2018 (12) TMI 473 – NATIONAL ANTI-PROFITEERING AUTHORITY – TMI – Profiteering – benefit of tax reduction not passed on to the recipients – Nestle Munch Nuts 32 Gm. Chocolate – Cadbury Dairy Milk Chocolate – contravention of Section 171 of CGST Act, 2017 – Held that:- It is clear that the Respondent had increased the base price by ₹ 1.56 per unit in respect of the Nestle Munch Nuts 32 Gm. Chocolate and ₹ 3.13 for the Cadbury Dairy Milk Chocolate and hence the MRP charged on both the products had remained ₹ 20/- and ₹ 40/- per unit respectively before and after the reduction in the rate of tax. Therefore, it is established that the Respondent had in fact increased the base prices of these Chocolates and sold them at the same MRPs which he was charging before the reduction in the rate of tax instead of reducing the same and had hence not passed on the benefit of such reduction to the Applicant.
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The Respondent has vehemently argued that he had no control on t
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ustomers to pay additional GST on the increased base prices otherwise the customers should have got further benefit of reduced base prices.
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The Respondent has also argued that M/S CTC and M/S NE had not given him discounts for passing on the benefit of tax reduction. However, perusal of the tax invoices issued by both the above Distributors shows that they had given him discounts to pass on the benefit of tax reduction with specific endorsements that he was required to pass on the benefit of reduced rate of GST.
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It stands concluded that the Respondent has indulged in profiteering in violation of the provisions of Section 171 of the CGST Act, 2017 and has not passed on the benefit of reduction of tax as per the Notification dated 14.11.2017 – Accordingly, the Respondent is directed to reduce the sale prices of the above products immediately commensurate to the reduction in the rate of tax as was notified on 14.11.2017 and pass on the benefit of reduction in the rate of the t
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nvestigation under Rule 129 (6) of the Central Goods & Services Tax (CGST) Rules, 2017. The brief facts of the case are that vide his application dated 29.11.2017 the Applicant No. 1 had complained to the Standing Committee, constituted under Rule 123 (1) of the above Rules alleging that although the GST rate applicable on the Chocolates had been reduced from 28% to 18% w.e.f. 15.11.2017, the Respondent had not reduced the prices of 2 products viz. the Nestle Munch Nuts 32 Gm. Chocolate and the Cadbury Dairy Milk Chocolate (here-in-after referred to as the products) and had thus not passed on the benefit of such rate reduction to him. He had also submitted the pre rate reduction invoice No. 299238 dated 10.11.2017 and the post rate reduction invoice No. 311392 dated 16.11.2017 which showed that both the above products were sold by the Respondent @ ₹ 20/- per piece and ₹ 40/- per piece respectively before and after the rate of tax was reduced on them. Thus it had been al
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s and he had not made any additional profit after the reduction in the GST rate. He had also replied that since their base prices had been increased by their Distributors he had increased the base prices keeping his profit margin same @ 11.5% and 12% respectively and sold the above products at the original Maximum Retail Prices (MRPs) as there was no change in the MRPs. He had further informed that the price of Nestle Munch 32 Gm. Chocolate being charged from him before 15.11.2017 was ₹ 14.01 per piece which was increased to ₹ 15.20 per piece by it's Distributor after 15.11.2017 and it was sold by him at the base price of ₹ 16.95 per piece keeping the same profit margin of 11.50%. He had also submitted that the price of Cadbury Dairy Milk Chocolate was ₹ 27.90 per piece before 15.11.2017 which was enhanced to ₹ 30.27 per piece by it's Distributor after 15.11.2017, which was sold at ₹ 33.90 per piece by him after maintaining the same profit ma
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long with copies of GSTR-I from November, 2017 to February, 2018 but did not provide the details of the invoice-wise outward supplies. The DGAP after examining the facts of the case has reported that vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017 the o rate of tax on Chocolates was reduced from 28% to 18% w.e.f. from 15.11.2017. The Report also mentioned that from the sale invoices of the Distributor of Cadbury Chocolates viz. M/s. Chandna Trading Company (here-in-after referred to as M/S CTC) for the period from November 2017 to March 2018 it was revealed that he had given discount to the Respondent on the base price categorically mentioning that the Anti- Profiteering provisions under GST Act require that you pass on the benefits of GST rate reduction given to you; to the consumers . Similarly the Distributor of Nestle Chocolates viz. M/S Navin Enterprises (here-in-after referred to as M/S NE) had also sold Nestle Munch Nuts 32 Gm. bars through it's various sal
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y increasing it's base price from ₹ 15.63 to ₹ 16.95 due to which the MRP had remained ₹ 20/- per bar which he was charging before the tax reduction. The DGAP has also stated that the Respondent should have charged ₹ 18.44 for the above product by realising base price of ₹ 15.63 and GST of 18% whereas he had raised the base price to ₹ 16.95 and hence the MRP had remained same @ ₹ 20/- even after the rate of tax was reduced to 18%. The DGAP has also claimed that similarly 85 units of Cadbury Milk Chocolate were sold post 15.11.2017 at MRP of ₹ 40/- per bar inspite of reduction in the GST rate from 28% to 18% by raising their base price from ₹ 31.25 to ₹ 33.90 although the Respondent should have ideally charged ₹ 36.87 per unit. The Applicant No. 1 had bought one unit of this product at this increased price vide invoice dated 16.11.2017 at the same MRP of ₹ 40/- which he had paid on 10.11.2017. Thus the report su
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e Applicant No. 1 vide invoice date 16.11.2017 while selling two units of the above products to him. Product MRP (Rs.) Before 14.11.2017 (Rs.) 15.11.2017 to 31.03.2018 (Rs.) Profiteering per unit (Rs.) Total profiteering in Rs. Amount charged Base price GST GST rate Amount charged Base price GST GST rate Unit sold Nestle Munch Nuts 32 Gm. 20 20 15.63 28 20 16.95 18 910 1.56 1416 Cadbury Dairy Milk Chocolate 40 20 31.25 28 40 33.90 18 4646 3.13 14542 Total Profiteering 15,958 5. The above Report was considered by the Authority in it's sitting held on 05.07.2018 and it was decided to hear the interested parties on 25.07.2018. Ms. Monika Goel, Advocate appeared on behalf of the Respondent however, the Applicant No. 1 did not appear. The Applicant No. 2 was represented by Sh. Bhupender Goyal, Assistant Director (Costs). The Respondent vide his written pleadings submitted on 25.07.2018 has stated that the complaint against him of not passing on the benefit of reduction in the GST rate t
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us keeping this margin same at 11.5%. He had further stated that the cost of Cadbury Dairy Milk Chocolate was ₹ 27.90 per unit before 15th November, 2017 which was increased to ₹ 30.27 after 15th November, 2017 therefore, he had increased his base price from ₹ 31.25 to ₹ 33.90 maintaining the margin at 12% and hence he had not profiteered. 6. The Respondent had also submitted that as had been noted in para 10 of the Investigation Report he had reduced the rate of tax on the chocolates from 28% to 18% w.e.f. 15.11.2017 as per the Notification No. 41/2017- Central Tax (Rate) dated 14.11.2017. He has also claimed that he did not intend to benefit on account of tax reduction and had not contravened the provisions of Section 171 (1) of the CGST Act, 2017. He has also quoted the case of Dinesh Mohan Bhardwaj v. Vrandavaneshwree Automotive (P) Ltd. (2018) 67 GST 429/92 taxmann.com 360 = 2018 (4) TMI 1377 – THE NATIONAL ANTI-PROFITEERING AUTHORITY (NAA) decided by this
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various schemes which could not be construed as discounts on the basic prices as they had no connection with the reduction in the rate of tax as these discounts were not provided on every purchase and the amount was also different on each schemes. He has further pleaded that the above discounts did not fall in the category of benefit of GST rate reduction given to him as had been mentioned in para 1 1 of the Investigation Report. The Respondent has also averred that no incentives were given to him during the months of November and December, 2017 and the incentive schemes were offered only on some purchases during January to March, 2018. The Respondent has also submitted details of the various incentive schemes offered to him by M/S CTC before and after 15.11.2017 vide Annexures IV and VI to substantiate his claim that no discounts were offered to him by the above Distributor for passing on the benefit of tax reduction. 8. The Respondent has also argued that he had procured Nestle Munch
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bility and statutory obligation of the Respondent to pass on the benefit of tax reduction as he had not received any such benefit and his statutory obligation under Section 171 of the CGST Act, 2017 would arise only on the receipt of the benefit. The Respondent has also stated that the calculation of the profiteered amount in para 13 of the Report as ₹ 1.56 per unit in the case of Nestle Munch Nuts 32 Gm. bars calculated as a difference between the actual MRP and the ideal MRP (Rs. 20 – 18.44) was wrong as the profit if any should be calculated on the increase in the base price i.e. ₹ 1.32 per unit (Rs. 16.95 – ₹ 15.63). The Respondent has further stated that the assessment of profit of ₹ 3.13 per unit in the case of Cadbury Dairy Milk Chocolate as a difference between the actual MRP and the ideal MRP (Rs. 40 – ₹ 36.87) was also incorrect as the amount of profit if any should be calculated on the increase in the base price i.e. ₹ 2.65 per unit (Rs. 3
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urther contended that the point raised by Respondent regarding calculation of the profiteered amount in para 13 of the Report was invalid as prices included both the base prices and also the tax charged on it and therefore, any excess amount collected from the recipients must be returned to them and if they were not identifiable, the same was to be deposited in the Consumer Welfare Fund (CWF). The DGAP has also claimed that the Respondent had stated that the closing stock as on 14.11.2017 of Nestle Munch Nuts 32 Gm. was 32 units and that of Cadbury Dairy Milk Chocolates was 216 units and he had purchased 944 units of the earlier and 4,515 units of the later brand during the period w.e.f. 15.11.2017 to 31.03.2018 and hence the profiteering in respect of the total 910 units of 'Nestle Munch Nuts 32 Gm.' and 4,646 units of 'Cadbury Dairy Milk Chocolates' had been computed in the manner furnished in the table below:- Products Cadbury Dairy Milk Nestle Munch Total Purchase m
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ds Private Ltd (Cadbury) & M/S Nestle Limited India respectively and they couldn't make any change in them expect that of quantity. They also claimed that the GST rate reduction benefits were passed on by them to the Respondent in the form of discounts which had also been reflected in their invoices. Additionally M/S CTC vide his written submissions dated 30.08.2017 contended that the sale invoicing of the products was done through the Company billing software and all the rates & reductions were decided through the Company server system and he could not add/alter/delete any rates/discounts in the Company's billing software. He further submitted that the above Company had provided him discount on his closing stock as on 15.11.2017 and after getting the same in the billing software, he had passed it on to his respective retailers on the directions of the Company and he being the sale Distributor had got only the profit margin on the sales which had remained same during th
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T reduction given to you' and 'with GST benefits where applicable' were recorded on these invoices but the fact remained that the MRPs had remained unchanged. 13. Further Vide his written submissions dated 23.08.2018, the Respondent had specifically admitted profiteering on the closing stock of Chocolates lying with him as on 14th November, 2018. He had also accepted that M/S CTC had given him 6.6% discount on his invoice No. 53129 dated 28.112017 amounting to ₹ 647/-. Accordingly, suo moto he had deposited an amount of ₹ 1295/(Rs. 1250/- for Cadbury Dairy Milk and ₹ 45/- for Nestle Munch Nuts 32 Gm.) including the discount of ₹ 647/- which he had received from M/S CTC and had not passed on to his customers into the CWF vide Demand Draft dated 18.08.2018. He had also submitted that the amount of ₹ 15,958/- reported by the DGAP in his Investigation Report was not correct since he had not received any GST rate reduction benefit from the Distribut
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sold it @ MRP of ₹ 40/after realising GST of 28%. Perusal of the tax invoice dated 16.11.2017 shows that the Respondent had charged base price of ₹ 16.95 per unit for the Nestle Munch Nuts 32 Gm. Chocolate and after levying GST @ 18% had again charged MRP of ₹ 20/- and for one bar of Cadbury Dairy Milk Chocolate he had charged base price of ₹ 33.90 and after charging 18% GST the MRP realised by him from the above Applicant was ₹ 40/-. Therefore, it is clear that the Respondent had increased the base price by ₹ 1.56 per unit in respect of the Nestle Munch Nuts 32 Gm. Chocolate and ₹ 3.13 for the Cadbury Dairy Milk Chocolate and hence the MRP charged on both the above products had remained ₹ 20/- and ₹ 40/- per unit respectively before and after the reduction in the rate of tax. Therefore, it is established that the Respondent had in fact increased the base prices of these Chocolates and sold them at the same MRPs which he was chargi
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accountability as well as the duty cast upon him under the above Notification by contending that he had not increased the base prices whereas he had charged the increased base prices on both the above products after 15.11.2017. The Respondent has failed to produce any evidence to show that he had taken up the issue of giving benefit of reduced rate of tax to his customers with M/S CTC or M/S NE and informed them that he was bound to reduce the MRPs due to reduction in the rate of tax and both of them should either reduce/not increase the base prices or compensate him on account of the benefit which he was required to pass on to his customers, therefore, it is quite apparent that he had deliberately charged the enhanced prices with an intention to pocket the amount which he was bound to pass on to the recipients. The Respondent can also not legally maintain that since he had not received the benefit from his Distributors and hence he would not pass on the same as he was bound by the pro
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e case. Therefore, the above contentions of the appellant cannot be accepted. 17. The Respondent has also argued that M/S CTC and M/S NE had not given him discounts for passing on the benefit of tax reduction. However, perusal of the tax invoices issued by both the above Distributors shows that they had given him discounts to pass on the benefit of tax reduction with specific endorsements that he was required to pass on the benefit of reduced rate of GST. The Respondent has himself admitted through his submissions dated 23.08.2018 that he was given discount of 6.6% by M/s. CTC vide invoice No. 53129 dated 28.11.2017 amounting to ₹ 647/-. Therefore, the Respondent was bound to pass on the benefit to his customers which he had not done. Otherwise also the Respondent being a registered dealer under the CGST/SCST Act, 2017 is under legal obligation to pass on the benefit to his customers on account of the reduction in the rate of tax whether he was given any discount by his Distribut
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products and the base price on which he had sold them, however, this argument of the Respondent is fallacious as the amount of profiteering has to include the amount of additional profit margin and the additional tax charged by the Respondent as both of them had been illegally charged by him otherwise the recipients should have got further benefit of reduction in the MRPs of both the products and hence this contention of the Respondent cannot be accepted. 19. The Respondent has claimed that only 944 units of Nestle Munch Nuts 32 Gm. Chocolate and 4515 units of the Cadbury Dairy Milk Chocolate were purchased by him during the period w.e.f. 15.11.2017 to 31.03.2018 however, he has not produced the tax invoices to prove his contention and hence the claim made by the Respondent cannot be relied upon. 20. It is also on record that the Respondent vide his written submissions dated 23.08.2018 has voluntarily admitted that he had profiteered to the extent of ₹ 1295/- on the stock which
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tion in prices, the Authority may order – (a) reduction in prices: (b) return to the recipient, an amount equivalent to the amount not passed on by the way of commensurate reduction in prices along with interest at the rate of eighteen percent from the date of collection of the higher amount till the date of the return of such amount or recovery of the amount including interest not returned, as the case may be; (c) the deposit of an amount equivalent to fifty percent of the amount determined under the above clause in the Fund constituted under section 57 and the remaining fifty percent of the amount in the Fund constituted under section 57 of the Goods and Services Tax Act, 2017 of the concerned State, where the eligible person does not claim return of the amount or is not identifiable; (d) Imposition of penalty as specified under the Act; and x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-xx-x-x-x-x-x-x-x-x-x-x-x-x-x-x- 22. Accordingly, the Respondent is directed to reduce the sale prices of the above
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ndent within a period of 3 months from the date of receipt of this order failing which the same shall be recovered by the DGAP and refunded or deposited as has been directed above. Since the present investigation has been carried out for the period between 15.11.2017 to 31.03.2018 the DGAP is directed to conduct further investigation in respect of the sales made by the Respondent after the above period to assess the amount of profiteering made by the Respondent and submit report accordingly. 23. It is also established from the above facts that the Respondent had issued incorrect invoices while selling the above products to his customers as he had not correctly shown the basic prices which he should have legally charged from them. The Respondent had also forced them to pay additional GST on the increased prices and had also earned additional profit through the incorrect tax invoices which would have otherwise resulted in further benefit to the customers in the shape of reduced prices. I
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