2018 (9) TMI 1640 – NATIONAL ANTI-PROFITEERING AUTHORITY – 2018 (19) G. S. T. L. 92 (N. A. P. A.) – Profiteering – contravention of the provisions of Section 171 of the CGST Act, 2017 – Benefit of reduction in the rate of tax by lowering the price of “Maybelline FIT Me foundation” not passed on to recipients – reduction in the rate of GST – N/N. 41/2017 -Central Tax (Rate) dated 14.11.2017 – Sale of goods by increasing the basis price of goods – also, the complaint mentioned at Sr. No. 1 did not contain the copy of the complaint and only a photocopy of the invoice was sent by the DGAP – Respondent has also claimed that the Authority had not prescribed the methodology under Rule 126 of the CGST Rules, 2017 for determining whether the benefit of tax reduction had been passed on or not and hence he could not be held liable for profiteering.
–
Held that:- The Respondent had enhanced the basic price of both the shades of the product which was exactly equal to the amount by which the GS
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
GST Act, 2017 also provides for imposition of interest under the Act and therefore, the same can be levied in the present proceedings. The Respondent cannot claim that since the amount of profiteering was miniscule no penalty should be imposed as each breach of the law has to be visited penalty.
–
The Respondent is directed to reduce the price of both the shades of the product to ₹ 410/- and ₹ 449/- respectively excluding GST. He is also directed to refund an amount of ₹ 41/- along with interest @ 18% to the Applicant No. 1 from the date when this amount was realised by him from her till the date of refund – Since rest of the recipients are not identifiable the DGAP is directed to get the balance amount of profiteering of ₹ 15,820/- deposited in the Consumer Welfare Fund of the Central and the Concerned State Govt. as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017 along with interest @ 18% till the amount is paid.
–
As regards complaint
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
d hence this averment of the Respondent is also not correct.
–
Presence of methodology under Rule 126 of the CGST Rules, 2017 for determining whether the benefit of tax reduction had been passed on or not – Held that:- The present proceedings are nowhere connected with looking in to the process of fixation of prices or margins of profit by the Respondent and they are limited only to the extent of finding out whether the benefit of tax reduction has been passed on by the Respondent to his customers or not. This Authority is only concerned with passing on of the commensurate benefit as is arrived at after calculation of the impact of rate reduction on the MRP of a product. There is further no restriction on the right of the Respondent to conduct trade as per Article 19 (1) (g) of the Constitution as Section 171 only requires him to pass on the above two benefits and does not require him to get any licence or seek approval to conduct trade or fix prices of the products being sold by h
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
arsh Bhargava, Advocate, Sh. Tarun Gulati, Advocate and Ms. Jayashree Parthasarathy, Consultant for the Respondent. ORDER 1. This report dated 02.04.2018 has been received from the Applicant No. 2 i.e. Director General of Safeguards (DGSG), now re-designated as Director General of Anti-Profiteering (DGAP) under Rule 129 (6) of the Central Goods & Services Tax (CGST) Rules, 2017. The brief facts of the present case are that an application dated 23.11.2017 was filed by the Applicant No. 1 before the Standing Committee constituted under Rule 128 of the above Rules alleging that the Respondent had not passed on the benefit of reduction in the rate of tax by lowering the price of Maybelline FIT Me foundation , (here-in-after referred to as the product) which she had purchased from him, when the Goods and Services Tax (GST) was reduced from 28% to 18% on this product on 15.11.2017. She had also alleged that she had bought the above product from the Respondent @ ₹ 525/- per unit vid
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
his communications dated 12.01.2018, 24.01.2018, 09.02.2018, 28.02.2018 and 12.03.2018. After examination of the replies submitted by the Respondent the DGAP has informed that the Respondent had contended that the label on the product showed Maximum Retail Price (MRP) of ₹ 550/- and the sale price of the product in the retail sale invoice was shown as ₹ 525/- and that he was not in a position to correlate the invoice with the MRP label as only a part of the MRP label was made available along with the application. The DGAP has further informed that the Respondent had also contended that it was evident that the MRP label of the product provided by the applicant was from the pre-GST stock which was imported in March, 2017 and hence, it did not factor the GST in it s price. The Respondent had also stated that in respect of the external brands he was dependent on the respective brand owner and the MRP and the retail selling price should have been revised by the brand owners. 5.
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
the MRP of the product was ₹ 550/- which was revised to ₹ 575/- post 20.06.2017 and the RSP of the product was decided by the Respondent within the MRP which was printed on the back of the product. 7. The DGAP has further stated that the Respondent had sold 46 units of the product carrying MRP of ₹ 550/- during the period between 01.11.2017 to 14.11.2017 wherein the basic price per unit excluding GST of the product was ₹ 410/- per unit and the RSP charged inclusive of 28% GST was ₹ 525/- per unit. The product was bought by the Applicant No. 1 from the Respondent on 22.11.2017 vide tax invoice No 1230010554 for ₹ 525/-, in which the basic price per unit was increased from ₹ 410/- to ₹ 445/- as a result of which the RSP charged inclusive of 18% GST came out to be ₹ 525/- which was equal to the RSP which was being charged by the Respondent before the rate of tax was reduced w.e.f. 15.11.2017. The DGAP has also maintained that if the r
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
units of another shade of the product which were having MRP of ₹ 575/- per unit between 01.11.2017 to 14.11.2017, in which the basic price per unit was increased from ₹ 449/- to ₹ 487/- and as a result of which the retail selling price charged Inclusive of 18% GST had remained unchanged at ₹ 575/-. He has also claimed that if the reduction in the GST rate from 28% to 18% had been taken into consideration the RSP charged inclusive of 18% GST would have been maximum of ₹ 530/- and therefore it was evident that profiteering of ₹ 45/- per unit (Rs. 575 – ₹ 530) and profiteering of ₹ 14,985/- on total 333 units (Rs.45×333=14,985) supplied during the period between 15.11.2017 to 31.01.2018 has been made and in the case of 13 units the RSP of which was ₹ 535/-, profiteering of Rs .5/- per unit (Rs.535 – ₹ 530) and profiteering of ₹ 65/- on total 13 units (Rs.535 – ₹ 530)x13=Rs.65) has been made during the period between
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
filed his first written submissions on 03.05.2018 in which he has stated that the minutes of the meeting of the Standing Committee held on 29.11.2017 showed that there were two complaints filed by the Applicant No. 1. He has also submitted that it was recorded by the Standing Committee that the complaint mentioned at Serial No. 1 of the Annexure attached to the minutes had only tax invoice attached with it and hence the complaint was returned on the ground that not enough information was provided by the complainant to initiate action and therefore, she was free to make fresh complaint with adequate evidence. The Respondent has also submitted that against Serial No. 30 of the above Annexure, the Committee had recorded that the Respondent was not passing on the benefit of reduced GST from 28% to 18% and forwarded the complaint to the DGSG for necessary action. He has also claimed that Annexure-1 which had been referred to as the application by the complainant had been provided to the Re
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
e has also claimed that since no guidelines had been framed as prescribed under Rule 126 thus a registered person could not be held being non-compliant. He has further stated that in the absence of any prescribed methodology, a methodology which was reasonable and consistent with the objectives of the statutory provisions deserved to be accepted and since the Respondent had adopted a methodology that was reasonable and consistent with the objectives, the entire proceedings needed to be dropped. He has also stated that under Section 171 (2) of the CGST Act, 2017, it was required to determine whether the reduction in tax rate had actually resulted in commensurate reduction in the prices but there was no prescription either under the Act or the Rules which required that the benefit had to be passed on in respect of each product separately. He has further stated that the pricing of the products was a complex exercise and they were usually not priced individually and in isolation at the uni
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
the change in the rate / GST benefit accruing to a registered person as a whole where the registered person was engaged in supply of different goods / services and an individual product or service could not be isolated to determine compliance with the above provisions. He has further contended that the alleged benefits arising on an individual product could not be seen in isolation and the same were to be considered in terms of the regime introduced, the overall costs of GST implementation, other businesses carried out by the dealer and upon factoring in of various costs/ losses incurred at an entity level on his range of products. He has also alleged that neither the constitutional provisions nor the CGST Act empowered the Authority to get into the realm of price fixation at an individual product level and there was no intention to move away from free market price principles to an administered price mechanism. 12. The Respondent has also claimed that he had requested for a copy of the
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
s. He has also claimed that he had sold the pre-GST and post-GST stock of the product at the average per unit price of ₹ 483/- and ₹ 523/- respectively which was lower than the price of ₹ 484/- and ₹ 530/- calculated by the DGAP and hence he had not profiteered. He has further claimed that he being a retailer operated on the basis of net realization as the MRP on all the external brands was fixed by the brand owner and he was entitled to margin which was derived by working back from the MRP, net of retail point taxes. He has also stated that his net realization, pre-GST was determined on the basis of VAT @ 14.5% which was factored in the MRP however, after the levy of GST his net realization had been adversely impacted. He has further stated that he was earning margin of ₹ 143/- on the product before coming in to force of the GST which was reduced to ₹ 95/- and ₹ 130/- after the imposition of GST @ 28% and 18% respectively and infact he was suf
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
P had completely ignored the actual cost of goods and the net margin earned by the Respondent prior to the introduction of GST which alone could determine the so called base price. He has further claimed that as the Respondent was holding substantial pre-GST stock, it was necessary to compare the net margin earned by him prior to the introduction of GST and on the sales made after the reduction in the GST rate. He has also alleged that the Report did not take cognizance of the fact that the Respondent was incurring increased expenses as there was overall increase in the various operational costs by 16% in the FY 2017-18 as compared to the FY 2016-17 which had not been taken into account in arriving at the ideal price of the product. The Respondent has further submitted that in Para 14 it had been mentioned that the MRP of the product was ₹ 550/-, which was revised to ₹ 575/- post 20.06.2017 and the Respondent had no control on the revision of the MRP of the external brands
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
#8377; 550/- during the period between 01.11.2017 to 14.11.2017 wherein the basic price per unit excluding GST was ₹ 410/- and the retail selling price charged inclusive of 28% GST was ₹ 525/- and therefore, the ideal price should have been ₹ 410/- + 18% GST i.e. ₹ 410/- +Rs. 74 =Rs. 484/-, however, the DGAP had ignored the sales made below ₹ 484/- arbitrarily but assessed profiteering of ₹ 811/- on the 24 units sold by the Respondent above the RSP of ₹ 484/-. He has also submitted that the methodology adopted by the DGAP was incorrect as he had ignored the relevant facts and made unwarranted presumptions as the MRP as well as the sale price was not ₹ 550/- but it was only ₹ 525/- as was evident from the Annexure-16 as submitted by him. He has further submitted that the calculation of an assumed base price by reducing 28% tax was incorrect and instead the actual cost of the product and the margin he was making prior to the introduct
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ded that the total no. of units of the product sold were 797 on which a total discount of 11.66% of the MRP which was more than what was required to be passed on as a result of reduction in rate of tax had been offered, however, from the details of outward taxable supplies submitted by him it had been observed by the DGAP that the total number of units sold during the period between 15.11.2017 to 31.01,2018 was 2604 out of which the Respondent had sold 370 units by increasing the basic price excluding GST. In reply to Para 17 the Respondent has claimed that he had only submitted details of sales of the specific shade of the product which was the subject matter of the complaint however, the DGAP had also taken details of other shades of the product into account which had resulted in the difference in the number of the units. The Respondent has further claimed that the notification prescribing rate change with effect from 15th November 2017 was published on the same date and a reasonable
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
Behari Lal & Ors. v. State of H.P. 2000 (3) SCC 40 it was held that the legislature could not create any substantive rights or obligations or disabilities through general rule making powers unless the same was specifically contemplated by the provisions of the Act under which such powers were exercised. He has further argued that in the case of Petroleum and Natural Gas Regulatory Board v. Indraprastha Gas Limited & Ors. (2015) 9 SCC 209 it had been held that if on reading of the statute in entirety, a power did not flow, a delegated authority could not frame a regulation as that would not be in accord with the statutory provisions nor would it be for the purpose of carrying on the provisions of the Act. He has also claimed that the Report did not recommend imposition of any penalty and interest and hence the same could not be imposed. 15. Clarification was sought from the Standing Committee on the issues raised by the Respondent in respect of the two complaints made by the Ap
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
label, bill and gist of the complaint alleging that she had bought one unit of the product from the Respondent for ₹ 525/-, the MRP of which was ₹ 550/- and the Respondent had not passed on the benefit of reduction of GST from 28% to 18% to her. The Committee has informed that since the complaint had all the details and it prima-facie appeared to be genuine it was forwarded to the DGAP for investigation. 16. Vide it s reply dated 19.06.2018 the DGAP has intimated that Form APAF-1 had not been prescribed when the complaint was filed by the above Applicant and hence there was no question of filing the complaint on this form. He has also informed that copy of the complaint dated 23.11.2017 was received by Sh. Sayan Bandhopadhyay on behalf of the Respondent on 06.01.2018 and a receipt was also issued by him which has been placed on record. 17. We have carefully considered the material placed before us as well as the submissions made by the Applicant No. 2 and the Respondent an
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
to realise RSP of ₹ 525/- per unit which he was charging before 15.11.2017. Had the Respondent not increased the basic price of ₹ 410/- per unit; the RSP of the product would have been ₹ 484/- per unit including GST of 18%. There was no reason for the Respondent to increase the basic price exactly equal to the amount by which the rate of tax had been reduced. This change in the basic price was also done by him w.e.f. 15.11.2017 the day from which the rate of tax was reduced. Therefore, there is no doubt that the whole exercise of increasing the basic price was done by the Respondent with malafide intention of not passing on the benefit of tax reduction to his customers. Although the Respondent was selling the product of a foreign brand owner the MRP of which he could not have decided still he was legally bound to pass on the benefit of tax reduction to his local customers as he had claimed benefit of ITC. Any discount offered by the Respondent on the product can also
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
the period between 01.11.2017 to 14.11.2017, wherein the basic price per unit excluding GST of the product was ₹ 449/- and the RSP charged inclusive of 28% GST was ₹ 575/-. After the reduction in the GST rate from 28% to 18% w.e.f. 15.11.2017 and taking into consideration the basic price per unit excluding GST the ideal RSP inclusive of 18% GST would have been ₹ 530/- per unit. Although there was a reduction in the GST rate from 28% to 18%, the basic price per unit excluding GST was increased by the Respondent from ₹ 449/- to ₹ 487/- per unit so that the RSP inclusive of 18% GST had remained unchanged at ₹ 575/- per unit, resulting in profiteering of ₹ 45/- per unit (Rs. 575 (-) ₹ 530). During the period between 15.11.2017 and 31.01.2018, the Respondent had sold 333 units of this shade of the product at the RSP inclusive of 18% GST @ ₹ 575/-, involving profiteering of ₹ 14,985/- (Rs. 45 x 333). The Respondent had also sold 13
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
tioned at Sr. No. 30 of the minutes there was a written application with full name, email address, product label, invoice and gist of the allegation and hence this complaint was rightly considered by the Committee and sent to the DGAP for investigation. A copy of this complaint was also supplied to Sh. Sayan Bandhopadhyay representative of the Respondent on 06.01.2018 as is clear from the receipt issued by him and hence the allegation made by the Respondent that he was not supplied copy of the complaint on the basis of which the present proceedings had been launched is not correct. It is also apparent from the reply filed by the DGAP on 19.06.2018 that no APAF-1 form had been prescribed when the above Applicant had lodged her complaint on 23.11.2017 and hence there was no question of filing the complaint in the above Form and hence this averment of the Respondent is also not correct. 20. The Respondent has also claimed that the Authority had not prescribed the methodology under Rule 12
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
any reduction in the rate of tax or the benefit of ITC has to be passed on to the recipient which means that every citizen who is a recipient of supply of goods or services has to get the benefit and hence this benefit has to be calculated on each and every product. The Respondent has no discretion to provide benefit on certain class of products and deny the same in respect of the other products. Denial of benefit as per the convenience of the Respondent is not permissible as it is hit by the provisions of the above Section and hence he cannot argue that the benefit was not required to be passed on all the products as a consumer may buy a particular product and may not buy another. His claim that fixation of price of a product was a complex exercise and the Authority was travelling in to the realm of price and profit fixation is completely wrong and untenable as the Authority is only concerned with the passing of the above two benefits and it has no mandate to be a price regulator. Th
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ass on this benefit to his customers and by no stretch of imagination he can pocket this reduction to the detriment of the ordinary consumer. 21. The Respondent has also claimed that he was not supplied copy of the complaint and was also not heard by the DGAP however, both these claims are not borne out from the facts of the present proceedings and hence they cannot be accepted as the Respondent has been provided copy of the complaint and the DGAP has afforded him due opportunity of defending himself and hence the principle of audi alteram partum has not been violated. The Respondent has also objected to the pan India investigation against him. The objection raised by the Respondent in this behalf is frivolous as all violations of Section 171 whether done locally or on all India basis can be looked in to by the DGAP and adjudicated upon by this Authority and the Respondent cannot be given liberty to decide which areas he should pass on the benefit and which areas he should not. Once in
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ent is not logical as he cannot be allowed to top up his margins from the amount of tax reduction which he is legally required to pass on to his customers. The Respondent has also claimed that his costs had increased by 16% during the year 2017-18 as compared to the year 2016-17 which had not been taken in to account by the DGAP. However, the Respondent had not increased his prices by 16% but has increased them exactly equal to the amount by which the tax had been reduced and that also on 15.11.2017 when the rate of tax was reduced from 28% to 18% and hence the claim made by the Respondent is hollow. The contention of the Respondent that he had sold the product below the ideal price calculated by the DGAP and had thus passed on the benefit can also not be accepted as the benefit was to be passed on to each and every customer and not a few chosen buyers. The Respondent has further claimed that the benefit could not be passed on immediately as reasonable time was required for doing so an
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ch is an offence under Section 122 (1) (i) of the CGST Act, 2017 and hence he is liable for imposition of penalty under the above Section. Rule 133 (3) (d) of the CGST Rules, 2017 also makes it clear that the penalty has to be imposed as per the provisions of the Act and since it is proposed to impose penalty under the Act there is no question of creating substantive liability under the Rules as there is specific sanction under the above Act to impose penalty. Similarly the CGST Act, 2017 also provides for imposition of interest under the Act and therefore, the same can be levied in the present proceedings. The Respondent cannot claim that since the amount of profiteering was miniscule no penalty should be imposed as each breach of the law has to be visited penalty. The law settled in the case of Kunj Behari Lal supra is of no help to the Respondent as there is specific provision of penalty under Section 122 of the CGST Act, 2017 which the Respondent has violated and hence this Authori
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
nt ordered to be refunded or to be deposited shall be refunded or deposited within a period of 3 months by the Respondent from the date of receipt of this order failing which the same shall be recovered by the DGAP as per the provisions of the CGST Act, 2017 and shall be refunded or deposited as has been directed vide this order. Notice may also be issued to the Respondent to show cause as to why penalty as per the provisions of Section 122 of the CGST Act, 2017 read with Rule 133 (3) (d) of the CGST Rules, should not be imposed upon him. 24. The Respondent has himself admitted in para 27 of his submissions dated 18.05.2018 that an amount of ₹ 1,98,46,438/- might not have been passed on to the individual buyers by him, therefore, the DGAP is directed to investigate the claim made by the Respondent in this Para and submit Report to the Authority under Rule 129 (6) of the above Rules. 25. A copy of this order be sent to both the Applicants and the Respondent free of cost. File of t
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =