TMI Blog2020 (3) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... per the provisions of Rule 133 (1) of the above Rules as has been computed vide Annexure-18 of the Report dated 12.09.2019. Accordingly, the Respondent is directed to reduce his prices commensurately in terms of Rule 133 (3) (a) of the above Rules. The Respondent is also directed to deposit an amount of ₹ 37,85,342/- in the CWF of the Central and the concerned State Government, as the recipients are not identifiable, as per the provisions of Rule 133 (3) (c) of the above Rules along with 18% interest payable from the dates from which the above amount was realised by the Respondent from his recipients till the date of its deposit. The above amount shall be deposited within a period of 3 months from the date of passing of this order failing which it shall be recovered by the concerned Commissioners CGST/SGST. Penalties - HELD THAT:- It is evident that the Respondent has denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus profiteered as per the explanation attached to Section 171 of the above Act. Therefore, he is apparently liable for imposition of penalty under Section 171 (3A) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d an opportunity to inspect the non-confidential evidence/information which formed the basis of the said Notice, during the period 15.04.2019 to 17.04.2019 which the Respondent availed of. 3. The DGAP has informed that the period covered by the current investigation was from 01.01.2019 to 31.03.2019 and the time limit to complete the investigation was extended upto 26.09.2019 by this Authority, in terms of Rule 129(6) of the above Rules. 4. In response to the Notice dated 08.04.2019 of the DGAP, the Respondent replied vide letters/e-mails dated 15.04.2019, 18.04.2019, 23.04.2019, 02.05.2019, 10.05.2019, 30.05.2019, 25.06.2019, 26.06.2019, 06.08.2019, 21.08.2019, 22.08.2019 and 28.08.2019. The reply of the Respondent as informed by the DGAP is summed up as follows: a. The Respondent stated that an Application dated 18.02.2019 was filed by the Applicant No. 1 alleging profiteering on the part of the Respondent based on two screenshots of 32 LED television with Model No. 32FH4003 (the subject product ) being sold on the third party online marketplace i.e. Amazon. It was extremely important to note that the Respondent is not the supplier of the goods for the transaction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71 of the Central Goods and Services Tax Act, 2017. 7. The DGAP further observed that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on the Samsung 80 CM (32 inches) HD ready LED TV 32FH4003 supplied by the Respondent from 28% to 12% w.e.f. 01.01.2019, vide Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018, a matter of fact which had not been contested by the Respondent. 8. The DGAP has stated that the Respondent had contended that in this case, he was not the supplier of the goods in question and the Applicant No. 1 had only submitted screenshots of price being listed on an online marketplace and no evidence had been produced to substantiate that supply had indeed taken place and also contested that the complaint made against him was entirely arbitrary and did not stand the scrutiny of legislative requirement. In this regard, the DGAP has claimed that the contention of the Respondent was incorrect on the following grounds: - (i) Section 171 of the Central Goods and Services Tax Act, 2017, required every supplier to pass on the benefit of the reduction in rate of tax or the benefit of input tax credit to his reci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Power Bank to the DGAP. Therefore, the profiteering on Power Bank on which also the rate of GST was reduced from 28% to 18% w.e.f. 01.01.2019 vide Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018, has also been computed by the DGAP. The Respondent also submitted to the DGAP that the Maximum Retail Price ( MRP ) based products were sold through two channels namely Business-to-Business (i.e. B2B sales generally meant for institutional buyers) and Business-to-consumer (i.e. B2C sales intended for end consumers). Under B2C sales, there were 6 channel structures i.e. Modern Retail, Regional Retail, Distributor, Brand Shop, Direct Dealer and Online. The Respondent had also submitted channel-wise details of the outward taxable supplies and accordingly, profiteering has also been calculated on supply channel-wise basis by the DGAP. 10. The DGAP stated that the Respondent had also sought to exclude the outward sale of the Goods sold to the Canteen Stores Department (CSD) from the scope of the present investigation. The DGAP, on examination of the nature of the above sales and upon scrutiny of the agreements entered into by the Respondent with his supply chain partners. has o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Invoice Date J 02.01.2019 11. Total quantity (above invoice) K 1 12. Total Invoice Value M 17834 13. Actual Selling price (Post rate reduction) N=M/K 17834 14. Difference O=N-H 466.11 From the above table, the DGAP has derived that the Respondent did not reduce the selling price of the Samsung 80 CM (32 inches) LED TV UA32N4003ARXXL , even when the GST rate was reduced from 28% to 18% w.e.f. 01.01.2019, vide Notification No.24/2018 Central Tax (Rate) dated 31 12.2018. Hence, the DGAP found that the Respondent had profiteered by an amount of ₹ 466.11/- on each of the said item sold. in as much as the benefit of reduction in GST rate was not passed on by the Respondent to his recipients by way of commensurate reduction in the price of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of contravention of provisions of Section 171 of Central Goods and Services Tax Act, 2017, was ₹ 37,85,342/-. The place (State or Union Territory) of supply chain-wise break-up of the total profiteered amount of ₹ 37,85,342/- as provided by the DGAP is furnished in the Table below: Table-2 (Amount in Rupees) Sr.No. State Name State Code LED TV (Rs.) Power Banks (Rs.) Total (Rs.) 1 Jammu Kashmir 1 10201 0 10201 2 Himachal Pradesh 2 3081 0 3081 3 Punjab 3 67223 3593 70816 4 Chandigarh 4 1560 0 1560 5 Uttarakhand 5 18002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23 Madhya Pradesh 23 147546 0 147546 24 Gujarat 24 88481 0 88481 25 Maharashtra 27 585287 4826 590113 26 Karnataka 29 584588 0 584588 27 Goa 30 3212 0 3212 28 Kerala 32 76056 0 76056 29 Tamil Nadu 33 324172 0 324172 30 Pondicherry 34 3065 0 3065 31 Andaman Nicobar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs directly sold to the end customers. Distributor - These products were sold to the distributors, where in-turn, sold then the small dealers/ retailers for making sales to the end customers. Brand Shops - These were exclusive stores dealing only in Samsung products. Direct Dealers - There were dealers who in-turn sold to the end customers. Online - These products were sold to partners for making sales through their online marketplace portals. Within the above supply channel structures, there could be multiple sub-channels, depending on factors such as business volume, and presence, etc. of the dealers. 16. The Respondent also submitted that the business model for Power Bank was the same as aforementioned television and computer monitors (except for sales made to Authorised Service Centers which were in-turn engaged in making supplies directly to end customers). Further, he stated that the Maximum Retail Price ( MRP ) and Dealer list price (i.e. standard catalogue price considered for passing on discount referred as DP ) of these products remained same for all the dealers across India, also the discounts provided to such dealers v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70.31 Basis the above illustration, he submitted that there was no change in the sale price of the Respondent (before GST) and the impact of GST rate change was accordingly passed on to the dealers. The Respondent also stated that in order to ensure passing on the benefit of GST rate change, the Respondent had also sent out communications to his dealers for Television/Monitor and Power Banks requesting his dealers to pass on the benefit of GST rate change to the end customers on inventory held in stock. He also submitted that he had exercised all due diligence, within his control, to ensure that GST benefits were appropriately passed on across the supply chain. 18. The Respondent also submitted that it was well settled law that creatures of a statute were bound by the respective powers and limitations prescribed under the statute. Accordingly, any authority may only exercise the powers conferred on it specifically under the provisions. He has also stated that he understood that an Application dated 18 February 2019 was filed by The Applicant No.1 alleging profiteering on the part of the Respondent based on two screenshots of 32 LED ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol of the Respondent since MRP was the maximum sale price and not the actual sale price. 21. In this regard, the Respondent also submitted that the Applicant No. 1 had only submitted screenshots of price being listed on an online marketing portal and no evidence, whatsoever, has been adduced by him to substantiate that the supply has actually taken place at the price mentioned therein. He stated that the MRP mentioned on the third party online marketing portals was not governed by him (the Respondent) and was beyond his control. In view of this, the complaint made by the Applicant No.1 against him was arbitrary and did not stand the scrutiny of law and on this ground alone, the present investigation against the Respondent should be dropped. 22. The Respondent also submitted that Section 171 of the CGST Act mandated that anti profiteering proceedings have to be qua a supplier as well as the product being supplied. In support of his contention, he has cited the decision of the Hon ble Delhi High Court in the case of M/s. Abbott Healthcare Pvt. Ltd. Vs Union of India others = 2019 (5) TMI 563 - DELHI HIGH COURT , wherein it has been held that the investigation shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed by comparing the taxable value (i.e. turnover excluding GST) charged from the customers instead of the value, inclusive of the GST element. He further contended that the GST amount, collected on the differential base price, could be construed as profiteering, since the said amounts had been duly deposited as GST, with the Government and had not been pocketed by him. He averred that the DGAP s Report has deviated from the basic principle of unjust enrichment (as such tax was duly deposited to the Government) and has applied GST @ 18% on the GST benefit amount required to be passed on. 25. The Respondent has also submitted that Section 171 of the CGST Act violated Article 19(1)(G) of the Constitution in as much as the Right to trade was a fundamental right, guaranteed under Article 19 (1) (g) of the Constitution of India and this included the right to determine prices, and such right could be taken away without any explicit authority under the law passed by the Parliament or State legislature under Entry 34 of the Concurrent List (List III) of the Seventh Schedule to the Constitution of India He has also added that only in exceptional cases, and in respect or only a few ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red person to the recipient by way of commensurate reduction in prices. Citing the above Rule he submitted that though the CGST Act and the CGST Rules empowered this Authority to lay down the methodology for determining the manner in which the benefit of reduced GST rate or enhanced credit was to be passed on to the recipient, no precise computation methodology or principles have been laid down by this Authority. The methodology to be prescribed by the Authority must capture the basic principles that would be relevant to all the industries keeping in view the common trade practices. This would ensure that Section 171 of the CGST Act was interpreted in a uniform manner across all tax payers. He added that such methodology was the crux of Section 171 of the CGST Act because the same would ensure equity, consistency and uniformity in defining the scope of Section 171 of the CGST Act. 27. He further submitted that in the absence of machinery provisions, the entire proceedings would be a futile exercise. He has placed reliance on the Apex Court decision in the case of CIT vs. B.C. Srinivasa Shetty = 1981 (2) TMI 1 - SUPREME COURT , wherein, the question of imposition of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Constitution. The action has to be fair, reasonable, non-discriminatory, transparent, non-capricious, unbiased, without favouritism or nepotism, in pursuit of promotion of healthy competition and equitable treatment. It should conform to the norms which are rational, informed with reasons and guided by public interest, etc. All these principles are inherent in the fundamental conception of Article 14. This is the mandate of Article 14 of the Constitution of India. He submitted that in the absence of any methodology or guidelines for computation of profiteering under the GST laws, the present proceedings against the Respondent should not be continued further. 30. The above said submissions of the Respondent contained were forwarded to the DGAP. in response, the DGAP vide his report dated 25.11.2019, has stated the following:- a) If the investigation was restricted to the alleged product only, then the recipients who have not made an application/complaint would never get the benefit of the rate reduction and there was no stipulation in the law to restrict the investigation only to the alleged product. b) The supply channel wise profiteering method has been adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by way of reduction in prices to his dealers and revised his MRP and DP by 10% (which is 7.8125% on GST inclusive price) resulting in reduction in prices to the dealers. This contention of the Respondent is not acceptable as passing on the benefit of rate reduction has to be commensurate and as can be seen from the Table-1 above, the Respondent clearly did not reduce his base prices as per the rate reduction from 28% to 18%. Also, in the section 171(1) of the CGST Act, 2017, the word commensurate is mentioned which gives the extent of benefit to be passed on by way of reduction in the prices which has to be computed in respect of each product based on the tax 4-51 reduction or additional ITC available as well as the existing base price (price without GST) of the product or unit. In this case, it can be clearly seen that the prices of the goods affected by rate reduction were not decreased commensurately, hence, violating section 171 (1) of the above Act. 34. The Respondent has also contended that he is not the supplier of the goods for the transaction in question and the suppliers were two separate dealers namely Jumbo Distributors Pvt. Ltd . and EP Electronic Paradise P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount can also not be paid to the eligible buyers from the CWFs as the Respondent has not deposited it in the above Fund. Therefore, the above contention of the Respondent is untenable and hence it cannot be accepted. 36. He also submitted that the approach followed by the DGAP was neither mentioned in the CGST Act nor prescribed/ clarified by the Government, He also mentioned that the approach adopted by DGAP was completely arbitrary and should be struck down. However, it is clear from the facts mentioned above that in fact the approach adopted by the Respondent while claiming to pass on the benefit of tax reduction was arbitrary and the approach of the DGAP was valid and correct. In this regard, it is mentioned that no fixed mathematical methodology can be prescribed for computing the amount of benefit which is required to be passed on under the provisions of Section 171 (1) of the above Act as such computation will vary from case to case based on the facts. However, in the present case the DGAP has compared the average of the base price of the Samsung 80 CM (32 inches) LED TV and Power Bank sold during the period from 01.11.2018 to 31.12.2018, with the actual invoice-wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The word commensurate mentioned in the above Section gives the extent of benefit to be passed on by way of reduction in the prices which has to be computed in respect of each product based on the tax reduction or additional ITC available as well as the existing base price (price without GST) of the product or unit. The computation of commensurate reduction in prices is purely a mathematical exercise which is based upon the above parameters and hence it would vary from product to product and unit to unit hence no fixed mathematical methodology can be prescribed to determine the amount of benefit which a supplier is required to pass on to a recipient or the profiteered amount. However, to give further clarifications and to elaborate upon this legislative intent behind the law, this Authority has been empowered to determine/expand the Procedure and Methodology in detail. It is also worthwhile to mention that the Methodology and Procedure has been notified by this Authority vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017. However, one formula which fits all cannot be set while determining such a Methodology and Procedure as the facts of each case ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sacrificing their own revenue which he cannot appropriate against his profits. Therefore, the above Section in not violative of the provisions of Article 19 (1) (g) of the Constitution of India, hence, the above claim of the Respondent is untenable. 40. The Respondent has also claimed that pricing for B2C sales is highly dynamic and varies depending upon channel structure and other market factors such as size of business, operating cost, location, and logistics, etc. In this connection it would be pertinent to mention that the provisions of Section 171 (1) of the above Act required the Respondent to pass on the benefit of tax reduction to the consumers only and have no mandate to look in to fixing of prices of the products which the Respondent was free to fix. If there was any increase in his costs the Respondent should have increased his prices before 31.12.2018, however, it cannot be accepted that his costs had increased on the intervening night of 31.12.2018/01 01.2019 when the rate reduction had happened which had forced him to increase his prices exactly equal to the reduction in the rate of such tax. Such an uncanny coincidence is unheard off and hence there is no doubt t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 Rajasthan 8 83155 0 83155 9 Uttar Pradesh 9 315668 0 315668 10 Bihar 10 63059 0 63059 11 Sikkim 11 283 0 283 12 Arunachal Pradesh 697 0 697 13 Nagaland 13 2623 0 2623 14 Manipur 14 104 0 104 15 Mizoram 15 2915 0 2915 16 Tripura 16 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16320 92724 Grand Total 37,55,606 29,736 37,85,342 42. It is evident from the above narration of facts that the Respondent has denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus profiteered as per the explanation attached to Section 171 of the above Act. Therefore, he is apparently liable for imposition of penalty under Section 171 (3A) of the CGST Act, 2017. Therefore, a show cause notice be issued directing him to explain why the penalty prescribed under the above sub-Section should not be imposed on him. 43. Further. this Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioners of CGST/SGST to monitor this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by this Authority is deposited in the CWFs of the Central and the State Governments as per the details given above. A report in compliance of this order shall be submitted to this Authority by the concerned Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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