Rahul Sharma Vs Samsung India Electronics Pvt. Ltd. (National Anti-Profiteering Authority)
The Respondent has also claimed that the anti-profiteering provisions were in the nature of restricting the right to carry on trade freely in terms of Article 19(1) (g) of the Constitution of India and earn reasonable profit. In this connection it would be pertinent to mention that the provisions of Section 171 (1) of the above Act require a registered person to pass on the benefit of tax reduction or additional ITC to the recipient by way of commensurate reduction in the prices on every supply of goods and service and they nowhere state that the above person shall fix his prices as directed under the above Section. This Authority in terms of Section 171 (2) is also required to ensure that both the above benefits are passed on, however, it has no mandate to act as a price regulator or price controller. The Respondent is totally free to fix his prices and earn profit and he is only required to pass on the above benefit which has been given to him by the Central and the State Governments by sacrificing their own revenue which he cannot appropriate against his profits. Therefore, the above Section in not violative of the provisions of Article 19 (1) (g) of the Constitution of India, hence, the above claim of the Respondent is untenable.
He Respondent has also claimed that pricing for B2C sales is highly dynamic and varies depending upon channel structure and other market factors such as size of business, operating cost, location, and logistics, etc. In this connection it would be pertinent to mention that the provisions of Section 171 (1) of the above Act required the Respondent to pass on the benefit of tax reduction to the consumers only and have no mandate to look in to fixing of prices of the products which the Respondent was free to fix. If there was any increase in his costs the Respondent should have increased his prices before 31.12.2018, however, it cannot be accepted that his costs had increased on the intervening night of 31.12.2018/01.01.2019 when the rate reduction had happened which had forced him to increase his prices exactly equal to the reduction in the rate of such tax. Such an uncanny coincidence is unheard off and hence there is no doubt that the Respondent has increased his prices for appropriating the benefit of tax reduction with the intention of denying the above benefit to the consumers.
Based on the above facts the profiteered amount is determined as Rs. 37,85,342/- as per the provisions of Rule 133 (1) of the above Rules as has been computed vide Annexure-18 of the Report dated 12.09.2019. Accordingly, the Respondent is directed to reduce his prices commensurately in terms of Rule 133 (3) (a) of the above Rules. The Respondent is also directed to deposit an amount of Rs. 37,85,342/- in the CWF of the Central and the concerned State Government, as the recipients are not identifiable, as per the provisions of Rule 133 (3) (c ) of the above Rules along with 18% interest payable from the dates from which the above amount was realised by the Respondent from his recipients till the date of its deposit. The above amount 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 concerned Commissioners CGST/SCST.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. This Report dated 12.09.2019 and the supplementary Report dated 25.11.2019 has been received from the Applicant No. 2 i.e. the Director General of Anti-Profiteering (DGAP) after detailed investigation under Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the case are that under Rule 128 of the Central Goods and Services Tax (CGST) Rules, 2017, an Application was filed by the Applicant No.1 before the Standing Committee on Anti-Profiteering alleging profiteering by the Respondent, in respect of supply of “Samsung 80 CM (32 inches) HD ready LED TV 32FH4003”. The above Applicant alleged that the Respondent did not reduce the selling price of Samsung 80 CM (32 inches) HD ready LED TV 32FH4003″, when the GST rate was reduced from 28% to 18% w.e.f. 01.01.2019, vide Notification No.24/2018 Central Tax (Rate) dated 31.12.2018 and the price of the product remained the same after tax reduction and thus the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in the price, in terms of Section 171 of the Central Goods and Services Tax Act, 2017.
2. The Standing Committee in its meeting held on 11.03.2019, decided to refer the same to the DGAP in terms of Rule 129 of the Rules to conduct a detailed investigation in the matter.The DGAP issued a notice under Rule 129 of the Rules calling upon the Respondent to submit his reply as to whether he admitted that the benefit of reduction in the GST rate w.e.f. 01.01.2019, had not been passed on to his recipients by way of commensurate reduction in price and if so, to suo-moto determine the quantum thereof and indicate the same in his reply to the Notice as well as furnish all documents in support of his reply. Further, in the said Notice dated 08.04.2019. the Respondent was also afforded an opportunity to inspect the non-confidential evidence/information which formed the basis of the said Notice, during the period 15.04.2019 to 17.04.2019 which the Respondent availed of.
3. The DGAP has informed that the period covered by the current investigation was from 01.01.2019 to 31.03.2019 and the time limit to complete the investigation was extended upto 26.09.2019 by this Authority, in terms of Rule 129(6) of the above Rules.
4. In response to the Notice dated 08.04.2019 of the DGAP, the Respondent replied vide letters/e-mails dated 15.04.2019, 18.04.2019, 23 04 2019, 02.05 2019, 10.05.2019, 30.05.2019, 25.06.2019, 26.06.2019, 06.08.2019, 21.08.2019, 22.08.2019 and 28.08.2019. The reply of the Respondent as informed by the DGAP is summed up as follows:
a. The Respondent stated that an Application dated 18.02.2019 was filed by the Applicant No. 1 alleging profiteering on the part of the Respondent based on two screenshots of 32″ LED television with Model No. 32FH4003 (`the subject product’) being sold on the third party online marketplace i.e. Amazon. It was extremely important to note that the Respondent is not the “supplier” of the goods for the transaction in question. The suppliers were two separate dealers namely ‘Jumbo Distributors Pvt. Ltd.’ and ‘EP Electronic Paradise Pvt. Ltd.
b. The above Applicant had only submitted screenshots of price being listed on an online marketplace and no evidence, whatsoever, had been produced to substantiate that ‘supply’ has indeed taken place at the price mentioned therein. The Respondent stated that the complaint made against him was entirely arbitrary and did not stand the scrutiny of legislative requirements.
c. The maximum Retail Price (`MRP’) based products were sold through two channels namely Business-to-Business (i.e. B2B sales generally meant for institutional buyers) and Business-to-consumer (i.e. B2C sales intended for end consumers). While pricing for B2C sales was highly dynamic and varied depending upon chain structure and other market factors such as size of business, operating cost, location and logistics, etc., prices for B2B sales were negotiated with each customer on a case to case basis depending on various parameters such as volume and order size, etc.
d. The Respondent stated that the sales were made to Canteen Stores Department (CSD) at a specially negotiated price. As a process, the Respondent negotiated an exclusive Index price for a product with CSD and once fixed, while the Respondent could sell the products at a price lesser than the fixed agreed price, it could not sell the products at a price higher than the agreed price. Generally, the price agreed with CSD was lesser than the price at which the Respondent sold such goods in the open market/trade.
5. Vide the aforementioned letters/e-mails, the Respondent submitted the following documents/information to the DGAP:
a) GSTR-1 & GSTR-3B returns for the period from November, 2018 to March;
b) Details of invoice-wise outward taxable supplies during the period November. 2018 to March, 2019.
c) Sample copies of the invoices, pre & post 01.01.2019.
d) Purchase register and sample Purchase Bills.
6. The DGAP stated that the main issues for determination were whether the rate of GST on the “Samsung 80 CM (32 inches) HD ready LED TV 32FH4003” supplied by the Respondent was reduced from 28% to 18% w.e.f. 01.01.2019 and if so, 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 Central Goods and Services Tax Act, 2017.
7. The DGAP further observed that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on the “Samsung 80 CM (32 inches) HD ready LED TV 32FH4003” supplied by the Respondent from 28% to 12% w.e.f. 01.01.2019, vide Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018, a matter of fact which had not been contested by the Respondent.
8. The DGAP has stated that the Respondent had contended that in this case. he was not the “supplier” of the goods in question and the Applicant No. 1 had only submitted screenshots of price being listed on an online marketplace and no evidence had been produced to substantiate that ‘supply’ had indeed taken place and also contested that the complaint made against him was entirely arbitrary and did not stand the scrutiny of legislative requirement. In this regard, the DGAP has claimed that the contention of the Respondent was incorrect on the following grounds: –
(i) Section 171 of the Central Goods and Services Tax Act, 2017, required every supplier to pass on the benefit of the reduction in rate of tax or the benefit of input tax credit to his recipients by reducing the price commensurately. Under Rule 129 of the Rules, where the Standing Committee was satisfied that there was a prima-facie evidence to show that the supplier had not 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. it shall refer the matter to the DGAP for a detailed investigation. Further, the mandate of the DGAP was to conduct investigations based on the recommendation of the Standing Committee on Anti-profiteering. The investigation in this case has been initiated on the basis of reference received from the Standing Committee on Anti-profiteering. The recommendation of the Standing Committee as mentioned in Sr.No. 21 of Annex-1C of the DGAP report was that the said complaint had been received from Sh. Rahul Sharma against M/s Samsung India Electronics, on the grounds of non-reduction of prices of the said goods, even after the GST rate thereon had been reduced from 28% to 18%. Thus, it became apparent to the DGAP that the complaint was against the Respondent and not against the two intermediate suppliers, as had been claimed by the Respondent.
(ii) Further, the DGAP has reported that in the application (complaint) of the Applicant No. 1, the name of the supplier was mentioned as M/s Samsung India Electronics Pvt. Ltd. Further, against Sr.No. C-5 of the APAF form, it was mentioned that after GST rate applicable on the said goods was reduced from 28% to 18% in January, 2019. the MRP of Samsung 80 cm (32 inches) HD Ready LED TV 32FH4003 had remained the same. To authenticate his contention, the Applicant No. 1 had included screenshots of certain e-commerce portals such as amazon etc. The DGAP has further stated that though these screenshots carry an entry of sold by ____________ it was not relevant as both. the Applicant No. 1, and the Standing Committee had mentioned that the subject complaint was against the Respondent. i.e. M/s Samsung India Electronics Pvt. Ltd.
9. The DGAP has further reported that the Respondent, vide his Notice dated 08.04.2019, was asked to provide the details of all the outward taxable supplies of the product impacted by the above said GST rate reduction w.e.f. 01.01.2019. Accordingly, Respondent provided the details of outward taxable supplies of Samsung (32 inches) LED TV and Power Bank to the DGAP. Therefore, the profiteering on Power Bank on which also the rate of GST was reduced from 28% to 18% w.e.f. 01.01.2019 vide Notification No. 24/2018-Central Tax (Rate) dated 31.12.2018, has also been computed by the DGAP. The Respondent also submitted to the DGAP that the Maximum Retail Price (‘MRP’) based products were sold through two channels namely Business-to- Business (i.e. B2B sales generally meant for institutional buyers) and Business-to-consumer (i.e. B2C sales intended for end consumers). Under B2C sales, there were 6 channel structures i.e. Modern Retail, Regional Retail, Distributor, Brand Shop, Direct Dealer and Online. The Respondent had also submitted channel-wise details of the outward taxable supplies and accordingly, profiteering has also been calculated on supply channel-wise basis by the DGAP.
10. The DGAP stated that the Respondent had also sought to exclude the outward sale of the Goods sold to the Canteen Stores Department (CSD) from the scope of the present investigation. The DGAP, on examination of the nature of the above sales and upon scrutiny of the agreements entered into by the Respondent with his supply chain partners. has observed that the reduction in rate of GST w.e.f. 15 11 2017 did not have any impact on the sales mentioned in respect of Goods sold through the Canteen Stores Department (CSD). Further, the DGAP has mentioned that for computation of the amount of profiteering in the case of LED TVs, the sales data of a particular item i.e.. Model No. UA32N4003ARXXL, sold through a particular channel i.e.. Other Regional Retail Partners – Moderate volume, during the month of December, 2018 (pre-GST rate reduction), was taken and an average base price (without GST) was obtained by dividing the total taxable value by total quantity of this item sold during December, 2018, i.e the pre-rate reduction period. The average base price of this item was then compared with the actual selling price of this item for sales reflected through the same channel during the post-GST rate reduction i.e. after 01.01.2019, as has been illustrated in the Table below:-arriving at the pre rate reduction price for that channel for each of the items supplied by the Respondent. The DGAP has stated that in such a manner. the extent of profiteering has been worked out supply channel wise.
11. The DGAP has reported that the perusal of the invoices made available by the Respondent indicated that the Respondent had increased the base price of the “Samsung 80 CM (32 inches) HD ready LED TV 32FH4003 and Power Bank” when the rate of GST was reduced from 28% to 18% w.e.f. 01.01.2019. 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 “Samsung 80 CM (32 inches) LED TV and Power Bank” during the period 01.01.2019 to 31.03.2019. as furnished by the Respondent, the amount of net higher sales realization due to increase in the base price of the impacted good despite the reduction in the GST rate from 28% to 18%, or in other words, the aggregate profiteered amount worked to Rs. 37,55,606/- (in respect of Samsung 80 CM (32 inches) LED TV) + Rs. 29,736/- (in respect of Power Bank). Thus, the total amount profiteered by the Respondent worked out to be Rs. 37,85,342/-.The DGAP has further added that the profiteered amount had been arrived at by the DGAP by comparing the average of the base prices of the “Samsung 80 CM (32 inches) LED TV and Power Bank’ supplied by the Respondent through different supply channels during the period 01.11.2018 to 31.12 2018. with the actual invoice-wise base prices of “Samsung 80 CM (32 inches) LED TV and Power Bank” sold during the period 01.01.2019 to 31.03.2019. The excess GST so collected from the recipients, was also included in the aforesaid profiteered amount as the excess price collected from the recipients also included the GST charged on the increased base price.
12. The DGAP concluded that the amount of profiteering by the Respondent on account of contravention of provisions of Section 171 of Central Goods and Services Tax Act, 2017, was Rs. 37,85,342/-. The place (State or Union Territory) of supply chain-wise break-up of the total profiteered amount of Rs 37,85,342/- as provided by the DGAP is furnished in the Table below:
Table-2
(Amount in Rupees)
