencing payment of central excise duty. (ii) The input tax credit referred to in sub-clause (i) shall be allowed at the rate of sixty per cent on such goods which attract central tax at the rate of nine per cent or more and f01ty per cent. for other goods of the central tax applicable on supply of such goods after the appointed date and shall be credited after the central tax payable on such supply has been paid: Provided that where integrated tax is pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute as he has failed to produce any evidence to prove, either before DGAP or before the Authority that this benefit of Tran-2 credit has been passed on by way of reduced prices. Moreover, the Respondent, on page 23, point (d) of his written submissions dated 14.09 2018 has mentioned that the law did not mandate passing of TRAN-2 credit, which is not correct and hence his contention cannot be accepted. In the light of the above facts, it can be concluded that the Respondent has not passed on the benefit of TRAN-2 credit to any of his recipients, which under Section 140 (3) read with Section 171 of the Act, he was required to pass on. Therefore, the plea of the Respondent to claim this amount of ₹ 76.06 Crores of Tran-2 credit as a deduction from the profiteered amount is rejected and the above amount is held to be the ITC the benefit of which was denied to his recipients by the Respondent. 64. Admissibility of grammage benefit as deduction: On the one hand, the Respondent has claimed that the benefit of extra quantity which has been passed on to the consumers at the original MRPs and hence the benefit of grammage should be given to him taking into consideration the unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. Therefore, the Authority is of the view that passing on extra quantity could be one of the modes of passing on the benefit especially considering the fact that reducing the prices on low value products could be cumbersome and sometimes impractical. The Respondent in his submissions dated 27.09.2018 has claimed that he had passed total benefit of ₹ 119.67 Crores in the shape of additional grammage out of which an amount ₹ 67.03 Crores was directly proportional to the reduction in the tax rates while an amount of ₹ 39.94 Crores has been in excess of the rate reductions and an amount of ₹ 12.69 Crores was less than the GST rate reductions. The Respondent has produced a letter from his Auditors and sample advertisements to show that the benefit of rate reductions was passed on either by way of reduction in the MRPs or through the higher grammage. These advertisements dated 15.11.2017, 16.11.2017, 25.12.2017 and 29.12.2017 state that they were published with the following messages viz. 'Ghata GST Badi Bachat', 'get the benefits of reduced GST rates on your wide range of Products', 'GST benefits are made available with reduced MRP or high ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age benefit worth ₹ 66.90 Crores had been passed commensurate to the GST rate reductions, the benefit of ₹ 12.69 Crores was less than the GST rate reductions and the benefit of ₹ 39.08 Crores was more than the GST rate reductions. As discussed above the Respondent was directed to supply the required information in the following format:- Format to Corroborate the Grammage Benefit as a Non-Profiteering Measure 66. Grammage benefit given more than the GST rate reduction: The Respondent in his written submissions dated 22.10.2018 has claimed a deduction of ₹ 39.08 Crores on account of the prices reduced more than the GST rate reduction. The Respondent claims that on some products and SKUs, he has reduced the effective selling prices by more than he was actually mandated to, due to the GST rate reductions. Hence, a total amount of ₹ 39.08 Crores, he argues, should be deducted from the net profiteered amount as had been calculated by the DGAP. The DGAP in its report has rejected this claim of the Respondent. 67. The Authority is of the view that Section 171 of the CGST Act, 2017, puts the onus of passage of any benefit of the GST rate reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed on them. 4. In respect of 6 products, the Respondent had passed on the benefit but more than the respective amount of profiteering computed by the DGAP for each of these products, hence, the deduction can be given but to the extent of DGAP's calculated amount of profiteering only. 5. In respect of 73 products, the Respondent has passed the benefit but less than the respective amount of profiteering calculated by the DGAP for each of these products, hence, the deduction can be given but limited only to the amount of benefit actually passed on. 6. 28 products have been shown in the negative in the Sales Register which means that they were Sales Returned. Hence, no deduction can be given. 7. 191 products, having negative values, i. e. the Sales Returned were not shown in the Sales Register which means they are not even the part of the profiteered amount. Hence, no grammage benefit can be given. 8. 16 products were already being sold prior to 15.11.2017 but under different CBI-J codes, with same grammage benefit to be given due to GST reductions. Hence, no deduction can be allowed. 9. Hence, benefit can be given only in case of 79 products. The total amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Respondent by claiming that he was in loss in the absolute terms. The DGAP is right in his assessment that there was no loss in absolute terms to the Respondent, since he was still eligible to get the same proportionate refund of actual CGST/IGST paid in cash as was available to him prior to the reduction in the rates of GST. Moreover, there exists no direct correlation between the MRP of the product (which is same over all-India) and the area based exemption benefit. The claim of the Respondent to the extent of ₹ 45.31 Crores is not justified in as much as there is no evidence to show that the products manufactured with these concessions were sold at a lower rate. Also, there is no evidence to show that these products are different from the products manufactured in other areas and were sold at the old MRPs. The products whether manufactured with concessions or without concessions are being sold at the same price. Admittedly, these prices were not reduced inspite of rate reductions. Therefore the claim of the Respondent is not legally sustainable and is thereby rejected. 70. Reimbursement to the Modern Trade: - The Respondent in his submission has submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credence and hence the same cannot be accepted. 71. Packing material write off : The Respondent has also asserted that he should be given the benefit of the cost which he had to incur in writing off the packaging material which he had to dispose of, as it could no longer be used after the GST rate changes. He has also claimed that he had to write off the packaging material worth ₹ 7.80 Crores. The DGAP's Report finds that the Govt. of India had allowed the manufactures to use the old packing material and to affix the revised MRP while the original MRP was visible. The Auditors report submitted by the Respondent through his written submission dated 27.09.2018 also mentions the grammage only and there is no mention of writing off of the existing packing material. The Respondent, on Page 14 of his reply, dated 14.09.2018, has also contended that stickering though legally permissible was operationally nearly impossible. (emphasis supplied). However, It is to note that operational difficulty in following a law can never be a ground for disobedience of law. The law was very clear when it gave the suppliers the relief to do re-stickering instead of incurring additional cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 128/- to ₹ 118/- and in case the supplier increases the base price to ₹ 108.47, and then charges ₹ 19.53 as GST at the rate of 18%, thereby making the selling price again equal to ₹ 128/- then this is a clear cut case of profiteering. Although, the supplier here might have paid the extra tax of ₹ 1.53 to the Government but he cannot claim this as a deduction from his profiteered amount as the recipient has paid ₹ 1.53 more than the amount he was supposed to pay. This entire sum of ₹ 1.53 amounts to profiteering done by the supplier. The Anti-profiteering provisions specified in the CGST Act and Rule 127 of the CGST Rules make it amply clear that the recipients get their rightful due in the form of reduction in the prices on account of reduction in the GST tax rates. Therefore, this Authority is of the view that since, the recipients of the Respondent have been compelled to pay extra GST which should be included in the profiteered amount. Hence, the Respondent's claim to deduct this amount is dismissed. 73. Sales to CPF and CRPF : The Respondent, in his written and oral submissions, has stated that he had sold his goods throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 27.09.2018 the Respondent has provided details of sales of semi-finished goods made to the third party manufacturers and from the details provided it appears that the prices have increased post 15.11.2017 inspite of rate reductions in taxes. His claim that these were not the final products but were further used in the manufacture of final product will not hold good in as much as the goods were final products from his end though it is an input to the third party manufacturers. As per Annexure-12 13 of his written submissions dated 09.08.2018 the Respondent has provided details of return of one product namely Coffee but for other products no evidence has been provided to prove that these goods were returned to him for further processing. In the case of Coffee also, the Respondent has not been able to provide any clear and conclusive proof to establish that the sent and the received back goods pertained to the same Batch or were exchanged during the same period of time. The Respondent has also not claimed that the prices had been reduced and his only claim is that it was a semi- finished product. Therefore the claim of the Respondent to the extent of ₹ 2.63 Crores made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. ₹ 78.97 Crores. This amount of ₹ 78.97 Crores availed through TRAN-2 statements shall be deposited by him in the Central CWF as this amount pertains to the Central taxes and the duties. 77. Accordingly, the Authority determines that as per the data available on record the Respondent has profiteered an amount of ₹ 455.92 Crores (419.67 + 36.19 + .06) on account of denial of benefit to his customers due to the reduction in the rates of tax. He has also availed an amount of ₹ 78.97 Crores as TRAN-2 credit the benefit of which has also not been passed on by him. Therefore, the Respondent in all has profiteered an amount of ₹ 534.89 (419.67 + 36.19 + .06 + 78.97) Crores. Out of the amount of ₹ 455.92 Crores the deductions claimed by the Respondent are allowed only for an amount of ₹ 68.77 Crores on account of grammage benefit and ₹ 3.80 Crores for the supplies made to the CPF the CRPF. Therefore, after allowing the above deductions of ₹ 72.57 (68.77 + 3.80) Crores, an amount of ₹ 383.35 (455.92-72.57) Crores is confirmed as the amount the benefit of which has been denied by the Respondent to his customers. Accordingly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort shall be submitted by him quantifying the amount of profiteering. 79. From the above discussion it is clear that the Respondent has resorted to profiteering being very well aware of the law and the rules which warranted him to pass on the benefit of GST rate reductions. Further he has also consciously and illegally recovered the excess realisation which was due to his RSS as ITC and thereby denied the benefit of tax reductions to the customers. He has further acted in conscious disregard of the obligation which was cast upon him to pass on the benefit of GST rate reductions. Instead he had deliberately increased the base prices by enhancing them equivalent to the amount of GST rate reductions in order to keep the old MRPs in place or not reduced them proportionately to the benefit of tax reductions, accordingly he has committed an offence under section 122 (1) (i) of the CGST Act, 2017 by issuing incorrect invoices to his customers and thus penal provisions under the above Act are required to be invoked against him. A notice dated 29.08.2018 was issued to the Respondent to explain why penalty should not be imposed under the above provisions. The Respondent vide his reply dat ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
