TMI Blog2019 (7) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the recipients as per the provisions of Section 171 of the CGST Act, 2017. From the above discussion and the invoices available, it is revealed that the base price of the product Sofy Bodyfit XL 6S was increased from ₹ 33.08/- to ₹ 37.05/-, when the rate of tax was reduced from 12% to NIL% with effect from 27.07.2018. Thus, increasing the base price of the product, post-GST rate reduction, the benefit of reduction in tax rate was not passed on to the recipients. The Respondent No. 2, who is the seller of the impugned product, had clearly increased the base price of the product as can be seen from the invoices. But as the benefit of ITC was not available to him post 27.07.2018, so the reversal of ITC on the closing stock was the extra cost on him. As can be seen from the records that reversal of ITC by him was more than excess realization on closing stock after denial of ITC benefit w.e.f. 27.07.2019, and therefore no profiteering can be established on his part and hence, we take the view that Section 171(1) is not attracted in respect of the Respondent No. 2 - Notwithstanding the fact that there had been reduction in MRP and the Respondent No. 1 had reduced hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43/2019 - - - Dated:- 26-6-2019 - SH. B. N. SHARMA, CHAIRMAN, SH. J. C. CHAUHAN, TECHNICAL MEMBER, MS. R. BHAGYADEVI, TECHNICAL MEMBER, MR. AMAND SHAH, TECHNICAL MEMBER Present:- None for the Applicant No. 1. None for the Applicant No. 2. Smt. Neelam Kapur, Superintendent, DGAP for the Applicant No. 3. Sh. K. Gurumurthy, Advocate and Sh. Vivek Singh, Employee for the Respondent. ORDER 1. The brief facts of the case are that under Rule 128 of the Central Goods and Services Tax (CGST) Rules, 2017, the Applicant No. 1 vide his letter dated 03.08.2018, addressed to the Member (Budget),Central Board of Indirect Taxes and Customs (CBIC), informed that the prices of Sanitary Napkins hereinafter referred to as the product were not reduced by the Respondent No. 1 and Respondent No. 2, despite reduction in the rate of GST on the said product from 12% to Nil w.e.f. 27.07.2018. 2. The above issue was examined by the Standing Committee on Anti-profiteering in its meeting held on 06.09.2018, wherein it was decided, to refer the matter to the Directorate General of Anti-Profiteering (DGAP) to initiate d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.95 Base Price excluding GST Rs. F 33.08 37.05 GST Rate Charged (%) G 12% Nil GST Amount (Rs.) H=F*G 03.97 0.00 Selling Price after discount (Rs.) I=F+H 37.05 37.05 Difference in Base Price (Rs.) (37.05 - 33.08) = 03.97/- 7. The DGAP has further stated that on preliminary examination of the documents, it was revealed that the benefit of reduction in the GST rate from 12% to Nil on the product was not passed on to the ultimate consumers. Also, in case of the Respondent No. 1, the denial of ITC (ITC) on account of reduction in GST rate from 12% to Nil would affect the pricing pattern as input taxes are embedded in the cost of the product but in case of the Respondent No. 2, profiteering, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed by him that the base price of the product had been increased and the final selling price of the product had remained the same, despite the GST rate reduction and therefore, the reduction in MRP did not indicate that there was commensurate reduction in price charged from the ultimate consumers. He has further stated that while determining the ratio of ITC in respect of. The product as a percentage of the taxable turnover by the DGAP from The product supplied during the period 01.07.2017 to 26.07.2018, the DGAP stated the ITC on closing stock as on 26.07.2018 had to be excluded and therefore the ITC amounting to ₹ 22.22 crore (₹ 25.65 crore - ₹ 3.43 crore) was available to the Respondent No. 1 during the period 01.07.2017 to 26.07.2018 which was approximately 12.7% of the taxable turnover from The product during the same period minus the value of closing stock as on 30.06.2017 (₹ 186.77 crore - ₹ 11.8 crore = ₹ 174.97 crore). With effect from 27.07.2018, when the GST rate on the product was reduced from 12% to Nil, the said ITC was not available to him. A summary of the computation of ratio of ITC to the taxable turnover of the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1 by comparing the commensurate post GST rate reduction base price with the base price at which the product had actually been sold during the period 27.07.2018 to 30.09.2018. The commensurate base price or selling price post reduction in GST rate from 12% to Nil w.e.f. 27.07.2018, has been arrived at by the DGAP by increasing the pre-GST rate reduction base prices by 12.7% on account of denial of ITC credit and the profiteering has been calculated by comparing the said commensurate selling price with the actual invoice-wise selling price during the period 27.07.2018 to 30.09.2018 and accordingly, the amount of net higher realisation or the amount of profiteering due to increase in base price beyond 12.7% has been worked out. The DGAP further stated that from the details of the Respondent No. 1's outward supplies made during the period 27.07.2018 to 30.09.2018, it was found that he had sold 51 items during the said period and out of the said 51 items, 44 items were sold by him during the period 01.07.2018 to 26.07.2018. After scrutiny of the Respondent No. 1's outward supplies during the period April, 2018 to June, 2018, it was found by the DGAP that the remaining 7 item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 MEGHALAYA (17) 9.56 18 ASSAM (18) 10510.70 19 WEST BENGAL (19) 66641.10 20 JHARKHAND (20) 8503 21 ODISHA (21) 12198.90 22 CHATTISGARH (22) 16574.30 23 MADHYA PRADESH (23) 18402.80 24 GUJARAT (24) 106992 25 DAMAN AND DIU (25) 95.26 26 DADRA AND NAGAR HAVELI (26) 31 27 MAHARASHTRA (27) 65425.90 28 KARNATAKA (29) 94168.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at a conclusion that since the cost / reversal of ITC was more as compared to the excess realisation made during the period 27.07.2018 to 30.09.2018, the allegation of profiteering against the Respondent No. 2 was not sustainable. 14. After perusal of the DGAP's Report, the Authority in its sitting held on 03.04.2019 decided to hear the Applicants and the Respondent No. 1 on 22.04.2019 and accordingly notice was issued to them. But the Respondent No. 1 sought adjournment three times and had intimated vide his letter dated 21.05.2019 that he had filed Writ Petition before the Hon'ble High Court of Delhi against the Notice issued by the NAA dated 04.04.2019 and the DGAP Report dated 29.03.2019. The Hon'ble High Court of Delhi directed him to file reply to the NAA Notice dated 04.04.2019 and appear before NAA to make submissions. Accordingly the hearing took place on 04.06.2019. On behalf of the Applicants none appeared, the DGAP was represented by Smt. Neelam Kapur, Superintendent and the Respondent No. 1 was represented by Sh. K. Gurumurthy, Advocate and Sh. Vivek Singh, Employee. 15. The Respondent No. 1 has filed detailed written submissions on 04. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of some of the products, which the DGAP in his report has computed was negligible and liable to be ignored. For example, in Sl. No. 23, the Respondent had sold SOFY Bodyfit Regular 8P the ideal selling price of which was ₹ 3.10 per unit whereas the actual selling price was ₹ 3.12 per unit. 18. Respondent No. 1 has also argued that the DGAP has arrived at the profiteering by following a mathematical calculation which has not been prescribed by the Authority under the Goods and Service Tax Methodology and Procedure, 2018 framed by it based on the powers conferred by the CGST Rules. He has also claimed that the assertion made in the Para 21 that The contention of the Noticee that as per Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018, they had immediately given effect to the reduction in GST rate from 12% to Nil on The product and accordingly, had reduced the Maximum Retail Price (MRP) of said goods, appears to be correct. Still the DGAP had continued to determine the profiteering by adopting hyper technical mathematical calculation and arrived at a profiteering of ₹ 10,77,182/- during the period of investigation. 19. The Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount to profiteering as the same was offered from the profit margin of the Respondent. 22. The Respondent No. 1 has also stated that investigation of the selling price of the product by the Authority amounted to placing restriction on the prices which was his exclusive right and while deciding the price, the business has to consider a number of factors like competition, demand elasticity, funding costs, research and pricing and it was never a direct function of cost or rate of tax. In the guise of ensuring commensurate reduction in prices, the DGAP has gone into the fixing of base prices, the determination of which was a right conferred on the him by Article 19 (1) (g) of the Constitution. 23. We have carefully considered the Report of the DGAP, the submissions of the Respondent No. 1 and all the documents placed on record. The mandate of the Authority as per Section 171 of the CGST Act, 2017 read with Rule 127 of the CGST Rules, 2017 is to examine and determine as to whether i). any reduction in rate of tax on any supply of goods or services or the benefit of ITC has been passed on to the recipient by way of commensurate reduction in prices, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 171(1) of the CGST Act, 2017. 27. Perusal of the Report filed by the DGAP nowhere shows that the DGAP had gone in to computation of the base price fixed by the Respondent No. 1 as he has neither sought details of the cost of the inputs used by the Respondent No. 1 nor of his profit margins, and therefore, the allegation of the Respondent No. 1 regarding computation of base price during the investigation on part of the DGAP is completely wrong. The DGAP has only tried to investigate whether the benefit of reduction in the rate of tax has been passed on to the customers or not as per the provisions of Section 171 or not. 28. It is absolutely clear even from a cursory perusal of the provisions of Section 171 that they are completely unambiguous and clear and hence there is hardly any scope for misinterpretation of the same. The intent of legislature shows that it proposes to hold the suppliers accountable for passing on the benefit of rate reduction as it is being given out of the public exchequer and any breach of the same will fall foul of the above Section. It is also clear from the provisions of Section 171 that it has given mandate only to ensure that the ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Respondent No. 1 as per the provisions of the CGST/SGST Acts under the supervision of the DGAP. They are further directed to submit report in compliance of this order within a period of 4 months. 32. It is also established from the above facts that the Respondent had issued incorrect invoices while selling the above product to his recipients as he had incorrectly shown the base price without mentioning any specifics such as colour, texture, quality etc about the products being supplied with the sole intention of not having to pass commensurate benefit of reduction in rate of tax to his recipients. It is also established from the record that the Respondent has deliberately 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 liable for imposition of penalty under the above Section read with Rule 133 (3) (d) of the CGST Rules, 2017. In the interest of natural justice before imposition of penalty a notice be issued to him asking him to explain why penalty should not be imposed on him. 33. A copy of this order may be supplied to all ..... 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