Director General of Anti-Profiteering Vs M/s Nestle India Ltd (National Anti-Profiteering Authority)
1. The present Report dated 08.10.2018 and the supplementary Reports dated 16.01.2019, 01.02.2019, 15.03.2019, 08.05.2019 and 12.06.2019 have been received from the above Applicant (here-inafter referred to as the 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 vide his letter dated 02.04.2018 the Respondent had admitted that he had set aside an amount of Rs. 12.6 Crore on account of profiteering in respect of the rate reductions which had been notified w.e.f 15.11.2017 and accordingly, Office Memorandum (OM) F. No. D-22011/NAA/17/2018/1039-41 dated 10.04.2018 was issued by the Secretary of this Authority advising the Respondent to provisionally deposit the quantified profiteered amount set aside by him on account of the reduction in the GST rates w.e.f. 15.11.2017, into the Consumer Welfare Fund (CWF). Vide the above OM, the DGAP (erstwhile Director General of Safeguards) was also directed to conduct an investigation to determine the actual amount of benefit of reduction in the GST rates which was not passed on by the Respondent to the recipients.
2. The DGAP had called upon the Respondent vide his Notice dated 04.2018 issued under Rule 129 (3) of the above Rules, to determine and furnish requisite supporting documents to confirm the actual amount of the benefit of reduction in the GST rates that had not been passed on by him to the recipients. The period covered by the current investigation in respect of the items impacted by the reduction in the GST rates w.e.f. 15.11.2017 and 25.01.2018, is from 15.11.2017 to 30.06.2018.
3. The Respondent, vide his letter dated 02.04.2018 had informed that wherever it was practical, he had passed on the benefit of GST rate reduction to the recipients by way of discounts on the stocks of the impacted products held by them as on 11.2017; that he had reminded each Distributor of his obligation to pass on the benefit to their recipients; that he had passed on the commensurate GST benefit at an aggregate product HSN category level; and that where it was not practical to pass on the GST rate reduction benefit on the existing stocks and till the availability of new stocks, he had set aside the money to be passed on to consumers and he needed guidance on how to do so as well as how to adjust the expenses incurred on the changeover. The Respondent vide his letter dated 18.05.2018 addressed to the DGAP had also stated that the total amount of the benefit of reduction in the GST rate w.e.f. 15.11.2017, was Rs. 13.8 Crore for the period from November, 2017 to March, 2018 and he had incurred expenses of Rs. 3.9 Crore to give effect to passing on the GST rate reduction benefits expeditiously and these expenses were required to be adjusted against the amount set aside. He had further stated that in respect of the benefit of reduction in the GST rate on the Boiled Sugar Confectionary w.e.f. 25.01.2018, the information/documents relating to the specific products would be submitted in due course. The DGAP has also stated in his above Report that the Respondent vide his letters dated 08.06.2018 and 20.06.2018 had submitted the details of the outward taxable supplies for the impacted items or the Stock Keeping Units (SKUs) and GSTR3B Returns for the period from November, 2017 to March, 2018. Thereafter, vide letters dated 26.06.2018 and 07.09.2018 the Respondent has submitted the following information/documents:-
(a) GSTR-1 Returns for the period from November, 2017 to March, 2018.
(b) Invoice-wise break up of outward supplies, as downloaded from GSTN.
(c) 5 sample invoices for each month from November, 2017 to March, 2018.
(d) Total No. of SKUs manufactured.
(e) Total No. and list of SKUs impacted by GST rate reductions w.e.f. 15.11.2017 and 25.01.2018 alongwith the quantum of benefit passed on.
(f) GSTIN-wise details of outward taxable supplies for the period from November, 2017 to June, 2018.
4. The DGAP has also stated in his above Report that the Respondent, vide his letters dated 09.07.2018 and 21.08.2018 had informed that he had deposited the amount set aside of Rs. 15,32,86,055/- in two instalments of Rs. 13,80,54,526/- and Rs. 1,52,31,529/- for the period from 15.11.2017 to 31.03.2018 and Rs. 1,25,46,668/- for the period from 01.04.2018 to 30.06.2018 in terms of aforementioned OM dated 10.04.2018 in the CWF. The Respondent vide his letter dated 19.09.2018 had also submitted the evidence with regard to the expenses incurred on passing on the GST rate reduction benefits, such as, expenses on obsolete packing material, expenses on manufacture and development of new packaging material and expenses on advertisements in the newspapers etc. for creating public awareness about the change in the GST rates. The Respondent vide his e-mails dated 26.09.2018, 27.09.2018, 28.09.2018 and 29.09.2018 had also submitted the data regarding pre-GST rate reductions selling prices of some of the SKUs which were not available in the sales data submitted by him.
5. The DGAP has also submitted that the Central Government, on the recommendation of the GST Council, had reduced the GST rates on several products supplied by the Respondent from 28% to 18% and from 18% to 12%, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 with effect from 15.11.2017 and again from 18% to 12%, vide Notification No. 06/2018-Central Tax (Rate) dated 25.01.2018 with effect from 25.01.2018. He has further submitted that the Respondent had admitted that the above reductions in the rates of tax were applicable on the products supplied by him and thus, it could be concluded that the GST rates were indeed reduced in the manner stated above. He has also contended that unlike the situation where a Respondent contested the allegation of profiteering by not passing on the benefit of reduction in the GST rate(s) to the recipients, in the present case, even before such an allegation was levelled or Notice of investigation of profiteering was issued, the Respondent has suo moto deposited the above amount with the Government. He has further contended that this voluntary disclosure was supported by various documents including the Respondent’s first communication dated 02.04.2018 to this Authority. The DGAP has also claimed that while the Respondent’s proactive approach was appreciable, it was also an admission of profiteering that brought into play Section 171 of the Central Goods and Services Tax Act, 2017 which governed the Anti-Profiteering provisions under the GST and it was also required to ascertain that the above disclosure made by the Respondent was complete in every respect.
6. The DGAP has also argued that a plain reading of Section 171 of CGST Act, 2017 made it abundantly clear that in the event of a benefit arising from a reduction in the rate of tax, as has happened in the present case, there must be a commensurate reduction in the prices of the goods or services in absolute terms meaning thereby that it was only when the recipient has to pay a lower price on the goods or services post reduction in the GST rates it could be conclude that the benefit has been passed on to the recipient. He has further argued that Section 171 (1) did not provide a supplier of the goods and services any other means of passing on the benefit of reduction in the rate(s) of tax or benefit of Input Tax Credit (ITC) which implied that there was no discretion available to a supplier to suo moto decide on any other method of passing on such benefit to the recipients. He has also contended that applying the above parameters to the present case, it was established that the Respondent had not passed on the benefit that has accrued to him on account of the reduction in GST rates by way of a commensurate reduction in the prices of th goods being supplied by him. The DGAP has also pleaded that the Respondent’s contention that the benefit of the GST rate reduction was passed on by way of giving discounts on the relevant products was not correct as the sample invoices submitted by him did not mention that the discounts were given due to the GST rate reductions, however, on the other hand, these invoices revealed that the discounts offered were in accordance with the general discount pattern which was being followed by the Respondent in the course of his business. The DGAP has also averred that since the pattern of discounts offered in the pre and post-GST rate reduction periods was the same, the discounts offered post-GST rate reduction were a continuation of the earlier discounts and hence, they could not be attributed to the GST rate reduction. The DGAP has also intimated that the Respondent has also submitted that there were practical difficulties in passing on the benefit on certain packs by lowering the Maximum Retail Prices (MRPs) due to unavailability of coins i.e. price point products and the taste parameters and therefore, the benefit was passed on at an aggregate product HSN level. The DGAP has also alleged that the outward sale data submitted by the Respondent has revealed that the base prices of all the 374 SKUs were not maintained post the GST rate reduction and instead, they were increased and thus, there was no reduction in the cum-tax selling price commensurate with the reduction in the GST rate, which evidenced profiteering by the Respondent. The DGAP has also stated that the Respondent has claimed that for the price point products, where the MRPs were not changed, another method of passing on the benefit of reduction in the GST rates was adopted by him by increasing the quantity of the products. However, the DGAP has maintained that Section 171 of the Central Goods and Services Tax Act, 2017 did not provide for any other means of passing on the benefit of reduction in the rate of tax or the benefit of ITC other than by way of commensurate reduction in the prices and hence the Respondent’s claim on this account was not acceptable.
7. He has further stated that the Respondent had himself tried to determine the benefit of tax reduction by setting off the cost of obsolete packing material, expenses incurred on manufacture and development of new packaging material and expenses on advertisements in newspapers etc. for creating public awareness about the change in the GST rates. However, the DGAP has argued that the law provided legal remedy to the Respondent which was to fix new MRPs by way of additional stickers or stamping or online printing as per the letter No. WM-10(31)/2017, dated 16.11.2017, issued by the Ministry of Consumer Affairs, Food and Public Distribution. He has further argued that there was no provision in the Central Goods and Services Tax Act, 2017 to permit the cost of packing material to be adjusted against the amount of reduction in the prices due to lower GST rates and therefore, the above deduction claimed by the Respondent on these grounds were not admissible.
8. The DGAP has also submitted that based on the details of the outward taxable supplies other than zero rated, nil rated and exempted supplies made during the period from 15.11.2017 to 30.06.2018, as submitted by the Respondent it was apparent that the impacted SKUs were supplied by the Respondent through different channels, i.e. (a) Canteen Stores Department (CSD); (b) Para-Military Force Canteens and other Government outlets and (c) Distributors and Modern Trade. He has further submitted that the base prices of the SKUs varied across the different channels and also varied within the same channel e.g. prior to the GST rate reduction w.e.f. 15.11.2017, the base prices at which the Respondent was selling “Nescafe Classic Jar 24x50g PR Dbl Maggi In” to the CSD ranged between Rs. 1,803.70 to Rs. 2,716.12, to Para-military Force Canteens and other Government outlets at the base price of Rs. 2,455,22 and to Distributors and Modern Trade at the base prices ranging between Rs. 2,414.40 to Rs. 2,656.30. Therefore, the DGAP has stated that the average base prices of supplies to each of the aforementioned three channels have been considered separately for calculation of the base prices during the pre-rate reduction period.
9. He has further stated that based on the pre and the post-reduction GST rates and the details of the outward taxable supplies for the period from 15.11.2017 to 30.06.2018, a total of 374 SKUs were impacted by the GST rate reductions w.e.f. 15.11.2017 and 25.01.2018, out of which 325 SKUs were impacted by the GST rate reductions w.e.f. 15.11.2017 and 49 SKUs were impacted by the GST rate reduction w.e.f. 25.01.2018. The DGAP has further stated that the Respondent has resorted to profiteering by increasing the preGST rate reduction base prices of 325 SKUs (for rate reductions w.e.f. 15.11.2017) and 49 SKUs (for rate reduction w.e.f. 25.01.2018). He has also claimed that the amount of net higher sales realization due to increase in the base prices of the products consequent to the reductions in the GST rates, either from 28% to 18% or from 18% to 12% or in other words, the amount of profiteering came to Rs. 96,55,64,5811- for the SKUs impacted by GST rate reductions w.e.f. 15.11.2017 as per Annex-14 and Rs. 4,42,38,515!- for SKUs impacted by the GST rate reduction w.e.f. 25.01.2018 as per Annex-15. He has also claimed that the Respondent has deposited an amount of Rs. 16,58,32,723/- in the CWF. The DGAP has also contended that the allegation of profiteering by way of either increasing the base prices of the products while maintaining the same selling prices or by way of not reducing the selling prices of the products commensurately, despite reductions in the GST rates from 28% to 18% or from 18% to 12% w.e.f. 15.11.2017 and from 18% to 12% w.e.f. 25.01.2018, stood confirmed against the Respondent and the amount of profiteering by the Respondent was Rs. 100,98,03,0961- [Rs. 96,55,64,581/- (+) Rs. 4,42,38,515/-]. He has also intimated that the place of supply-wise (State or Union Territory) break-up of the above profiteered amount was furnished in Annexure16 of the Report.
10. The above Report was considered by this Authority and vide Notice dated 16.10.2018 the Respondent was asked to reply why the above Report furnished by the DGAP under Section 171 of the CGST Act, 2017 should not be accepted and his liability for profiteering should not be fixed. He was also directed to explain why penal provisions under Section 29, 122-127 of the above Act read with Rule 21 and 133 of the CGST Rules, 2017 should also not be invoked against him. It was also decided to hear the DGAP and the Respondent on 31.10.2018 which was adjourned to 26.11.2018 on the Respondent’s request. During the course of the hearings the DGAP was represented by Ms. Gayatri, Deputy Commissioner and Sh. B. Murli, Legal Head, Sh. Ashish Aggarwal, Business Controller, Sh. Manish Mudgal, Sales Controller and Sh. Gaurav Khanna, Authorised Representatives were present for the Respondent. Further hearings were held on 12.12.2018, 20.12.2018, 10.01.2019 (adjourned), 03.04.2019 (adjourned), 12.04.2019, 02.05.2019, 07.05.2019, 28.05.2019, 14.06.2019 (adjourned), 28.06.2019 (adjourned) and 01.07.2019.
11. The Respondent has filed the following replies during the course of the proceedings:-
(i) Filed preliminary reply dated 07.12.2018 along with 18 Exhibits.
(ii) Furnished additional documents on 20.12.2018 requesting to treat them as confidential in accordance with Rule 130 of the CGST Rules, 2017.
(iii) Rejoinder dated 12.04. 2019 to the replies filed by the DGAP dated 01.02.2019 and 15.03.2019.
(iv) Reply dated 02.05.2019 furnishing confidential information in accordance with Rule 130 of the GST Rules.
(v) Reply dated 07.05.2019 with details of the reply dated 052019.
(vi) Reply dated 28.06.2019 consolidating all the factual and legal
12. The Respondent in his above submissions has stated that he was a subsidiary of Nestle Group, Switzerland and was a listed company with 37.26% public shareholding comprising of 90,000 shareholders and was present in India for over 100 years and followed ethical practices being a law-abiding Company.
13. That the Respondent was engaged in the manufacture and sale of various food products including coffee, noodles, chocolates and confectionary etc., under the brand names, like NESCAFE, MAGGI and KITKAT etc.
14. That the Respondent sells his products mainly through his distributors and also makes sales to the CSD, Government outlets and Modern Trade etc.
15. That in respect of some of the products being supplied by the Respondent, the rate of GST was reduced from 28% to 18% and from 18% to 12% w.e.f. 15.11.2017 and in respect of certain other products it was reduced from 18% to 12% w.e.f. 25.01.2018.
16. That there were total of 370 SKUs of different products which were impacted by the rate reductions w.e.f. 15.11.2017 and 39 SKUs which were affected by the rate reduction w.e.f. 25.01.2018, the benefit of which was passed on consistent with the law as these reductions were with immediate effect. The Respondent taking note of the Government’s intent had adopted the following approach to pass on the GST rate reduction benefit to his recipients as well as to the end-customers keeping in view the functioning of the goods manufacturing industry.
(a) The first preference was to pass on the benefit by way of reduction in the MRPs through which most of the benefit has been passed on by reduction in the MRPs.
(b) For Price Point products, where the MRPs were not changed, benefit was passed on by increasing the quantity of the products.
(c) Where there were operational and/or legal constraints to pass on the benefit on account of issues of coinage, taste preferences or manufacturing constraints, additional benefit was passed on other packs/ SKUs in the same product category and if there were manufacturing constraints additional benefit was passed on other packs/ SKUs in the same product category.
17. That to ensure that the benefit of rate reduction was passed on, computation for passing on the benefit of rate reduction was done at the aggregate product category level. Communication was also sent to all the distributors reminding them of their obligation to pass on the benefit to their recipient i.e. retailers. In addition, advertisements on GST benefits being passed on select products indicating the reduced MRPs of the products were also published in the national and regional newspapers. The benefit to be passed on, was determined for each product category based on the sales contribution of the SKUs in that product category with due consideration to the lower priced SKUs. The sale contribution of the SKUs in the product category impacted by the GST rate changes with effect from 15.11.2017 was determined by aggregating the actual sales of the SKUs from January 2017 to September 2017 with the planned sales from October 2017 to December 2017, with annualized impact of price changes and new products. For GST rate change with effect from 25.01.2018 actual sales of SKUs in boiled sugar confectionary for the financial year January 2017 to December 2017 were taken with annualized impact of price changes and new products. Applying the above methodology for the period from 15.11.2017 to 30.06.2018 for the products impacted by the GST rate changes w.e.f. 15.11.2017 and for the period from 25.01.2018 to 30.06.2018 for the products impacted by the GST rate change w.e.f. 25.01.2018, the benefit on account of rate reduction to be passed on was estimated at around Rs. 204 Crores whereas the actual aggregate benefit passed on was higher at around Rs. 209 Crore, comprising of benefit passed through MRP reductions and/or more quantity of Rs. 192 Crore and suo moto deposit of Rs. 16.58 Crore. The period from 15.11.2017 to 30.06.2018 has been taken to correspond to the period used in the Report and was without prejudice to the Respondent’s contention that the period of the Report should correspond to the period for which the provisional deposit has been made. The Respondent being a law-abiding corporate had on his own ‘set aside’ the amount to be passed on to the recipients where ever it was not practical to pass on the GST benefit on the existing stocks till the availability of the new stocks. The `set aside’ amount was neither considered as sales nor as profit and was kept as current liability to be passed on to consumers at the same product category level. The Respondent has on 23.02.2018 and 26.03.201 met this Authority and explained the manner in which he has passed on the GST benefits, pursuant which he has submitted letter dated 02.04.2018 setting out:-
(a) In detail the methodology followed by him for passing on the commensurate benefits due to reduction in the GST rates to the recipients;
(b) The methodology followed by him for calculation of the quantum to be set aside where it was not practical to pass the GST benefit on the existing stocks till the availability of new stocks;
(c) Sought guidance on the passing on of the benefits for the amount set aside of Rs. 12.6 Crore as on 31.12.2017 and for adjusting expenses directly incurred on the changeover.
18. That in response to the letter dated 2nd April 2018, the Respondent had received letter dated 10.04.2018 from this Authority advising him to provisionally deposit the amount of Rs.12.6 Crore in the CWF to be constituted under Section 57 of the CGST Act, 2017. The Respondent was also directed to furnish the necessary documents/evidences to the DGAP so that the investigation could be conducted to determine the actual amount of benefit that has not been passed on. The Respondent vide his letter dated 02.04.2018 had sought clarification to make the provisional deposit and adjustment of the expenses incurred and requested the DGAP to intimate the schedule for furnishing the information. Surprisingly, the Respondent, had received a Notice dated 26.04.2018 issued by the DGAP for initiation of investigation under Rule 129 of the CGST Rules, 2017 vide which he was directed to determine the total actual amount of the benefit with effect from 15.11.2017 that has not been passed on to the consumers with the necessary documents/evidences. Thereafter, the Respondent has provided the details sought by the DGAP through various communications.
However, the Report was silent about his letter dated 11.09.2018 in which the methodology adopted by the Respondent to pass on the benefits from GST rate reductions, determination of the actual amount of benefit not passed on as per the methodology and the calculations to demonstrate that there has been no profiteering by the Respondent and other points were mentioned. The Respondent had received communication dated 06.06.2018 from this Authority on the constitution of the CWF and thereafter, he had suo moto deposited the amount set aside in the above Fund in 2 tranches as follows:-
(i) 1st Tranche on 06.07.2018 aggregating Rs. 15,32,86,0551-, comprising a sum of Rs. 13,80,54,526/- that was set aside till 31.01.2018 with respect to the GST rate changes effective from 15.11.2017 and a sum of Rs. 1,52,31,529/- set aside till 31.03.2018 with respect to rate changes effective from 25.01.2018 and
(ii) 2nd Tranche on 21st August, 2018 of Rs. 1,25,46,6681- set aside for the period from April-June 2018 with respect to the rate change effective from 25.01.2018.
19. Thar the DGAP vide his Report dated 08.10.2018 has concluded that the allegation of profiteering by way of either increasing the base prices or by maintaining the same selling prices and by not reducing the selling prices of the products commensurately, despite a reduction in the GST rates stood confirmed against the Respondent to the tune of Rs. 100,98,03,096/-.
20. That the Respondent has complied with the provisions of Section 171 of the CGST Act and hence no cause for initiating proceedings against him existed. The Respondent has suo moto started complying with the above provisions even without any communication from this Authority. The Respondent vide his letter dated 2nd April 2018 had disclosed the methodology adopted by him for complying with the above provisions and the OM dated 10.04.2018 for investigation by the DGAP to determine the actual amount of benefit which had not been passed on was based on the methodology mentioned in the letter dated 2nd April 2018, which was implicitly accepted by this Authority. The Respondent had taken all steps to pass on the benefit of rate reductions with the intention that there was need to pass on the same on immediate basis and there was extremely short time to prepare for the passing of the benefit.
21. That this Authority in some of its reported Orders, has held the view that the computation of the profiteering amount under Section 171 has to be done on the basis of the facts of each case and hence no general methodology can be prescribed and the DGAP in his reply dated 01.02.2019, in Para E has also followed the above principle therefore, the quantum of profiteering has to be arrived at on a case to case basis, by adopting suitable method based on the facts of each case. Thus, in the light of the DGAP’s above reply the methodology adopted by the Respondent needed to be accepted and on this very ground the present proceedings needed to be dropped. While complying with the provisions of Section 171, the Respondent has followed the methodology which was based on the facts and operational and legal constraints applicable to the Respondent.
22. That the rate reductions announced with effect from 15.11.2017 and 25.01.2018 were with immediate effect and the Respondent had taken immediate steps to pass on the benefit after taking in to account the operational, manufacturing and legal constraints and with an intent to ensure that there was no disruption in the supply of his products to the consumers. In respect of the Price Point Products which play a critical role in the Fast Moving Consumer Goods (FMCG) sector the price points were in the multiples of Rs. 5/- like MRPs of Rs. 5/-, Rs. 10/-, Rs. 15/-, Rs. 20, Rs. 25/- and the price points below Rs. 5/- were Rs. 1/- and Rs. 2/-corresponding to the available coinage. For products sold at the price points, the business option available was to pass on the benefit through extra quantity and reduction of MRPs was not an option as consumer demand was based on the price point and the consumer over years was used to the price points.
23. That the packaged food products have MRPs, which were in multiples of Re. 1/- however, coinage below 25 paise has been scrapped by the Reserve Bank of India and even 50 paise coinage was practically not available in the trade. The MRPs of the products in the market were in the multiples of Re. 1/- such as 1, 2, 5 and 10 etc. The products did not have MRPs with coinage such as Rs. 1.84, Rs. 4.50, Rs. 4.75 and Rs. 9.25 etc. and in case the GST benefit involving coinage was passed on, it was unlikely to reach the end consumer as normal unit of retail trade was Re. 1/-. In case of the MAGGI Noodles pack bearing MRP of Rs. 5/- per pack, to pass GST benefit the MRP would have to be reduced to Rs. 4.75 and in the absence of 25 paise tender, reducing MRP to Rs. 4.75 was not a feasible option.
24. That the cash transactions predominate and the E-Commerce in the FMCG market was less than 1% of the total sales. Respondent has also annexed a report published in The Economic Times on 04.2018 which stated that around 90% of everyday grocery consumption continued to rely on cash.
25. That in respect of the single serve packs, more quantity was not a viable option as it would change the taste parameter and could result in consumer rejecting the product pack. In the case of NESCAFE SUNRISE a single serve sachet of 2.2 Gms. bearing MRP of Rs. 2/-in addition to the limitation of coinage of 15 paise, the taste of coffee cup would change in case more quantity was given.
26. That for the products with manufacturing constraints that option had to be used which facilitated passing of the benefit expeditiously like in the case of KITKAT manufacturing involved the length of wafer and the use of mould for size of the product. The quantum of benefit by way of extra quantity was determined by the size the mould could accommodate. For KITKAT 12.8 Gms. pack with MRP of Rs. 10/-mould could accommodate 13.2 Gms. and was used to expeditiously and efficiently pass on the benefit in cost effective manner. For changing the wafer length which was needed to maintain the product balance at the higher grammage a new mould was required which would take 6 to 9 months as per the statement of Mr. Jagdeep Marahar, Factory Manager, at one of Respondent’s factory located at Fonda, Goa where KITKAT was manufactured.
27. That the packaged food products were part of the FMCG industry which were mainly sold to the Distributors from whom they would reach the retailers directly or through some other intermediary. The Respondent has over 1,700 Distributors across the country and the products were sold in over 35 lakh retail outlets and an estimated 70 Crore packs of various food products of the Respondent were sold every month.
28. That effective from 01.01.2018, Rule 6 (1) (e) of the Legal Metrology (Packaged Commodities) Rules, 2011 reads as follows:-
“(e) The retail sale price of the package shall clearly indicate that it is the maximum retail price inclusive of all taxes and the price in rupees and paise be rounded off to the nearest rupee or 50 paise”
Till 01.01.2018, the definition of ‘retail sale price’ under Rule 2 (m) was as under:
“(m) ‘retail sale price’ means the maximum price at which the commodity in packaged form may be sold to the ultimate consumer and the price shall be printed on the package in the manner given below :
`Maximum or Max. retail price Rs. …….. / Rs………… inclusive of all taxes or in the form MRP Rs. …………… / Rs. ………………. incl. of all taxes after taking into account the fraction of less than fifty paise to be rounded off to the preceding rupee and fraction of above 50 paise and upto 95 paise to the rounded off to fifty poise”.
Therefore, Under the above Rule the retail sale price (MRP) of a packaged commodity could only be in Rupees or in fraction of 50 paise and any package having MRP which has in fractions such as 15 paise, 25 paise or 60 paise etc. would be violation of the above Rules.
29. The Respondent was under bonafide belief that the intent of the GST law was that the benefit should be passed on immediately to the There being no provision under the GST law, which provided that the supplier could deposit the benefit of rate reduction in the CWF, the benefit that could not be passed, the Respondent in compliance with the provisions of Section 171, had passed additional benefits on other packs/ SKUs in the same product category following the methodology as set out herein.
30. The Respondent has also quoted Rule 133 of the CGST Rules, 2017, which states as under:-
Rule 133. Order of the Authority:-
(1)…..
(2)…..
(3) Where the Authority determines that a registered person has not passed on the benefit of reduction in rate of tax on the supply of goods or services or the benefit of ITC to the recipient by way of commensurate reduction in prices, the Authority may order –
(a) …..;
(b) return to the recipient, an amount equivalent to the amount not passed on by way of commensurate reduction in prices along with interest at the rate of eighteen percent from the date of collection of higher amount till the date of return of such amount or recovery of the amount including interest not returned, as the case may be, in case the eligible person does not claim return of the amount or is not identifiable, and depositing the same in the Fund referred to in section 57;
(c) …; and
(d) …..
(4)…”
That pursuant to the direction of this Authority vide OM dated 10.04.2018 the Respondent had made provisional deposit of the amount set aside where it was not practical to pass the on benefit on the existing stocks till arrival of the new stocks with GST benefit after constitution of the CWF.
31. The first preference of the Respondent was to pass on the benefit of rate reduction by reduction in prices of the goods to the recipients in the invoices itself with consequent reduction in the MRPs. Majority of the benefit of rate reduction has been passed by the Respondent following this methodology by decreasing the prices to the recipients accordingly, the benefit of Rs. 192 Crore has been passed by way of reduction in the MRPs e.g. in the case of NESCAFE 25 gm. Jar bearing MRP of Rs. 80/- per pack, the MRP was reduced to Rs. 70/-.
32. That in respect of Price Points products the business option available to the Respondent was to pass on the benefit through extra quantity. Reducing MRPs for price point products was not an option as the consumer demand was based on the price point and the consumer over years was used to the price point. When extra quantity was given on a pack on the same MRP, it resulted in price reduction per unit measure of that product pack. In respect of MUNCH pack sold at price point MRP of Rs. 5/- with 10.1 Gms. before the rate reduction the benefit would be around 49.5 paise per Gram of the product. To pass GST benefit quantity of the product pack with MRP of Rs. 5/-was increased from 10.1 Gms. to 11.1 Gms. which translated into benefit of 49.5 paise having been passed on to the consumer (1 Gm. additional quantity x 49.5 paise per Gram rate = 49.5 paise benefit passed i.e. 9.9% of the original price). The approach of the DGAP for arriving at the profiteering by comparing the rate per case of the pre and the post SKUs without taking in to account the two different weight’s was not correct e.g. 10.1 Gm. MUNCH going up to 11.1 Gm. post GST rate reduction. The extra quantity passed was not temporary and the adjustment of the quantity was the norm followed by industry for price point packs, even prior to the passing of the GST benefit. He has also provided details of the additional quantity to corroborate his point.
33. That the packaged food products have MRPs, which were in the multiples of Re. 1/- while the coinage below 25 paise has been scrapped by the Reserve Bank of India and even the 50 paise coinage was not practically relevant in the trade. Cash Transactions predominate and the E-commerce in FMCG market in India was less than 1% of total the sales as per the A C Nielsen Retail Audit 2018 and the report published in the Economic Times on 19.04.2019 which stated that around 90% of everyday grocery consumption continued to rely on cash. Where it was not practical to pass on the benefits at SKU (Stock Keeping Unit) level, additional benefits were passed through other packs at the same product category level so that the commensurate benefit accruing was fully passed on each product category and there was no retention of benefit by the Respondent. The Respondent had passed higher proportion of additional benefits through the lower priced SKUs e.g. in the case of the MAGGI Noodles pack having MRP of Rs. 5/-, to pass on the GST benefit, the MRP was required to be reduced to Rs. 4.75. In the absence of 25 paise tender, it was the bona fide understanding of Respondent that the same had to be passed through additional benefits in other SKU(s). As the law did not have the provision to deposit the amount of benefit in the CWF including the timeline as to how long the deposit was to be made he had passed additional benefit on the MAGGI Noodles pack having MRP of Rs. 12/- which was reduced to Rs. 11/- as the MRP was required to be reduced to Rs.11.39 only. At the product category level of Instant Noodles and Pasta (HSN Code 1902) against GST benefit of 5.08%, benefit sought to be passed was around 5.17%. In respect of KITKAT manufacture which involved the length of the wafer and the use of mould for size of the product, the quantum of benefit by way of extra quantity was determined by the size the mould could accommodate. For KITKAT 12.8 Gms. pack with MRP of Rs. 10/- mould could accommodate 13.2 Gms. and was used to pass on the benefit. However in respect of KITKAT pack bearing price point MRP of Rs. 5/- having 7 Gms. quantity, the quantity was increased to 8.6 Gms., whereas to pass on the GST benefit quantity would have been 7.5 Gms. At the product category level of Wafers containing Chocolate (HSN Code 1905) against GST benefit of 7.81%, benefit passed was around 7.83%.
34. That in the case of few SKUs relating to the product category of Instant Coffee, the benefit accruing due to the rate reduction with effect from 15.11.2017 was offset by the increase in the incidence of tax when GST was introduced on 01.07.2017 and hence the benefit was not passed on. He has also submitted the list of such products impacted by the rate reduction with effect from 15.11.2017 where no commensurate benefit was to be passed as the benefit was offset by the increase in the tax earlier.
35. That the benefit to be passed on was determined by the Respondent at the time when the rate reductions were announced, which was with immediate effect. The benefit to be passed, was determined for each product category based on the sale contribution of the SKUs in that product category with due consideration to the lower priced SKUs. The sales contribution of the SKUs in the product category impacted by the GST rate changes with effect from 15.11.2017 was determined by aggregating the actual sales of the SKUs from January 2017 to September 2017 with the planned sales from October 2017 to December 2017, with annualized impact of price changes and new products. For GST rate change with effect from 25.01.2018 actual sales of SKUs in Boiled Sugar Confectionary for the financial year January 2017 to December 2017 were taken, with annualized impact of price changes and new products. The Respondent has done whatever was reasonably possible to pass on the benefit and has not retained the benefits. It was settled that the law could not force a person to do a thing which was impossible as was enshrined in the legal maxim “Lex Non Cogit Ad Impossibilia”.
36. The Respondent has also submitted break-up of the amount of Rs. 192 Crore, pursuant to the methodology followed by the Respondent and as an explanation to Exhibit-5 and the Details of category (HSN) wise balancing at SKU level bearing SI. No. 3, with his submissions dated 12.2018. The Respondent vide Exhibit – 5 annexed to the submissions dated 20.12.2019 has also furnished the details of the benefit passed by way of price reduction and grammage increase Vide Exhibit – 24 annexed to the reply dated 02.05.2019 which incorporated the break-up of the benefit passed which was higher/ lower as compared to the tax rate benefit for the SKUs listed in the Details of the category (HSN) wise balancing at SKU level bearing SI. No. 3 in the additional documents submitted on 20.12.2018.
37. That the Respondent has also submitted the details of the benefit passed by him through price reduction and grammage vide Exhibit-24 and the details of the break-up of benefit passed higher/ lower as compared to the tax rate benefit for SKUs in each product category (HSN) vide Exhibit-25. The Respondent also clarified that the total number of SKUs impacted with both the rate reductions was 409. He has also claimed that the SKUs where benefit less than the GST rate reduction has been passed, was due to operational and legal constraints, however, higher benefit was passed on SKUs across product categories as an integral part of methodology followed by the Respondent so that the benefit to be passed for each product category was commensurate to the benefit.
38. The Respondent has also referred to the supplementary Report dated 05.2019 filed by the DGAP and stated that the DGAP’s above Report has not addressed the issue of benefit of Rs. 192 Crore passed on by the Respondent based on the methodology followed by him and hence, the methodology followed by him and the benefit passed on, has attained finality and should form the basis to determine if there has been profiteering. He has also referred to the supplementary Report dated 11.06.2019 furnished by the DGAP and stated that the DGAP has again not addressed the issue of benefit of Rs. 192 Crore passed by the Respondent based on the methodology followed by him and hence, the above amount has attained finality. The Respondent has also contended that the DGAP has also not raised any objection against the estimated quantum of Rs. 204 Crore of the amount of benefit of to be passed on and the actual benefit passed of Rs. 209 Crore and therefore, the above amount should be considered the final amount of benefit to be passed on.
39. That the Respondent has adopted such a methodology that there was non-retention of the benefit by the Respondent and it was duly passed on to the recipients. SKUs where the Respondent has passed benefit by way of extra grammage or no benefit has been passed or proportionate benefit has not been passed, was due to operational reasons such as prevalent practices, practicality and legal reasons. He has also given the details of the key SKUs where no benefit or proportionate benefit could not be passed with the reasons, none of which related to the lack of intent by the Respondent:-
