Kalyan Chakravarthy Vs Prathima Multiplex Pvt. Ltd. (NAA)
inds that the Respondent has resorted to profiteering by way of either increasing the base prices of the service while maintaining the same selling prices or by way of not reducing the selling prices of the service commensurately, despite a reduction in GST rate, on “Services by way of admission to exhibition of cinematograph films where price of admission ticket is above one hundred rupees” from 28% to 18% w.e.f. 01.01.2019 upto 30.06.2019. On this account, the Respondent has realised an additional amount to the tune of Rs. 42,60,104/-from the recipients which included both the profiteered amount and GST on the said profiteered amount. Thus the profiteered amount is determined as Rs. 42,60,104/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. As per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, the Respondent is therefore directed to reduce the prices of his tickets, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. The Respondent is also directed to deposit the profiteered amount of Rs. 42,60,104/- along with the interest to be calculated @ 18% from the date when the above amount was collected by him from the recipients till the above amount is deposited. Since the recipients, in this case, are not identifiable, the Respondent is directed to deposit the amount of profiteering in two equal parts, of Rs. 21,30,052/- in the Central Consumer Welfare Fund (CWF) and Rs. 21,30,052/- in the Telangana State Consumer Welfare Fund as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017, along with interest @18%. The above amount shall be deposited within a period of 3 months from the date of receipt of this Order failing which the same shall be recovered by the jurisdictional Commissioner CGST/SGST as per the provisions of the CGST/SGST Act, 2017.
It has also been found that the Respondent has denied the benefit of rate reduction to his customers/recipients in contravention of the provisions of Section 171(1) of the CGST Act, 2017 and resorted to profiteering and hence, committed an offence under section 171 (3A) of the CGST Act, 2017. Therefore, the Respondent is liable for the imposition of penalty under the provisions of the above Section. Accordingly, a notice be issued to him directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him.
Further, the Authority in terms of Rule 136 of the CGST Rules, 2017 directs the jurisdictional Commissioners of CGST/SGST, Telangana to monitor compliance with this Order under the supervision of the DGAP, by ensuring that the amount profiteered by the Respondent as ordered by the Authority is deposited in the respective Consumer Welfare Funds along with interest thereon. A report regarding compliance of this Order shall be submitted to this Authority by the DGAP within a period of four months from the date of receipt of this Order.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. A Report dated 26.11.2020 had 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 case are that the Applicant No. 1 filed application before the National Anti-profiteering Authority under Rule 128 (1) of the CGST Rules, 2017 with respect to supply of “Sevices by way of admission to exhibition of cinematography films”.
2. Vide his Report, the DGAP has reported that Applicant No. 1 had alleged that the Respondent did not pass on the benefit of reduction in the GST rate on “Services by way of admission to exhibition of cinematograph films” which were reduced w.e.f. 01.01.2019, vide Notification No. 27/2018- Central Tax (Rate) dated 31.12.2018 by way of commensurate reduction in price, in terms of Section 171 of the CGST Act, 2017 and instead, increased the base price to maintain the same cum tax selling price of the admission tickets. Accordingly, it was decided to initiate an investigation and collect evidence necessary to determine whether the benefit of GST rate reduction w.e.f. 01.01.2019, had been passed on by the Respondent to the recipients by way of commensurate reduction in price, in terms of Section 171 of the CGST Act, 2017.
3. The DGAP has stated that the aforesaid application was examined by the Standing Committee on Anti-profiteering, in its meeting, the minutes of which were received in the DGAP on 06.05.2020, whereby it was decided to forward the same to the DGAP to conduct a detailed investigation in the matter. Accordingly, it was decided to initiate an investigation and collect evidence necessary to determine whether the benefit of reduction in rate of tax had been passed on by the Respondent to the recipients in respect of supply of “Services by way of admission to exhibition of cinematography films” supplied by the Respondent. The Standing Committee forwarded the following submission/documents of the Applicant No. 1.
(i) Online complaint filed by the Applicant No. 1.
(ii) Letter dated 06.12.2019 of the Respondent to the State Screening Committee on Anti-profiteering.
4. The DGAP has reported that on receipt of the reference from the Standing Committee on Anti-profiteering, a Notice of Investigation (N01) dated 02.06.2020 under Rule 129 of the Rules was issued by the DGAP calling upon the Respondent to reply as to whether he admitted if the benefit of reduction in rate of tax had not been passed on to the 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 supporting documents.
5. The DGAP further stated that vide the said Notice, the Respondent was also given an opportunity to inspect the non-confidential evidences/information furnished by the Applicant No. 1 during the period 25.06.2020 to 26.06.2020, which the Respondent did not avail. The Respondent, vide email dated 19.06.2020 requested for a copy of the documents submitted by the Applicant No.1, which were provided to the Respondent vide email dated 01.10.2020.
6. The DGAP has stated that the period for investigation was from 01.01.2019 to 30.04.2020.
7. The DGAP also reported that in response to the Notice dated 02.06.2020, the Respondent submitted his reply vide letters and e-mails dated 19.06.2020, 23.06.2020, 01.07.2020, 10.07.2020, 16.07.2020, 27.07.2020, 07.08.2020, 12.08.2020, 18.08.2020, 11.09.2020, 06.10.2020, 09.10.2020 and 19.11.2020. The reply of the Respondent has been summed up below:
a) The Respondent was a private limited company existing on the records of Registrar of Companies, Hyderabad and had constructed a multiplex with 2 Screens on the land of TSRTC (A Telangana Government Organization), which was given on license under BOT (Build, Operate and Transfer) concept by TSRTC upto 2036, with construction time upto 2009. The Respondent had paid to TSRTC Upfront Fee and was paying regularly the Annual Ground License Fee (AGLF) and Annual Commercial License Fee (ACLF) on yearly basis and in advance towards the licensing of the land.
b) The Respondent’s cinema screens were at only one place of Karimnagar, Telangana. There were no branches at any other place.
c) The price of the cinema screens was decided by the Government of Telangana from time to time. The price fixed only had to be collected by the cinema screen owner and no other separate charges were allowed or permitted. Further, all the taxes calculated on the price were as per the proportion of taxes from time to time and had to be paid. Tax was arrived as prescribed under the relevant Act. In the case of GST, tax was calculated in the proportion of 18/118 or 28/128, as the case might be prescribed under Rule 35 of the CGST Rules, 2017. The price fixed by the Government was “Fixed amount” and did not have any break up of basic price, GST, Total etc. i.e. no GST was collected from customer. The Respondent had also submitted history of Prices fixed by the Government. Thus, the price was fixed by the Government of Telangana only and had to be charged irrespective of the tax rates from time to time and the increased liability was to be borne by the cinema screens only.
d) The Respondent submitted that he had collected prices fixed as per Order No. GO. Ms. No. 114, Home (Gen. A) Department, dt. 07.07.2012 and Order No. GO. Ms. No. 100, Home (Gen. A) Department, dt. 26.04.2013, wherein the Government of Telangana accorded permission for rate of admission to Class-I as Rs. 100 and tor Class-II as Rs. 75/- at that time and ordered increase of tax free maintenance charge.
e) Further the Respondent submitted that irrespective of the GST rate for the period 13.10.2018 to to-date, the price was the same of Rs. 150 and Rs. 130 for the Gold and Silver classes respectively. No GST was separately charged. The Respondent also submitted that ticket price was same and fixed when Entertainment Tax was @7%, 20% or 15%, as per the class of cinema notified by Government, as on 01.07.2017 when GST@18% was applicable i.e. Rs. 100/- or 75/- and revised price from 13.10.2018 to till date i.e. 150/- or 130/-, with so much increase in administration and running costs.
f) The Respondent submitted that Article 246 read with S. No. 33 of List-II of the 7th Schedule to the Constitution of India gives full powers to State Government to regulate the Cinema exhibition industry. S. No. 60 of List-I of the 7thSchedule read with Article 246 of Constitution gives Central Government the power to regulate sanctioning of cinematographic films or censorship of films only. There were no Government Orders issued under GST by Central Government regulating the Cinema Screen price by Central Government, since it did not have power to regulate cinema ticket price. The Company had not charged GST on the Ticket price separately or additionally. Thus, the ticket price was the basic price and it was same pre 01.01.2019 and post 01.01.2019.
g) The Respondent further submitted that Cinema Screens/ Theatre was a “State Government Controlled Industry” w.r.t. price of cinema tickets and operation of cinema theatres. The control had been vested in “Public Interest” with the State Government in specific with regard to price under the Constitution of India. Constitution gave powers to Central Government only to regulate whether the cinema could be screened or not. Hence, the jurisdiction of Central Government, Director General or NAA or Standing Committee of NAA was ousted.
h) The Respondent also submitted that the price had been fixed by the State Government and was modified and fixed by Hon’ble High Court of Telangana. Thus, the price fixation could not be disputed by the DGAP or this Authority. Also, the Cinema Ticket prices fixed did not give the value of taxes included in the prices but cast the liability to pay taxes proportionately, as applicable. Hence, the invoking of Anti-profiteering was untenable, since no GST was added.
i) The Respondent also submitted that the matter of profiteering was already investigated by the Jurisdictional Assessing Officer, the Deputy Commissioner (Economic Intelligence Unit), State Level Screening Committee. Visiting the Respondent with fresh notice by every authority without reference to previous proceedings was impermissible as it was clearly harassment of the Respondent and hence, the jurisdiction was ousted and the same was clearly against all the canons of equity.
j) The Respondent contended that the Scheme of Anti-profiteering was defective for the following reasons:
i) There was no scheme laid down in the Act as to the a) Methodology (b) How the party could verify the calculations and defended itself.
ii) The Scheme did not envisage “Controlled Industry” where State Government fixed the price of the tickets and no GST was paid or payable. Also, the scheme did not distinguish free trade and controlled industry. Further, in controlled industry, the price did not give any breakup of basic price, GST etc. and GST was calculated proportionately.
iii) The Scheme did not envisage the “Methodology” for fixing the Anti-profiteering calculation and period upto which the anti-profiteering provisions should be applied, since the same price could not rule during the life time of the Respondent.
iv) Also, the commensurate reduction was not defined anywhere and thus, the measurement or calculations failed. As the Scheme was not finding in place in the Act, nor the Act defined the contours of the Scheme to be framed, there was no jurisdiction conferred on any authority.
k) Also, the Respondent quoted that in the case of Rahul Sharma Vs Gyan Books, this Authority held that since the assessee charged no GST pre and post reduction of GST rate, the question of profiteering did not arise and the application was required to be dismissed. The facts were squarely applicable in the present case also. Hence, the application was liable to be rejected.
8. The DGAP has further reported that the Respondent had submitted the following documents/information:
(a) Brief profile of the Respondent.
(b) Invoice-wise details of all outward taxable supplies of the movie admission tickets impacted by GST rate reduction w.e.f. 01.01.2019, during the period 01.12.2018 to 30.04.2020.
(c) Sample copies of the invoice/tickets, pre and post 01.01.2019.
(d) GSTR-1 and GSTR-3B Returns for the period December, 2018 to April, 2020.
(e) Price list of the movie admission tickets, pre and post 01.01.2019.
(f) Telangana/Andhra Pradesh Government Orders in GO. Ms. No. 101, Home (Gen.A) Department dated 27.04.2010.
(g) Telangana/Andhra Pradesh Government Orders in GO. Ms. No. 114, Home (Gen.A) Department dated 07.07.2012.
(h) Telangana/Andhra Pradesh Government Orders in GO. Ms. No. 100, Home (Gen.A) Department dated 26.04.2013.
(i) High Court for Telangana and Andhra Pradesh Orders in WP No. 37873 of 2018.
(j) Licence Copy (Licence No. C2/448/2010-1) dated 25.03.2010 alongwith Appendix-I.
(k) Audited financial statements for the period ending March, 2019.
(l) Notices of Jurisdictional Assessing Officer, the Deputy Commissioner (Economic Intelligence Unit), State Level Screening Committees.
9. The DGAP has also reported that the Central Government, on the recommendation of the GST Council, reduced the GST rate on “Services by way of admission to exhibition of cinematograph films where price of admission ticket is above one hundred rupees” from 28% to 18% w.e.f. 01.01.2019 and “Services by way of admission exhibition of cinematograph films where price of admission ticket is 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. This was a matter of fact which had not been contested by the Respondent.
10. The DGAP has reported that the reference received from the Standing Committee on Anti-profiteering, the various replies of the Respondent and the documents/evidence on record had been examined in detail. The main issue to be looked into was whether the rate of GST on the “Services by way of admission to exhibition of cinematograph films where price of admission ticket is above one hundred rupees” was reduced from 28% to 18% w.e.f. 01.01.2019 and “Services by way of admission exhibition of cinematograph films where price of admission ticket is 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 rate of GST was passed on by the Respondent to the recipients, in terms of Section 171 of the CGST Act, 2017.
11. The DGAP has further stated that Section 171(1) of CGST Act, 2017 which governs the anti-profiteering provisions under GST states that “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 that in the event of a benefit of ITC or reduction in rate of tax, there must be a commensurate reduction in prices of the goods or services. Such reduction could obviously be only in terms of money, such that the final price payable by a consumer got reduced commensurate with the reduction in the tax rate. That was the legally prescribed mechanism for passing 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. From 01.01.2019, the Respondent, in terms of Section 171 of the CGST Act, 2017, were bound to maintain the Base price of the tickets across all class of seats/slots and GST should have been charged on the pre rate reduction Base price. The Respondent had charged maximum price fixed by the State Government, which was inclusive of taxes, as applicable, and had paid the same to the Government, which was reflected in his statutory Returns. Thus, the Respondent had collected as well as paid the GST. Thus, the Respondent’s contention that the company had not charged GST on the Ticket price separately or additionally and thus, the base price was maintained, was not acceptable.
12. The DGAP has further submitted that the Respondent’s contention that the price of cinema screens was decided by State Government, and had to be charged irrespective of tax rates, was not acceptable. The State Government/ Police Commissioner only fixed the maximum rate of movie ticket. The cinema management was free to sell the tickets at the lower price e.g. in the event of reduction in taxes. The State Government/ Police Commissioner came into picture only when the cinema management wanted to increase the price of tickets beyond the maximum rate already fixed. For example, M/s AMB Cinema LLP, Telangana was having cum tax price of Rs. 300/- for platinum seats upto 05.02.2019. On knowing about the Anti-profiteering provisions, they reduced the ticket price to Rs. 277/- after 06.02.2019 and also paid the profiteering amount of Rs. 35,66,308/- and interest of Rs. 60,049/-.
13. The DGAP has further reported that the Respondent’s submissions regarding matter of profiteering investigated by various other authorities or the lack of methodology or regarding the definition of “Commensurate Reduction”, were unacceptable. The GST Council, constituted under Article 279A of the Indian Constitution as a federal, constitutional body, comprising all the Finance Ministers of all the States and UTs and the Union Finance Minister, in its due wisdom had rightly not prescribed any specific guidelines/mechanism/methodology to determine profiteering in Section 171 of the CGST Act, 2017 and the Rules made thereunder as the facts of each case were different for different sectors as well as in same sector also. Hence, no fixed mechanism could have been provided for in the Act or Rules. However, it was submitted that the Methodology and Procedure had been notified by the Authority vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017. Also, there was standard procedure of examining the anti-profiteering reference at various levels and after proper examination, the Standing Committee on Anti-profiteering decided to refer the matter to the DGAP for detailed investigation. Accordingly, a Notice under Rule 129 of the CGST Rules, 2017 was issued to the Respondent on 02.06.2020. Based on the facts and circumstances of the case, the investigation was carried out covering the period from 01.01.2019 to 30.04.2020, which was a reasonable period of time. As the Notice was issued on 02.06.2020, the period of investigation was taken upto April, 2020, as per the practice followed in the DGAP.
14. The DGAP has further stated that the Respondent’s contention that the facts of case of Rahul Sharma Vs Gyan Books were applicable in the instant case, was also not correct. The facts and circumstances of the case were entirely different. In the matter of Rahul Sharma Vs Gyan Books, the product in question was already exempted w.e.f. 01.01.2017 and hence, there was no reduction in rate of tax on the impugned product. However, in the present case, the GST was reduced from 28% to 18% w.e.f. 01.01.2019. Thus, the Respondent’s contentions were not correct.
15. The DGAP further reported that on examination of the details of sales data and replies submitted by the Respondent, it was observed that basically there were two classes of tickets i.e. Gold (Rs. 150/-) and Silver (Rs. 130/-), including taxes, during the pre-rate reduction period effective from 13.10.2018 to 31.12.2018 and the same prices for these two categories were maintained post rate reduction w.e.f. 01.01.2019.
16. The DGAP has also reported that the issue that remained was the determination and quantification of profiteering by the Respondent, if any, for failing to pass on the benefit of the reduction in rate of tax on the “Services by way of admission to exhibition of cinematograph films where price of admission ticket is above one hundred rupees” from 28% to 18% w.e.f. 01.01.2019 and “Services by way of admission exhibition of cinematograph films where price of admission ticket is one hundred rupees or less” from 18% to 12% w.e.f. 01.01.2019. From the sales data made available, it appeared that the Respondent increased the base price of the admission ticket when the GST rate was reduced from 28% to 18% w.e.f. 01.01.2019 in the manner illustrated in Table-A below. From the Table-A below, it was observed that the prices of two categories of tickets, including taxes, were maintained:
Table-A
