TMI Blog2020 (11) TMI 915X X X X Extracts X X X X X X X X Extracts X X X X ..... ice and hence the same cannot be passed by way of discounts. Moreover, the Respondents cannot treat the already existing promotion schemes as passing on of the benefit as such schemes were floated by them to increase their sales in normal course of their business. Hence, the mapping of prices which could have been charged by the Respondents for the SKUs on which promotion schemes were extended and revised profiteering was computed which included the higher benefit passed on, as per the annexure attached with their above submissions is wrong and incorrect and accordingly, an amount of ₹ 61.50 Crore cannot be reduced from the profiteered amount on the above two grounds as has been claimed by the Respondents. (iii) As explained in para supra the Respondents cannot pass more benefit on certain SKUs as per their own convenience and refuse to pass on the same on other SKUs. As per theprovisions of Section 171(1) and Article 14 they are required to pass on the benefit on each SKU to each buyer and therefore, computation of the benefit passed on by way of higher price reduction on certain SKUs as per the annexure attached with the submissions dated 19.06.2019 is incorrect and hence a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SKU and therefore, any claim of passing on the benefit at the entity level is wrong and against the provisions of Section 171(1) and Article 14. Therefore, all the mappings and computations made by the Respondents through their submissions dated 19.06.2019 are frivolous, incorrect, illogical and against the provisions of Section 171(1) and Article 14 and hence they are liable to be rejected. The profiteered amount in respect of all the 3 Respondents is further determined as (i) ₹ 181,51,46,262/- in respect of the Respondent No. 1 i.e. M/s. Proctor Gamble Home Products (PGHP) Pvt. Ltd. (ii) ₹ 2,00,30,807/- in respect of the Respondent No. 2 i.e. M/s. Proctor Gamble Hygiene Health Care (PGHH) Ltd. and (iii) ₹ 57,99,37,416/- in respect of the Respondent No. 3 i.e. M/S Gillette India Ltd. (GIL), on the sale transactions made by the above Respondents w.e.f. 14.11.2017 to 30.09.2018, which has been individually and collectively computed in respect of all the 33 States and Union Territories as per Annexure-6 attached to the Report of the DGAP dated 31.01.2020. The total profiteered amount of ₹ 2,41,51,14,485/- is computed - Also, the Respondents are direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der was to be passed on or before 30.07.2020. However, due to prevalent pandemic of COVID-19 in the Country this order could not be passed on or before the above date due to force majeure. Accordingly, this order is being passed today in terms of the Notification No. 65/2020-Central Tax dated 01.09.2020 issued by the Government of India, Ministry of Finance (Department of Revenue Central Board of Indirect Taxes Customs under Section 168 A of the Central Goods Services Tax Act, 2017. Application disposed off. - Case No. 76/2020 - - - Dated:- 23-11-2020 - DR. B. N. SHARMA, CHAIRMAN, SH. J. C. CHAUHAN, TECHNICAL MEMBER, SH. AMAND SHAH, TECHNICAL MEMBER Present:- 1. Ms. Neeharika, Deputy Commissioner for the Applicant. 2. Sh. Gagan Sawhney, Sh. Ghanashyam Thegde, Sh. Prashant Bhatnagar, Sh. Sachin Wani, Company Employees, P G Group, Sh. V. Lakshmikumaran, Sh. K. Srikanth Advocates and Sh. Darshan Machchhar, Consultant for the Respondents. ORDER 1. The first investigation Report dated 05.04.2019 in the present case was received from the Applicant i.e. the Director General of Anti-Profiteering (DGAP) after detailed investigation under Rule 129(6) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Respondents, as the basis for comparing the pre and the post GST rate reduction base prices. 3. The DGAP had also pleaded that the contention of the Respondents that the base prices were so increased as to offset the increase in the cost of production/raw materials, could not be accepted as increase in the prices of the raw materials had not happened overnight to coincide with the GST rate reduction w.e.f. 15.11.2017 and hence, it had no relevance in the context of GST rate reduction. The Respondents had also claimed to have passed on the benefit of GST rate reduction by extending consumer promotion schemes on certain SKUs, beyond 15.11.2017, however, the DGAP had claimed that the provisions contained in Section 171 of the CGST Act, 2017 did not provide for any other means of passing on the benefit of reduction in the rate of tax or benefit of input tax credit except by way of commensurate reduction in the prices. The DGAP had further claimed that it was the Respondents s own business decision to extend the period of consumer promotion schemes, the cost of which could not be set off against the benefit that the Respondents should have passed on to their recipients on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per letter No. WM-10(31)/2017 dated 16.11.2017, issued by the Ministry of Consumer Affairs, Food and Public Distribution, Government of India. The had further stated that there was no provision in the CGST Act, 2017 to allow the cost of packing material to be adjusted against the reduction in the prices on account of the lower GST rate and Therefore, the deduction claimed by the Respondents on this ground, was not admissible. He had also contended that the advertisement costs incurred by the Respondents were the outcome of their business decisions and the Respondents could not claim deduction on this account to increase the base prices of the goods impacted by the GST rate reduction. 6. The DGAP had also claimed that the Respondents had increased the base prices of the impugned goods when the rate of GST had been reduced from 28% to 18% w.e.f. 15.011.2017. He had further claimed that on the basis of the aforesaid pre and post-reduction GST rates and the details of outward taxable supplies (other than zero rated, nil rated and exempted supplies) of the impugned products made during the period from 15.11.2017 to 30.09.2018, as furnished by the Respondents, the amount of net highe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,850,849 13. Jammu Kashmir 20 23,092,981 14. Jharkhand 29 34,006,584 15. Karnataka 32 190,536,364 16. Kerala 23 72,487,234 17. Madhya Pradesh 27 63,840,007 18. Maharashtra 14 345,561,225 19. Manipur 17 3,733,964 20. Meghalaya 15 4,225,151 21. Mizoram 13 2,475,171 22. Nagaland 21 3,355,361 23. Orissa 35 44,544,160 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ail dated 22.04.2019. Since, the Group had asked for adjournment of the hearing scheduled on 29.04.2019 vide its letter dated 23.04.2019, it was decided to grant next hearing on 15.05.2019. On the request of the Group, hearing was adjourned two more times on 24.05.2019 and 31.05.2019. Finally, the hearing was held on 04.06.2019 which was continued on 06.06.2019. During the course of the hearing the Applicant was represented by Sh. Sachin Kodnani, Superintendent and the Respondents were represented by Sh. Gagan Sawhney, Sh. Ghanashyam Thegde and Sh. Sachin Wani, Company Employees, P G Group, Sh. V. Lakshmikumaran, Sh. K. Srikanth, Sh. G. Gokul Kishore, Advocates and Sh. K. Santhalia and D. Machchhar, Consultants. The Group had addressed combined oral submissions with power point presentation on behalf of the Respondents during the above hearing and requested for two days time for filing written submissions, which they had filed separately on 19.06.2019, which were forwarded to the DGAP on 20.06.2019 for report. The DGAP was also directed to submit clarifications on the objections raised by the Respondents under Rule 133(2A) of the CGST Act, 2017 by this Authority vide its Order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has stated that on receipt of the Order dated 04.10.2019, the had issued a letter to the Respondents on 21.10.2019 to provide the copies of agreements entered with the CSD/CPC partners. In response to the letter dated 21.10.2019, the Respondents had replied vide e-mails dated 24.10.2019, 22.11.2019, 05.12.2019 and 09.01.2020 and submitted the following documents:- For Canteen Stores Department (CSD): l. Sample letter dated 21.06.2017 showing the revised rate (Nett) which was excluding tax and GST rate of 28%. II. Sample letter dated 23.11.2017 received post reduction in GST rate from 28% to 18% showing the GST rate of 18%. As stated by CSD in the letter, there was no change in procurement rates, terms and conditions and HSN Code. III. Sample invoice pre and post reduction in rate of tax from 28% to 18%, showing that the base price excluding tax had remained the same, depicting the fact that the price was negotiated ex-tax. For Central Police Canteens (CPC): l. Sample letter dated 25.07.2017 showing the revised rate (Nett) which was excluding tax and GST rate of 28%. II. Sample invoice pre and post reduction in rate of tax from 28% to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Higher price reduction on certain SKUs : The DGAP has stated that as the profiteered amount had to be passed on each and every supply and to each and every recipient individually, higher price reduction on certain SKUs could not be adjusted against the profiteered amount in respect of other SKUs. b) Extra quantity (grammage): The DGAP has also stated that Section 171(1) of the CGST Act, 2017 reads as 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. Thus, the legal requirement was abundantly clear that in the event of benefit of ITC or reduction in rate of tax, there must be a commensurate reduction in the prices of the goods or services. Such reduction could only be in terms of money, so that the final price payable by a consumer got reduced commensurate with the reduction in the tax rate or benefit of input tax credit. This was the only legally prescribed mechanism to pass on the benefit of ITC or reduction in rate of tax to the consumers under the GST regime and there was no other method which a supplier could adopt to pass on such benefits. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 based on the outward supply details furnished by the Respondents. However, where ever any product was not supplied by the Respondents during the period from 01.11.2017 to 14.11.2017 the base prices submitted by the Respondents themselves were taken as the pre-rate reduction base prices. c) Profiteering also alleged on certain imported SKUs with increase in Basic Customs Duty (BCD) during period of investigation: The DGAP has further intimated that the contention of the Respondents that the base prices were increased with the increase in the BCD could not be accepted. The increased cost of raw materials/input services had no relevance in the context of GST rate reduction w.e.f. 15.11.2017. Section 171 provided that benefit of any reduction in tax had to be passed on to the recipients and increased cost of materials could not be a ground to offset this benefit. d) Profiteering also alleged on supply of promotional SKUs: Section 171 of the CGST Act, 2017 did not provide for any other means of passing on the benefit of reduction in rate of tax or ITC other than by way of commensurate reduction in prices. The deduction claimed on account of Sales Promotion servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the profiteered amount had not been explained: The DGAP has further claimed that the base prices of the products were calculated on the basis of average prices during the period from 01.11.2017 to 14.11.2017 based on the outward supply details furnished by the Respondents. However, where ever any product was not supplied by the Respondents during the period w.e.f. 01.11.2017 to 14.11.2017 the base prices as submitted by the Respondents were taken as the pre-rate reduction base prices. The DGAP had also not submitted how the supplies made to the CSD and the CPC channels were liable to computation of profiteering : The DGAP has also contended that the Respondents vide e-mail dated 24.10.2019 had submitted that the base prices excluding tax had remained the same, depicting the fact that the prices were negotiated ex-tax and they had also provided copies of the correspondence made with the CPC/CDS channels. On the basis of the submissions of the Respondents the profiteered amount of CSD/CPC channels had been excluded. The DGAP had also not made submissions on the issue of considering 10 months period for calculation of the profiteered amount : The DGA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profiteered amount relating to the CSD/CPC channels, the recomputed profiteered amount of ₹ 2,41,51,14,485/- with place (State or Union Territory) of supply-wise break-up was as has been given in the Table below:- State Name Total Profiteering Andaman Nicobar Islands 26,70,205 Andhra Pradesh 11,84,56,433 Arunachal Pradesh 6,52,319 Assam 3,86,91,768 Bihar 7,13,42,240 Chandigarh 24,72,685 Chhattisgarh 2,48,50,574 Delhi 13,17,62,298 Goa 1,39,93,388 Gujarat 14,84,91,508 Haryana 10,32,22,549 Himachal Pradesh 53,70,479 Jammu Kashmir 2,12,77,761 Jharkhand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices had been contravened in the present case by the Respondents. 17. The above Report was considered by this Authority in its meeting held on 04.02.2020 and it was decided that the Applicant and the Respondents be asked to appear before the Authority on 28.02.2020. A notice dated 05/06.02.2020 was issued to the P G Group asking it to explain why the above Report of the DGAP should not be accepted and the liability of the Respondents for profiteering under Section 171 should not be fixed. A copy of the Report along with its Annexures giving details of the SKUs, methodology and computation of the profiteered amount was also supplied with the above notice. The above notice was duly acknowledged by Sh. K. Srikanth, Authorised Representative of the P G Group vide his letter dated 24.02.2020 who had also requested for adjournment of the hearing scheduled on 28.02.2020. Accordingly, the next hearing was fixed on 18.03.2020. On the request of the Respondents, the hearing was adjourned two more times on 01.04.2020 and 26.05.2020. The Respondents had filed their written submissions dated 10.06.2020 on which DGAP has filed his clarifications under Rule 133(2A) on 30.06.2020, a copy of whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication to pass on the net commensurate benefit through mix of price reductions, extension of existing promotions, higher grammage, free and higher post supply price reductions (discounts). The Respondents had costs (Labour costs, commodities, utilities, change in effective taxation etc.) which have been going up over the past several months. II. Submissions on Initiation of Investigation and list of Events: The Respondents have also submitted that the present proceedings relating to the alleged profiteering were initiated based on the letter dated 12.7.2018 written by the Secretary of this Authority to the Standing Committee on Anti-profiteering wherein it was alleged that the MRP was not reduced post 15.11.2017 commensurate to the tax reduction as per their own assertion (referring to the Respondents). The above said letter was examined by the Standing Committee on Anti-profiteering in its meetings held on 07.08.2018 and 08.08.2018 wherein it was decided to refer the matter to the DGAP for detailed investigation. Pursuant to the recommendation of the Standing Committee, the DGAP had issued notice under Rule 129 of the CGST Rules, 2017 to the Respondents on 15.10.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily rejected all but one submission and that the Respondents be granted additional time to prepare and file a detailed rejoinder. Accordingly, this Authority vide its order dated 27.02.2020 had granted the next date of hearing on18.03.2020. However, the Respondents vide their letter submitted on 13.03.2020 had requested for supply of copy of Annexure-6 attached to the DGAP s report containing the computation of revised profiteering (which was duly provided by this Authority in CD delivered by hand on 13.03.2020 itself) and further submitted that in view of the rapid spread of COVID-19 in different parts of India, the situation was not congenial for the Respondents to travel from Mumbai to Delhi to attend the personal hearing on 18.03.2020 and accordingly they had requested for a new date of hearing. This Authority vide its order dated 18.03.2020 had adjourned the matter to 01.04.2020. Considering that the lockdown was imposed by the Central Government from 25.03.2020 for a period of 21 days up to 14.04.2020, the Respondents were informed that there will be no personal hearing on 01.04.2020 and accordingly, the Respondents had sent an e-mail dated 31.03.2020 requesting for the next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Standing Committee on Anti-profiteering from Secretary, National Anti-Profiteering Authority ( NAA ) alleging profiteering by the Respondents. 7.8.2018 8.8.2018 The said letter was examined by the Standing Committee on Anti-Profiteering wherein it was decided to refer the matter to DG to conduct investigation. 15.10.2018 To 05.04.2019 Initiation of investigation under Rule 129 of CGST Rules against the Respondents. Correspondence/emails exchanged, meetings, etc. between the Respondents and the DG wherein all the exhaustive details sought by the DG were promptly provided by the Respondents. 05.04.2019 Report with Reference F. No. 22011/API/95/2018 issued by the DG ( Report ). 15.04.2019 Notice vide File No. 22011/NAA/30/P G/2019 issued by NAA to the Respondents along with a copy of the DG report fixing personal hearing on 29.04.2019. (Shared vide e-mail dated 18.04.2019) 22.04.2019 The Respondents vide e-mail dated 22.04.2019 informed the Hon ble Secretary, NAA that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06.02.2020 to 26.05.2020 NAA issued a notice to the Petitioners fixing personal hearing in the matter and directing them to show cause as to why the report dated 31.01.2020 furnished by the Respondents No.3 should not accepted. Pursuant to the receipt of the Notice whereby the date of hearing was fixed for 28.02.2020, the Respondents vide its letter dated 24.02.2020 inter alia pointed out that the DGAP has summarily rejected all but one submission and that the Respondents be granted additional time to prepare and file a detailed rejoinder. Accordingly, this Authority vide its order sheet dated 2102.2020 was pleased to grant the next date of hearing on 18.03.2020 at 12 Noon. Further, the Respondents vide its letter submitted on 13.03.2020 requested for a copy of Annexure-6 to the DGAP report containing the computation of revised profiteering to be supplied to it (which was duly provided by this Authority in CD delivered by hand on 13.03.2020 itself). In view of the spread of COVID-19 in different parts of India and due to lockdown enforced in the country, the date was extended from time to time. Subsequently, the Respondents v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e P G group was impacted by more than 20% and 30% respectively (based on quarter ended June 2020 details). The Respondents were already facing financial setback and any amount if held as profiteered would be similar to the last straw on the camel s back. The Respondents have submitted that the conclusions drawn in the 2nd DGAP Report were incorrect and devoid of legal merits. The Respondents have not retained any benefit from the reduction in rate of GST and hence they have not profiteered. IV. Submissions on Delay in proceedings: The Respondents have also stated that in terms of Rule 133(1) of the CGST Rules, this Authority was required to determine whether a registered person has passed on the benefit of reduction in the rate of tax on the supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices, within six months from the date of the receipt of report from the DGAP. Further, this Authority has powers to seek clarifications from the DGAP under Rule 133(2A) and also refer the matter to the DGAP to cause further investigation or inquiry in accordance with the provisions of the Act and the rules, if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report based on further investigation to be carried out by it and for this Authority to pass an order, it would lead to a situation where the proceedings would not attain finality at any point of time and would lead to a situation of ever greening, which could not be permitted. Further, the sole purpose of setting defined timelines in the rules was to ensure that the investigation did not continue indefinitely so as to cause a prolonged prejudice to the affected party. The timelines required that the investigations be conducted as efficiently as possible in a time bound manner and order be passed within the time limit. Prolonging the time period permitted for investigations was likely to result in adverse impact. The Respondents have also submitted the following dates and events to prove their claim:- Sl.No. Events Date 1. Report furnished by DGAP 05.04.2019 (Received by NAA on 08.04.2019) 2. Personal hearing before NAA - Part heard 04.06.2019 3. Personal hear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stance in respect of areas of law for which they have been constituted. Accordingly, as per the direction of the Hon ble Delhi High Court, the Respondents have requested this Authority to consider their aforesaid submissions and hold that no additional time limit was available in respect of further investigation under Rule 133(4) and that the order needed to be passed within the time limit from the report as furnished by the DGAP under Rule 129(6). The Respondents have also contended that this Authority has the power to declare that Rule 133(4) which provided for further investigation did not grant additional time for the same and hence the order should have been passed within the time limit fixed under Rule 133(1) upon furnishing of the report by the DGAP under Rule 129(6) i.e. the 1st Report dated 05.04.2019. Further, the Guidelines issued by this Authority vide File No. Admn.(NAA)/P M/81/2019/ dated 04.10.2019 specified in para 10 that the Reports submitted by the DGAP under Rule 133(4) would be construed to be fresh Reports for the purpose of Rule 133(1). However, for the reasons discussed supra, para 10 of the Guidelines was not in accordance with the provisions of the CGST Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided reasons or clarifications, this Authority should draw adverse inference against the DGAP. Instead, in the present case, the DGAP has been granted additional time to provide clarifications on the subject which was not in accordance with the law. The Respondents have also argued that the anti- profiteering measure was by very essence transitionary in nature as per the stated position of the Government at the time of introduction of GST. In this regard, a statement from the then Finance and Revenue Secretary of Government India at the time of introduction of the GST, issued in response to a question in respect of the implementation of the anti- profiteering measure had clarified as under:- It is only a transitory provision. It will happen only during the first year or second year of implementation. in all likelihood, in only the first year of implementation of GST It has further been argued that prolonging the investigation to such an extent that the order was not passed for more than 2.5 years since the rate reduction took place was harmful to both the businesses and the recipients. The Respondents have also claimed that based on the brief facts of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Customs Central Excise v. Hongo India (P) Ltd. 2009 (236) ELT 417 (SC), Commissioner of Income Tax v. Gitsons Engineering Co. [2015] 53 taxmann.com 108 (Madras), Krishna Kumar Saraf v. Commissioner of Income Tax [2017] 83 taxmann.com 331 (Delhi - Trib.), and Gujarat Paraffins Pvt. Ltd. v. Union of India 2012 (282) ELT 33. The Respondents have also submitted that the DGAP has furnished the reports beyond the time limit provided in Rule 129(6) and therefore, the reports dated 05.04.2019 and 31.01.2020 submitted by the DGAP be quashed. VI. Submissions on the Methodology adopted by DGAP: Respondent s submissions dated 09.06.2020: The Respondents have also averred that the DGAP in para 20 of his 1st report dated 05.04.2019 has stated that the profiteered amount has been arrived at by comparing the average of the base prices of the impacted products sold during the period from 01.11.2017 to 14.11.2017, with the actual base prices on the invoices of such products sold during the period from 15.11.2017 to 30.09.2018. However, on perusal of the working provided by the DGAP, it could be seen that the said price was a weighted average price of the products s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his product to customer type MR during the period from 01.11.2017 to 14.11.2017 has determined an average base price of INR 360.58. This average base price was then compared with the actual sale price for the individual sales made from 15.11.2017 onwards and wherever the actual base price charged post rate reduction was higher than the average base price pre-rate reduction, the DGAP has computed the difference as profiteering, whereas in those cases where the actual base price charged post-rate reduction was lower than the average base price pre-rate reduction when compared for the specific customer, the DGAP has ignored the same (i.e. profiteering was marked as 0 ). Thus, the DGAP has not only applied an inequitable and incorrect methodology to compare but even applied the same methodology selectively to only choose those instances where the actual price was more than average price to allege profiteering and conveniently ignored those instances where the actual price was lower than the average price by not taking it into account at all in determination of statement of net benefit that remained to be passed on before adjustment of cost escalations, if any. In the above illustratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess amount was passed on) was incorrect, inequitable, arbitrary and the same required reconsideration. In support of the above submissions, reliance has been placed on the recent decision of the Hon ble Delhi High Court in W.P.(C) 1780/2020 in the case of M/s. Johnson Johnson Pvt. Ltd. v. Union of India Ors. wherein the order passed by this Authority was challenged. The Hon ble High Court in that case vide order dated 18.02.2020 had taken a prima facie view that the methodology adopted by this Authority to consider average of prices pre-rate change and comparing it with specific instances of prices post the change of rates appeared to be incorrect and that the impugned order of this Authority needed reconsideration. Based on this prima facie case, stay of operation of the impugned order of this Authority has been granted in the above case. Therefore, the Respondents have requested to consider the methodology adopted by the DGAP as erroneous and not accept the profiteering amount as alleged by the DGAP in his 2nd report dated 31.01.2020. The Respondents have further submitted that the methodology adopted by them in computing the profiteering (if any), should be accepted and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 88 95 0 0 2. 2 92 9 94 0 0 3. 3 95 10 95 0 0 4 4 98 11 97 0 2 5. 5 100 12 101 0 6 The Respondents have claimed that based on the above mentioned illustration the DGAP has highlighted the following issues in the adoption of the Average vs. Average methodology: (a) A consumer who had paid ₹ 97/- or ₹ 101/- post rate reduction (against invoice 11 and 12) would not get any benefit of rate reduction even though he may or may not have purchased goods prior to rate reduction at a rate less than ₹ 95/-. (b) That the method of computation of profiteerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AP itself was revealing the fundamental flaw in the methodology adopted by the DGAP. Further, in the case at serial no. 5 as mentioned in the table above, the price has been increased by Re. 1 but the profiteering amount as calculated against such product was INR 6. By no means of logic or principle could the profiteering amount in both the cases be justified. The Respondents have also made sample comparison of the line items where the profiteering has been calculated by the DGAP despite the fact that there was no increase in the prices post rate reduction, and the same is reproduced below:- Methodology of comparing weighted average prices with actual prices incorrect Adoption of average prices: (Customer code 2002641416) Actual instances where DGAP has computed profiteering in respect of line items where the price after rate reduction has reduced. This shows flaw of adopting average vs actuals for comparison Customer code Invoice date Product description Actual vs Actual DGAP methodology (Average vs Actual) 2002641416 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 8 0 Further, the Respondents have submitted that although no final order has been passed by the Hon ble Delhi High Court in the case of M/s. Johnson Johnson v. UOI ors. mentioned supra, the fact that the operation of the order has been stayed and it has been observed by the Court that the methodology needed consideration itself showed that there was a prima facie defect in the methodology so adopted. It has also been submitted that stay of operation of an order should result in the order (whose operation is stayed) not being available as a binding precedent. Hence, the methodology should be determined keeping in mind the above submissions of the Respondents and the methodology of comparing average with actuals and putting zero against negative should be held to be incorrect. VII. Submissions on Interpretation of Section 171 of the CGST Act: Submissions of the Respondents dated 19.06.2019: The Respondents have also pleaded that in the absence of any guidelines issued by any authority, it was understood that passing of benefit of GST rate reducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monetary or non-monetary form proportionate to tax rate reduction, Section 171 was complied with. The price in this regard was the consideration paid or payable for the supply. As per the Indian Contract Act, 1872, consideration included any act or abstinence. While consideration for supply was generally measured in monetary terms, the same could also include non-monetary elements. Thus, price was not only what was reflected in the invoice. The monetary component could already be factored in the invoice price. However, the parties could also choose to settle the consideration partly in non-monetary terms. In the present case, the Respondents have reduced the price by way of reduction in the price itself post-supply and also by way of extension of promotion schemes and additional quantity. By these methods, the Respondents have ensured full and total compliance with Section 171. The Respondents have further pleaded that by use of the word commensurate , cost of raw materials, packing materials, over heads and other such elements involving increase in cost was required to be factored in while examining whether Section 171 was applicable or not. Further, increase in quantity or gram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal notes were to be used as an internal aid of interpretation to address any ambiguity in the provision. In this regard, reliance has been placed 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 dealing with. In UOI v. Harbhajan Singh Dhillon (1971) 2 SCC 779, it was observed by the Hon ble Supreme Court that marginal notes could serve as guidance when there was ambiguity or doubt about the true meaning of the provisions. Similar observations were made by the Hon ble Supreme Court in the case of SP Gupta v. UOI AIR 1982 SC 149. The Respondents have further contended that the term profiteering was not defined in the CGST Act or rules made thereunder. Therefore, reference to common parlance meaning of the term profiteering must be made. Definition of the term Profiteer/Profiteering from various dictionaries has been provided by the Respondents as under:- a) The Chambers Dictionary, Allied Chambers (India) Ltd., New Delhi: Profiteer is a person who takes advantage of an emergency to make exorbitant profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such as the type of customer, quantity of the product bought, discount applied, payment terms applicable to the transaction and the point in time when the sale took place. Considering that the term prices was used in plural form, any interpretation of the same to mean only one selling price for a particular product would defeat the very purpose of usage of the term in plurality. Accordingly, the submission of the Respondents that prices after reducing post-supply discount should be considered was correct. iii. The DGAP has also stated that the word any was used before the word supply to indicate the benefit of reduction in rate of tax has to be passed on each and every supply. Further, it was position of the DGAP that the word registered person used in Section 171 of the CGST Act, 2017 could not be applied to suppliers who were not registered under the CGST Act and it was clear from the word recipient (in singular) that the benefit has to be passed on to each and every recipient, who might buy a single SKU also. Thus, the profiteering has to be determined at the SKU level. In this regard, the Respondents have submitted that the DGAP s interpretation of term a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondents have claimed that the DGAP in his reply under Rule 133(2A) has stated as follows: In this regard it is submitted by the Respondents that the term Commensurate reduction in the Section 171 of the CGST act denotes reduction in the price after taking into account all factors which impact the pricing of the goods and that by the use of the word commensurate , cost of raw materials, packing materials, overheads and other such elements involving increase in cost are required to be factored in while examining whether Section 171 is applicable or not. Hence, the Respondents made submission that the increases in cost of business operations should be taken into account while determining profiteering, if any. In this connection it would be pertinent to mention that the provisions of Section 171 of the CGST Act, 2017 requires the Respondents to pass on the benefit of tax reduction to the consumers only and has no mandate to look into the fixing of prices of the products which the Respondents are free to do. If there was any increase in the costs it could have been done prior to the period of rate reduction itself i.e. before 15.11.2017 and accordingly these costs wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Respondents and / or recipient recipients in forward supply chain to the consumers, was without any legal basis and was out rightly arbitrary. Further, while DGAP has stated that Section 171 has no mandate to look into the fixing of prices of the products which the Respondents were free to do, by alleging profiteering, the DGAP was effectively fixing certain limit on the prices beyond which any sale would be violative of Section 171. Further, the DGAP has stated that if there was any increase in the costs it could have been done prior to the period of rate reduction itself i.e. before 15.11.2017 and accordingly these costs would have been included in the base prices of the products sold prior to the rate reduction period. However, the adjustment was required after considering that the period of investigation spanned across more than 10 months. By ignoring cost increase subsequent to reduction in rate of tax, the DGAP has gone beyond the mandate of section 171 of the CGST Act. The interpretation of DGAP that prices must reduce and stay reduced without considering cost escalations over a substantial period of time could not be the correct interpretation of Section 171. The profite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otions; 3) Extension of promotion schemes running before Nov 15th 2017, which passed on higher value to the customers/consumers; 4) Price reduction post supply. The Respondents have also claimed that there were discrepancies in the calculation of alleged profiteering by the DGAP which are mentioned below:- 1) Net price of SKU (Gross price net of discounts) prior to reduction of tax was compared with the gross price of SKU post reduction of tax in respect of certain SKUs; 2) Profiteering has been alleged on certain imported SKUs where there was an increase in the Basic Customs Duty (BCD) during the period under investigation; 3) Profiteering has been alleged on supply of promotional SKUs; 4) Reduction in area based fiscal incentives as a result of reduction in rate of GST, which has resulted in reduced margins on the products, not considered The Respondents have further claimed that the DGAP has calculated total alleged profiteering against the Respondents by including GST @18% on the excess prices alleged to have been charged on supply of these goods, despite the fact that the GST collected has been deposited with the Govt. and was av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tension of promotions and new promotions (61.59) Less: Zeroing (including on account of extension new promotions) (190.36) Less: Additional benefit passed on by way of increase in post supply discounts (69.55) Net profiteering (as per column BE of computation sheet) (139.99) GIL Particulars Total (in INR crores) Profiteering as per DGAP computation 57.99 Less: Reduction in profiteering on account of correction of base price for extension of promotions and new promotions (3.17) Less: Zeroing (including on account of extension new promotions) (61.95) Net profiteering (as per column AX of computation sheet) (7.12) In view of the above, the Respondents have submitted that they as an entity have passed on much more benefit pursuant to reduction in rate of tax and hence the finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of profiteered amount: Submissions of the Respondents filed on 19.06.2019 and on DGAP s 2nd report dated 31.01.2020: The Respondents have submitted that while for most of the SKUs, the DGAP has compared the pre-rate reduction base prices pre-discount with the post-rate reduction base prices pre-discount, in certain category of SKUs, the DGAP has inadvertently compared the pre-rate reduction post-discount prices with the post-rate reduction pre-discount prices. Accordingly, this Authority vide its interim order dated 04.10.2019 had directed the DGAP to explain the basis of the prices used for comparison for calculation of the profiteered amount. The DGAP vide his report dated 31.01.2020 has clarified as follows: In general, the base prices of the products were calculated on the basis of average prices during the period from 01.11.2017 to 14.11.2017 based on the outward supply details furnished by the Respondents. However, wherever any product was not supplied by the Respondents during the period from 01.11.2017 to 14.11.2017, the base prices as submitted by the Respondents were taken as the pre-rate reduction base prices. However, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details were not available with the DGAP, as the Respondents had not sold those products in the said period. Accordingly, the DGAP had called for information regarding the pre-rate reduction prices from the Respondents. The Respondents vide their submissions dated 29.03.2019 had provided the comparable product Code and prices to the DGAP based on such comparable product Code. For illustrative purposes, the Respondents have submitted calculations in respect of one of the SKUs as follows:- Product description (for which pre-rate reduction price was not available with DGAP) Comparable product Code (i.e. product Code comparable to the one for which DGAP asked the pre-reduction price) Comparable product description (i.e. product description comparable to the one for which DGAP asked the pre-rate reduction price) Distributor price between Nov 1-14 (average, after deducting post sale discount) MR price between Nov 1-14 (average, after deducting post sale discount) H S SHM 360MLX12 SB GST IN 82269429 H S SHM 360MLX12 SB GST saver IN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Respondents that the computational methodology followed by the DGAP was to compare prices charged before deducting post-supply discounts. Accordingly, the Respondents had submitted the revised prices (based on prices charged before deducting post supply discount) for these SKUs (INR 194.31 in the above SKU). The Respondents have further submitted that for computation of profiteering for SKU SHM 360mlx12 SB saver IN, the DGAP has taken base price of INR 194.31. Thus, for computing profiteering, if any, for SKU H S SHM 360MLX12 SB GST IN, for which the comparable product was product Code 82269429 having description as SHIM 360mlx12 SB saver IN, the base price adopted by DGAP should be INR 194.31 only (i.e. the price charged before deducting post-supply discount) and not INR 183.48, which was the price charged after deducting post supply discount. The Respondents have further submitted that the above explanation showed the inadvertent error which was made in computation of profiteering and thus, the Respondents have requested this Authority to direct the DGAP to revise the computation on the basis of the above submissions which would result in reduction in allegation of prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduction by way of extra sales promotion, extra discount, higher grammage, higher combination package etc., was among the various ways of reaching the customers to ultimately pass on the benefit. In fact, higher grammage would result in reduction in prices per Gram. The purpose was to give choice to consumers to calculate the price per Gram of detergent or per ml. of shampoo etc. and allow them to exercise their option of buying. It was incorrect to say that such promotion schemes were for business promotion and the Respondents should have given further discount over and above. The Respondents have also claimed that the benefit passed on by way of extension of promotions should be considered and reduced from the alleged profiteering. These SKUs were promotional in nature and accordingly, were already being supplied at a reduced price in comparison with the price of a similar non-promoted pack. Accordingly, with the reduction in GST rates, further reduction in prices of such SKUs was not feasible. Accordingly, an amount of INR 19,71,93,934/- (PGHP) and INR 3,30,14,424/- (GIL) computed on supplies of these SKUs needed to be excluded from the alleged profiteering. Submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pass on the benefit of GST rate reduction. XI. Submissions on post supply price reductions: Submissions filed by the Respondents on 19.06.2019: The Respondents had submitted before the DGAP that they were offering discounts in the form of post-supply price reduction to various customers as a routine business practice. This meant that such discounts were being offered both in the pre-GST rate reduction and post GST rate reduction period. Accordingly, the Respondents had requested the DGAP to make computations for determination of alleged profiteering based on the comparison between the net price of a product (i.e. after considering such price reductions). However, it had been observed by the DGAP in his 1st Report that there was nothing in the documents to show that the discount was for passing on the benefit of GST rate reduction and hence, the computation of alleged profiteering had been made by the DGAP based on the gross prices. The submission of the Respondents was that although the price reductions were provided both prior to and after reduction in the rate of GST, however, the price reductions provided after reduction in rate of GST had been signific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and the base price on which tax was charged in the invoice was merely a tentative price subject to subsequent adjustments on account of such schemes. This has been illustrated by the Respondents as is given below:- The Respondents have submitted from the above illustration that the DGAP has alleged profiteering based on a comparison between the base invoice prices ex GST alone (₹ 100/- and ₹ 102/- in the above illustration). Such price however did not take into consideration the price reductions allowed subsequently (₹ 5/- and ₹ 7.5 respectively). It was further contended that the allegation of profiteering should have been made based on a comparison between the net prices (after considering price reductions post supply) as that alone reflected the net realization of the Respondents. The Respondents have also submitted that discounts could also be given based on an established practice. In the present case, the Respondents were giving discounts prior to GST rate reduction and the had continued these discounts post GST rate reduction also. Thus, the discounts were given post GST rate reduction as per the established practice. In this regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stments in the books of accounts of the recipient and the supplier. In the present case admittedly, the benefit of price reduction had been given subsequent to supply on the basis of invoices/ debit notes issued by the recipients by way of adjustment in the books of account. It also satisfied the condition put by the DGAP that monetary form was the only form in which the benefit could be passed on. Further, the DGAP has rejected the claim of discounts (price reduction) made by the Respondents holding that the same was in the nature of sales promotion services and not discounts. The Respondents have submitted that recipients of the Respondents, treated these price reductions/ discounts as service in view of the fact that there were various cases of litigation under the erstwhile service tax legislation between the Department and the dealers of the automobile companies who were receiving the incentives from the manufacturers post sale, The incentive received by the dealers was considered by the Department as consideration for the service provided by the dealers to the manufacturers and Service Tax was demanded on such incentives. In order to avoid dispute regarding future tax liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of issuance of invoice for supply. It did not take into account the post-supply discount provided to customers as the same was provided subsequently through a separate document. The only requirement in terms of Section 171 was to ensure that the benefit was passed on by reducing prices. Whether such price reduction was at the time of supply or offered as a post supply price discount should not alter the fact that the benefit has been actually passed on. Further, even if the said discount was not deducted from the value of supply under Section 15 for the purpose of payment of tax that did not alter the fact that the discount was actually towards supply of goods and that the commercial price charged by the Respondents towards supply of goods had reduced. The fact that the Respondents have consistently reduced this discount from their sales income and not shown it as a line item of expenditure further showed that the discount was in relation to the supply of goods alone and not for any other purpose. Therefore, the actual treatment of this discount in the books of the Respondents was the right criteria to determine the true nature of such payments which were nothing but sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit has been passed on by the Respondents. Section 171 was independent of Section 15 and non-deductibility of post-supply discount from the value of supply under Section 15 did not mean that the same was not deductible for determining the price charged for the purpose of Section 171. Any amount passed in any manner must be considered for the purpose of Section 171, whether or not the same was deductible under Section 15 of the CGST Act. Further, the Respondents have stated that irrespective of the nomenclature used in the invoice (which was for the purpose of avoiding any dispute relating to GST, which was otherwise revenue neutral), the fact remained that these invoices pertained to the post-supply discount and thus they should be considered for passing on the benefit. The Respondents have already furnished documentary evidence establishing the correlation between the taxable value reported in the GST Returns and post-supply discount given on any particular invoice/SKU, on a sample basis as per their submissions dated 09.06.2020. Despite the same, the DGAP has stated in his reply that the correlation has not been established by the Respondents. The Respondents have submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his 2nd report dated 31.01.2020 stated that the contention of the Respondents that the base price was increased with increase in the BCD could not be accepted. The increased cost of raw materials/input services has no relevance in the context of GST rate reduction w.e.f. 15.11.2017. In this regard, the Respondents have submitted that the increase in BCD was a significant change in business environment subsequent to the GST rate reduction for such imported products and hence, such SKUs must be removed from the computation of profiteering. While the BCD was increased from 10% to 20%, the EC and ST HEC were replaced with social welfare surcharge, thus taking the effective non-creditable duty component from 10.30% to 22%. The Respondents have also submitted that the DGAP s understanding of the effect of increased Customs Duty on the business of the Respondents was completely incorrect. While the DGAP has alleged that the Respondents have profiteered from a transaction, the increase in Customs Duty has added significant cost on the supply of the very same products on which the GST rate has been reduced. Both the benefit of GST rate reduction and the increase in Customs Duty were pursua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejected the respective discount values, the Respondents had re-submitted their computations for the benefit passed on by way of extension of promotions based on gross price basis which came to ₹ 100,71,57,005/- (PGHP) and ₹ 35,12,63,262 (GIL) excluding the GST. The benefit passed on by the Respondents using such means should be allowed as reduction from the alleged profiteering as by providing such offers (increased quantity or discount on combo packs), they have in effect passed on the benefit of GST rate reduction to the recipients. Submissions of the Respondents on DGAP s 2nd report dated 31.01.2020: The Respondents have also stated that they have passed on the benefit by increasing the grammage in respect of certain SKUs and by introducing new promotions. However, the DGAP in his 2nd report dated 31.01.2020 has stated that the reduction in price was the only prescribed methodology for passing on the benefit of reduction in rate of GST. the Respondents have argued that this Authority in Case No. 20/2018 (Order dated 24.12.2018) in respect of M/s Hindustan Unilever Limited (HUL) has already held that the benefit could be passed on in the form of incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed on each and every supply and to each and every recipient individually, excess benefits passed on certain SKUs by way of increased quantity and new promotions cannot be adjusted against the profiteered amount in respect of other SKUs. The Respondents have submitted that this was called zeroing which has been held to be incorrect and the Government of India itself had objected to the concept of zeroing-in at the World Trade Organization (WTO). The Respondents have provided detailed submissions in para J in relation to zeroing. Accordingly, the Respondents have requested this Authority to hold the methodology of the Respondents in passing benefit by way of extra grammage and new promotions to be correct. Once the methodology of the Respondents as stated in Para B was accepted, it would be seen that the Respondents have passed on much higher benefit than the profiteering alleged by the DGAP XV. Submissions on the Period of Investigation: Submissions of the Respondents dt. 19.06.2019: The Respondents have submitted that the period covered under the investigation was from 15.11.2017 to 30.9.2018. This covered the business operations of the Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that if the period of investigation was beyond 3 months, the effect of increased costs should be taken into account while calculating the alleged profiteering. Pricing of a product was primarily based on expenses incurred and therefore, increase in costs had to be considered. The Respondents have claimed that in their submissions dated 03.04.2019 they had submitted before the DGAP that their business has witnessed increase in costs during the period of investigation spanning over 10 months. The contention of the Respondents on increase in costs had been rejected by the DGAP by observing that such cost increase could not have happened overnight to coincide with GST rate reduction and also that increase in costs was not relevant for determination of profiteering. With reference to the same, the Respondents have submitted that it was never the submission of the Respondents that such costs had increased overnight. They had submitted before the DGAP that the costs of raw material, packing material, advertisement, transportation costs etc., were increasing during the period under investigation and hence, the Respondents could have increased prices to pass on the cost increases to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.01.2020 has specified that the period of investigation has not been prescribed in the CGST Act, 2017 or the corresponding Rules / Notifications or by this Authority. As the rate reduction has happened w.e.f. 15.11.2017 and the complete reference from the Standing Committee to investigate the matter was received on 08.10.2018, the period from 15.11.2017 till the date of receipt of reference was taken from 15.11.2017 to 30.09.2018 for investigation. The Respondents have submitted that while making the above observations in his report, the DGAP has not considered the written submissions filed by the Respondents on 19.06.2019 which should be considered. They have submitted that neither this Authority in its letter dated 12.07.2018 nor the Standing Committee in its meetings held on 07.08.2018 and 08.08.2018 had mentioned any specific time period for which investigation was to be conducted. The DGAP has stated that in the absence of any rule or provision contained in this behalf, the period of investigation has been taken from the date of rate reduction till the previous month of receipt of reference from the Standing Committee i.e. till September 2018. At the outset, this approach of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. Substantial sectoral information was available from various governmental statistical bodies to analyse a particular sector. The Respondents have also submitted that this Authority has both sufficient information as well as authority to determine the period of investigation that should be adopted by the DGAP. Accordingly, this Authority should determine the period of investigation of 3 months at the most for determining profiteering. Alternatively, guidelines should be issued to act as the guiding principles for the DGAP to determine the period of investigation. The Respondents have further submitted that in a number of instances, this Authority has passed orders covering the period of investigation from 2 to 5 months, as follows:- Period of investigation adopted is arbitrary Period Of investigation - 15th November 2017 to 30th September 2018 - extending over 10 months is arbitrary. In this regard, the Respondents have also cited the decision of the Hon ble Supreme Court in the case of S.G. Jaisinghani v. Union of India Ors. (1967) 2 SCR 703, wherein the following was held that: 14. In this context it is important to emphasize that the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similarly placed companies. Further, from the information made available in public domain, it was clear that this Authority has neither initiated similar type of investigation nor called for information from similar type of business competitors of the Respondents till date. This discrimination has led to significant business advantage to the Respondents s business competitors and significant business disadvantages, injury to the Respondents. The complaint itself which is the root cause of this matter suffered from vice of discrimination and hence, should be set aside which will lead to consequential dropping of DGAP s investigation and report. Submissions of the Respondents on DGAP s reply under Rule 133(2A) dated 30.06.2020: The DGAP vide his reply has stated as follows: The DGAP follows the practice of taking period of investigation from the date of rate reduction till the previous month of the day on which reference is received from the Standing Committee as envisaged in the CGST Rules. The principle behind the practice adopted for taking the period of investigation till the preceding month in which the reference from Standing Committee is received, is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greater price reductions i.e. more than commensurate to the GST rate reduction on various impacted SKUs. However, while determining alleged profiteering on other impacted SKUs, the DGAP has ignored such excess benefit passed on by the Respondents. Where the Respondents have 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 customers was less than what was the required amount, regardless of other measures, the differential amount was being sought to be alleged as the profiteered amount. This was called zeroing which has been held to be incorrect and the Government of India itself had objected to the concept of zeroing-in at the World Trade Organization (WTO). While calculating the alleged profiteering amount, the DGAP has incorrectly applied a methodology similar to zeroing which was used by anti-dumping authorities in certain countries like European Union (EU). According to the said methodology, while calculating the dumping margins only those SKUs were considered which were being dumped and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machal Pradesh where they were availing the benefit of area-based exemption under the erstwhile Central Excise regime. Under the exemption, the Respondents were not required to pay Central Excise Duty on the goods manufactured in such unit and were also not entitled to avail any CENVAT credit. With the introduction of GST, upfront exemption to this unit was withdrawn as per Notification No. 10(1)/2017-DBA-ll/NER dated 05.10.2017 and instead they were required to pay GST on the goods supplied and thereafter claim refund to the extent of 58% of the central tax component paid in cash. For the sake of ready reference an illustration showing the reduced refunds in absolute terms has been submitted by the Respondents as is given below:- From the above illustration, the Respondents have submitted that the refund available under the new scheme in the GST regime was restricted to specified percentage of tax paid by cash after utilizing input tax credit. Accordingly, if the tax payout in cash was reduced, the amount of refund allowable also got reduced. The Respondents had submitted to the DGAP that the reduction in GST rate w.e.f. 15.11.2017 has resulted in reduced cash payout ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as resulted in reduction in the refund in relative terms to the Respondents, as rate of tax on supply of goods was one of the relevant factors for determining the budgetary support to the Respondents:- Particulars Refund pre-rate reduction Refund post-rate reduction Loss in relative terms 29% of [28% IGST on outward supply (a) - ITC (b)] =29% * [ 28 % * a-b] 29% of [18% IGST on outward supply ITC] = 29% * [ 18 % * a-b] Quantification of loss (Assuming a=100, b=10] 29% of [28% IGST on outward supply ITC] =29% * [28% * 100-10] =8.12-2.9 =5.22 29% of [18% IGST on outward supply ITC] =29% * [28% * 100-10] =5.22-2.9 =2.32 Reduction in budgetary support = 5.22-2.32=2.9 Further, the Respondents have also submitted that there was no allegation made by the DGAP that the input tax credit availed by the Respondents has actually increased in the period post rate reduction. Without prejudice to the same, the Respondents have submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout admitting, that the Respondents have profiteered and GST has been collected thereon and the said GST was to be paid in Consumer Welfare Fund then instead of the Respondents, the Government could transfer the amount equivalent to GST on the profiteered amount to the Consumer Welfare Fund. In this regard, reliance has been placed on the case of R. S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited (1977) 4 SCC 98, wherein the Hon ble Supreme Court has analysed what the term collected meant in the context of the sales tax legislation of Gujarat and it was observed as under:- 34. Section 37 (1) uses the expressions, in relation to forfeiture any sum collected by the person - shall be forfeited . What does collected mean there? 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he excise duty thereon. Consequent upon purchasing the raw material and by virtue of the Modvat scheme, I have become entitled to the credit of ₹ 10/- with the excise authorities and can utilise this credit when I pay excise duty on mv finished product. The real cost of the raw material (exclusive of freight, insurance and the like) to me is therefore ₹ 90/-. In reckoning the cost of the final product I would include ₹ 90/- on this account. This. in real terms. is the cost of the raw material (exclusive of freight. insurance and the like) and it is this, in our view. which should properly be included in computing the cost of the excisable product. (emphasis supplied) Submissions of the Respondents on DGAP reply under Rule 133(2A) dated 30.06.2020: The Respondents have also claimed that the DGAP in his reply dated 30.06.2020 has clarified as follows: Profiteering is the net total of additional amount a consumer has to bear, subject to denial of commensurate benefits of GST rate reduction or benefits of Input Tax Credit by any supplier. GST on this excess amount so charged is also a cost to consumer and has accordingly been correctl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (SC) the Hon ble Supreme Court has held that if the law required that something be done in a particular manner, it must be done in that manner and if not done in that manner has no existence in the eyes of law at all. Rule 133 mandated that any amount held as profiteered should be returned to the recipient wherever such person was identifiable. This Authority could not direct that the profiteered amount should be deposited in the Consumer Welfare Fund if the recipient was identifiable. The recipients of the Respondents were identifiable as they were their distributors and modern retail customers and therefore, in the unlikelihood of this Authority holding any amount as profiteered, appropriate orders should be passed to enable the Respondents to return such amount to their recipients. Submissions on affixing of Stickers of changed MRP: The Respondents have submitted that the DGAP in his Report dated 05.04.2019 vide para 19 has stated that the law provided for legal remedy in cases where packing materials with old MRP became unusable by way of affixing new MRP along with the old MRP as provided in letter dated 16.11.2017 issued by the Ministry of Consumer Affairs, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturer packer. Therefore, it could be said that such sticker could be affixed also by the distributors, dealers or retailers. The law recognized that the product could be anywhere in the distribution channel and all such persons like dealers and retailers could affix sticker to show the reduced MRP. As submitted above, in case of increase in MRP, relaxation was granted to manufacturers, importers and packers by the above said circular dated 04.07.2017 to affix stickers to declare the changed MRP on the unsold stock as existing on 1st July, 2017. In case of reduction of MRP, all persons including the dealers and retailers have been provided discretion to affix stickers as per Rule 6(3). In respect of reduction of MRP on the goods lying with the dealers and others, law has taken into account practical considerations. It was not possible for the manufacturers to affix stickers with reduced MRP on the products which have already been sold and lying with the dealers and retailers. Therefore, the manufacturers were not liable to affix stickers with reduced MRP when GST rate was reduced in respect of goods lying with others. It was further submitted that on a few SKUs like small s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act or the Rules or the National Anti-Profiteering Authority Methodology and Procedure, 2018 did not prescribe any procedure and mechanism for determination and calculation of profiteering which amounted to violation of principles of natural justice. The Procedure and Methodology issued on 19.7.2018 by this Authority only provided the procedure pertaining to the investigation and hearing. The most vital element under Section 171 was to determine whether benefit of reduction in tax rate or availability of input tax credit has been passed on by the registered person or not. This could be ascertained only by computing the impact of difference in the rate of tax or credit availability. The said impact could be ascertained product wise, service wise, entity wise, etc. However, the said Section or Rules made there under or procedure laid down by this Authority were completely silent on this aspect of calculation/computation. In the absence of any framework or guidelines laid down by Section 171 or Rules made thereunder, different approaches might be followed by this Authority / DGAP. Such unfettered discretion would lead to uncertainty, arbitrariness and whimsical approach on case to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d v. Union of India Ors. has passed an interim order dated 18.02.2020 wherein it has taken a prima facie view that the methodology adopted to consider average of prices pre-rate change and comparing it with specific instances of prices post the change of rates appeared to be incorrect. It has also been submitted that the DGAP has not adduced any evidence to show that the methodology adopted by him in the Respondents s case was recommended by this Authority. In fact, it was only after the 1st DGAP s report (wherein the DGAP had already adopted a methodology) that the querist was allowed to make submissions on facts before this Authority. In the absence of availability of these facts, this Authority could not have determined the methodology in the case of the Respondents beforehand and thus the DGAP s assertion that the methodology in the Respondents s case has been determined by this Authority appeared to be incorrect. In any case, in the absence of availability of methodology as on 15.11.2017 when the reduction in rate of tax took place, the Respondents have adopted a reasonable methodology consistent with Section 171 of the CGST Act which should be accepted. XXI. Submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CGST Act. Thus, this Authority could give any/all the above directions to the person who has been held as having violated Section 171. It is also submitted that the order required to be passed by this Authority under Section 171 would determine rights and liabilities of the said registered person with civil and/ penal consequences. However, Rule 133 did not provide for issuance of a show cause notice to the person alleged to have contravened Section 171, before passing an order under Rule 133. Therefore, Rule 133 of the CGST Rules, to that extent was violative of principles of natural justice. It has further been submitted that the first principle of natural justice viz. audi alteram partem required that the person concerned should be heard. One of the essential elements of hearing was communication of the grounds based on which action was proposed to be taken and a notice to show cause served such an essential purpose so that opportunity to preliminarily rebut was provided. The Respondents have cited the judgment of the Hon ble Supreme Court passed in the case of Canara Bank and Others v. Debasis Das and Others (2003) 4 SCC 557, where the Hon ble Court has held that a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee has reasonable opportunity to put forth their case. The Respondents have further relied on the case of Dharampal Satyapal Ltd. v. Dy. Commissioner of C. Ex. 2015 (320) ELT 3 (SC), where the Hon ble Supreme Court observed that applicability of principles of natural justice was not dependent on any statutory provision and that the principle has to be mandatorily applied irrespective of the fact whether there was any such statutory provision or not. In the case of Union of India v. Hanil Era Textiles Ltd. 2017 (349) ELT 384 (SC) , Hon ble Supreme Court has held that no order could be passed against a person without issuing a show cause notice to him. In the words of the Court:- no order could be passed against a person without issuing a show cause notice to them/it. This would be in violation of the principles of natural justice and also infringe Article 14 of the Constitution of India. Audi Alteram Partem, as the basic principle of natural justice ensures an opportunity of fair hearing to the parties. Issuance of a show cause notice is a part and parcel of the aforesaid principle which provides that the parties are in a position to defend themselve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f natural justice as held by the courts in the decisions/judgments referred supra. In view of the foregoing, the present proceedings without issuance of a show cause notice were not sustainable. Submissions of the Respondents on DGAP s reply under Rule 133(2A): The Respondents have also claimed that the aforesaid submissions were not dealt with by the DGAP in his 2nd report dated 31.01.2020. Accordingly, the Respondents have reiterated the submissions filed on 19.06.2019. The DGAP in their reply dated 30.06.2020 has also stated as follows: In this regard it is mentioned that DGAP is not required to give opportunity of hearing to the Respondents as there is no such provision in the CGST Rules, 2017 and the office of DGAP is merely an investigative authority. The opportunity to present the facts and merits of the case is accorded to the Respondents by the National Anti-profiteering authority. In this regard, the Respondents have submitted that while this Authority has accorded an opportunity of hearing, the Respondents have not been provided with the show cause notice containing the details mentioned in paras supra. In the absence of the said information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profiteering to the extent of INR 14.85 (the difference between actual price of INR 190.09 and ideal price of INR 175.24). However, in no case the allegation of profiteering could exceed INR 14.85, as the same was beyond the scope of Section 171 of the CGST Act. In this regard, the Respondents have submitted that in cases where the cum-tax prices have been increased beyond INR 190.09, the DGAP has considered the amount charged in excess of INR 190.09 also as profiteering under Section 171 which was wholly incorrect and without jurisdiction. An illustration of the same has been provided below:- Period Base price (excl. GST) GST Base Price (incl. GST) Pre-reduction price 148.51 28% (41.58) 190.09 Post-reduction ideal price computed by DGAP 148.51 18% (26.73) 175.24 Post-reduction actual sale price on 02.07.2018 161.95 18% (29.15) 191.10 Actual profitee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed person did not reduce the prices commensurately pursuant to the rate reduction or benefit of ITC mentioned in Section 171. The Respondents have duly performed their obligation under both the conditions. In the present case, Respondents have increased the prices of the SKUs supplied by them, due to loss of the input tax credit and other commercial reasons. It has also been contended that this Authority could not examine the increase in prices due to loss of input tax credit and other commercial reasons as the same was not covered under the ambit of Section 171. Wherever this Authority or the DGAP examined the increase in prices undertaken by a supplier, due to reasons other than mentioned in Section 171 and disputed the said increase, they assumed the role of de facto price regulating body which was not the intent of the CGST Act. Further, it was the contention of the DGAP that on perusal of the invoices issued by the distributors/retailers to the ultimate consumers, it was observed that the base prices have been increased and the final selling prices of the products have remained same. On this basis alone, the DGAP has concluded that the reduction in MRP did not indicate that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or services supplied. There could not be any fixed methodology for determination of the quantum of benefit to be passed on under Section 171(1) of the CGST Act, 2017. In the present case profiteered amount has been arrived at by comparing the average of the base prices of the impugned products sold during the period from 01.11.2017 to 14.11.2017, with the actual base prices on the invoices of such products sold during the period from 15.11.2017 to 30.09 2018. The DGAP has taken the average base prices of the products on the basis of details submitted by the Respondents themselves. The period of only 14 days was taken to compute the average base prices so that it was almost equal to the actual prices. The average base prices have been computed as the Respondents were not selling their products on a single base price and were charging different prices from different buyers. It was also necessary to compare the pre rate reduction prices with the actual post rate reduction prices as the benefit was required to be passed on to each buyer and it could not have been calculated by computing the average base prices post rate reduction. The DGAP has further stated that comparison of Actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90 95 8 88 95 0 0 2. 2 92 9 94 0 0 3. 3 95 10 95 0 0 4 4 98 11 97 0 2 5. 5 100 12 101 0 6 Thus, comparison of pre-rate reduction average price with post rate reduction average price for computation of profiteering would lead to a situation where a person/consumer who had paid ₹ 97/- or ₹ 101/- post rate reduction will not get any benefit of rate reduction even though these recipients might or might not have purchased goods in the period prior to rate reduction at a rate less than ₹ 95. Even a new purchaser who would purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the base prices of the products sold prior to the rate reduction period. The contention of the Respondents that such additional cost accrued led to increase in prices concurrently with the rate reduction did not hold any merit and was just an eyewash. Cost escalations did not fall within the ambit of Section 171 and so they could not be considered as a valid reason for not passing on the benefit of tax reduction. The word commensurate could be interpreted only to mean that the benefit passed on to the recipient has to be in equal measure of benefit accrued on account of tax reduction or benefit of ITC. The DGAP has further added that Section 171 mentioned reduction in the rate of tax on any supply of goods or services which did not mean that the reduction in the rate of tax was to be taken at the level of an entity/group/company for the entire supplies made by a registered person. Therefore, the benefit of tax reduction has to be passed on at the level of each supply of SKU to each buyer of such SKU and in case it is not passed on, the profiteered amount has to be calculated on each SKU. Therefore, the contention that the profiteered amount should be computed at the tariff h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CGST Act, 2017 which specified provision for valuation of supply. Clarifications on Consumer Promotions non-consideration: The DGAP has stated that the provisions contained in Section 171 did not provide for any means of passing on the benefit of reduction in the rate of tax or benefit of input tax credit other than by way of commensurate reduction in price. It was the Respondents s own business decision to extend the period of consumer promotion schemes, the cost of which could not be set off against the benefit that the Respondents ought to have passed on to their recipients on account of GST rate reduction w.e.f. 15.11.2017. Clarifications on post-supply price reduction non-consideration: The DGAP has stated that the taxable value as shown in the GSTR1/3B Returns filed by the Respondents have been taken into account for determining the base price both before and after rate reduction w.e.f. 15.11.2017. The evidence submitted by the Respondents in support of their claim to have given post-supply discounts were either invoices issued by their recipients, mentioning the description as Promotion Services with HSN Code 998361 or 998366 (Advertising Services) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived, was to cover the entire period where profiteering has been alleged to have been done. Clarifications on issue of zeroing : The DGAP has stated that as the profiteered amount has to be passed on each and every supply and to each and every recipient individually, higher price reduction on certain SKUs could not be adjusted against the profiteered amount in respect of other SKUs. As per the provisions of Section 171(1) the benefit accrued due to reduction in the rate of tax was required to be passed on each purchase made by a customer by commensurate reduction in the price. Clarifications on Loss due to reduced fiscal incentives under budgetary support scheme to be considered: The DGAP has also stated that with regard to the contention of the Respondents that as the reduced amount of refund (area based fiscal incentive) has resulted in increase in cost, which was directly attributable to the reduced GST rate, the same should be considered for the purpose of the on-going investigation into the alleged profiteering by the Respondents. The DGAP has claimed that as per the Notification No. 10(1) /2017-DBA-11/NER dated 05.10.2017, the eligible units were entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as provided vide letter No. WM-10(31/2017 dated16.11.2017, issued by Ministry of Consumer Affairs, Food and Public Distribution. Clarifications on absence of prescribed Methodology: The DGAP has stated that the methodology adopted by him in his Report was in line with the legal principles and this methodology has been consistent throughout in all his reports involving allegation of profiteering in similar cases and has been settled before this Authority. As regards methodology prescribed by this Authority, the Procedure and Methodology for determination of profiteering and intent thereof has been determined by it on case to case basis by adopting the most appropriate and accurate method based on facts and circumstances of each case as well as the nature of the goods and services supplied. There could not be any fixed mathematical formulations/methodology for determination of quantum of benefit to be passed on which would cover different sectors of the economy and each case has to be decided based on its specific facts. Clarifications on issuance of Show Cause Notice: In this regard the DGAP has mentioned that he was not required to give opportunity of hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction to their customers as per the provisions of Section 171 which states as under:- (1). 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. (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 them. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofiteered amount. The details of the computations have been given by the DGAP in Annexure-6 of his Report dated 31.01.2020. 22. The DGAP for computation of the profiteered amount has compared the channel of distribution wise average base prices of the SKUs which were being sold by the Respondents during the pre rate reduction period w.e.f. 01.11.2017 to 14.11.2017 with the actual post rate reduction channel wise base prices of these products supplied during the period from 15.11.2017 to 30.09.2017. It was not possible to compare the actual base prices prevalent during the pre and the post GST rate reduction periods due to the reasons that (i) exact comparison of millions of pre and post reduction invoices cannot be done (ii) a customer may not have purchased the same SKU during the pre rate reduction period which he has purchased in the post rate reduction period and (iii) the Respondents were selling their SKUs at different prices to different customers of their distribution channels and even within the same channel based on the various business considerations and hence a particular actual price cannot be taken in to consideration. The Respondents have themselves admitted in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod from 15.11.2017 to 30.09.2018, as have been supplied by the Respondents themselves, the amount of net higher sales realization due to increase in the base prices of the impacted SKUs, despite the reduction in the GST rate from 28% to 18% or the profiteered amount has been calculated as ₹ 2,41,51,14,485/- as per Annexure-6 of the investigation Report dated 31.01.2020. The excess GST charged from the recipients has also been included in the profiteered amount. The place of supply-wise break-up of the total profiteered amount has been furnished vide Table mentioned in the Report dated 31.01.2020 in respect of the 33 States/UTs. The above methodology employed by the DGAP for computing the profiteered amount appears to be appropriate, correct, logical, reasonable, justifiable and in consonance with the provisions of Section 171 of the CGST Act, 2017. The above mathematical methodology has also been approved by this Authority in respect of all such cases of reduction in the rate of tax. Therefore, the above mathematical methodology can be safely relied upon. 23. The Respondents through their elaborate oral and written submissions have submitted that thy have the practice of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, the above claim of the Respondents is not maintainable. 25. The Respondents have also stated that in terms of Rule 133(1) of the CGST Rules, 2017 this Authority was required to pass order within six months by 07.10.2019 as the report from the DGAP was received on 08.04.2019, as the fresh time limit of six months was not available under Rule 133(4) otherwise the proceedings would never come to an end. In this regard it would be pertinent to note that the I.O. No. 11/2019 dated 04.10.2019 under Rule 133(4) directing the DGAP to conduct further investigation in the present case was passed by this Authority due to the reason that the DGAP had not submitted findings on the issues raised by the Respondents vide their submissions dated 19.06.2019 including wrong computation of the profiteered amount. Therefore, further investigation was required to be done as a consequence of which the profiteered amount has been reduced to ₹ 2,41,51,14,485/- from ₹ 2,43,93,90,580/-. The Respondents cannot contend that the entire investigation including the further investigation ordered under Rule 133(4) should be completed within a period of 6 months when it involved fresh app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of passing repeated orders under Rule 133(4) and therefore, no allegation of perpetual pending of proceedings or ever greening can survive. 26. The Respondents have also cited the dates and events of the present proceedings to prove their above contention however, perusal of the record shows that the Report from the DGAP was received on 08.04.2019 and the Respondents were directed to appear on 29.04.2019 however, they had sought repeated adjournments and had finally appeared on 04.06.2019 after a lapse of a period of 36 days and then filed their written submissions on 19.06.2019 after a period of 14 days. The Respondents have not explained why the above period of 50 days should be counted in the period of 6 months prescribed under Rule 133(1) while passing order after receipt of the Report under Rule 133(4). Therefore, the above contention of the Respondents is illogical, unreasonable and contrary to the provisions of Rule 133(1) and hence the same cannot be accepted. 27. The Respondents have also claimed that they had challenged the validity of Para 10 of the above Guidelines before the Hon ble High Court of Delhi which had asked them to raise all their pleas bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in their submissions that they would challenge the present order before the higher forums. 28. The Respondents have further claimed that Para 10 supra treating the Report filed under Rule 133(4) as a fresh report under Rule 133(1) would tantamount to amendment in Rule 133(4) on the lines of Rule 133(5), which this Authority could not do as the power to amend rules was available only with the Central Government. In this regard it would be pertinent to mention that as discussed in para supra this Authority has only clarified the position which already exists in Rule 133(1) and hence such a clarification cannot amount to amendment of Rule 133 (4). Moreover, as per the power conferred on this Authority under Rule 126, which has been framed under Section 171 (3) and 164 of the above Act, this Authority is competent to clarify vide Para 10 of the above Guidelines that the Report furnished by the DGAP after further investigation ordered under Rule 133(4) shall be treated as a fresh Report under Rule 133 (1) and accordingly order on such Report can be passed within a period of 6 months. Therefore, there is no requirement of modifying the above Para and hold that the present proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernments have reduced rates of tax several times and have also extended the benefit of ITC. The total sacrifice of precious revenue by both the Governments is estimated to be around Crore during the last 3 years. However, it has been observed that many of the registered dealers like the Respondents are not interested in passing on both the benefits of tax reduction and ITC and are advancing lame excuses to misappropriate the amount sacrificed from the public exchequer even when they are not required to pay even a single penny from their own pocket. Therefore, the anti-profiteering provisions are bound to remain on the statute book till the registered persons cultivate the habit of voluntarily passing on the above benefits as a matter of routine. Hence, the above contention of the Respondents is incorrect. 31. The Respondents have further argued that as per Rule 129(6) the DGAP was required to complete the investigation within a period of 3 months which could be extended by another 3 months by this Authority, from the date of receipt of the recommendation from the Standing Committee on Anti-Profiteering. Since, the recommendation of the above Committee was received on 30.08.2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke its order from the date of receipt of the report of the Directorate General of Anti Profiteering, appears to be directory in as much as no consequence of non adherence of the said period of six months is prescribed either in the CGST Act or the rules framed thereunder. 33. Reliance is also placed on the judgment of the Hon ble Supreme Court in the case of Mahadev Govind Gharge v. Special Land Acquisition Officer (2011) 6 SCC 321 wherein it was held that:- 37. Procedural laws, like the Code, are intended to control and regulate the procedure of judicial proceedings to achieve the objects of justice and expeditious disposal of cases. The provisions of procedural law which do not provide for penal consequences in default of their compliance should normally be construed as directory in nature and should receive liberal construction. The Court should always keep in mind the object of the statute and adopt an interpretation which would further such cause in light of attendant circumstances. To put it simply, the procedural law must act as a linchpin to keep the wheel of expeditious and effective determination of dispute moving in its place. The procedural checks must ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .01.2020 submitted by the DGAP are maintainable and hence they are not required to be quashed. 36. The Respondents have also averred that the DGAP has computed the profiteered amount by comparing the pre-rate reduction average base prices with the post rate reduction actual base prices which was wrong. In this connection it would be appropriate to refer to the findings recorded in para supra vide which it has been explained in detail why the computation of the profiteered amount has been done by comparing the above prices. Therefore, the above claim of the Respondents cannot be accepted. 37. The Respondents have also furnished Tables and claimed that they were selling product ARIEL LAUPWD 2KG X 6 MAT FL D+C PC to a customer MR at various base prices ranging from INR 347.22 to INR 360.97 during the period from 01.11.2017 to 14.11.2017, the average base price of which has been determined as INR 360.58 by the DGAP, which was compared with the actual sale prices from 15.11.2017 onwards and where ever the actual base price charged post rate reduction was higher than the average base price pre-rate reduction, the DGAP has computed the difference as profiteering, whereas in those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igible customer on the ground that since they have passed more benefit on one product they would pass less or no benefit on the other product. Such denial of benefit of tax reduction would be hit by Section 171 (1) as well as Article 14 of the Constitution and hence the above claim of the Respondents in not tenable. Accordingly, the methodology adopted by the DGAP to compute the profiteered amount is correct in terms of Section 171(1). 39. In support of their above submissions, the Respondents have placed reliance on the observation of the Hon ble High Court of Delhi given in W. P. (C) 1780/2020 in the case of M/S Johnson Johnson Pvt. Ltd. v. Union of India Ors., vide its order dated 18.02.2020, whereby the order passed by this Authority has been stayed on the ground that the methodology adopted by the DGAP to compute profiteering was erroneous. In this regard it is respectfully submitted that the above order nowhere states that the methodology adopted by the DGAP was wrong. The Hon ble Court has specifically stated that Our attention has been drawn to the tabulation filed by the petitioner before the DGAP, which shows that in respect of several items sold by the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dents have also raised objections against the Table furnished by the DGAP in his above reply to establish that it would not be correct to compare the average base prices for the pre and post reduction periods and the DGAP should have simply compared the prices before the rate reduction with the prices charged after the rate reduction to the same recipient. However, it is quite apparent from the Table submitted by the DGAP that where a person has paid price of ₹ 97/- or 101/- he would not be able to get the benefit if average to average price is compared as the price would be ₹ 95/- during the post rate reduction period. Even a new purchaser who has paid ₹ 97/- would also not get the benefit if the above comparison is made. Moreover, it would simply not be possible to compare the pre and post reduction base prices in respect of each customer as there is a large number of customers and transactions, the same customer may not have purchased the same product during both the periods and some buyers may have bought a product during the pre rate reduction period which they may not have bought in the post reduction period or vice versa. By comparing average to actual pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e base price post rate reduction which was being charged by them in the pre rate reduction period and then charge GST @18% instead of 28%. The Respondents have deliberately not shown the pre and post rate reduction cum-tax prices of the above product which would have shown that the Respondents have profiteered on this product. The pre rate reduction cum-tax price of this product would have been ₹ 36.89 + GST Total=₹ 47.21 and post reduction cum-tax price would be ₹ 36.88 + GST @18%=6.63 Total ₹ 43.51 and hence there would be profiteering of ₹ 3.70 (₹ 47.21- 43.51) and not (-) 0.01 as has been claimed by the Respondents. 44. The Respondents have also pleaded that the word commensurate reduction used in Section 171 (1) denoted reduction in price after taking into account all the factors such as cost of raw materials, packing materials, overheads and other such elements which impacted pricing of goods and also connoted proportionality and adequacy. In this connection it would be pertinent to mention that Section 171 (1) only requires passing on the benefit of tax reduction and ITC and it has no connection with the other factors which influence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the supply and one after the supply when the price was finalized based on terms of sale like discounts or price reductions based on schemes, turnover, etc. To cover such situations, the word prices has been used in Section 171. The law has also used the word any before supply of goods to denote singular as against the plural for price. Therefore, for the same supply, existence of tentative and final prices has been recognized and consequently, all post-supply price reductions passed on should be factored in while examining whether commensurate reduction in prices has taken place or not. In this regard it is mentioned that the passing of the benefit under Section 171(1) is not subject to the agreement executed by the Respondents with their distributors as it is an independent statement of public policy made in favour of ordinary customers by sacrificing precious tax revenue of the Government which is legally enforceable. It is also on record that the Respondents are selling their products at the prices which are fixed by them in advance as is evident from the agreements executed by them with the CSD and CPC and the same are neither tentative nor they are being finalized at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, all the claims made by the Respondents in this regard are incorrect and are unacceptable. 47. The Respondents have further claimed that the word any has been used twice in Section 171(1). Any would mean that tax reduction could be any percentage and it could be ad valorem, specific rate or combination of both. Any supply did not necessarily mean SKU level supply and at the most it might be interpreted as goods classified under a particular tariff heading / HSN Code. Section 171 has used the words registered person however, the Respondents have not obtained registration SKU wise and it has been obtained based on the goods supplied which were classifiable under a particular tariff headings and hence Section 171 could not be applied SKU wise and calculation of profiteering should be considered at the level of HSN Code without prejudice that profiteering has to be considered at the legal entity level. In this regard it would be appropriate to note that as per the provisions of the CGST/SGST Acts the rate of CGST and SGST has to be fixed as percentage of the transaction value and it cannot be ad valorem or combination of specific value and ad valorem. Any supply mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 49. The Respondents have further contended that the term profiteering was not defined in the CGST Act or the rules made thereunder. Therefore, reference to common parlance meaning of the term profiteering must be made as per its definition mentioned in The Chambers Dictionary, The Collins Cobuild English Dictionary and The Oxford English Reference Dictionary . However, as has been discussed in para supra the definition of the profiteered amount has been provided in Section 171(1) and 171(3A) and the explanation attached to it hence, there is no need for using the definition given in the above dictionaries. Accordingly, the above contention of the Respondents is not tenable. 50. The Respondents have also submitted that the DGAP s interpretation of the term any supply as each and every supply was wholly misplaced and therefore, if a recipient has been supplied 2 SKUs and if any additional price charged on 1st SKU has been offset by passing on higher benefit on the 2nd SKU, then the profiteering should be determined after offsetting the higher benefit passed on to the very same recipient. The above claim of the Respondents is highly misplaced as the benefit has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the ultimate customer when they themselves have not received the benefit of tax reduction. It has repeatedly been made clear by the Union Finance Ministers, the Central Government and the GST Council that the benefit of rate reduction and ITC has to be passed on to the ultimate customer/buyer who bears the burden of tax. The Respondents are not only required to ensure that they themselves pass on the benefit of tax reduction but also to see that the same is passed on by their distributors and retailers down the line. Through the present proceeding it is the Respondents whose liability is proposed to be fixed in terms of Section171 (1) which they cannot avoid on the ground that they are not supplying the goods to the ultimate customers directly. Further, the DGAP has also correctly stated that Section 171 has no mandate to look into the fixing of prices of the products which the Respondents were free to fix. If there was any increase in the costs of the Respondents it could not be considered to have arisen exactly at the time of reduction in the rate of tax, which had forced them to raise their base prices exactly equal to the rate reduction or more. By no stretch of imagination s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of higher price reduction on certain SKUs while passing on no or less benefit on the other SKUs as it would be arbitrary and against the provisions of Section 171 (1). 54. In this regard it would also be worthwhile to mention that if the Respondents wanted to establish their claim of passing on the benefit of tax reduction by offering more quantity/grammage of a SKU they should have submitted the following details:- (i) Name of the SKU. (ii) Pre rate reduction copy of the invoice showing the base price, rate and amount of tax and cum-tax price of SKU. (iii) Pre rate reduction Grammage/quantity supplied on the SKU. (iv) Amount of benefit of tax reduction. (v) Commensurate Grammage/quantity to be supplied in lieu of amount of rate reduction. (vi) Grammage/quantity actually supplied post rate reduction. (vii) Date from which additional Grammage/quantity was supplied. (viii) Copy of Production Log of manufacture vide which Grammage/quantity was increased. (ix) Post rate reduction copy of invoice showing base price, amount and rate of tax and cum-tax price of SKU. (x) Copy of public notice/advertisement informing the customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost reduction periods as has been provided under Section 15(1) excluding the amount of discounts as per Section 15(3)(a), both of which state as under:- 15(1) 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. 15(3) The value of the supply shall not include any discount which is given - (a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; Therefore, as per Section 15 (3) (a) of the above Act the value of the supply does not include any discount which was given before or at the time of the supply if such discount had been duly recorded in the in invoice issued in respect of such supply and thus, the GST was chargeable on the actual transaction value after excluding any discount (conditional as well as unconditional) and therefore, actual transaction value has been considered for computation of profiteering. Since, the DGAP has compared the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as they were still entitled to get refund of the CGST @58% or IGST @29% if paid in cash, as per the Notification dated 05.10.2017, as was available to them prior to the reduction in the rate of GST from 28% to 18%. Therefore, they are still getting the same proportionate refund of tax which they were getting before 05.10.2017 hence, practically they have not suffered any adverse impact on account of reduction in the rate of tax. The refund of CGST or IGST as per the above Notification paid in cash was also dependent on the amount of input tax credit utilized by the Respondents for discharge of their output GST liability which was further based on the output GST rate. In case the input tax credit utilization by the Respondents has reduced, their refund amount might increase in case the Respondents were paying GST in cash. By their above logic the Respondents certainly do not intend to claim that if there was increase in the rate of tax the Respondents would have to reduce prices of their goods as there would be increase in the refund due to increase in the rate of tax. The Respondents have also furnished two illustrations to establish their claim which show that there has been los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondents. It would also be appropriate to state here that price includes GST also. The profiteered amount can also not be paid from the GST deposited in the account of the Central and the State Governments by the Respondents as the above amount is required to be deposited in the Consumer Welfare Funds (CWFs) as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017 along with the interest. Therefore, the above contention of the Respondents is untenable and hence it cannot be accepted. Accordingly, an amount of ₹ 27.69 Crore (PGHP), ₹ 8.85 Crore (GIL) and ₹ 0.31 Crore (PGHH) Total= ₹ 36.85 Crore representing the additional GST illegally charged from the buyers cannot be reduced from the profiteered amount. The above Respondents have also referred to the cases of R.S. Joshi Sales Tax Officer and Dai Ichi Karkaria supra in their 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 both the above cases cannot be relied upon. 60. The Respondents have also prepared consolidated working of the profiteered amount vide their submissions dated 19.06.2019 by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which promotion schemes were extended and revised profiteering was computed which included the higher benefit passed on, as per the annexure attached with their above submissions is wrong and incorrect and accordingly, an amount of ₹ 61.50 Crore cannot be reduced from the profiteered amount on the above two grounds as has been claimed by the Respondents. (iii) As explained in para supra the Respondents cannot pass more benefit on certain SKUs as per their own convenience and refuse to pass on the same on other SKUs. As per theprovisions of Section 171(1) and Article 14 they are required to pass on the benefit on each SKU to each buyer and therefore, computation of the benefit passed on by way of higher price reduction on certain SKUs as per the annexure attached with the submissions dated 19.06.2019 is incorrect and hence an amount of ₹ 190.36 Crore cannot be reduced from the profiteered amount. (iv) No profiteering has been computed on the SKUs where the Respondents have charged less prices as compared to the average prices. In addition any benefit passed on by claiming higher price reduction on certain SKUs where the actual price charged was less than the average pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle 14 and hence they are liable to be rejected. 62. The Respondents have further contended that the Methodology and Procedure, 2018 notified by this Authority under Rule 126 did not provide any methodology or guidelines as to the method for passing on the benefit or for computation of the profiteered amount. Thus, in the absence of any prescribed methodology, the method adopted by the Respondents to compute profiteering was as per the law and the same was required to be accepted. The above contention of the Respondents is untenable as the Methodology Procedure for passing on the benefits of reduction in the rate of tax and ITC or for 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. and therefore, no methodology or guidelines are required to be provided separately for passing on the above benefits or for computation of the profiteered amount. It is clear from the plain reading of the above provision that it mentions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.e.f. 01.07.2017. Similarly, the benefit of tax reduction would depend upon the pre rate reduction price of the SKU and quantum of reduction in the rate of tax from the date of its notification. Computation of commensurate reduction in prices is purely a mathematical exercise which is based upon the above parameters and hence it would vary from SKU to SKU or unit to unit or service to service and therefore, no fixed mathematical methodology can be prescribed to determine the amount of benefit which a supplier is required to pass on to a buyer. Similarly, computation of the profiteered amount is also a mathematical exercise which can be done by any person who has elementary knowledge of accounts and mathematics. However, to further explain the legislative intent behind the above provision, this Authority has been authorised to determine the Methodology Procedure which has been done by it vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017 and not on 19.07.2018 as has been claimed by the Respondents. 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 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase price of a SKU which they were charging as on 14.11.2017 and then charge GST @18% w.e.f. 15.11.2017 in place of 28%. Instead of doing that the they have raised their pre rate reduction base prices over night as is evident from the discussion made in paras supra. It is abundantly clear from the above narration of the facts and the law that no guidelines and methodology or elaborate mathematical calculations are required to be prescribed separately under Rule 126 for passing on the benefit of tax reduction or for computation of the profiteered amount. The Respondents cannot deny the benefit of tax reduction to their customers on the above ground and enrich themselves at the expense of their buyers as Section 171 provides clear cut methodology and procedure to compute the benefit of tax reduction and the profiteered amount. Therefore, the computation of profiteering made by the Respondents is incorrect, illogical, arbitrary and against the provisions of Section 171 and Article 14 and hence, it cannot be accepted. 63. The Respondents have also contended that in respect of certain category of SKUs, the DGAP has inadvertently compared the pre-rate reduction post-discount prices wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saver IN and INR 183.48 was the average price pre-rate reduction after deducting post-supply discount. When the DGAP had called for the price of these SKUs, the Respondents had submitted price of INR 183.48 under the impression that the computation of profiteering would be based on prices after post-supply discount. However, on verifying the computation done by the DGAP it was observed that the computational methodology followed by the DGAP was to compare prices charged before deducting post-supply discounts. Accordingly, the Respondents had submitted the revised price based on the price charged before deducting post supply discount for this SKU as INR 194.31. The Respondents have further submitted that for computation of profiteering for SKIJ H S SHM 360mlx12 SB saver IN, the DGAP has taken base price of INR 194.31. Thus, for computing profiteering in respect of SKU SHM 360MLX12 SB CST IN the base price adopted by the DGAP should be INR 194.31 and not INR 183.48, which was the price charged after deducting post supply discount. In case this error was corrected it would result in reduction in profiteering by INR 28.52 Crore (PGHP) excluding GST. In this connection perusal of Annex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been carefully perused and it has been revealed that all the claims made by the Respondents in them are wrong and incorrect. Accordingly, the profiteered amount has been computed correctly due to non-passing on the benefit by the Respondents. 67. The Respondents have further maintained that the Government had not communicated any method to pass on the benefit of rate reduction in the absence of which they had continued the promotion schemes. The other alternative would have required stopping of the existing promotions, discarding of the existing packing material, printing of new packing material and packing in new packing material which would have taken a minimum of 3-4 months. The above contention of the Respondents is incorrect as there was no requirement to continue the existing promotion schemes or discarding the existing packing material and packing in the new material. As has been explained in para supra the Respondents were simply required to maintain the base prices of the SKUs which they were charging before the rate reduction and charge GST @18% instead of 28% and no method was required to be prescribed by the Government to pass on the benefit of tax reduction. They w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Holders Accordingly, there was no necessity of new packaging material and no wait of 3-4 months for passing on the benefit. If the Respondents were not capable of doing the above they could have computed the profiteered amount and deposited it in the CWF of the Central and the State Governments as per the provisions of Rule 133(3)(b), which has been done by several big manufactures. However, the Respondents had no such bonafide intention as they had not reduced and re-fixed the MRPs and had continued to sell their products at the pre rate reduction MRPs and therefore, their such unconvincing arguments cannot be relied upon. It is reiterated that as per Section 171 (1) reduction in prices is the only legally permissible method for passing on the benefit of tax reduction and it cannot be done by way of extra sale promotion schemes, extra discount, higher grammage and higher combination packages etc. Accordingly, an amount of INR 19,71,93,934 (PGHP) and INR (GIL) Total= INR 23,02,08,358/- computed on the supplies of the SKUs on the basis of promotion schemes cannot be excluded from the profiteering. 68. The Respondents have also stated that profiteering should be based on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the prices in the post rate reduction period due to the discounts is immaterial. The argument of increasing the post rate reduction discounts is an afterthought on the basis of which the Respondents are trying to justify passing on of the benefit of rate reduction which cannot be accepted. 69. The Respondents have further stated the they had allocated the amount passed on by way of price reduction against individual line-items of sale which ought to have been considered by the DGAP. This has been illustrated by the Respondents by showing the pre rate reduction price as ₹ 100/-, post supply reduction as ₹ 5/- and net price ex-GST as ₹ 95/-. Post rate reduction base price has been shown as ₹ 102/-, post supply reduction as ₹ 7.5 and net price ex-GST as ₹ 94.5 and the profiteering has been calculated as ₹ 2/- for the pre rate reduction period, Rs. (-) 2.5 for the post supply and Rs. (-) 0.5 for the post rate reduction period. The illustration given by the Respondents is completely hypothetical and is based on the prices and reductions invented by the Respondents which are illogical, arbitrary and illegal as no benefit of tax reduction has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per Section 33 of the CGST Act, 2017. Issuing of wrong and false invoices showing incorrect price and GST is an offence under Section 122(1). The Respondents cannot invent ways and means as per their own convenience to pass on the benefit and they have to comply with the provisions of Section 171(1). The transaction value for computing the profiteered amount is required to be considered as per the provisions of Section 15 and hence it cannot be claimed that the benefit should be presumed to have been passed even if it was not calculated as per the legally prescribed provision under the above Section. Any such contention is illegal and hence it cannot be accepted 72. The Respondents have further contended that their recipients viz. distributors and modern retailers had treated the discounts as service in view of the fact that the incentive received by the dealers was considered by the Department as consideration for the service and Service Tax was demanded on such incentives. In order to avoid litigation the Respondents had accepted the claim for price reductions from the recipients with tax as it was revenue neutral, being creditable in the hands of the Respondents. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r above claim vide Annexure-4 attached to their submissions dated 09.06.2020, perusal of which shoes that it gives the details of the promotional amount paid to M/s. AM Agencies Jammu, details of sales made to it and the details of the invoice dated 27.01.2018 raised by the above Agencies on account of promotion services on the Respondents. It is established from the entries made in the invoice that the same has been issued on account of rendering promotional services and not on account of passing on the benefit of tax reduction. There is also no correlation between the promotional amount and the sales made to the above agencies which could establish that this amount was paid on account of passing on the benefit of tax reduction. Hence, the claim made by the Respondents on the above grounds is wrong and misleading and therefore, the same cannot be accepted. The Respondents have also placed reliance on the cases of Union of India v. Bombay Tyres International and M/S Moped India Ltd. v. Asst. Collector supra both of which do not apply in the facts of the present case. 73. The Respondents had repeatedly claimed that the allegation of profiteering in respect of supplies made th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of which is required to be passed on. Accordingly, an amount of INR 3,15,09,080/- computed as profiteering in respect of the above 4 products comprising of 6 SKUs cannot be reduced from the total profiteering. 75. The Respondents have further claimed that they had provided increased quantity of the same product at the same/reduced price per grammage or by way of providing discounts on combo packs as against the individual prices of the product combined together in such packs on account of passing on the benefit of tax reduction e.g. they were supplying Ariel 14.3 Gr. at MRP of ₹ 2/- against the Ariel 12 Gm. pack which had MRP of ₹ 2/-. In this regard it would be appropriate to note that the Respondents were required to pass on the benefit by way of commensurate reduction in the price of the Ariel 12 Gm. pack only and they had no option of substituting it with another SKU. They have also not explained how Ariel 14.3 Gm pack could be considered as passing on the benefit on Ariel 12 Gm pack when no details have been submitted. The Respondents have also mentioned the issue of coinage on the payment of prices of small sachet packs and reduction in quantity which only sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Respondents vide Annexure-3, it could be seen that vide column AN the Respondents have given the details of the new promotion schemes, vide column AO the comparable base prices, vide column AU the revised profiteering including 18% GST and vide column AV the revised negative amount including GST @18%. Since, the benefit of tax reduction cannot be passed on by way of floating new promotional schemes the above computations of the base prices and the profiteered amount and excess profiteered amount are wrong, incorrect and not in consonance with the provisions of Section 171(1) and hence the same cannot be accepted. 78. The Respondents have also contended that the DGAP has applied the methodology of Zeroing while computing the profiteered amount which was held to be incorrect by the Appellate Body of the WTO. In this regard, the Respondents have referred to the Report No. 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, vide which it was held that the methodology of Zeroing could not be applied and both the negative and positive margins have to be considered while applying the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondents are liable to be investigated till the date they could prove that they have passed on the benefit of tax reduction. Since, the details of complaint made against the Respondents were received on 08.10.2018 they have been investigated till 30.09.2018 so that a reference point is available to conduct the investigation as no investigation can be conducted without a fixed time frame. Since, the Respondents have failed to produce any evidence during the course of the investigation or the present proceedings that they have passed on the benefit, hence they are apparently still profiteering in violation of the provisions of Section 171(1) and any subsequent price increase made by them also amounts to profiteering. The contention of the Respondents that one could be investigated in perpetuity is not correct as such a person would be ordered to reduce his prices immediately per as the provisions of Rule 133(3)(a) from the date of passing of the order by this Authority and if the does so no further investigation can be conducted against them. In case the Respondents cannot be investigated till the time they prove passing on the benefit and compliance with the provisions of Section 171 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondents needed to pass on the reduced tax rate, the same would need to be construed in a reasonable manner keeping in mind the factors specific to the Respondents. This Authority was statutorily empowered to determine this issue and provide for either a specific time period for which investigation was to be conducted on reasonable basis or provide a set of guidelines to be followed by the DGAP while determining the period of investigation as per the Rule 126 or the Guidelines dated 04.10.2019. In this connection it would be appropriate to note that this Authority has repeatedly held that the investigation has to be carried out till the benefit of rate reduction is passed on as the offence continues to be committed by a registered person till he passes on the benefit in terms of Section 171(1). Such a person cannot be allowed to misappropriate the amount of benefit granted to him from the public exchequer and enrich himself as the expense of unorganised, voiceless and vulnerable customers. The Respondents are not required to pay even a single penny from their own pocket while passing on the benefit of tax reduction and hence the should have no objection on the period of inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imination as all the parties are being treated equally. 83. It has also been submitted by the Respondents that the present investigation was initiated pursuant to the interactive sessions which the Respondents had with this Authority in which information was provided by the Respondents. Based on the said information, this Authority had presumed that a case was made out against the Respondents and it had forwarded the information to the Standing Committee for examination. This act of this Authority suffered from the vice of discrimination, as this Authority has neither initiated similar type of investigation nor called for information from similar type of business competitors. The above allegation of the Respondents is absolutely frivolous as similar interactive sessions were held with a number of other major FMCG companies like M/S Hindustan Lever Ltd., M/S Nestle India Ltd., M/S Patanjali Ayurveda Ltd. and M/S Johnson Johnson Pvt. Ltd. etc. and they were duly investigated and held liable for profiteering and hence the above contention is absolutely wrong which cannot be accepted. 84. The Respondents have also submitted that the period of investigation was neither envisaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.2018 causes no discrimination to the Respondents as it has been established after investigation that they have not passed on the benefit till 30.09.2018. It is absolutely clear from the provisions of Section 171(1) 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. and therefore, every such person who has not passed on the above benefits is liable to be investigated till the passes on the benefits. Rule 129(2) also specifies that the DGAP shall conduct investigation and collect necessary evidence to determine whether the above benefits have been passed on. Accordingly, investigation has to be carried out till the date the benefit of tax reduction is not passed on by the Respondents which in this case is limited till 30.09.2018 but can be extended till the passes on the benefit. Therefore, there are clear cut provisions under the above Act and the Rules till what period the investigation is to be conducted and it cannot be restricted to a period of 3 months as contended by the Respondents as there is no such provision in the Act or the Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he benefit of tax reduction inspite of the fact that they did not have to bear the cost. 86. The Respondents have also argued that the profiteered amount has to be returned to the recipients as per Rule 133(3)(b) or deposited in the CWFs as per Rule 133(3)(c), constituted under Section 57 of CGST Act, if the eligible persons were not identifiable. The recipients of the Respondents were identifiable as they were their distributors and modern retail customers and therefore, appropriate orders should be passed to enable the Respondents to return such amount to their recipients. In this connection it would be relevant to state that it has been clarified several times by the Union Finance Ministers, the Central Government and the GST Council that the benefit of tax reduction is required to be passed on to the ordinary customer who bears the burden of tax and hence it cannot be returned to the recipients of the Respondents. The Respondents have also relied upon the cases of State of Jharkhand v. Ambay Cements and Tata Chemicals Ltd. v. Commissioner of Customs supra to support their above contention. However, the above cases do not support the case of the Respondents as the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogy (Packaged Commodities) Rules 2011 and hence they have committed violation of the above provisions. In case the Respondents were not able to reduce prices on small sachets they should have computed the profiteered amount and deposited the same in the CWFs as the other manufacturers have done. However, it is apparent that the Respondents had no intention of passing on the benefit hence the above contention of the Respondents is not maintainable. 89. The Respondents have also claimed that the DGAP in his report dated 31.01.2020 has stated that the profiteering has been quantified only on the goods supplied by the Respondents after 15.11.2017 and not on the goods lying in the distribution chain on 15.11.2017, however, the sticker of new MRP has to be fixed along with the old MRP on the stock in hand as provided vide letter No. WM-10(31)/2017 dated 16.11.2017, issued by the Ministry of Consumer Affairs, Food and Public Distribution. It has also been submitted that neither the DGAP nor this Authority have been empowered under the Legal Metrology Act or the rules made there under to verify Respondent s compliance with the provisions of legal metrology and hence they should refrain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per their own volition. The Malaysian Government has since withdrawn the above measures as they were not working satisfactorily in that Country. Therefore, the above claim of the Respondents cannot be accepted. The Respondents have also relied upon the case of Commissioner of Income Tax Bangalore v. B. C. Srinivasa Shetty supra , where it was held that charging section of capital gains was not attracted where corresponding computation provision was inapplicable. In this regard it would be relevant to mention that no tax has been imposed under Section 171(1) and therefore, there is no question of providing charging Section in the above Act. The methodology to determine whether the benefits of tax reduction and ITC have been passed or for computing the profiteered amount has been outlined in detail in Section 171 itself and hence the law settled in the above case is not being followed. 91. The Respondents have also submitted that the present proceedings had been conducted in violation of the principles of natural justice as show cause notice had not been issued to the Respondents. Moreover, the investigation was initiated on the basis of the reference of the Secretary of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a complaint would not have been made by the distributors against their principals i.e. the Respondents as per the mutual appropriation of the profiteered amount. As per the provisions of Section 171 (2) and Para 9 of the Methodology Procedure framed by this Authority under Rule 126 which empowers this Authority to take suo moto cognizance of all such cases where the benefits of rate reduction or ITC are required to be passed on, it is the onerous duty of this Authority to ensure that the benefit of tax reduction is passed on by the Respondents and accordingly the Respondent have been investigated. The action of taking suo moto cognizance has been approved vide order dated 10.02.2020 passed by the Hon ble High Court of Delhi in W.P.(C) 969/2020, in the case of M/s. Nestle India Ltd. another v. Union of India others in which the Hon ble Court has observed that:- We, however, make it clear that this interim order shall not come in the way of the National Anti Profiteering Authority in cases where it has suo moto taken action. (Emphasis supplied) 92. The Respondents have further submitted that Rule 133 of the CGST Rules provided that this Authority could order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority has considered the report of the DGAP as a show cause notice, which was not correct. In this connection it is stated that this Authority has served show cause notices twice on the Respondents as has been explained above asking them to explain why they should be not be held to have profiteered and why penalty should not be imposed on them for violation of the provisions of Section 171. The Respondents cannot dictate the contents of the notice nor notice can be given by mentioning 1383 SKUs supplied by them as well as millions of sale transactions conducted by them on which profiteering has been computed. Nowhere the Report submitted by the DGAP has been treated as the show cause notice. There is no provision under Rule 133 to serve notice to the Respondents and such a notice cannot be served at every stage of the proceedings as per the wishes of the Respondents. The Respondents have also not objected to the present proceedings at the very beginning on the ground of not having been served with a detailed notice and hence the present objection is nothing but an afterthought which cannot be accepted. 94. The Respondents have also submitted that the DGAP has made his computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e product was not at all reduced by the Respondents and the Respondents continued to charge a cum-tax price of INR 190.09, it was the Respondents s understanding that they could be charged for profiteering to the extent of INR 14.85 (the difference between actual price of INR 190.09 and ideal price of INR 175.24). However, in no case the allegation of profiteering could exceed INR 14.85, as the same was beyond the scope of Section 171 of the CGST Act. They have also submitted a Table to substantiate their contention. It is further submitted by them that the additional increase in price was attributable to the business profits of the Respondents which was not within the scope of Section 171. The above claim of the Respondents is not only illogical but it is also illegal as while passing on the benefit of tax reduction they on the one hand are claiming to reduced the prices commensurately and on the other hand they are withdrawing the benefit by stating that the increase in price was on account of business profits. This ingenious argument advance by the Respondents amounts to not passing on the benefit of tax reduction and hence the amount so claimed to be business profit is required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re invokable only when a registered person did not reduce the prices commensurately however, the Respondents have duly performed their obligation. They have increased their prices due to loss of the input tax credit and other commercial reasons which could not be examined as the same was not covered under Section 171. The above claim of the Respondents is wholly incorrect as they are required to pass on the benefit of tax reduction and not of ITC. The Respondents are still entitled to the full benefit of ITC which they were availing before the rate reduction. Therefore, the cannot increase their prices on the above grounds. Further, the DGAP has nowhere stated that on perusal of the invoices issued by the distributors/retailers to the ultimate consumers, it was observed that the base prices have been increased and the final selling prices of the products had remained same. Therefore there was no ground to provide such invoices to the Respondents. The DGAP has recorded in his Reports that the Respondents have not reduced their prices on the basis of the invoices issued by them to their recipients. Therefore, the above contention is also incorrect. It is established from the investig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09.2018, which has been individually and collectively computed in respect of all the 33 States and Union Territories as per Annexure-6 attached to the Report of the DGAP dated 31.01.2020. The consolidated place of supply wise i.e. State/UT wise breakup of the total profiteered amount of ₹ 2,41,51,14,485/- is given in the Table below as per the above Annexure:- State Name Total Profiteering Andaman Nicobar Islands 26,70,205 Andhra Pradesh 11,84,56,433 Arunachal Pradesh 6,52,319 Assam 3,86,91,768 Bihar 7,13,42,240 Chandigarh 24,72,685 Chhattisgarh 2,48,50,574 Delhi 13,17,62,298 Goa 1,39,93,388 Gujarat 14,84,91,508 Haryana 10,32,22,549 Himachal Prade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondents from their recipients till the date of deposit in the respective Consumer Welfare Funds. The above amount of ₹ 2,41,51,14,485/- along with the applicable interest thereon, shall be deposited within a period of 3 months from the date of passing of this order failing which it shall be recovered by the Commissioners of the Central and the State Tax of the State/UT Governments as per the provisions of their CGST/SGST Acts. 103. It is also revealed from the record that there are reasonable grounds to believe that the Respondents have apparently not passed on the benefit of tax rate reduction w.e.f. 01.10.2018 onwards although they have consistently maintained during the course of the present proceedings that they have passed on the benefit w.e.f. 15.11.2017. However, they have not produced any reliable and cogent evidence to prove that they have passed on the benefit till the pendency of these proceedings before this Authority. All the claims of the Respondents by passing on the benefit by way of post rate reduction discounts, reduction in the post rate reduction prices, increase in the Grammage/quantity, passing on of the more benefit in respect of certain SKUs and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 171 (1) of the CGST Act, 2017 and they have thus resorted to profiteering. Hence, they have committed an offence for violation of the provisions of Section 171 (1) during the period from 15.11.2017 to 30.09.2018 and therefore, they are apparently liable for imposition of penalty under the provisions of Section 171 (3A) of the above Act. However, perusal of the provisions of Section 171 (3A) under which penalty has been prescribed for the above violation shows that it has been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019 and it was not in operation during the period from 15.11.2017 to 30.09.2018 when the Respondents had committed the above violation and hence, the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondents retrospectively. Accordingly, notice for imposition of penalty is not required to be issued to the Respondents. 108.As per the provisions of Rule 133 (1) of the CGST Rules, 2017 this order was required to be passed within a period of 6 months from the date of receipt of the Report from the DGAP under Rule 129 (6) of the above Rules. Since, the present Report has been received by this Authority o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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