It is a proven fact that anti-profiteering provisions actually work and section 171 of the CGST Act, 2017 provides protection to the customers against illegal, inappropriate and excessive profiteering resorted by suppliers of goods and services. It becomes quite clear when rates are not reduced at all or commensurate with reduction in GST rates.

The NAA vide its Order dated 12.03.2020 in DGAP, New Delhi v. Patanjali Ayurveda Ltd., Haridwar (2020) 3 TMI 695; (2020) 115 taxmann.com 270 (NAA) held that M/s Patanjali Ayurveda Ltd. was liable for anti-profiteering on supply of detergent powder by not passing on the benefit of GST rate reduction to customers.

In the instant case, Standing Committee on Anti-profiteering made a reference to DGAP to conduct a detailed investigation under Rule 129 of the CGST Rules, in respect of the supplies made by the Respondent, to determine whether the benefit of reduction in the rate of GST from 28% to 18% w.e.f. 15.11.2017, had been passed on by the Respondent to the recipients.

DGAP submitted its report dated 13.12.2018 confirming that the Respondent did not pass on the benefit of the reduction in the tax rates to his recipients by way of commensurate reduction in prices, in terms of Section 171 of the CGST Act, 2017 and that Respondent had contravened the provisions of Section 171 (1) of the CGST Act, 2017.

During hearing before NAA, respondent submitted that there were inconsistencies in the DGAPs calculation of profiteering as there were certain SKUs profiteering on which had been computed twice or thrice and in respect of 6 SKUs on which rate had been reduced from 18% to 12% the reduction had been considered from 18% from 12% by the DGAP.

It was observed that report contained few discrepancies, i.e.,

(a) The Report had not covered all the SKU’s which were impacted by the rate deduction in the period between 01.07.2017 and 14.02.2019.

(b) In the case of 6 SKU’s, the calculation of profiteering was worked out on the incorrect rate reduction from 28% to 18%, whereas it should have been from 18% to 12%.

(c) There was duplication/triplication of the SKU’s in the calculation of the amount of profiteering.

(d) The report of the DGAP had not categorically confirmed that all the SK ‘s impacted by tax rate deduction post 01.07.2017 were properly investigated.

Under rule 133(4), the NAA vide Order dated 14.03.2019 directed the DGAP to again conduct a detailed investigation into the matter covering above aspects. The DGAP resubmitted its report dated 13.09.2019 to NAA.

The main issues to be examined were whether the rate of GST on the goods supplied by the Respondent was reduced from 28% to 18% & 18% tol2% w.e.f. 15.11.2017 and if so. whether the benefit of such reduction in the rates of GST had been passed on by the Respondent to his recipients, in terms of Section 171 of the Central Goods and Services Tax Act, 2017. It was observed by the DGAP that the Central Government, on the recommendation of the GST Council vide Notification No. 41/2017-Central Tax (Rate) dated 14.11 2017, had reduced GST rate on a number of goods supplied by the Respondent from 28% to 18% & from 18% to 12% w.e.f. 15.11.2017.

The legal requirement was abundantly clear that in the event of the benefit of input tax credit or reduction in the rate of tax, there must be a commensurate reduction in the prices of the goods or services supplied. Such reduction in price could only be in terms of money, so that the final price payable by a recipient got reduced commensurate with the reduction in the tax rate or benefit of input tax credit. This was the only legally prescribed mechanism to pass on the benefit of input tax credit or reduction in the rate of tax under the GST regime and there was no other method that a supplier could adopt to pass on such benefits.

The DGAP calculated profiteering of various SKU’s. For example, in case of ‘popular detergent powder – 2 kg’,  the Respondent did not reduce the selling price when the GST rate was reduced from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11 2017 and hence he profiteered an amount of Rs. 993.60/- on the SKU and thus the benefit of reduction in GST rate was not passed on to the recipient by way of commensurate reduction in the price, in terms of Section 171 of the Central Goods and Services Tax Act, 2017. On the basis of the above calculation, profiteering in case of all impacted SKU’s of the Respondent had also been arrived by the DGAP.

There were various categories of recipients in his supply chain, viz. Institutional buyers, Patanjali Group companies, Others including Mega Stores. Vendors. Branches, Super stockists, Distributors, Super distributors, Super stockist AASTHA, Scrap dealers, buyers from Modern Trade, E-Commerce platforms, Bulk sale division, Dairy division. Swadeshi Smridhi Card (SSC), Canteen Service Company (CSC), Arogaya Kendras, Chikitsalayas, Central Police Canteen (CPC), Salt distributors, Canteen stores Department (CSD), Rice distributors, other group companies, job-workers, etc.. Accordingly, the DGAP has done the calculations of profiteering category-wise.

From the invoices, it appeared that the Respondent supplier had increased the base prices of the goods when the rate of GST was reduced from 28% to 18% & 18% to 12% w.e.f. 15.11.2017, so that the commensurate benefit of GST rate reduction was not passed on to the recipients. On the basis of aforesaid pre and post-reduction GST rates and the details of outward taxable supplies (other than zero rated, nil rated and exempted supplies) of all the products during the period 15.11.2017 to 31.03.2019, the amount of net higher sales realization due to increase in the base prices of the impacted goods. despite the reduction in the GST rate from 28% to 18% & 18% to 12% or in other words. the profiteered amount had been arrived by the DGAP as Rs. 1,03,20,08,903/- by comparing the actual invoice-wise base prices of impacted products sold during the period 15.11.2017 to 31.03.2019 with the commensurate price based on the average of the base price of such products sold during the period 01.11.2017 to 14.11.2017. The excess GST so collected from the recipients, was also included in the aforesaid profiteered amount as the excess price collected from the recipients also included the GST charged on the increased base prices.

The amount of profiteering by the Respondent supplier on account of contravention of provisions of Section 171 of Central Goods and Services Tax Act, 2017 was Rs. 1,03,20,08,903/. The place (State or Union Territory) of the supply-wise break-up of the total profiteered amount of Rs. 1,03,20,08,903/- was also provided by the DGAP.

The NAA considered the report DGAP and after hearing the submissions, it was observed that  the Respondent supplier was liable to reduce the prices of his products by way of commensurate reduction in prices as per the provisions of Section 171 (1) of the CGST Act. 2017. Section 171 (1) of the CGST Act, 2017 is very clear which requires to reduce the prices with the reduction in rate of tax commensurately. The Respondent supplier had no restriction on increasing his prices when the rates of tax were increased and it was solely his business call not to increase them. However, he cannot deny the benefit of tax reduction on this ground. Further, Authority or the DGAP had nowhere interfered with the business decisions of the Respondent supplier and therefore, there is no violation of Article 19 (1) (g) of the Constitution.

Thus, based on DGAP report and records, the NAA concluded that the profiteered amount was determined as Rs. 75,08,64,019/ as per the provisions of Rule 133 (1) of the Rules. The Respondent supplier was directed to reduce his prices commensurately in terms of Rule 133 (3) (a) and to deposit an amount of Rs. 75,08,64,019/- in the CWF of the Central and the concerned State Government, as the recipients were not identifiable, as per the provisions of Rule 133 (3) (c) of the Rules alongwith 18% interest payable from the dates from which the above amount was realised by the Respondent from its recipients till the date of its deposit within a period of 3 months from the date of passing of the order failing which it shall be recovered by the concerned Commissioners CGST/SCST.

The Respondent supplier had denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and had thus profiteered as per the explanation attached to Section 171 of the CGST Act. Therefore, it was apparently liable for the imposition of penalty under Section 171 (3A) of the CGST Act, 2017.

The Authority as per Rule 136 of the CGST Rules 2017 directed the Commissioners of CGST/SGST to monitor the order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by this Authority is deposited in the CWFs of the Central and the State Governments.

Before High Court

The company had filed a Writ Petition [(W.P. (C) 4375/2020] before Delhi High Court against the subject NAA Order and challenging the constitutional validity of section 171 of CGST Act, 2017 and rules 122, 126, 127 and 133 of CGST Rules, 2017. In view of earlier orders passed in Phillips India Ltd. v. Union of India (2020) 6 TMI 626 (Delhi) (2020) 117 taxmann.com 368 (Delhi) and Samsonite South Asia Pvt. Ltd. v. Union of India [(2020) 39 GSTL J106; (2020) 118 taxmann.com 45; (2020) 7 TMI 520 (Delhi) and the fact that no ground of financial hardship had been pleaded in the petition, court directed the petitioner to deposit the principal profiteered amount i.e., Rs. 75,08,64,019 in installments. Anti-profiteering interest and penalty proceedings against Patanjali Ayurved were ordered to be stayed till further orders and principal profiteered amount to be deposited in six monthly installments w.e.f. 15.08.2020 vide Order dated 24.07.2020.  [(2020) 117 taxmann.com 969; (2020) 7 TMI 614; (2020) 80 GST 832 (Delhi)]. 

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