TMI Blog2020 (6) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... pter XV of the CGST Rules, 2017 were required to be considered while interpreting the anti-profiteering measures is also not relevant as profiteered amount has been clearly, concisely and appropriately defined in the above Section. Marginal note was only required to be considered in case the above provision of anti-profiteering measures was ambiguous and not clear. Hence, the above contention of the Respondent is untenable. The Respondent is directed to reduce the price of the above product 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 of tax reduction is passed on to the recipients. The Respondent is also directed to deposit the profiteered amount mentioned above along with the interest to be calculated @ 18% from the date from which 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 Respondent is directed to deposit the above amount of profiteering along with interest in the CWFs of the Central and the concerned State Governments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 40,100 Basic price before discount per unit (Rs.) E 32,578 29,824 Discount per unit (Rs.) F 3,860 3,349 Basic price after discount per unit (Rs.) G=E-F 28,716 26,475 Less Excise Duty @ 12.5% (35% abatement on MRP)(Rs.) H=(D*65%)*12.5% 3,189 - Basic Price (excluding duties taxes) (Rs.) I=G-H 25,527 26,475 VAT @ 14.5% (Rs.) J=G*14.50% 4,164 - GST @ 28% (Rs.) K=G*28% - 7,413 Total Tax (Rs.) L=H+J or K 7,353 7,413 Total Tax (in%) M=L/I 28.80% 28% Selling Price (As per I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effective on 11.09.2016 (pre-GST) for the impugned product was ₹ 37,300/- per unit and on 03.08.2017 (post-GST), it was Rs, 38,175 per unit, The increase In DP of ₹ 875/- per unit in the two invoices was due to:- (i) Increase in Material Cost Impact of ₹ 365 per unit (on comparing effective Bill of Manufacture (BOM) cost as per the Systems Applications and Products (SAP) software). (ii) Increase in Freight Cost: Impact of ₹ 29 per unit (on account of various market factors like availability driven by demand supply gaps, loading regulations and overall inflation etc.). (iii) Reduction in Sales Realization due to GST Impact of ₹ 441 per unit. The Respondent has furnished comparison of the impact on the profit loss due to transition to GST on the impugned product i.e. Refrigerator FP313D PROTTON ROY MIRROR , considering the pre-GST figures as mentioned in the Notice and by working out the post-GST Basic Price treating the DP as constant (same as pre-GST), as per the details furnished in Table- B below:- Table- B (Amount in Rs.) Rs. Per Unit Pre GST Example {Inv 1214654136) K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54136) Kerala Only VAT @ 14.5% Column B Pre GST Example {Inv 1214654136) All India Kerala Only VAT @ 13.8% Column C Post GST Example {Inv 513210005167} All India GST 28% Discount As per actual Invoice Column D Post GST Example {Inv 513210005167} All India GST 28% Discount As per actual Invoice MRP 39250 39250 40100 40100 Dealer Price 37300 37300 38175 38175 VAT/GST % 14.50% 13.8% 28.00% 28.00% VAT/GST Rs. 4724 4529 8351 8351 Basic Price 32576 32771 29824 29824 Less: Excise 3189 3189 0 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Discount Rs. Lacs Total Discount % 208 18.3% 226 20.2% 18 1.9% Total Discount / Unit (Rs.) 2493 2599 105 The Respondent has also contended that as could be seen from the Table-E above, the actual discount passed on to the trade partner has actually increased by ₹ 105/- per unit over the period. (f) That the allegation made in the Notice that the benefit of reduction in the rate of tax has not been passed by commensurate reduction Of price was not correct as there was no reduction in the total tax incidence (in %) and infact the total tax incidence as % of Net Basic Price has gone up from 26.1% to 28.0% as has been shown in the Table- F below:- Table- F (Amount in Rs.) Rs. Per Unit Pre-GST Example All India VAT @ 13.82% Same DP Post GST Example All India GST @ 28% Same DP MRP 39250 39250 Dealer Price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abated MRP. In some States, Entry Tax (1% to 2%) was also levied on the impugned product. Therefore, the average tax incidence in pre-GST period was about 31.5% which had got reduced to 28% on the introduction of GST w.e.f. 01.07.2017. The State-wise details of pre-GST tax incidence have been furnished in Annexure-19 by the DGAP, Therefore, the DCAP has claimed that the contention of the Respondent that the total tax incidence on the impugned product has increased in the post-GST period was not correct. 8. The DGAP has also submitted that the Respondent has contended that there was gap in the discounts offered on two Invoices relied upon by the Applicant No, I and the mechanism of passing on the discounts depended on various market factors and therefore. for any comparison of the pre-GST and post-GST scenario. the discount value should be equated or in other words, the same discount amount should be considered for both the periods. In this regard the DGAP has referred to Section 15 (1) of the CGST 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Report dated 06.12.2018. The profiteered amount has been arrived at by comparing the State- wise average basic price (after discount) of the impugned product during the period from 01.042017 to 30.06.2017, with the transaction-wise basic price (after discount) during the period from 01 07.2017 to 31,08.2018. 12. The place of supply and the break-up of the total profiteered amount of Rs, has been furnished by the DGAP in Table-G below:- Table-G (Amount in Rs.) S. No. State / Union Territory (Place of Supply} No. of Units Sold Amount of Profiteering (Rs.) 1 Andhra Pradesh 20 32,089 2. Assam 5 8,662 3. Delhi 31 4,547 4. Gujarat 51 52,485 5. Haryana 13 12,141 6. Jammu and Kashmir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had decided to hear the Applicants and the Respondent on 03.01 ,2019 and accordingly notice dated 13.12.2018 was issued to them, The Respondent was also directed to explain why his liability for violating the provisions of Section 171 of the above Act should not be fixed. On behalf of the Applicant No. 1 none appeared, the DGAP was represented by Sh. Bhupender Goyal, Assistant Director (Cost) and the Respondent was represented by Mr. Yogesh Gaba (CA), Punit Bansal (CA), Yatin Malhotra, Chief Financial Officer and Suresh Kumar, General Manager-Indirect Taxation. On the request of the Respondent further hearings were held on 17.01,2019, 01 022019, 08.022019 and 02.05.2019. 15. The Respondent has filed detailed written submissions on 11.01.2019, 18.01.2019, 21.01.2019, 06.02.2019, 11,02.2019 and 05.04.2019 The Respondent in his submissions has stated that he was a public limited company incorporated under the Companies Act, 1956 with registered office at Pune, Maharashtra. He has also claimed that he was manufacturing and marketing electronic goods and all his products to various dealers across India were sold on a standard pricing model. He has further claimed that his price rema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7/- 8,586/- Total 30,993/- 30,664/- Total taxes (percent) 26.64 28 Increase in tax incidence between pre-GST post-GST based on actual MRP Particulars Pre-GST (in Rs.) Post-GST (in Rs.) MRP 39,250/- 40,100/- Excise Duty 3,189/- - Average VAT CST on MRP (14.06%) GST (28%) 4,838/- 8,772/- VAT reversal 185/- - Entry Tax 45/- - Total taxes 8,257/- 8,772/- Total 30,993/- 31,328/- Total taxes (percent) 26.64 28 17. The Respondent has also stated that the Authority vide it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c price from October 2016, prior to introduction of GST was ₹ 37,375/- and ₹ 32,642/- respectively. Thus, there was an increase in the basic price to the extent of ₹ 66/- prior to the introduction of GST. The Respondent has also alleged that the DGAP has failed to appreciate the fact that reduction in the discount did not amount to profiteering and such reduction in discount to the tune of ₹ 511/- (₹ 3,860 - Rs, 3,349) in the two invoices (as shown in the Table-A above) considered by the DGAP was due to increase in the cost of the product to the tune of ₹ 394/- between August 2016 and July 2017 and considering these factors. the change in realisation was ₹ 23/- (negative) per unit (₹ 971- Rs- 948) against the allegation of profiteering. The Respondent has also argued that if the discounted price was taken in to account the pre GST rate of tax would be 26.92% and the post GST rate would be 28% as has been explained in the Table given below:- Particulars Pre-GST Post-GST Invoice No. A 1214654736 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income (Net of taxes) 2016 5,907 5,616 2017 7,175 5,336 % (Income/Sales) 2016 6.2% 6.1% 2017 6.0% 5.4% Reduction in profits 0.2% 0.7% 21. The Respondent has also averred that the ITC of Maharashtra factory was ₹ 682/- which included the in-eligible credit of 185/-, The balance of Rs- 497/- which was the eligible ITC has been wrongly deducted from the pre-GST basic price as VAT credit reversal has no relation with the basic price at which the Respondent was selling his products. Therefore, the basic price mentioned in Annexure-19 of the DGAP s Report should be considered after excluding VAT credit reversal amount He has also submitted that inadvertently in his earlier communication to the DGAP he has pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as Annexure-1. The revised prices were displayed on his website, making consumers aware about the reduction in prices (Annexure-2). Letters were sent to the trade partners advising them to ensure that the reduction in prices was passed on to the consumers (Annexure-3). Revised MRP stickers to the extent of 72 lakhs were pasted on each SKU in 25 States within a limited period of time, which was widely publicised through Economic Times dated 27.07.2018 (Annexure-4), 25. The Respondent has further stated that Section 171 of the CGST Act, 2017 was inapplicable on reduction of tax incidence due to change in the tax regime, He has also claimed that the penalty could not be imposed in the absence of substantive provision in the CGST Act because as per Rule 133 of the CGST Rules, 2017, penalty could be imposed if it was specified in the CGST Act, He has further claimed that Section 122 of the CGST Act, 2017 could be invoked on y in the case of evasion of tax and violation of Section 171 did not amount to evasion of tax as he has duly paid the entire tax which was legally required to be deposited with the Government, He has further stated that Section 122 (1) (i) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent had vehemently contested the issues of reversal of ITC and the incidence of tax during the pre and the post GST regimes, which were required to be resolved before liability of the Respondent could be fixed for violation of the provisions of Section 171 of the CGST Act, 2017:- 1) Whether the credit reversals was ₹ 497/- or 185/-? 2) If ₹ 185/- were to be taken as ITC reversal would there be reduction in the rate of tax after the introduction of GST? 3) If yes to re-determine the profiteered amount after taking Into account all the submissions made by the Respondent during the hearings before this Authority 28. The DGAP has accordingly submitted his Report under Rule 133 (4) of the CGST Rules. 2017 which was received on 07.10.2019 in which he has stated that the Respondent has made various submissions before this Authority which were divergent to those made before his office during the investigation. He has also stated that after considering the workings submitted by the Respondent before this Authority, vide Annexure-15 at Page 123 of the Respondent s submissions dated 11.01.2019, it was observed that the ITC of VAT available to the Respondent w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. of Units Sold Amount of Profiteering (Rs.) 1 Andhra Pradesh 37 20 26,955 2. Assam 18 5 7,297 3. Gujarat 24 51 41,633 4. Jammu and Kashmir 1 7 3,039 5. Kerala 32 60 25,964 6. Madhya Pradesh 23 19 17,586 7. Maharashtra 27 48 57,184 8. Nagaland 13 7 12,743 9. Orissa 21 16 33,927 10. Pondicherry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown by the DGAP in his Report dated 06.12.2018 has reduced and accordingly, the DGAP has re-determined the profiteered amount. He has also stated that while calculating the profiteering amount in the impugned Report, the DGAP has not considered the other submissions made by the Respondent before this Authority in the earlier proceedings even though the DGAP was specifically directed by this Authority to consider the same, He has further stated that the following submissions made by the Respondent have not been considered by the DGAP due to which the present Report needed to be rejected:- a) Negative profiteering supplies have been ignored. b) The amount of realization under GST regime has changed due to reduction in discounts. c) Various other factors which impacted the cost of impugned product including change in direct bill Of material cost and change in other variable costs like freight, warranty, installation. d) The overall profitability of the Respondent has reduced post introduction of GST- e) Basic Price considered for the purpose of profiteering needs to be considered Pre-discount . f) There is an overall increase in prices prevailin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incidence (%) pre-GST vis- -vis the average tax incidence (%) post-GST on a State level in his impugned Report, Pursuant to such analysis the DGAP has prepared the list of the States in respect of which the tax incidence (%) has increased under the GST regime as compared to the incidence of tax which was prevalent under the erstwhile indirect tax regime. In case the incidence of tax has increased the DGAP has excluded such State from the computation of the profiteered amount e.g. the DGAP has concluded that the tax incidence with the introduction of GST has marginally increased in Delhi from 27.86% to 28% and in Haryana from to 28% thus, the DGAP has excluded the States of Delhi and Haryana for computation of the alleged profiteering amount. 37. The Respondent has further claimed that the methodology adopted by the DGAP for calculating the profiteered amount was incorrect Insofar as the comparison between the average tax incidence (%) pre-GST vis- -vis the average tax incidence (96) post-GST was concerned as it should be computed on an overall basis (Entity Level) and not at the State level as the decision to ascertain product pricing was taken considering the Indian market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly for ascertaining whether the Respondent had undertaken profiteering in terms of Section 171 of CGST Act was totally incorrect. In this regard, he has placed reliance on this Authority s decision given on 27.12.2018 in the case of Asian Paints Limited = 2019 (1) TMI 21 - NATIONAL ANTI-PROFITEERING AUTHORITY , wherein it was held that the impact of discount should be excluded from profiteering calculation as the same was offered by the taxpayer from his profit margin, Similar view was taken by this Authority in its order dated 18.07.2018 passed in the case of Rishi Gupta v. Flipkart Internet Private Limited = 2018 (7) TMI 1490 - NATIONAL ANTI-PROFITEERING AUTHORITY and 02.01.2019 in the case of Maruti Suzuki India Limited = 2019 (1) TMI 139 - NATIONAL ANTI-PROFITEERING AUTHORITY . Thus, it was settled legal position that discount was not a relevant factor for determining profiteering. Therefore, basic price should be considered after including discount, 41. He has further submitted that after considering the basic price pre-discount and if the calculation was made on an overall basis, the alleged profiteering, if any would come to the negative figure ( Minus & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide as per the details given in Exhibit-6. 44. The Respondent has also stated that in respect of the States of (a) Goa (b) Nagaland (c) Puducherry (d) Punjab (e) Tripura and (f) Uttarakhand the DGAP has wrongly computed profiteering in the absence of comparable pre-GST basic price which could be substantiated from Annexure-19 ( revised ) of the DGAP Report dated 07.10.2019, wherein column (C) to (H) against rows (29) to (34) were intentionally left blank, In the absence of such comparable pre-GST basic prices, the DGAP has arbitrarily adopted pre-GST basic prices of other States for computing profiteering, For instance - the pre-GST base price for Goa was the same as that of Maharashtra The pre-GST base price for Nagaland was same as that of Assam . He has further stated that in such a case. the approach adopted by the DGAP was incorrect on the following two counts:- 1. That without ascertaining the incidence of taxes pre-GST (%) and without comparing the same with the incidence of taxes post-GST (%), the DGAP has assumed that the Respondent has undertaken profiteering in the said States and has, thereafter computed profiteering which was grossly incorrect. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per unit of the impugned product when compared between the pre-GST and the post-GST periods. In this regard, he has enclosed the comparison of BOM for the pre-GST period vis- -vis the BOM when the MRP was increased under the GST regime vide Exhibit-9 and the Cost Accountant s certificate vide Exhibit-IO certifying such increase. 2) Increase in haulage cost: The Respondent has also submitted that he was receiving transportation services for making supply of the impugned product to the dealers, He was determining the average per product freight cost which was then loaded into the pricing of each product. The average freight cost for the Respondent in the year 2017 had witnessed an increase as compared to the year 2016 on account of various market factors like availability (driven by demand supply gaps), loading regulations and overall inflation etc. Resultantly. the per unit freight cost has witnessed an increase of ₹ 29/- per unit as was evident in Exhibit-11- 48. To substantiate his above submission the Respondent has reproduced below the details regarding pricing of the impugned product during its entire life cycle. The Respondent h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. 51. He has also stated that if the basic price, as submitted above, was taken as pre-discount and the effect of price increase (MRP and DP) was also excluded from the computation of profiteering made by DGAP vide Annexure-20 of his Report dated 07.10.2010, the alleged profiteering would be ₹ 70,653/- as per Exhibit-13. 52. The Respondent has further stated that his business has witnessed increase in the costs during the relevant period which has not been considered by the DGAP- In this regard, the Respondent has submitted that the costs of raw material, packing material, advertisements and transportation costs etc. were increasing during the relevant period and hence, the Respondent was within his right to increase the price of the product to pass on the cost increase to the customers. He has further submitted that such costs were very relevant for determination of price of the product supplied by the Respondent. Such cost increases compelled a business to revise its prices and hence, were inextricably linked to the pricing decisions. 53. He has also claimed that the DGAP has ignored the cost increases as being irrelevant for the purpose of determination of prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions contained in the CGST Act which by their very essence were transitionary in nature and therefore, could not be applied in perpetuity. The DGAP with such an act has become a Profit Checking body Thus, the manner in which the provisions pertaining to anti-profiteering were being applied by the DGAP by arbitrarily selecting the period of investigation and alleging profiteering have the effect of restricting the right of the Respondent to do business, a cherished fundamental right guaranteed by the Constitution of India. 58. The Respondent has further submitted that the period of investigation should be confined to a maximum of three months, as in such volatile market conditions the cost of doing business changed in around every 3 months- Accordingly, the requirement of revision of price on the basis of cost arose in every 3 months. He has reiterated that a supplier was considering various factors like direct and indirect costs, demand and supply, customer perception, competition, product positioning, legal compliances and profit, etc, while determining the price of his goods. If the period of investigation was beyond 3 months/ the effect of increased costs should be taken i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28.02% 28.00% 0.92% 1,84,442 1,703 11. Jharkhand 29.94% 28.00% 1.94% - - 12. Karnataka 30.20% 28.00% 2.20% 72.980 1,602 13. Kerala 29.81% 28.00% 1.81% 15,11,848 27,333 14. Madhya Pradesh 30.91% 28.00% 2.91% 4,66,935 13.605 15. Maharashtra 28.59% 28.00% 0.59% 11,84,349 6,964 16. Orissa 30.77% 28.00% 2.77% 4,07,883 11,282 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 171 of the CGST Act vide Finance (No. 2) Act, 2019, which provided for the definition of the expression profiteered used in the said Section in terms of non-passing of benefit of GST rate reduction to the recipient by way of commensurate reduction in the prices of goods or services or both. The said explanation is reproduced below.- Explanation - For the purposes of this section, the expression profiteered Shan mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both. He has submitted that perusal of the above explanation did not throw any light vis-a-vis the scope of profiteering as it merely reproduced the language of the Section. In any case, the interpretation given to Section 171 and rules made thereunder by the DGAP without considering the marginal notes appended to Section 171 and heading of Chapter XV of CGST Rules, was untenable, He has also mentioned that the text of Section 171 did not use the term profiteering and it has been mentioned in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30.06.2017, with the transaction-wise basic price (after discount) during the period from 01.07 2017 to 31.08.2018 for all the States (except Delhi and Haryana where tax Incidence has increased after introduction of GST). The said computation was made on the assumption that the tax incidence has decreased in certain States on introduction of however despite the decrease, the Respondent has increased the DP and MRP of his product, In this regard, he has stated that profiteering, if any, has to be computed, considering the cases/ invoices qua the supply of impugned product, where the Respondent has passed on the benefit more than the commensurate GST rate reduction as well- He has also claimed that in such cases, the customers have received more benefit than they were eligible for, However, while calculating the alleged profiteering on the product as a whole, the DGAP has ignored such cases where excess benefit was passed on by the Respondent. 64. The Respondent has also alleged that the DGAP has selectively applied the anti-profiteering provisions in the present case. In the cases where the Respondent has passed on benefit to the customer in excess of the required amount, the DGA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not netting off of the positive dumping margins and negative dumping margins was not correct Thus, the Government of India had succeeded before the WTO Appellate Body which ensured that the positive and negative dumping margins must be taken together and therefore lower dumping margin were allowed for the Indian exporters. The European Commission had accepted the above decision and revised dumping margins not only for bed linen cases but also for all other cases against India. On the basis of the above decision the Respondent has argued that a different approach could not be adopted by the DGAP in his case. Accordingly. the negative price variations (in respect of those invoices of product, where the reduction in price has been more than what was considered necessary by DGAP) should also be considered for determining alleged profiteering (if any.) Accordingly, the value Of excess benefit passed on by this measure which aggregated to ₹ 2,50,832/- should be reduced from the alleged profiteering computation as per Exhibit-16. 65. He has also submitted that if the negative price variations (in respect Of those invoices of product, where the reduction in price has been more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen instead of him, the Government could transfer the amount equivalent to the GST on the profiteered amount to the CWF. 68. He has also submitted that the term Profiteering always had reference to a registered person. It implied that the profiteered amount was retained by the registered person. Therefore, with respect to the alleged excess GST paid by the recipient but not retained by the Respondent and promptly paid to the Government as tax (on which there is no dispute), the Respondent could not be alleged to have profiteered, He has further submitted that addition of 28% would have been correct if the case of DGAP had been that the amount has been collected and retained by the Respondent and not deposited with the Government. In this regard, he has placed reliance on the case of R.S. Joshi Sales Tax Officer Gujarat v. Ajit Mills Limited (1977) 4 SCC 98 wherein the Honible Supreme Court has analysed what the term collected meant in the context of the sales tax legislation of Gujarat. The Hon ble Court had observed as under.- 34, Section 37 (f) uses the expressions, in relation to forfeiture any sum collected by the person ....shall be forfeited What does collect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culation of profiteering. In the absence of the same, the calculation and methodology used in the Report was arbitrary and was in violation of the principles of natural justice He has further argued that the Central Government vide Notification No. 10/2017-CentraI Tax dated 28.06.2017 (amending Notification No. 3/2017-CentraI Tax) has notified anti-profiteering rules which provided for constitution of this Authority. Standing Committee and Steering committees, power to determine the methodology and procedure, duties of this Authority, examination of application, order of this Authority, compliance by the registered person etc. As per Rule 126, this Authority has the power to determine the methodology and procedure for determination as to whether the reduction in the rate of tax on the supply of goods or services or the benefit of ITC has been passed on by the registered person to the recipient by way of commensurate reduction in prices. However, as on date, the CGST Rules have not prescribed any procedure/ methodology/ formula/ modalities for determining/ calculating profiteering . He has also added that this Authority under the Goods and Service Tax Methodology and Procedures, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd costs to fall by $1, then prices should fall by at least $1, At the same time if the cost of the business rose by $1 under the new tax scheme, then prices might rise by not more than $1. These regulations have been set as barometers for calculating profiteering. He has also argued that no such procedure for calculation of profiteering has been provided under the CGST Act and the CGST Rules- Absence of the same violated the principle of natural justice and thus, the present investigation was liable to be set aside. 74. In this regard, he has placed reliance on the case of Eternit Everest Ltd. v, Union of India 1997 (89) E.L.T. 28 (Mad), where the Hon ble Madras High Court has held that in the absence of machinery provisions pertaining to determination and adjudication upon a claim or objection, the statutory provision would not be applicable. In the case of Commissioner of Income Tax Bangalore v, B. C. Srinivasa Setty (1981) 2 SCC 460 , the Hon ble Supreme Court has held that charging section was not attracted where corresponding computation provision was inapplicable He has further argued that relying on the case of B. C. Srinivas Shetty supra , the Hon ble Allahaba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teering provisions must benefit each and every consumer and the transactions where basic price was not increased were excluded from the computation of the profiteering amount. 78. In respect of incorrect computation Of profiteering done by the DGAP, he has stated that this submission of the Respondent was wrong and in the case of Invoice No. 912810002141 dated 14.08.2017, 2 units were sold out of which, one was returned on 07.11.2017 and therefore, profiteering was computed in respect Of one unit only. Similarly in the case of Invoice No, 911910005579 dated 24.08.2017, 4 units were sold out of which. one was returned on 26.08.2017 and therefore, profiteering was calculated in respect of three units. 79. The Respondent has made further submissions on 07.01.2020 and stated that the DGAP has ascertained the fact of alleged profiteering undertaken by him. at the State level, by comparing the average tax incidence in percentage (%) pre-GST vis-a-vis the rate of tax under the GST. In this regard, he has submitted that Section 171 (1) of CGST Act, 2017 contemplated reduction in the rate of tax and not reduction in the incidence of tax . Thus, the methodology followed by the DGAP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Haryana 12.50% 13.13% 0.71% - 26.334% 10. Jammu and Kashmir 12.50% 14.50% 0.68% - 27.730% 11. Jharkhand 12.50% 14.50% 0.73% 27.742% 12. Karnataka 12.50% 14.50% 0.74% - 27.723% 13. Kerala 12.50% 14.50% 0.72% - 30.249% 14. Madhya Pradesh 12.50% 15.00% 0.75% 2.00% 26.000% 15. Maharashtra 12.50% 13.50% 0.00% - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inally more than 28% only in 9 States. On application of Section 170 of the CGST Act (Rounding off provision}, this number would be reduced to only 5 States. He has also submitted the details of the tax rates during the pre GST period as per the Table given below:- Alternatively rate of tax in %, on a State level can be computed in the following manner - Sl.No. State Pre-GST rate of Taxes (%) Central Excise Duty on Depot Price (A) State VAT (B) CST/VAT Reversal (C) Entry Tax (D) Total Taxes (%) (A+B+C+D) 1. Andhra Pradesh 10.83% 14.50% 0.75% - 26.08% 2. Assam 10.88% 15.00% 0.75% - 26.69% 3. Assam-CST Sale 11.07% 2.00% 0.73% - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 26.64% 18. Tamil Nadu 10.83% 14.50% 0.74% - 26.06% 19. Telangana 10.83% 14.50% 0.77% - 26.10%, 20. Uttar Pradesh 10.83% 14.50% 0.72% - 26.05% 21. West Bengal 10.83% 14.50% 0.80% 1.00% 27.13% 22. Goa 10.62% 12.50% 0.77% - 23.88% 23. Nagaland - CST sale from Assam 10.83% 2.00% 0.73% - 13.55% 24. Puducherry 10.83% 14.50% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was calculated on the MRP after giving abatement, hence submission of the Respondent could not be accepted 84. The DGAP has also stated that the Respondent vide his letter dated 16.10.2018 (Annex-II of his Report dated 06.12.2018) had submitted that the All India Dealer price is same , therefore, according to the price list of the impugned good, it could be observed that the DP was same, hence, he has correctly taken State wise average basic price (after discount) for the period from 01.04 2017 to 30.06.2017 and compared it with the transaction wise basic price (after discount) during the period from 01.07.2017 to 31.08.2018. 85. The Respondent vide his submissions dated 06.02.2020 has stated that as explained in his submissions dated 07.01.2020, Section 171 of CGST Act only contemplated profiteering, when there was reduction in the rate of tax end not on reduction in the incidence of taxi Thus, DGAP s method of computing reduction in incidence of tax , which was derived from the given data, was incorrect. He has also stated that as regards the DGAP s contention that the computations made by the Respondent vide Table-I (Ground-A) of his submissions dated 07.01.202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring on the supply of Refrigerator Whirlpool FP313D PROTTON ROY MIRROR (HSN code 84182100) that he had not passed on the benefit of reduction in the rate of tax w.e.f. 01-07.2017, by way Of commensurate reduction in the price of the above product as per the provisions of Section 171 of the CGST Act, 2017. In this regard, the Applicant No. 1 had cited the two invoices issued by the Respondent, the details of which have been mentioned in Table-A mentioned supra The Standing Committee had referred the above complaint to the DGAP for detailed investigation as per Rule 129 (1) Of the above Rules, The DGAP after investigation had reported on 06.12.2018 under Rule 129 (6) Of the above Rules that the Respondent had not passed on the benefit of tax reduction w.e.f. 01.07.2017 to 31.08.2018 and had thus violated the provisions Of Section 171 (1) of the above Act. Accordingly, the DGAP had computed the profiteered amount as ₹ 5,06,921/ vide Annexure-20 of his Report dated 06.12,2018. The Respondent had raised a number of objections against the above Report of the DGAP and this Authority after taking in to account the issues raised by the Respondent had directed the DGAP to re- investi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period or vice versa and (iii) the average base price computed for a period of 3 months 01.04.2017 to provides highly representative and justifiable comparable average basic price. However, the average pre rate reduction basic price was required to be compared with the actual post rate reduction basic price as the benefit is required to be passed on each SKU to each customer. In case average to average basic price is compared for both the periods, the customers who have purchased the product on the basic price which was less than the average basic price but which was more than the commensurate basic price, would not get the benefit of tax reduction. Such a comparison would be against the provisions of Section 171 as well as Article 14 of the Constitution which require that each customer has to be passed on the benefit tax reduction on each purchase made by him. From the invoices and the details of the outward supplies made available by the Respondent it has been found that the Respondent has increased the basic price of his product when the rate of GST was reduced to 28% w.e.f. 01.07.2017, therefore the commensurate benefit of GST rate reduction was not passed on to the recipients ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uantum of denial of these benefit or the profiteered amount has to be computed for which investigation has to be conducted in respect of all such SKUs/units/services by the DGAP, What would be the profiteered amount has been clearly mentioned in Sub-Section 171 (3A) and the explanation attached to Section 171. These benefits can also not be passed on at the entity/organisation/branch/invoice/product/business vertical level as they have to be passed on to each and every buyer at each SKU/unit/service level by treating them equally. The above provision also mentions any supply which connotes each taxable supply made to each recipient thereby making it evident that a supplier cannot claim that he has passed on more benefit to one customer on a particular product therefore he would pass less benefit or no benefit to another customer than what is actually due to that customer, on another product. Each customer is entitled to receive the benefit of tax reduction or ITC on each SKU or unit or service purchased by him subject to his eligibility. The term commensurate mentioned in the above Sub-Section provides the extent of benefit to be passed on by way of reduction in the price whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y guidelines/principles/modalities/formula can be framed for determining the benefit of additional ITC which has to be passed on to the buyers of the units, Moreover. this Authority under Rule 126 has been empowered to determine Methodology Procedure and not to prescribe it, Similarly, the facts of the cases relating to the sectors of Fast Moving Consumer Goods (FMCG), restaurant service, construction service and cinema service are completely different from each other and therefore, the mathematical methodology adopted in the case of one sector cannot be applied in the other sector. Moreover, both the above benefits have been given by the Central as well as the State Governments as a special concession out of 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 therefore, they are bound to pass on the above benefits as per the provisions of Section 171 (1) which are abundantly clear, unambiguous, mandatory and legally enforceable, The true intent behind the above provisions, made by the Central and the State legislatures in their respective GST Acts is to pass on the above benefits to the commo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate provisions in the above Section. If the above claim of the Respondent is accepted then no supplier would pass on the benefits of rate reduction and ITC on the ground that his costs have increased on account of the above factors as has also been claimed by the Respondent hence the very aim of the above provision will stand defeated. The cost factors are independent of the reduction in the rate of tax and they have no bearing on passing on of the above benefit. Therefore, the above contention of the Respondent is untenable. 91. The Respondent has also stated that the methodology adopted by the DGAP for calculating the profiteered amount was incorrect insofar as the comparison between the average tax incidence (%) pre-GST vis- - vis the average tax incidence (%) post-GST was concerned as it should be computed on an overall basis (Entity Level) and not at the State level as pricing was done at the national level. The above claim of the Respondent is wrong as the rates of VAT, Entry Tax as well as the Central Excise Duty before coming in to force of the GST were different in all the States and hence the basic prices would also be different in each State, The amount of benefit wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that he was offering different discounts to his dealers based on various commercial considerations and hence there is no uniform rate of discount and hence, the pre discount basic price cannot be considered for computing the average basic price pre GST. There is also no provision in the CGST Act or the Rules which states that the benefit of tax reduction can be passed on by way of discounts as it can be passed on only by commensurate reduction in the prices. Therefore the above claim of the Respondent cannot be accepted. In this regard he has cited the order dated 27.12.2018 passed in case No. 29/2018 by this Authority in the case of Kerala State Screening Committee and another v. M/s. Asian Paints Limited Perusal of the above case shows that there was insignificant increase of 0.24% in the basic price which was not material in attracting the anti-profiteering measures. The Respondent has also cited the order dated 16,07.2018 passed in Case No. 5/2018 in respect of Rishi Gupta v. M/s. Flipkart Internet Private Limited in which the Respondent was found not to be supplier of the complained product and hence he was not liable under Section 171. He has also relied upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulating the average basic price for each State as the VAT register contains details of all the supplies made by the Respondent including the E-commerce customers. It is also apparent from the perusal of Annexure-20 (Revised) that there were only 23 supplies made by the Respondent to the E-commerce customer viz. M/s. Flipkatt India Private Limited in the States of Gujarat, Haryana, Karnataka, Tamilnadu, Telangana, Uttar Pradesh and West Bengal out of which profiteering amounting to ₹ 36,357/- has been computed in respect of 9 supplies only pertaining to the States of Telangana and West Bengal after comparing the pre rate reduction average base prices computed for the above States with the supply wise basic prices post rate reduction. Since both the basic prices have been computed after the discount it has no impact on the profiteered amount in case discount was not given during the post rate reduction period to the E-commerce customers. The Respondent has not furnished any proof to establish that the pre rate reduction basic price did not included the supplies made to the E-commerce customers. There is also no evidence to prove that no discount was given to the above customers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x in respect of State of Punjab was 29.189%, In view of the above it is clear that the DGAP has computed the profiteered amount correctly as the pre rate reduction rate of tax applicable in the above States was higher which was reduced to 28% w.e.f. 01.07.2017 and hence the above claims of the Respondent are not correct. Accordingly, the profiteering computed by the DGAP in respect of the above States to the tune of ₹ 31,677/- cannot be reduced from the profiteered amount as per the details given in Exhibit-7. 97. He has also claimed that he did not have any depot in the States of Nagaland and Tripura and all the supplies made to the above States were CST sales thus, the DGAP has wrongly assumed profiteering. However, as mentioned above the profiteered amount has been computed by the DGAP on the basis of the prices charged by the Respondent pre and post GST in the above States, The rates of tax during the pre GST period have been admitted to be 29.98% for both the above States by the Respondent himself vide his submissions dated 25.11.2019 which were more than the post GST rate of 28% and thus, profiteering computed by DGAP to the tune of ₹ 17,030/- cannot be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the profiteered amount as per Exhibit-12 and 13, 100. The Respondent has also argued that inflation has been accepted as a reason for price increase by this Authority in the case of Kumar Gandharv v. KRBL Ltd. 2018-VlL-02-AUTHORlTY and in the cases of M/s. Hardcastle Restaurants Pvt. Ltd. 2018-VIL-11-AUTHORITY and M/s. NP Foods 2018-VlL-08-AUTHORlTY loss of input tax credit has been factored-in for determination of net profiteering. In this regard it would be pertinent to mention that in the case of Kumar Gandharv supra there was no reduction in the rate of tax hence, the provisions of Section 171 (1) were not attracted in the above case. in the cases of Hardcastle and NP Foods the benefit of ITC had been denied which is not the issue in the present case, Therefore, the above cases are of no assistance to the Respondent. 101. The Respondent has further argued that the price increase could not be made due to other commercial factors had the effect of placing unlawful restraint on his fundamental right and was therefore violative of Article 19 (1) (g) of the Constitution of India. In this connection it would be relevant to state that Section 171 (1) only requires the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till 31.08.2019 as there was no evidence till that date that the Respondent has passed on the benefit of tax reduction and a date was required to be fixed for conducting investigation. It would be further relevant to mention here that keeping in view that a registered person may not reduce the prices commensurately at any time this Authority has been given power under Rule 133 (3) (a) Of the above Rules to direct such a registered person to reduce his prices. In case there is no ground for the DGAP to investigate the Respondent over a period of 14 months there is also no ground for the Respondent to claim that the investigation should be restricted to 3 months. Hence, the above contention of the Respondent is frivolous and therefore, it cannot be accepted. 103. The Respondent has also submitted that such a long investigation was contrary to the intent of the anti-profiteering provisions which were transitionary in nature and therefore, the DGAP could not become a Profit Checking body. In this connection it is mentioned that the Respondent is labouring under the wrong impression that the anti-profiteering measures as transitory which is not the case as provisions of Section 171 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017 as under:- (1) Any reduction in rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in prices. (2). The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, 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 price of the goods or services or both supplied by him. (3) The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed. (3A) Where the Authority referred to in sub-section (2) after holding examination as required under the said sub-section comes to the conclusion that any registered person has profiteered under sub-section (1), such person shall be liable to pay penalty equivalent to ten per cent. of the amount so profiteered: PROVIDED that no penalty shall be leviable if the profiteered amount is deposited within thirty days of the date of passing of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on certain SKUs will be subtracted from the amount of benefit passed on Other SKUs and the resultant amount shall be determined as the profiteered amount If this methodology is applied the Respondent would be entitled to subtract the amount of benefit which he has not passed on one SKU or to one buyer from the amount of benefit which he has claimed to have passed on the other SKU or to other buyer, which will result in complete denial of benefit to the customer who has purchased a particular product on Which no benefit or less benefit has been passed on, Hence, the methodology of netting off cannot be applied in the case of FMCGs and the methodology of Zeroing has to be applied as the customers have to be considered as individual beneficiaries and they cannot be netted off against each other. This Authority has also clarified in its various orders that the benefit cannot be computed at the product, invoice, service, branch or the entity level as the benefit has to be passed on each SKU and service to each buyer as per the provisions of Section 171 (1). Hence, the above contention of the Respondent is not correct as the Respondent cannot insist of not applying the above methodol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jit Mills Limited (1977) 4 SCC 98 in his support, however, in view of the fact that the GST collected by the above Respondent amounts to denial of benefit of tax reduction to the customers the above case cannot be relied upon. 110. The Respondent has also submitted that he has not been given the benefit of credit notes which he had issued due to the retuned sales and hence the calculation of profiteered amount by the DGAP was incorrect, However, perusal of para F of the Report dated 06.12.2019 furnished by the DGAP shows that he has duly considered all the sale returns and accordingly computed the profiteered amount, He has specifically made mention of Invoices No. 912810002141 dated 14,08.2017 and 911910005579 dated 24.08.2017 in respect of which credit of retuned units has been duly given. Therefore, the above claim of the Respondent cannot be accepted, Accordingly, the profiteering cannot be reduced by ₹ 7,619/- as per Exhibit-21. 111. The Respondent has further submitted that the Malaysian and the Australian Governments have introduced the Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit) (Net Profit Margin) Regulations 2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefits. Under Rule 136 this Authority can get its orders monitored through the tax authorities of the Central and the State Governments. Therefore, there is more than sufficient machinery available to implement the anti-profiteering measures and therefore, the above cases are of no help to the Respondent. 113. He has also claimed that this Authority was itself using different methodologies to ascertain profiteering as in some cases it has restricted itself to the goods mentioned in the application while in some other cases it has considered business as a whole. In this regard it is mentioned that this Authority is following consistent policy of determining profiteering in case both the above benefits have not been passed on. In respect of the cases of tax reduction all the goods on which the rate of tax has been reduced are being investigated and if the benefit has not been passed on the same the profiteered amount is being determined and the concerned registered person is being directed to pass on the same. In case during the course of the proceedings it comes to the notice of this Authority that all the goods which have been impacted by tax reduction have not been investigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the pre GST rates of taxes as there were different rates of VAT in the States, The amount of VAT charged in each State would be different as it would be based on the sale price which would be further different for various customers as the Respondent was giving different discounts. Similarly, the Central Excise Duty would also be different as it would be levied on the basis of the MRP after giving abatement. Therefore, the DGAP has rightly calculated the average State wise basic price keeping in view the above factors, Hence, the above claim of the Respondent in not tenable 116. He has also reiterated that the comparison should be between the average commensurate price at the dealer s level during the pre-GST period vis-a-vis the transaction-wise actual price during the GST period at the dealer s level, In this connection it is mentioned that the Respondent being manufacturer of the product is liable to fix the basic price and the MRP. It is also on record that he is fixing the basic price and the MRP and is also determining the amount of discount which he is giving to his dealers. Therefore, the Respondent is liable for passing on the benefit of tax reduction by not increasin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Excise v. Orient Fabrics Pvt. Ltd. 2003 (6) SCR in his support Since, the notice to impose penalty has been withdrawn the above cases are not being relied upon. 119. Therefore, on the basis of the facts narrated above the profiteered amount is determined as ₹ 4,07,451,/- including the GST as per the provisions of Rule 133 (1) of the CGST Rules, 2017, the details which have been mentioned in Annexure-20 (Revised) of the Report dated 07.10.2019 submitted by the DGAP The State wise profiteered amount has been mentioned in Table-A of the above Report as under:- Table-A S.No. State/Union Territory (Place of Supply) State Code No. of Units Sold Amount of Profiteering (Rs.) 1. Andhra Pradesh 37 20 26,955 2. Assam 18 5 7,297 3. Gujarat 24 51 41,633 4. Jammu and Kashmir 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong 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 as per the details mentioned in Table-A mentioned above 121. The above amount shall further be deposited within a period of 3 months by the Respondent, from the date of receipt of this order, failing which the same shall be recovered by the concerned Commissioners of the Central and the State GST, as per the provisions of the CGST/SGST Acts, 2017 under the supervision of the DGAP and shall be deposited as has been directed vide this order. A detailed Report shall also be filed by the concerned Commissioners of the Central and the State GST through the DGAP indicating the action taken by them within a period of 4 months from the date of this order. 122. It is also evident from the above 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 he has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST ..... X X X X Extracts X X X X X X X X Extracts X X X X
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