TMI Blog2020 (3) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 the 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. - Case No. 16/2020 - - - Dated:- 12-3-2020 - DR. B.N. SHARMA, CHAIRMAN, SH. J.C. CHAUHAN, TECHNICAL MEMBER, SH. AMAND SHAH, TECHNICAL MEMBER Present: 1. None for the Applicant. 2. Sh. Y.D. Arya, CFO, Sh. Aayush Varshney, Manager, Sh. Manish Gaur, Smt. Purvi Asati and Smt. Disha, Advocates for the Respondent. ORDER 1. This report dated 13.12.2018, had been received from the above Applicant i.e. the Directorate General of Anti-Profiteering (DGAP) after a detailed investigation under Rule 129 (6) of the Central Goods Service Tax (CGST) Rules, 2017. The brief facts of the case are that a reference was received on 08.06.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rehensive report should be submitted to this Authority. 5. The DGAP, in compliance to the order dated 14.03.2019 submitted his report under Rule 133 (4) on 13.09.2019 in which he stated that, a letter dated 01.04.2019 was sent to the Respondent calling for the sales data for the period from 15.11.2017 to 31.03.2019 for investigation. He also stated that the period covered during the investigation was from 15.11.2017 to 31.03.2019. In response to the said letter, the Respondent vide letters/e-mails dated 12.04.2019, 27.04.2019, 31.05.2019, 13.08.2019 and 12.09.2019submitted the following: - a. GSTR-1 GSTR-3B Returns for the period November, 2017 to March, 2019 for all the registrations held all over India. b. Details of invoice-wise outward taxable supplies during the period November, 2017 to March, 2019 reconciled with GSTR-1 and GSTR-3B Returns. c. Sample copies of invoices issued to the Respondent s dealers, pre and post 15.11.2017. d. List of all the recipients along with their corresponding category. 6. The DGAP has claimed that at the time of submission of the earlier investigation report dated 13.12.2018, the Respondent had not submitted the sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A POPULAR DETERGENT POWDER 2KG 2. Category B SUPER DISTRIBUTER 3. Period C 01.11.2017 to 14.11.2017 4. Total quantity of item sold D 36744 5. Total taxable value E 2176082.64 6. Average base price (without GST) per unit F=E/D 59.22 7. GST Rate G 28% 18% 8. Commensurate Selling price (post Rate reduction) H=G* 1.18 69.88 9. Invoice No. 1 0190000897 10. Invoice Date J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o that the commensurate benefit of GST rate reduction was not passed on to the recipients. On the basis of aforesaid pre and post-reduction GST rates and the details of outward taxable supplies (other than zero rated, nil rated and exempted supplies) of all the products during the period 15.11.2017 to 31.03.2019 as furnished by the Respondent to the DGAP, the amount of net higher sales realization due to increase in the base prices of the impacted goods. despite the reduction in the GST rate from 28% to 18% 18% to 12% or in other words. the profiteered amount had been arrived by the DGAP as ₹ 1,03,20,08,903/- by comparing the actual invoice-wise base prices of impacted products sold during the period 15.11.2017 to 31.03.2019 with the commensurate price based on the average of the base price of such products sold during the period 01.11.2017 to 14.11.2017. The excess GST so collected from the recipients, was also included in the aforesaid profiteered amount as the excess price collected from the recipients also included the GST charged on the increased base prices. 11. The DGAP submitted that the amount of profiteering by the Respondent on account of contravention of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 757 20. Gujarat 24 11,66,90,097 21. Maharashtra 27 11,50,84,171 22. Karnataka 29 10,44,98,397 23. Goa 30 29,75,030 24. Kerala 32 1,74,94,860 25. Tamil Nadu 33 3,39,54,374 26. Andaman Nicobar Islands 35 8,08,144 27. Telangna 36 2,69,31,529 28. Andhra Pradesh 37 1,58,30,515 Total 1,03,20,08,903 12. After perusal of the DGAP s Report submitted under Rule 133 (4), this Authority in its meeting held on 17.09.2019 decided to hear the Applicants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermine the Methodology and Procedure to be followed to determine whether Section 171 of the CGST Act has been contravened or not and in exercise of such power, this Authority has notified the Methodology and Procedure on its website on 19.07.2018. 16. Further, he mentioned that Rule 128 of the CGST Rules provided for the procedure to be adopted while examination of application by the Standing Committee and Screening Committee was conducted and from the above Rule, it was evident that an anti-profiteering investigation could be initiated only on receipt of a written application from an interested party. Commissioner or any other person. Thereafter, the Standing Committee was required to examine the accuracy and adequacy of the evidence provided in the application to determine whether there was prima facie evidence to support the claim of the applicant that the benefit of reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit has not been passed on to the recipient by way of commensurate reduction in prices. Further, he claimed that the term interested party. has been defined in the explanation to Chapter XV as follows:- (c) inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , two rules have evolved representing the principles of natural justice. These rules constitute the basic elements of a fair hearing, having their roots in the innate sense of man for fair play and justice, which were shared in common by all men. The concept of principles of natural justice was enshrined in these two rules/pillars. that are:- a) Audi alteram partem i.e. hear the other side or right to a fair hearing: and b) Nemo judex in causa sua i.e. no person shall be judge in its own cause or the rule against bias. c) A corollary has been deduced from the above two rules i.e. qui aliquid statuerit, parte inaudita altera acquurn licet dixerit, haud acquum fecerit. meaning justice should not only be done but should manifestly be seen to be done. The second principle i.e. no person shall be judge in its own cause has been explained in detail in the Commentary on the Constitution of India by Dr. D. D. Basu, 8th Edition, Volume 1, 2007 in the following words - Another principle of natural justice is that no persons should be a judge of his own cause i.e. impartiality. Bias may be defined as a pre-conceived opinion or a predisposition or predetermination to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the scope could be widened only until it was not violative of any of the principles/doctrines embedded in the Constitution of India. 21. He also submitted that the second pillar of principles of natural justice i.e. rules against bias provided that a person was barred from deciding any case in which he or she may be, or may fairly be suspected to be. biased, and this principle embodied the basic concept of impartiality, and applied to courts of law, tribunals and all those having the duty to act judicially. He submitted that in the instant case. the entire proceedings had started on the basis of the initiation done by the Authority and none of the recipients of the Respondent had filed a complaint to date. Moreover. it was also evident that any person who has an interest in a proceeding could not be given the power to adjudicate that proceeding. Thus, this Authority could not be both a complainant as well as the adjudicator of that complaint. In this regard, the Respondent submitted that an element of bias against a supplier could be there in the mind of the complainant and this was why, independent statutory bodies were created to adjudicate a dispute. Accordingly, he submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the CGST Rules conferred any power either on this Authority or the DGAP to initiate investigation against any of the registered persons on their own motion i.e. suo moto. initiation of investigation or proceedings against any person suo moto had legal ramifications and hence must be specifically and statutorily provided for. He also submitted that as per Rule 129 of the CGST Rules, once the Standing/Screening Committee was satisfied that there was prima-facie evidence to show that the supplier had not passed on the benefit of reduction in the rate of tax on the supply of goods or services to the recipient by way of commensurate reduction in prices, it shall refer the matter to the DGAP for a detailed investigation. He argued that only thereafter. this Authority and the DGAP could act based on such application and certainly not before that and it was settled legal position that where there was no conferment of suo moto power on the authority to initiate proceedings on its own motion, any such proceedings initiated by the authority were without any legal backing and hence deserve to be quashed. Since in the present case, the notice of investigation had been issued by the DGAP on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for furnishing the reply to said notice. f) The sixth step was the conduct of investigation and collection of evidence by the DGAP which was necessary to determine whether the benefit of reduction in the rate of tax has been passed on to the recipient by way of commensurate reduction in prices. g) The seventh step was for the DGAP to make available the evidence presented to it by one interested party to the other interested parties, participating in the proceedings. h) The last step was the completion of the investigation and furnishing of the report by the DGAP of his findings along with relevant records to this Authority. 26. He also submitted that the above steps were mandatory statutory requirements prescribed in Rule 128 and 129 which must be followed by the Standing Committee/Screening Committee, the DGAP as well as this Authority. In this regard, he further stated that as per the above procedure, the receipt of a written application in the prescribed manner from an interested party or from a Commissioner or from any other person was the starting point for initiating proceedings under the said provision. In other words, proceedings under Section 171 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o provide copies of the evidence presented by one interested party to the other interested parties to the proceeding, but in the instant matter, the DGAP while providing the investigation report along with annexures thereto had failed to provide the copy of the complaint (if any) to the Respondent, which was supposedly the foundation of the present proceedings. 29. He stated that it was a settled principle of law that a person would be deprived of an opportunity to defend himself in case the copies of documents relied upon against him were not provided to him. In this regard, he placed reliance on the following case law:- a) Kanwar Natwar Singh vs. Director of Enforcement 2010 (262) ELT 15 (SC) = 2010 (10) TMI 156 - SUPREME COURT b) State of Madhya Pradesh vs. Chintaman Sadashiva Waishampayan AIR 1961 SC 1623 = 1960 (11) TMI 130 - SUPREME COURT c) Rajam Industries Pvt. Ltd. vs. Addl. D. G., D.C.E.I. Chennai 2010 (255) ELT 161 (Mad.) = 2010 (6) TMI 249 - MADRAS HIGH COURT d) Lekhraj vs. Commissioner of C. Ex. S.T. Allahabad 2014 (310) ELT 381 (Tri. - Del.) = 2014 (9) TMI 810 - CESTAT NEW DELHI 30. The Respondent also submitted that as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tanding Committee or the Screening Committee making any allegation of profiteering by the Respondent herein and in the absence of any such application containing any allegations with or without evidence, obviously there had been no prima facie evidence against the Respondent in regard to non-passing of benefit of reduction in rate of tax to the recipient. 32. He submitted that the Standing Committee must not only refer to the prima facie evidence on the basis of which it reached the objective conclusion, but also provide the same to the person against whom the investigation was proposed by the Standing Committee to the DGAP. However, in the present case, the minutes of the meeting of the Standing Committee held on 25.05.2018 were silent on any prima facie evidence and to the contrary, Sr. No. IV of the minutes of the meeting referred to a complaint against the Respondent. However, it summarily summed up in one line that there was prima facie evidence, without referring to any document, information, evidence, etc. The relevant portion of the minutes of the meeting of the Standing Committee held on 25.05.2018 is extracted below for ready reference:- IV. Annexure A-4:- The t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed the conclusion that the Respondent was guilty of profiteering. Thereafter, the Respondent received a notice dated 19.09.2019 for personal hearing along with a copy of the DGAP s Report directing him to appear before this Authority on 16.10.2019. However, no show cause notice was ever issued to the Respondent either by the DGAP or the Authority. He submitted that a show cause notice formed the base of the principle of natural justice, audi alteram partem. In this regard, he placed reliance on the case of Canara Bank and Others vs. Debasis Das (supra), where the Hon ble Supreme Court held that a notice apprised the party of the case it has to meet. 36. The Respondent also placed reliance on the case of Oryx Fisheries Private Limited vs. Union of India 2011 (266) E.L.T. 422 (SC) = 2010 (10) TMI 660 - SUPREME COURT (especially para Nos. 28), wherein the Hon ble Supreme Court held that a show cause notice was meant to give the person proceeded against a reasonable opportunity of making his objection against the proposed charges and at the same time, the authorities must act with an open mind. The Respondent also placed reliance on the ruling of the Hon ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - SUPREME COURT b) Gujarat Urja Vikas Nigam Limited vs. Essar Power Limited (2016) 9 SCC 103 c) L. Chandra Kumar vs. Union of India (1997) 3 SCC 261 = 1997 (3) TMI 90 - SUPREME COURT d) R.K. Jain vs. Union of India (1993) 4 SCC 119 = 1993 (5) TMI 23 - SUPREME COURT 40. The Respondent also submitted that the DGAP s report, while computing the amount profiteered by the Respondent, suffered from arithmetic errors in terms of calculations being arrived at by using incorrect quantity of SKUs and incorrect rate of GST. The DGAP while calculating the profiteering amount had not considered the discount given by the Respondent to his customers by way of credit notes during the period 15.11.2017 to 06.12.2017.He also submitted that due to changes in the rate of tax w.e.f. 15.11.2017, it was not feasible for the Respondent to change the rate of tax of the inventories which were lying in the stock of channel partners on the same day itself and thus, the benefit of the reduction in tax has been passed on by the Respondent by way of post supply discounts for a certain period in terms of Section 15 of the CGST Act by way of credit notes. The said point was brought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is incorrect. From the above, he contended that it was evident that had the DGAP considered the discount offered by way of credit notes while calculating the selling price (inclusive of GST) the amount of alleged profiteering would have reduced drastically. In this regard, he submitted the excel sheet showing the invoice-wise difference in the profiteered amount calculated by the DGAP with that of profiteered amount, if any, as per the invoices (after considering the discount) along with copy of invoices and corresponding credit notes and calculated the total difference in alleged profiteered amount for all the invoices in respect to which the profiteering had been calculated on the basis of non-consideration of discount of ₹ 7.10,84,798.30/-. Thus, he claimed that the demand of alleged profiteered amount to the tune of ₹ 7,10.84,798.30/- was not sustainable and was liable to be dropped. 41. He submitted that the DGAP had further erred in calculating the alleged profiteering by not taking into consideration the discount given in terms of cashback scheme. He claimed that he had introduced Swadeshi Samridhi Card Scheme ( hereinafter referred to as SSC scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover during the relevant period on which profiteering had been calculated by the DGAP should have been ₹ 7,47,49,36,345.94/-(derived after deducting cashback amount from total turnover) instead of ₹ 7,84,79,26,951.49/- as was considered in the investigation Report. Thus, from the above, he submitted that the DGAP had erred by not deducting the cashback amount of ₹ 37.29.90,605,55/- from the total turnover of ₹ 7,84,79,26.951.49/- while calculating the profiteering amount and thus, the profiteering amount calculated by the DGAP came on the higher side. 43. He also submitted that the DGAP, while calculating the alleged profiteering, had erred in not taking into account the quantity of SKUs, which had been returned by the customers to the Respondent after their initial supply either on the strength of credit notes or through purchases by way of invoices. For example, in case of an invoice. vide which 400 units of a certain SKU were supplied. if 250 units were returned to the Respondent, either by issuance of a credit note or in terms of purchase by the Respondent, then the effective supply of that particular SKU in that invoice would be only 150 units. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. In this regard. he enclosed the excel sheet showing the invoice-wise difference in profiteered amount calculated by the DGAP with that of profiteered amount, if any, as per the invoices (after considering the sales returns) along with copies of credit notes and submitted that the total difference in alleged profiteered amount for all the invoices in respect to which the profiteering had been calculated on the basis of non-consideration of sales return made by way of credit notes came to ₹ 69.93,213/-. He submitted that it was pertinent to note that the number of units supplied by the Respondent would be reduced with incorporation of the cases of sales returned by way of credit notes. Thus, the computation of the alleged profiteered amount to the tune of ₹ 69.93,213/- was not sustainable and was liable to be dropped. 44. He also submitted that it was imperative to note that the total amount of sales returned made during the relevant period by way of purchases came to ₹ 1,08,31,05,673.23/- He enclosed the excel sheet showing the same. Further, he submitted that the total turnover during the relevant period on which profiteering had been calculated by the DGAP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount given by SD was thereafter. recovered from the Respondent. c) Retailer Scheme - the discounts under this scheme were given by the distributors to the retailers in addition to discount under the primary and secondary schemes, which was recovered from the SDs, and thereafter recovered by the SDs from the Respondent . Further, he submitted that there were following types of schemes under the secondary/retailer schemes: 1) QPS (Quality Purchase Scheme): Discount offer on buying specified quantity. Calculation under this scheme depends upon the Channel of the recipient i.e. if the scheme is offered to Distributor then the calculation will be as per the primary scheme and if it is offered to a retailer, then the calculation will be as per the secondary scheme. 2) Trade offer: It was also like QPS, but while the execution mechanism thereof differed from QPS in as much as the pay-out under this scheme was usually pre-defined and was not in the manner of a percentage discount. The offer may be given in the form of a scratch coupon (free gift articles) or as free additional items if a particular minimum level of purchases was made by such retailers/ bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... category of Respondent s customers for the period 01.11.2017 to 14.11.2017 and thereafter, compared the same with that of the sale prices mentioned in each of the invoice pertaining to the period 15.11.2017 to 31.03.2019. The Respondent submitted that the DGAP had erroneously used average sales realization during the month 01.11.2017 to 14.11.2017 for each of the impacted SKUs as a base price. for calculating the profiteering with respect to each of the categories of Respondent s customers. In this regard, he submitted that the average base price has been calculated by considering the discount given in each of the invoices during the said period of 01.11.2017 to 14.11.2017. Thus, the difference between the average base price arrived at and the base price in the invoices pertaining to the relevant period was huge, which has led to rise in profiteering amount. 51. He submitted that the DGAP had compared SKU wise average net realization from 1.11.2017-14.11.2017 (prior to the rate reduction) with value mentioned in the invoices issued from 15.11.2017 to 31.03.2019 (subsequent to the rate reduction). The errors in this approach were visible from mere fact that if the comparable ave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or services or the benefit of input tax credit has been passed on by the registered person to the recipients by way of commensurate reduction in prices and as on date .CGST Rules have not prescribed any procedure/ methodology/ formula/ modalities for determining/ calculating profiteering . The Procedure and Methodology issued on 19.07.2018 by this Authority only provided the procedure pertaining to investigation and hearing. However, no method/formula had been notified/prescribed pertaining to calculation of profiteering amount. There was no indication, as to how to conclude that there was profiteering due to change in rate of tax. Whether such computation should be done invoice-wise. product-wise, business vertical-wise or entity-wise. etc. Thus. in the absence of the same, there was lack of transparency and the results could vary from case to case resulting in arbitrariness and violation of Article 14 of the Constitution of India. 54. In this regard, he made reference to the statutory provisions in other countries where GST is/was in place. In order to control rise in inflation on account of implementation of GST, the Malaysian Government introduced the Price Control and A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He also submitted that in the present case the Respondent had passed on the benefit of reduction in the rate of tax by way of commensurate reduction in prices as it was deemed fit by way of passing of discounts through schemes (in the absence of any methodology) and the same had not been considered by the DGAP. 55. He submitted that the alleged profiteering, if any, should be computed at the entity level and not on item (SKU) basis. In this regard, he referred to explanation attached to Section 171 of the CGST Act which is extracted as under: Explanation . - For the purposes of this section. the expression profiteered shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both. 56. He further submitted that the term profiteered has been defined in the said explanation in terms of not passing of rate reduction by way of commensurate reduction in prices of goods or services or both. However, the said definition was not clear as to what constituted commensurate r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Compact Edition of the Oxford English Dictionary Having the same measure; of equal extent, duration or magnitude; 2. Of corresponding extent, magnitude, or degree; proportionate, adequate 3. Corresponding in nature; belonging to the same sphere or realm of things. 4. Characterized by a common measure 10th Ed., The Concise Oxford Dictionary corresponding in size or degree; in proportion Chambers 21 st Century Dictionary 1. in equal proportion to something, appropriate to it 2. Equal in extent, quantity, etc. to something 58. In view of the foregoing definitions, he submitted that the word commensurate would mean appropriate, adequate or proportionate. Therefore, to determine commensurate benefit to be given to the recipient, reduction in price must necessarily be considered when he was examining a registered person as an entity and recipient as a group and profiteering would always relate to the entity or registered person as a whole and not some truncated transactions. He submitted that the entire supply of goods impacted by the rate change, undertaken by the registered person must be considered and then on comparison of red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n taken by the Government of India before the WTO forum, was binding on the DGAP in calculating the alleged profiteering . While calculating profiteering the DGAP has taken a stand which was contrary to the stand taken by the Government of India before the WTO. The Respondent requested this Authority to follow the Government of India s position and allow netting off in determining whether the Respondent had passed the benefit. He submitted that the Respondent had not undertaken any activity which tantamounted to profiteering . In the absence of profiteering, he submitted that there was no occasion for the invocation of Section 171 of the CGST Act in the present case. 60. He further submitted that the DGAP while calculating the profiteering amount had not considered the change in rate of tax pre-GST and post-GST i.e. from 14.5% VAT to 28% GST and the change in prices thereof due to this change in rate of tax. Ideally, due to change in rate of tax from 14.5% to 28%, the base prices of the products should have been increased, however, in the case of the Respondent, the base prices had actually decreased and the Respondent has borne the loss with respect to the same. However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o do business, a cherished fundamental right guaranteed by the Constitution of India. He has also claimed that as a supplier he had considered various factors like direct and indirect costs, demand supply, customer perception, competition, product positioning, legal compliances, profit, etc. while determining the prices of his goods. He submitted that Respondent had not been able to pass on the increased cost to the recipients by way of an increase in prices due to the adoption of a longer period of investigation. He submitted that if the period of investigation was beyond a certain period, the effect of increased costs should be taken into account while calculating the alleged profiteering. 63. He further submitted that cost increases were relevant for the purpose of determination of profiteering. In this regard, he placed reliance on the case of S. Kumar Gandharv vs. KRBL Ltd. 2018-VIL-02-NAA = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY , wherein inflation as a factor has been accepted as a reason for a price increase by this Authority. Further, in the case of Hardcastle Restaurants Pvt. Ltd. 2018-VIL-11-NAA = 2018 (11) TMI 1073 - NATIONAL ANTI-PROFITEER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso not been considered in his calculation. In this regard, the Respondent submitted that the costs of raw material, packing material, advertisement, transportation costs etc., were increasing during the period under investigation and hence, the Respondent was within its right to increase the prices of the products to pass on the cost increases to the customers. He submitted that such costs were very relevant for the determination of the prices of the products supplied by the Respondent. Such cost increases compeled a business to revise its prices and hence, were inextricably linked to pricing decisions. 65. in the instant case, he added that the DGAP had merely used mechanical approach of taking the average supply value of the product (for period 01.11.2017-14.11.2017) and compared the same with the invoice value (15.11.2017 to 31.03.2019). He further submitted that the DGAP has understood the provision of Section 171 incorrectly and has followed an incorrect approach to calculate the alleged profiteering. Thus, the demand in respect of alleged profiteering insofar as the same pertains to the price increases was not sustainable. 66. The Respondent submitted that while arrivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12,45,41,315.13 Inclusive of tax amount 7,17,33,60,800.85 6,35,43,33,563.68 81,90,27,237.17 Uttarakhand State Working Particulars Selling price Base price Difference Gross Amount excluding tax 1,76,73,20,068.27 1,58,90,34,225.45 17,82,85,842.82 GST at revised rates 30,88,46,906.49 27,78,41,046.06 3,10,05.860.43 Inclusive of tax amount 2.07,61,66,974.76 1,86.68,75,271.51 20,92,91,703.25 He submitted that, in the above Tables, profiteering was computed on the amount including tax. However, the increased tax amount of ₹ 12.45 crore and ₹ 3.10 crore had been deposited. Therefore, the profiteering amount should be reduced by ₹ 15,55,47,176/. 68. He also submitted that in Para 11 of the DGAP s Report, he had given finding that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction in the rate of tax. Hence, the finding of the DGAP to the extent that commensurate reduction in prices in terms of Section 171 of the CGST Act could only be in terms of money was incorrect. 69. The Respondent had summarized the arithmetical errors made in the calculations, in the DGAP s report as is mentioned below:- i. Profiteering in terms of incorrect rate reduction from 28% to 18% instead of 18% to 12% The DGAP while calculating the profiteering amount had considered the reduction of rate in terms of 28% to 18% rather than 18% to 12% with respect to 7 SKUs. Consequently, on rectification of this error, the alleged profiteered amount would be reduced by ₹ 35,16,943.76/-. ii. Profiteering calculated in terms of incorrect quantity (i.e. carton basis instead of unit basis). In a substantial number of invoices, the alleged profiteering had been calculated by the DGAP by taking into account the quantity of SKUs in terms of cartons instead of units. Consequently, if rectified the alleged profiteered amount would be reduced by ₹ 1,12,50,512.83/, iii. Profiteering calculated in terms of incorrect quantity (i.e. in terms of units of othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the discounts given vide the secondary and retailer schemes, which during the relevant period came to ₹ 15,12,63,538/- out of the total turnover of ₹ 784,79,26,951.49/- on which the profiteering was calculated by DGAP. 70. The above submissions of the Respondent were forwarded to the DGAP for his Report and the DGAP vide his Report dated 06.01.2020 has rectified some arithmetical errors and reported as under:- I. Profiteering in terms of incorrect rate reduction from 28% to 18% instead of 18% to 12%:- The DGAP stated that the Respondent had submitted the revised invoice sales data during the hearing before this Authority and as per this contention of the Respondent, profiteering has been revised by the DGAP. II. Profiteering calculated in terms of incorrect quantity (i.e. carton basis instead of unit base): - In this regard, the DGAP stated that during the course of the investigation, the Respondent had mentioned the Quantity in both cartons and units/pieces. During the hearing held on 22.11.2019 before this Authority, the Respondent had submitted the Quantity in units/pieces. Accordingly. the DGAP has revised profiteering. III. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant invoice: (ii) Input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply. Since the discount given through secondary and retailer scheme were not specifically linked to relevant invoices. the benefit could not be given for the reduction in value. In any case. the other two conditions were also not satisfied. 71. The DGAP submitted that after rectification and consideration of new facts raised by the Respondent. the issue that remained was the determination and quantification of profiteering by the Respondent for failing to pass on the benefit of the reduction in the rate of GST on the goods supplied to his recipients, in terms of Section 171 of the Central Goods and Services Tax Act, 2017. From the invoices made available by the Respondent. it appeared to the DGAP that the Respondent increased the base prices of the goods when the rate of GST was reduced from 28% to 18% 18% to 12% w.e.f. 15.11,2017, so that the commensurate benefit of GST rate reduction was not passed on to the recipients. On the basis of aforesaid pre and post-reduction GST rates and the details of outward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 35,031/- 13 MEGHLAYA 17 7,126/- 14 ASSAM 18 1,95,25,832/- 15 WEST BENGAL 19 3,93,74,502/- 16 JHARKHAND 20 1,65,33,796/- 17 ODISHA 21 2,58,76,775/- 18 CHATTISGARH 22 2,26,43,709/- 19 MADHYA PRADESH 23 3,57,74,111/- 20 GUJARAT 24 5,38,81,902/- 21 MAHARASHTRA 27 9,55,47,656/- 22 KARNATAKA 29 5,08,06,578/- 23 GOA 30 26,32,131/- 24 KERALA 32 76,57,830/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of investigation from 15.11.2017 to 31.03.2019, the DGAP stated that the Government, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017, reduced the tax rates from 28% to 18% on various consumer goods, effective from 15.11.2017. A reference was received on 08.06.2018 from the Standing Committee on Anti-profiteering to conduct a detailed investigation against the Respondent. The investigation report was submitted to this Authority on 13.12.2018. Order No. 02/2019 was issued by this Authority on 14.03.2019 in respect of the Respondent. This Authority had extended the period for investigation upto March, 2019. Further, the revised investigation report was submitted to this Authority on 13.09.2019. 74. In respect of the Respondent s submissions that he was required to pass on the benefit of tax rate reduction to his recipients i.e. to super distributors and distributors etc., which was done by him and shown as Exhibit-14 in his submissions dt. 22.11.2019, the DGAP stated that first of all, after issuing of notice on 21.06.2018, on completion of seventeen months and even after submission of final investigation report to this Authority on 13.12.2018 and further revised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y him and thus, the end consumers did receive the benefit by virtue of no change in prices vis- -vis changes in the rate of tax 2. The DGAP while calculating the alleged profiteering amount has failed to consider the discount given by the Respondent by way of cashback schemes. That the cashback is given by the retailers to the final customer and not by the manufacturer (Respondent) to his distributors. Thus, the benefit of the cashback scheme could not be given to the Respondent. The Respondent submitted that the observation of the DGAP was incorrect and without any basis. As the cashback scheme is a form of discount which an end consumer receives while buying goods from the Respondent through the distributors/super distributors/retailers etc. Thus, the said cashback the amount was a cost Respondent and was borne by him. 3. The DGAP while calculating the alleged profiteered amount has failed to consider the sales return made through purchase. The Respondent with respect to his contention of sales return made through purchase had provided a lump sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement between the Respondent and his distributors at the time of supply. Moreover, for the claim of discount for the purpose of anti-profiteering there is no requirement that it should satisfy e provisions of GST. The only relevant thing is that benefit to the extent of the discount should be given to the purchaser. 76. This Authority has carefully considered the DGAP s Reports and the written submissions of the Respondent. The issues to be decided by this Authority in the present case are as under:- 1) Whether the Respondent is liable to pass on the benefit of tax reduction w.e.f. 15.11.2017 to his buyers ? 2) Whether there has been any violation of the provisions of Section 171 of the CGST Act, 2017 by the Respondent? 3) If yes then what is the quantum of profiteered amount? 77. In this connection it would be appropriate to refer to the provisions of Section 171 of the CGST Act, 2017 which provide as under:- (1). Any reduction in rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in prices. (2). The Central Government may, on recommendations o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the increased base prices. We also observe that the DGAP vide his report dated 06.01.2020 has revised the profiteering amount to ₹ 75,08,64,019/- after re-examining some of the contentions of the Respondent and after rectifying the arithmetical errors in the computation of profiteering. 80. The DGAP has compared the average pre rate reduction base prices with the actual post rate reduction prices due to the reasons that (i) it was not possible to compare the average base prices pre and post rate reductions as the post rate reductions the benefit has to be legally passed on to each buyer on the actual transaction value received by the Respondent from each of such buyer (ii) it was also not possible to compare the actual to actual base prices pre and post rate reduction as the same buyer may have not purchased the same product during both the above periods and some of the buyers may have purchased some products during the post rate reduction period and not during the pre rate reduction period or vice versa (iii) the Respondent had charged different base prices to his customers during the pre rate reduction period and therefore, the only alternate available was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction in tax rate or by allowing the input tax credit in favour of consumers. it is the duty of this Authority to ensure that the benefit of this sacrifice is passed on to the end consumer. Further, it would also be pertinent to mention here that this Authority as per Para 9 of the Methodology Procedure notified by it on 28.03.2018, under the powers given to it under Rule 126 of the CGST Rules, 2017, has jurisdiction to take suo mato cognizance of the contravention of the provisions of Section 171 (1) of the CGST Act, 2017. The above Para states as, (9) The Authority may inquire into any alleged contravention of the provisions of Section 171 of the Central Goods Services Tax Act, 2017 on its own motion or on receipt of information from any interested party as defined in Rule 137 (c), person, body, association or on a reference having been made to it by the Central Government or the State Government Therefore, it is clear that this Authority can suo moto examine the violation of the provisions of Section 171 of the CGST Act, 2017 or can direct the DGAP to launch investigation. In the instant case, under the powers granted to it under the above provisions, this Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Kishore Naik vs. Sukti Dibya AIR 1953 Ori 240 = 1952 (12) TMI 47 - ORISSA HIGH COURT 82. In this regard, we would also like to place reliance on the recent order of the Hon ble High Court of Delhi passed in the case of M/s. Nestle India Ltd. Anr. V. Union of India Ors. (W.P.(C) 969/2020 = 2020 (2) TMI 671 - DELHI HIGH COURT , wherein the Hon ble High Court has held that:- We however, make it clear that this interim order shall not come in the way of the National Anti-Profiteering Authority in cases where it has suo moto taken action Therefore, all the contentions of the Respondent relating to suo-moto investigation being started by the Authority cannot be accepted. 83. The Respondent has argued that no Show Cause Notice was issued to him before the investigation started. However. this contention of the Respondent is baseless as it is observed that the DGAP had issued a notice dated 21.06.2018 (as per Annexure-3 of the DGAP report dated 13.12.2018) to the Respondent as per the provisions of Rule 129 (3) of the above Rules intimating him that he would be investigated whether he had passed on the benefit of tax rate reductions or not. Therefore, the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of hearing on 27.01.2020 and 10.02.2020 out of which he has attended the hearing held on 10.02.2020 and submitted that he has completed his submissions and objections. Therefore it is evident from the chronological history of the proceedings that the Respondent was given twelve opportunities of being heard wherein he has filed eight written submissions and the Authority has not only heard the Respondent in detail but has also considered all the submissions/objections raised by him in a fair and just manner. Further, the profiteering amount has been revised twice according to the fresh facts and submissions filed by the Respondent. It is evident from the above facts that full opportunity has been provided to the Respondent in the instant case and there has been no violation of the principle of Audi Alteram Partem. The contention of the Respondent that the legal maxim, Nemo Judex in cause sua applies in this case is baseless and cannot be accepted as this Authority has not investigated the present case itself as it has been done by the DGAP as per the provisions of Rule 129 of the CGST Rules, 2017. Further, the Respondent s citation of the cases of Oryx Fisheries Private Limited v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Section 171 (1) of the CGST Act, 2017 itself which states 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. It is clear from the perusal of the above provision that it mentions reduction in the rate of tax or benefit of ITC which means that the benefit of tax reduction or ITC has to be passed on by a registered dealer to his customers since it is a concession which has been granted from the public exchequer which cannot be misappropriated by a supplier. It also means that the above benefits are to be passed on each Stock Keeping Unit (SKU) or unit of construction to each buyer and in case they are not passed on, the profiteered amount has to be calculated for which investigation has to be conducted on all such impacted SKUs/units. These benefits can also not be passed on at the entity/organisation/branch level as the benefits have to be passed on to each recipient at each SKU/unit level. Further, the above Section mentions any supply which connotes each taxable supply made to each recipient thereby clearly indicating that a supplier cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of additional ITC post implementation of GST. Further, the facts of the cases relating to the Fast Moving Consumer Goods (FMCGs), restaurants, construction and cinema houses are completely different and therefore, the mathematical methodology employed in the case of one sector cannot be applied in the other sector otherwise it would result in denial of the benefit to the eligible recipients. Moreover, both the above benefits have been granted by the Central as well as the State Governments by sacrificing their tax revenue in the public interest and hence the suppliers are not required to pay even a single penny from their own pocket and hence they have to pass on the above benefits as per the provisions of Section 171 (1) which are abundantly clear, unambiguous and mandatory which truly reflect the intent of the Central and State legislatures. Therefore, the above contention of the Respondent is frivolous and hence the same cannot be accepted. The Respondent cannot deny the benefit of tax reduction to his customers on the above untenable ground as Section 171 provides clear cut methodology to compute both the above benefits. 86. The Respondent had submitted new factual inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax credit in lieu of returned SKUs as claimed by the Respondent. Further, it is observed from the documents placed on record that the Respondent could not prove the sales returned in the manner prescribed under the CGST Act, during the course of investigation. Therefore, the benefit of returned SKUs merely on the basis of the claim of the Respondent cannot be allowed when there is no evidence that can help match the purchase invoices with the sales-return invoices and there is also no proof to the effect that the input tax credit in lieu of these sales-return invoices has been reversed at the recipient s end in the manner stipulated under Rule 42 of the CGST Rules, 2017. Non-consideration of Secondary and Retailer Schemes - As per Section 15 (30) of CGST Act, 2017 the transaction value will not include any discount after the sale has been effected, if(i) such discount is not proved in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoice: (ii) Input tax credit as is attributable to the discount on the basis of documents issued by the supplier has been reversed by the recipient of the supply. Since the discou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mer 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 after taking into account the fraction of less than fifty paise to be rounded off to the preceding rupee and fraction of above 50 paise and upto 95 paise to the rounded off to fifty paise. The Respondent was also required to stamp or re-sticker or reprint the MRPs on all the SKUs on which rate of tax was reduced in terms of the letter written by the Ministry of Consumer Affairs, Food and Public Distribution, Govt. of India on 16.11.2017which reads as follows: - WM-10 (31)12017 Government of India Ministry of Consumer Affairs, Food and Public Distribution Department of Consumer Affairs Legal Metrology Division Krishi Bhawan, New Delhi Dated: 16.11.2017 To, The Controller of Legal Metrology, All States/ UTS Subject: Labelling of MRP of pre-packaged commodities due to reduction in GST-reg. Reference is invited to this office letter No. WM-10 (31)/2017 dated 29.9.2017 regarding declaration of MRP on unsold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in contravention of the provisions of Section 171 (1) of the above Act as he has denied the benefit of tax reduction to them by charging excess GST. Had he not charged the excess GST the customers would have paid less price while purchasing goods from the Respondent and hence the above amount has rightly been included in the profiteered amount as it denotes the amount of benefit denied by the Respondent. The above amount can also not be paid to the eligible buyers from the CVVFs as the Respondent has not deposited it in the above Fund. Therefore the above contention of the Respondent is untenable and hence they cannot be accepted. 91. The Respondent has also alleged that the DGAP has ignored the negative values and resorted to zeroing to compute higher profiteering which was used by the anti-dumping authorities in certain countries which was opposed by the Government of India before the WTO and vide Report No. WT/DS141/AB/R dated 1.3.2001 of the Appellate Body of WTO, regarding Anti-Dumping Duties on imports of Cotton-Type Bed Linen from India, the stand of the Indian Government was accepted and it was held that the practice of netting off should be applied and hence the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore. it is clear from the Section 171 of the CGST Act. 2017 that whenever Government reduces the tax rate on any product, the intention behind it to benefit the end consumers of the product, In the instant case, it is not possible to trace each and every consumer of the product which is manufactured by the Respondent. Therefore, to prove the legislative intent of the law, profiteered amount must be used for the welfare of the consumers and it must be deposited in the Consumer Welfare Fund in the absence of passing on the benefit to the actual consumers of the products. Hence, this contention of the Respondent does not hold good and cannot be accepted. 93. The Respondent has also placed reliance on the case of Commissioner Central Excise and Customs Kerala versus Larsen and Toubro Limited (2016) 1 SCC 170 = 2015 (8) TMI 749 - SUPREME COURT to substantiate his point that no machinery has been prescribed under the anti-profiteering provisions. On this aspect it is to be noted that no tax has been imposed under the above measures and hence the law settled in the above cases is not applicable. However, to enforce the Anti-profiteering measures. as provided under Section 171 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent had not reduced his prices due to rate reductions till the above date. Had the Respondent passed on the benefit before the above date the DGAP would not have investigated him beyond that date. The Respondent cannot claim protection under Article 14 of the Constitution when he has violated the above Article himself by denying benefit of tax reduction to millions of customers. 95. The Respondent has also cited the definitions given in Black s Law Dictionary, Shorter Oxford English Dictionary and Law Lexicon on profiteering. In this connection it would be appropriate to refer to the definition of profiteered amount given in the Explanation attached to Section 171 which states as under:- Explanation : For the purposes of this section, the expression profiteered shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of ITC to the recipient by way of commensurate reduction in the price of the goods or services or both. Therefore. the definition of profiteering cited by the Respondent is not applicable as the definition of profiteered amount has been clearly given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factored-in for determination of net profiteering. In this context, it is pertinent to mention that in the above cases the benefit of ITC was denied by the Government with reduction in the rate of tax, therefore to calculate the commensurate benefit, the benefit of ITC loss was taken into consideration. However, in the instant case, no such benefit of ITC has been denied to the Respondent as it is only a case of reduction of tax rates, and hence the Respondent is liable to reduce the prices of his products by way of commensurate reduction in prices as per the provisions of Section 171 (1) of the CGST Act. 2017. Therefore, the facts of the cases referred by the Respondent are different from his case and hence, they cannot help him. 98. The Respondent has also argued that he had to bear loss with the introduction of GST, as rates were increased and he did not increase his prices. In this regard, it is mentioned that Section 171 (1) of the CGST Act, 2017 is very clear which requires to reduce the prices with the reduction in rate of tax commensurately. The Respondent had no restriction on increasing his prices when the rates of tax were increased and it was solely his business cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the concerned Commissioners CGST/SCST. The State/Union Territory wise amount of benefit to be deposited in the concerned CWF is as under:- Table Amount in Rs S.No. State Name State Code Final profiteering 1 JAMMU AND KASHMIR 1 49,67,133/- 2 HIMACHAL PRADESH 2 1,14,78,261/- 3 PUNJAB 3 1,95,79,263/- 4 CHANDIGARH 4 59,254/- 5 UTTARAKHAND 5 2,42,28,501/- 6 HARYANA 6 3,33,35,289/- 7 DELHI 7 3,33,57,375/- 8 RAJASTHAN 8 3,93,69,459/- 9 UTTAR PRADESH ..... X X X X Extracts X X X X X X X X Extracts X X X X
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