9911796707
TMI Blog2020 (6) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... egard, the Applicant No- 1 had relied on two invoices issued by the Respondent, the details of which are furnished in the Table given below:- Table Particulars Pre-GST Post-GST Invoice No. A 1214654736 913210006167 Invoice Date B 11.09.2016 03.08.2017 Quantity Solid (No.) C 2 5 MRP as per Annexure-7 (Rs.) D 39,250 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 Invoice) (Rs.) N=G+J or G-L 32,880 33,888 Increase in Basic Price Diff. of I Rs. 948/-(3.71%) 2. The above complaint was examined by the Standing Committee on Anti-profiteering in its meeting held on 02.07.2018, wherein it was decided to refer the matter to the Director General of Anti-Profiteering (DGAP) to initiate detailed investigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors like availability driven by demand supply gaps, loading regulations and overall inflation etc.). (iii) Reduction in Sales Realization due to GST Impact of Rs. 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) Kerala Only VAT @ 14.5% Pre-GST Example All India VAT @ 13.82% Same DP Post GST Example All India GST @ 28% Same DP Change All India same DP MRP 39250 39250 39250 Dealer Price 37300 37300 37300 VAT/GST Rs. 14.50% 13.82% 28.00% VAT/GST Rs. 4724 4529 8159 Basic Price 32576 32771 29140 Less: Excise 3189 3189 Net Basic Price 29987 29582 29140 -441 The Respondent has claimed that it could be seen from the Table-B above that if the All India pre-GST Net Basic Price (Rs-29,582/-) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess: Increase in Material Cost 365 Less: Increase in Freight Cost 29 Net Impact on Margins (-) 152 (e) The Respondent has also compared the total discounts passed on to M/s. Pittappillil Agencies for the period July-December, 2016 and July December, 2017. The summary has been furnished in Table-'E' given below:- Table 'E' (Amount in Rs.) Jul-Dec 2016 Jul-Dec 2017 Change Sales Volume Sales Value Rs Lacs 8360 1137 8705 1117 345 -20 On Invoice Discount Rs. Lacs On Invoice Discount % 117 10.3% 109 9.8% -8 -0.5% Off Invoice Discount Rs. Lacs Off Invoice Discount % 92 8.0% 117 10.5% 25 2.4% 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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." He has also referred to Section 15 (3) (a) of the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction-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 7 3,914 7. Kerala 60 35,979 8. Madhya Pradesh 19 21,681 9. Maharashtra 48 55,380 10. Nagaland 7 15,131 11. Orissa 16 38,704 12. Puducherry 1 2,170 13. Punjab 9 15,495 14. Rajasthan 26 42,192 15. Tamil Nadu 10 42,192 16. Telangana 24 32,437 17. Tripura 3 5,310 18. Uttar Pradesh 62 57,498 19. Uttarakhand 1 735 20. West Bengal 38 65,374 Grand Total 451 5,06,921 13. The DGAP has also alleged that the basic price (excluding tax) of the impugned product was increased by the Respondent although there was a reduction in the rate of tax after the introduction of GST w.e.f. 01.07.2017 as was evident from the details furnished in Annex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39,250/- 37,375/- July 2017 40,100/- 38,175/- December 2017 onwards (Product discontinued) 42,550/- 38,675/- 16. The Respondent has also submitted that the contention of the DGAP that the rate of tax on the product was reduced from 31.5% to 28% w.e.f. 01.07,2017 was factually incorrect since the rate of tax had increased from 26.47% to 28% which has been explained by him through the Tables given below:- Increase in tax incidence between pre-GST and post-GST had MRP remained the same Particulars Pre-GST (in Rs.) Post-GST (in Rs.) MRP 39,250/- 39,250/- Excise Duty 3,189/- - Average VAT & CST on MRP (14.06%) GST (28%) 4,838/- 8,586/- VAT reversal 185/- - Entry Tax (Annexure 16) 45/- - Total taxes 8,257/- 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd basic price from October 2016, prior to introduction of GST was Rs. 37,375/- and Rs. 32,642/- respectively. Thus, there was an increase in the basic price to the extent of Rs. 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 Rs. 511/- (Rs. 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 Rs. 394/- between August 2016 and July 2017 and considering these factors. the change in realisation was Rs. 23/- (negative) per unit (Rs. 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 91321006167 Invoice Date B 11.09.2016 03.08.2017 Quantity Sold (No.) C 2 5 MRP as per Annexure-7 (Rs.) D 39,250/- 40,100/- BP before disco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the news report appearing in the Economics Times which stated that pre GST average indirect tax incidence in the consumer durables electronic industry was around 26.5%. 23. The Respondent has further stated that pricing decisions were being taken on the basis of MRP and the DP and this Authority on various occasions had consistently held that a seller gave discounts from his own profit margin and the discounts were not relevant for determining profiteering, The Respondent has also claimed that the VAT credit taken on inputs to the extent such inputs were used in the manufacture of the goods which were stock transferred by him on inter-state basis was reversed According to him this VAT reversal was tax cost and based on that he had computed the tax incidence. He has further claimed that the VAT reversal had no link with the price and it was not relevant for determining commensurate reduction in the price as VAT reversal did not form part of the invoice. He has also stated that the DGAP has failed to consider that reduction of VAT reversal from the basic price would entail double effect of the tax incidence. The DGAP has also not considered the CST sales from Assam and merged the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. State of Maharashtra [1975] 2 SCC 22 = 1975 (2) TMI 91 - SUPREME COURT; b. Collector of Central Excise v. Orient Fabrics Pvt Ltd. 2003 (6) SCR = 2003 (11) TMI 75 - SUPREME COURT 26. In response to the above submissions of the Respondent the DGAP vide his supplementary Reports dated 05.02.2019, 08.03.2019 and 10.04.2019 has stated that the VAT credit reversal was in lieu of the Central Sales Tax (CST) which was cost to the Respondent in the pre GST regime and hence, it was reduced from the pre GST basic price. He has further stated that the amount of Rs. 497/- as ITC VAT reversal was intimated by the Respondent himself and hence, it was reduced from the pre GST basic price. He has also claimed that the Respondent had not produced evidence to prove that the amount of VAT reversal was Rs. 185/-. The DGAP has further claimed that the rate of tax was 31 during the pre GST period which was reduced to 28% during the GST period and since there was reduction in the rate of tax its benefit was required to be passed on to the customers by the Respondent as per the provisions of Section 171 (1) of the above Act. He has also contended that the claim of the Respondent that the pre GST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditioning machine of heading 8415", vide S. No. 120 of Schedule-IV attached to Notification No. 01/2017-Centrai Tax (Rate) dated 28.06.2017, The impugned product "Refrigerator Whirlpool FP313D PROTTON ROY MIRROR" was covered by the aforesaid Notification. The DGAP after considering the revised details of the VAT reversal in lieu of the CST, Entry Tax and the CST sales in Assam and Gujrat has stated that the average tax incidence in pre-GST period was about 30% which got reduced to 28% on introduction of GST. However, the tax incidence on introduction of GST has marginally increased in Delhi from 27.86% to 28% and in Haryana, from to 28%. 30. The DGAP has further 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 CGST Act, 2017, came to Rs. 4,07,451/- including the GST after considering the details of outward supplies during the period from 01 07.2017 to 31.08.2018 furnished by the Respondent and the various submissions made before this Authority the said profiteered amount has been arrived at by comparing the State-wise average basic price (after dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 prevailing in consumer d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring;-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-å-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 as a whole. The Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 43,558/-), He has also enclosed the detailed calcul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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. That the calculation of profiteering was also incorrect for the reason that the pre-GST ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ison of BOM for the pre-GST period vis-å-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 Rs. 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 has submitted that he had commenced manufacture of the impugned product in 2014 and started selling the same in April 2014, The manufacturing of the impugned pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 profiteering, However, the position adopted by DGAP was not in consonance with the various orders passed by this Authority. Inflation as a factor has been accepted as a reason for price increase by this Authority in the case of Kumar Gandharv v. KRBL Ltd. 2018-VIL-02-AUTHORlTY = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY, In the case of M/s. Hardcastle Restaurants Pvt. Ltd. 2018-VIL-II- AUTHORITY = 2018 (11) TMI 1073 - NATIONAL ANTI-PROFITEERING AUTHORITY and in the case of M/s. NP Foods 2018-VlL-08- AUTHORITY = 2018 (10) TMI 1338 - NATIONAL ANTI-PROFITEERING AUTHORITY, loss of ITC has been factored-in for determination of net profiteering. Thus, the other factors which affected the 'price' have been held to be valid factors for deciding the price. 54. The Respondent has further claimed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 into account while calculating the alleged profiteering. 59. He has also stated that the correct methodology to compute profiteering, if at all, would be by comparing the tax incidence pre and post GST and applying the difference to the supplies post-GST (taxable value). The said working as suggested by him is given below:- No. Sate (A) Total Tax/duties incidence (in % - Pre-GST (Ref-Ann-19 to DG Report-Column X) (B) Total Tax/duties incidence (in % - Post-GST (C) Profiteering (%) (D=B-C) (Approx.) Taxable supplies post-GST State wise (E) Profiteering (Amount) (F=D*E) 1. Andhra Pradesh 30.39% 28.00% 2.39% 5,10,818 12,232 2. Assam 30.93% 28.00% 2.93% 1,26,545 3,710 3. Assam-CST Sale 15.70% 28.00% -12.30% 4. Bihar 29.24% 28.00% 1.24% 72,682 900 5. Chha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth." 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 marginal notes to Section 171 and in the heading of Chapter XV of CGST Rules. He has also stated that in order to understand the scope of Section 171, it was pertinent to understand the meaning of the term 'profiteering' which has been used in the marginal notes, 61. He has also contended that it was a settled principle of law that marginal notes were used as an internal aid of interpretation to address any ambiguity in the provision. In this regard, he has placed reliance on the case of Indian Aluminum Company v. Kerala State Electricity Board (1975) 2 SCC 414 Wherein the Hon'ble Supreme Court has held that the marginal notes could be relied upon to show what the section was deali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers 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 DGAP has ignored such measures (treating these as zero (0) for profiteering calculations). On the other hand, the DGAP has insisted that where the benefit to the customer was less than what was the required amount, regardless of other measures, the differential amount was to be treated as allegedly profiteered by the Respondent, This methodology of 'Zeroing' has been held to be incorrect as the Government of India had itself objected to this concept of 'zeroing-in' at the World Trade Organization (WTO). He has also submitted that while calculating the alleged profiteering amount, the DGAP has incorrectly applied a methodology similar to 'Zeroing' which was used by the anti-dumping authorities in certain countries including th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een 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 Rs. 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 than what was considered necessary by the DGAP) was considered for determining alleged profiteering (if any) on the basis of 'Pre-discount' base prices, the alleged profiteering would be reduced to Rs, 36,124/- as has been shown in Exhibit-17. 66. He has further submitted that if 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) was considered for determining alleged profiteering (if any) and where the effect of MRP price-increase was also excluded, the alleged profiteering would be Negative Rs. 75,368/- as per Exhibit-18. If the negative price variations (in respect of those invoices of product where the reduction in price h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 collected' mean here? Words cannot be construed effectively without reference to their context. The setting colours the sense Of the word- The spirit of the provision lends force to the construction that 'collected" means "collected and kept as his" by the trader, If the dealer merely gathered the sum by way of tax and kept it in suspense account because of dispute about taxability or was ready to return if eventually it was not taxable, it is not collected 'Collected., in an Australian Customs Tariff Act, was held by Griffith CJ., not to include money deposited under an agreement that if it was not legally payable it will' be returned' (Words & Phrases p- 274). We therefore, semanticise Collected' not to cover amounts gathered tentatively to be given back if fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 2018 issued on 19.07.2018 has only provided the procedure pertaining to investigation and hearing. However, no method/formula has been notified/prescribed pertaining to calculation of profiteering amount. 72. He has also submitted that Rule 127 of the CGST Rules, provided for the duties of this Authority whereby it could order reduction in prices, return to the recipient an amount equivalent to the amount not passed on as benefit, imposition of penalty and cancellation of registration under the CGST Act The duties of this Authority as enumerated in Rule 127 included determination whether benefits consequent to reduction in the rate of tax or allowance of ITC were being passed on to the recipients, identification of registered persons who have not passed on the benefits to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Allahabad High Court in the case of Samsung (India) Electronics Pvt. Ltd. v. Commissioner of Commercial Taxes U. P. Lucknow 2018 [11] G.S.T.L. 367 had observed that in the absence of any procedure or provision in the UP VAT Act, 2008 conferring such authority, in the case of a sale of composite packages bearing a singular MRP, the authorities under the Act could not possibly assess the components of such a composite package separately. He has also claimed that such an exercise, if undertaken, would also fall foul of the principles enunciated by the Hon'ble Supreme Court. 75. He has also submitted that this Authority was itself using different methodologies to ascertain 'profiteering' in the cases filed before it. in some cases, this Authority had restricted itself to the goods mentioned in the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in his Report dated 07.10.2019 was incorrect and on this basis alone the Report was liable to be rejected. 80. He has also stated that for the pre-GST period the tax rates (%), as prescribed under the relevant law for the time being in force, should be added together to arrive at the pre-GST tax rate applicable on the impugned product and the same should be compared with the tax rate prescribed under the GST law, in order to ascertain whether the Respondent was covered under the ambit of Section 171 of CGST Act, 2017. He has also submitted the details of pre and post GST rates of tax as under:- The computation of pre-GST rate of taxes (%) shall be computed as follows - Sl.No. State Pre-GST rate of Taxes (%) Central Excise Duty1 (A) State VAT2 (B) CST/VAT Reversal3 Entry Tax4 (D) Total Taxes (%) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.88% 15.00% 0.67% - 26.55% 5. Chhattisgarh 10.83% 14.50% 0.78% 1.00% 27.11% 6. Delhi 10.62% 12.50% 0.74% - 23.86% 7. Gujarat 10.88% 15.00% 0.75% - 26.63% 8. Gujarat-CST Sale 10.88% 2.00% 0.72% - 13.60% 9. Haryana 10.68% 13.13% 0.71% - 24.52% 10. Jammu and Kashmir 10.83% 14.50% 0.68% - 26.01% 11. Jharkhand 10.83% 14.50% 0.73% 26.06% 12. Karnataka 10.83% 14.50% 0.74% - 26.07% 13. Kerala 10.83% 14.50% 0.72% - 26.05% 14. Madhya Pradesh 10.88% 15.00% 0.75% 2.00% 28.63% 15. Maharashtra 10.72% 13.50% 0.00% - 24.22% 16. Orissa 10.83% 14.50% 0.77% 2.00% 28.10% 17. Rajasthan 10.88% 15.00% 0.76% - 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% 0.74% - 26.06% 25. Punjab 10.98% 15.95% 0.74% - 27.67% 26. Tripura - CST S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt) 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 07.01.2020 could not be made as the price on which these were calculated were different was also not sustainable as the said computations had not considered any given data to arrive at the pre-GST (%) and the percentage of rate was arrived at by adding all the pre-GST tax rates which were applicable on the impugned product. Therefore, he has claimed that the DGAP's observation was not relevant. He has also submitted that it was pertinent to note that even though the "All India Dealer price is same", the price at which the goods were sold to the dealers were different in the Pre-GST regime due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, 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 Rs. 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- investigate the case under Rule 133 (4) of the above Rules Vide its order dated 25,06.2019. Accordingly, the DGAP has furnished his fresh Report on 07, 10.2019 after re-investigation whereby he has computed the profiteered amount as Rs. 4,07,451/- as per the revised Annexure-20 87. It is further revealed from the record that the Central Government, on the recommendation of the GST Council, had levied 28% GST on the 'Refrigerators, freezers and other refrigerating or freezing equipment electric or other, heat pumps other than air conditioning machine of heading 8415", vide S. NO. 120 Of Schedule- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. There was no reason for the Respondent to increase his basic price exactly equal to the rate of tax reduction w.e.f. 01.07.2017. Such a coincidence is incomprehensible. wrong and unheard off which shows that the Respondent has deliberately tried to pocket the benefit of tax reduction to enrich himself at the expense of the vulnerable customers. Accordingly, on the basis of the pre and post reduction tax rates and the details of the outward taxable supplies of the impacted product made during the period from 01 07.2017 to 31.08.2018 the profiteered amount in respect of the Respondent has been rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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 which has to be computed in respect of each SKU or unit or service based on the price and the rate of tax reduction or the additional ITC which has become available to a registered person. The legislature has deliberately not used the word 'equal' or 'equivalent' in this Section and used the word 'Commensurate' as it had no intention that it should be used to denote proportionality and adequacy, The benefit of additional ITC would depend on the comparison of the ITC/CENVAT Which was available to a builder in the pre-GST period with the ITC available to him in the post GST period w.e.f. 01.07.2017. Similarly, the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove 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 common buyers who bear the burden of tax and who are unorganized, voiceless and vulnerable. The Respondent is trying to deliberately mislead by claiming that he was required to carry out highly complex and exhaustive mathematical computations for passing on the benefit of tax reduction which he could not do in the absence of the principles / guidelines/ procedure/ methodology/ modalities/ formula framed by this Authority or under the above Act and the Rules, However, his claim is absolutely wrong as he was only required to maintain the same basic price of his product which he was charging before the tax reduction wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiteered amount was incorrect insofar as the comparison between the average tax incidence (%) pre-GST vis-å- 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 would therefore, be different in each State due to difference in the rate of taxes and hence the due benefit cannot be passed on to the customers. Moreover, the benefit of tax reduction has to be passed on to each customer on each purchase which cannot be done if the benefit vs computed at the entity level as it would deny the required benefit. Therefore, the benefit has to be computed at the State level and not at the national level. 92. He has also contended that with the introduction of GST he had to revisit his pricing in the background of the revised rate Of tax and ITC availability. The above argument of the Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 order dated 02.012019 passed in Case No. 01/2019 in respect of Kerala State Screening Committee and another v. M/S Maruti Suzuki India Limited in which the rate of tax had been increased and hence the anti-profiteering provisions were not attracted in the above case. Accordingly, the orders passed in the above cases are of no help to the Respondent. As has been discussed above the basic price cannot be computed pre-discount and therefore, the profiteered amount cannot be considered as (-) Rs. 43,558/- as per Exhibit-4 attached by the Respondent with his submissions. 94. The Respondent has also submitted that even if the methodology ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in the post rate reduction period when it is a common trade practice that discount is ordinarily given on these E-commerce platforms. Therefore, the above claims of the Respondent cannot be accepted on his mere assertion. Accordingly, the profiteered amount in respect of the E-commerce customers to the tune of Rs. 36,357/- cannot be reduced as per the details given in Exhinit-6. 96. 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 base prices which could be substantiated from Annexure-19 (re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 17,030/- cannot be reduced from the profiteered amount as per Exhibit-8. 98. He has also contended that the cost of manufacture (BOM) of the impugned product had witnessed an increase since August 2016 due to increase in raw material cost which was computed every month to arrive at the 'MAP' at the end of each month, There was an increase of Rs. 365/. per unit of the impugned product when compared between the pre-GST and the post-GST periods from August 2016 to July 2017 which was included in the MRP of the product. The comparison of the BOM for the pre-GST period vis-å-vis the BOM when the MRP was increased under the GST regime has been given by the Respondent vide Exhibit-9 and the Cost Accountant's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Respondent to pass on the benefit of tax reduction to the buyers and does not require him to fix his prices as per the directions of any authority. The above benefit has been granted to the ordinary buyers by the Central and the State Governments by sacrificing their precious tax revenue which the Respondent cannot be allowed to misappropriate and enrich himself at the expense of the common buyers who are unorganized, voiceless and vulnerable. The Respondent is free to exercise his right to trade and fix his prices keeping in view his cost of goods. market conditions, competition and his business strategy but he cannot deny the above benefit under the pretext that it infringes his right to trade. Neither the DGAP nor t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 are permanent and enforceable perpetually till they are repealed by the Parliament and all the State legislatures. The DGAP is only an agency charged with the responsibility of investigating whether the benefits of tax reduction and ITC have been passed on or not and therefore, the claim of the Respondent that it is a profit checking body is wrong and untenable. 104. He has further submitted that the correct methodology to compute profiteering would be by comparing the tax incidence (%) pre and post GST and applying the difference to the supplies post-GST (taxable value). Accordingly. he has claimed that the profiteering should be Rs. 2,23,800/- as per Exhibit-i4. He has also furnished details of computation of the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 order by the Authority. Explanation:- For the purpose of this section, the expression "profiteered" shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services of both." (Emphasis supplied) 106. Therefore, it is evident from the perusal of Sub-Section 171 (1), 171 (3A) and the Explanation attached to this Section that profiteering pertains to the amount of benefit which has been denied to the recipients by a registered person by not reducing the prices of his products commensurately on which the rate of tax has been reduced. Hence, the definitions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etted 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 methodology of 'netting off' as it would amount to violation of the provisions of Section 171 of the above Act as well as Article 14 of the Constitution, Therefore, an amount of Rs. Rs. 36,124/- and negative profiteering of Rs. 75,378/- and 16,326/- cannot be reduced/considered from the alleged profiteering computation as per Exhibit-16, 17, 18 and 19. 109. The Respondent has also contended that while computing the profiteered amount the DGAP has incorrectly added 28% GST which has already been deposited with the Government. In this regard it is mentioned that the Respondent has not only collected excess basic price from his customers which they were not required to pay due to the reduction in the rate of tax but he has also compelled them to pay additional GST on the excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven. Therefore, the above claim of the Respondent cannot be accepted, Accordingly, the profiteering cannot be reduced by Rs. 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 and the 'Net Dollar Margin Rule' which provided the mechanism for determination of profiteering whereas no such provisions have been made under the CGST Act, It would be pertinent to mention here that the Government of Malaysia has already repealed the 'Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit) (Net Profit Margin) Regulations 2014 as they were not properly working and has also Withdrawn the GST. These provision were also regulating and controlling the prices in Malaysia. As far as the 'Net Dollar Margin Rule' framed by the Government of Australia is concerned the same also regulates the prices. The intention and objective of the provisions of Section 171 (1) of the above Act is only to pass on the above two benefits and they do not propose to control and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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 investigated the DGAP is being asked to investvgate them as per the provisions of Rule 133 (5) of the above Rules. The mandate of this Authority under Section 171 (2) of the Act is to examine all such cases where reduction in the rate of tax has been made or benefit of ITC has been provided irrespective of the fact whether any complaint is received or not and whether all the impacted goods are mentioned in the complaint or not. However, the profiteered amount has to be calculated on the facts of each case as has been mentioned supra. Therefore, the above contention of the Respondent is frivolous 114. The Respondent has also contended that Section 171 (1) of CGST Act, 2017 contemplated reduction in the "rate of tar and not reduction in the "incidence of tax' and thus, the methodology followed by the DGAP was incorrec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his 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 increasing his pre GST basic price and by charging GST @28%. Under the Legal Metrology Act, 2009 he is also responsible for fixing the MRP which he was required to re-fix after the rate of tax was reduced. However, instead of reducing the same he has increased his basic price as well as the MRP With an intention to deny the benefit of tax reduction. The Respondent cannot fasten his liability on his dealers. In case he does not pass on the benefit of tax reduction there is no possibility of its getting passed on to the ultimate customer down the supply chain. Therefore, the above contention of the Respondent is wrong and hence it cannot be accepted. Accordingly, the profiteering amount cannot be reduced to Rs. 1,50,122/- from Rs. 4,07,451/- 117. The Respondent has also stated that even though the "All India Dealer price i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60 25,964 6. Madhya Pradesh 23 19 17,586 7. Maharashtra 27 48 57,184 8. Nagaland 13 7 12,743 9. Odisha 21 16 33,927 10. Pondicherry 34 1 1,828 11. Punjab 3 9 12,425 12. Rajasthan 8 26 36,051 13. Tamil Nadu 33 10 4,973 14. Telangana 36 24 24,805 15. Tripura 16 3 4,287 16. Uttar Pradesh 9 62 43,586 17. Uttarakhand 5 1 394 18. West Bengal 19 38 52,774 Grand Total 407 4,07,451 120, Accordingly, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted the details of the tax reduction from 28% to 18% on his website. Vide Annexure-3 he has enclosed copies of the letters written by him to his distributors asking them to pass on the benefit of tax reduction. He has further claimed that revised MRP stickers to the extent of 72 lakhs were pasted on each SKU in 25 States within a limited period of time. However, it is has been established from the facts of the present case that the Respondent has not passed on the benefit of tax reduction and the claim made by the Respondent in this regard is incorrect. Therefore, there are sufficient reasons to believe that the Respondent has apparently not passed on the benefit of tax reduction on the products mentioned in Annexure-I, Accordingly, the DGAP under Rule 133 (5) Of the CGST Rules, 2017 is directed to further investigate whether the Respondent has passed on the benefit of tax reduction to his recipients in terms of Section 171 of the above Act or not in respect of the products on which the rate of tax was reduced and submit his Report as per the provisions of Rule 129 (6) of the above Rules. 124. As per the provisions of Rule 133 (1) of the CGST Rules, 2017 this order was to be pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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