Case Law Details

Case Name : Shri Surya Prakash Loonker Vs M/s Excel Rasayan Pvt. Ltd (NAA)
Appeal Number : Case No. 02/2019
Date of Judgement/Order : 16/01/2019
Related Assessment Year :

Shri Surya Prakash Loonker Vs M/s Excel Rasayan Pvt. Ltd (NAA)

it is clear that the Respondent has admittedly not passed on the benefit of tax reduction since the base prices of the above two products were increased to maintain the same selling prices which were existing before the reduction in the rate of tax. The Respondent, who is a registered manufacturer, is liable to pass on the benefit to the recipients irrespective of the fact whether the base prices are still lower as compared to the pre-GST price or not. Moreover, from the documents submitted to the DGAP by the Respondent it is also established that the base prices of the two products in question were increased to maintain the same selling prices (inclusive of GST), although there was a reduction in the GST rate from 28% to 18% w.e.f. 15.11.2017. In the present case, the Respondent has admittedly accepted the fact that there was no reduction in the prices post 15.11.2017 on any of the products sold by him. Therefore, the Authority holds that the Respondent has violated the provisions of section 171 in as much as the prices have remained the same inspite of reduction in the tax rate. His plea that the base prices were drastically lowered when GST came in effect cannot absolve him from not passing on the benefit.

FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY

The present Report, dated 04.09.2018, has been received on 07.09.2018 from the Director General of Anti-Profiteering (DGAP) after detailed investigation under Rule 129 (6) of the Central Goods & Services Tax (CGST) Rules, 2017. The brief facts of the case are that an application dated 22.02.2018 was filed by the Applicant No. 1 before the Standing Committee, constituted under Rule 123 (1) of the above Rules alleging that the Respondent did not pass on the benefit of reduction in the GST rate applicable to detergents from 28% to 18% w.e.f. 15.11.2017 but increased the base prices of the detergents sold by him, so that there was no reduction in the prices to the recipients. In support of his allegation, the Applicant No. 1 submitted copies of two sale invoices of Fortune ADW Detergent 1 Kg. and Fortune Rinse Aid 500 ml. bearing No. 6413 dated 07.09.2017 and No. 17497 dated 26.12.2017 respectively, issued by the Respondent. After examining the application, the Standing Committee on Anti-Profiteering, as per the minutes of it’s meeting dated 28.2.2018, forwarded the same to the DGAP for detailed investigation under Rule 129 (1) of the CGST Rules, 2017.

2. The DGAP, on receipt of the application, issued notice to the Respondent seeking his reply as to whether the benefit of reduction of GST rate has been passed on to the consumers or not? The Respondent had replied vide his letters dated 11.04.2018 and 19.05.2018 that prior to coming into force of the GST, he was a SSI unit, manufacturing synthetic detergents falling under Chapter 34 of the erstwhile Central Excise Tariff Act, 1944 and that he had been availing SSI exemption and charging VAT @ 12.5 % on the base prices. He had further submitted that on introduction of the GST, 28% tax was levied and since this disturbed his pricing pattern he had reduced the base prices. He had also stated that w.e.f. 15.11.2017, when the GST rate on his products in question was reduced from 28% to 18%, though the base prices were increased, they were much less than the base prices in the Pre-GST era

3. The DGAP’s report submitted that the Respondent had also filed details of invoice-wise outward taxable supplies (other than zero rated) and State-wise details for all the products from 01.11.2017 to 31.03.2018 along with copies of GSTR-1, GSTR-3B, Audited Balance Sheet and the Sample invoices. The DGAP after examining the facts of the case and the record available has reported that on scrutiny of the outward sales data of the Respondent covering the period w.e.f. 01.11.2017 to 14.11.2017, it was noticed that the base prices of Fortune ADW Detergent 1 Kg. and Fortune Rinse Aid 500 ml. were Rs.171.80 and Rs.117.18 respectively, prior to 15.11.2017. Taking this base price into account the cum-tax price after reduction of GST rate from 28% to 18% should have been Rs.202.72 for Fortune ADW Detergent 1Kg. and Rs.138.27 for Fortune Rinse Aid 500 ml. The report further states that the Respondent instead of reducing the base prices sold 20,315 units of Fortune ADW Detergent 1 Kg. and 11,214 Units of Fortune Rinse Aid 500 ml. at the increased base prices across various States. Thus, by increasing the base prices of the said products consequent to the reduction in the GST rate, the benefit of reduction in the GST rate from 28% to 18% was not passed on to the recipients. The report also submitted that the total amount of profiteering covering the period between 15.11.2017 to 31.03.2018, came out to be Rs.4,64,849.74, but the Applicant No. 1 was supplied Fortune ADW Detergent 1 kg. at the price of Rs.186.99 and Fortune Rinse Aid 500 ml. at the price of Rs.127.49 which were lower than the commensurate cum-tax prices of these products and therefore, the Applicant was not eligible for any refund.

4. The above Report was considered by the Authority in it’s meeting held on 11.09.2018 and it was decided to hear the interested parties on 26.09.2018, however no one appeared on behalf of the Respondent & Applicant No.1. Another Notice dated 03.10.2018 was issued and accordingly hearing was held on 12.10.2018. Sh. Rakesh Upadhyaya, Director and Sh. Prabhat Kumar, Advocate, appeared on behalf of the Respondent, no one appeared on behalf of the Applicant No.1, and Ms. Gayatri, Deputy Commissioner appeared on behalf of the DGAP.

5. The Respondent in his written submissions dated 10.10.2018 submitted that he was a SSI unit manufacturing detergents and was availing benefit of SSI units granted under the Central Excise Act, 1944 and therefore, he was selling his products after charging VAT @ 12.5% on the base prices. He has also submitted that w.e.f. the introduction of the GST from 1st July 2017 his products were levied GST @ 28% which had caused confusion and disturbed his pricing pattern. He has further submitted that though in the Pre GST era of VAT, which was levied @ 12.5% the rate of tax was increased to 28% in the GST era, but he had not increased the base prices and absorbed the increased burden of taxes from 12.5% to 28% himself. He has also claimed that in the same financial year 2017-18 he had three rates of tax viz. 12.5% prior to July, 28% from July to November and 18% from 15th November onwards, however during this entire period, the prices to the consumers had remained the same and accordingly, the consumers had paid lower prices even though the rate of tax was enhanced. He has also quoted the Hon’ble Finance Minister stating that the GST rate of 28% was tax neutral and only pertained to those units which were paying 12% Central Excise Duty and VAT @ 12.5%. However, this rate did not apply to him as he was availing exemption under the SSI notification. The above submissions of the Respondent were forwarded to the DGAP for reply who vide his submission dated 22.10.2018 stated that the Respondent has reiterated the earlier submissions and nothing more was to be added by the DGAP. Final price to the consumers, as per the submissions made by the Respondent, is as per the table given below:-

Final price to the Consumers
Rear
Month/ Qtr.
ADW
Rinse Aid
ADW
Rinse Aid
VAT @12.5%
GST @ 28%
GST @ 18%
2016
Prior to GST
April
220
150
195.50
133.40
24.44
16.68
0
0
0
0
October
220
150
195.50
133.40
24.44
16.68
0
0
0
0
December
220
150
195.50
133.40
24.44
16.68
0
0
0
0
2017
January
220
150
195.50
133.40
24.44
16.68
0 •
0
0
0
April
220
150
195.50
133.40
24.44
16.68
0
0
0
0
2017
After introduction of GST
July
220
150
171.87
117.19
0
0
48.12
32.81
October
220
150
171.87
117.19
0
0
48.12
32.81
Upto 14.11.2017
220
150
171.87
117.19
0
0
48.12
32.81
15.11.2017
220
150
186.44
127.12
0
0
0
0
33.56
22.88
December
220
150
186.44
127.12
0
0
0
0
33.56
22.88
2018
January
220
150
186.44
127.12
0
0
0
0
33.56
22.88
February
220
150
186.44
127.12
0
0
0
0
33.56
22.88
March
220
150
186.44
127.12
0
0
0
0
33.56
22.88

6. As per Section 171 of CGST Act, 2017 read with Rule 127 of CGST Rules 2017, it is the duty of the Authority to determine whether any reduction in the rate of tax on any supply of goods or services or the benefit of Input Tax Credit (ITC) has been passed on to the recipient by way of commensurate reduction in the prices or not? In the instant case the Respondent has not disputed the fact that there has been reduction in the rate of tax from 28% to 18% with effect from 15th November 2017 vide Notification No. 41/2017- Central Tax (Rate) dated 14.11.2017 and has also not disputed the calculation made by the DGAP based on his outward sales data. The DGAP vide Annexure-11 of his report has quantified profiteered amount as Rs.4,64,849/- in which he has taken the actual selling price of  Fortune ADW Detergent 1 Kg. i.e. Rs. 220/- and worked out the base price and the commensurate cum-tax price. The base price of the above product before rate reduction on 14.11.2017 was Rs. 171.80 and the Post-GST rate reduction it was Rs. 186.44 which has not been disputed as can be seen from the written submissions filed by the Respondent on 10.10.2018. Similarly in the case of Fortune Rinse AID 500 ml. the selling price was Rs.150/- while the base price before rate reduction was Rs. 117.18, the base price Post-GST rate reduction was Rs.127.12 which has also not been disputed by the Respondent. The only claim made by the Respondent is that from April 2016 to June 2017 though his selling price was constant at Rs.220/- for Fortune ADVV Detergent 1Kg., the base price of the product has varied from Rs. 195.50 (April to December 2016) to Rs. 171.87 (July to November 2017) and then Rs. 186.44 (15.11.2017 to March 2018). Thus claiming that though the base price has increased from Rs. 171.87 to Rs. 186.44 after the rate reduction in November 2017 the base price still had remained less than Rs. 195.50 which was prior to introduction of GST. Similarly the selling price had remained constant at Rs.150/- for Fortune Rinse AID 500 ml. however, the base price has varied from Rs.133.40 (April to December 2016) to Rs.117.19 (July to November 2017) and Rs. 127.12 (15.11.2017 to March 2018). For this product also he has claimed that though the base price has increased from Rs. 117.19 to Rs. 127.12 after rate reduction in November 2017, the base price had remained less than Rs. 133.40 which was prevalent prior to the introduction of GST. Thus the Respondent has claimed that the consumer had effectively paid the same price or less price which was prevalent in pre GST era. However, this argument of the Respondent does not hold good as not to increase the MRPs when tax rates were increased on account of implementation of the GST, was the business call taken by him and therefore he cannot claim any concession on this ground. The benefits arising due to the GST rate reduction cannot be denied to the consumers just because in the earlier scenario MRPs were not changed to extend some extra benefit to the consumers. It has also been found that the base price of both the above products has been increased irrespective of the fact that there was GST rate reduction from 28% to 18%, which is reflected in the table given below:-

Product Base price  post rate
reduction per unit
Actual selling price Base price Pre rate reduction
per unit
Commensurate price per unit Profiteering per unit
Fortune ADW 186.44 220.00 171.80 202.72 17.28
Fortune Rinse Aid 127.12 150.00 117.18 138.27 11.73

7. Therefore, the Authority is in agreement with the DGAP’s finding that the cum-tax selling price of Fortune ADW Detergent 1 Kg. at Rs. 220/- prior to the GST rate reduction should have commensurately been reduced to Rs. 202.72 with GST rate reduction by 10%. Similarly in the case of Fortune Rinse AID 500 ml. the cum-tax selling price should have been commensurately reduced from Rs. 150/- to Rs. 138.27 after the GST rate reduction from 28% to 18%. By keeping the selling price constant at Rs. 220/- and Rs. 150/- per unit for the above products the Respondent has profiteered an amount of Rs.4,64,849.74 for the period w.e.f. 15.11.2017 to 31.03.2018. However as far as the Applicant No. 1 is concerned he has bought both the above products @ Rs.186.99 (Fortune ADW Detergent 1Kg.) and at Rs.127.49 (Fortune Rinse AID 500 ml.) which are lower than the commensurate cum tax prices. Therefore there is no profiteering in respect of the products purchased by him.

8. From the above discussions, it is clear that the Respondent has admittedly not passed on the benefit of tax reduction since the base prices of the above two products were increased to maintain the same selling prices which were existing before the reduction in the rate of tax. The Respondent, who is a registered manufacturer, is liable to pass on the benefit to the recipients irrespective of the fact whether the base prices are still lower as compared to the pre-GST price or not. Moreover, from the documents submitted to the DGAP by the Respondent it is also established that the base prices of the two products in question were increased to maintain the same selling prices (inclusive of GST), although there was a reduction in the GST rate from 28% to 18% w.e.f. 15.11.2017. In the present case, the Respondent has admittedly accepted the fact that there was no reduction in the prices post 15.11.2017 on any of the products sold by him. Therefore, the Authority holds that the Respondent has violated the provisions of section 171 in as much as the prices have remained the same inspite of reduction in the tax rate. His plea that the base prices were drastically lowered when GST came in effect cannot absolve him from not passing on the benefit.

9. Accordingly, the Respondent is directed to reduce the sale price of the above products immediately, commensurate to the reduction in the rate of tax, as was notified on 14.11.2017 so as to pass on the benefit of reduction in the rate of the tax to his customers as per Rule 133(3)(a) of the CGST Rules, 2017. The Respondent is also directed to deposit the profiteered amount of Rs.4,64,849.74 into the Consumer Welfare Fund as per the provisions of Rule 133 (3) (c) in the ratio of 50:50 in the Central and the State Consumer Welfare Funds, along with interest at the rate of 18% to be calculated from the date of collection of the higher amount till the date of deposit into the Consumer Welfare Fund. Out of the entire profiteered amount of Rs. 4,64,849.74, an amount of Rs. 2,32,424.87 will be deposited into the Central Consumer Welfare Fund and the balance amount shall be deposited into the State Consumer Welfare Fund as per the Table-1 given below. The Authority, as per Rule 136 of the CGST Rules, 2017, directs the DGAP and the respective Commissioners of both CGST and SGST to monitor this order by ensuring that the amount profiteered by the Respondent as ordered by the Authority, is deposited in the Consumer Welfare Funds within a period of 3 months from the date of receipt of this order, along with interest failing which the same shall be recovered by the concerned Commissioner CGST or SGST as per the provisions of their respective Acts :-

Table-1

S.No. State/Union Territory

 

Profiteering (Rs.)
1. Andhra Pradesh 6996.04
2. Assam 5112.21
3. Andaman & Nicobar 23.135
4. Bihar 299.325
5. Chandigarh 1211.795
6. Chattisgarh 953.445
7. Daman & Diu 109.16
8. Delhi 18696.08
9. Goa 1118.68
10. Gujarat 12110.97
11. Haryana 10337.095
12. Himachal Pradesh 959.86
13. Jammu & Kashmir 873.585
14. Jharkhand 842.875
15. Karnataka 50389.505
16. Kerala 4967.74
17. Maharasthra 50796.785
18. Manipur 46.1
19. Meghalaya 138.02
20. Madhya Pradesh 1989.225
21. Odisha 653.49
21 Puducherry 538.235
22. Punjab 4397.285
23. Rajasthan 3434.85
24. Sikkim 75.55
25. Tamil Nadu 22009.61
26. Telangana 16388.405
27. Tripura 2912.635
28. Uttar Pradesh 11290.365
29. Uttarakhand 1601.4
30. West Bengal 8467.565
31. Dadar & Nagar
Haveli
28.37
Grand Total 232424.87

10. It is clear from the narration of the facts stated above that the Respondent has indulged in profiteering in violation of the provisions of Section 171 of the CGST Act, 2017 and has not passed on the benefit of reduction of tax as per the Notification 41/2017-Central Tax(Rate) dated 14.11.2017 in respect of the above products to his customers and therefore, he is liable for penalty under Rule 133(3)(d) of the CGST Rules, 2017, the relevant provisions of which state as under:-

“133. x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-xx-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-

X-X

(3) Where the Authority determines that a registered person has not passed on the benefit of the reduction in the rate of tax on the supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices, the Authority may order —

(a) reduction in prices:

(b) return to the recipient, an amount equivalent to the amount not passed on by the way of commensurate reduction in prices along with interest at the rate of eighteen percent from the date of collection of the higher amount till the date of the return of such amount or recovery of the amount including interest not returned, as the case may be;

(c) the deposit of an amount equivalent to fifty percent of the amount determined under the above clause in the Fund constituted under section 57 and the remaining fifty percent of the amount in the Fund constituted under section 57 of the Goods and Services Tax Act, 2017 of the concerned State, where the eligible person does not claim return of the amount or is not identifiable;

(d) Imposition of penalty as specified under the Act; and

(e) x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x–x-x-x–x-x-x-x

11. We have also carefully considered the issue of imposition of penalty on the Respondent as the allegation of profiteering has been duly established against him. Though the notice, dated 11.09.2018, had invoked penal provisions, the Respondent had not put forth any submissions on them except stating that he had not profiteered as has been discussed in para 5 above. As it is clear from the facts of the present case that the Respondent was fully aware of the Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 whereby the rate of GST was reduced from 28% to 18% and he was also fully aware of Section 171 of the CGST Act 2017, whereby he was bound to pass on the benefit of reduction in the rate of tax by commensurate reduction in the prices of the products in question, therefore he is liable for penalty. The Respondent has deliberately defied the law on the pretext that he had not increased the prices of his products when the rate of tax was increased to 28% and increased the base prices to maintain the same old selling price prior to reduction of rate of tax from 28% to 18%, by issuing wrong invoices to his recipients. Accordingly, he has committed an offence under section 122 (1) (i) of the above Act and hence, he is liable for imposition of penalty under the above Section read with Rule 133(3)(d) of the CGST Rules 2017. Although, the Notice for imposition of penalty has already been issued to him on 11.09.2018, keeping in view, the principles of natural justice it would be appropriate to issue him fresh notice asking him to explain why penalty should not be imposed on him.

12. A copy of this order be sent to the Applicants and the Respondent free of cost. File of the case be consigned after completion.

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