Principal Commissioner Vs Sudharshan 35 MM (NAA)
Applicant No. 1 had filed an application dated 06.03.2019 under Rule 128 of the CGST Rules, 2017 alleging profiteering by the Sudharshan 35 MM in respect of the supply of ‘Services by way of admission to exhibition of cinematograph films where price of admission ticket is one hundred rupees or less’ when GST was reduced from 18% to 12% w.e.f. 01.01.2019 vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018.
NAA found that the Respondent has resorted to profiteering by way of either increasing the base prices of the service while maintaining the same selling prices or by way of not reducing the selling prices of the service commensurately, despite a reduction in GST rate on “Services by way of admission to exhibition of cinematograph films where price of admission ticket is one hundred rupees or less” from 18% to 12% w.e.f. 01.01.2019 to 30.06.2019. On this account, the Respondent has realized an additional amount to the tune of Rs. 2,23,850/- from the recipients which included both the profiteered amount and GST on the said profiteered amount. Thus the profiteering is determined as Rs. 2,23,850/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. The Respondent is therefore directed to reduce the prices of his tickets 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. 2,23,850/- 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. Since the recipients, in this case, are not identifiable, the Respondent is directed to deposit the amount of Fund (CWF) and Rs. 1,11,925/- in the Telangana State CWF as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017, along with 18% interest. The above amount shall be deposited within a period of 3 months from the date of receipt of this Order failing which the same shall be recovered by the Commissioner CGST and SGST as per the provisions of the SGST Act, 2017.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING APPELLATE AUTHORITY
1. The present Report dated 18.12.2019 has been received from Applicant No. 2, i.e. the Director-General of Anti-Profiteering (DGAP) after a detailed investigation in line with Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the present case are that Applicant No. 1 had filed an application dated 06.03.2019 under Rule 128 of the CGST Rules, 2017 alleging profiteering by the Respondent in respect of the supply of “Services by way of admission to exhibition of cinematograph films where price of admission ticket is one hundred rupees or less” when GST was reduced from 18% to 12% w.e.f. 01.01.2019 vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018.
2. Vide his Report, the DGAP has reported that Applicant No. 1 had alleged that the Respondent had not passed on the benefit of reduction in the GST rate on the aforesaid movie admission tickets, from 18% to 12% w.e.f. 01.01.2019, videNotification No. 27/2018-Central Tax (Rate) dated 31.12.2018. and instead, increased the base prices to maintain the same cum-tax selling prices. Applicant No. 1 had also alleged in his letter dated 03.04.2019 that the Respondent was selling tickets of different categories priced Rs.100/- or less than 100/- (excluding Tax). However, the DGAP, on examination of the record of the monthly sale of tickets in each category, observed that in the month of March 2019 and May 2019, three different categories of tickets, i.e. other than the categories mentioned by Applicant No. 1 had been sold by the Respondent. Scrutiny of the records submitted by the Respondent also revealed that these three categories of tickets were not the matter of the complaint made by the above Applicant and the existence of these categories was also not reflected in the sales data for the pre-tax rate reduction period. As the comparable data/rates of new categories during the month of March 2019 or May 2019 were not available during the last 4 months before rate reduction, profiteering for these categories had not been worked out. Hence the investigation was limited to the reduction in the rate of GST from 18% to 12% only and for only three categories mentioned by Applicant No. 1.
3. The aforesaid application was examined by the Standing Committee on Anti-profiteering, whereby it was decided to forward the same to DGAP to conduct a detailed investigation in the matter. The Standing Committee forwarded the following submission/documents of Applicant No. 1.
(i) Anti-profiteering Application form (APAF-1).
(ii) Letter dated 13.02.2019 of M/s Sudharshan 35 MM, Hyderabad confirming the fact of the non-reduction of the prices of tickets.
(iii) Letter dated 13.04.2019 of the Applicant to the Standing Committee on Anti-profiteering.
4. The DGAP has further reported that on receipt of the reference from the Standing Committee on Anti-profiteering, a Notice under Rule 129 of the Rules was issued by the DGAP on 08.07.2019, calling upon the Respondent to reply as to whether he admitted that the benefit of reduction in GST rate had not been passed on to the recipients by way of commensurate reduction in prices 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 documents. Vide the said Notice, the Respondent was also allowed to inspect the non-confidential evidence/information furnished by Applicant No. 1 during the period 15.07.2019 to 17.07.2019, which the Respondent had not availed of. The period covered by the current investigation is from 01.01.2019 to 30.06.2019.
5. The DGAP has submitted that in response to the notice dated 08.07.2019 and subsequent reminders, the Respondent submitted his reply vide letters and e-mails dated 18.07.2019, 23.10.2019, 07.11.2019, 26.11.2019, 05.12.2019, and 13.12.2019 and inter-alia stated that:-
(i) He had to seek approval from the Licensing Authority, for the change in the basic prices of tickets. He was governed by the State Government’s Cinematography Act and the Authority and any change in prices of tickets could only be done after his approval.
(ii) State Government’s GO (Government Order) directed the Respondent to sell tickets at allowed prices, inclusive of taxes. Therefore, he had continued to sell the tickets, for the lower classes at Rs. 80/- and Rs. 50/-, whereas for the upper classes, he had reduced ticket prices because of the different GST tax rates in existence. (18% and 28%)
(iii) He had faced losses as a result of the introduction of GST w.e.f. July 2017. Before the introduction of GST on 1st July 2017, his ticket rate was Rs. 120/- inclusive of entertainment tax. He was unable to arrive at Rs. 120/-inclusive of GST as the price of his movie ticket since the bandwidth of pricing at any price between Rs. 118/(100+18%) and Rs. 129/- (101+28%) was made unavailable. Therefore, he was forced to sell the movie tickets at Rs. 2/- lesser than earlier, i.e. at Rs. 100+18%= Rs. 118/- resulting in substantial losses to him.
(iv) He had changed the pricing a few times during this period of last 6 Months depending upon-
a. Type of Movie (Starcast etc.)
b. Number of days, the movie ran.
c. If the movie was a hit or flop.
(v) State Government was forcing the Respondent to provide not to charge for the parking of vehicles by the cine-goers. This had a lot of effect on the viability of the business and added losses.
(vi) The Respondent explained in respect of the movie ticket slot of Rs. 80, that had he had charged the commensurately reduced base price of Rs. 67.80 and Rs. 8.14 (GST @ 12%) the ticket price would have been Rs. 75.94, which would have resulted in practical difficulties in payment for the cine-goers.
(vii) The Respondent after the issue having been pointed out by the Local GST office had changed the base prices from 11.03.2019. He had restructured the pricing for the First Class @Rs. 75.94, (basic price Rs. 67.80 plus GST @12% Rs. 8.14) and as the collection of Rs. 75.94 would not have been possible, he had started charging a price of Rs. 75 (basic price Rs. 66.97 plus GST @12% Rs. 8.03), compromising his profit. Similar was the case with Second Class ticket prices. Where he had to reduce the Base Price from Rs. 42.37 to Rs. 40.18.
6. The Respondent vide the aforementioned letters; submitted the following documents/information
(a) Invoice-wise details of all outward taxable supplies of the movie admission tickets impacted by GST rate reduction w.e.f. 01.01.2019, during the period 01.09.2018 to 30.06.2019.
(b) Price List of the aforesaid movie admission tickets, pre an post 01.01.2019.
(c) Sample copies of the invoice/tickets, pre and post 01.01.2019.
(d) GSTR-1 and GSTR-3B returns from December 2018 to June 2019.
(e) Ms. No. 100 Home (General A) Department, issued by the Government of A.P. dated 26.04.2013 concerning the rate of the admission ticket.
(f) Ms. No. 75 Home (General A) Department, dated 23.06.2017 issued by Government of A.P. concerning the price of the movie ticket.
7. The DGAP also stated that the respondent vide email dated 13.12.2019 claimed that “It is utmost important that tax matters have to be crystal clear, without any ambiguity and that is possible only when such issues are discussed amongst various concerned respectable Government Offices. Keeping in this mind, he feels, his communication with the Government of India, regarding Tax matters, may be shared for such purpose i.e. his communication may be treated as semi-confidential”.
8. The DGAP further reported that the reference received from the Standing Committee on Anti-profiteering, the various replies of the Respondent, and the documents/evidence on record had been examined in detail and the main issue was whether the rate of GST on “Services by way of admission to exhibition of cinematography films where price of admission ticket is above one hundred rupees” was reduced from 28% to 18% w.e.f. 01.01.2019 and “Services by way of admission exhibition of cinematograph films where price of admission ticket is one hundred rupees or less” was reduced from 18% to 12% w.e.f. 01.01.2019 and if so, whether the benefit of such reduction in the rates of GST was passed on by the Respondent to the recipients, in terms of Section 171 of the Central Goods and Services Tax Act, 2017.
9. The DGAP also observed that the Central Government, on the recommendation of the GST Council, reduced the GST rate on the “Services by way of admission to exhibition of cinematograph films where price of admission ticket is one hundred rupees or less” from 18% to 12% w.e.f. 27.07.2018, vide Notification No. 27/2018-Central Tax (Rate) dated 31.12.2018.. This was a matter of fact which had not been contested by the Respondent.
10. The DGAP reiterated that Section 171(1) of Central Goods and Services Tax Act, 2017 which governed the anti-profiteering provisions under GST stated that “Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.” Thus, the legal requirement was that in the event of a benefit of input tax credit or reduction in rate of tax, there must be a commensurate reduction in prices of the goods or services. Such reduction could obviously be only in terms of money, such that the final price payable by a consumer got reduced commensurate with the reduction in the tax rate. This was the legally prescribed mechanism for passing on the benefit of input tax credit or reduction in the rate of tax to the recipients under the GST regime and there was no other method that a supplier could adopt to pass on such benefits.
11. The DGAP also submitted that the Applicant No. 1, in his letter dated 03.04.2019 and the Annexure attached to APAF-I had furnished the details of prices being charged before 01.01.2019 and price charged from 01.01.2019 and had pointed out that the Respondent was selling tickets of different categories priced at Rs.100/- or less than Rs. 100/- (excluding Tax). However, DGAP had examined the monthly sale of tickets in each category and observed that in the month of March 2019 and May 2019, three different categories of tickets, i.e. other than the categories mentioned above were sold. Thus, in the month of March 2019 two different categories of tickets with base prices of Rs. 40.18 and Rs. 66.96 were also sold and in the month of May 2019 four different categories of tickets where the base price of tickets were Rs. 105.93, Rs. 40.18, Rs. 66.97 and Rs. 89.28 were sold. As these categories of tickets were not a part of the complaint made by Applicant No.1 nor the same were reflected in the sale of December 2018, the Respondent was asked to clarify the same and to submit the details of taxable supplies for the months of September, October, and November 2018. In response, the Respondent vide letter dated 05.12.2019 submitted the sale details for the months of September 2019 to November 2019. A perusal of the sale details showed that from the month of September 2017 to November 2017 the base prices of th tickets were Rs. 100/-, Rs. 67.80 & Rs. 42.37 only. Howeve , no clarification concerning the variation in prices during the month of March 2019 and May 2019 was submitted. The Respondent was once again sent a letter/email on 13.12.2019, requesting him to submit the reasons for the movie ticket prices in the month of March 2019 & May 2019. The Respondent vide email dated 13.12.2019 submitted that the ticket rate changes in March and May, in his case, should not attract any anti-profiteering penalties, as he had not profiteered. As the comparable data/rates of new categories during the months of March 2019 or May 2019 were not available during the last 4 months before the rate reduction, the profiteering for these categories had not been worked out. Hence the investigation was limited to the consequences of the reduction in the rate of GST from 18% to 12% only and for only three categories mentioned by Applicant No.1.
12. The DGAP also reported that the Respondent’s contention that he did not fall in the category of beneficiaries due to input credit accrual, had not impacted the investigation as the same had neither been alleged by Applicant No.1 nor was part of the investigation report, therefore needed no clarification. Further, the Respondent had also contended that in terms of the State Governments’ Cinematography Act his prices were regulated by the Licensing Authority, he had to purchase copyright at a higher rate and received the product from his vendors at higher rates. However, on perusal of the G.O. of the State Government, it was observed that the Licensing Authority Order prescribed the minimum and maximum rates (inclusive of tax) which could be charged from the recipients and had not prohibited or restricted the commensurate reduction in prices of tickets in the event of GST rate reduction. Further, this investigation had not looked into the aspect of costing or market conditions but was restricted to the aspect of benefit to be passed on in terms of Section 171 of CGST.
13. The DGAP, on examination of the details of sales data, observed that there were three categories of admission tickets i.e. Rs. 50/-, Rs. 80/- and Rs. 118/- (inclusive of tax) sold by the Respondent during the pre-rate reduction period. In the post rate reduction period effective from 01.01.2019 the final prices of the admission tickets (inclusive of tax) in the case of the first two categories, i.e. Rs. 50/-and Rs. 80/- were kept unchanged by the Respondent despite the rate reduction. However, the price of the admission tickets (inclusive of tax) of the third category was reduced from Rs. 118/- to Rs. 112/-.
14. The DGAP also reported that from the sales data made available, it was evident that The Respondent had increased the base prices of the admission tickets when the GST rate was reduced from 18% to 12% w.e.f. 01.01.2019 in the manner illustrated in Table-A below.
Table-A
