Sh. Sandeep Puri Vs M/s Glenmark Pharmaceutical Ltd. (National Anti-Profiteering Authority)
Product Sanitary Napkin vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018, w.e.f 27.07.2018 was exempted and attracted NIL rate of GST. However prior to 27.07.2018 this product attracted 12% GST with the benefit of ITC on the inputs and input services which was denied from 27.07.2018 as the product was exempted from levy of tax. The GST paid on the inputs and on input service post rate reduction was a cost to the supplier, hence the base prices of the products would increase to the extent of denial of ITC. Accordingly the DGAP based on the turnover and the ITC available to the Respondent had rightly estimated the ratio of ITC to the taxable turnover as 8.39% which has not been disputed by the Respondent. The DGAP vide Annexure 27 of his Report has arrived at the base prices after taking into account the average price of the product for the period w.e.f. 01.07.2018 to 26.07.2018 i.e. prior to GST rate reduction. These base prices have been loaded with 8.39% as discussed above and accordingly recalibrated base prices per unit have been arrived at. These recalibrated base prices have been compared with the actual selling prices after the product was exempted and wherever the selling price of the product were more than the recalibrated base prices, it proved that the benefit of exemption of tax had not been extended to the recipients. Accordingly the profiteered amount for 12 SKUs supplied by the Respondent had been arrived at Rs. 42,52,370/-.
As per the provisions of Rule 133 (1) of the CGST Rules, 2017 as the Respondent has failed to passed on the benefit of rate reduction to his customers. Accordingly, the Respondent directed to reduce his prices by way of commensurate reduction keeping in view the reduced rate of tax and benefit of ITC which has been availed by him as per Rule 133 (3) (a). The Respondent is further directed to deposit the above amount as per the provisions of Rule 133 (3) (c) in the ratio of 50:50 in the Central or the State CWFs of the State of Madhya Pradesh, along with the interest @ 18% till the same is deposited. The concerned Central and State GST Commissioner are directed to ensure that the above amount is got deposited from the Respondent along with interest and in case the same is not deposited necessary steps shall be taken by them to get it recovered from the Respondent as per the provisions of the CGST/SCST Acts under the supervision of the DGAP. They are further directed to submit report in compliance of this order within a period of 3 months.
It is also evident from the above narration of facts that the Respondent has denied benefit of rate reduction to the buyers of the product “Sanitary Napkin” in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering, which is an offence under section 171 (3A) of the CGST Act, 2017 and therefore, he will be apparently liable for imposition of penalty under the provisions of the above Section. Accordingly, a Show Cause Notice will 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 AUTHORITY
1. The brief facts of the case are that under Rule 128 of the Central Goods and Services Tax (CGST) Rules, 2017, an Application was filed before the Standing Committee on Anti-Profiteering by the Applicant No. 1 against the Respondent alleging that in the bill raised for “Sanitary Napkin” (hereinafter referred to as the product) after exemption of GST from 12% to Nil w.e.f. 27.07.2018 on the above product, vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018, the old stock of the product was being sold at the pre rate reduction MRP.
2. The above issue was examined by the Standing Committee on Anti-profiteering in its meeting held on 08.10.2018, where it was decided, to refer the matter to the Director General of Anti-Profiteering (DGAP) to initiate detailed investigation in the matter and collect evidence necessary to determine whether the benefit of reduction in the rate of GST on supply of the product had been passed on by the Respondent to the recipients.
3. The DGAP, after completing the investigation has submitted his Report under Rule 129 (6) of CGST Rules, 2017 on 23.04.2019 pertaining to the period w.e.f. 27.07.2018 to 30.11.2018.
4. The DGAP in his Report has stated that a notice under Rule 129 of the CGST Rules, 2017 was issued on 02.11.2018, calling upon the Respondent to reply as to whether he admitted that the benefit of GST rate reduction 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 along with all the supporting documents. The Respondent was also given an opportunity to inspect the non-confidential evidences/information furnished by the above Applicant and it was availed by the Respondent through an authorized representative on 22.11.2018.
5. The DGAP in his Report has stated that the Respondent in his reply to the notice had stated that he had sent a communication to all his distributors announcing the reduction in MRP of his product and the new reduced price (MRP) for each pack was also conveyed to the distributors, stockists and retailers and the inventory sold by them after 26.07.2018 was at a price lower than the MRP of the products and also claimed that it was advertised in one of the leading newspapers, informing the public at large about the reduction in the MRP of the product.
6. The DGAP further stated that the contention of the Respondent that immediately he had given effect to the Notification No. 19/2018 – Central tax (Rate) dated 26.07.2018, regarding reduction in GST rate from 12% to Nil on the product by reducing the MRPs of said goods, appeared to be correct but based on the Applicant No. 1’s field inspection, it was noticed that the old stocks were being sold at the same MRP prevailing prior to the reduction of GST rate. The Report also stated that neither the GST rate nor the price was indicated on the invoice except the MRP of the product. This MRP also did not indicate that there was commensurate reduction in price charged from the ultimate consumers.
7. The DGAP further stated that the rate of tax was reduced from 12% to Nil w.e.f 27.07.2018. vide Notification No. 19/2018-Central Tax (Rate) dated 26.07.2018 with denial of the benefit of Input Tax Credit (ITC). Accordingly ITC pertaining to the product that had accrued to the Respondent during the period from July, 2017 to 26.07.2018 was calculated as Rs. 1,27,11,749/- and the reversal of ITC on the closing stock as on 26.07.2018, was Rs. 42,56,338/-. The Report stated that in order to estimate the ratio of ITC in respect of the products as a percentage of the taxable turnover supplied during the period w.e.f. July, 2017 to 26.07.2018, the ITC on closing stock as on 26.07.2018 had to be excluded and therefore the ITC amounting to Rs. 84,55,411/- [Rs. 1,27,11,749/- (-) Rs. 42,56,338/-] was available to the Respondent during the period from July, 2017 to 26.07.2018, which was approximately 8.39% of the taxable turnover. The DGAP based on these calculations has arrived at the ITC ratio of 8.39% as has been shown in the table below:-
