Meenakshi Agrawal Vs Rajkotia Medicare Pvt. Ltd (NAA)
NAA held that distributor of products manufactured by others also liable to pass on the benefit of tax rate reduction to the recipients
The brief facts of the case were that an application was filed by the Applicant No. 1 alleging profiteering by Rajkotia Medicare Pvt. Ltd in respect of supply of three products namely ‘Juvederm Voluma with Licodaine, Juvederm Ultra Plus XC and Juvederm Ultra’. The Applicant No.1 alleged that the Respondent increased the base prices of the subject goods in spite of GST rate reduction from 28% to 18 % vide Notification No. 41/2017 — Central Tax (Rate) dated 14.11.2017 w.e.f. 15.11.2017, indicating that the benefit of reduction in the GST rate from 28% to 18% was not passed on to the recipients.
It is revealed from the records that the Respondent No. 1 is a distributor of the products manufactured by the Respondent No. 2.
On scrutiny of the purchase invoices of the Respondent No. 1 issued by the Respondent No. 2 enclosed with the complaint, the DGAP has observed that the benefit of reduction in the rate of GST rate was not passed on to the recipients by way of commensurate reduction in the prices.
On the issue of reduction in the tax rate, it is apparent from record that there has been a reduction in the rate of tax from 28% to 18% w.e.f. 15.11.2017, on the above goods vide Notification No. 41/2017 — Central Tax (Rate) dated 14.11.2017. Therefore, the Respondent is liable to pass on the benefit of tax reduction to his customers in terms of Section 171 (1) of the above Act. It is also apparent that the present investigation has been carried out w.e.f. 15.11.2017 to 30.09.2019.
The Respondent No. 1 has vehemently argued that he was the distributor of the products manufactured by the Respondent No. 2 and thus, he is not liable to pass on the benefit of tax rate reduction to the recipients and the proceedings should not be maintained against him. With respect to the above contention, we find that the provisions of Section 171 of the CGST Act, 2017 itself provides 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. “It is clear from the plain reading of the above provision that it mentions “reduction in the rate of tax or benefit of ITC” which means that if any reduction in the rate of tax is ordered by the Central or the State Governments or a registered supplier avails benefit of additional ITC the same have to be passed on by him to his recipients since both the above benefits are being given by the above Governments out of their tax revenue. In the present case, the Respondent No. 1, being a registered person under GST, is dealing with the products on which the tax rate has been reduced from 28% to 18% w.e.f. 15.11.2017 and thus, he is liable to pass on such benefit to his recipients/customers. Hence, the above contention made by him is incorrect and cannot be accepted.
The Respondent No. 1 has further argued that he being a distributor was not authorized to alter the Maximum Retail Price (MRP) of impugned products manufactured by the Respondent No. 2 i.e. the manufacturer and any attempt would result in violation of provisions of Legal Metrology Act. With respect to the above contention, we find that Maximum Retail Price (“MRP”) is the maximum price at which goods can be sold in retail. The value of transaction between the manufacturer and the whole seller or the whole seller and the retailer is invariably less than the MRP. Therefore, regardless of whether MRP is required to be marked on the product or not, the pre and post-tax rate reduction transaction values are compared to determine profiteering. In case of closing stock carrying higher MRP, while the manufacturer is under statutory obligation to reaffix the revised MRP, everybody in the supply chain is also legally required to pass on the benefit of tax rate reduction by maintaining the base price and charging GST at the reduced rate on such base price. Further, the question of alteration of MRP did not arise here. The Respondent No. 1 was only required to charge the reduced rate of GST on the base price which he was charging earlier in the pre-GST rate reduction regime. Instead, the Respondent No. 1 has charged the reduced rate of GST on the increased base price of the impugned products which in turn resulted in non-passing on of the benefit of reduction in the rate of tax to his customers. Hence, the above contention of the Respondent being incorrect cannot be accepted.
The Respondent has also argued that the complaint filed by the Applicant No. 1 was with respect to the products namely “Juvederm Ultra Plus Xc” and “Juvederm Voluma”. However, the DGAP had arrived at the profiteering amount by including an additional product i.e. Juvederm Ultra XC in addition to the aforementioned two products. As per Section 171 and Rule 128, there was no mention of any power which allows the DGAP to take suo-moto cognizance of any alleged contravention of Section 171 in the absence of a compliant and to this extent and therefore expanded the scope of the investigation of the products to include such other products that did not form part of any complaint. In this connection this Authority finds that under the provisions of Section 171 (2), the DGAP as investigating arm of this Authority has mandate to investigate all infringements of the above Section as per the provisions of Rule 129. Therefore, the DGAP is bound to investigate all the products on which the rate of tax has been reduced and therefore, there is no question of his expanding the investigation suo-moto. Hence, the above argument of the Respondent is not tenable.
The Respondent No. 2 has alleged that in respect of two products Juvederm Ultra Plus and Juvederm Ultra XC, the prices had been reduced w.e.f. 15 January 2019 and the said reduction was lower than the average selling price as calculated by the DGAP. Hence, the allegations should be set aside on the above ground. In this regard, we observe that while calculating the profiteered amount, the DGAP has considered only the reduced selling price wherever reduced. As per the Annexure-25 of the report of the DGAP, it is seen that during January, 2019 and afterwards, the cases where the post-tax rate reduction actual selling price was below the pre-tax rate reduction average selling price, the profiteered amount was indicated as zero. Hence, profiteering has not been calculated in the cases where the Respondent has charged post tax rate reduction price below the average pre tax rate reduction selling price of the products to his customers. Hence, the above allegation made by the Respondent cannot be accepted.
This Authority determines that the amount profiteered by the Respondent No. 1 and No. 2 is Rs. 61,54,833/- and Rs. 28,50,72,358/– respectively. The amount profiteered by the Respondent No. 2 is inclusive of the amount profiteered by the Respondent No. 1. Hence, the Respondent No. 2 is liable to pass on the profiteered amount of Rs. 61,54,833/- to the Respondent No. 1 and thus, the Respondent No. 1 is liable to pass on this benefit of rate reduction due to the Applicant No. 1 and the remaining amount in the Central and concerned State Consumer Welfare Fund.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. The present Report dated 28.01.2021 had 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 were that an application was filed by the Applicant No. 1 alleging profiteering by the Respondent No. 1 in respect of supply of three products namely “Juvederm Voluma with Licodaine, Juvederm Ultra Plus XC and Juvederm Ultra”. The Applicant No.1 alleged that the Respondent increased the base prices of the subject goods in spite of GST rate reduction from 28% to 18 % vide Notification No. 41/2017 — Central Tax (Rate) dated 14.11.2017 w.e.f. 15.11.2017, indicating that the benefit of reduction in the GST rate from 28% to 18% was not passed on to the recipients.
2. The above application was forwarded to the DGAP by the Standing Committee on 09.10.2019 along with the report of the preliminary enquiry conducted by the Screening Committee of Maharashtra. On scrutiny of the purchase invoices of the Respondent enclosed with the application, issued by the Respondent No. 2 it was observed by the Committee that the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in the price.
3. After receipt of the above reference from the Standing Committee, the DGAP initiated his investigation to collect evidence necessary to determine whether the benefit of GST rate reduction had been passed on by the Respondent No. 1 and No. 2 to the recipients in general and to the Applicant No.1 in respect of supply of subject goods in particular. The DGAP has carried out the investigation and submitted the report dated 28.01.2021 to the Authority, stating therein that:-
a. on receipt of the reference from the Standing Committee on Anti-profiteering on 09.10.2019, notice was issued to the Respondent No. 1 and 2 on 21.10.2019, under Rule 129 of CGST Rules, 2017, seeking their replies as to whether they admitted that the benefit of GST rate reduction had not been passed on to the recipients by way of commensurate reduction in price and if so, to suo-moto determine and indicate the same in their reply to the notice as well as furnish all supporting documents. Further, in the said notice dated 21.10.2019, the Respondent No. 1 & 2 were given an opportunity to inspect the non-confidential evidences/information furnished by the Applicant No.1, on 29.10.2019 or 30.10.2019, which the Respondent No. 1 didn’t avail. However, the Authorized Representative of the Respondent No. 2 visited the DGAP’s office on 30.10.2019 and collected the non-confidential data/ information received from the Applicant No. 1.
b. Vide e-mail dated 03.09.2020, the Applicant No.1 was also given an opportunity to inspect the non-confidential documents/reply furnished by the Respondent No. 1 & 2, on 09.09.2020 or 10.09.2020. However, the opportunity was not availed of by the Applicant No. 1.
c. The period covered by the current investigation was from 15.11.2017 to 30.09.2019.
d. The Respondent No. 1, in response to the Notice dated 21.10.2019 and subsequent reminders, submitted his reply vide e-mails/letters dated 23.10.2019, 10.01.2020, 25.01.2020, 27.01.2020, 06.02.2020, 11.02.2020, 17.08.2020 and 30.12.2020 and stated that he was the only authorized distributor for the manufacturer and he didn’t have any control on the aspect of MRP of the product and requested to drop the proceedings. Vide the above replies, the Respondent No. 1 submitted the following documents:-
i. and GSTR-3B for the period November-17 to September-19.
ii. Sample Invoices pre and post 15.11.2017
iii. Invoice wise details of outward taxable supplies for the period July, 2017 to September, 2019.
iv. Letter received from Maharashtra SGST Department.
e. The Respondent No. 2 replied to the said notice, vide letters and emails dated 30.10.2019, 12.11.2019, 15.11.2019, 10.12.2019, 16.01.2020, and 27.01.2020, 05.08.2020, 01.09.2020 and 15.10.2020 and stated that the supplies of subject goods took place from the state of Maharashtra only. He further submitted that from Karnataka, only stock transfers and other supplies of the nature of scrap sales, sale of assets were effected to pay recoveries etc. Vide e-mail dated 15.10.2020, it has also been stated by the Respondent No. 2 that 02 goods namely “Juvederm Volbella and Juverderm Volift”, were not sold in pre-rate reduction period as they were launched in the market in January, 2018. Thus, the said two goods did not form part of profiteering calculation. Vide the above submissions, the Respondent No. 2 has submitted the following documents:-
i. GST registration confirmation for Maharashtra and Karnataka.
ii. GSTR-1 and GSTR-3B for the period November-17 to September-19 for both GST registrations.
iii. Price list of the subject goods.
iv. Sample Invoices.
v. Invoice wise details of outward taxable supplies for the period July, 2017 to September, 2019.
f. The DGAP has further stated that he has carefully examined the subject application and various replies of the Respondent No. 1 & 2 and the documents/evidence on record along with the preliminary report of the Maharashtra Screening Committee. The findings were as follows:-
i. Initially, the said complaint was forwarded to the Standing Committee by the Maharashtra Screening Committee stating that the Respondent No. 1 had not revised the price to gain the profit out of rate of change of GST, and that the Respondent No. 2 (the subject goods manufacturer) from whom the Respondent No. 1 purchased the subject goods had increased the base price to keep the final price same even after reduction in GST rate and the benefit of rate reduction was not passed on to the recipients.
ii. However, the Standing Committee in its meeting dated 13.09.2019 forwarded the complaint to the DGAP for further detailed investigation stating that prima-facie evidence was found against M/s Rajkotia Medicare Pvt. Ltd. Accordingly, the DGAP initiated investigation against both the Respondent No. 1 & 2 vide notice dated 21.10.2019.
iii. On further examination, the DGAP noted that the findings of the Screening Committee differed from the recommendation of the Standing Committee. Accordingly vide letters dated 24.02.2020, 12.03.2020 and 24.06.2020, the Standing Committee was requested to clarify whether the said complaint was to be constructed against the Respondent No. 1 only or both the Respondent No. 1 (dealer) & Respondent No. 2 (manufacturer).
iv. The Standing Committee vide letter dated 13.07.2020 stated that the said complaint might be taken up for detailed investigation only against the Respondent No. 2 (manufacturer).
v. Further, the invoices enclosed with Application forwarded by the Standing Committee were scrutinized. Invoice no. R/1140/17-18 dated 21.07.2017 consigned to Dr. Rashmi Shetty for the product ” Juvederm Voluma with Lidocaine (2×1 ml) and invoice no. R/1782/18-19 dated 29.09.2018 consigned to Dr. Meenakshi Agrawal (the Applicant No. 1) for the same product were taken up for scrutiny. It was observed that the per unit price of impugned product charged by the Respondent No. 1 was increased in the invoice issued post GST rate reduction period (i.e. after 14.11.2017) as compared to per unit price charged in the pre GST rate reduction period. Resultantly, it appeared that the benefit of reduction in tax rate was not intended to be passed on to the recipients.
vi. The DGAP, therefore, once again sent a letter dated 06.11.2020 to the Standing committee to inform the basis on which the DGAP was advised to investigate only against the manufacturer (Respondent No. 2) and not the dealer (Respondent No. 1). The Standing Committee, however, maintained his stand and replied vide letter dated 23.11.2020 that as per the attached invoices and report of the State Screening Committee, it appeared to them that the manufacturer had indulged in the profiteering rather that the dealer, therefore, investigation needed to be conducted on part of the manufacturer i.e. M/s. Allergan Healthcare Pvt. Ltd. (Respondent No. 2).
g. In terms of Rule 129 (4) of the CGST Rules, 2017 the DGAP might also issue Notices to such other persons as deemed fit for a fair enquiry into the matter. Therefore, initially, the DGAP decided to proceed with the investigation against both the Respondent No. 1 & 2 and notice dated 21.10.2019 was issued to both. Thereafter, the contention of the DGAP was substantiated by the scrutiny of invoices issued by the Respondent No. 1 during the pre and post rate reduction periods, which indicated at profiteering by the Respondent No. 1. Accordingly, the documents/data furnished by the Respondent No. 1 was also investigated.
h. The Central Government, on the recommendation of the GST Council, had reduced the GST rate on “the subject Goods” from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017.
i. From the invoices made available by the Respondent No. 1, the DGAP has observed that the Respondent No. 1 has increased the base prices of “the subject goods” when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017. Thus, the benefit of GST rate reduction was not passed on to the recipients by way of commensurate reduction in price. The methodology adopted for determining the amount of profiteering has been illustrated by the DGAP in respect of specific item i.e. “JUVEDERM VOLUMA WITH LIDOCAINE (2SYGX1ML) BOX” sold during the month of November, 2017 (pre-GST rate reduction). An average base price (after discount) was obtained on dividing the total taxable value by total quantity of this item sold during the period 01.11.2017 to 14.11.2017. The average base price of this item was compared with the actual selling price of same item sold during post-GST rate reduction i.e. on or after 15.11.2017. The same has been illustrated by the DGAP in the Table-A below:-
Table-A
(Amount in Rupees)
