Sh. Rahul Sharma Vs J.K. Helene Curtis Ltd. (NAA)
The brief facts of the case are that the Standing Committee on Anti-profiteering vide its communication dated 11.03.2019 had requested the DGAP to conduct a detailed investigation as per Rule 129 (1) of the above Rules on the allegation that M/s Raymond Ltd. had not passed on the benefit of tax reduction from 28% to 18% w.e.f. 15.11.2017 on ‘After-Shave Lotion Park Avenue Good Morning 50 ml’ which was supplied to M/s Big Bazaar, Inderlok run by M/s Future Retail Ltd., on 08.11.2017 under Purchase Order (PO) No. 8114997697 with MRP of Rs. 115/- per unit, on 19.12.2017 under PO No. 8115407972 with the same MRP of Rs. 115/- per unit and on 12.06.2018 vide PO No. 4518098598 again with the same MRP of Rs. 115/- per unit.
NAA held that It is evident from the above narration of the facts that both the above Respondents have denied the benefit of tax reduction from 28% to 18% w.e.f. 15.11.2017 to 31.03.2019, notified vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017, on the products which were being supplied by them to the consumers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and have thus resorted to profiteering. Hence, they have committed an offence under Section 171 (3A) of the Central Goods & Services Tax Act, 2017 and therefore, they are apparently liable for imposition of penalty under the provisions of the above Section. Accordingly, Show Cause Notices be issued to them directing them to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the Central Goods & Services Tax Rules, 2017 should not be imposed on them.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING APPELLATE AUTHORITY
1. This Report dated 24.09.2019 has been received from the Director General of Anti-Profiteering (DGAP) after a detailed investigation under Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the case are that the Standing Committee on Anti-profiteering vide its communication dated 11.03.2019 had requested the DGAP to conduct a detailed investigation as per Rule 129 (1) of the above Rules on the allegation that M/s Raymond Ltd. had not passed on the benefit of tax reduction from 28% to 18% w.e.f. 15.11.2017 on “After-Shave Lotion Park Avenue Good Morning 50 ml” which was supplied to M/s Big Bazaar, Inderlok run by M/s Future Retail Ltd., on 08.11.2017 under Purchase Order (PO) No. 8114997697 with MRP of Rs. 115/- per unit, on 19.12.2017 under PO No. 8115407972 with the same MRP of Rs. 115/- per unit and on 12.06.2018 vide PO No. 4518098598 again with the same MRP of Rs. 115/- per unit.
2. The DGAP had issued Notice under Rule 129 (3) of the CGST Rules. 2017 on 09.04.2019 to M/s Raymond Ltd., to submit his reply as to whether he admitted that the benefit of reduction in the GST rate w.e.f. 11.2017, had not been passed on by him 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 furnish all the documents in support of his reply. He was also afforded an opportunity to inspect the non-confidential evidence/information which formed the basis of the said Notice, during the period from 15.04.2019 to 17.04.2019 which M/s Raymond Ltd. had availed.
3. The DGAP has mentioned the time period of the present investigation e.f. 15.11.2017 to 31.03.2019. He had also sought extension of the time limit to complete the investigation from this Authority under Rule 126 (6), which was granted to him.
4. The DGAP has stated in his above Report that M/s Raymond Ltd. had replied to the above Notice vide his letters dated 26.04.2019, 03 05 2019, 15.05.2019 and 17.05.2019 and submitted that the impugned goods were manufactured by the Respondent No. 1, an associate Company of M/s Raymond Ltd., which was also supplying them to the other marketing companies which further supplied them to the distributors. The distributors were supplying the above goods to retailers/mega stores such as M/s Big Bazaar, Inderlok which in turn were supplying these goods to the ultimate consumers and in the instant case as well. M/s Big Bazaar being a mega store, ought to have received the goods from a distributor. He had also submitted that he was not distributor of the above goods and that he had not supplied the same to M/s Big Bazaar or any other retailer/mega store. Thus, he had claimed that the allegation that the complained goods were supplied by him to M/s Big Bazaar, Inderlok was not correct. M/s Raymond Ltd. had further submitted that the impugned Notice referred to three POs bearing Nos. 8114997697, 8115407972 and 4518098598 which were issued by M/s Big Bazaar, Inderlok, New Delhi, a division of M/s Future Retail Ltd., to one of his distributors i.e. the Respondent No. 2 herein. In light of the above, the transactions referred by the Applicant No. 1 had taken place between the Respondent No. 2 and M/s Big Bazaar and he (M/s Raymond Ltd.) was not a party to the said transactions. It was also submitted by M/s Raymond Ltd. that on 15.11.2017, Respondent No. 1 herein had issued letters to all his distributors intimating that there was reduction in the rate of GST on the impugned goods and they should pass on the commensurate benefit by giving an additional primary discount of 7.81% on the invoices.
5. After considering the above submissions of M/s Raymond Ltd., the Notice dated 09.04.2019 issued to him was withdrawn by the DGAP and Notices for initiation of investigation under rule 129 (3) of the CGST Rules, 2017 were issued on 04.06.2019 to the Respondent No. 1 and 2 seeking their replies as to whether they admitted that the benefit of GST rate reduction had not been passed on by them to the recipients by way of commensurate reduction in the prices of the goods supplied by them and if so, to suo moto determine and indicate the same in their replies to the Notices. They were also given an opportunity to inspect the non-confidential evidence/ information furnished by the Applicant No. 1 on 10.06.2019 or 12.06.2019 and the same was not availed by both t Respondents. In response to the above Notice and subsequent reminders/summons, the Respondent No. 1 had submitted his replies in a piecemeal manner vide his e-mails/letters dated 18.06.2019, 24.06.2019, 05.07.2019, 05.08.2019, 16.08.2019, 24.08.2019, 28.08.2019, 05.09.2019. 09.09.2019, 10.09.2019. 11.09.2019 and 16.09.2019 which have been summed up by the DGAP as follows:-
(a) That the aforesaid three POs were issued by M/s Big Bazaar to the Respondent No. 2 and the said transactions referred by the Applicant No, 1 were between the Respondent No. 2 and M/s Big Bazaar and he was not a party to the said transactions. Thus, the proceedings initiated against him were non-est and were liable to be dropped.
(b) That he had issued letter dated 15.11.2017 to his distributors, including the Respondent No. 2, apprising them of the reduction in the rate of applicable GST on the subject goods with effect from 15 11.2017. Vide the said letter he had advised them to pass on the excess input tax credit benefit to the consumers via MRP reduction as per the directive of the GST Council and also vide another letter dated 15.11.2017, he had informed them that as far as the subject goods lying in the stock as on 15.11.2017 were concerned i.e. the inventory in respect of which he was unable to modify the MRPs affixed on such goods, the reduction in the total MRPs/ selling prices would be passed on by giving an additional primary discount of 7.81 % on the face of the invoices.
(c) That the Hon’ble High Court of Delhi in the case of M/s Reckitt Benckiser India (P) Ltd. v. Union of India in WP(C) 7743/2019, vide its order had directed that the inquiry as far as the complained product was concerned would continue till the final disposal of the petition and no inquiry would be held in respect of the other products being sold by the petitioner. Thus, he requested to conduct detailed investigation only in respect of the complained product i.e. “Park Avenue Good Morning 50 ml” After Shave Lotion.
(d) That the impugned goods were being supplied by him to various distributors or retailers for further sale to the end consumers. The selling price at which the goods were being sold to the distributors varied from case to case and depended upon various factors including the regional demand and the supply factors, market outreach of the distributor, yearly volume of sales, the length of relationship and market aging etc. Thus, for the purpose of determination of profiteering, a proper mechanism suitable to the facts in hand was required and simple comparison of the price charged to one distributor with the price charged to another distributor would not be appropriate.
(e) That the following transactions should be kept outside the investigation:‑
i. Transactions in respect of which discount of 7.81% had been given. Even though there was increase in the gross sale price, the benefit of rate change from 28% to 18 % had been passed on by giving additional discount of 7.81% on the sale prices on the face of the invoices itself and the same was also evident from the fact that the rate of discount under Column No. 26 of the sales sheet was named as “discount on account of GST rate change.”
ii. His Company Sale Price (CSP) per unit post 15.11.2017 was either less than or equal to the sale price per unit pre 15.11.2017. While arriving at these sale prices per unit, he had not considered seasonal discounts because they were temporary in nature and depended on a particular season or peculiar market requirements. The seasonal discounts were given only in respect of the period during which they were effective and for the remaining period, the base prices were charged without any seasonal discount. This seasonal discount was not available to the customers as a matter of right and entirely depended on the marketing campaign run by him during a particular season. The seasonal discount being exceptional in nature need not be adjusted in his sale price in both the periods mentioned above.
iii. In the absence of sales in the period prior to 15.11.2017 for a given customer for a given product, there could not arise any situation of profiteering in those cases.
iv. In respect of certain goods which were exempt from Excise Duty and VAT alone was leviable on them in the pre-GST regime, the aggregate tax incidence included in the MRP was less than 18% of the base price. However, after introduction of GST, these products attracted GST at the rate of 28% but he had not increased the MRPs as the goods were already manufactured and the MRPs were already affixed on the packages/containers. He had no option but to bear the temporary additional loss in case of such products. Before he could affect increase in the MRPs on these products, the applicable GST rate was reduced to 18% w.e.f. 11.2017. In view of the new GST rate of 18% which was slightly higher than the tax incidence taken in to account at the time of determination of the MRPs, he had not changed the MRPs and in such cases, evidently, he had to bear the additional loss even when the GST rate was 18%. Thus, in these cases, there could not be any question of profiteering.
v. At the time of launching of his products, he had offered an extra 25% net weight in content as free so as to attract more customers. The said initial offer was later withdrawn. Post withdrawal of such offer, the net weight of the product was increased and his sale price per unit of weight of the product was reduced. Thus even in these cases there was no profiteering.
vi. Some of the supplies made within a period of one month from the date of change in the rate of GST w.e.f. 15.11.2017, were covered by the POs received prior to 15.11.2017. Thus, the CSP (inclusive of tax) in respect of such supplies had remained equal to his sale prices fixed prior to 15.11.2017. Even if there would have been increase in the GST rate, he would have adopted the same methodology. In respect of the POs issued post 15.11.2017, the inclusive prices of the products were suitably changed. In view of this, he had passed on the benefit arising out of reduction in the GST rate.
vii. Given the rising competition in the Fast Moving Consumer Goods (FMCG) sector, he had to time and again revisit the discounts offered and various seasonal discounts such as festival discounts, Independence Day discounts and introductory/new product launch offers etc. were also given by him on periodical basis. Given the diverse product profile and continuous changes in the market place, he was unable to determine the reasons for the difference between the net CSP adopted pre and post 15.11 2017.
viii. Comparison over a period of 21 months from 01.07.2017 to 31.03.2019 without any adjustment of inflation and other factors that might govern a price increase would be unreasonable and hence such comparison must be restricted to shorter period of three months. Whenever the revenue authorities sought to compare the prices of identical products, regard must be had to the various factors including quantity, time gap. additional costs on logistics, market factors and transactional peculiarities etc.
6. The DGAP has also stated that the Respondent No 1 has also submitted the following documents/information requesting not to disclose them to any other party.-
a. List of all GSTINs.
b. Copies of GSTR-1 & GSTR-3B Returns for the period from July, 2017 to March, 2019 for all the registrations held all over India.
c. Invoice-wise and Stock Keeping Unit (SKU) wise details of the outward taxable supplies (other than zero rated, nil rated and exempted) for the period from July 2017 to March 2019 for all the GST registrations.
d. Price Lists (pre and post 15th November, 2017) for all the products.
e. List containing customer codes and names of the customers of Canteen Stores Department (CSD), Central Police Canteens (CPC) / BSF and Indian Naval Canteen Service (INCS), Mumbai.
f. Sample copies of invoices issued to the dealers, pre and post 15.11.2017.
7. The DGAP has further mentioned that the Respondent No. 2 has submitted the following documents:-
a. Copies of GSTR-1 & GSTR-3B Returns for the period from October, 2017 to March, 2019.
b. Details of invoice wise impacted outward taxable supplies during the period from July, 2017 to March, 2019.
c. Sample copies of invoices issued to his customers, pre and post 11.2017.
8. The DGAP has also intimated that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on the goods supplied by the Respondents from 28% to 18% w.e.f. 15.11.2017, vide Notification No.41/2017-Central Tax (Rate) dated 14.11.2017.
9. The DGAP has also stated that M/s Raymond Ltd. had submitted that the impugned goods were manufactured and supplied by the Respondent No. 1 and thus, participation of Respondent No. 1 in the said transactions was undeniable. The Respondent No. 1’s claim that he had asked his distributors to pass on the benefit of rate reducti•n vide letter dated 15.11.2017, by giving an additional primary discount of 7.81% on the face of the invoices could be taken as admission of his role in fixation of the prices of the goods. The DGAP has further stated that the Respondent No. 1 had not taken effective step to reduce the MRP of Rs. 115/- per unit until November, 2018 on the complained product. With regard to the Respondent No. l’s reliance on the order of the Hon’ble High Court of Delhi in the case of M/s Reckitt Benckiser India (P) Ltd. v. Union of India in WP (C) 7743/2019, the DGAP has claimed that the relief was granted only as far as the complained product was concerned till the final disposal of the petition and there was no stay/directions in respect of the present proceedings, which had also been communicated to the Respondent No. 1 vide his office letter dated 08 08.2019.
10. The DGAP has also mentioned that the Respondent No. 1 had claimed that he was supplying his products to the various distributors or retailers for further sale to the end consumers at the prices which varied from case to case and depended upon various factors including the regional demand and supply factors, market outreach of the distributor, yearly volume of sales, the length of relationship and market aging etc. The Respondent No. 1 has further mentioned that the goods were sold or distributed through channels of General Trade, Modern Trade, Institutional buyers, E-commerce platforms and CSD etc. Each channel had different pricing pattern and margins_ He has also contended that the DGAP has wrongly determined profiteering by comparing the customer type or channel wise average of the base prices of the impugned products sold during the period from 01.11.2017 to 14.11.2017 or the latest month, wherever goods were not sold during the period from 01.11.2017 to 14.11.2017, with the actual invoice-wise base prices of such products sold during the period from 15.11.2017 to 31.03.2019.
11. The DGAP has also submitted that in regard to the Respondent No. 1’s contention of giving discount of 7.81% on account of GST rate change and for not considering the discount based on the season or on the peculiar market requirements for the purpose of comparison, the copies of the sample invoices submitted by the Respondent No. 1 showed that there was no mention of the nature of the discount given on the Invoices i.e. whether it was on account of GST rate change or due to other reasons. It was just an inference that if discount was 7.81% or more then 7.81% represented discount on account of GST rate change and the excess towards other factors. The DGAP has also quoted Section 15 (1) of the Central Goods and Services Tax Act, 2017 which reads as under:-
“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,”
He has also claimed that Section 15 (3) (a) of the above Act provided that the value of the supply shall not include any discount which was given before or at the time of the supply if such discount had been duly recorded in the invoice issued in respect of such supply and thus, the DGAP has stated that the GST was chargeable on the actual transaction value after excluding any discount (conditional as well as unconditional, and therefore, actual transaction value had been considered for computation of profiteering. He has further claimed that the reason cited by the Respondent No. 1 that there was no increase in the MRPs at the time of implementation of GST as the goods were already manufactured and the MRPs were already affixed and he had borne the temporary additional loss in case of such products, was also not consistent with the provisions of Section 171 of the Central Goods and Services Tax Act, 2017 read with Chapter XV of the Rules framed under it.
12. The DGAP has also argued that the Respondent No 1’s decision not to increase the MRPs when the tax rate had increased at the time of implementation of the GST w.e.f. 01.07.2017, was his voluntary and conscious business decision which could not form the basis for not passing on the benefit of subsequent GST rate reduction w.e.f. 15_11 2017. He has further argued that the provisions contained in Section 171 of the Central Goods and Services Tax 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 other than by way of commensurate reduction in prices and hence the claim of the Respondent No. 1 that he had passed on the benefit of GST rate reduction on certain newly launched products by removing the introductory offer of 25% extra content and by increasing the quantity or grammage of the products, while maintaining the earlier pre-rate reduction MRPs of such products, was also not acceptable.
13. The DGAP has also mentioned that the Respondent No. 1 has also sought to exclude the outward sale of the following goods from the scope of the present investigation:-
(a) New Stock Keeping Units (SKUs) introduced after 11.2017.
(b) Life Style Stores (LFS) channel introduced in July 2018 e. post 15.11.2017, where pre-rate change comparison of prices was not available.
(c) Sales made through the CSD/CPCJBSF and INCS.
(d) No sales made from July 2017 to 14.11.2017 so no comparison was available_
14. 0n examination of the nature of the above sales and the copies of the Circulars issued by the CSD, CPC and INCS to 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 at points No. (a) to (c) above. However, for the items sold during 15.11.2017 to 31.03.2019 but not sold during the period from July 2017 to 14.11.2017, base prices of corresponding items were provided by the Respondent No. 1 which were used for determination of profiteering, if any. He has further observed that Section 171 of the Central Goods and Services Tax Act, 2017 did not provide any scope for adjustment of increase in the cost against the benefit of reduced tax rate. The DGAP has also added that the increase in the cost of inputs/input services might be a factor for determination of prices but this factor was independent of the output GST rate. It could not be argued that elements of cost were affected by the downward revision of the output GST rate. Therefore, the contention of the Respondent No. 1 that the various factors including quantity, time gap, additional cost such as on logistics, market factors and transactional peculiarities etc. should also be considered in the increase of base prices could not be accepted. The DGAP has also averred that a particular item i.e. “PA As) Good Morning Splash 50 ml, MRP 115/- per unit” After Shave Lotion having item code “NPAASG050008”, sold through a particular channel i.e. the General Trade (GT), during the period from 01.11.2017 to 14.11.2017 (pre-GST rate reduction) was taken and an average base price (after discount) was obtained after dividing the total taxable value by the total quantity of this item sold during the period. The average base price of this item was compared with the actual selling price of this item sold through same channel during the post-GST rate reduction period i.e. on or after 15.11.2017 as has been illustrated in the Table below:-
Table 1
(Amount in Rs.)
