Director General of Anti-Profiteering Vs ITC Ltd (National Anti-Profiteering Authority)
Facts of the Case:
The brief facts of the case are that the Standing Committee on Anti-profiteering vide its communication dated 14.09.2018 had requested the DGAP to conduct detailed investigation as per Rule 129 (1) of the above Rules on the allegation that the Respondent had not passed on the benefit of tax reduction from 28% to 18% w.e.f. 15.11.2017 on the products which he was selling. The DGAP had issued Notice under Rule 129 (3) of the CGST Rules, 2017 on 09.01.2019 to the Respondent, to submit his reply as to whether he admitted that the benefit of reduction in the GST rate w.e.f. 15.11.2017, had not been passed by him on to his recipients by way of commensurate reduction in prices.
Held by NAA:
NAA have carefully considered the Reports furnished by the DGAP and the submissions made by the Respondent and all other documents placed on record and it is revealed that that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on the FMCGs supplied by the Respondent from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017. It is also revealed that the DGAP has calculated the amount of net higher sales realization due to increase in the base prices of the impacted goods by the Respondent, despite the reduction in the GST rate from 28% to 18%, or the profiteered amount as Rs. 32,28,47,142/- The details of the computation of the profiteered amount have been given by the DGAP in Annexure-11 of his Report dated 02,07,2019 and the said amou is the sum total of profiteered amounts arrived at separately for different channels of the Respondent’s customers (Wholesale Dealers, Modern Trade and Institutional Sales), by comparing the average of the base prices of the impacted products sold during the period from 01.11.2017 to 14.11.2017 (or during the period from 01.07.2017 to 31.10.2017 for the products 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 31.12.2018. The excess GST so collected from the recipients has also been included by the DGAP in the aforesaid profiteered amount as the excess price collected from the recipients also included the GST charged on the increased base price. The DGAP vide his Reports dated 15.10.2019 and 27.11.2019 has admitted that he would have to look into the data afresh as per the new submissions of the Respondent. In view of the above facts, this Authority under rule 133(4) of the CGST Rules 2017 directs the DGAP to further investigate the following issues and furnish his Report accordingly under Rule 129 (6) of the CGST Rules, 2017.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. This Report dated 02.07.2019 has been received from 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 the Standing Committee on Anti-profiteering vide its communication dated 14.09.2018 had requested the DGAP to conduct detailed investigation as per Rule 129 (1) of the above Rules on the allegation that the Respondent had not passed on the benefit of tax reduction from 28% to 18% w.e.f. 15.11.2017 on the products which he was selling.
2. The DGAP had issued Notice under Rule 129 (3) of the CGST Rules, 2017 on 09.01.2019 to the Respondent, to submit his reply as to whether he admitted that the benefit of reduction in the GST rate w.e.f. 15.11.2017, had not been passed by him 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 furnish all documents in support of his reply. The Respondent was also afforded an opportunity to inspect the non-confidential evidences/information which formed the basis of the said Notice, during the period from 18.01.2019 to 21.01.2019, which the Respondent did not avail.
3. The DGAP has mentioned the time period of the present investigation from 15.11.2017 to 31.12.2018 and also sought extension of the time limit to complete the investigation from this Authority, which was granted to him.
4. The DGAP has stated that the Respondent replied to the above Notice vide his letters/e-mails dated 18.01.2019, 04.02.2019 and12.02.2019, 22.04.2019, 21.06.2019and 28.06.2019.The Respondent, vide his letter dated 04.02.2019, had raised a few preliminary objections which are summed up as follows by the DGAP:-
a. The Act did not contain reference to various Authorities in relation to Section 171 of the Act. The Standing Committee and the Director General (Anti-profiteering) have been mentioned only in the Rules.
b.The Rules did not set out the method for calculation of the benefit of reduction in the rate of tax or benefit of input tax credit that was required to be passed on to the recipients, in terms of Section 171 of the Act. Section 171 of the Act merely provided for the setting up of an Authority to examine whether input tax credit availed by any registered person or the reduction in the tax rate has resulted in commensurate reduction in the prices of the goods or services or both supplied by him.
c. Rule 126 of the above Rules provided that the procedure and methodology may be determined by the NAA for determination a whether the reduction in rate of tax or the benefit of the input tax credit has been passed on to the recipient. However, no methodology has been made available by the NAA till date, for making such determination. The Respondent contended that this was in stark contrast to the provisions contained in other statutes like the Central Excise Act, 1944 or the Customs Act, 1962 etc. where the Rules were backed by adequate authority in the relevant parent legislations which laid down the principles/methods to be followed for valuation. In the absence of any such method, there was no legal basis to determine if the benefit of reduction in rate of tax or the benefit of input tax credit had been passed on to the recipient. No enquiry can be initiated without communication of such methodology and any obligation imposed under a statute has to be specific in material particulars to demand compliance. In the absence of any methodology and procedure to determine contravention of Section 171 of the Act, the initiation of any proceeding to determine such contravention would be an arbitrary, capricious and fanciful exercise of power.
d. Rule 128 of the above Rules set out the procedure to be followed by the Standing Committee while examining applications filed in the prescribed form and manner to determine existence of prima facie evidence. An application in the prescribed form with supporting evidence was a mandatory procedural requirement which must be satisfied as a pre-condition for the initiation of any such inquiry under Rule 129. This was based on the judicially settled legal principle that where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all. The Respondent sought a copy of the application filed in the prescribed format, which had been examined by the Standing Committee on Anti-profiteering.
e. The Respondent also submitted to the DGAP that at the behest of the NAA, his representatives had met the Chairman as well as the Members of this Authority several times and had provided the explanation and the details sought. He had assumed that this Authority was satisfied with the steps taken by him to comply with the requirements of Section 171 of the Act and was therefore, surprised to learn from the Notice issued by the DGAP that the present proceedings had been initiated on the basis of the reference of the Standing Committee which was based on their own letter dated 02.10.2018, addressed to the Chairman of this Authority. While deciding to reject the detailed explanation offered in relation to the queries raised by this Authority, no reason was communicated to him. The Respondent has also contended that it was a settled principle of law that while forming a ‘prima facie’ opinion as to the existence or otherwise of certain matters, there must exist some relevant material on which such belief or opinion was based. Otherwise, such exercise of power could be held to be illegal. No opportunity of hearing was provided by the Standing Committee to him before making a reference to the DGAP for investigation.
f. The above Rules empowered this Authority to determine whether there has been contravention of Section 171 of the Act, only after receipt of the complete investigation report from the DGAP but in the present case, sequence of events clearly showed that the matter has already been pre-judged by this Authority and further proceedings including the investigation by the DGAP has been reduced to a mere formality.
5. The DGAP has also stated that the Respondent submitted the following documents/information:-
a) GSTR-1 and GSTR-3B Returns for the period from October, 2017 to December, 2018 for all the registrations held all over India.
b) Details of invoice-wise outward taxable supplies for the impacted items during the period from October, 2017 to December, 2018.
c) Sample copies of invoices issued to his Wholesale Dealers prior to 15.11.2017 and thereafter.
d) Sample price lists of impacted SKUs pertaining to the period prior to 15.11.2017 and thereafter.
6. Further replies of the Respondent to the DGAP are summarized below:-
a. That the Respondent was engaged in the manufacture and sale of more than 460 Stock Keeping Units (SKUs) which were impacted by the GST rate reduction w.e.f. 15.11.2017 and the said products were sold to his customers which included (a) Wholesale Dealers (WD), (b) Modern Trade (MT) and (C) Institutional Sale (IN). The Respondent also submitted that his prices for different channels of customers were different and hence, the pricing for one channel could not be adopted for the pricing of another.
b. The Respondent has 25 GSTINs as supplier and the number of HSN Codes that were impacted by the GST rate reduction w.e.f. 15.11.2017, was 11.
c. Price communications (price lists) issued by the Respondent were indicative and might vary from customer to customer. Price lists were issued mainly when there was a change in the MRP and the actual price charged might be net of rebates/discounts, which were not indicated in the price lists.
d. The Respondent has also claimed that he had passed on the benefit of GST rate reduction w.e.f. 15.11.2017, by reducing his selling prices or by increasing the quantity/grammage while maintaining the earlier price.
7. The DGAP has stated that the main issues which needed to be examined were as under:-
a) Whether the rate of GST on the goods supplied by the Respondent was reduced from 28% to 18% w.e.f. 15.11.2017.
b) 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 Act.
8. The DGAP also further stated that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on the Fast Moving Consumer Goods(FMCGs) supplied by the Respondent from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017which has also not been contested by the Respondent.
9. The DGAP has further stated that as the provisions contained in Section 171 of the Act did not provide for any 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 price, the claim of the Respondent that he had passed on the benefit of GST rate reduction on certain SKUs by increasing the quantity or grammage of the product while maintaining the earlier pre-rate reduction MRP/price of such SKUs, was not acceptable.
10. The DGAP has also claimed that from the invoices made available by the Respondent, it appeared that the Respondent had increased the base prices of the goods when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017, so that the commensurate benefit of GST rate reduction was not passed on to the recipients. The DGAP, 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 impacted products during the period from 01.07.2017 to 31.12.2018, as furnished by the Respondent, has calculated the amount of net higher sales realization due to increase in the base prices of the impacted goods, despite the reduction in the GST rate from 28% to 18% or in other words, the total profiteered amount during the period from 15.11.2017 to 31.12.2018, as Rs. 32,28,47,142/- The details of the this computation have been given by the DGAP inAnnexure-11of his above Report. The DGAP has further claimed that the said amount was the sum total of profiteered amounts arrived at separately for different channels of the Respondent’s customers (Wholesale Dealers, Modern Trade and Institutional Sales), by comparing the average of the base prices of the impacted products sold during the period from 01.11.2017 to 14.11.2017 or during the period from 01.07.2017 to 31.10.2017 for the products 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 period from 15.11.2017 to 31.12.2018. The excess GST so collected from the recipients has also been included by the DGAP in the aforesaid profiteered amount as the excess price collected from the recipients also included the GST charged on the increased base prices.
11. The DGAP has given the State or Union Territory wise supply breakup of the total profiteered amount of 32,28,47,142/- in his Report as has been furnished in the Table given below:-
Table
