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TMI Blog2020 (6) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... the supply of "Food Processor" (HSN: 85094090), by not passing on the benefit of GST at the time of implementation of the GST w.e.f. 01.07.2017. It was also alleged that the Respondent had indulged in profiteering in contravention of the provisions of Section 171 of the CGST Act, 2017. In this regard, the above Applicant had relied on two invoices issued by the Respondent, one dated 09.05.2017 (Pre-GST) and the other dated 22.12.2017 (Post-GST). 2. The above reference was examined by the Standing Committee on Anti-Profiteering and was further referred to the DGAP vide minutes of its meeting dated 02.07.2018 for detailed investigations under Rule 129 (1) of the CGST Rules, 2017. 3. The DGAP vide his report dated 26.09.2018 has stated that after scrutiny of the two invoices issued by the Respondent, it was observed that in the pre-GST era, the applicable tax rate on the product Food Processor" (HSN Code 85094090 was 26.24%, including Excise duty @ 12.5% (abatement @35% of MRP) and VAT @14.5%. On implementation of GST w.e.f. 01.07.2017, the GST rate on the said product was fixed at 28%. However, the invoice dated 22.12.2017, relied on by Kerala State Screening Committee has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch were indicated in the table above. The DGAP found that there was an increase in the rate of tax on "Food Processor" from 26.24% in the pre-GST era to 28% in the post-GST era. The DGAP also found that the Respondent did not increase the MRP of the product which was Rs. 5,795 during both the periods. Furthermore, Section 171 of the Central Goods and Services Tax Act, 2017 came into play in the event when there was a reduction in the rate of tax or increase in the input tax credit, the latter was not the subject matter of this inquiry as there was no reduction in the rate of tax in the present case, the provisions of the said Section 171 were not attracted in the instant case. 6. We have carefully examined the DGAP's report and the documents placed on record and find that the following issues were required to be settled in the present proceedings as per the provisions of Section 171 of the CGST Act:- I. Whether there was a reduction in the rate of tax on the product w.e.f. 01.07.2017? ll. Whether any benefit of reduction in the rate of tax was to be passed Ill. Whether the benefit of reduction in tax was passed on to the recipient by way of commensurate reduction in prices? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to suo-moto determine the quantum thereof and indicate the same in his reply to the Notice as well as to furnish all the supporting documents. Further, in the said Notice dated 09.01.2019, the DGAP allowed the Respondent to inspect the non-confidential evidence/ information relied upon in the Notice during the period 14.01.2019 to 16.01.2019 and the Respondent availed of the said opportunity on 16.01.2019 and collected copies of invoices of pre-GST and post-GST. The period covered by the DGAP in the current investigation is from 01.07.2017 to 31.12.2018. 12. The Respondent vide letters/e-mails dated 21.01.2019, 31.01.2019, 19.02.2019, 08.03.2019, 18.03.2019, 05.06.2019 and 25.06.2019 submitted following arguments before the DGAP: i. That the Maximum Retail Price (MRP) taken into consideration in the Notice of initiation was Rs. 5,795 instead of correct MRP of Rs. 4,795. Further, his business was engaged only in the trading of goods and did not have any manufacturing facility, and thereby, he was not registered under the Central Excise Laws. Further, Respondent contended that the effective rate of tax on the impugned goods was increased from 14.5% to 28% and therefore requested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit B 3,031 2,711 Countervailing duty CVD C=A*65%*12.5% 390 Basic Price (Excluding taxes) D=B-C 2,641 2,711 VAT @ 14.5% E=B*14.5% 439 GST@28% F=B*28% 759 Total Tax (Rs.) G=C+E or F 829 759 Total Tax (in %) H=G/D 31% 28% Cum Tax selling price (As per invoice) I=B+E or B+F 3,470 3,470 Gross amount J=Difference of D 70 Additional Credit Note post K = 9% of net realization 244 The net impact on the sale of the product L = J-K (174) Based on the above, Respondent inferred that he has passed on the adequate benefit to the customer by way of additional credit notes and hence there was no profiteering made on the impugned product sold to the QRS Retail Limited. 13. The Respondent submitted the following documents/information to the DGAP vide the aforementioned letters/e-mails: i. List of all GSTIN ii. GSTR-I and GSTR-3B Returns for the period from July 2017 to December 2018 for all the GST registrations. iii. Invoice-wise details of outward taxable supplies of the impugned product under investigation for the period April 2017 to December 2018 for all the GST registrations. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e calculation on MRP by ignoring actual transaction value and discounts which were referred in Table-'A' supra. In this regard, the DGAP has drawn reference to Section 15 (1) of the Central Goods and Services Tax Act, 2017 which reads as "The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply." Further, Section 15 (3) (a) provides that the value of the supply shall not include any discount which is given before or at the time of the supply if such a discount has been duly recorded in the invoice issued in respect of such supply. Therefore, the DGAP stated that the GST was chargeable on actual transaction value after excluding any discount and to establish profiteering, if any, Basic Price before discount could not be considered and the Basic Price after discount (excluding duties) should be taken into consideration. 18. The DGAP examined provisions of Section 171 of Central Goods and Services Tax Act, 2017 which govern the anti-profiteering m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inked to relevant invoices; and (ii) input tax credit as is attributable to the discount based on document issued by the supplier has been reversed by the recipient of the supply" Therefore, to exclude any discount after the supply has been affected, the supplier should produce an agreement of such a discount entered into at or before the time of such supply. Further, the discount should be specifically linked to the relevant invoice and the recipient should reverse the input tax credit attributable to such a discount. Since the aforesaid conditions had not been satisfied in this case, the discount claimed by the Respondent after the supply has been affected was liable to be disallowed. 21. The DGAP stated that the amount of profiteering made by the Respondent for failing to pass on the benefit of the reduction in the rate of tax to the recipients, in terms of Section 171 of the Central Goods and Services Tax Act, 2017, apparently worked out to Rs. 4,53,949/, after considering the details of outward supplies during the period 01.07.2017 to 31.12.2018 furnished by the Respondent. The details of transaction wise computation were given in Annexure-18 of the DGAP's Report. The said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was considered by this Authority in its meeting held on 11.10.2019 and it was decided that the Applicants and the Respondent be asked to appear before this Authority on 07.11.2019. The Respondent was issued a notice on 16.10.2019 to explain why the above Report of the DGAP should not be accepted and his liability for violating the provisions of Section 171 of the CGST Act, 2017 should not be fixed. During the course of the hearings, no one appeared for the Applicants and the Respondent was represented by Sh. Harish Chawla, Tax Head, Sh. Gaurav Gulati and Sh. Manish Singh, Authorised Representatives. The Respondent has filed his written submissions dated 25.11.2019. The grounds raised by the Respondent vide his above submissions are mentioned below: i. That the benefit of reduction in the rate of tax has been passed on by him to the recipients by way of credit notes/rebates; that while the Respondent has generally passed on 9% of the net realization of the invoice amount as an additional rebate to QRS Retail Limited, as a whole, to comply with Section 171 of the CGST Act, 2017; that for the supplies made to QRS Ltd. vide invoice no. 6482541444, he has issued additional credit not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self calculated the price change both at the entity level and the product level by comparing the weighted average price Pre-GST across India and weighted average price Post-GST across India and had found that there was no profiteering made by him at the time when the GST was introduced. iv. That the methodology adopted to compute the alleged profiteered amount did not take into account various parameters such as distinct pricing for different customers; that healthcare and personal care products industry are very dynamic and market-driven and hence the pricing of products was also affected by the customer relationships and negotiation ability of the contracting parties and that there could be substantial differences in pricing of different customers at a given point of time for identical or similar products; that he was engaged as a reseller of healthcare and personal care products in the supply chain and the customer base of the Respondent was largely invariable; that considering the major pricing variations for different customers, the calculation of the quantum of profiteering should have been arrived at by comparing the weighted average state-wise price offered to each custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s; 3. Power to interpret provisions and statute; 4. The judicial power of the state; 5. A Chairman and Members; 6. The salary and conditions of employment have been fixed under the Statute; 7. Power to issue their own methodology and procedure. That given the aforesaid submissions, submitted that this Authority acted as a Tribunal to determine whether the benefit arising out of the reduction in the rate of tax on supply of goods or services or increased input tax credit has been passed on by the registered person to the recipient by way of commensurate reduction in prices and that consequently, the authority has the power to impose penalty as specified under the Act and cancel the registration. Any Authority or Tribunal in which the Government was always the party against whom the relief was sought for, the number of Technical Members would not be more than the Judicial Members in the Bench. Based on the principle laid down by various judgments of the Hon'ble Supreme Court and High Courts, this Authority being a tribunal, the proceedings before this Authority were judicial and therefore the presence of Judicial Member is a sin qua non. vi. That Section 171 (2) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. The concept of 'delegatus non-potest delegare' which essentially means that a delegate cannot further delegate unless expressly or impliedly authorized applied in the present case. The Respondent further submitted that such sub-delegation was impermissible unless authorized by the parent legislation. The Supreme Court has endorsed this maxim in the case of Barium Chemicals Ltd. & Ors. v Company Law Board & Ors. = 1966 (5) TMI 36 - SUPREME COURT. ix. That the DGAP has gone beyond his jurisdiction in exercising the right to further investigate the matter under rule 133 (4) of the CGST Rules, 2017; that prior to the present investigation; the DGAP had submitted an Investigation Report dated 26.09.2018 to this Authority under Rule 129 (6) of the CGST Rules, 2017. Vide the said report, the DGAP had concluded that the allegations made by the Applicant No. 1 could not be sustained as there was no tax rate reduction on the impugned goods at the time of introduction of GST and thus it was held that there was no contravention of Section 171 of the CGST Act, 2017. However, this Authority, vide its order dated 13.12.2018 referred the matter back to the DGAP's office for further inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CGST Act 2017 does not have any applicability In the present case: In this regard, the DGAP Referred to Section 15 (1) read with Section 15 (3) (a) of the Central Goods and Services Tax Act, 2017 mentioned in the report dated 14/20.08.2019. The DGAP further stated that the GST was chargeable on actual transaction value after excluding any discount and therefore, to establish profiteering, if any, Basic Price before the discount cannot be considered and the Basic Price after discount (excluding duties) should be the correct amount which was taken into consideration as per the provisions of Section 15 of the CGST Act, therefore, a reference to Section 15 of the CGST Act, 2017 has been correctly made. iii. Para-C: Methodology adopted to compute the profiteered amount by the Respondent is correct: Section 171(1) reads as "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." Thus the legal requirement was abundantly clear that in the event of a benefit of ITC or reduction in the rate of tax, there must be a commensurate reduction in prices of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiteered amount about some other supply. v. Para-I: The DGAP has gone beyond its jurisdiction in exercising its right to further investigate the matter under Rule 133 (4) of the Central Goods and Services Tax Act. 2017: That the Respondent's contention (that while undertaking the investigation the DGAP has travelled beyond the jurisdiction of Rule 133 (4) and that the investigation should have been limited to the supplies of the impugned goods made to the retailer M/s. QRS Limited only) was untenable and bereft of facts as in the initial investigation report dated 26.09.2018, a comparison was made between the applicability of tax on the product "Food Processor" (HSN Code 85094090) pre-GST and post-GST rate reduction w.e.f. 15.11.2017. The invoices issued to M/S. QRS Retail Limited were merely taken up for calculation of the base price of the impugned product. It did not imply that the investigation was limited to the supplies of the impugned product made to M/S QRS Retail. vi. Para-J: The Respondent has not profiteered and therefore, there is no contravention of Section 171 of the CGST Act 2017: The DGAP stated that vide his report dated 14/20.08.2019 profiteering amount wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made on the impugned product. iv. That no guidelines had been framed to compute benefit accrued on account of rate reduction or input tax credit in the CGST Act or the Rules. Therefore, in the absence of any prescribed methodology, this Authority should adopt a methodology that was reasonable and consistent with the objectives of the statutory provisions considering all business factors that derive the final price of the product. The second part of the provision under Section 171 of the CGST Act provides that benefit if accrued, was required to be passed on to the recipient. Therefore, considering major price variations among various customers, the calculation of the quantum of profiteering should have been arrived at by comparing the weighted average state-wise price offered to each customer pre-GST and post GST instead of the weighted average state-wise calculation pre-GST applied to each invoice post-GST as adopted by DGAP. The Respondent submitted that considering the pricing calculation for each customer separately, the alleged profiteered amount would be reduced to INR (from INR Hence, the reduced liability should be considered for this proceeding. 28. We have carefully co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Basic Price after discount (excluding duties) is the correct amount which should be taken into consideration, Therefore, reference made to Section 15 of the CGST Act, 2017 is correct and contention of the Respondent is not tenable. 31. The Respondent has also contended that there was no defined methodology in Section 171 of the CGST Act, 2017. In this connection, the Authority observed that the main contours of the 'Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and the benefit of ITC are enshrined 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 on any supply of goods or services" which does not mean that the reduction in the rate of tax is to be taken at the level of an entity/group/company for the entire supplies made by it. Therefore, the benefit of tax reduction has to be passed on at the level of each supply of Stock Keeping Unit (SKU) to ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 another project. Issuance of Occupancy Certificate/ Completion Certificate would also affect the amount of benefit of ITC as no such benefit would be available once the above certificates are issued. Therefore, no set parameters can be fixed for determining methodology to compute the benefit of additional ITC which would be required to be passed on to the buyers of such units. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33. The Respondent has also contended that the constitution of this Authority is unconstitutional as it does not have any Judicial Member and in doing so he has placed reliance on the judgment passed by the Hon'ble Supreme Court in the case of Union of India v. R. Gandhi President Madras Bar Association (2010) 11 SCC 1 = 2010 (5) TMI 393 - SUPREME COURT. The facts of this case are not relevant in the present case as in the above case, the Hon'ble Supreme Court was reviewing the Constitutional validity of Part I-B and I-C of the Companies Act, 1956 inserted by the Companies (2nd Amendment) Act, 2002 by virtue of which the National Company Law Tribunal (NCLT), which took over the functions of the Hon'ble High Courts, was established and in that sense, the Hon'ble Supreme Court had held that as the NCLT was to discharge the functions of a High Court, its members should as nearly as possible, have the same position and status as the Hon'ble High Court Judges enjoyed, by ensuring that the persons who were nearly equal in rank, experience or competence to the Hon'ble High Court Judges should be appointed as the members of the NCLT. In the present case, no such power of adjudication has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble High Courts has taken place under the CGST Act, 2017. Therefore, the sequitur of the above discussion is that this Authority has not replaced or substituted any function which the Courts were performing hitherto. Though it performs quasi-judicial functions, it cannot be equated with a judicial tribunal. Also, it performs its functions in a fair and reasonable manner in accordance with the Act but does not have the trappings of a Court and therefore, the absence of a Judicial Member does not render the constitution of this Authority unconstitutional or legally invalid. 35. Furthermore, this Authority has been established under Section 171 of the CGST Act, 2017 with the statutory mandate to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the prices of the goods or services or both supplied by him, which is a highly specialised fact-finding and technical work which requires intimate knowledge of the Central and the State Goods and Services Tax Acts, the Central Sales Tax Act, 1956, the State Value Added Tax Acts of all the States and Union Territories of the country, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplier cannot claim that he has passed on more benefits to one customer, therefore, he could pass less benefit to another customer than the benefit which is actually due to that customer. Each customer is entitled to receive the benefit of a tax reduction on each product purchased by him. The word "commensurate" mentioned in the above Section gives the extent of benefit to be passed on by way of reduction in the prices which has to be computed in respect of each product based on the tax reduction as well as the existing base price (price without GST) of the product. The computation of commensurate reduction in prices is purely a mathematical exercise which is based upon the above parameters and hence it would vary from product to product and hence no fixed mathematical methodology can be prescribed to determine the amount of benefit which a supplier is required to pass on to a recipient or the profiteered amount. However, to give further clarifications and to elaborate upon this legislative intent behind the law, this Authority has been empowered to determine/expand the Procedure and Methodology in detail in Rule 126, of the CGST Rules, 2017. Therefore, the contention of the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax on the product "Food Processor" (HSN Code 85094090) pre-GST and post-GST rate reduction w.e.f. 15.11.2017. The invoices, issued to M/S. QRS Retail Ltd were merely taken, as the basis for the calculation of the base price of the impugned product. It does not imply that the investigation was limited to the supplies of the impugned product made to M/S QRS Retail during the initial investigation. Further, it is observed from the investigation report of the DGAP that the Respondent has profiteered in respect of supplies made not only to M/S QRS Retail but also to other recipients. Therefore, the DGAP has investigated the matter as has been provided by the law, and hence, he has not travelled beyond his jurisdiction. 39. The Respondent has also contended that the Section 171 (2) of the CGST Act, 2017 and the Rules framed thereunder are unconstitutional as this Section and Rules are violative of Article 14 and 19 of the Constitution of India. In this regard, it has been duly provided in Section 171 (3) of the CGST Act, 2017 that the Authority shall exercise such powers and discharge such functions as may be prescribed. Accordingly, the Central Government in terms of Section 171 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted to deposit the amount of profiteering of Rs. 2,26,975/- in the Central Consumer Welfare Fund (CWF) and Rs. 2,26,974/- in the State CWFs as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017, as mentioned in the Annexures- 17 & 18, along with 18% interest. The above amount shall be deposited within a period of 3 months from the date of receipt of this order failing which the same shall be recovered by the Commissioners CGST/SGST of the concerned State/Zone as per the provisions of the CGST/SGST Act, 2017. 42. It is also evident from the above narration of facts that the Respondent has denied the benefit of reduction in the rate of tax to his buyers 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 appears to be liable for imposition of penalty under the provisions of the above Section. Accordingly, a Show Cause Notice be issued to him directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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