Sh. Sandeep Puri Vs M/s. Johnson & Johnson (National Anti-Profiteering Authority)
The brief facts of the case are that under Rule 128 of the Central Goods and Services Tax (CGST) Rules, 2017, an Application was filed by the Applicant No.1 and 2 before the Standing Committee on Anti-Profiteering after detailed study conducted by the Applicants to analyse the impact of reduction in the GST rate on “Sanitary Napkin” from 12% to Nil w.e.f 27.07.2018, vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018 against Respondent no. 1 and Respondent No. 2 alleging that both the Respondents have not passed on the benefit of reduction in the GST rate from 12% to Nil w.e.f. 27.07.2018, levied vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018, on supply of “Sanitary Napkins” by way of commensurate reduction in prices in terms of Section 171 of Central Goods & Services Tax Act, 2017.
The above issue was examined by the Standing Committee on Anti-profiteering in its meetings held on 06.09.2018 and 08.10.2018, wherein it was decided, to refer the matter to the Director General of Anti-Profiteering (DGAP) to initiate detailed investigation in the matter and collect evidence necessary to determine whether the benefit of reduction in the rate of GST on supply of “Sanitary Napkins” had been passed on by the Respondents to the recipients.
On perusal of Annexure-33 and 34 of the DGAP Report, it is established beyond any doubt that the Respondent No. 1 had increased the base price w.e.f. 27.07.2019 more than what he was entitled to increase, which clearly shows that he had deliberately in conscious disregard of the provisions of Section 171 of the above Act had resorted to profiteering.Therefore upholding the findings of the DGAP, this Authority finds that the Respondent No. 1 has profiteered to the extent of Rs.42,70,18,581/-which includes an amount of Rs. 8,50,029/- for Canteen Stores Department (CSD) outlets and 42,61,68,552/- for outlets other than CSD outlets.
In view of the above discussion the profiteered amount by the Respondent No.1 is determined as Rs. 42,70,18,581/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017 as the said Respondent has failed to pass on the benefit of rate reduction to his customers. Accordingly, the Respondent No. 1 is directed to reduce his prices by way of commensurate reduction keeping in view the reduced rate of tax and benefit of ITC which has been denied by him as per Rule 133 (3) (a) of the CGST Rules, 2017. The Respondent No.1 is further directed to deposit the above amount as per the provisions of Rule 133 (3) (c) in the ratio of 50:50 in the Central or the State CWFs of all the States and UTs as mentioned in para 10 above, along with the interest @ 18% till the same is deposited. The concerned Central and State GST Commissioners are directed to ensure that the amount due is got deposited from the Respondent No.1 along with interest and in case the same is not deposited necessary steps shall be taken by them to get it recovered from the Respondent as per the provisions of the CGST/SCST Acts under the supervision of the DGAP. They are further directed to submit report in compliance of this order within a period of 4 months.
It is also evident from the above narration of facts that the Respondent has denied benefit of rate reduction to the buyers of the product “Sanitary Napkin” in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering, which is an offence under section 171 (3A) of the CGST Act, 2017 and therefore, he will be apparently liable for imposition of penalty under the provisions of the above Section. Accordingly, a Show Cause 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. The previous Notice dated 25.03.2019 issued on penalty stands withdrawn.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING APPELLATE AUTHORITY
1. The brief facts of the case are that under Rule 128 of the Central Goods and Services Tax (CGST) Rules, 2017, an Application was filed by the Applicant No.1 and 2 before the Standing Committee on Anti-Profiteering after detailed study conducted by the Applicants to analyse the impact of reduction in the GST rate on “Sanitary Napkin” from 12% to Nil w.e.f 27.07.2018, vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018 against Respondent no. 1 and Respondent No. 2 alleging that both the Respondents have not passed on the benefit of reduction in the GST rate from 12% to Nil w.e.f. 27.07.2018, levied vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018, on supply of “Sanitary Napkins” by way of commensurate reduction in prices in terms of Section
2. The above issue was examined by the Standing Committee on Anti-profiteering in its meetings held on 06.09.2018 and 08.10.2018, wherein it was decided, to refer the matter to the Director General of Anti-Profiteering (DGAP) to initiate detailed investigation in the matter and collect evidence necessary to determine whether the benefit of reduction in the rate of GST on supply of “Sanitary Napkins” had been passed on by the Respondents to the recipients.
3. The DGAP,after completing the investigation has submitted his report under Rule 129 (6) of CGST Rules, 2017 on 18.03.2019 pertaining to the period w.e.f. 27.07.2018 to 30.09.2018.
4. The DGAP has stated that a notice under Rule 129 of the CGST Rules, 2017 was issued on 24.10.2018, calling upon the Respondents to reply 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 prices and if so, to suo-moto determine the quantum thereof and indicate the same in their reply to the notice along with all supporting documents. The Respondents were also given an opportunity to inspect the non-confidential evidences/information furnished by the above Applicants.
5. The DGAP in his Report hasstated that the Respondent No. 1 made following statements before him:-
a) He had immediately given effect to the reduction in GST rate from 12% to Nil on sanitary napkins and accordingly, had reduced the Maximum Retail Price (MRP) of the said goods, to pass on the net benefit of GST rate reduction to the end consumers.
b) Post 26.07.2018, he was not eligible to claim/avail input tax credit (ITC) on inputs and input services related to sanitary napkins and therefore, input taxes had become part of the cost of such goods and hence he increased his base price for the distributors in respect of the supplies post 26 07 2018, but the price to the ultimate consumer (MRP) of the said goods, was reduced after considering the net benefit of reduction in GST rate.
c) The total ITC of Rs.193 Crore availed by him during the period from 01.07.2017 to 26.07.2018 for sanitary protection business, did not include ITC claimed in form TRAN-I including the ITC on the closing stock of sanitary napkin as on 30.06.2017.The value of closing stock of raw materials, packing materials and finished goods for sanitary protection business as on 26.07.2018, was Rs. 77.86 Crore and the ITC of Rs 12.26 crore was relatable to this value of closing stock as on 26.07.2018. He requested that neither any separate amount should be added on account of the ITC relatable to the opening stock nor should the amount of ITC reversal of Rs.12.26 crore be reduced from the total ITC of Rs. 193 crore to arrive at the actual amount of ITC availed during the period 01.07.2017 to 26.07.2018 against the total value of taxable outward supplies of Rs. 1,994 crore during the same period.
d) The Respondent submitted the following documents to the DGAP:
i. Copies of GSTR-1 Returns for the period July, 2017 to Sept. 2018.
ii. Copies of GSTR-3B Returns for the period July, 2017 to Sept. 2018.
iii. Copies of sample invoices.
iv. Price lists of the sanitary napkins.
v. Outward sales data for the period April, 2018 to September, 2018.
vi. GST registration cancellation certificate for Chandigarh.
vii. Details of input tax credit and outward sales for the period 01.07.2017 to 26.07.2018.
viii. Details of input tax credit availed, utilised and reversed for the period July, 2017 to July, 2018, covering all the products supplied.
ix. Details of total outward sales covering all products for the period July, 2017 to July, 2018.
x. Details of closing stock of sanitary napkins as on 26.07.2018.
6. The DGAP further stated that the Respondent No. 2 made the following submissions before him:-
a) He is only a dealer of sanitary napkins which he purchases from the manufacturer (Respondent No.1). The products are subject to affixation of MRP under the Legal Metrology Act and the Rules made thereunder.
b) When the said good was subject to GST at the rate of 12%, the Respondent No. 1 had specified the MRP of “Stay free Secure Cotton Wings” sanitary napkins in invoice no. 15674CS0075875 dated 19.07.2018 as Rs. 35/- which was reduced to Rs. 34/- by the Respondent No. 1, when the GST rate was reduced to `Nil’ with effect from 27.07.2018,
c) For the stocks purchased prior to 27.07.2018, a dealer could not alter the MRP but the fact of MRP being reduced from Rs. 35/- to Rs. 34/- was communicated to him by the Respondent No. 1 and he had sold the goods within the revised MRP of Rs. 34/-, in compliance with the relevant rules and regulations.
d) He was not eligible to retain the ITC in respect of the stock held as on 26.07.2018 and consequently, he realised that the loss of ITC would become cost to him and would increase the purchase or procurement price. But he did not increase his selling price to the customers after the reduction in GST rate and maintained the same selling price, despite the increase in cost on account of non-availability of ITC in respect of the stock procured prior to 27.07.2018, and thus passed on the benefit of the reduction in GST rate by way of adopting the revised MRP and not recovering the additional cost which arose on account of non-availability of ITC for the stock procured prior to 27.07.2018.
e) The selling price of Respondent No. 1 prior to 27.07.2018 was Rs. 27.90 for “Stay free Secure Cotton Wings” sanitary napkins and after introduction of the exemption w.e.f. 27.07.2018, the Respondent No. 1 increased the selling price to Rs. 30.36 and despite the increase in his purchase price, he did not increase his selling price.
f) The Respondent No. 2 submitted the following documents to the DGAP:-
i. Copies of GSTR-1 Returns for the period July, 2017 to Sept. 2018.
ii. Copies of GSTR-3B Returns for the period July, 2017 to Sept.2018.
iii. Copies of sample invoices.
iv. Price list of the sanitary napkins.
v. Outward sales for the period July, 2018 to September, 2018.
vi. Details of input tax credit and outward sales for the perio 2017 to July, 2018.
vii. Details of closing stock of sanitary napkins as on 26.07.2018.
7. The DGAP also informed that the contention of the Respondent No. 1 that he had immediately given effect to the reduction in GST rate from 12% to Nil on sanitary napkins appears to be correct, but on perusal of the invoices issued by the distributors/retailers to the ultimate consumers, it was observed that the base price of the product had been increased and the final selling price of the product had remained the same despite the GST rate reduction.The DGAP relied on the following details which were provided by the Applicant No. 1 to prove the above point:-
Table- A
