Deshpande Constructions (Prop Shri Sunil V. Deshpande) Vs Anutone Acoustics Ltd. (NAA)
The issue to be examined by the Authority is as to whether there was any net benefit of ITC with the introduction of GST. On this issue it has been revealed from the DGAP’s Report that, the Respondent should have reduced the base prices to the extent of the Additional Duty of Customs (referred as CVD) that was no longer to be paid by the Respondent as well as to the extent of the IGST paid at the time of import, the credit of which was now available. This proceeds on the fact that, in the GST period, the Additional Duty of Customs (referred as CVD) is subsumed under the GST and in particular by the IGST to be paid at the time of import. On the one hand, there has been no incidence of the Additional Duty of Customs (referred as CVD) on the goods imported and supplied by the Respondent to the Applicant No. 1, whereas on the other hand such Additional Duty of Customs (referred as CVD) had been subsumed in the IGST paid on such goods by the Respondent and ITC of such IGST was made available for to the Respondent for paymentof IGST on the same goods supplied to the Applicant No. 1. This Authority finds that, the invoices raised by the Respondent to the Applicant No. 1, for the supply of said 04 goods on which IGST @18% was charged by the Respondent show that, the base prices of the goods remained the same, as reflected in the purchase order dated 18.02.2017. The benefit of the ITC of IGST paid at the time of import of the said goods, (the Additional Duty of Customs (referred as CVD) having been subsumed under such IGST) was not passed on to the Applicant No.1. Thus, the Authority finds that, the methodology and procedure adopted by the DGAP for calculation of the amount ‘profiteered’ by the Respondent i.e. equivalent to the Additional Duty of Customs (referred as CVD) that was not payable post GST is appropriate and correct.
The base price was not reduced by the Respondent to the extent of Additional Duty of Customs (referred as CVD) that was not payable post GST.
Further, the DGAP has calculated the amount of ITC benefit to be passed on to Applicant No. 1 during the period 01.07.2017 to 30.09.2019 as Rs.12,79,304/- on the basis of the information supplied by the Respondent and hence the amount of profiteering computed by the DGAP is hereby accepted as correct.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. A Report dated 29.10.2020 has been received from the Applicant No. 2 i.e. the Director General of Anti-Profiteering (DGAP) on 29.10.2020 after detailed investigation under Rule 129 (6) of the Central Goods & Services Tax (CGST) Rules, 2017. The brief facts of the Report are that the Applicant No. 1 had filed application before the Standing Committee on Anti-profiteering, under Rule 128 (1) of the CGST Rules, 2017 and alleged profiteering in respect of the supply of 04 goods namely Anutone Serge Astral Lay-in Aluminium Unperforated Aquila 595*595*0.6mm, Anutone Serge Astral Lay-in Aluminium Unperforated Aquila 1200*1200*0.6mm, Anutone Serge Astral Lay-in Aluminium Perforated Mensa (2.5 mm dia) 595*595*0.6mm and Anutone Serge Astral Lay-in Aluminium Perforated Mensa (2.5 mm dia) 12001 200*0.6 mm by the Respondent.
2. The DGAP has submitted that the Applicant No. 1 vide his submissions had mentioned that the Respondent supplied the above 04 goods as per the order placed during February 2017 on the prices agreed as per the offer of the Respondent given during November 2016. At the time of placing order, since it was inter-state transaction, CST of 2% was applicable. Consequent to the introduction of GST, IGST @ 18% was applicable on the inter-state supply of such goods. The Respondent had been charging 2% CST prior to July 2017 and started charging 18% IGST from July 2017 but the basic price of the goods remained unchanged. The Respondent, an importer of the said goods, was not eligible to avail the input tax credit (ITC) of Additional Duty of Customs (referred as CVD) paid on such goods at the time of import till June 2017 as the goods imported were traded. With the introduction of GST from July 2017, the Respondent became entitled to avail the ITC of IGST paid at the time of import of such goods and therefore, the incidence of tax on import of goods stood reduced for the Respondent. However, the Respondent had not reduced the basic price of the said goods commensurate with the ITC of IGST paid at the time of import available with the introduction of GST w.e.f. 01.07.2017.
3. The DGAP has further reported that the aforesaid application was initially examined by the Screening Committee on Anti-Profiteering, Karnataka State and forwarded to Standing Committee for further examination and necessary action. The Standing Committee examined the application in its meeting. Thereafter, it was decided to refer the same to the DGAP, to conduct a detailed investigation in the matter, in terms of Rule 129 of the Rules.
4. The DGAP has further submitted that on receipt of the aforesaid reference from the Standing Committee on Anti-profiteering, a Notice dated 24.10.2019, under Rule 129 of the Rules was issued by the DGAP calling upon the Respondent to submit his reply as to whether he admitted that the benefit of ITC, had not been passed on to his recipients by way of commensurate reduction in price and if so, to suomoto determine the quantum thereof and indicate the same in his reply as well as furnish all documents in support of his reply. Further, in the said Notice dated 24.10.2019, the Respondent was also given an opportunity to inspect the non-confidential evidences/ information which formed the basis of the said Notice, during the period 30.10.2019 to 31.10.2019, which the Respondent did not avail of.
5. It has been further reported by the DGAP that even after giving several reminder letters dated 25.11.2019, 03.01.2020, 24.01.2020 and 06.05.2020, the Respondent had not submitted the requisite documents. Hence, a Summon dated 02.06.2020 was issued to the Respondent to submit the complete requisite documents by 08.06.2020. In response to Summons, the Respondent submitted his reply and certain details vide his e-mail dated 03.06.2020.
6. The DGAP has submitted that another Summon dated 03.07.2020 was issued to the Respondent to submit the complete requisite documents by 20.07.2020. In response to the Summon, the Respondent requested extension of time due to lockdown in the state to submit the requisite documents. Another Summon dated 27.07.2020 was issued to the Respondent to submit the complete requisite documents by 07.08.2020. In response to the Summon, the Respondent replied vide e-mail dated 05.08.2020 and submitted certain documents.
7. The DGAP has also reported that in addition to the above, letter dated 27.07.2020 was sent to the jurisdictional office to obtain the desired documents from the Respondent and forward the same to the DGAP. In response to that no reply was received from the jurisdictional office.
Further, on scrutiny of the documents submitted it was observed that the Respondent had not submitted the complete documents, hence reminder letters were issued to the Respondent again and the Respondent submitted requisite documents vide e-mails dated 21.09.2020, 22.09.2020, 25.09.2020 and 05.10.2020.
8. The DGAP has further submitted that vide e-mail dated 07.10.2019, the Applicant No. 1 was given an opportunity to inspect the non-confidential evidences/ documents submitted by the Respondent on 09.10.2020 or 12.10.2020. In response, the Applicant No. 1 replied vide e-mail dated 08.10.2020 and stated that he resided in Goa and being a senior citizen, coming to Delhi all the way to inspect the non-confidential documents in the Covid-19 pandemic was very difficult. He requested to send the copy of the documents submitted by the Respondent during the investigation. Further, the DGAP vide e-mail dated 16.10.2020 requested the Respondent to provide the non-confidential summary of the documents submitted by them for the present investigation. The Respondent replied vide e-mail dated 19.10.2020 that he had submitted all the documents and no action was pending from his side. Further, an e-mail dated 19.10.2020 was again sent to the Respondent to provide the confidential/non-confidential summary of the documents by 20.10.2020. However, the reply of the same was not received in the DGAP and hence the documents were not supplied to the Applicant No. 1.
9. Further it has been reported that the period covered by the current investigation was from 01.07.2017 to 30.09.2019.
10. The DGAP has also submitted that the time limit to complete the investigation was 08.04.2020. However, due to prevalent pandemic of COVID-19 in the country, vide Notification No. 35/2020-Central Tax dated 03.04.2020 issued by the Central Government under Section 168 (A) of the CGST Act, 2017, it was notified that where any time limit for completion/ furnishing of any report, had been specified in, or prescribed or notified under the CGST Act, 2017 which fell during the period from the 20th day of March, 2020 to the 29th day of June, 2020, and where completion or compliance of such action had not been made within such time, then, the time limit for completion or compliance of such action, would stand extended upto the 30.06.2020. Further, vide Notification No. 55/2020-Central Tax dated 27.06.2020 and Notification No. 65/2020 dated 01.09.2020, it was extended upto 30.11.2020.
11. Further, the DGAP has stated that this Authority vide its Order dated 24.03.2020 had granted three months extension in terms of Rule 129 of the CGST Rules, 2017. Accordingly, time limit to complete the investigation was 28.02.2021.
12. The DGAP has further reported that the Respondent had submitted his replies to the said Notice vide letters/ e-mails dated 16.11.2019, 11.12.2019, 08.01.2020, 13.01.2020, 31.01.2020, 01.02.2020, 11.02.2020, 12.03.2020, 13.03.2020, 19.05.2020, 03.06.2020, 17.07.2020, 05.08.2020, 21.09.2020, 22.09.2020, 25.09.2020, 05.10.2020 and 19.10.2020. Vide above letters/ e-mails the Respondent submitted: –
(i) That he was engaged in manufacturing and trading of wall and ceiling panels. The manufacturing unit at 95, KIADB Phase-3, Malur, Kolar District had stopped the production activities due to continuous loss in the business and therefore it was used as warehouse for trading. Also, he had a trading warehouse at Bhiwandi, Maharashtra, which had been closed due to loss in the business. Further, the Corporate Office at 231, 7th Cross, Indira Nagar 1st Stage, Bangalore -560038 had also been closed due to financial activities. Only one unit at 3A, Visvesaraya Industrial Area, Mahadevapura, Bangalore-48 was operating on a low-key basis.
(ii) That he had submitted the details pertaining to the Applicant No. 1 only, as it was the first time he got the order for the said specified 04 goods and after that he had not imported the said goods for any other buyers.
(iii) That he had 2 GST registrations i.e. 29AADCA1269K1ZH (Active) and 27AADCA1269K1ZL (De-registered).
13. The DGAP has also reported that vide the aforementioned letters/ e-mails, the Respondent submitted the following documents/ information:
a) Copy of sale invoices pertaining to the supply of the said 04 goods made to the Applicant No. 1.
b) Copy of Bill of Entry pertaining to the supply of the said 04 goods made to the Applicant No. 1.
c) Copy of purchase order made with the Applicant No. 1 for the supply of the said 04 goods.
d) Details of IGST credit availed for the said 04 goods.
e) List of GST registrations.
f) Copy of balance sheets for the F.Y.2016-17, 2017-18 and 2018-
g) GSTR-1 Returns in excel format for the period July, 2017 to September, 2019.
h) GSTR-3B Returns for the period July, 2017 to September, 2019.
i) Electronic Credit Ledger for the period July, 2017 to September, 2019.
j) Sales Tax Returns for the period April, 2016 to June, 2017.
14. The DGAP has also reported that the various replies of the Respondent and the documents/ evidence on record had been carefully examined. The main issues for determination were:
(i) Whether there was any benefit of ITC to the Respondent after implementation of GST w.e.f. 01.07.2017 and if so,
(ii) Whether the benefit of such ITC had been passed on by the Respondent to his recipients, in terms of Section 171 of the CGST Act. 2017.
15. The DGAP has stated that the Central Government implemented GST w.e.f 01.07.2017 which subsumed various taxes levied by the Central Government and State Governments. In the erstwhile pre-GST regime, the following taxes and cesses were being levied by the Central Government and the State Governments:
These taxes got subsumed in the GST. Out of the above taxes, the ITC on some taxes was not being allowed in the erstwhile tax regime. Such input taxes, the credit of which was not allowed in the erstwhile tax regime, used to get embedded in the cost of the goods or services supplied, resulting in increased price. With the introduction of GST with effect from 01.07.2017, all these taxes got subsumed in the GST and the ITC of GST was available in respect of all goods and services, unless specifically denied. Thus, the additional benefit of ITC in the GST regime would be limited to those input taxes, the credit of which was not allowed in the pre-GST regime but was allowed in the GST regime. This additional benefit of ITC in the GST regime was required to be passed on by the suppliers to the recipients by way of commensurate reduction in price, in terms of Section 171 of CGST Act, 2017. This was a matter of fact which had not been contested by the Respondent.
16. The DGAP has further reported that before enquiring into the allegation of profiteering, it was important to examine Section 171 of the CGST Act, 2017 which governed the anti-profiteering provisions under GST. Section 171(1) of the CGST Act, 2017 reads as “any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall 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 benefit of ITC or reduction in 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 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.
17. The DGAP has also reported that on examining the documents and evidences on record, it was seen that a quotation as per the purchase order no. 025 dated 18.02.2017, for a total amount of Rs.1,72,51,634.71/- (plus CST 2%, if applicable), was given to the Applicant No. 1 by the Respondent. Thus, as per the quotation, the total amount which had to be paid by the Applicant No. 1, have been furnished by the DGAP in the table below:-
