Case Law Details
Sudarshan Theatre Vs Union of India (Telangana High Court)
The Hon’ble Telangana High Court in Sudarshan Theatre v. Union of India [Writ Petition Nos. 4760 and 5351 of 2021 dated June 21, 2024], dismissed the writ petitions and held that the Assessee violated Section 171 of the Central Goods and Services tax Act, 2017 (“the CGST Act”) by failing to reduce ticket prices immediately following the Goods and Services Tax (“GST”) rate reduction effective from January 1, 2019. Further, a reading of sections 171 & 172 of the CGST Act does not show any exception carved out in the event of non-reduction in the price of tickets, nor is the authority empowered to relax conditions so enumerated under section 171(1) of the CGST Act. The Hon’ble Court found no illegality or exception in the Authority’s order required the re-computation of profiteering.
Facts:
M/s. Sudarshan Theatre (“the Petitioner”), collected GST on cinema tickets at rates 28% and 18% for tickets priced above Rs. 100 and below Rs. 100, until December 31, 2018. Effective January 1, 2019, the GST rates were reduced to 18% and 12% respectively. However, the Petitioner reduced ticket prices only from March 11, 2019, and continued to charge the reduced prices until May 08, 2019, after which they maintained the lower prices. Despite not immediately lowering ticket prices for the first 2 months and 12 days after the tax rate reduction, the Petitioner still paid GST to the Government at the new rates of 18% and 12%.
The National Anti-Profiteering Authority alleged that the Petitioner failed to pass on the benefit of the reduced GST rates to consumers immediately and had profited from the interim period by charging higher prices. The whole dispute arises on this reduction of tax. The allegation is that once when the rate of tax stood reduced from the bracket of 28% and 18% to 18% and 12% w.e.f. January 01, 2019, the authority concerned was required to reduce the price of the tickets commensurate with the reduction in the tax so that the audience who are the end-beneficiaries get advantage of the reduction in the ticket price.
Hence, aggrieved by the circumstances, the Petitioner filed the present writ petition seeking the quashment of the order (“the Impugned Order”) to the aforesaid extent.
Issue:
Whether the Petitioner’s delay in reducing ticket prices in line with tax rate reduction violated Section 171 of the CGST Act?
Held:
The Hon’ble Telangana High Court in Writ Petition Nos. 4760 and 5351 of 2024 held as under:
- Observed that, the National Anti-Profiteering Authority had alleged that the Petitioner’s delay in adjusting ticket prices constituted a violation of Section 171 of the CGST Act, which mandates that any reduction in tax rates must be passed on to consumers through a corresponding reduction in prices.
- Noted that, the provision of Section 171(1) of the CGST Act has been introduced to ensure that the supplier of goods and services should not make profit from the reduction of the tax rate under the GST law. Rather the intention of the Government is that the moment the rate of tax under the GST is reduced, the benefit should immediately be passed on to the end-user by way of reduction in the prices commensurate with the reduction in the rate of tax. This, in other words, would mean that, the moment there is a cut in the rate of GST, the price of the commodity or the services rendered has to be reduced automatically to the extent of the reduction in the rate of tax. If the supplier continues to sell the product at the same price particularly when the prices are inclusive of GST, the respondent-Department or the beneficiary does not benefit by the Government’s decision in lowering the rate of tax.
- Held that, a reading of Sections 171 & 172 of the CGST Act does not show any exception carved out in the event non-reduction in the price of tickets, nor is the authority empowered to relax conditions so enumerated under Section 171(1) of the CGST Act. Accordingly, there was no illegality committed by the Authority which had passed the Impugned Order.
Our Comments:
The Government has actively started considering a reduction of GST rates for goods and services to keep the economy on the growth path. In this context, it’s important for all Entrepreneurs to be under anti-profiteering regulations under GST. The basis of anti-profiteering provisions in the GST rules is to ensure that any reduction in the GST rate and associated input tax credit benefit is passed on to the end consumer by way of a reduction in prices.
Section 171 of the CGST Act:
“(1) 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.”
As per Section 171 of the CGST/SGST Act, any reduction in the tax rate on any supply of goods or services, or any benefit of ‘input tax credit’, must be passed on to the recipient (for example, customer) by the registered person (e.g., trader) through a commensurate reduction in prices. Thus, if a trader is paying, say, Rs 100 less in the new tax rate on a certain item, he has to compulsorily sell that item for Rs 100 cheaper, so the customer benefits proportionally. Failure to do so would mean the trader is indulging in ‘profiteering’.
Key Industry Player’s Issues:
A writ petition was filed before the Hon’ble Delhi High Court in the matter of Reckitt Benckiser India (P.) Ltd v. Union of India [Writ Petition (Civil) No. 7743 of 2019 and Others dated January 29, 2024] by more than 170 companies like Reckitt, Abbott, HUL, Johnson and Johnson, etc. fiercely challenging the constitutional validity of Section 171 of the CGST Act read with Rules 122, 124, 126, 127, 129, 133 and 134 of the CGST Rules. Also, the Petitioners have challenged the legality of the notices and orders imposing penalties issued by the National Anti-profiteering Authority (NAA) under Section 122 of the CGST Act read with Rule 133(3)(d) of the CGST Rules.
In the case of Sh. Arnav Datta, Director General of Anti-Profiteering, Central Board Of Indirect Taxes & Customs v. Prescon Realtors And Infrastructure Pvt. Ltd., [Case No. 42/2022 dated July 22, 2022] wherein NAA held that in the DGAP’s Report, the ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 1.43% and during the post-GST period (July, 2017 to September, 2019), it was 5.69% in Project “Silver Oak”. This clearly confirms that post-GST, the Respondent has benefited from additional input tax credit to the tune of 4.26% [5.69% (-) 1.43%] of the turnover and the same was required to be passed on to the customers/flat buyers/recipients. The DGAP has calculated the amount of ITC benefit to be passed on to all the flat buyers as Rs. 3,45,28,279/- for the project ‘Silver Oak’ which was availed by the Respondent.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
Since the issue in the present two writ petitions is one and the same, they are being disposed of by this Common Order.
2. Writ Petition No.5351 of 2021 is filed by the petitioner under Article under Article 226 of the Constitution of India praying the Court for issuance of a Writ, order or direction, more particularly, one in the nature of a Writ of Mandamus by declaring the Order in Case No.22/2020, dated 07.10.2020, passed by the 4th respondent as illegal, null, void and arbitrary; similarly, Writ Petition No.4760 of 2021 is filed by the petitioner under Article under Article 226 of the Constitution of India praying the Court for issuance of a Writ, order or direction, more particularly, one in the nature of a Writ of Mandamus by declaring the Order in Case No.73/2020, dated 17.11.2020, passed by the 4th respondent as illegal, null, void and arbitrary.
3. For convenience, the facts in Writ Petition No.5351 of 2021 are discussed hereunder.
4. Heard Mr. K. Durga Prasad, learned counsel for the petitioner and Mr. Gadi Praveen Kumar, learned Dy. Solicitor General of India, for the respondent No.1; and Mr. Zoheb Hussain, learned Standing Counsel appearing on behalf of Mr. B. Jithender, learned counsel for the respondent Nos.2 and 4.
5. Vide the impugned order, the authority concerned has directed the 2nd respondent to re-compute the amount of profiteering in terms of the directions given in the impugned order.
6. The short question that is involved in the present Writ Petition is whether the petitioners have committed any default under the provisions of the G.S.T. Act in not passing on the benefits of reduction in the rate of G.S.T. w.e.f. 01.01.2019 to the beneficiaries, i.e., the viewers of the cinema who had viewed the cinema from the petitioner’s-theatre.
7. When the G.S.T. law came into force w.e.f. 01.01.2017, the rate of tax in the tickets in the theatres being run in the State of Andhra Pradesh was 18% and 28%. Till then, the theatre owners were paying the G.S.T. based on the nature of the film i.e., @ 1%, 7%, 11%, 13% and 24%, as the case may be. After the introduction of the G.S.T. Law, the tickets included tax amount and nc separate tax was additionally charged from the audience. The rate of admission of cinema theatres was fixed for each class and the rates were inclusive of the taxes, but from 01.01.2019 onwards, the rate of tax under the G.S.T. was reduced from what it was earlier, i.e., 28% and 18% stood reduced to 18% and 12% for the tickets above Rs.100/- and also for the tickets below Rs.100/-.
8. The whole dispute arises on this reduction of tax. The allegation is that once when the rate of tax stood reduced from the bracket of 28% and 18% to 18% and 12% w.e.f. 01.01.2019, the authority concerned was required to reduce the price of the tickets commensurate with the reduction in the tax so that the audience who are the end-beneficiaries get advantage of the reduction in the ticket price. It is this which is alleged against the petitioners in all the writ petitions by the 4th respondent.
9. According to the learned Standing Counsel for the respondent Nos.2 and 4, as per Section 171(1) of the G.S.T. Act, any reduction in tax on the supply of goods or services, the benefit shall be passed on to the recipient by way of commensurate reduction in prices. Therefore, when the rate of tax for the two categories, i.e., tickets which are above Rs.100/- and tickets which are below Rs.100/- got reduced from 28% and 18% to 18% and 12%, the price of the tickets also ought to have been reduced accordingly. But the prices of tickets having not been reduced in spite of the reduction in the rate of tax, it was therefore alleged that the petitioners have profited extra and have pocketed the same. Thus, there is a violation on their part for which the petitioners are liable to be prosecuted and penalized. It was in this context that the matter came up before the 4th respondent-National Anti-Profiteering Authority (G.S.T.).
10. From a perusal of the pleadings, what is culled out is that though the rate of tax stood reduced w.e.f. 01.01.2019, the petitioners have reduced prices of tickets only w.e.f. 11.03.2019. The reduction of prices lasted only till 08.05.2019, as from 09.05.2019 onwards the petitioners have reduced their price of tickets. What has to be appreciated at this juncture is that though the petitioner from 01.01.2019 till 11.03.2019, i.e., for 2 months and 12 days, did not reduce the rate of tax commensurate with the reduction in the rate of G.S.T. Nonetheless the rate at which the G.S.T. was paid to the respondent-Department was at a rate that was fixed by the Government, i.e., 18% for the tickets sold at Rs.100/- and 12% for the tickets being sold below Rs.100/-.
11. Thus, from whatever price at which the tickets were sold, the rate of tax collected was paid to the respondent-Department at the same rate and that it was applicable on the relative date.
12. On these factual aspects, it was contended by the learned counsel for the petitioner that, as such, the petitioner has not pocketed anything excess and that whatever price they had charged for the tickets, the tax collected on the same has been actually paid to the Government and as such there is no default on the part of the petitioners. It was further contended that even otherwise the duration of the default is just around two months and eleven days, that was the minimum of time that was required for the petitioner to understand the implication of the new G.S.T. law that was then recently introduced and as such there was no such deliberate action on their part with a mala fide intention of profiteering. It was further the contention of the learned counsel for the petitioner that it was not otherwise in the hands of the petitioner for themselves to have reduced the rate of prices of the tickets because in the State of Andhra Pradesh (as it then was) (unified State), any change in the price of the tickets, there has to be a permission sought for from the Government and without the permission of the Government, the change of prices of the tickets cannot be brought into force and the price of the ticket is fixed at the time of granting of the license in its periodical renewals. Therefore, the petitioner as such could not have unilaterally reduced the prices of the tickets. It was also the contention of the learned counsel for the petitioner that while the rate of tax had been reduced, the licensing authority which had determined the rate of tickets in the petitioner’s theatre had not intimated the petitioner about requirement of reduction in the prices of the tickets in terms of Section 171 of the G.S.T. Act, and by the time the petitioner came to mow about it, the petitioner immediately reduced the rate of the ticket V. e. f. 11.03.2019 and as such there was no default or deliberate lapse on the part of the petitioner calling for the reduction of price of tickets
13. Learned counsel for the petitioner also strongly contended that non-reduction of the prices of the tickets also has fetched higher G.S.T. and such amount was already deposited with the respondent-Department, and hence the State has also been substantially benefitted by way of more Revenue. Lastly, he further contended that since it was a new law and the dates that were being collected could not be admittedly and properly uploaded because of various technical glitches that the petitioner was facing on the introduction of new law, all of which took some time for its proper implementation and for uploading of the required data which again would be the reason for the rate of tax which was not reduced and which finally was reduced from 11.03.2019, he therefore prayed for quashment of the impugned order to the aforesaid extent.
14. On the other hand, learned Standing Counsel appearing on behalf of the respondent-Department, contended that the pleadings and the documents enclosed along with the Writ Petition so also that which was envisaged by the respondent-Department, clearly indicate that the petitioner admittedly had not reduced the prices of tickets w.e.f. 01.01.2019 till 11.03.2019. According to him, it was the requirement on the part of the petitioners to adhere to the conditions stipulated under Section 171(1) of the G.S.T. Act to reduce the prices of tickets commensurate with the reduction in the tax. Having not done so, the Act does not provide for any immunity nor is there any exception clause under which the petitioner can be brought into, and keeping that in mind if the impugned order is ready, the order does not call for any interference as they are factually correct.
15. Having gone through the pleadings, contentions and the documents brought before the Court during the course of hearing and those which are part of the records, some of the admitted factual matrix is that, up till 31.12.2018, the G.S.T. was being collected at cinema theatres at the rate of 28% 86 18% in two categories, i.e., tickets sold above Rs.100/- and tickets sold below Rs.100/-. From 01.01.2019, the aforesaid rate of tax got reduced ‘.o 18% for tickets more than Rs.100/- and 12% for tickets below Rs.100/-. The petitioner reduced the prices of tickets only w.e.f. 11.03.2019 for two months and ten days, i.e., w.e.f. 01.01.2019 till 10.C3.2019. The price at which the tickets were sold was the same that were being sold as on 31.12.2019. There is no dispute so far as the petitioner having paid the G.S.T. at the rate fixed by the respondent-Department even on the price at which the tickets were sold. As a cDnsequence, the Government has also got G.S.T. from the petitioner at the higher rate on which the tickets were sold which has thus added up the revenue to some extent.
16. The G.S.T. law was a new law at that point of time and it was not long ago the G.S.T. law had come into force. It is a known fact there was for a considerable period of time in the beginning, many teething problems in the course of implementation of the said new tax regime. Considering the submissions that were put up by the learned Standing Counsel for the respondent-Department. it appears that variation in the prices of tickets was always with the permission of the Government alone. The theatre operators as such could not unilaterally fix the price of ticket. The period during which the petitioner had not reduced the price was only short. True it is that ignorance of law cannot be pleaded as a defence, but the fact that there has been no default on the part of the petitioner on the earlier tax regime was subsequent to 11.03.2019 coupled with the fact that the petitioner in between has been paying the G.S.T. collection in terms of the amended provision of law; and the only alleged lapse on the part of petitioner is the non-reduction of price of the ticket commensurate with the reduction in rate of tax, that too for a period of (69) days , i.e., from 01.01.2019 to 10.03.2019. However, from 11.03.2019 onwards, the price of the tickets had been reduced as would be evident from the impugned order itself. When we look at Section 171(1) of the G.S.T. and which for ready reference, is being reproduced as under, viz.,
“171. Anti-profiteering measure:
(1) 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.”
17. A plain reading of the said provision of law clearly indicates that the said provision has been introduced to ensure that the supplier of goods and services should not make profit from the reduction of the tax rate under the G.S.T. law. Rather the intention of the Government is that the moment the rate of tax under the G.S.T. is reftsed, the benefit should immediately be passed on to the end-user by way of reduction in the prices commensurate with the reduction in the rate of tax. This, in other words, would mean that, the moment there is a cut in the rate of G.S.T., the price of the commodity or the services rendered has to be reduced automatically to the extent of the reduction in the rate of tax. If the supplier con:inues to sell the product at the same price particularly when the prices are inclusive of G.S.T., the respondent-Department or the beneficiary• is not being benefitted by the Government’s decision in lowering the rate of tax. A reading of Sections 171 86 172 of the G.S.T. Act does not show any exception carved out in the event non-reduction in the price of the tickets, nor is the authority empowered to relax the conditions so enumerated under Section 171(1). This, in other words, also mean that the provision of Sections 171(1) has to be strictly adhered to. In the aforesaid context, when we look at the impugned order in the aforementioned admitted factual backdrop, we do not find any illegality so committed by the respondent-Authority which has passed the impugned order in Case No.22/2020, dated 07.10.2020. Therefore, we do not find any merit in the writ petition and the same deserves to be and is accordingly dismissed. No cos:s
18. Consequently, Writ Petition No.4760 of 2021 is also dismissed. No costs.
19. As a sequel, miscellaneous applications pending if any in these writ petitions, shall stand closed.
(Author can be reached at [email protected])
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