Samit Chakraborty Vs Cloudtail India Pvt. Ltd. (NAA)
Facts of the case:
The brief facts of the case are that the Standing Committee on Anti-profiteering vide its communication dated 11.03.2019 had requested the DGAP to conduct detailed investigation as per Rule 129 (1) of the above Rules on the allegation made by the Applicant No. 1 that the Respondent had not passed on the benefit of tax reduction from 12% to Nil which was notified vide Notification No.19/2018-Central Tax (Rate) dated 26.07 2018, in respect of the supply of “Stayfree Sanitary Napkins” w.e.f. 27.07.2018. The DGAP has also contended that the discount offered by the Respondent was pursuant to a discretionary business strategy wherein the Respondent had willingly cut into his profit margins to offer appropriate discounts time and again. Therefore, for the purpose of determination of profiteering in the instant case, actual selling price or discounted price instead of MRP has been considered in accordance with the provisions of the Central Goods and Services Tax Act, 2017 and the Rules made thereunder.
Held by NAA:
NAA states that the Respondent has vehemently contended that in the present case, as per the Report of the DGAP the application/ complaint was made on 26.12.2018 and it was examined by the Standing Committee in its qv meeting held on 11.03.2019 i.e. after a lapse of a period of more than 2 months from the date of receipt of the application. He has further contended that the time limit of 2 months within which the application was required to be examined was to be strictly adhered to and the same could not be condoned as the word used was “shall” in Rule 128 (1) before the words “within a period of two months. Thus, he has claimed that the belated examination of the application/ complaint by the Standing Committee was barred by limitation of 2 months prescribed under Rule 128 (1) of the CGST Rules, 2017 and hence, such a reference having been received by the DGAP from the Standing Committee could not have been acted upon by him under Rule 129 (1) of the above Rules and therefore, consequential proceedings/investigation conducted by the DGAP were liable to be set aside on this ground alone. It is further revealed from the perusal of the minutes of the meeting of the Standing Committee that the above complaint/application was discussed in detail by the Committee in its meeting held on 11.03.2019 and was forwarded to the DGAP for investigation under Rule 129 (1) of the above Rules vide Serial No, 7 of the Annexure-1B. Therefore, it is abundantly clear that the above application/complaint was received by the Standing Committee on 23.01.2019 and was discussed and considered by it in its meeting held on 11.03.2019 and was referred for investigation to the DGAP which is well within the prescribed limitation of 2 months in terms of Rule 128 (1) of the CGST Rules, 2017. Therefore, the objection raised by the Respondent in this regard is incorrect and hence the same cannot be accepted. Based on the above facts it is clear that the Standing Committee has examined the above complaint as per the provisions of Rule 128 (1) of the CGST Rules, 2017 and hence it has rightly referred the same for detailed investigation to the DGAP in terms of Rule 129 (1) of the above Rules. Therefore, the investigation carried out by the DGAP against the Respondent is perfectly legal and in consonance with Rule 129 of the above Rules. Hence, the present proceedings are legally maintainable against the Respondent.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. This Report dated 24.09.2019 has been received from the Director General of Anti-Profiteering (DGAP) after a detailed investigation under Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the case are that the Standing Committee on Anti-profiteering vide its communication dated 11.03.2019 had requested the DGAP to conduct detailed investigation as per Rule 129 (1) of the above Rules on the allegation made by the Applicant No. 1 that the Respondent had not passed on the benefit of tax reduction from 12% to Nil which was notified vide Notification No.19/2018-Central Tax (Rate) dated 26.07 2018, in respect of the supply of “Stayfree Sanitary Napkins” w.e.f. 27.07.2018.
2. The DGAP had issued Notice under Rule 129 (3) of the CGST Rules, 2017 on 10.04.2019 to the Respondent, to submit his reply as to whether he admitted that the benefit of reduction in the GST rate w.e.f. 27.07.2018, had not been passed on by him to his 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 documents in support of his reply. The Respondent was also afforded an opportunity to inspect the non-confidential evidence/information which formed the basis of the said Notice, during the period from 15.04.2019 to 17.04.2019, which the Respondent had availed on 22.04.2019.
3. The DGAP has mentioned that the time period of the present investigation was from 01.07.2018 to 31.03.2019 and he had also sought extension of the time limit to complete the investigation from this Authority under Rule 129 (6) which was granted to him.
4. The DGAP has stated that the Respondent has replied to the above Notice vide his letters dated 17.04.2019, 18.04.2019, 03.05.2019, 05.07.2019, 09.07.2019, 18.09.2019 and 20.09.2019 and raised objections against the investigation launched by the DGAP.
5. The DGAP has also stated that the Respondent has submitted the following documents/information:-
a. Invoice-wise details of outward taxable supplies of sanitary napkins during the period from 01.07.2018 to 31.03.2019.
b. Sample invoices, pre and post 27.07.2018.
c. GSTR-1 and GSTR-3B Returns for the period from 01.07.2018 to 31.03 2019.
d. Outward supply data of closing stock.
e. ASIN-wise details of credit reversal in respect of closing stock.
6. The DGAP has further stated that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on the “Sanitary towels (pads) or sanitary napkins, tampons” from 12% to Nil w e.f 27.07.2018, vide S. No. 146A of the Schedule attached to Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018 which has also not been contested by the Respondent.
7. The DGAP has also submitted that the Respondent has contended that in the case of M/s Unicharm India Pvt. Ltd. & M/s Apollo Hospitals Enterprise Ltd., the DGAP had limited the investigation of Apollo Hospitals Enterprise Ltd. (being retailer), to the closing stock of Sanitary Napkins available as on 26.07.2018 and in his case also as the Respondent was also a retailer, the investigation should be limited to the stock held as on 26.07.2018 and sold thereafter by him. The DGAP has further submitted that in the above case the profiteering was calculated at the manufacturer level i.e. at the level of M/s Unicharm India Pvt. Ltd. which was the supplier of the subject goods and profiteering on the closing stock of the retailer i.e. M/s Apollo Hospitals Enterprise Ltd. was also calculated. But. in the instant case, the Respondent being a retailer of various manufacturers, the entire profiteering at his level was required to be calculated as in the instant case, no manufacturer has been made co-Respondent as was done in the above case. Therefore, the DGAP has claimed that the facts and circumstances of the case of M/s Unicharm India Pvt. Ltd. & M/s Apollo Hospitals Enterprise Ltd. were entirely different from the instant case.
8. The DGAP has also contended that the discount offered by the Respondent was pursuant to a discretionary business strategy wherein the Respondent had willingly cut into his profit margins to offer appropriate discounts time and again. Section 15 (3) (a) of the CGST Act, 2017 provided that the value of the supply shall not include any discount which was given before or at the time of the supply if such discount had been duly recorded in the invoice issued in respect of such supply. Thus, the GST was chargeable on actual transaction value after excluding any discount and therefore, for the purpose of computation of profiteering MRP could not be considered. The actual transaction value was the correct amount which was to be considered to determine whether any reduction in the rate of tax on any supply of goods or services has been passed on to the recipients by way of commensurate reduction in prices. He has further contended that the MRP was the maximum price at which an item might be sold but it was not the actual sale price. Therefore, for the purpose of determination of profiteering in the instant case, actual selling price or discounted price instead of MRP has been considered in accordance with the provisions of the Central Goods and Services Tax Act, 2017 and the Rules made thereunder.
9. The DGAP has also claimed that the Respondent has argued that this Authority in the case of M/s Flipkart Internet Pvt. Ltd., notably in the context of sales made online over e-commerce platforms as was the Respondent’s case, has held that the withdrawal of discount did not amount to profiteering as the same was offered from the supplier’s profit margin. Thus, since the Respondent never went beyond the reduced MRP affixed by the manufacturer, it could not be said that he has profiteered under Section 171 of the CGST Act merely because he chose to offer a lower discount at the time of second purchase by the Applicant No. 1. In this context The DGAP has observed that the legislative intent behind Section 171 of the CGST Act, 2017 was to pass on the benefit of tax rate reduction by way of commensurate reduction in prices. Mere charging of GST at the reduced/nil rate was not sufficient to pass on the benefit of tax rate reduction. Even when the GST was nil, the benefit which ought to have been passed on to the recipient, could still be denied by increasing the base price. He has further stated that the discounts were offered on the MRP which was the maximum price at which the goods could be sold in retail. The value of transaction between the manufacturer and the wholesaler or the wholesaler and the retailer would invariably be less than the MRP. Therefore, regardless of whether the MRP was printed/marked on the product or not, the pre and post-tax rate reduction transaction values were to be compared to determine the amount of profiteering. The DGAP has also claimed that in the case of closing stock carrying higher MRP, everybody in the supply chain was legally required to pass on the benefit of tax rate reduction by maintaining the same base prices or increasing the base prices commensurate with the denial of input tax credit and charging GST at the reduced/nil rate on such base prices. He has further claimed that every supplier of goods and services was free to increase the prices of his supplies depending upon the various components affecting the cost of production/supplies. But as per the provisions of the Section 171 of the CGST Act, 2017, no supplier could increase the base prices of the products overnight in such a manner that even with reduction in the rate of tax, the cum-tax selling price would remain unchanged or would increase.
10. The DGAP has also argued that to establish any profiteering, transaction value before and after the rate reduction was compared and there was no significance of MRP in establishing profiteering. Thus, GST was chargeable on actual transaction value after excluding any discount and therefore, for the purpose of computation of profiteering, MRP could not be considered. The actual transaction value was the correct value which was required to be considered while determining whether any reduction in the rate of tax on any supply of goods or services has been passed on to the recipients by way of commensurate reduction in prices or not. The DGAP has further argued that in the case of M/s Flipkart Internet Pvt. Ltd. the Applicant was seeking refund of excess payment made by him to M/s Flipkart Internet Pvt. Ltd. as the invoiced value was lower than that of the payment made to M/s Flipkart Internet Pvt. Ltd. Therefore, the facts of the case of M/s Flipkart Internet Pvt. Ltd. were completely different from the instant case.
11. The DGAP has also stated that the Respondent was asked to provide purchase data for the pre and post rate reduction period vide e-mail dated 17.09.2019 but the same was not provided by the Respondent. However, the average of purchase prices for the pre and post rate reduction period was provided and the same has been considered for computation of profiteering. The DGAP has also mentioned that from the sales data made available, it appeared that the Respondent has increased the base prices of the Sanitary Napkins when the GST rate was reduced from 12% to NIL w.e.f. 27.07.2018. The DGAP has illustrated that during the pre-rate reduction period (01.07.2018 to 26.07.2018), the Respondent has purchased the goods “Whisper Ultra Overnight Sanitary Pads XL Plus wings (7 Count)” at an average base price of Rs. 66.91/- while the average selling price of the same goods during the said period was Rs. 67.99/-. Thus, the profit margin for the Rcspondcnt during the pre-rate reduction period was Rs. 1.08/- per unit.
12. The DGAP has further stated that as on 26.07.2018, the Respondent had a closing stock of 47 units of the “Whisper Ultra Overnight Sanitary Pads XL Plus wings (7 Count)”. As the rate of tax on the “Whisper Ultra Overnight Sanitary Pads XL Plus wings (7 Count)” was reduced from 12% to NIL w.e.f. 27.07.2018, the Respondent was not entitled to avail input tax credit on this closing stock. Hence, the commensurate price of the closing stock of “Whisper Ultra Overnight Sanitary Pads XL Plus wings (7 Count)” as on 26.07.2018 should have been the sum total of Rs. 66.91/- (basic purchase price), Rs. 8,03/- (increase in cost due to denial of input tax credit @12% of the basic purchase price of Rs. 66.91/-) and Rs. 1.08/- (profit margin) i.e., Rs. 76.02/-. However, the Respondent had sold 9 units out of the closing stock of 47 units at a price above the aforesaid commensurate price. The total profiteering on the sale of the goods “Whisper Ultra Overnight Sanitary Pads XL Plus wings (7 Count)”, made out of the closing stock as on 26.07.2018, appeared to be Rs. 27.82/-. Further, the DGAP has claimed that during the post-rate reduction period (27.07.2018 to 31.03.2019), the purchase price of the goods “Whisper Ultra Overnight Sanitary Pads XL Plus wings (7 Count)” for the Respondent increased to Rs. 73.61/-. Hence, the commensurate selling price of the Respondent for the stock purchased after rate reduction w.e.f. 27.07.2018 should have been the sum of Rs 73.61/- (basic purchase price) and Rs. 1.08/-(profit margin), i.e. Rs. 74.69/-. However. the Respondent had sold 75 units of the above-mentioned goods at a price above this commensurate price. The total profiteering on account of the sale of “Whisper Ultra Overnight Sanitary Pads XL Plus wings (7 Count)”, out of the stock purchased after reduction of the GST rate w.e.f. 27.07.2018, appeared to be Rs. 361.19/-.
13. The DGAP has also submitted that he has analysed the outward supply of all the Sanitary Napkins (including “Whisper Ultra Overnight Sanitary Pads XL Plus wings (7 Count)”) made by the Respondent and it was found by him that during the period from 27.07.2018 to 31.03.2019, i.e. after the reduction of the GST rate from 12% to Nil w.e.f. 27.07.2018, the amount of profiteering on account of the sales made from the closing stock as on 26.07.2018, was Rs. 1,43,868/-. The amount of profiteering on account of the sales made from the fresh stock was Rs. 18,17,165/-. Thus, the total profiteered amount in respect of all the units supplied by the Respondent during the period from 27.07.2018 to 31.03.2019, at a price above the commensurate price, came to Rs. 19,61,033/-. However, the profiteering in the case of the Applicant No. 1 was found to be nil by the DGAP The place (State or Union Territory) of supply-wise break-up of the total profiteered amount of Rs 19,61,033/- as provided by the DGAP is furnished in the Table given below:-
Table
(Amount in Rs.)
