TMI Blog2020 (7) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... alized by the Respondent from his recipients till the date of its deposit. The above amount of ₹ 7,53,854/- shall be deposited, as specified above, within a period of 3 months from the date of passing of this order failing which it shall be recovered by the concerned CGST/SGST Commissioner. Penalty - HELD THAT:- The Respondent has denied the benefit of tax reduction to the customers 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 Act, 2017 and therefore, he is liable to penal action under the provisions of the above Section - Accordingly, a notice be issued to him directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him. - Case No. 41/2020 - - - Dated:- 16-7-2020 - DR. B. N. SHARMA, CHAIRMAN, SH. J. C. CHAUHAN, TECHNICAL MEMBER, SH. AMAND SHAH, TECHNICAL MEMBER. Present:- 1. None for the Applicant. 2. Sh. Vishal Khandelwal and Sh. Amit Kumar, Authorized Representatives for the Respondent. ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of various items like vegetables etc. b) That as per Notification No. 46/2017- Central Tax (rate) dated 14.11.2017, no ITC was available and hence he had increased the base prices of his products after the change in the GST rate from 18% with ITC to 5% without ITC. c) That as per ITC working during the period from July 2017 to 14.11.2017, ITC amounting ₹ 2,89,196/- was available which came to approximately 8.80%. Hence, the base prices had been increased to neutralize the denial of ITC. d) That since 15.11.2017, he had opted the 5% Composition Scheme with no benefit of setting off input credit on the purchases. Accordingly, the benefit of pricing on his popular items has been passed on by him to the extent which could cover the loss from the withdrawal of setting off of ITC received before 15.11.2017. 4. Vide the aforementioned e-mails/letters, the Respondent has also submitted the following documents/information:- (a) Copy of GSTIN Registration. (b) Copies of GSTR-1 and GSTR-3B Returns for the period from July 2017 to June 2019. (c) Copy of GSTR-9 Returns for the financial year 2017-2018. (d) Sales details for the period from August 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefits to the recipients/consumers. 8. The DGAP has also submitted that the assessment of the impact of denial of ITC, which was an uncontested fact, required determination of the ITC in respect of restaurant service , as a percentage of the taxable turnover from the outward supply of products , during the pre-rate reduction period. For instance, if the ITC in respect of restaurant service was 10% of the taxable turnover of a registered person till 14.11.2017 (which became unavailable to him w.e.f. 15.11.2017) and if the increase in the base prices w.e.f. 15.11.2017 was less than 10%, then this would not be a case of profiteering. However, if the increase in the base prices w.e.f. 15.11.2017, was by a margin of 14%, the extent of profiteering would be 14% - 10% = 4% of the turnover. Therefore, this exercise to work out the ITC in respect of restaurant service as a percentage of the taxable turnover from the products supplied during the pre-GST rate reduction period had to be carried out, though by taking into consideration the period from 01.07.2017 to 31.10.2017 and not up to 14.11.2017. The DGAP has claimed to have done this because there was no reversal of ITC on the closin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of reduction in the rate of tax from 18% to 5% had not been passed on by the Respondent to his customers/recipients. The DGAP has also found that there was no profiteering in respect of the remaining items on which there was either no increase in base prices or the increase in the base prices was less or equal to the denial of ITC or these were new products launched post rate reduction. Further, the Respondent vide submissions dated 11.12.2019 had stated that those products having none or zero value were provided to the customers as free of cost and that no charge had been taken on those items. 11. The DGAP has also stated that after establishing the fact of profiteering, the next step was to quantify the same and only those items, where the increase in the base prices was more than what was required to offset the impact of denial of ITC, were considered and the calculation of the profiteered amount was carried out following the above principle. The DGAP has illustrated by an example, as per invoice No. 1/A-24358 dated 22.11.2017, in the case of item 6 Veggie Delite Sub , the extent of profiteering as per the procedure mentioned in Table-B below:- Table-B (Amount in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued to the Respondent asking him to explain why the Report dated 31.12.2019 furnished by the DGAP should not be accepted and his liability for violating the provisions of Section 171 of the above Act should not be fixed. Sh. Vishal Khandelwal and Sh. Amit Kumar, Authorized Representatives, represented the Respondent while none appeared on behalf of the Applicant. 15. The Respondent vide his written submissions dated 13.02.2020 has made the following submissions:- a. Profiteering should be calculated up to the price revision after post GST rate reduction considering that after Gst rate reduction any change of price due to the business reasons only:- That the DGAP has calculated the profiteered amount of ₹ 7,53,854/- starting from 15.11.2017 till June, 2019 for 20 months and failed to appreciate that the GST rate had been reduced in the month of November 2017. The DGAP has considered all the price revisions made after 15.11.2017 as part of the profiteered amount and has completely ignored that the Respondent has right to increase his prices on account of various reasons other than tax which were also required to be considered for fixing the product prices. b. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... May 18 22,813.73 1,095,853.55 2.08% Mar 19 73,800.89 1,141,225.14 6.47% June 18 23,368.35 1,180,227.17 1.98% Apr 19 79,816.33 1,154,848.52 6.91% July 18 27,716.87 1,117,425.06 2.48% May 19 74,381.46 1,126,637.44 6.60% Aug 18 27,090.32 1,114,046.35 2.43% Jun 19 69,988.34 1,131,809.89 6.18% Total 264,353.06 9,760,166.85 489,501.35 11,391,814.62 c. That Right to trade was a fundamental right guaranteed under Article 19 (1) (g) of the Constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 to 14.11.2017. Instead of taking a uniform period for all the products in the pre-GST rate reduction period, the DGAP has taken different periods for different products without providing any reasonable or justifiable explanation and has ignored the fact that price had been revised before change in the rate. Therefore, for calculating the profiteered amount list price as on 15.11.2017 should be considered instead of calculating average price based on the sales in the month of August 2017. The Respondent has submitted the summary of the base prices of the SOTD products as under:- Summary of Incorrect Base Price taken for SOTD Products-7 Products (In Rs.) SL Item Name Base Price (DGAP) Month of Base Price taken by DGAP Correct Base Price applicable on 14 th Nov 2017 Sum of Total Profiteering (DGAP Working) A Sum of Revised Profiteering after correct Base Price-B Difference (A-B) 1. SOTD 6 in Aloo Patty 105 Aug 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.11.2017 (B) Impact (A-B)% Basic Price - Sample for illustration 100 112.38 Add: - GST @18%-before 14 th Nov 18 5.63 Add: - GST@5% Post 14 th Nov Total Invoice Value 118 118 Royalty Expenses @8% on Net Sale 8 8.99 Add: - GST@12% on Royalty charged by Subway India 0.96 1.079 Advertisement Expenses@4.5% on Net Sale 4.5 5.06 Add: - GST@18% on Advertisement charged by Subway India 0.81 0.91 Total Invoice Value including GST 14.27 16.039 1.769% g. That the DGAP while calculating the profiteering amount, has consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apr 18 24,306.29 12,595.46 11,710.83 May 18 22,813.73 11,659.36 11,154.37 Jun 18 23,368.35 11,866.26 11,502.09 Jul 18 27,716.87 13,993.46 13,723.40 Aug 18 27,050.87 13,586.28 13,464.59 Sept 18 24,757.34 12,576.24 12,181.10 Oct 18 28,523.73 14,471.98 14,051.74 Nov 18 26,071.64 13,211.15 12,860.49 Dec 18 30,602.91 16,442.72 14,160.19 Jan 19 31,367.62 16,549.95 14,817.67 Feb 19 50,127.19 38,762.58 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in Base price of the products post GST rate should be considered : - That the DGAP has incorrectly applied a methodology similar to the zeroing methodology which was used by the anti-dumping authorities in certain countries like European Union (EU). The Government of India had taken a stand against such methodology at the World Trade Organization (WTO) and argued that while determining the dumping margins, all Stock Keeping Units (SKUs) should be taken in to consideration rather than only those which showed positive dumping. In the Report WT/DS141/AB/R dated 01.03.2001 of the Appellate Body of the WTO regarding Anti- Dumping Duties on Imports of Cotton-Type Bed Linen from India in which Indian exporters faced an anti-dumping action by the EU as the exporters were exporting different varieties of Bed Linen to the EU, the Government of India had objected to this approach of the European Commission and the matter was taken to the Dispute Settlement Body of the WTO which held in favour of Government of India. In the appeal filed by the EU before the Appellate Body, the Appellate Body held that the practice of not netting off positive dumping margins and negative dumping margins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,829.82 13,870.21 Mar 18 0.00 (13,551.68) 13,551.68 Jan 19 0.00 -8,524.70 8,524.70 22,076.38 Apr-18 0.00 (16,991.57) 16,991.57 Feb 19 0.00 -22,670.77 22,670.77 39,662.35 May 18 0.00 (25,335.33) 25,335.33 Mar 19 0.00 -6,903.91 6,903.91 32,239.23 June 18 0.00 (28,744.75) 28,744.75 Apr 19 0.00 -5,962.37 5,962.37 34,707.12 July 18 0.00 (15,429.97) 15,429.97 May 19 0.00 -5,709.48 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the total sales. Therefore, there was no profit due to change in the rate reduction of GST. If the calculation period was considered upto March 2018, the profiteered amount would be reduced from ₹ 7,53,854/- to ₹ 1,39,044/-. n. That the Respondent was not holding inventory for more than one week due to perishable nature of the items. One of his main raw materials was vegetables and prices of these kept changing on day to day basis. Various factors like competition pricing, wastages, slow and fast moving items, long term strategies for market penetration, profit margin for sustaining in the market, life cycle of the product, economic and social conditions, cost of the products and capital expenditure, inflation in man power cost, general year on year inflation etc. played an important role at the time of fixing the price of the products. o. That various petitions were pending in the High Courts in which the petitioners had raised important issue regarding constitutional validity of the anti-profiteering provisions along with computation method/procedures adopted by this Authority for calculating profiteering amount. These included WP (C) 378 of 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers as both were the concessions given by the Government and the suppliers were not entitled to appropriate them. Such benefits must go to the consumers and in case they were not identifiable, the amount so collected by the suppliers was required to be deposited in the Consumer Welfare Fund (CWF). The DGAP s investigation has not examined the cost component included in the base price. It has only added the denial of ITC to the pre rate reduction base price. Hence, Section 171 of the CGST Act, 2017 was neither controlling the prices nor was violative of Article 19 (1) (g) of the Constitution of India. b. Para 2:- That the contention made by the Respondent was not correct as he had not submitted any documentary evidence to substantiate his claim with regard to price of SOTD having been fixed at ₹ 110/- till 14.11.2017. Further, to arrive at the base price of the products before rate reduction, sales during the period from 01.11.2017 to 14.11.2017 had been considered. If sale of any particular product/item was not found during this period then, in that case, the sales of that particular product/item during previous months i.e. from August 2017 to October 2017 had been c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( GST) on the increased base prices was an amount paid by the customers/recipients which they were not supposed to pay. If any supplier has charged more tax from the recipients, the aforesaid statutory provisions would require that such amount be refunded to the eligible recipients or alternatively deposited in the CWF, regardless of whether such extra tax collected from the recipient has been deposited in the Government account or not. Besides, any extra tax returned to the recipients by the supplier by issuing credit notes could be declared in the Returns filed by such supplier and his tax liability would stand adjusted to that extent in terms of Section 34 of the CGST Act, 2017. Therefore, the option was always open to the Respondent to return the tax amount to the recipients by issuing credit notes and adjusting his tax liability for the subsequent period to that extent. f. Para 6:- That the contention of the Respondent that impact on the profiteered amount due to reduction in the base prices of the products post GST rate reduction should be considered, was incorrect. Section 171 of the CGST Act, 2017 which governed the anti-profiteering provisions under GST, required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he has submitted the pre and post GST rate reduction product wise Price Lists. Further, this fact could also be verified from the sales register in which subject product has been sold at ₹ 110/- under SOTD Scheme. b. That he did not agree with the reply of the DGAP made in Para 4 of his clarifications as during the investigation he did not know about the method and procedures of DGAP for calculating profiteering amount. The Respondent had submitted all the information/details which had been asked by the DGAP. The DGAP had never asked such kind of information s/details from the Respondent. After submitting all the required information/details to the DGAP, the Respondent had received the DGAP s Report through this Authority and came to know about the methodology and procedures to compute the profiteering amount. Therefore, in his first written submission to this Authority on 13.02.2020, he had highlighted the same with all requisite details and documentary evidence for kind consideration. 18. We have carefully considered the all the Reports furnished by the DGAP, the submissions made by the Respondent and the other material placed on record. On examining the various su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply of the products made during the pre-GST rate reduction period by taking into consideration the period from 01.07.2017 to 31.10.2017 and not up to 14.11.2017. This has been done because there was no reversal of ITC on the closing stock of inputs/input services and capital goods as on 14.11.2017 made by the Respondent as per the provisions of Section 17 of the CGST Act, 2017 read with Rule 42 and 43 of the above Rules. Accordingly, the ratio of ITC to the net taxable turnover has been taken for determining the impact of denial of ITC which was available to the Respondent till 31.10.2017. As per the record ITC amounting to ₹ 2,48,994/- was available to the Respondent during the period from July, 2017 to October, 2017 which was approximately 8.72% of the net taxable turnover of the restaurant service amounting to ₹ 28,54,334/- supplied during the same period. With effect from 15.11.2017, when the GST rate on restaurant service was reduced from 18% to 5%, the said ITC was not available to the Respondent. 22. It is further revealed from the analysis of the details of item-wise outward taxable supplies made during the period from 15.11.2017 to 31.06.2019 that the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed a particular product during the pre rate reduction period and may not have purchased it in the post rate reduction period or vice versa and (iv) the average base prices computed for a period of 14 days w.e.f. 01.11.2017 to 14.11.2017 or for the previous months provide highly representative and justifiable comparable average base prices. On the basis of the average pre rate reduction base price the commensurate base price has been computed by adding denial of ITC of 8.72% and compared with the invoice wise actual base price of the product as has been illustrated in Table-B supra. However, the average pre rate reduction base price was required to be compared with the actual post rate reduction base price as the benefit is required to be passed on each product to each customer. In case average to average base price is compared for both the periods, the customers who have purchased a particular product on the base price which is more than the commensurate base 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 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control was a violation of Article 19 (1) (g). In this connection it would be relevant to mention that the Respondent has full right to fix his prices under Article 19 (1) (g) of the Constitution but he has no right to appropriate the benefit of tax reduction under the garb of the above right. The DGAP has not acted in any way as a price controlling authority as he does not have the mandate to do so. Under Section 171 read with Rule 129 of the above Rules the DGAP has only been mandated to investigate whether both the benefits of tax reduction and ITC which are the sacrifices of precious tax revenue made from the kitty of the Central and the State Governments have been passed on to the end consumers who bear the burden of the tax or not. The intent of this provision is the welfare of the consumers who are voiceless, unorganized and vulnerable. The DGAP has nowhere interfered with the pricing decisions of the Respondent and therefore, there is no violation of Article 19 (1) (g) of the Constitution. 27. The Respondent has further argued that the base price of 7 SOTD items which were sold by him was ₹ 110/- per item till 14.11.2017 but the base price has been incorrectly map ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be accepted. 29. The Respondent has also relied upon the decision of this Authority given in the case of Kumar Gandhrav v. M/s KRBL Limited (Case Number 03/2018 dated 04.05.2018) = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY to support his case. In this context, it is pertinent to mention that in the above case no benefit of increase in the cost was given. Instead, the rate of tax had been increased from 0% to 5% on the impugned product and hence the provisions of Section 171 (1) were not applicable as there was no tax reduction. Therefore, the facts of the above case are different from this case and hence, they cannot help the Respondent. 30. The Respondent has also averred that during the period of investigation he has paid ₹ 17,16,774/- as delivery fee to the Online E-commerce platforms through which he was selling his products which has not been taken in to account by the DGAP while computing the base prices. In this respect it would be appropriate to state that the payment of delivery fee including the GST has no connection with the base prices as the Respondent has admitted increase in his sales due to use of the E-commerce platforms which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profiteered amount by the DGAP and therefore, the contention of the Respondent is untenable and hence it cannot be accepted. 32. The Respondent has further averred that the DGAP while calculating the profiteered amount has incorrectly applied a methodology similar to the zeroing methodology . In this regard, we observe that no netting off can be applied in the cases of profiteering, as the benefit has to be passed on to each customer on each product. Netting off, as demanded by the Respondent, would imply that the amount of benefit not passed on certain supplies (to certain customers/ recipients) would be subtracted from the amount of any excess (more than commensurate) benefit passed on other products and the resultant amount would be determined as the profiteered amount. If this flawed methodology is applied the Respondent would be entitled to subtract the amount of benefit which he has not passed on from the amount of excess benefit which he has claimed to have passed on which would result in complete denial of benefit to the customers who were entitled to receive it. It has to be kept in mind that every recipient/ customer is entitled to the benefit of the tax rate redu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction in prices only and therefore, the Respondent cannot claim to pass on the benefit through the promotional schemes. Such schemes have been offered by the Respondent to increase his sales in the normal course of his business which do not constitute passing on of the benefit. The Respondent cannot pass on the benefit as per his own convenience as he is legally bound to pass on the above benefit through commensurate price reduction only. Hence, the above contention of the Respondent is untenable and therefore, the total amount of ₹ 2,34,510/- claimed to have been passed on as benefit of tax reduction through various sale promotion schemes cannot be reduced from the profiteered amount. 35. The Respondent has also contended that he was selling few MRP based products and the GST applicable on some of these products was 28% plus 12% Cess. After the rate reduction, he was not able to avail the ITC on such items. Therefore, the MRP based products where tax incidence has been increased due to the denial of ITC needed to be removed from the profiteered amount. In this regard, we find no ground to deviate from the submissions of the DGAP that the MRP was the maximum price at w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofiteered amount could be calculated. The above contention of the Respondent is frivolous as the Procedure and Methodology for passing on the benefits of reduction in the rate of tax and ITC or computation of the profiteered amount has been outlined in Section 171 (1) of the CGST Act, 2017 itself which provides that Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. It is clear from the plain reading of the above provision that it mentions reduction in the rate of tax or benefit of ITC which means that if any reduction in the rate of tax is ordered by the Central or the State Governments or a registered supplier avails benefit of additional ITC the same have to be passed on by him to his recipients since both the above benefits are being given by the above Governments out of their tax revenue. It also provides that the above benefits are to be passed on any supply i.e. on each Stock Keeping Unit (SKU) of each product or unit of construction or service to every buyer and in case they are not passed on, the quantum of denial of these benefit or the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, to further explain the legislative intent behind the above provision, this Authority has been authorised to determine the Procedure and Methodology which has been done by it vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017. However, no fixed mathematical formula, in respect of all the Sectors or the SKUs or the services, can be set for passing on the above benefits or for computation of the profiteered amount, as the facts of each case are different. In the case of one real estate project, date of start and completion of the project, price of the flat/shop, mode of payment of price or instalments, stage of completion of the project, rates of taxes pre and post GST implementation, amount of CENVAT and ITC availed/available, total saleable area, area sold and the taxable turnover received before and after the GST implementation would always be different from the other project and hence the amount of benefit of additional ITC to be passed on in respect of one project would not be similar to the other project. Therefore, no set procedure or mathematical methodology can be framed for determining the benefit of additional ITC which has to be pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the law that no procedure or elaborate mathematical calculations are required to be prescribed separately for passing on the benefit of tax reduction. The Respondent cannot deny the benefit of tax reduction to his customers on the above ground and enrich himself at the expense of his buyers as Section 171 provides clear cut methodology and procedure to compute the benefit of tax reduction and the profiteered amount. Therefore, the above plea of the Respondent is wrong and hence, it cannot be accepted. 38. The Respondent has also claimed that the pricing of products depended on several commercial factors which were required to be taken in to account while computing the profiteered amount. In this connection, it would be pertinent to mention that the provisions of Section 171 (1) and (2) of the above Act require the Respondent to pass on the benefit of tax reduction to the consumers only and have no mandate to look into fixing of prices of the products which the Respondent is free to fix. However, it cannot be accepted that his costs had increased on the intervening night of 14.11.2017/15.11.2017 when the rate reduction had happened which had forced him to increase his price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent from the above narration of facts that the Respondent has denied the benefit of tax reduction to the customers 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 Act, 2017 and therefore, he is liable to penal action under the provisions of the above Section. Accordingly, a notice be issued to him directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him. 42. Further, this Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioners of CGST/SGST Rajasthan to monitor this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by this Authority is deposited in the CWFs of the Central and the Rajasthan State Government as per the details given above. A report in compliance of this order shall be submitted to this Authority by the concerned Commissioner within a period of 4 months from the date of receipt of this order. 43. As per the provisions of Rule 133 (1) o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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