Profiteering allegation against Baxium Health Science: CCI directs further investigation 

Director General of Anti-Profiteering Vs Baxium Health Science (Competition Commission of India)

The Director-General of Anti-Profiteering (DGAP) initiated an investigation into Baxium Health Science regarding potential profiteering in the sale of “Eclat Serum 30gm” after the GST rate was reduced from 28% to 18% on 15.11.2017, as per Notification No. 41/2017-Central Tax (Rate). The investigation, prompted by a reference from the Standing Committee on Anti-Profiteering, found that Baxium Health Science had raised its base prices, failing to pass on the benefit of the GST rate reduction to consumers as required under Section 171 of the CGST Act, 2017. Despite multiple notices and submissions from Baxium Health Science, the DGAP’s findings revealed that the company had not fully cooperated, delaying the completion of the investigation. The Competition Commission of India (CCI) has since directed further investigation into Baxium’s suppliers to assess whether the benefit of the GST rate reduction had been passed on through the supply chain. Although Baxium Health Science asserted that the product had been discontinued in 2019, discrepancies in pricing during the investigation period raised concerns of profiteering, leading to further scrutiny.

FULL TEXT OF THE ORDER OF COMPETITION COMMISSION OF INDIA

1. The present Report dated 30.04.2024 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.

2. The brief facts of the case and findings of investigation conducted by the DGAP are as under:-

i. A reference was received from the Standing Committee on Anti-profiteering on 09.10.2019, to conduct a detailed investigation under Rule 129(6) of the Rules, alleging profiteering in respect of supply of the goods “Eclat Serum 30gm” (HSN 33049910) (hereinafter referred to as “the impugned goods”) by M/s S.R. Lifesciences despite reduction in the rate of GST from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017- Central Tax (Rate) dated 14.11.2017 by not reducing the prices commensurately, in terms of Section 171 of the CGST Act, 2017.

ii. On the basis of above, the DGAP had investigated the matter and submitted an Investigation Report dated 23.03.2020 under Rule 129(6) of the CGST Rules, 2017 to the National Anti-Profiteering Authority (NAA) which is now Competition Commission of India (CCI). The NAA went through the aforesaid Investigation Report dated 23.03.2020 submitted by the DGAP and passed Final Order No. 07/2022 dated 10.05.2022. Vide said Order, the NAA directed the DGAP to investigate the entire chain of the suppliers of M/s S. R. Lifesciences, under Rule 133(5) of the CGST Rules, 2017. On the basis of the Order dated 07/2022 dated 10.05.2022, the DGAP had investigated the matter and submitted an Investigation Report dated 31.08.2022 under Rule 133(5) of the CGST Rules, 2017 to the NAA.

iii. The Commission went through the aforesaid Investigation Report dated 31.08.2022 submitted by the DGAP and passed Interim Order No. 03/2023 dated 31.07.2023. Vide Para- 6 & 7 of the aforesaid Order, the CCI found that:-

Para-6 This Commission had carefully examined the Report dated 31.08.2022 of the DGAP and the case records and it had been observed that the Respondent had not cooperated with the DGAP to furnish the necessary information required for completing the investigation. Therefore, the DGAP could not take the above investigation to its logical end since both the invoices (pre-rate reduction and post-rate reduction) of the suppliers viz. M/S Shree Suktam Enterprise, Ahmedabad and M/S Baxium Health Science, Ahmedabad were not supplied to the DGAP for comparison and to arrive at a conclusion so the DGAP could not investigate whether the suppliers have passed on the benefit of rate reduction to the Respondent or not and which could only be ascertained after getting the complete information/data from these two suppliers of the Respondent. It was also a fact that the DGAP was allowed time to complete his investigation till 09.11.2022 by the Authority vide Order dated 03.08.2022. However, the DGAP had concluded his investigation prematurely in respect of the two suppliers of the Respondent without exhausting all available legal resources at his command under the CGST Act, 2017, however, he had recommended further investigation against both the above suppliers.

Para-7 In view of the above facts, this Commission having carefully considered the above Report directs the DGAP to further investigate the two suppliers namely M/S Shree Suktam Enterprise, Ahmedabad and M/S Baxium Health Science, Ahmedabad and submit his Report in terms of the Section 171 of the Act read with Rule 133(5) of the CGST Rules, 2017.

iv. Accordingly, the DGAP extended the scope of investigation and collected evidence necessary to determine whether the benefit of rate reduction had been passed on in terms of Section 171 of the CGST Act, 2017 to the recipients in respect of supply of “Eclat Serum 30gm” by the Respondent.

v. As directed by the CCI vide Order No. 03/2023 dated 31.07.2023, a Notice under Rule 129 of the CGST Rules, 2017 was issued by the DGAP on 09.08.2023, calling upon the Respondent to submit his reply as to whether he admitted that the benefit of reduction in the GST rate w.e.f. 15.11.2017, had not been passed on to his recipients by way of commensurate reduction in price 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 the supporting documents.

vi. As per the Notice for Initiation of Investigation dated 09.08.2023 issued to the Respondent the period covered by the current investigation was from 15.11.2017 to 31.07.2023. However, Respondent submitted that he had discontinued the product “Eclat Serum 30gm” in 2019 and upgraded to new version, hence, there was no sale of the above product after 08.07.2019. Accordingly, the investigation period in respect of this Report was upto 08.07.2019.

vii. The Respondent vide letters/e-mails dated 24.08.2023, 01.09.2023, 04.09.2023, 22.09.2023, 02.10.2023, 11.10.2023, 19.10.2023, 03.11.2023,      24.11.2023, 06.12.2023, 08.12.2023, 26.12.2023, 02.01.2024, 08.01.2024 and 26.03.2024 has filed his submissions before the DGAP during investigation.

viii. The DGAP has stated that he has examined the above application, various replies of the Respondent and the documents/evidences on record. The main issues for determination were: –

a) Whether the rate of GST on the products supplied by the Respondent was reduced from 28% to 18% w.e.f. 15.11.2017 and if so,

b) Whether such benefit of reduction in GST rate was passed on by the Respondent to the recipients, in terms of Section 171 of the CGST Act, 2017.

ix. The DGAP has noticed that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on “the impugned Goods” from 28% to 18% w.e.f. 15.11.2017, vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017.

x. The DGAP has also mentioned that the Respondent having GSTIN: 24AFKPG7000F1ZZ in the name of M/s Baxium Health Science submitted the invoice wise sales details of the product “Eclat Serum

Table-A

xi. The DGAP has observed that the total sale of the product was 6143 units as shown in Table-A above. The Respondent also mentioned in his reply dated 26.12.2023 that there were 70 units which remained unsold due to near expiry date. These units were either given free of cost on sample basis or disposed of. Accordingly, Respondent submitted DRC-03 form for reversal of Cenvat Credit dated 04.12.2023 and 08.12.2023 in respect of 70 units. The Respondent also asserted that the differences in prices of the above product was on the basis of supplies made to the whole seller, distributor and customer.

xii. The DGAP has also reported that the Respondent had increased the base prices of “the impugned goods” when the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017. Therefore, the commensurate benefit of GST rate reduction was not passed on to the recipients. The methodology adopted for determining the amount of profiteering could be explained by illustrating the calculation in respect of the item “Eclat Serum 30gm” sold during the month of November, 2017 (pre-GST rate reduction). An average base price (after discount) was obtained on dividing the total taxable value by total quantity of the items sold during the period 01.11.2017 to 14.11.2017. The average base price of the item was compared with the actual selling price of the above item sold to M/s S. R. Lifesciences during post-GST rate reduction i.e. on or after 15.11.2017 as illustrated in the Table-B below:-

Profiteering in respect of supplies made to M/s S. R. Lifesciences

Table-B

(Amount in Rupees)

xiii. The DGAP has observed from the above table that the Respondent in the case of M/s. S.R Lifesciences had reduced the selling price of the “Eclat Serum 30GM”, 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 no profiteering was determined on Invoice No. 0378 dated 04.12.2017, 0665 dated 14.02.2018, 0715 dated 28.02.2018 as the actual rate charged was Rs. 206.5/- (as shown in Table-B above) in all the three invoices mentioned above in post-rate reduction period. Thus, the DGAP has reported that the benefit of reduction in GST rate was passed on to the recipients by way of commensurate reduction in the price, in terms of Section 171 of the CGST Act, 2017. The DGAP, on the basis of the calculation illustrated in Table-B above, has also quantified profiteering in similar way in case of other recipients impacted by the GST rate reduction vide Notification No. 41/2017 Central Tax (Rate) dated 14.11.2017, supplied by the Respondent during the period 15.11.2017 to 31.07.2023.

xiv. The said profiteered amount had been arrived at by taking the average of the base prices of the Eclat Serum 30gm sold during the period 01.11.2017 to 14.11.2017 i.e. Rs. 432/- as calculated in Table-B above and then comparing with the actual invoice-wise base prices of such products sold during the period 15.11.2017 to 31.07.2023. The Respondent by increasing the base price of the impacted goods had collected excess GST from the recipients, which 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 profiteering was calculated on the said product “Eclat Serum 30gm” which has been shown below in Table- C:-

Table-C

xv. 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 the impacted goods during the period 15.11.2017 to 31.07.2023 (however, the same was restricted to 08.07.2019), as furnished by the Respondent 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% or in other words, the profiteered amount came to Rs. 2,06,100/- (as shown in Table-C above). The details of the computation have been given by the DGAP in Annexure-20 of his Report dated 30.04.2024.

xvi. The recipients along with the place (State or Union Territory) of supply wise breakup of the total profiteered amount of Rs. 2,06,100/- was furnished in Table-D below: –

Table-D
ECLAT SERUM 30GM (15.11.2017 to 08.07.2019)

xvii. The DGAP has concluded that the base prices of the impugned goods were increased when there was a reduction in the GST rate from 28% to 18% w.e.f. 15.11.2017, so that the benefit of such reduction in GST rate was not passed on to the recipients by way of commensurate reduction in prices. The DGAP has stated that the allegation of profiteering by way of increasing the base prices of the products w.e.f. 15.11.2017 was sustainable against the Respondent. Thus, by increasing the base prices of the goods subsequent to reduction in the GST rate, the commensurate benefit of reduction in the GST rate from 28% to 18%, was not passed on to the recipients. The DGAP has also informed that the total amount of profiteering on account of contravention of the provisions of Section 171 of the CGST Act, 2017 covering the period 15.11.2017 to 31.07.2023 (however. the same was restricted to 08.07.2019), was Rs. 2,06,100/- as profiteering amount collected by the Respondent.

3. The above Report was considered by the Commission in its meeting held on 30.05.2024. Thereafter. Notice dated 05.06.2024 was served upon the Respondent directing him to file his submissions by 03.07.2024. The Respondent vide his email dated 28.07.2023 has stated that he has agreed to pay the due amount as indicated in the Report dated 30.04.2024 submitted by the DGAP.

4. This Commission has carefully perused the DGAP’s Report dated 30.04.2024 and the documents placed on record. The Commission needs to determine as to whether there was any reduction in the GST rate and whether the benefit of rate reduction was passed on or not to the recipients as provided under Section 171 of the CGST Act, 2017.

5. The Commission finds that the Respondent having GSTIN 24AFKPG7000F1ZZ is engaged in selling of medicines. It is also revealed that there has been a reduction in the rate of tax from 28% to 18% w.e.f. 15.11.2017, on “the impugned goods” being supplied by the Respondent, vide Notification No. 41/2017 Central Tax (Rate) dated 14.11.2017. Therefore, the Respondent is liable to pass on the benefit of tax reduction to his customers in terms of Section 171 (1) of the above Act. It is also apparent that the DGAP has carried out the present investigation w.e.f. 15.11.2017 to 31.07.2023, however, the same was restricted to 08.07.2019 as he had discontinued the product “Eclat Serum 30gm” in 2019 and there was no sale of the product after 08.07.2019.

6. However, the Respondent did not reduce the selling price of the products mentioned above when the GST rate was reduced from 28% to 18% w.e.f. 15.11.2017 and hence, the benefit of reduction in GST rate was not passed on to the recipients by way of commensurate reduction in the prices, in terms of Section 171 of the CGST Act, 2017 and therefore, he has contravened the provisions of Section 171 of the CGST Act, 2017. Accordingly, the profiteered amount is determined as Rs. 2,06,100/- as per the provisions of Rule 133 (1) of the CGST Rules 2017. The details of the computation have been given by the DGAP in Annexure-20 of his Report dated 30.04.2024. Since the recipients in this case, are identifiable as given in Table-D above, the Respondent is required to pass on the profiteered amount of Rs. 2,06,100/- along with the interest to be calculated @ 18% from the date when the above amount was collected by him from the recipients till the above amount is passed on/paid in terms of Rule 133 (3) (b) of the CGST Rules, 2017.

7. The above amount shall be paid within a period of 3 months from the date of this Order failing which the same shall be recovered by the Commissioner CGST/SGST as per the provisions of the CGST Act, 2017.

8. It is also evident from the above narration of facts that the Respondent has denied benefit of rate reduction to his customers/recipients in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act. However, perusal of the provisions of Section 171 (3A), under which liability for penalty arises for the above violation, shows that it has been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019 and it was not in operation during the period from 15.11.2017 to 08.07.2019 when the Respondent had committed the above violation and hence, the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively for the said period.

9. Further, the Commission as per Rule 136 of the CGST Rules 2017 directs the jurisdictional Commissioners of CGST/SGST of the respective States to monitor this Order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent is paid to the recipients as ordered by this Commission. A Report in compliance of this Order shall be submitted to this Commission by the DGAP within a period of 4 months from the date of receipt of this Order.

10. The DGAP is also directed to provide necessary guidance to the Respondent for deposition of the profiteered amount alongwith applicable interest as Respondent is willing to pay the profiteered amount.

11. A copy of this order be sent to all the interested parties free of cost. File of the case be consigned after completion.