Shri M. Srinivas Vs Director General of Anti-Profiteering (NAA)
Respondent has contravened the provisions of Section 171 (1) of the CGST Act, 2017. However, since, the penalty prescribed under Section 171 (3A) of the CGST Act, 2017 for violation of the above provisions has come in to force w.e.f. 01.01.2020 and the infringement pertains to the period from 01.01.2019 to 06.01.2019 and the Respondent has also deposited the profiteered amount alongwith the interest therefore, no penalty is proposed to be imposed on the Respondent.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING APPELLATE AUTHORITY
The present Report dated 31.01.2020 has been furnished by the Director General of Anti-Profiteering (DGAP). under Rule 129 (6) of the Central Goods & Services Tax (CGST) Rules, 2017. The brief facts of the case are that a reference was received by the DGAP from the Standing Committee on Anti-Profiteering on 05.08.2019 to conduct a detailed investigation in respect of an application filed by the Applicant No. 1, under Rule 128 (1) of the CGST Rules, 2017, alleging profiteering by the Respondent in respect of supply of “Services by way of admission to exhibition of cinematograph films” despite reduction in the rate of GST from 28% to 18% w.e.f. 01 01.2019. The Applicant No. 1 had alleged that the Respondent had sold tickets of value of Rs. 250/-, Rs. 200/-, Rs. 150/- at the same prices prior to and after the GST rate reduction vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018. The Applicant No. 1 had also alleged that the Respondent had not passed on the benefit of reduction in the GST rate from 28% to 18% w.e.f. 01.01.2019 announced vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018 and instead, had increased the base prices. The above Applicant had also enclosed the following supporting documents along with his application:-
a. Copy of the APAF-I.
b. Sample tickets dated 31.12.2018 (Pre-rate reduction) and 01.2019 & 07.01.2019 (Post-rate reduction).
c. Letter dated 25.02.2019 of the Respondent addressed to Pr. Chief Controller of Accounts, CBIC, New Delhi along with copy of cheque No. 349950 dated 22.02.2019 for payment of Rs. 13,72,181/- into the Consumer Welfare Fund (CWF).
2. The DGAP has reported that on receipt of the aforesaid reference from the Standing Committee on Anti-profiteering, a Notice under Rule 129 (3) of the above Rules was issued to the Respondent on 22.08.2019, calling upon him to 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 by him to his recipients by way of commensurate reduction in prices of the tickets 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. The Respondent was afforded opportunity to inspect the non-confidential evidence/ information which formed the basis of the above Notice, during the period from 26.08.2019 to 28.08.2019. However, he failed to avail the same. The Applicant No. 1 vide e-mail dated 20.01.2020 was also allowed to inspect the non-confidential documents/reply furnished by the Respondent on 27.01.2020 or 28 01.2020 which the above Applicant did not avail of. The DGAP has informed that the period covered by the current investigation was from 01.01.2019 to 31.07.2019 and the statutory time limit to complete the current investigation was on or before 04.02.2020, in terms of Rule 129 (6) of the Rules.
3. The DGAP has also reported that the Respondent in response to the Notice dated 22,08.2019 and subsequent reminders has submitted his replies vide letters and e-mails dated 02.09.2019, 06.09.2019, 11.12.2019, 26.12.2019, 09.01.2020, 13.01.2020 and 23.01.2020 whereby he has submitted:-
a) That he was operating in a regulated market and thus he was required to abide by the fixed admission ticket prices as endorsed by the Licensing Authority. Any deviation therefrom in the admission ticket prices required previous sanction of the concerned Authority.
b) That on reduction in rate of tax w e.f. 01.01.2019, representations were made to the Principal Secretary (Home), Government of Telangana. A representations was also made on 01.2019 by the Multiplex Association of India (MAI) which was followed by multiple meetings between the MAI and the Industry representatives with the concerned local State authorities.
c) That despite follow ups no clarity was received to deal with the impact of the GST rate changes on ticket prices in a regulated market of Telangana. Despite the above, the Respondent had suo moto given effect to the reduced GST rates on his ticket prices w.e.f. 07.01.2019 and the differential amount of Rs. 13,72,181/- was voluntarily deposited in the CWF. Therefore. the Respondent had exercised all due diligence, within his control. to ensure that the GST rate reduction benefit was appropriately passed on to his customers.
d) That he has 8 cinema properties [having total 49 No. of screens viz. 30 (2D), 18 (3D) & 1 (4DX)] in the State of Telangana out of which PVR Erramanzil. Hyderabad had started its operation from 30.11.2019 and the 4DX screen was in operation from 11.02.2019. In terms of Telangana State Regulations, approval from the Licensing Authority was generally given for an introductory ticket of Rs. 75/-. After a month of operations, permission was granted to increase the ticket prices. Further, the prices applicable in this property were fixed in terms of the order dated 02.01.2019 passed by the Hon’ble High Court of Telangana in WP No. 48127 of 2018 filed on 31.12.2018.
e) That the PVR Musarambagh, Hyderabad (having 6 screens) has started its operation from 22.03.2019 and pricing in this property was fixed in terms of the order dated 01.04.2019 passed by the Hon’ble High Court of Telangana in WP No. 6811 of 2019.
4. Vide the aforementioned letters; the Respondent has also submitted the following documents/information:-
a. Copies of GSTR-1 & 3B Returns for the period from December, 2018 to July, 2019.
b. Movie wise & ticket wise data for the period from December, 2018 to July, 2019.
c. Reconciliation of outward taxable supplies with GSTR-1 & GSTR3B Returns.
d. Sample copies of tickets pre and post 01 01.2019.
e. Government Order No. 60 dated 11.03.2010 approving the ticket prices.
f. Copies of representations made to the Principal Secretary (Home), Government of Telangana.
g. Copy of Cheque & Bank Statement for deposition of the differential amount of Rs. 13,72,181/- along with interest of Rs 35,865/- in the CWF.
h. Copies of orders dated 02.01.2019 & 01,04.2019 passed by the Hon’ble High Court of Telangana in WP No. 48127 of 2018 & 6811 of 2019 respectively.
5. The DGAP has also stated that on a careful examination of the case record, including the reference received from the Standing Committee on Anti-Profiteering, various replies of the Respondent and the documents/evidence placed on record, it emerged that the main issues to be examined were whether the GST rate on “Services by way of admission to exhibition of cinematograph films where price of admission ticket was above one hundred rupees” was reduced from 28% to 18% and whether the rate of GST on “Services by way of admission to exhibition of cinematograph films where price of admission ticket was one hundred rupees or less” was reduced from 18% to 12% w.e.f. 01.01.2019 and if so, whether the benefit of such reduction in the rates of GST had been passed on by the Respondent to his recipients, in terms of Section 171 of the CGST Act, 2017.
6. The DGAP has further stated that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on “Services by way of admission to exhibition of cinematograph films where price of admission ticket was above one hundred rupees” 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” from 18% to 12% w.e.f. 01.01.2019, vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018. Since it was a case of reduction in the rates of tax, it was important to examine the provisions of Section 171 (1) of the CGST Act. 2017, to ascertain whether the present case was a case of profiteering or not. Section 171 (1) reads as Any reduction in rate of tax on any supply of goods or services or the benefit of ITC should 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 a benefit of Input Tax Credit (ITC) or reduction in the rate of tax, there must be a commensurate reduction in the prices of the goods or services. Such reduction should obviously be in monetary terms only so that the final price payable by a consumer got reduced which was the legally prescribed mechanism for passing on the benefit of ITC or reduction in rate of tax to the customers under the GST regime. Moreover, it was also clear that the said Section 171 simply did not provide a supplier of goods or services any other means of passing on the benefit of ITC or reduction in the rate of tax to the buyers.
7. The DGAP has also noted that there were basically two classes of tickets in the Respondent’s Multiplexes, namely ‘Classic’ and `Recline’. For the purpose of determination of profiteering, the class wise no. of tickets sold during the period from 01.12.2018 to 31.12.2018 (pre-GST rate reduction) was taken and an average base price (after discount) was obtained by dividing the total taxable value by total no. of tickets sold during this period. The average base prices of the ticket were compared with the actual selling prices of the tickets sold during the post-GST rate reduction i.e. on or after 01.01.2019 as has been illustrated in the Table-‘A’ below:-
Table- ‘A’
(Amount in Rs.)
