Rahul Sharma Vs Samsonite India (NAA)
The present Report dated 24.09.2019 has been received from the Applicant No. 2 i.e. the Director General of Anti-Profiteering (DGAP) after detailed investigation under Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the case are that an application dated 30.07.2018 was filed before the Standing Committee on Anti-profiteering, under Rule 128 (1) of the CGST Rules, 2017, by the Applicant No. 1 alleging profiteering by the Respondent in respect of “American Tourister Sky Tracer HPrice L Blue 68 cm Hard Trolley” which was being supplied by the Respondent. The Applicant No. 1 had alleged that the Respondent did not reduce the selling price of the above product 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 he had kept the MRP of the above product unchanged at Rs. 9100/- and thus, the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in its price.
It is established that the Respondent has acted in contravention of the provisions of Section 171 of the CGST Act, 2017 and has not passed on the benefit of reduction in the rate of tax to his recipients by commensurate reduction in the prices. Accordingly, the amount of profiteering is determined as Rs. 25,73,82,482/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent is therefore directed to reduce the prices of his products as per the provisions of Rule 133 (3) (a) of the CGST Rules, 2017, keeping in view the reduction in the rate of tax so that the benefit is passed on to the recipients. The Respondent is also directed to deposit the profiteered amount of Rs. 25,73,82,4821- 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 deposited in terms of the Rule 133 (3) (b) of the CGST Rules, 2017. Since, the recipients in this case are not identifiable, the above Respondent is directed to deposit the amount of profiteering of Rs. 25,73,82,482/- along with interest in the CWFs of the Central and the concerned State Governments as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017 in the ratio of 50:50 along with interest @ 18%, till the same is deposited. Accordingly, an amount of Rs. 12,86,91,241/- will be deposited in the Central CWF while the balance will be deposited in the State CWFs.
It is also evident from the above narration of the facts that the Respondent has denied the benefit of rate reduction of the GST to the consumers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST Act, 2017 and therefore, he is 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.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING APPELLATE AUTHORITY
1. The present Report dated 24.09.2019 has been received from the Applicant No. 2 i.e. the Director General of Anti-Profiteering (DGAP) after detailed investigation under Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the case are that an application dated 30.07.2018 was filed before the Standing Committee on Anti-profiteering, under Rule 128 (1) of the CGST Rules, 2017, by the Applicant No. 1 alleging profiteering by the Respondent in respect of “American Tourister Sky Tracer HL Blue 68 cm Hard Trolley” which was being supplied by the Respondent. The Applicant No. 1 had alleged that the Respondent did not reduce the selling price of the above product 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 he had kept the MRP of the above product unchanged at Rs. 9100/- and thus, the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in its price. The Standing Committee on Anti-profiteering had examined the aforesaid application in its meeting held on 22.03.2019 and forwarded the same to the DGAP for detailed investigation in terms of Rule 129 (1) of the above Rules.
2. The DGAP on receipt of the application and the supporting documents from the Standing Committee on Anti-profiteering, had issued Notice under Rule 129 (3) of the CGST Rules, 2017 on 09.04.2019 calling upon the Respondent to 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 the 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 supporting Vide the above mentioned notice, the Respondent was also given an opportunity to inspect the non-confidential evidence/information furnished by the Applicant No. 1 during the period from 15.04.2019 to 17.04.2019, which the Respondent did not avail. However, as per the request of the Respondent, the DGAP had provided all the documents/evidence which was submitted by the Applicant No. 1, to the Respondent vide e-mail dated 29.04.2019
3. Through e-mail dated 30.08.2019, the DGAP had also provided the Applicant No. 1 an opportunity to inspect the non-confidential documents/reply furnished by the Respondent on any working day between 03.09.2019 and 04.09.2019 which the Applicant No. 1 did not avail.
4. The period of the investigation conducted by the DGAP in this case is from 15.11.2017 to 31.03.2019.
5. The DGAP had sought extension of time for completing the investigation which was duly extended by this Authority vide its order dated 19.06.2019 in terms of Rule 129 (6) of the CGST Rules, 2017.
6. The DGAP in his Report dated 24.09.2019 has stated that the Respondent had filed his submissions vide letters/e-mails dated 18.04.2019, 23.04.2019, 25.04.2019, 30.04.2019, 03.05.2019, 17.06.2019, 16.08.2019, 23.08.2019, 26.08.2019, 11.09.2019 and 17.09.2019 which are summed up as follows:-
a. That the Respondent was engaged in the design, manufacturing and sale of luggage and luggage accessories. He was selling hard and soft luggage carrying items, duffels, small bags, briefcases, laptop bags, laptop strollers and backpacks, wallets, belts and travel accessories etc. through various channels.
b. That the Respondent was engaged in the business of volatile products having a moderate shelf life requiring him to launch new product lines on a constant basis. He was also conducting end of season sales twice in a year, for which a fresh line of different products was being introduced every time and considering the same he had introduced a new product line post 15.11.2017.
c. That the Respondent had also requested that the following deductions should be considered while determining the quantum of profiteering, if any:-
(i) Export Sales: These sales included the overseas sales which were made without the payment of Integrated Tax and were having no impact of GST rate reduction and therefore, they did not fall under the purview of the anti-profiteering provisions.
(ii) Sales made to Canteen Stores Department (CSD): These sales were made at specially negotiated prices which had been agreed upon exclusive of GST and once fixed, the Respondent could sell the products at lesser price than the agreed price but not at a price higher than the fixed agreed price. The price fixed for CSD was lesser than the price at which the Respondent was selling his products in the open market. Thus, for the sales made to the CSD there was no reference point for comparison with the previous sales and also the sales made to the CSD had no impact of GST rate reduction as the said sales pertained to the sales made to the Government organizations. Therefore, the supplies made to the CSD should be excluded from the ambit of the ongoing investigation into alleged profiteering as they did not attract Section 171 of CGST Act, 2017.
(iii) Scrap Sales: The prices negotiated for these sales were exclusive of GST and the GST applicable on the date of supply was charged on the negotiated prices. Therefore, the scrap sales should be excluded from the scope of the present investigation.
(iv) Stock Transfers: They included the stock transfers of goods or supplies of services by the Respondent’s one GSTIN to another. In his product-line, the Respondent was making huge stock transfers to meet the demand-supply of the market. Thus, they should be excluded from the ambit of the present investigation.
(v) New Stock Keeping Units (SKUs) introduced after 11.2017: These included the products which were introduced by the Respondent post rate reduction i.e. 15.11.2017.
(vi) Discount offered by giving Credit Notes: The Respondent on periodical basis was giving discounts to the various channel partners by issuing credit notes, the details of the which had been submitted and they should be set off or considered while computing the profiteering.
d. That the Respondent was selling his products through different channels in the market like Franchisees, Hyper Markets, Departmental Stores, E-commerce platforms, Institutional sales and CSD etc. and the pricing pattern was different for each channel and hence, the pricing for one channel should not be adopted for the pricing of another, for the purpose of arriving at the profiteering in terms of Section 171 of CGST Act, 2017.
7. The Respondent has also furnished the following documents to the DGAP:-
a. List of all GSTINs.
b. GSTR-1 & GSTR-3B Returns for the period from July, 2017 to March, 2019 for all the registrations held all over India.
c. Details of invoice-wise outward taxable supplies for the impugned products during the period from July, 2017 to March,
d. Sample copies of sale invoices, pre and post 15.11.2017.
e. Sample copies of agreements entered into with the CSD.
8. The Respondent also claimed confidentiality on all the data/information furnished by him, in terms of Rule 130 of the CGST Rules, 2017.
9. The DGAP has examined the application, the various replies of the Respondent and the documents/evidence brought on record and stated that the main issues for determination were whether the rate of GST on the goods supplied by the Respondent was reduced from 28% to 18% w.e.f. 15.11.2017 and if so, whether the benefit of such reduction in the rate of GST had been passed on by the Respondent to his recipients, in terms of Section 171 of the CGST Act, 2017.
10. He has also stated that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on the goods supplied by the Respondent from 28% to 18% w.e.f. 11.2017 vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 and the same had also not been contested by the Respondent.
11. The DGAP has also examined the provisions of Section 171 of the CGST Act, 2017 and submitted that the legal requirement in the event of benefit of ITC or reduction in rate of tax was that there must be a commensurate reduction in the prices of the goods or services. Such reduction 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 ITC. This was the only legally prescribed mechanism to pass on the benefits of ITC or reduction in the rate of tax to the recipients under the GST regime and there was no other method which a supplier could adopt to pass on such benefits.
12. The DGAP has further submitted that the Respondent’s contention that his products were sold through different channels in the market like Franchisees, Hyper Markets, Departmental Stores, E-commerce platforms, Institutional sales and CSD etc. and the pricing pattern was different for each channel, therefore, the pricing for one channel should not be adopted for the pricing of another appeared to be Since, the Respondent had provided details of the channel wise outward taxable supplies of the products on which 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, the DGAP has taken the above submission of Respondent into consideration for computing the profiteered amount.
13. The Respondent has also sought to exclude the outward sale of the following from the scope of the present investigation:-
(i) New SKUs introduced after 15.11.2017: These were the newly launched products and hence were not comparable.
(ii) Export Sales: The effective rate of GST on export sales was Nil and therefore they were not affected by the rate reduction.
(iii) Goods sold to Canteen Stores Department (CSD): The prices of CSD goods were not affected by the GST rate as the CSD was getting the rebate of tax paid by it.
(iv) Stock Transfers within the Respondent’s units: Stock transfers were actually the transfers of the goods from one premises of the Respondent to other premises and thus were not effective sales.
(v) Scrap Sales: The sales data submitted by the Respondent was examined by the DGAP and it was observed that during the pre-rate reduction period there were no sales of scrap and hence they did not fall in the ambit of profiteering.
(vi) Discounts offered through Credit Notes: Regarding the contention of the Respondent of not calculating profiteering on the discounts offered through credit notes, the DGAP has claimed that as per Section 15 of the Central Goods and Service Tax Act, 2017, the value to be considered was the transaction value. He has further claimed that regarding exclusion of discounts, Section 15 (3) states that:-
“The value of the supply shall not include any discount which was given
(a) before or at the time of the supply if such discount had been duly recorded in the invoice issued in respect of such supply; and
(b) after the supply had been effected, if
(i) such discount was established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
(ii) ITC as was attributable to the discount on the basis of document issued by the supplier had been reversed by the recipient of the supply.”
14. The DGAP has also reported that since the Respondent had failed to give proof of satisfaction of the conditions mentioned in Section 15 (3) (b) above, thus, the discounts given through credit notes were not liable to be excluded from the value and hence the benefit of discounts could not be given to the Respondent. He has further reported that the Respondent had not considered the discounts offered through credit notes during the period before 15.11.2017, for which the base prices were calculated and hence they were not liable to be considered in the subsequent period also. The DGAP has also intimated that the items mentioned at Sr. No. (i) to (v) above were not liable to be considered for calculation of the profiteered amount. However, the benefit of reduction in the value on account of credit notes issued subsequent to the issue of invoices did not appear to be admissible.
15. The DGAP has also contended that the methodology adopted for determining the amount of profiteering could be explained by illustrating calculation made in respect of a specific item i.e. “AMT PRESTON SP67 OXFORD BLUE” product sold through a particular channel i.e. Franchisee. Sale value of this product during the month of November, 2017 (pre-GST rate reduction) was taken and an average base price (after discount) was obtained by dividing the total taxable value by total quantity of this item sold during the period from 01.11.2017 to 14.11.2017. The average base price of this item was compared with the actual selling price of the same item sold through the said channel during the post-GST rate reduction period i.e. on or after 15.11.2017 as has been illustrated in the Table given below:-
Table
(Amount in Rs.)
