9911796707
TMI Blog2019 (11) TMI 1084X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-Central Tax (Rate) dated 26.07.2018against Respondent no. 1 and Respondent No. 2 alleging that both the Respondents have not passed on the benefit of reduction in the GST rate from 12% to Nil w.e.f. 27.07.2018, levied vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018, on supply of "Sanitary Napkins" by way of commensurate reduction in prices in terms of Section 171 of the Central Goods and Services Tax Act, 2017. 2. The above issue was examined by the Standing Committee on Anti-profiteering in its meetings held on 06.09.2018 and 08.10.2018, wherein it was decided, to refer the matter to the Director General of Anti-Profiteering (DGAP) to initiate detailed investigation in the matter and collect evidence necessary to determine whether the benefit of reduction in the rate of GST on supply of "Sanitary Napkins" had been passed on by the Respondents to the recipients. 3. The DGAP, after completing the investigation has submitted his report under Rule 129 (6) of CGST Rules, 2017 on 18.03.2019 pertaining to the period w.e.f. 27.07.2018 to 30.09.2018. 4. The DGAP has stated that a notice under Rule 129 of the CGST Rules, 2017 was issued on 24.10.2018, calling up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv. Price lists of the sanitary napkins. v. Outward sales data for the period April, 2018 to September, 2018. vi. GST registration cancellation certificate for Chandigarh. vii. Details of input tax credit and outward sales for the period 01.07.2017 to 26.07.2018. viii. Details of input tax credit availed, utilised and reversed for the period July, 2017 to July, 2018, covering all the products supplied. ix. Details of total outward sales covering all products for the period July, 2017 to July, 2018. x. Details of closing stock of sanitary napkins as on 26.07.2018. The DGAP further stated that the Respondent No. 2 made the following submissions before him:- a) He is only a dealer of sanitary napkins which he purchases from the manufacturer (Respondent No.1). The products are subject to affixation of MRP under the Legal Metrology Act and the Rules made thereunder. b) When the said good was subject to GST at the rate of 12%, the Respondent No. 1 had specified the MRP of "Stay free Secure Cotton Wings' sanitary napkins in invoice no. 15674CS0075875 dated 19.07.2018 as Rs. 35/- which was reduced to Rs. 34/- by the Respondent No. 1. when the GST rate was reduced to 'Ni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided by the Applicant No. 1 to prove the above point:- Table- A Period Pre 27.07.2018 Post 27.07.2018 Product Description A Stayfree Secure Cotton Wings (HSN Code 96190010) sanitary napkins Invoice No. B 15674CS0075875 15674CS0077149 Invoice Date C 19.07.2018 02.08.2018 MRP (Rs.) D 35.00 35.00 Discount offered on MRP(Rs.) E 01.75 01.75 Base price excluding GST (Rs.) F 29.69 33.25 GST Rate Charged (%) G 12% Nil GST Amount (Rs.) H = F*G 03.56 0.00 Selling Price after discount (Rs.) I = F + H 33.25 33.25 Difference in base price (Rs.) (33.25 - 29.69) = 03.56/- 8. The DGAP also mentioned that while determining the ratio of ITC in respect of sanitary napkins as a percentage of the taxable turnover from sanitary napkins supplied during the period July, 2017 to 26.07.2018, the ITC on closing stock as on 26.07.2018 had to be excluded and accordingly the ITC amounting to Rs. 180.73 crore (Rs. 192.98 crore - Rs. 12.25 crore) was available to the Respondent No. 1 which was approximately 9.4% of the taxable turnover from sanitary napkins during the same period minus the value of closing stock as on 30.06.2017 (Rs. 1994.28 crore - Rs. 75.81 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had sold 81 items during the said period and out of the said 81 items,73 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, the DGAP noticed that the remaining 8 items (81-73) were sold during the period of April, 2018 to June, 2018 and accordingly the profiteered amount had been arrived at by comparing the commensurate prices of all the said 81 items with the actual selling prices or base prices of the said items sold during the period 27.07.2018 to 30.09.2018. The DGAP in his Report stated that the profiteered amount was estimated at Rs. 8,50,029/- for Canteen Stores Department (CSD) outlets and Rs. 42,61,68,552/-for outlets other than CSD outlets. The place of supply (State or Union Territory) wise break-up of the aforesaid total profiteered amount of Rs. 42,70,18,581/- (Rs. 42,61,68,552/-+ Rs. 8,50,029/-), is furnished in Table below as given by the DGAP:- Table-C S.No. State & Code (Place of Supply) Profiteering (Rs.) 1. HIMACHAL PRADESH (2) 3,47,14,888.83 2. PUNJAB (3) 84,16,583.01 3. CHANDIGARH (4) 0.00 4. UTTARAKHAND (5) 12,28,596.29 5. HA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2 was not sustainable. 12. After perusal of the DGAP's report, the Authority in its sitting held on 19.03.2019 decided to hear the Applicants and the Respondent No.1 on 04.04.2019 and accordingly notice was issued to him. Accordingly the hearing took place on 04 04.2019. On behalf of the ApplicantsNo.1 and 2 none appeared, the DGAP was represented by Sh. Manoranjan, Assistant Commissioner and the Respondent No. 1 was represented by Sh. Hardeep Singh Lamba, Associated Director Tax, Ms. Hitashree K., Manager Tax, Sh. Shashi Mathews, Sh. Vasu Nigam and Sh. Tarun Gulati, Advocates. On the request of the Respondent No.1 further hearings were held on 24.04.2019 and 10.05.2019. 13. The Respondent No. 1filed detailed written submissions on 04.04.2019, 24.04.2019, 10.05.2019, 15.05.2019 and 30.05.2019. On 04.04.2019, the respondent in his written submissions made the following observations:- (a) In the case of sale of "Stayfree Secure Cotton Wings" to Apollo Hospitals, the base price the DGAP has adopted was Rs. 21.25 but in Para 15 (V) of the Report it is stated that the base price charged by the Respondent to the Apollo Hospitals was Rs. 27.90. The DGAP's Para 15(V) is reproduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... implicity)
29.50
32.21
9.19%
24.38
32.21
32.12%
22.93%
2704019601
2704024125
X X X X Extracts X X X X X X X X Extracts X X X X ..... have been no basis to arrive at a prima facie determination that the Respondent No. 1 had indulged in profiteering. 18. He further submitted that once the DGAP had arrived at a finding that the Respondent No. 1 had reduced the MRP of the goods concerned, as evidenced in Para 21 of the DGAP's Report, the basis of the complaints that there was no reduction of prices is negated and therefore, having given such a finding, the DGAP should have concluded that no profiteering has been done by the Respondent No. 1.Further in the absence of any methodology prescribed by the CGST Act or the Rules, the DGAP had applied his own methodology to conclude that the Respondent No. 1 had indulged in profiteering. He also claimed that the only requirement under Section 171 (1) of the CGST Act, 2017was that the benefit of any tax rate reduction ITC shall be passed on to the recipients by way of a "commensurate reduction in prices" and it was to be noted that the statute did not prescribe any method of computation by which amount of profiteering could be computed. Further, he stated that in terms of Section 171 (3) of the CGST Act. 2017. it is provided that the Authority "shall exercise such powers an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he had broadly passed on more than the commensurate benefits of reduction of tax, then it should be considered as good compliance with respect to each customer without looking at the price of each SKU microscopically as has been sought to be done in the Report. He mentioned that pricing of products is a complex exercise and products were usually not priced individually and in isolation at a unit level and that in a free market, several considerations such as those of demand and supply, fixed and variable costs, price of raw materials, logistics, product range, product mix, supplier's position in the market, entity level operational costs, market situation, consumer segment, etc., costs and benefits at an entity level, division level, and product category level were all influencers of any pricing decision, the cost of tax was only one of the elements which determined the final price. 23. The Respondent also submitted that for the purposes of calculating the total profiteering amount as alleged in the Report, the DGAP has incorrectly considered only those instances where there was an alleged positive profiteering and has inexplicably ignored instances where even as per the DGAP's ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned above, for a particular customer for all SKUs cumulatively and calculated the profiteering across SKUs sold to a particular customer and concluded that the benefit of Rs. 18,92,31,610/- was to be passed on which was more than the commensurate benefit required to be passed on by him under Section 171 of the CGST Act. He further argued that even if he carried out the above calculations without consolidating the data for all SKUs sold to a customer and calculates in relation to individual SKUs sold to a customer separately, it would come to a miniscule amount of Rs. 21,33,791/-. 26. He further said that there is absolutely no justification for comparing the average base price from one period to the actual selling prices charged to his customers in individual invoices from a different period as was done by the DGAP. He vehemently argued that the DGAP has calculated the average base price of the SKUs sold by him prior to the Exemption Notification and the period for this exercise in case of certain SKUs has been taken from 01.07.2018 to 26.07.2018 and from April, 2018 to June, 2018 for the remaining SKUs, which, the DGAP has justified as per Para 25 of the Report, on the basis that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dual product / SKU level and that the aim of Section 171 of the CGST Act, 2017 was not to fix price but to prevent profiteering. He said that the term 'profiteering' has been defined in Black's Law Dictionary, which was relied upon by the Hon'ble Supreme Court in the case of Islamic Academy of Education v. State of Karnataka (2003) 6 SCC 697, 774 = 2003 (8) TMI 469 - SUPREME COURT as "taking advantage of unusual or exceptional circumstances to make excessive profits". He further elaborated that it was well settled that the right to reasonable profit was a part of right to trade and any methodology prescribed under Section 171 cannot be de-hors restrict the reasonable profit that may be earned on the costs incurred by an enterprise. MRP only indicated a price above which the goods could not be sold and could not be considered / assumed as the price realized by a person for all its sales. It was a general commercial practice to sell goods at price less than the MRP and thus any price arrived on the basis of the MRP alone was notional, not real and could not form basis to determine "commensurate" reduction in price. He contended that the DGAP has acted in a narrow and arbitrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 171 of the CGST Act or the Rules made thereunder. Rule 133(3)(e) of the CGST Rules also provided that where the Authority determined that a registered person has not passed on the benefit of the reduction in the rate of tax on the supply of goods to the recipient by way of commensurate reduction in prices. the Authority may order, inter alia, cancellation of registration under the CGST Act. Further, it is submitted that cancellation of registration can be resorted in terms of the provisions mentioned above and since the Respondent had not contravened any of the provisions of the CGST Act the question of imposing any penalty did not arise. He also relied on various judgements. 33. He claimed that in accordance with the directions of the Authority, with respect to products in stock with him as on 26.07.2018, he had immediately reduced the prices of the products, as charged to his immediate buyers with effect from 27.07.2018 and he had also stressed that requisite changes were made in his software to affect the said change in prices to his immediate buyers with effect from 27.07.2018. He also mentioned that he issued flyers / circulars / communications to his immediate buyers sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the average price of the product for the period w.e.f. 01.07.2018 to 26.07.2018 i.e. prior to GST rate reduction. These base prices have been loaded with 9.4% and accordingly recalibrated base prices per unit have been arrived at. These recalibrated base prices have been compared with the actual selling prices after the product was exempted and wherever the selling price of the product was more than the recalibrated base prices, it appeared that the benefit of exemption of tax had not been extended to the recipients. Accordingly the DGAP has estimated the profiteered amount for 81 SKUs supplied by the Respondent No. 1 as Rs. 42.70 18,581/-. 37. The Respondent had not disputed the fact that the denial of ITC based on the turnover arrived at by the DGAP was 9.4%. This Turnover was arrived at based on the figures provided by the Respondent which were based on the transaction values of all the products sold and therefore he should not have any objection when the same transaction value is taken for arriving at the base price. It may be a fact that the MRP may not have been increased but the fact remains that the base price of the product had increased more than 9.4% which was allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Standing Committee on receipt of an application either from an interested party or from a Commissioner or any other person can examine as to whether the provisions of Section 171 have been violated. In the present case the Application was received from the Commissioner and the Principle Chief Commissioner and on prima facie finding that the provisions of section 171 have been violated it was forwarded for detailed investigation to the DGAP. The provisions of the above Rule are as under:- 128. Examination of application by the Standing Committee and Screening Committee.-(1) The Standing Committee shall, within a period of two months from the date of the receipt of a written application for within such extended period not exceeding a further period of one month for reasons to be recorded in writing as may be allowed by the Authority,] in such form and manner as may be specified by it, from an interested party or from a Commissioner or any other person, examine the accuracy and adequacy of the evidence provided in the application to determine whether there is prima-facie evidence to support the claim of the applicant that the benefit of reduction in the rate of tax on any suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort does not lay down a proper methodology and has dealt with 81 SKUs when actually he has sold 51 SKUs. The DGAP in his Report dated 08.05.2019 has clearly stated that the difference in SKU has no relevance on the amount of profiteering and his entire calculations have been based on the data provided by the Respondent. The DGAP has in his Report explained how the base prices were recalibrated and how the ITC ratio of 9.4% has been arrived at, accordingly vide his Annexure-33 he has provided complete details as to how the profiteered amount has been arrived at. Moreover when it comes to the calculation of 9.4% ITC ratio the Respondent completely does not have an iota of objection to the turnover or ITC but questions the calculation of base price which is arrived at based on the data provided by him. Therefore his reliance on the case of CCE v. SG Engineers 2015 (322) ELT 204 (Del.) = 2013 (7) TMI 905 - DELHI HIGH COURT is completely misplaced as the report has in detail considered all the aspects to arrive at the profiteered amount. Under no circumstances the Report can be claimed by the Respondent to be a cryptic Report. 43. The Respondent No. 2, who is the seller of the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the base price w.e.f. 27.07.2019 more than what he was entitled to increase, which clearly shows that he had deliberately in conscious disregard of the provisions of Section 171 of the above Act had resorted to profiteering. Therefore upholding the findings of the DGAP, this Authority finds that the Respondent No. 1 has profiteered to the extent of Rs. 42,70,18,581/-which includes an amount of Rs. 8,50,029/- for Canteen Stores Department (CSD) outlets and Rs. 42,61,68,552/- for outlets other than CSD outlets. 46. In view of the above discussion the profiteered amount by the Respondent No.1 is determined as Rs. 42,70,18,5811- as per the provisions of Rule 133 (1) of the CGST Rules, 2017 as the said Respondent has failed to pass on the benefit of rate reduction to his customers. Accordingly, the Respondent No. 1 is directed to reduce his prices by way of commensurate reduction keeping in view the reduced rate of tax and benefit of ITC which has been denied by him as per Rule 133 (3) (a) of the CGST Rules, 2017. The Respondent No.1 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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