TMI Blog2020 (5) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit is passed on to the recipients. The Respondent is also directed to deposit the profiteered amount of ₹ 25,73,82,482/- 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 (3) (b) of the CGST Rules, 2017. Since, the recipients in this case are not identifiable, the above Respondent is directed to deposit the amount of profiteering of ₹ 25,73,82,482/- along with interest in the CWFs of the Central and the concerned State Governments as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017 in the ratio of 50:50 along with interest @ 18%, till the same is deposited. Penalty - HELD THAT:- The Respondent has denied the benefit of rate reduction of the GST to the consumers 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 direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given an opportunity to inspect the non-confidential evidence/information furnished by the Applicant No. 1 during the period from 15.04.2019 to 17.04.2019, which the Respondent did not avail. However, as per the request of the Respondent, the DGAP had provided all the documents/evidence which was submitted by the Applicant No. 1, to the Respondent vide e-mail dated 29.04.2019 3. Through e-mail dated 30.08.2019, the DGAP had also provided the Applicant No. 1 an opportunity to inspect the non-confidential documents/reply furnished by the Respondent on any working day between 03.09.2019 and 04.09.2019 which the Applicant No. 1 did not avail. 4. The period of the investigation conducted by the DGAP in this case is from 15.11.2017 to 31.03.2019. 5. The DGAP had sought extension of time for completing the investigation which was duly extended by this Authority vide its order dated 19.06.2019 in terms of Rule 129 (6) of the CGST Rules, 2017. 6. The DGAP in his Report dated 24.09.2019 has stated that the Respondent had filed his submissions vide letters/e-mails dated 18.04.2019, 23.04.2019, 25.04.2019, 30.04.2019, 03.05.2019, 17.06.2019, 16.08.2019, 23.08.2019, 26.08.2019, 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent s one GSTIN to another. In his product-line, the Respondent was making huge stock transfers to meet the demand-supply of the market. Thus, they should be excluded from the ambit of the present investigation. (v) New Stock Keeping Units (SKUs) introduced after 15.11.2017: These included the products which were introduced by the Respondent post rate reduction i.e. 15.11.2017. (vi) Discount offered by giving Credit Notes: The Respondent on periodical basis was giving discounts to the various channel partners by issuing credit notes, the details of the which had been submitted and they should be set off or considered while computing the profiteering. d. That the Respondent was selling his products through different channels in the market like Franchisees, Hyper Markets, Departmental Stores, E-commerce platforms, Institutional sales and CSD etc. and the pricing pattern was different for each channel and hence, the pricing for one channel should not be adopted for the pricing of another, for the purpose of arriving at the profiteering in terms of Section 171 of CGST Act, 2017. 7. The Respondent has also furnished the following documents to the DGAP:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of another appeared to be proper. Since, the Respondent had provided details of the channel wise outward taxable supplies of the products on which GST rate was reduced from 28% to 18% w.e.f. 15.11.2017 vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017, the DGAP has taken the above submission of Respondent into consideration for computing the profiteered amount. 13. The Respondent has also sought to exclude the outward sale of the following from the scope of the present investigation:- (i) New SKUs introduced after 15.11.2017: These were the newly launched products and hence were not comparable. (ii) Export Sales: The effective rate of GST on export sales was Nil and therefore they were not affected by the rate reduction. (iii) Goods sold to Canteen Stores Department (CSD): The prices of CSD goods were not affected by the GST rate as the CSD was getting the rebate of tax paid by it. (iv) Stock Transfers within the Respondent s units: Stock transfers were actually the transfers of the goods from one premises of the Respondent to other premises and thus were not effective sales. (v) Scrap Sales: The sales data submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he month of November, 2017 (pre-GST rate reduction) was taken and an average base price (after discount) was obtained by dividing the total taxable value by total quantity of this item sold during the period from 01.11.2017 to 14.11.2017. The average base price of this item was compared with the actual selling price of the same item sold through the said channel during the post-GST rate reduction period i.e. on or after 15.11.2017 as has been illustrated in the Table given below:- Table (Amount in Rs.) SI.No. Description Factors Pre Rate Reduction (Before 15.11.2017) Post Rate Reduction (From 15.11.2017) 1. Product Description A AMT PRESTON SP67 OXFORD BLUE 2. Channel B Franchisee 3. Total quantity of item sold C 48 4. Total taxable value D 154690. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, profiteering has been calculated channel-wise. 17. The DGAP has also reported that the issue that remained to be settled was the determination and quantification of profiteering by the Respondent, due to his failure 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 CGST Act, 2017. From the invoices and the details of the outward supplies made available by the Respondent, the DGAP has claimed that the Respondent has increased the base prices of the goods when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017, therefore, the commensurate benefit of GST rate reduction was not passed on to the recipients. The DGAP, on the basis of the aforesaid pre and post-reduction GST rates and the details of the outward taxable supplies (other than zero rated, nil rated and exempted supplies) of the impacted products during the period from 15.11.2017 to 31.03.2019, as furnished by the Respondent, has calculated 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% or in other words, the profiteered am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 Jharkhand 20 23,89,425 15 Karnataka 29 3,10,01,943 16 Kerala 32 60,83,216 17 Madhya Pradesh 23 53,97,369 18 Maharashtra 27 4,27,43,695 19 Manipur 14 81,396 20 Meghalaya 17 4,22,871 21 Mizoram 15 1,72,974 22 Nagaland 13 3,54,889 23 Orissa 21 32,57,068 24 Puducherry 34 18,66,052 25 Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties on 24.10.2019, 13.11.2019, 02.12.2019, 19.12.2019, 03.01.2020 and 14.01.2020 out of which four hearings were attended by the Respondent. During the course of the hearings, none appeared for the Applicant No. 1 and 2. The Respondent was represented by Sh. Prateek P. Shah and Sh. Nitin Vijaivergia, Authorised Representatives. 22. The Respondent has filed his first written submission on 05.11.2019 along with additional written submissions on 02.12.2019 vide which he has submitted that he was engaged in the business of manufacturing and trading of travel bags in various segments and presently, the Respondent was registered under the provisions of the Central and the State Goods and Service Tax Acts, 2017 in 21 States on pan India basis. The Respondent has also submitted that he was engaged in the design, manufacturing and sale of luggage and luggage accessories. He was also selling hard and soft luggage items, duffels, small bags, briefcases, laptop bags, laptop strollers and backpacks, wallets, belts and travel accessories etc. He has further submitted that he was selling the above products through offline channels such as distributors, retailers and online channels. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collected on the differential base prices could not be construed as profiteering made by the Respondent as the same was duly deposited with the Central Government and not retained by the Respondent. However, the DGAP s Report had deviated from the basic principle of unjust enrichment (as such tax was duly deposited with the Government) and had applied GST of 18% on the GST benefit amount required to be passed. He has thus argued that the quantum of profiteering to the extent of ₹ 3,92,61,734.43 was liable to be set aside on the ground that this amount was not profiteered by the Respondent. He has further argued that without prejudice to the above submissions and assuming that the contention of DGAP was valid the amount of profiteering should be diverted from the credit of the Central and the State Governments to the Consumer Welfare Funds instead of recovering the said amount from the Respondent. 26. The Respondent has also contended that it was well settled in the cases of M/s Miles India v. Assistant Commissioner of Customs 2002 TIOL 501 SC CUS = 1984 (4) TMI 63 - SC ORDER (Annexure-E) and M/s Northern Plastics Ltd. v. Hindustan Photo Films Mfg. Co. Ltd. 1991 (91) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigation should be restricted to the goods against which the complaint was made as other products were neither mentioned in the application or the notice issued to him. 28. The Respondent has also averred that the provisions of Section 171 of the CGST Act, 2017 violated Article 19 (1) (g) of the Constitution. He has further averred that right to trade was a fundamental right guaranteed under the above Article and included the right to determine prices and such right could not be taken away without any explicit authority under the law passed by the Parliament or the State legislature under Entry 34 of the Concurrent List (List III) of Seventh Schedule of the Constitution of India. Only in exceptional cases, and in respect of a few specified goods, the Government had enacted laws to control prices. Thus the provisions of Section 171 of the CGST Act were not akin to the price control regulations enacted in terms of Entry 34 of the Concurrent List. Consequently, any such effort would be violation of the freedom of trade guaranteed under the Constitution of India. Hence, the price control exercised by the DGAP was ultra vires the fundamental rights guaranteed under Article 19 (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... har AIR 1963 SC 1667 = 1963 (2) TMI 2 - SUPREME COURT , State of A. P. v. Nalla Raja Reddy AIR 1967 SC 1458 = 1967 (2) TMI 98 - SUPREME COURT , Vishnu Dayal Mahendra Pal v. State of U. P. (1974) 2 SCC 306 = 1974 (5) TMI 116 - SUPREME COURT and D.G. Gose and Co. (Agents) (P) Ltd. v. State of Kerala (1980) 2 SCC 410 = 1979 (9) TMI 189 - SUPREME COURT wherein it was held that where there was no machinery for assessment, the law being vague, it would not be open to the authorities to arbitrarily assess to tax. The Respondent has also added that the DGAP had initiated the anti-profiteering investigation with a pre-conceived notion that the Respondent had not passed on the benefit of the reduced GST rate to his customers. Such arbitrariness would render the entire investigation conducted by the DGAP an otiose exercise resulting in grave injustice to the Respondent. In this regard, the Respondent has also referred to the Apex Court s decision given in the case of Natural Resources Allocation Special Reference No. 1 of 2012 = 2012 (10) TMI 596 - SUPREME COURT , wherein it was held as under:- Therefore, a State action had to be tested for constitutional infirmities qua Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word profiteering had not been defined in Section 171 of CGST Act, 2017 and Rules made thereunder and hence the dictionary meaning given for profiteering should be taken as profiteering had no meaning as Section 171 stipulated that any reduction in the rate of tax or the benefit of input tax credit had to be passed on to the recipient by way of commensurate reduction in price, and this had been determined in the investigation Report. 33. The DGAP has also claimed that the preliminary examination of the documents submitted by the Applicant No. 1 and the Respondent prima facie, revealed that the benefit of reduction in the GST rate from 28% to 18% was not passed on to the ultimate customers. The DGAP has further claimed that the allegation of profiteering by way of increasing the base prices of the products was sustainable against the Respondent and the profiteered amount was ₹ 25,73,82,482/-. He has also stated that the investigation was carried out in terms of Rule 129 of the Central Goods and Services Tax Rules, 2017 without going into the merit of the Applicant No. 1 s locus standi. 34. The DGAP has also contended that the provisions of Section 171 of the CGST Act, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he document /replies/ statements given by the Respondent. Therefore, there was no violation of the right of the Respondent enshrined under Article 14 and Article 19 of the Constitution of India. The DGAP has further argued that the submission of the Respondent that the Show Cause Notice issued by this Authority was illegal was incorrect as Section 171 of the CGST Act, 2017, read with CGST Rules, 2017 empower this Authority to exercise such powers and discharge such function as might be prescribed. Rule 127 and Rule 133 of the CGST Rules, 2017, framed by the Government under Section 164 of the CGST Act, 2017, also give jurisdiction to this Authority to exercise such authority and powers as specified under the Act/Rules. 35. The DGAP has also stated that the provisions of Section 171 of the CGST Act, 2017 and the rules made thereunder have been approved by the Parliament. Section 171 (1) of the CGST Act, 2017 envisages that any reduction in the rate of tax or the benefit of input tax credit has to be passed on to the recipient by way of commensurate reduction in price. The additional benefits that accrue to the Respondent on introduction of GST have to be passed on to the recipien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further been stated by the Respondent that the quantum of benefit should have been computed by comparing taxable value (i.e. turnover excluding GST) charged from the customers instead of the value including the GST. The GST amount collected on the differential base prices could not be construed as profiteering made by the Respondent as the same was duly deposited with the Central Government and not retained by the Respondent. However, the DGAP s Report dated 24.09.2019 has deviated from the basic principle of unjust enrichment and has applied GST @ 18% on the GST benefit amount required to be passed on. Without prejudice to the above-mentioned submissions and assuming that the contention of the DGAP was valid (which was not the case), the profiteered amount should be diverted from the credit of the Central and the State Governments to the Consumer Welfare Funds instead of recovering the said amount from the Respondent, as the same had not been pocketed by the Respondent. He has also contended that refund of GST, which was already credited to the treasury of the Central Government, should be given to the Respondent. 38. The Respondent has further contended that the DGAP has ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lleged that the Respondent had not reduced the selling price of the product when the GST rate was reduced from 28 % to 18% w.e.f. 15.11.2017 and had kept the MRP of the above product unchanged at ₹ 9100/- per piece and thus, the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in the price. The Standing Committee on Anti-profiteering had examined the above application in its meeting held on 22.03.2019 and referred the same to the DGAP for detailed investigation in terms of Rule 129 (1) of the above Rules. 42. It is further revealed from the record that the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 on the products which were being supplied by the Respondent, the benefit of which was required to be passed on by the Respondent to his customers. The Respondent has also admitted that his products were being sold through different channels in the market like the Franchisees, Hyper Markets, Departmental Stores, E-commerce platforms, Institutional sales and CSD etc. and the pricing pattern was different for each channel. It is also apparent fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod or vice versa. The average base prices have further been computed by considering the base prices which were prevalent during the period of 14 days w.e.f. 01.11.2017 to 14.11.2017 which give more accurate and representative value of the average base prices. However, the average pre rate reduction base prices were required to be compared with the actual post rate reduction base prices as the benefit required to be passed on each Stock Keeping Unit (SKU) to each customer. In case average to average base prices are compared for both the periods, the customers who have purchased a particular product on the base price which is less than the average base price but more than the commensurate base price would not get the benefit of tax reduction. From the invoices and details of outward sales made available by the Respondent it has been found that the Respondent has increased the base prices of his products when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017 so that the commensurate benefit of GST rate reduction was not passed on to the recipients. There was no reason for the Respondent to increase his base prices exactly equal to the rate of tax reduction w.e.f. 15.11.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the date of passing of the order by the Authority. Explanation:- For the purpose 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 of both. (Emphasis supplied) 44. Therefore, it is abundantly clear from even cursory reading of the above Section and the Explanation attached to it that profiteering refers to the amount of benefit which has been denied to the recipients by a registered person by not reducing the prices of the products commensurately on which the rate of tax has been reduced. Hence, the definitions quoted by the Respondent from various dictionaries are not applicable in respect of the provisions of Section 171. Similarly, his contention that the above term refers to excessive, exorbitant and unjustifiable profits arising due to supply of essential goods is also not tenable. 45. The Respondent has further claimed that the application dated 30.07.2018 filed by the Applicant No. 1 was based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HL Blue 68 cm (hard trolley) had a MRP of 9100 on 30/10/17 when Big Bazar procured it under PO 8114960012. The same product was supplied by samsonite to big bazar on 11/12/17 after gst rate reduction under po 8115364220 and mrp was 9100 again (though gst rates were reduced from 28% to 18%) thats not all, assuming old packaging may still be lying with Samsonite one can still be ok, but when samsonite supplied to big bazar on 26/6118 i.e. 7 months after the rate reduction under po 4518446183 they still supplied with mrp 9100 which means they decided they will not pass the rate reduction to consumers. As of today 29/7 the product is still listed on amazon for mrp 9100. http://www. amazon. in/American-Tourister-Polyproplene-Litres-Luggag . anti-profiteering authority is requested to book samsonite and contact big bazar if they want to validate these purchase orders. (Emphasis supplied) 46. Therefore, it is clear that the complaint for not passing on the benefit of tax reduction was specifically made against the Respondent and not M/s Amazon by quoting the Purchase Orders (PO) issued by M/s Big Bazar to the Respondent in which the MRP of ₹ 9100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the statue. In this context it would be appropriate to mention that the present investigation fully complies with the provisions of Rule 128, 129 and Section 171 of the above Act and hence the above judgements do not support the case of the Respondent as no illegality has been committed by the Standing Committee or the DGAP in the present case. 48. The Respondent has also contended that the scope of the DGAP s investigation should have been restricted to the product in respect of which the complaint was made and it could not be expanded to other products. In this respect it would be pertinent to refer to the provisions of Sub-Section 171 (1) quoted in para supra which state that both the benefits of tax reduction and ITC are required to be passed on by the suppliers to the buyers by commensurate reduction in the prices as they are given from the public exchequer in the interest of the consumers. Perusal of Sub-Section 171 (2) shows that the Central Government may on the recommendations of the GST Council constitute an Authority to examine whether the input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which no complaint has been lodged. The DGAP cannot condone commission of an offence committed in violation of the provisions of Section 171 (1) if it comes to his notice during the course of the investigation. Since, the DGAP is the investigating arm of this Authority any Report furnished by him to this Authority has to cover all the products in respect of which there has been denial of both the above benefits once they have come to his notice keeping in view that this Authority has jurisdiction to examine all such cases, determine the amount of benefit denied and provide relief to the affected consumers as per the provisions of Section 171 (1), 171 (2) and Rule 127 and 133 of the CGST Rules, 2017. The Respondent cannot refuse to pass on the benefit of tax reduction in respect of other products in respect of which rate of tax was reduced w.e.f. 15.11.2017 as it is not to be given out of his own pocket. Accordingly, the DGAP has rightly investigated all the products which have been impacted by the rate reduction. Hence, the investigation conducted by the DGAP in this case is legal and is in consonance with the provisions of Section 171 and the Rules framed under Chapter XV of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is submitted that the above case is still pending before the Hon ble Court and hence the order passed in the above case is of no assistance to the Respondent. 53. The Respondent has also pleaded that no precise procedure, methodology or principles have been laid down by this Authority as per Rule 126 of the CGST Rules, 2017 for passing on the benefits of tax reduction or ITC in terms of Section 171 of the above Act. In this regard it is mentioned that the Procedure and Methodology for passing on the benefits of reduction in the rate of tax and ITC has been clearly enunciated 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 evident from the above Sub-Section that it mentions reduction in the rate of tax or benefit of ITC which connotes that the benefit of tax reduction or ITC has to be passed on by a registered supplier to his buyers since both the above benefits are granted by the Central and the State Governments out of the public exchequer, which cannot be misappropria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, to further explain the legislative intent behind the above provision, this Authority has been empowered to determine the Procedure and Methodology which has been determined by it vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017. However, no fixed formula, which can be applied universally on all the sectors or the SKUs or the services, can be set for passing on the above benefits or for computation of the profiteered amount, while determining such a Methodology and Procedure as the facts of each case are different. In the case of one real estate project, date of start and completion of the project, price of the flat/shop, mode of payment of price or instalments, stage of completion of the project, rates of taxes pre and post GST implementation, amount of CENVAT and ITC availed/available, total saleable area, area sold and the taxable turnover received before and after the GST implementation would always be different from the other project and hence the amount of benefit of additional ITC to be passed on in respect of one project would not be similar to the other project. Therefore, no set procedure/methodology/guidelines/principles can be f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit of tax reduction to his customers on the above ground as Section 171 provides clear cut methodology and procedure to compute the benefit of tax reduction. Therefore, the above plea of the Respondent is frivolous and hence the same cannot be accepted. 54. The Respondent has also submitted that in the absence of machinery provisions, the entire proceedings under the anti-profiteering provisions would be a futile exercise. In this regard it is mentioned that no tax has been imposed under Section 171 of the above Act and hence no machinery is required for its computation and assessment. However, for prima facie examination of the complaints against not passing on the benefits of tax reduction and ITC Standing Committee and Screening Committees on Anti-Profiteering have been constituted under Rule 123 of the CGST Rules, 2017. The DGAP has been entrusted to carry out investigation in those cases where benefit of tax reduction or ITC is required to be passed on under Rule 129. This Authority has been constituted under Sub-Section 171 (2) of the above Act to examine all such cases where both the above benefits are to be passed on. Under Rule 127 duties of this Authority have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced any evidence to establish that he has passed on the benefit in respect of his other products. Hence, the claim made by the Respondent on the basis of the above invoices is wrong and cannot be relied upon. 57. The Respondent has also contended that the quantum of benefit should have been computed by comparing the taxable value charged from the customers and an amount of ₹ 3,92,61,734.43 which was collected as GST by him and deposited in the Government treasury 58. Based on the above facts, it is established that 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 amount of profiteering is determined as ₹ 25,73,82,482/- 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. The Respondent is also directed to deposit the profiteer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 11,94,712.50 15 Karnataka 29 1,55,00,971.00 16 Kerala 32 30,41,608.00 17 Madhya Pradesh 23 26,98,684.50 18 Maharashtra 27 2,13,71,847.50 19 Manipur 14 40,698.00 20 Meghalaya 17 2,11,435.50 21 Mizoram 15 86,487.00 22 Nagaland 13 1,77,444.50 23 Orissa 21 16,28,534.00 24 Puducherry 34 9,33,026.00 25 Punjab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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