Director General of Anti-Profiteering Vs L’Oreal India Pvt. Ltd. (NAA)
NAA held that –
a. Under the provisions of Section 171(2) of the CGST Act 2017 read with Rule 133, the Authority finds that commensurate reduction in the price of the goods has not been effected by the Respondent after the GST rates were reduced vide Notification No 41/2017 —Central Tax(Rate) dated 14.11.2017 and other State notifications.
b. Under the provisions of Rule 133(1) of the CGST Rules, 2017, the Authority determines that the Respondent has profiteered an amount of Rs. 1,86,39,57,508/- on account of denial of benefit to his customers due to the reduction in the rate of taxes.
c. Under the provisions of Rule 133(3)(a) of the CGST Rules, 2017, the Authority directs the Respondent to commensurately reduce the prices of the impacted goods.
d. Under the provisions of Rule 133 (3) (c) of the CGST Rules, 2017; the Authority directs that fifty percent of the amount of Rs. 1,86,39,57,058/- i.e. Rs. 93,19,78,529.5/- along with interest at the rate of 18% (from the date of collection of such amount until the dates on amount is deposited) be deposited in the Central Consumer Welfare Fund and the balance amount is to be deposited in the CWF of the concerned State, as per the amount indicated here under:-
The Authority directs the Respondent to deposit the above amounts into the concerned CWF along with the interest @ 18% (from the date such amount was profiteered by them until the date such amount is deposited in the respective CWF) within 3 months from the date of this Order.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
The Director General of Anti-Profiteering (hereinafter referred to as DGAP) has submitted a report dated 28.8.2020 under Rule 133(4) of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as “the Rules) in the matter relating to M/s L’Oreal India Pvt. Ltd., A-Wing, 8th Floor, Marathon Futurex, N.M. Joshi Marg, Lower Parel, Mumbai 400013 (hereinafter referred to as “Respondent” also). The aforesaid report dated 28.8.2020 was submitted by DGAP pursuant to the National Anti-profiteering Authority’s (hereinafter referred to as “NAA” or “the Authority” also) direction contained in Interim Order (I. 0). No.05/2020 dated 03.01.2020 in the matter of Respondent, whereby the matter was referred back to the DGAP under Rule 133(4) of the Central Goods and Services Tax Rules, 2017 to conduct further investigation with the following observations/directions:-
(i) DGAP has submitted that an amount of Rs. 19,75,12,265/- can be reduced on account of rectification of the non-averaging of base prices where description was used for comparison {01.10.2017 to 14.11.2017 (Goods Desc.) and 01.09.2017 to 30.09.2017 (Goods Desc.)}. However, the DGAP has also stated that the above rectification could be made if it was decided to do so by this Authority. The DGAP has not mentioned the reasons on the basis of which such an approach can be approved by this Authority. He has also not explained why the above approach was not applied by him at the time of preparing of his Report dated 05.07.2019.
(ii) DGAP has also submitted that an amount of Rs. 4,80,88,937/- can be excluded from the original profiteered amount due to rectification of inconsistency in the sequence followed by him in respect of certain line items in case it is so decided by this Authority. However, no explanation has been given why the above inconsistency cannot be rectified by him in case such an error has taken place.
(iii) DGAP has also stated that an amount of Rs. 5,18,75,235/- could be subtracted from the profiteered amount on the ground of rectification of the adopted average price on description wherever comparable product code was used subject to the approval of this Authority. However, no reasons have been given why the above approach was more appropriate as compared to the approach which was adopted by the DGAP while computing the profiteered amount vide his Report dated 05.07.2019.
(iv) This Authority had also directed the Respondent to furnish the details pertaining to his claim of having passed on the benefit of rate reduction by increasing the grammage/volume of his products to the DGAP. The said information was to be examined by the DGAP and his findings included in the fresh Report to be filed by him in consequence of I. 0. dated 03.01.2020.
2. Briefly stated, the facts of the case are as under:-
2.1 A reference was received on 07.01.2019 from the Standing Committee on Anti-profiteering under Rule 129 of the Central Goods and Services Tax Rules, 2017, to conduct a detailed investigation on the basis of a letter F.No.22011/NAA/36/2018 dated 17.10.2018, of the Secretary, NM, along with supporting documents, alleging profiteering by the Respondent. It was alleged that the Respondent had not passed on the benefit of reduction in the rate of GST on the goods supplied by the Respondent, when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017 vide Notification No 41/2017- Central Tax (Rate) dated 14.11.2017 (hereinafter referred as Notification also), in terms of Section 171 of the Central Goods and Services Tax Act, 2017.
2.2. The said reference was examined by the Director General of Anti-Profiteering and the Investigation Report dated 05.07.2019 under Rule 129(6) of the Rules, was furnished to the Authority. Vide the said Report, it was concluded that the allegation of profiteering by way of either increasing the base prices of the products while maintaining the same selling price or by way of not reducing the selling prices of the products commensurately, despite a reduction in GST rate from 28% to 18% w.e.f. 15.11.2017 stands established against the Respondent. On this account, the Respondent has realized an additional amount to the tune of Rs. 2,16,49,61,535/- from the recipients during the period from 15.11.2017 to 31.12.2018, which includes both the profiteered amount and GST on the said profiteered amount. The conclusion was based on the documents and information submitted by the Respondent during the course of original investigation. The aforesaid amount was revised to Rs. 1,86,39,57,058/- vide DGAP letter dated 23.12.2019 after rectifying certain inadvertent discrepancies as submitted by the Respondent during the course of hearings held before the Authority.
3. The above said Investigation Report dated 5.7.2019 and subsequent revision of the quantification of the profiteered amount conveyed vide letter dated 23.12.2019 was shared with the Respondent. Personal hearing was given by the Authority to the Respondent on 01.01.2020 and the proceedings culminated in passing of its I. 0. No. 05/2019 dated 03.01.2020 with a direction to the DGAP to conduct further investigation on the observations as mentioned in paragraph 1 above. The Authority also directed DGAP to supply detailed list of the Stock Keeping Units (SKUs) impacted by the rate reduction w.e.f. 15.11.2017 along with the pre-rate reduction base prices and the commensurate reduced base prices post rate reduction with percentage increase/reduction made by the Respondent in respect of such SKU.
4. The DGAP in it’s report dated 28.8.2020 has, inter-alia, submitted as under: –
4.1 After receiving reference from the Authority, letter was issued to the Respondent on 14.01.2020 calling upon him to submit the information/ documents required to further investigate the matter.
4.2 In response to DGAP’s letter dated 14.01.2020 the Respondent replied vide letter dated 03.02.2020 and submitted the following details with regard to his claim of having passed on the benefit of rate reduction by increasing the grammage/volume of his products:
(i) Name of SKU: The change in grammage is recognized in the SAP accounting system by changing the 11-digit product code. Accordingly, when the Respondent increased the grammage of products to pass on the benefit of reduction in rate of tax, the same was also reflected by way of change in product code at 11-digit level as per outward supply details submitted by the Respondent.
(ii) Base price of the SKU pre-rate reduction with documentary evidence: The base price adopted by DGAP in Report dated 05.07.2019 as adjusted for base price discrepancies and weighted average price of products with latest MRP highlighted by the Respondent in his submissions dated 01.11.2019 has been adopted by him as the base price for SKUs pre-rate reduction. The Respondent has used this base price as the pre-rate reduction price for computing the commensurate price pursuant to increase in grammage.
(iii) Weight/Volume of the SKU pre-rate reduction with documentary evidence: This old grammage is reflected in the Minutes of Meeting of the Respondent dated 21.12.2017, wherein the Respondent decided that he will pass on the benefit of reduction in GST rate by increasing the grammage of the product. Further, the details of old grammage can also be seen from the supporting documents viz., the shipper labels as per production records.
(iv) Commensurate base price of the SKU post rate reduction with details of computations: The Respondent has computed the revised base price by considering base price adopted by DGAP in Report dated 05.07.2019 and adjusting it for discrepancies and weighted average price of products with latest MRP, as highlighted by the Respondent in his submissions dated 01.11.2019. Since this base price is for product with Old Grammage, the Respondent computed commensurate base price of the SKU sold post rate reduction by adjusting the base price for the increased grammage. The Respondent has used this commensurate base price to calculate the amount of increase in grammage.
(v) Commensurate increase in the Weight/Volume required post rate reduction with computations: The Respondent submits that the commensurate increase required in the Weight/Volume to pass on the benefit of reduction in rate of tax comes to 8.48%. Respondent submitted that it has increased the grammage by 10%, 18.18% and 41.30% at 11-digit code level, which is much higher than the 8.48% commensurate increase in grammage required.
(vi) Actual Increase in the weight in grams/mls: The Respondent has increased grammage by 10%, 18.18% and 41.30% respectively in respect of products supplied by him, and the details of increased grammage at 11-digit code level. This grammage increase is more than the 8.48% grammage increase required to pass on the benefit of reduction in rate of tax. The Respondent has also provided supporting documents viz. the shipper labels for sample SKUs as per production records showing the increased grammage along with the corresponding SKUs with old grammage.
(vii) Whether the increase is commensurate with the rate reduction: The Respondent has increased grammage by 10%, 18.18% and 41.30% respectively in respect of products supplied by him. Thus, the Respondent has increased the grammage to pass on the benefit of rate reduction commensurately. In fact, the Respondent has passed on more than the required benefit, as the increase in grammage is higher than 8.48% required to be passed on.
(viii) Date of passing on the benefit of tax reduction with documentary evidence: The Respondent, in its Minutes of Meeting dated 21.12.2017, discussed that since grammage increase is viewed as one of the methods to pass on the benefit of reduction in rate of GST, it shall pass on the benefit by increasing the grammage and the increase in grammage to be made was recorded in the Minutes of Meeting. Accordingly, the Respondent instructed its production team to commence new production with higher grammage. The sale of these products with higher grammage were effected starting January 2018. As an evidence for the same, the Respondent has provided the details of first invoice date for sale of products with higher grammage.
Further, in some cases, the product code with higher grammage may have changed subsequently due to changes in art work or other changes. In such cases, it will be relevant to refer to the first invoice date of product at 8-digit level. For instance, product code CNCFC316-F0 shows first invoice date of product with higher grammage as 03.09.2018. However, the said code was created only due to some art work or other changes and the Respondent was in fact selling the product with higher grammage prior to that as well, through product code CNCFC316-B1, the first sale invoice date for which was 02.01.2018.
(vii) Amount of benefit of tax reduction passed on the SKU: The Respondent has mapped the benefit passed on by way of higher grammage and also the Respondent has also restricted the benefit so passed on to revised alleged profiteering.
(ix) Amount of benefit of tax reduction passed on State/Union territory wise: The Respondent has provided the benefit of tax reduction passed on in the State/Union Territory wise 35 files provided by DGAP. These files contain State/Union territory wise details based on calculation of alleged profiteering provided by DGAP.
(xi) Amount of profiteering computed by DGAP on the SKU as per DGAP letter dated 23.12.2019: The amount of profiteering computed by DGAP as adjusted for base price discrepancies and weighted average price of products with latest MRP.
(xii) Amount of profiteering computed by DGAP on these SKUs State/Union Territory wise: The amount of profiteering computed by DGAP as adjusted for base price discrepancies and weighted average price of products with latest MRP as per Respondent’s submission dated 01.11.2019.
4.3 The Respondent submits that an amount of INR 26,96,31,164 (restricted to profiteering amount at line item level) passed on by the Respondent by way of increase in grammage (calculated based on weighted average price of products with latest MRP) should be reduced from the total profiteering alleged to have been made by the Respondent. Further, the Respondent has on totality basis passed on INR 82,97,36,596 by way of higher grammage.
4.4 However, the Respondent vide E-mail dated 22.08.2020 has submitted that there was an inadvertent formula error in 2 files out of total 35 files, which they have revised and corrected. Accordingly, the Respondent submitted that amount is revised to INR 26,65,22,215 (earlier was Rs. 30,29,26,538/-) (restricted to profiteering amount at line item level) passed on by the Respondent by way of increase in grammage (calculated based on weighted average price of the products with all the MRPs) should be reduced from the total profiteering alleged to have been made by the Respondent.
4.5 The Respondent also clarified that, since, they have claimed reduction from profiteering to the extent goods are returned, they do not intend to claim grammage benefit for the very said sale. The same can be better explained from the illustration is given table below:
