Shri M. Srinivas Vs Vijetha Supermarkets Pvt. Ltd. (National Anti-Profiteering Authority)
The Applicant had alleged that the Respondent had not reduced the selling price of the “Frozen Green Peas”, when the GST rate was reduced from 5 % to Nil w.e.f. 01.01.2019 with denial of Input Tax Credit, vide Notification No. 25/2018-Central Tax (Rate) dated 31.12.2018.
Held by AAR
Respondent has increased the base prices of the goods in question when the rate of GST was reduced from 5% to Nil. On account of the reduction in the GST rate w.e.f. 01.01.2019, the input tax credit reversed on the closing stock held as on 31.12.2018 by the Respondent would have become cost to the Respondent as he would not have got any input tax credit once the rate of GST on the “Frozen Green Peas” and “Frozen Sweet Corn” was reduced from 5% to Nil. As his input was also his final output he would not have to pay any GST on the supply of the impacted products. The Respondent has admitted before the DGAP that he had not reversed any Input Tax Credit till date in relation to the closing stock held by him of the impacted products as on 31.12,2018, therefore, the benefit of denial of Input Tax credit which would have become cost to the Respondent w.e.f. 01.01.2019 has rightly not been given by the DGAP to the Respondent as there was no reversal of the input tax credit on the closing stock of inputs/input services and capital goods as on 31.12.2018 made by the Respondent as per the provisions of Section 17 of the Central Goods and Services Tax Act, 2017 read with Rule 42 and 43 of the Rules.
28. The Respondent has also claimed that he had increased his base prices due to the reason that the suppliers of the both the above products had also increased their prices exactly equal to the tax He has also submitted the details of his suppliers and the tax invoices issued by them. In this connection it would be pertinent to mention that the Respondent has maintained the same base prices after the rate reduction which he was charging before tax reduction, w.e.f. 01.01.2017 i.e. the very day from which the tax reduction was made effective. Hence, the increase made in the base prices exactly equal to the amount of tax reduction is deliberate and has been made with the sole intention of pocketing the benefit of tax reduction. The Respondent cannot deny the benefit of tax reduction on the above ground as any increase in the prices made by the suppliers of the Respondent on the eve of tax reduction amounts to violation of the provisions of Section 171 by his suppliers also. Therefore, the above contention of the Respondent is frivolous and cannot be accepted.
29. It has also been observed that the Respondent vide his letter dated 02.2020 has accepted the Report of the DGAP and furnished the Demand Drafts to this Authority on account of the profiteered amount and 18% interest thereon, which were returned to him vide letter dated 11.02.2020 for depositing the above amount in the Central and State Consumer Welfare Funds of Andhra Pradesh and Telangana. However, no confirmation of the deposit of the profiteered amount has been received from the Respondent.
Based on the above facts the profiteering amount is determined as 2,33,515/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017 as per Annexure-12 of the Report. The Respondent is therefore directed to reduce the prices of the above 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. 2,33,515/- along with the interest to be calculated at 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 profiteering of Rs. 2,33,515/- as per Table-B, mentioned above and Annexure-12 of the DGAP’s Report dated 23.12.2019, in terms of Rule 133 (3) (c) of the CGST Rules, 2017, along with 18% interest in the Central and the State Consumer Welfare Funds of State of Andhra Pradesh and Telangana. The above amount shall be deposited within a period of 3 months from the date of this order failing which the same shall be recovered by the concerned Commissioner CGST/SGST as per the provisions of the CGST/SGST Act, 2017.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. The present Report dated 23.12.2019, has been received from the Applicant No. 2 i.e. the Director General of Anti-Profiteering (DGAP) after a detailed investigation under Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the case are that the Applicant No. 1 had filed an application alleging profiteering by the Respondent in respect of the product “Frozen Green Peas” supplied by him. The Applicant had alleged that the Respondent had not reduced the selling price of the “Frozen Green Peas”, when the GST rate was reduced from 5 % to Nil w.e.f. 01.01.2019 with denial of Input Tax Credit, vide Notification No. 25/2018-Central Tax (Rate) dated 31.12.2018.
2. The DGAP has stated in his Report that the above application was examined by the Standing Committee on Anti-profiteering in its meeting held on 15.05.2019, whereby it was decided to refer the same to the DGAP to conduct a detailed investigation in the matter in terms of Rule 129 (1) of the CGST Rules, 2017.
3. The DGAP has also stated that on receipt of the aforesaid reference from the Standing Committee on Anti-profiteering on 28.06.2019, a notice under Rule 129 (3) of the CGST Rules, 2017 was issued by him on 11.07.2019, 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. 01.01.2019 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 documents in support of his reply. Vide the above said notice dated 11.07.2019, the Respondent was also afforded an opportunity to inspect the non-confidential evidence/information which formed the basis of the said notice, during the period from 18.07.2019 to 22.07.2019 however, the Respondent did not avail of the said opportunity.
4. The DGAP has further stated that in response to the above notice, the Respondent did not submit the requisite documents on the due date. Hence reminders were issued to him. The Respondent did not submit complete documents even after several letters, therefore, Summons under Section 70 of CGST Act, 2017 read with Rule 132 of the above Rules, were issued to Sh. R. Satish, Managing Director of the Respondent to appear in the DGAP’s office on 11.11.2019 and to submit the requisite documents/information. In compliance to the Summons, Sh. R. Satish did not appear in the DGAP’s office on 11.11.2019 and neither submitted any documents/information.
5. The DGAP has also submitted that Summons under Section 70 of CGST Act, 2017 read with Rule 132 of the above Rules, were again issued to Sh. R. Satish to appear in the DGAP’s office on 20.11.2019 and to submit the requisite documents/information. In compliance to the second Summons, Sh. R. Satish again did not appear in the DGAP’s office on 20.11.2019 but vide e-mail dated 19.11.2019 requested for another date.
6. The DGAP has further submitted that third Summons under Section 70 of CGST Act, 2017 read with Rule 132 of the above Rules, were issued to Sh. R. Satish to appear in the DGAP’s office on 02.12.2019 and to submit the requisite documents/information. In compliance to the third Summons, the authorised representative of the Respondent namely Smt. Geetha Srinivasan appeared in the office of the DGAP on 02.12.2019 and submitted certain details vide letter dated 02.12.2019 and requested for another 2 days time to submit the pending details. The Respondent had submitted the required pending details vide e-mail dated 04.12.2019.
7. The DGAP has covered the period from 01.01.2019 to 30.06.2019 during the current investigation. The DGAP has also stated that an opportunity was afforded to the Applicant No. 1 for inspection of non-confidential documents submitted by the Respondent on any working day between 05.12.2019 and 06.12.2019 vide e-mail dated 04.12.2019 however, the above Applicant did not avail of the said opportunity.
8. The DGAP has further stated that in response to the notice dat d 12.07.2019 and various letters and Summons, the Respondent had replied vide letters/e-mails dated 24.07.2019, 22.08.2019, 19.09.2019, 01.10.2019, 19.11.2019, 02.12.2019, 04.12.2019 and submitted the following documents/information:-
a) List of all GSTIN registrations.
b) GSTR-1 & GSTR-3B Returns for the period from September, 2018 to June, 2019 for all the GST registrations in India.
c) Details of invoice-wise outward taxable supplies for the impacted products during the period from September, 2018 to June, 2019.
d) Sample copies of invoices, pre and post 01.01.2019.
e) Total outward sales summary for the period from September, 2018 to June, 2019.
f) Price list of the impacted products.
g) Purchase registers in respect of the impacted products,
h) Details of closing stock of all the impacted products as on 12.2018.
9. The DGAP has also claimed that the Respondent in his submissions/replies has stated that he had not made any reversal of the ITC till date, in relation to the closing stock of the impacted products as on 31.12.2018. He had also stated that his suppliers had increased the taxable amount by 5% to cover the impact of GST rate reduction from 5% to Nil on the impacted products.
10. The DGAP has further claimed that the complaint, various replies of the Respondent and the documents/evidence on record has been carefully examined by him and he has found that the main issues for determination were whether the rate of GST on the products supplied by the Respondent was reduced w.e.f. 01.01.2019 and if so, whether the Respondent had passed on the benefit of such reduction in the GST rate to his recipients, in terms of Section 171 of the CGST Act, 2017.
11. The DGAP has also contended that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on the “Frozen Green Peas” and “Frozen Sweet Corn” falling under the HSN 071021000 and 07104000, from 5% to Nil with the denial of ITC w.e.f. 01.01.2019, vide Notification No. 25/2018-Central Tax (Rate) dated 31.12.2018 .
12. The DGAP has further contended that it was important to examine Section 171 of the CGST Act, 2017 which governed the anti-profiteering provisions under the GST. Section 171(1) of the CGST Act, 2017 reads as “any reduction in rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in prices.” Thus, the legal requirement was abundantly clear that in the event of benefit of ITC or reduction in the rate of tax, 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 input tax credit. This was legally prescribed mechanism to pass on the benefit of ITC or reduction in the rate of tax to the recipients under the GST regime.
13. The DGAP has also averred that on account of the reduction in the GST rate from 5% to Nil w.e.f. 01.01.2019, the ITC reversed on the closing stock held on 31.12.2018 would become cost to the Respondent as the Respondent would not get any ITC once rate of GST on “Frozen Green Peas” and “Frozen Sweet Corn” was reduced from 5% to Nil. Further, the Respondent’s input was also his final product or output. Hence, the Respondent would not have to pay any GST on the supply of the said impacted products. Since it was submitted by the Respondent that he had not made any reversal of ITC till date, in relation to the closing stock held by him as on 31.12.2018, therefore, the benefit of denial of ITC which became cost for the Respondent w.e.f. 01.01.2019 might not be given while arriving at the amount of profiteering. This had been done because there was no reversal of ITC on the closing stock of inputs/input services and capital goods as on 31.12.2018 by the Respondent which was required under the provisions of Section 17 of the CGST Act, 2017 read with Rule 42 and 43 of the CGST Rules, 2017.
14. The DGAP has further averred that the methodology adopted for determining the amount of profiteering could be explained by illustrating the calculation in respect of specific item i.e. “Frozen Kings Green Peas 500 gm” sold during the month of December, 2018 (pre-GST rate reduction) an average base price (after discount) of which was obtained by dividing the total taxable value by the total quantity sold during the period from 01.12.2018 to 31.12.2018. The average base price of this item was compared with the actual selling price of same item sold through the said channel during post-GST rate reduction period i.e. on or after 01.01.2019 as has been illustrated in the Table-A below:-
Table-‘A’
(Amount in Rupees)
