TMI Blog2020 (6) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... le, the Respondent is directed to deposit the amount of profiteering of ₹ 2,26,975/- in the Central Consumer Welfare Fund (CWF) and ₹ 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. Imposition of penalty - HELD 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 them. - Order No. 27/2020 - - - Dated:- 19-5-2020 - DR. B. N. SHARMA, CHAIRMAN, SH. J.C. CHAUHAN, TECHNICAL MEMBER, SH. AMAND SHAH, TECHNICAL MEMBER Present:- 1. Smt. A. Shainamol, Additional Commissioner, SGST, Kerala for the Appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of pre and post-GST tax rates was done taking the MRP as the selling price. In this case, as could be seen from the invoices evidence sent by the Applicant No. 1 that the pre-GST and post-GST MRP was the same, i.e. ₹ 5795/. The pre-GST post-GST MRP-wise details of the base price and the tax rate applicable to the said product supplied by the Respondent were furnished by the DGAP as is given in the Table below wherein DGAP observed that after implementation of GST w.e.f. 01.07.2017 the rate of tax had gone up from 26.24% to 28%. TABLE Particulars Pre-GST Post GST Invoice No. Date 6482538756 dated 09.05.2017 6482541444 dated 22.12.2017 to 14.11.2017 Invoice No. Date A 5,795 5,795 MRP B 12.50% Excise Duty Rate C 2,028.25 Abatement @ 35% of MRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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? 7. It is apparent from the perusal of the facts of the case that there was no reduction in the rate of tax on the above product w.e.f. 01.07.2017, as could be seen from the table given above. There is also no increase in the per-unit base price (excluding tax) of the above product and therefore the allegation of profiteering was not established. 8. Though the rate of tax has been reduced from 28% to 18% w.e.f. 14.11.2017 the Applicant No. 1 has failed to produce any invoice to establish that the benefit of tax reduction has not been passed on by the Respondent to the recipients hence DGAP has rightly observed that no supporting documents or invoices of the product Food Processor for the period post 15.11.2017 have been either examined or presented before the Standing Committee. Hence the allegation that the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f initiation was ₹ 5,795 instead of correct MRP of ₹ 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 to drop the proceedings. ii. That the impugned product was imported on MRP basis and Countervailing Duty (CVD) under Section 3 (1) of the Customs Tariff Act, 1975 @ 12.50% on 65% of MRP was applicable, however, Special Additional Duty (SAD) under Section 3 (5) of the Customs Tariff Act, 1975 was not levied and accordingly, Respondent had not made any reversal of VAT input credit on stock transfer of impugned product. He had not undertaken any interstate sales of the impugned product during the period April 2017 to June 2017. iii. That the anti-profiteering provisions were inherently designed to protect the consumers by restricting the companies to benefit unjustly on account of any reduction in tax. In the notice issued to him, it has been mentioned that the effective rate of output tax has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 6482541444 Invoice date 09.05.2017 22.12.2017 Quantity Sold 2 4 MRP A 4,795 4,795 Basic Price to the distributor before discount per 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 28% to 18%, vide Notification No. 18/201 a-Central Tax (Rate) dated 26.07.2018. 16. The DGAP also stated that the Respondent contended that the total tax incidence of tax on the impugned product had increased from 14.50% (pre-GST) to 28% (post-GST). However, on examining the documents submitted by the Respondent, it was observed by the DGAP that the impugned product was imported from outside India and has liable to Countervailing Duty @ 12.50% on the abated MRP apart from Value Added Tax (ranging between 12.50% to 15.95%). Therefore, the average tax incident in the pre-GST era was 29.80% (Approx) which was reduced to 28% on the implementation of GST. The State-wise details of pre-GST tax incidence were furnished in Annexure-17 of the DGAP s Report. Therefore, the contention of the Respondent that the total tax incidence on the impugned product has increased in the post-GST period was not correct. 17. The DGAP has also reported that the Respondent also contended that the total amount of tax component included in the entire chain has increased post-GST implementation and he had computed the tax component by the reverse calculation on MRP by ignoring actual transaction val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral) as an additional discount post GST. However, the Respondent submitted that he had passed on benefit amounting to 2.5% in the form of rebates and that the same was passed on to the recipients in the form of credit notes pertaining to Invoice No. 6482541444 dated 22.12.2017 (invoices referred in Table-b supra). However, the DGAP observed that the rebates offered by the Respondent were in the form of logistics rebates, service rebates, and rebates on operational income and not on account of reduction in the rate of tax. Therefore, it was established that the Respondent had not passed on any benefit of reduction in the rate of tax to their recipients in any manner. 20. The DGAP further stated that Section 15 (3) of the Central Goods and Services Tax Act, 2017 states The value of the supply shall not include any discount which is given- (a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and (b) after the supply has been effected, if- (i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 32,203 6 Goa 30 17 336 7 Gujarat 24 208 15,667 8 Haryana 6 2,198 30,124 9 Himachal Pradesh 2 11 1,034 10 Jharkhand 20 32 179 11 Karnataka 29 2,225 55,050 12 Kerala 32 523 40,293 13 Madhya Pradesh 23 104 5,624 14 Maharashtra 27 1,392 66,772 15 Meghalaya 17 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 note amounting to 2.5% of the net realization of the invoice amount; that he had passed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 customer pre-GST and Post GST instead of weighted average state-wise calculation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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) of the CGST Act, 2017, and the Rules framed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 investigation under Rule 133(4) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e adjusted against the profiteered 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lculations, it could be concluded that there was no profiteering 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to establish profiteering if any, Basic Price before discount cannot be considered and the 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 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of ITC availed, total saleable area, area sold and the taxable turnover realized 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er supply. Therefore, the contention of the Respondent is baseless and frivolous and liable to be set aside. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Association Supra are also not applicable to the facts of the present case as no substitution of the jurisdiction of the 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 Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o each recipient thereby clearly indicating that netting off of the benefit of tax reduction by any supplier is not allowed. A 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 deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re false and bereft of facts as in the initial investigation report dated 26.09.2018, 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collected by him from the recipients till the above amount is deposited. Since the recipients, in this case, are not identifiable, the Respondent is directed to deposit the amount of profiteering of ₹ 2,26,975/- in the Central Consumer Welfare Fund (CWF) and ₹ 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 directin ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
