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TMI Blog2022 (7) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... a. That a Notice under Rule 129 of the Rules was issued by the DGAP on 15.05.2020, calling upon the Respondent to reply as to whether he admitted that the benefit of reduction in GST rate w.e.f. 01.01,2019, had not been passed on to his recipients by way of commensurate reduction in prices and if so, to suo moto determine the quantum thereof and indicate the same in his reply to the Notice as well as to furnish all documents in support of his reply, Further, corrigendum to the NOI dated 15.05.2020 was issued on 28.12.2020, in which the words "July, 2017 to March, 2019" were substituted by the words "October, 2018 to February, 2020" in pars 3 of the NOI dated 15.05.2020 b. That in response to the Notice and several reminder letters, the Respondent did not submit all the requisite documents on the due date. Hence. Summons dated 29.10.2021 under Section 70 of the CGST Act, 2017 read with Rule 132 of the Rules, were issued to the Respondent to submit all the relevant documents. In compliance to said summons, the Respondent submitted the relevant documents. c. That the period covered under investigation was from 01.01.2019 to 29.02.2020. d. That the statutory time limit to complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adesh, Punjab, Madhya Pradesh and Gujarat. (ii) Movie wise & rate wise data for the screens namely Bhuj, Surendranagar for the State of Gujarat and Ghazipur, Nokia, Pilkhuwa and Raebareli for the State of Uttar Pradesh for the period October, 2018 to February, 2020. (iii) Movie wise & rate wise data for all screen in Kotkapura (Punjab) for the period October, 2018 to March, 2019. (iv) Movie wise & rate wise data for all screen in Kanpur DCR (Uttar Pradesh) for the period October, 2018 to September. 2019. (v) Movie wise & rate wise data for all screen in Hapur (Uttar Pradesh) for the period April, 2019 to February, 2020. (vi) Movie wise & rate wise data for the screens in Sangrur (Punjab) and Ratlam (Madhya Pradesh) for the period April, 2019 to February, 2020, (vii) Reconciliation of turnovers (Box Office, F&B & other sales) with GST Returns for the period December, 2018 to February, 2020. 3. The reference received from the National Anti-Profiteering Authority, various replies of the Respondent and the documents/evidence on record had been examined in detail by the DGAP. The Findings of the DGAP are as under- a. The main issues to be examined was whether the GST rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creen in Hapur (Uttar Pradesh), the profiteering for the period 01.01.2019 to 31.03.2019 was already computed by the DGAP and upheld by the Authority vide Order No 15/2020 dated 12.03.2020 Therefore, profiteering in respect of screen in Hapur was computed for the further period i.e. 01.04.2019 to 29.02.2020 in the present report. e. The Respondent had submitted that he had different ticket prices for the movies depending on the factors namely Category of Movies, Movie Type (3D & Non-3D), Ticket type (DIAMOND, GOLD, PLATINUM and SILVER), Weekdays (Monday to Thursday), Weekends (Friday to Sunday), Show timings (Morning, Other than Morning Show) etc. In this regard it was submitted that the profiteering, if any, had been arrived at by comparing average selling prices for each of the 'unique combination of the above factors' such as "DIAMOND Weekdays Morning Show 3D" screened during the period 01.10.2018 to 31.12.2018 of pre-rate reduction period, and the prices post 01.01.2019 for the movies with the similar 'unique combination of the above factors' in each aspect. f. For the purpose of determination of profiteering, the methodology adopted could be explained by illu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Respondent had also been arrived in similar way. g. The issue that remains was the determination and quantification of profiteering by the Respondent for failing to pass on the benefit of the reduction in the rate of GST on the goods supplied to his recipients, in terms of Section 171 of the CGST Act, 2017 From the session wise sale register made available by the Respondent, it appeared that the Respondent had increased the base prices of the tickets when the rate of GST was reduced from 28% to 18% and from 18% to 12% w.e.f. 01.01.2019, so that the commensurate benefit of GST rate reduction was not passed on to the recipients. On the basis of 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 service by way of admission to exhibition of cinematograph films during the period 01.01.2019 to 29.02.2020, as furnished by the Respondent, the amount of net higher sales realization due to increase in the base prices of the impacted service, despite the reduction in the GST rate or in other words, the profiteered amount comes to Rs. 2,66,99,340/- in respect of all the screens (namely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,66.99,340/- from the recipients in respect of all the screens operated by the Respondent during the period 01.01,2019 to 29.02.2020, which included both the profiteered amount and GST on the said profiteered amount. 5. The DGAP has also concluded that in view of the aforementioned findings, it appeared that Section 171 (1) of the CGST Act, 2017 requiring that "any reduction in rate of tax on any supply of goods or services or the benefit of FTC shall be passed on to the recipient by way of commensurate reduction in prices". had been contravened by the Respondent in the present case. 6. The above Report was carefully considered by this Authority and a Notice dated 17.06 2021 was issued to the Respondent to explain why the Report dated 31.03.2021 furnished by the DGAP should not be accepted and his liability for profiteering in violation of the provisions of Section 171 should not be fixed. The Respondent was directed to file written submissions which had been filed on 26,07.2021 wherein the Respondent had submitted' - a. He objected to the initiation of the anti- profiteering proceedings across India u/s 171 of the CGST Act vide his Notice dated 15.05.2020 It was subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vies post rate reduction until February 29, 2020. There were no rules to determine the 'anti- profiteering' amount and the time for which the pricing of supply is to be examined for the purposes. At the most in case the same movies had been screened pre and post rate reduction, and the benefit of the rate reduction had not been passed to the consumers one might had to examine the scope of anti-profiteering, However, the approach of comparing all the movies until February 29, 2020 post the reduction of rate was incorrect. Further, the present proceedings had been subjected to unrealistically long period of time. This was in fact against the very norm set up internally by the DGAP and had been regularly applied and followed by this Authority as well. The Respondent referred to the DGAP's supplementary report dated 22.01.2020 in relation to the Respondent's earlier investigation for Flapur (UP) screen the finality of which was attained vide Order No, 15/2020 dated 12.03.2020. Vide the said supplementary report of the DGAP dated 22.01.2020 at point E of pars 5 (Annexure C), it had been clearly admitted and mentioned that: "As a practice, his reports on profiteerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missed sight of these very obvious findings. There had been case where there was slight increase in prices due to varied reasons. (iii) Capital Expenditure incurred: The firm had incurred Capital expenditure on all the screens across India during the period 01.01.2019 to 29.02.2020 as below: Sr.No. Cinema Total 1. Bhuj 3,36,77,743 2. Ghazipur 82,21,325 3. Hapur 1,33,26,706 4. Kanpur 8,78,750 5. Kotkapura 4,94,600 6. Noida 10,79,878 7. Pilkhuwa 7,05,570 8. Surendranagar 1,21,04,634 9. Rae-barell 39,32,155 Total 7,44,21,360 The expenditure tabulated above was in respect of various capital expenditures such as the following: a. New sound system b. Sound proofing (Acoustic system) c. Air conditioners d. New projectors e. Auditorium seats f. New screen g. Popcorn vending machines, counters, kitchen appliances etc. h. Other furniture, fixtures i. Plumbing work j. Fire-fighting equipment As could be seen above, the sound quality had improved tremendously. The cine-viewing experience was augmented. The consumer would also quite obviously be willing to spend more to be able to enjoy an enhanced experience of v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Varun Dhawan, Madhuri Dixit, Sanjay Dutt, Sonakshi Sinha etc.) 50.00% 5. Kesari (Starring Akshay Kumar) 52.50% 6. Gully Boy (Starring Ranveer Singh, Alia Bhatt) 52.50% As seen herein, high amount of collections of movie tickets was paid to distributors. In most cases, more than half of the collections of ticket prices were paid to distributors. Here, the cinema owner was obviously to charge more for the tickets. In such a scenario, the question of profiteering does not arise. The amount that was left over was bare minimum and required to re-coup the fixed and variable overheads of the Respondent itself. (vi) Methodology used by the Respondent: While the Respondent did not admit to any profiteering. it however was assuming such a scenario and proposes that the following methodology could be used for calculation of the amount of profiteering. * New price points: the Respondent made a comparison of the rates that existed prior to change of rate of tax. Certain price ranges were the same as the period before the change in rate and certain price ranges were completely new in comparison to the prior period range. * in case of rates that remained unchanged, the calculation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods or services had to get the benefit from the supplier and hence, this benefit had to he calculated for each and every product supplied. The investigation by the DGAP was conducted under the provisions of Section 171 of the Act read with Rule 129 of the CGST Rules, 2017, on the recommendation of the Standing Committee on Anti-profiteering and the Investigation Report was submitted to the Authority under Rule 129(6) of the Rules. The Report of the DGAP was only a finding, prepared on the basis of documents /replies/ statements given by the Respondent. The soul of this provision was the welfare of the consumers who were voiceless, unorganised and scattered. The DGAP had neither mandate nor does it meddle with the suppliers' rights to pricing/profits/margins/trade. It was further submitted that Article 19 (1) (g) of the Constitution guarantees all the citizens the right to freedom of trade and commerce and Section 171 of the Act or the Rules 126, 127 and 133 made thereunder nowhere infringe upon this Fundamental Right. b. As there was no specific stay in the case in case of Jubilant Foodworks & Anr. Vs. Union of India & Ors. (2019-VIL-183-DEL) and as in those cases where stay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eering, consideration of no other factors of cost was provided under the Anti-Profiteering law. d. The period of investigation was normally taken from the date the Respondent was required to pass on the benefit on account of reduction in tax rate to the last date of preceding month of receipt of complaint from Standing Committee This practice had been uniformly followed in investigation by the DGAP without any variations so that the due benefit was extended to the maximum possible number of recipients. As the Order No. 15/2020 dated 12.03.2020 of the Authority was received by the DGAP on 13.03.2020. Therefore, data up to February 2020 was asked to carry out the investigation. e. For the contention raised by the Respondent regarding Methodology used by the DGAP for calculation it was stated that the amount of profiteering on part of the Respondent had been correctly calculated based on the data submitted by him. The contentions of the Respondent made in this para was wrong as the impugned order had been passed strictly as per Section 171 of CGST Act, 2017. The main contours of the 'Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legation had been granted to the Authority after careful consideration at several levels. Since the functions and powers to be exercised by the Authority had been approved by the competent bodies, the same were legal and binding on the Respondent. f. During the course of investigation, the data/documents submitted by the Respondent were scrutinised and it was observed that the Respondent had increased the base prices of the tickets across some categories. As such, the cum tax prices of admission tickets had not been reduced commensurately for the period 01.01.2019 onwards. In terms of Section 171 of the CGST Act, 2017, the Respondent was required to reduce the base prices commensurate with the reduction in rate of tax so that the recipients would have got the legitimate benefit in accordance with Anti-profiteering provisions. Any market forces like demand and supply or management decisions cannot obviate the legitimate benefit of recipients provided under the Anti-profiteering law. g. With regard to the contention raised by the Respondent related to Capital Expenditure incurred it was submitted that the main factor under consideration for the sake of profiteering was base price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... films that varied from film to film based on popularity, was also vague and untenable. In the investigation report, unique classification for categories and sub categories like type of movie (3D and non 3D), ticket type (DIAMOND, GOLD. PLATINUM and SILVER), Weekdays and Weekends and show timings for pre and post rate reduction had been considered. i. With regard to the contention of the Respondent related to Percentage of share in revenue of distributors, it was submitted by the DGAP that the main factor under consideration for the sake of profiteering was base price of tickets and not the factors like revenue to distributors that might had incurred to the Respondent. j. For the Methodology used by the Respondent it was stated by the D P that it was nothing but a stretch of his imagination. In the investigation,. the data submitted by the Respondent was thoroughly scrutinised and profiteering was established on the basis of the same data. It was observed that the Respondent had increased the base prices of the tickets across some categories, As such, the cum tax prices of admission tickets had not been reduced commensurately for the period 01.01.2019 onwards. In terms of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stigation had already occurred on 18th February 2019. As on February 2019, Rule 133(5) of CGST Rules. 2017 had not come into effect. During February 2019, the authority had no powers to Suo mob, initiate any proceedings or investigation unless a complaint was received to initiate an investigation. It was only after 28.06.2019, that these powers came into effect. The initiation of investigation was bad in law, as the Authority had no powers to do so retrospectively. In short, the initiation of proceedings for cinemas located all over India dates to the initial complaint received on 18th February 2019 for the cinema located in Hapur, UP. c. Considering the facts of the case, the initiation of investigation dates to the original complaint and hence the fresh examination of the cinemas located all over India was beyond the powers mentioned in Rule 133(5) of CGST Rules, 2017. In this regard reliance was placed by the Respondent in the following cases to provision the present matter. (i) Finolex Cables Limited Vs. The State of Maharashtra (016-VIL-472-BOM) (ii) M/s Tin Manufacturing Co. (India) Vs. Commissioner Of Central Excise, Ghaziabad (2016-VIL-320-CESTAT-ALH-CE) (iii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as awarded, the time involved to complete the projects had incurred the capital expenditure in several states in FY 2018-19 and FY 2019-20. The Respondent had listed several work orders which were initiated in Oct/Nov 2018 and were completed in Jan/Feb/March 2019:- a. Surendranagar: In the cinema located in Surendranagar, capital expenditure pertaining to Audi acoustical, interior works, electrical and firefighting services etc. amounting to Rs. 1 crore approx, were initiated in the month of Oct/Nov 2018 which were completed in Jan/March 2019. b, Hapur: In the cinema located in Hapur, capital expenditure works pertaining to audi acoustical, electrical works, LT panel & Cable. CCTV, Fire automation etc. amounting to Rs. 1.03 crore approx. were initiated in the month of May/Oct 2018 which were completed in April/May. c. Ghazipur In the cinema located in Ghazipur, capital expenditure pertaining audi acoustical. electrical works, F&B machines, etc. amounting to Rs. 60 lakhs approx, were initiated in the month of April/May 2018 which were completed in Jan/Feb 2019. d. Raebareli; In the cinema located in Raebareti. Capital expenditure works pertaining to interior works amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;A' & 'B' above, the Respondent has been profiteering by way of increasing the base prices of the tickets (Services) by not reducing the selling prices of the tickets (Services) commensurately, despite the rate reduction in GST rate on "Services by way of admission to exhibition of cinematograph films where price of admission ticket was one hundred rupees or above" from 28% to 18% and "Services by way of admission to exhibition of cinematograph films where price of admission ticket was one hundred rupees or less" were reduced from 18% to 12% w.e.f. 01.01.2019. From the Table 'A' above, it is evident that the base prices of the admission tickets were indeed increased, as a result of which the benefit of reduction in GST rate from 28% to 18% (w.e.f. 01.01.2019), was not passed on to the recipients by way of commensurate reduction in prices charged (including lower GST @ 18%). The total amount of profiteering covering the period of 01.01.2019 to 29.02.2020, was Rs.2,66,99,340/-. 14. Further, the Authority finds that the Respondent has placed reliance on the cases of Abbott Healthcare Private Limited & Anr. Vs. Union of India & Ors. and Jubilant Foodworks Ltd. & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the Respondent also questioned the Methodology adopted by the DGAP for the calculation of profiteering amount and further advocated his own methodology which can be used for calculation of the amount of profiteering, In this regard it is to mention that the Methodology and Procedure was notified by this Authority vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017 which is also available on its website The 'Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and the benefit of ITC are enshrined in Section 171 (1) of the CGST Act, 2017 itself which states that "Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to be recipient by way of commensurate reduction in prices." It is clear from the perusal of the above provision that it mentions "reduction in the rate of tax on any supply of goods or services" which does not mean that the reduction in the rate of tax is to be taken at the level of an entity/group/company for the entire supplies made by it. Therefore, the benefit of tax reduction has to be passed on at the level of each supply of each u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduction. Hence. the Authority finds that, the above contention of the Respondent cannot be accepted. 17. Further, the methodology suggested by the Respondent is not in accordance with provisions of law and does not capture the relevant situation of reduction in rate. Such methodology is self-serving and devoid of any reasonable basis. The Authority finds that, during the investigation by the DGAP, the data submitted by the Respondent was thoroughly scrutinized and profiteering was established on the basis of the data. It was observed that the Respondent had increased the base prices of the tickets. As such, the cum tax prices of admission tickets had not been reduced commensurately for the period 01.01.2019 onwards. In terms of Section 171 of the CGST Act, 2017, the Respondent was required to maintain the base prices which he was charging before tax reduction but he had in fact increased thereafter reduction in rate of tax so that the recipients would have got the legitimate benefit in accordance with Anti-profiteering provisions. 18. The Authority finds that. the Respondent contended that the calculations made by the DGAP are based on certain assumptions. An average of prices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of profiteering has been calculated for all the movies post rate reduction until 29.02.2020. In this regard it is to mention that according to Notification No. 27/2018-Central Tax dated 31.12.2018 w.e.f. 01.01.2019 the GST rates for "Services by way of admission to exhibition of cinematograph films where price of admission ticket was above one hundred rupees" were reduced from 28% to 18% and "Services by way of admission to exhibition of cinematograph films where price of admission ticket was one hundred rupees or less" were reduced from 18% to 12% and therefore it is required to be examined whether the benefit of such reduction in the rate of GST had been passed on by the Respondent to his recipients, in terms of Section 171 of the CGST Act. 2017. Since the rate of tax was reduced w.e.f. 01.01.2019 and Interim Order No. 15/2020 was passed on 12 03.2020, the Respondent has been rightly investigated upto 29.02.2020. The Respondent has failed to show any evidence that he has reduced the rates of tickets till 29.02.2020. he is liable to be investigated further till the time he reduced his rates to pass on the benefit of tax. Therefore, the above contention of the Respondent is not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reply of the Respondent that they have claimed to have incurred capital expenditure on the Air Conditioning, Sound System, New Projectors, Auditorium seats, New Screen etc. However, the Respondent has not given the average time list of these capital expenditures and also the amortization of the said cost over any specified period. As said, in absence of such information, the claim of adjustment on account of capital expenditure cannot be sustained and hence rejected. 24. On examining the various submissions placed on record, the Authority needs to determine as to whether there was any reduction in the GST rate and whether the benefit of reduction in the rate of tax was passed on or not to the recipients as provided under Section 171 of the CGST Act, 2017. The Authority finds that, as per the details and calculations given in Tables "A" & above, the Respondent has profiteered by way of increasing the base prices of the tickets (Services) by not reducing the selling price of the tickets (Services) commensurately, despite the rate reduction in GST rate on "Services by way of admission to exhibition of cinematograph films" where price of admission ticket was one hundred rupees or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ab State CWF respectively. as per the provisions of Rule 133 (3) (C) of the CGST Rules, 2017, along with 18% interest. The above amount shall be deposited within a period of 3 months from the date of this Order failing which the same shall be recovered by the Commissioner CGST/SGST as per the provisions of the CGST Act, 2017. 26. It has also been found that the Respondent has denied the benefit of rate reduction to his customers/recipients in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and resorted to profiteering and hence, committed an offence under section 171 (3A) of the CGST Act, 2017. Therefore, he is liable for the imposition of penalty under the provisions of the above Section Accordingly, a notice be issued to him directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him for the profiteered amount collected from 01.01.2020 to 29.02 2020. 27. Further, the Authority as per Rule 136 of the CGST Rules 2017 directs the jurisdictional Commissioners of CGST/SGST Uttar Pradesh, Gujarat and Punjab to monitor this Order under the supervisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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