Sh. Rahul Sharma Vs Reckitt Benckiser India Pvt. Ltd. (National Anti-Profiteering Authority)
The Respondent has further contended that there was no stipulation in Section 171 which required that the benefit of rate reduction should be passed on to the customers by ‘commensurate reduction’ only in cash and methods like increase in the quantity of goods supplied and promotional offer of giving an item free along with main product etc. were not to be followed.
He has also claimed that the provisions of the above Section could not be constructed to come to the above conclusion. As has been discussed in para supra the benefits mentioned in Section 171 (1) have to be passed on by way of commensurate reduction in prices only and the above Section does not provide for any other method of passing on the benefit. Therefore, the provisions of the above Section cannot be construed in any other manner. He has also relied upon the judgement passed by the Hon’ble Supreme Court in the case of Southern Petrochemical Industries Company Ltd. v. Electricity Inspector and ETIO and others (2007) (5 SCC) 447 in his support. However, in view of the express provisions of Section 171 (1) of the CGST Act, 2017, the above judgement does not help the cause of the Respondent.
The Respondent No. 1 has further contended that the additional GST charged has been included in the profiteered amount whereas it has been deposited with the Government. In this connection it would be appropriate to mention that the Respondent No. 1 has not only collected excess base price from the customers which they were not required to pay due to the reduction in the rate of tax but he has also compelled them to pay additional GST on the excess base price which they should not have paid. By doing so the Respondent No. 1 has defeated the very purpose of both the Central and the State Governments which aimed to provide the benefit of rate reduction to the gene public. The Respondent No. 1 was legally not required to collect the excess GST and therefore, he has not only violated the provisions of the CGST Act, 2017 but has also acted in contravention of the provisions of Section 171 (1) of the above Act as he has denied the benefit of tax reduction to his buyers by charging excess GST. Had he not charged the excess GST the customers would have paid less price while purchasing the above product from the Respondent and hence the above amount has rightly been included in the profiteered amount as it denotes the amount of benefit denied by the Respondent No. 1 as price includes tax also. The above amount can also not be ordered to be transferred to the CWFs as the Respondent No. 1 has deposited it in the Government Treasury and it can be refunded only to the Respondent if he is found eligible to claim it. The above amount has to be deposited in the CWFs as the buyers are not identifiable as per the provisions of Rule 133 (3) (c). Therefore, the above contention of the Respondent No. 1 is untenable and hence the same cannot be accepted.
The Respondent No. 1 has relied upon the case of R. S. Joshi Sales Tax Officer Gujarat v. Ajit Mills Limited (1977) 4 SCC 98 in this regard, wherein the Hon’ble Supreme Court had analysed what the term ‘collected’ meant in the context of the sales tax legislation of Gujarat. However, in view of the reasons given in para supra the law settled in the above case is not applicable in the facts of the present case.
The Respondent No. 2 has also contended that the investigation was beyond the period of limitation and was without jurisdiction. He has further contended that the methodology and period of investigation had not been provided in the CGST Act or the Rules. In this context it is mentioned that the issues raised by the Respondent No. 2 have already been discussed and findings recorded on them in the paras supra. Accordingly, the computation of profiteered amount made in respect of the Respondent No. 2 is held to be correct in terms of Section 171 of the CGST Act, 2017.
The Respondent No. 2 has further contended that he has passed on the benefit of rate reduction by way of increasing the grammage to the recipients as has been done by the Respondent 1. However, as has been mentioned above there is no evidence on record to prove the above claim of the Respondent No. 1. Hence, the above contention of the Respondent No. 2 is not maintainable.
Based on the above facts the profiteered amount is determined as Rs. 63,14,901/- in respect of the Respondent No. 1 and Rs. 2,33,456/- in respect of the Respondent No. 2 in terms of Rule 133 (1) of the CGST Rules, 2017, during the period from 15.11.2017 to 31.03.2019. This Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondent No. 1 & 2 shall reduce their prices commensurately as has been detailed above. The Respondent No. 1 & 2 are also directed to deposit an amount of Rs. 63,14,901/- and Rs. 2,33,456/- respectively in the CWF of the Central and the concerned State Governments, as the recipients are not identifiable, as per the provisions of Rule 133 (3) (c) of the above Rules alongwith 18% interest payable from the dates from which the above amount was realised by them from their recipients till the date of 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/SGST.
FULL TEXT OF ORDER OF NATIONAL ANTI PROFITEERING AUTHORITY
1. The present Report dated 19.09.2019 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 present case are that the Applicant No. 1 had filed application dated 30.07.2018 (Annexure-1 of the Report) before the Standing Committee on Anti-profiteering stating that the Respondent No. 1 had resorted to profiteering in respect of supply of “Dettol HW Liquid Original 900 ml” and had also alleged that the Respondent No. 1 had not passed on the benefit of reduction in the GST rate from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017–Central Tax (Rate) dated 14.11.2017 and instead, increased the base price of the above product. The above Applicant also stated that the Respondent No. 1 had supplied “Dettol HW Liquid Original 900 ml” to M/s Big Bazar, Inderlok on 07.11.2017 under Purchase Order (PO) No. 8115009618 with the MRP of Rs. 189/- per unit, on 21.12.2017 under PO No. 4514107805 with the MRP of Rs. 209/- and on 20.06.2018 under PO No. 4518283635 with the MRP of Rs.192/- and thus he had not reduced the price of the above product commensurately.
2. The DGAP has stated in his above Report that the said application was examined by the Standing Committee on Anti-profiteering in its meeting held on 11.03.2019 and upon being prima facie satisfied that the Respondent had contravened the provision of Section 171 (1) of the CGST Act, 2017, it had referred the application to the DGAP for investigation under Rule 129 (1) of the CGST Rules, 2017 to determine whether the benefits of reduction in the rate of tax or ITC had been passed on by the Respondent to his recipients. The minutes of the meeting had been received by the DGAP on 27.03.2019 (Annexure-2)
3. Thereafter, the DGAP on receipt of the reference from the Standing Committee on Anti Profiteering, had issued notice to the Respondent on 08.04.2019 (Annexure-3 of the Report) under Rule 129 (3) of the above Rules, calling upon the Respondent to reply as to whether he admitted that the benefit of ITC had not been passed on to the 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 the supporting documents. The Respondent was also given an opportunity to inspect the non-confidential evidence/information furnished by the Applicant No. 1 during the period from 15.04.2019 to 17.04.2019. The authorised representative of the Respondent No. 1 inspected the non-confidential evidence/information furnished by the Applicant No. 1 on 23.04.2019 (Annexure-4).
4. The DGAP in his report has also stated that the Respondent No. 1 vide his letter dated 30.04.2019 (Annexure-5) had submitted that he did not supply the above product directly to M/s Big Bazar, Inderlok and the Purchase Orders referred to in the notice were not placed on him. Accordingly, vide letter F. No. 22011/API/56/2019/1135 dated 21.05.2019 (Annexure-6), the DGAP had asked M/s Big Bazaar, Inderlok to provide copies of the said Purchase Orders, which were submitted by him vide his letter dated 24.05.2019 (Annexure-7). The said Purchase Orders showed that the impugned product “Dettol HW Liquid Original 900 ml” was supplied to M/s Big Bazaar by the Respondent No. 2 under PO No. 8115009618 with the base price of Rs. 134.23/- and on 19.12.2017, under PO No. 4514107805 with the base price of Rs. 161.02/-. Therefore, the Respondent No. 2 was also made a
“Co-noticee” on 12.06.2019 (Annexure-8) in the proceedings already initiated by the DGAP vide notice dated 08.04.2019, to collect evidence necessary to determine whether the benefit of reduction in the rate of GST from 28% to 18%, had been passed on by the Respondent No. 1 and 2 to their recipients in respect of supply of all the products impacted by the GST rate reduction w.e.f. 15.11.2017, by way of commensurate reduction in prices, in terms of Section 171 of the CGST Act, 2017.
5. The DGAP has further reported that the Respondent No. 1 did not submit the relevant documents as required for the investigation. Therefore, Summons were issued to Sh. Gaurav Jain, Managing Director of the Respondent No. 1 on 19.06.2019 under Section 70 of the CGST Act, 2017 read with Rule 132 of the CGST Rules, 2017 (Annexure-9), to appear before the Assistant Commissioner, Directorate General of Anti profiteering on 27.06.2019 and to produce the relevant documents. In response to the Summons, Aditya Gupta, authorised representative on behalf of Sh. Gaurav Jain, vide letter dated 27.06.2019 submitted the required documents in respect of the complained product only.
6. The DGAP has also submitted that a letter dated 27.06.2019 was issued to the Respondent No. 1 to submit the details in respect of all the products which were being supplied by him and which had been affected by the GST rate reduction w.e.f. 15.11.2017. The Respondent No. 1 filed a Writ Petition No. 7743/2019, before the Hon’ble High Court of Delhi and the Hon’ble Court vide its orders dated 19.07.2018 (Annexure-10) and 22.08.2019 (Annexure-11) had granted stay on the submission of the information in respect of the products other than the complained product, during the pendency of the Writ Petition. The Respondent No. 2 had also filed a Writ Petition No. 816212019, before the Hon’ble High Court of Delhi and the Hon’ble court vide its orders dated 29.07.2018 (Annexure-12) and 22.08.2019 (Annexure-13) had granted stay on submission of information in respect of the products other than the complained product, during the pendency of the Writ Petition. Therefore, the DGAP in compliance of the above orders of the Hon’ble High Court of Delhi, has limited the present investigation to the complained product “Dettol HW Liquid Original 900 ml” only in respect of the supplies made by both the Respondent No. 1 and 2.
7. The DGAP has also mentioned that vide e-mail dated 13.08.2019 (Annexure-14) the Applicant No. 1 was also given an opportunity to inspect the non-confidential evidence/reply furnished by the Respondent No. 1 and 2 on 19.08.2019 or 20.08.2019. However, he did not avail of the said opportunity.
8. The DGAP in his above Report has stated that for the sake of clarity, the profiteering by the Respondent No. 1 and No. 2 has been dealt with separately. The period covered by the current investigation was from 15.11.2017 to 31.03.2019. Also, the time limit to complete the investigation was extended upto 26.09.2019 by this Authority vide its order dated 19.06.2019 (Annexure-15) in terms of Rule 129 (6) of the CGST Rules, 2017.
9. The DGAP has also stated that in response to the notice dated 08.04.2019 and subsequent reminders, the Respondent No. 1 has submitted replies vide his letters dated 17.06.2019 (Annexure-16), 27.06.2019 (Annexure-17), 10.07.2019 (Annexure-18) and 16.09.2019 (Annexure-19) stating:-
a. That he had taken necessary steps to reduce the price of the above product at the earliest possible time. Till 31.08.2017, he was selling the product with MRP of Rs. 189/- per unit. For commercial reasons, the MRP of the said product was increased to Rs. 209/- per unit w.e.f. 01.09.2017. When the GST rate on the product was reduced from 28% to 18%, he had reduced the MRP by 8.1% from Rs. 209/- to Rs. 192/- e.f. 24.11.2017.
b. That his product had a shelf life of 18 to 24 months and it was most likely that the Applicant No. 1 had bought the product having an old manufacturing date, which must have been lying on the shelf of the retailer, on which he did not have any
c. That the pricing to different type of customers was different. The different types of customers were Canteen Stores Department (CSD), Distributors, Direct Modern Trade, E-Commerce Trade, Indirect Modern Trade and Super Stockists.
d. That there were cases of return of goods by the customers back to him, for which he had issued credit notes with GST. He requested that the supplies against which credit notes had been issued, should be excluded from the investigation.
e. That in respect of the CSD supplies, the prices were negotiated without tax and thereafter taxes prevailing were charged at the time of supply.
f. That he had increased the price of the product from Rs. 192/-per unit to Rs. 209/- per unit w.e.f. 01.06.2018 due to commercial reasons such as increase in the rate of Customs Duty, forex rate fluctuations and market forces etc.
g. That he had submitted the price trend of the product from September, 2014 and the price of the product was Rs. 170/- per unit in September, 2014, the price was further increased to Rs. 189/- per unit in September, 2016. Thereafter, in September, 2017, the price of the product was increased to Rs. 209/- per
h. That the benefit of ITC claimed in TRAN-1 statement had not been accepted by the GST authorities due to some technical glitch for which he had been running from pillar to post and had filed a Writ Petition before the Hon’ble Punjab & Haryana High
10. The DGAP in his Report has also mentioned that vide the aforesaid letters, the Respondent No. 1 had submitted the following documents/information:-
a. Copies of GSTR-1 & GSTR-3B Returns for the period from October-2017 to March-2019 in respect of all registrations.
b. Copies of sample invoices.
c. Outward sales data of the product “Dettol HW Liquid Original 900 ml” for the period from November, 2017 to March, 2019.
11. The DGAP has further mentioned that the Respondent No. 1 vide his letter dated 27.06.2019 has informed that all the details and documents submitted by him in the subject case were to be treated as confidential, in terms of Rule 130 of the CGST Rules,
12. The DGAP has also reported that the Respondent No. 2 has replied vide his letters 17.06.2019 (Annexure-20), 24.06.2019 (Annexure-21) and 16.07.2019 (Annexure-22) and vide the aforesaid letters, he had submitted the following documents/information:-
a. Copies of GSTR-1 & GSTR-3B Returns for the period from October-2017 to March-2019.
b. Copies of sample invoices.
c. Outward sales data of the product “Dettol HW Liquid Original 900 ml” for the period from November, 2017 to March, 2019.
13. The DGAP in his report has also stated that various replies of the Respondent No. 1 & 2 and the documents/evidence on record have been carefully examined by him and the main issues to be examined were whether the rate of GST on the product “Dettol HW Liquid Original 900 ml” supplied by the Respondent No. 1 & 2 was reduced w.e.f. 15.11.2017 and if so, whether the above Respondents have passed on the benefit of such reduction in the GST rate to the recipients, in terms of Section 171 of the CGST Act, 2017.
14. The DGAP has further stated that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on the “Dettol HW Liquid Original 900 ml” from 28% to 18% e.f. 15.11.2017, vide Notification No. 41/2017–Central Tax (Rate) dated 14.11.2017 (Annex-23). This was a matter of fact which had also not been contested by the Respondent No. 1.
15. The DGAP in his report has also submitted that it was important to examine the provisions of Section 171 of the Act and it was clear that in the event of benefit of ITC or reduction in the 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 recipient got reduced commensurate with the reduction in the tax rate or benefit of ITC. This was the only legally prescribed mechanism to pass on the benefit of ITC or reduction in the rate of tax to the recipients under the GST regime and there was no other method which a supplier could adopt to pass on such benefits.
16. The DGAP has further submitted that the Respondent No. 1 had sought to exclude the outward sale of the Goods sold to the CSD from the scope of the present investigation. On examination of the nature of the above sales and the copy of the agreement entered into by the Respondent No. 1, the DGAP has observed that the reduction in the rate of GST w.e.f. 15.11.2017 did not have any impact on the sales mentioned in respect of goods sold to the CSD.
17. The DGAP in his report has also claimed that the Respondent 1 had contended that he had increased the MRP of the product from Rs. 192/- per unit to Rs. 209/- per unit w.e.f. 01.06.2018 due to commercial reasons such as increase in the rate of Customs Duty, forex rate fluctuations and the market forces etc. and the price of the product was Rs. 170/- per unit in September, 2014 which was further increased to Rs. 189/- per unit in September, 2016. Thereafter, in September, 2017, the price of the product was increased to Rs. 209/- per unit. In this regard, the DGAP has stated that while calculating profiteering in this case, the average base price was calculated for the period immediately before 15.11.2017 and then compared with the transaction value of each invoice during the period after 15.11.2017. Thus, where the Respondent No. 1 had reduced the price after 24.11.2017, the average base price was compared with the actual transaction value of the reduced price only and benefit extended to the Respondent No. 1. The invoices against which credit notes have been issued by the Respondent No. 1, were excluded from the investigation.
18. The DGAP in his report has also mentioned that upon perusal of the outward sales data made available by the Respondent No. It was revealed that he had increased the base price of the product “Dettol HW Liquid Original 900 ml” when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017. The calculation has been furnished by the DGAP in Table-A below for the above product viz. “Dettol HW Liquid Original 900 ml” for which average base price has been calculated during the pre-GST rate reduction period from 01.11.2017 to 14.11.2017 and then profiteering has been calculated for the post-GST rate reduction period in respect of Invoice No. S170322005 dated 17.11.2017 as is given below:-
Table-A
(Amount in Rs.)
