TMI Blog2020 (5) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... this case and the Respondent is bound to pass on the benefit of the above tax reduction to his recipients w.e.f. 01.01.2019. The Respondent has acted in contravention of the provisions of Section 171 of the CGST Act, 2017 and has not passed on the benefit of reduction in the rate of tax to his recipients by commensurate reduction in the prices. Accordingly, the profiteered amount is determined as ₹ 55,60,340/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent is therefore directed to reduce the prices of his products as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. Penalty - HELD THAT:- The Respondent has denied the benefit of rate reduction of GST to his recipients in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST Act, 2017 and therefore, he is apparently liable for imposition of penalty under the provisions of the above Section - Accordingly, a Show Cause Notice be issued to him directing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 148.81 3. The Gujarat State Screening Committee on Anti-profiteering had conducted prima facie verification of the application and after having satisfied itself that the Respondent was involved in profiteering, had forwarded the application to the Standing Committee on Anti-profiteering. 4. The Standing Committee on Anti-profiteering had examined the aforesaid reference, in its meeting and forwarded the same to the DGAP for detailed investigation in terms of Rule 129 (1) of the above Rules. 5. The Applicant No. 1 had also submitted the following documents along with his application:- (a) Duly filled in Form APAF. (b) Proof of identity (Aadhar Card). (c) Copies of Tax Invoices mentioned in Table A above. 6. The DGAP, on receipt of the application and the supporting documents from the Standing Committee on Anti-profiteering, had issued Notice under Rule 129 (3) of the CGST Rules, 2017 on 10.04.2019 calling upon the Respondent to reply as to whether he admitted that the benefit of reduction in the GST rate w.e.f. 01.01.2019 has not been passed on to the recipients by way of commensurate reduction in prices and if so, to suo-moto determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsportation, all the input services of the Respondent were taxable at the rate of 18%. (iii) All the capital goods were taxable at the rate of more than 5%. Generally, all the capital goods of Chapter 84 and 85 of the CTA, 1975 were taxable at the rate of 18%. d. That as per the CBIC Circular No. 79153/2018-GST dated 31.12.2018, the ITC in respect of input services and capital goods was not to qualify for refund of ITC due to inverted duty structure and thus he was left with no option but to treat the excess ITC in respect of input services and capital goods over and above 5% as cost of production since the said unutilized amount would have never materialized to him as refund and would have always remained blocked and unutilized. Thus, partial increase in the base price of the product manufactured by him i.e. Fly Ash Blocks was due to blockage of the accumulated ITC pertaining to input services. e. That the Applicant No. 1 had not made any payment in the months of November, 2018 and December, 2018 for the goods purchased by him. The Applicant No. 1 had made payment of ₹ 1,57,550/- for the goods purchased by him in the month of September, 2018 belatedly in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials, increase in cost of production and blockage of accumulated ITC due to inverted duty structure etc. that his contention could not be accepted as such increase in the prices of raw materials could not have happened overnight to exactly coincide with the GST rate reduction w.e.f. 01.01.2019. Thus, the increase in the cost of raw materials/input services, if any, had no relevance in the context of GST rate reduction w.e.f. 01.01.2019. The DGAP has further submitted that Section 171 of the CGST Act, 2017 did not provide any scope for adjustment of increase in the cost against the benefit of reduced tax rate and it could not be argued that the elements of cost were affected by the downward revision of the output GST rate. He has also argued that the direct and indirect costs, demand and supply and other expenses might be considered in determination of prices but these factors were independent of the output GST rate and the commercial factors could not change overnight on the change of GST rate. 15. The DGAP has also clarified regarding blockage of accumulated ITC due to inverted duty structure and stated that it was seen that the ITC had three parts viz. ITC on inputs, ITC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55 8. Invoice No. H GST/ 4462/1819 9. Invoice Date I 01.01.2019 10. Total quantity (above invoice) J 1490 11. Total Invoice Value K 30173 12. Actual Selling price (post rate reduction of item (size) L=K/J 20.25 13. Difference (Profiteering) M=L-G 0.70 14. Final Profiteering N=M*J 1043 17. The DGAP has thus stated that the Respondent did not reduce the selling price of the Fly Ash Blocks 600 x 200 x 75 , when the GST rate was reduced from 12% to 5% w.e.f. 01.01.2019, vide Notification No. 24/2018 Central Tax (Rate) dated 31.12.2018 and hence profiteered a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been furnished by the DGAP in the Table given below:- Table Sr.No. State Code State Profiteered Amount (Rs.) 1. 24 Gujarat 13,39,998 2. 25 Daman and Diu 3,051 3. 26 Dadar and Nagar Haveli 2,52,843 4. 27 Maharashtra 39,64,448 Grand Total 55,60,340/- 20. The DGAP has also clarified that in this case, the allegation of the Applicant No. 1 that the base prices of the Fly Ash Blocks were increased when there was a reduction in the GST rate from 12% to 5% w.e.f. 01.01.2019, so that the benefit of such reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in prices, was sustainable and it appeared that the base prices of the Fly Ash Blocks were indeed increased by the Respondent post GST rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar invoices raised on the same day to the same party, in one case the DGAP had determined profiteering of ₹ 0/- whereas in the other case the same was determined as ₹ 14,804/-. e. That such instances were found throughout the working of the DGAP. f. That by working out the average on the basis of types of the AAC blocks sold by the Respondent instead of on the basis of total cubic metre sold, the DGAP had arrived at totally wrong and inconsistent figures of alleged profiteering. g. That the DGAP had further not considered the freight expenditure incurred in the alleged profiteered amount although the fact was that the freight element was factored in the selling price. 25. The Respondent has also submitted that the reasons given by the DGAP for not considering the rise in the prices due to rise in the prices of the raw materials before arriving at the amount of profiteering seemed to be purely whimsical in nature. 26. The Respondent has further submitted that he had furnished his reply dated 29.05.2019 before the DGAP and the same along with all its annexures should be considered as part and parcel of this reply. He has also contended that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quantification of the refund amount in the inverted duty structure. Whereas Section 54 prohibited the refund of ITC in respect of capital goods and input services in case of inverted duty structure there was no such embargo in Rule 89 wherein the refund of ITC was generally allowed. 30. The Respondent has further claimed that subsequently Rule 89 was amended restricting the refund of ITC on input services and capital goods, vide Central Board of Indirect Tax and Customs (CBIC) Circular No. 79153/2018-GST dated 31.12.2018. Thus, the Respondent was compulsorily required to increase the base prices of his final products to absorb the ITC on input services since it was now non refundable. This important aspect and legislative amendment had been ignored by the DGAP. 31. The Respondent has also argued that the DGAP had also completely ignored the comparative data of other customers of the Respondent submitted along with cogent evidence, on the perusal of which it was clearly forthcoming that increase in the prices in the case of other customers ranged only from 1.71% to 1.99 %. 32. Clarifications were sought from the DGAP on the Respondent's above mentioned submissions. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he average base price. The DGAP has further averred that the freight expenditure had not been shown in the tax invoices issued by the Respondent and only the rate at which the goods were sold had been shown in the invoices issued to the customers. Hence the contention of the Respondent appeared to be incorrect. The DGAP has also enclosed copies of the invoices. He has also stated that all other issues had already been dealt in his Report dated 24.09.2019. 34. The Respondent was also given opportunity to file his written submissions against the DGAP's clarification mentioned above. However, the Respondent did not submit any submissions. Accordingly, the hearing was closed by this Authority vide order dated 23.12.2019. However, the Respondent vide e-mail dated 31.12.2019, again requested for an opportunity of hearing which this Authority had allowed vide its order dated 02.01.2020. 35. The Respondent has filed his next written submissions on 11.01.2020 via e-mail vide which he has stated that the DGAP's clarifications were non comprehensive and were factually unacceptable. He has also stated that on perusal of the DGAP's clarifications, it transpired that the rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33.78 cubic metres Thus, the average per cubic metre rate was ₹ 2311.38. He has also stated that for the period covered under the DGAP's investigation, the total sales in value terms were ₹ 10,00,62,033 /- and the total sales in quantity terms were 41,831.68 cubic metres. Thus, the average rate per cubic metre was ₹ 2,392.02/-. Thus, the Respondent, post GST rate reduction and for the period covered by the present anti-profiteering proceedings, has charged/collected ₹ 33,73,307/-(41,831.68 cubic metres * 2,392.02 per cubic metre - ₹ 2,311.38 per cubic metre) in excess. However, the said excess could not be termed as profiteered amount because:- a. Increase in prices of raw materials was to the extent of 1.73 % as elaborated in submission dated 11.11.2019. b. Availability of refund of ITC on capital goods and input services was restricted by the CBIC on 31.12.2019 i.e. on the date of reduction in the GST rate from 12 % to 5 %, which was also elaborated in his submissions dated 11.11.2019. 39. The Respondent has also claimed that as stated in his submission dated 09.11.2019, the calculation of average price lacked rationale. He has furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the amount inclusive of freight charges and addition of freight had been done for the pre rate reduction period as well as for the post rate reduction period. He has also claimed that at the time of investigation, in the invoices submitted by the Respondent the freight component was not shown separately. 41. The Respondent has filed his last written submissions on 06.02.2020 vide which he has stated that the contention of the DGAP that the price of a product could not increase as soon as the rate of tax was reduced was not correct given the fact that two undisputed events had coincided with the change in the rate of tax, the first was the CBIC clarification dated 31.12.2018 which stated that the refund of ITC on accumulated ITC of input services and capital goods would not be available. Since, the Respondent's product faced the menace of inverted duty structure, such non refundable ITC was nothing but cost which had to be passed on to the customers otherwise viability and survival of the business would get threatened. The second was the demonstrated and substantiated rise in the prices of the raw materials. 42. He has also stated that the DGAP has only questioned the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rices to his customers and therefore, there was no alternative except to calculate the average base price for comparison with the actual base price charged post rate reduction. It was also not possible to compare the actual pre rate reduction base price with the actual post reduction base price as the same customer may not have purchased the product in the pre rate reduction period and may have purchased it in the post rate reduction period or vice versa. It was also necessary to compare the average pre rate reduction base price with the actual post rate reduction actual base price as the benefit of tax reduction was required to be passed on to each customer who had purchased the product during the post rate reduction period. Had the comparison been made by calculating the average base price for the post rate reduction period the buyers of those units which had been sold below such average base price would have been denied the benefit of tax reduction although the base price charged from them might have been more than the commensurate price which was required to be charged from them by the Respondent keeping in view the tax reduction. The average base price computed by the DGAP for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nother invoice it has been computed as ₹ 14,804/-. In this context perusal of Row No. 418 of Annexure-16 shows that the Respondent has sold product of 625 X 200 X 150 dimension the commensurate price of which was ₹ 49.38 per unit whereas the selling price post rate reduction was ₹ 49.06 per unit and hence there was no profiteering. However, vide Row No. 421 he has sold product having dimension of 625 X 240 X 200, the commensurate price of which was ₹ 67.14 per unit and the sale price post rate reduction was ₹ 81.75 per unit, hence, there was profiteering of ₹ 14.61 per unit. By no stretch of imagination commensurate and sale prices of the products having different dimensions can be same and accordingly, the profiteered amount will also be different. It is also evident that the Respondent has increased the selling price of the product mentioned in Row No. 421 much more and hence the profiteering has been on the higher side per unit. Therefore, the above claim of the Respondent is wrong and frivolous and hence, it cannot be accepted. 47. The Respondent has further submitted that the DGAP has not considered the expenditure incurred on freight alt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the prices by the Respondent nor he has directed the Respondent to fix his prices in a particular manner. He has only investigated the complaint of not passing on the benefit of tax reduction. The Respondent is free to fix and raise his prices as per his own strategy but under the pretext of doing so he cannot pocket the benefit of tax reduction which has been given by the Central and the State Governments from their valuable tax revenue. The Respondent is not required to pay even a single penny from his account. However, he cannot be allowed to deny the benefit to the vulnerable, voiceless and unorganised customers by claiming that there was increase in the prices of the raw materials on the intervening night of 31.12.2018/01.01.2019. The above argument of the Respondent is farfetched and hence, the same cannot be accepted. 50. The Respondent has also contended that his products suffered from denial of ITC due to inverted tax structure which was not allowed by the CBIC w.e.f. 01.01.2019, the date from which the rate of tax was reduced, which has increased his cost. In this connection it would be relevant to mention that the Respondent was eligible to claim the benefit of ITC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntity of number had been correctly taken by the DGAP. As has been discussed above the Respondent has not sold his product on the basis of volume per cubic meter but has sold it per unit dimension wise and hence, the above profiteered amount of ₹ 1,15,67,524/- calculated by the DGAP cannot be taken to be correct. 53. The Respondent has also pleaded that the DGAP in his clarifications dated 06.12.2019 has supplied new profiteering working in Excel Sheet in which the commensurate price (excluding tax) of Fly Ash Block 600 x 200 x 75 was adopted as ₹ 18.48/- per piece (and not as per cubic metre) in respect of Invoice No. GST/446211819 appearing in Row No. 4. However, for the same product i.e. Fly Ash Block 600 x 200 x 75, the commensurate price was adopted as ₹ 22.90/- per piece in respect of Invoice No. GST/449311819 appearing in Row No. 28. However, perusal of the Excel Sheet shows the dimensions of the product shown in Row No. 28 are 625 X 200 X 225 and not 600 x 200 x 75 as has been claimed by the Respondent. The commensurate price without tax has been shown as ₹ 33.40 and not ₹ 22.90 in Row No. 28 as has been claimed by the Respondent. The number ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed on the benefit of reduction in the rate of tax to his recipients by commensurate reduction in the prices. Accordingly, the profiteered amount is determined as ₹ 55,60,340/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent is therefore directed to reduce the prices of his products as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. Since, the Applicant No. 1 has stated vide his letter dated 27.04.2019 attached by the DGAP as Annexure-7 with his Report dated 24.09.2019 that he has received the disputed amount therefore, an amount of ₹ 299/- computed as the profiteered amount in respect of the above Applicant shall not be paid to him and shall be deposited in the Consumer Welfare Funds (CWFs) as this amount cannot be retained by the Respondent. Accordingly, the Respondent is directed to deposit the profiteered amount of ₹ 55,60,340/- along with the interest to be calculated @ 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited in terms of the Rule 133 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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