2018 (12) TMI 1599 – NATIONAL ANTI-PROFITEERING AUTHORITY – TMI – Profiteering – manufacture and supply of consumer goods comprising of four major categories, viz. Home Care, Personal Care, Foods and Refreshments – Respondent had not reduced the Maximum Retail Prices (MRPs) of the products which were being sold by him although GST rates were reduced – it is also alleged that the Respondent had increased the base prices of his products, so that the MRPs continued to be the same even after reduction in the rates of GST – recovery of excess Input Tax Credit (ITC) on the stocks of his brands lying with them.
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Held that:- It is established that the increase in his profits was entirely due to the increase in the base prices made by the Respondent through which he had denied the benefit of tax reduction to his customers and appropriated the tax benefits himself. Hence, it is established beyond any iota of doubt that the Respondent has committed breach of the provisions of Section 171 of
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ted to profiteering. However, it is quite clear from the record that he had illegally and wrongly increased the base prices of the products on which the rates of tax had been reduced w.e.f. 15.11.2017, the day from which this reduction had come in to force. Therefore, it is established that he had earned disproportionately large and grossly unfair profit by exploiting an unusual situation in which the rates of tax had been reduced and hence his act squarely falls within the definition of profiteering being unethical, immoral, illegal, malafide and contumacious.
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It is apparent from the record that the Respondent had tried to mislead the authorities by making false claims as he had acted quite contrary to the claims which were made by him in his above letters. Instead of passing on the benefits he had increased the base prices, had compelled the customers to pay more price than what they were legally required to pay, had forced them to pay additional GST on the increased prices and
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law did not mandate passing of TRAN-2 credit, which is not correct and hence his contention cannot be accepted. In the light of the above facts, it can be concluded that the Respondent has not passed on the benefit of TRAN-2 credit to any of his recipients, which under Section 140 (3) read with Section 171 of the Act, he was required to pass on. Therefore, the plea of the Respondent to claim this amount of ₹ 76.06 Crores of Tran-2 credit as a deduction from the profiteered amount is rejected.
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Admissibility of grammage benefit as deduction – Grammage benefit given more than the GST rate reduction – Held that:- The Authority is of the view that Section 171 of the CGST Act, 2017, puts the onus of passage of any benefit of the GST rate reductions or ITC to the recipient on the supplier. The keyword to be emphasised here is “commensurate reduction”. The law expects that commensurate reduction to the extent of the rate reductions should be given by the Respondent. Any greater red
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benefit which has been passed on by the Respondent in the shape of additional grammage as per the following table however the balance amount claimed by him cannot be allowed. Therefore, it is made clear that this deduction has been given to the Respondent due to the fact that the anti-profiteering measures have been incorporated in the tax laws for the first time and he had tried to pass on the benefit of tax reductions by increasing the quantity of his products. However, in future in case there is any reduction in the rate of tax or benefit of ITC is made available the same shall be passed on by him in the shape of commensurate reduction in the prices as per the provisions of Section 171 of the above Act and in case it is not possible to do so the amount so realised shall be deposited in the CWF.
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Area based fiscal incentives denied – Held that:- The DGAP is right in his assessment that there was no loss in absolute terms to the Respondent, since he was still eligible to get the
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nt has not been able to appreciate the fact that the idea behind including the anti-profiteering mechanism in the GST laws, is solely to protect the interest of the consumers by preventing the supplier from unjustly enriching himself at the cost of the end-consumer. His claim that he had provided various discounts to the MT dealers to further pass on the benefit to the consumers is not established as it is not evidenced by any credible documentary evidence. Further the consumer would have never got the benefit of tax reductions unless the MRP was revised by the Respondent on the packs and the bar codes were changed, which does not seem to have happened. The Authority, thereby finds his claim short of any credence and hence the same cannot be accepted.
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Packing material write off – Held that:- The law was very clear when it gave the suppliers the relief to do re-stickering instead of incurring additional cost on new packaging material. It was a business call taken by the Respondent
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lace. This benefit of ₹ 3.80 Crores is being extended as there was no increase in the base prices of these supplies.
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Sales of semi-finished goods – Held that:- As per Annexure-12 & 13 of his written submissions dated 09.08.2018 the Respondent has provided details of return of one product namely Coffee but for other products no evidence has been provided to prove that these goods were returned to him for further processing. In the case of Coffee also, the Respondent has not been able to provide any clear and conclusive proof to establish that the sent and the received back goods pertained to the same Batch or were exchanged during the same period of time. The Respondent has also not claimed that the prices had been reduced and his only claim is that it was a semi- finished product. Therefore the claim of the Respondent to the extent of ₹ 2.63 Crores made on this ground cannot be accepted.
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Wrongly collected the ITC credit from RSs – Held that:- Since this amount h
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t of tax reductions to the customers – Since the Respondent has been held guilty of profiteering and has also been found to have violated the provisions of Section 122 (1) (i) of the CGST Act, 2017 a fresh notice be issued to him asking him to explain why penalty should not be imposed on him.
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Decided against respondent. – Case No. 20/2018 Dated:- 24-12-2018 – Sh. B. N. Sharma, Chairman, Sh. J. C. Chauhan, Technical Member And Ms. R. Bhagyadevi, Technical Member None for the Applicants No. 1, 2 & 3., Smt. Gayatri, Deputy Commissioner and Sh. Bhupender Goyal, Assistant Director (Costs) for the Applicant No. 4. Sh. Srinivas Phatak, Chief Finance Officer, Ms. Shikha Gupta, Head Tax, Sh. S. Moorthy, Manager, Sh. C. S. Lodha, Advocate, Sh. Dev Bajpai, Head Legal, Sh. Radha Krishnan Menon Associate and Sh. Gopalan Pasupati, Manager, Corporate Affairs for the Respondent. ORDER 1. The brief facts of the present case are that an application through e-mail dated 26.11.2017 (Annexure-I)
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on to the end consumers through reduction in the MRPs or through fill level increases. He had further informed vide his e-mail dated 25.01.2018 (Annexure-3) that the Respondent had started the process of recovery. Another application against the Respondent vide e-mail dated 17.11 .2017 (Annexure-4) was filed before the Standing Committee by the Applicant No. 2 stating that the Respondent had increased the basic rates of his products after the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017. Both these applications were examined by the Standing Committee on Anti-profiteering in it's meetings held on 29.11.2017 and 24.01.2018 respectively, wherein it was decided to refer the matter to the Applicant No. 4 (here-in-after referred to as the DGAP) to investigate both the above applications to determine whether the benefit of reduction in the GST rates had been passed on by the Respondent to the customers or not. Meanwhile another application dated 20.09.2018 was received from t
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. The Respondent was also asked to suo moto determine the quantum of benefit not passed on and intimate the same. The Report further states that the Respondent had determined the amount of profiteering suo moto and come forward to deposit an amount of ₹ 59.94 Crores for the period w.e.f. 15.11.2017 to 30.11.2017 vide his letter dated 04.12.2017 addressed to the Chairman, Central Board of Excise and Customs now re-designated as Central Board of Indirect Taxes and Customs (CBIC). Vide his subsequent letter dated 08.01.2018 addressed to the Chairman, the Respondent had offered to deposit an amount of ₹ 59.04 Crores on account of profiteering for the month of December, 2017. 3. The DGAP's Report also states that vide his letter dated 14.05.2018 (Annexure-10) both the Applicants No. 1 & 2 were provided an opportunity to inspect the non-confidential evidences/reply furnished by the Respondent, which was not availed by them. He has also intimated that since the analysis of
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spondent had also claimed that the profiteered amount was suo-moto determined by him after taking into account the various deductions Viz. (i) Pricing Deployment (PD), (ii) Trade Term Supply Deployment (TTSD), (iii) Fiscal Deployment (FD) and (iv) Writing off of the existing packaging material. The DGAP has also stated that the Respondent had also intimated that he and his RSS had large inventory of finished goods which was lying in his factories, distribution centers and was also in transit and hence he required nearly 60 days to pass on the benefit of tax rate reductions. The Respondent had also stated that about 900 SKUs were impacted by the GST rate reductions w.e.f. 15.11.2017 and wherever it was possible to print the Maximum Retail Prices (MRPs) online, he had changed them. The DGAP has also stated that the Respondent had informed that in respect of the 505 SKUs out of the 900 SKUs, he had implemented the change at the manufacturing stage itself by reducing the MRPs or by adjusti
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onths of November and December 2017 in the CWF. 5. The DGAP has also intimated that the Respondent was asked to supply information/ documents/ record which he had supplied vide Annexures 12-22. 6. The DGAP has also informed that the Respondent had furnished reasons for the various deployments which he had claimed as deductions from the higher sales realization on account of GST rate reductions vide his letters dated 25.01.2018 and 05.03.2018 (Annexure-12 & 13). He has further informed that the Respondent had claimed deduction on PD due to the pricing initiatives w.e.f. 15.11.2017 which had resulted in reduction in the MRPs or increase in the grammage. The Respondent had also requested for deduction due to TTSD as he had floated various promotional schemes through the MT as an interim measure to give benefit of tax reductions. The DGAP has also stated that the Respondent had claimed deduction on account of FD because of proportionate reduction in the refund amount which he was getti
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gly he had volunteered to deposit an amount of ₹ 5.07 Crores in the CWF due to net higher sales realization for the month of January, 2018. The DGAP has further intimated that vide letter dated 10.04.2018 (Annexure-17), the Respondent had informed that the higher sales realization due to rate reductions for the month of February, 2018 for the General Trade and the MT was ₹ 135.87 Crores out of which an amount of ₹ 138.52 Crores had been claimed as deduction on account of the PD, TTSD and FD and therefore, the Respondent had informed that he was not depositing any further amount in the CWF. The DGAP has also intimated that the Respondent vide his letter dated 10.04.2018 had also informed that he had recovered an amount of ₹ 36.19 Crores from his RSS, as against the amount of ₹ 30.85 Crores deposited by him on 05.03.2018 in the CWF and hence he was willing to deposit the balance amount of ₹ 5.34 Crores in the above Fund. The DGAP has also stated that t
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at he could not have used the old MRPs printed packing material as the MRPs had been reduced and therefore, he was entitled to claim deduction of the value of the written off packaging material from the higher sales realization. The DGAP has further stated that the Respondent had claimed deductions due to the reduction in the area-based exemptions on the SKUs which were impacted by the rate reductions and which were being manufactured in his units based in Uttarakhand, Himachal Pradesh and Assam as they were entitled to budgetary support or the refund granted under the DIPP Notification No. 10(1)/2017-DBA-II/NER dated 05.10.2017, which was calculated with reference to the CGST/IGST paid after utilization of the ITC and the higher was the amount of CGST/IGST paid, the higher was the refund which reduced his cost of production. The DGAP has also informed that the Respondent had submitted that before 15.11.2017, his units were entitled to proportionate refund of 58% of the CGST paid @ 14%
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01 280.05 -TTS Deployment 1.59 19.08 8.60 -2.90 26.37 -Fiscal Deployment 6.99 12.97 12.95 12.41 45.31 -Packing Material written off 7.80 7.80 7. Total Deductions (B): 8.58 68.06 144.38 138.52 359.53 8.Suo moto declaration of profiteering (C): (A)-(B): 62.77 54.45 6.81 124.03 9. Add: Recovery from Redistribution Stockist (D): 36.19 Total Amount (E)=(C)+(D) 160.22 7. The DGAP has also informed that the details of TRAN-2 statements in respect of the Union Territories (UTs) of Delhi, Puducherry, Goa, Dadra & Nagar Haveli, Daman & Diu for the period from July, 2017 to December, 2017, and copies of the sample invoices in which credit claimed in TRAN-2 statements had been passed on to the recipients by way of reduced prices had not been supplied by the Respondent. 8. The DGAP after examining the applications and the submissions made by the Respondent has recorded his findings on the three main issues viz.:- (a) Whether the rates of GST were reduced in respect of the products supplied
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d himself determined the amount of profiteering and had deposited the amount determined by him in the CWF after claiming certain deductions on account of various deployments. 10. The Report of the DGAP highlighting the relevant provision of Section 171 (1) of the CGST Act, 2017 which reads 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", has emphasized that any benefit of ITC or reduction in the rates of tax must result in 'commensurate reduction in the prices' of the goods and the services. The Report further states that Section 171 does not provide the supplier of goods and services any other means of passing on the benefit of reduction in the rates of tax or benefit of ITC and therefore all suppliers of goods and services must pass on the benefits in terms of absolute reduction in the prices and flexibility to suo moto decide on a
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#39;s claim for deduction on account of FD, the DGAP has noted that as per the Notification No. 10(1)/2017- DBA-II/NER dated 05.10 2017, the Respondent was entitled to a refund of 58% of the CGST or 29% of the IGST to be paid through debit in the Cash Ledger Account (CLA) maintained by a unit in terms of Section 49 (1) the CGST Act, 2017 after utilization of the ITC of the Central Tax and the Integrated Tax. He has also argued that w.e.f. 15.11.2017, the Respondent was entitled to proportionate refund of the CGST paid @ 14% or 9% through CLA and hence the liability of the Respondent to make payment in cash had reduced due to reduction in the rates of tax which had resulted in reduced refund in the absolute terms. He had also contended that since the Respondent was still eligible to get the same proportionate refund of actual CGST/IGST paid in cash as was available to him prior to the reduction in the rates of GST, there was no loss in absolute terms to him. Therefore, he has concluded
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2016, December 2017, March 2016, March 2017 and March 2018 which were published by the Respondent, has mentioned that post 15.11.2017, there was a sharp increase in the profits made by the Respondent without a corresponding increase in the sale of the products inspite of his claim that the cost of production had risen after reduction in the rates of GST as per the Table given below:- Table Period Sale of products Profit before exceptional items & tax Change in Sale and Profits Sale amount in Crores % increase over previous period Profit amount in Crores % increase over previous period FY 2015-16 32,929.00 5,977.00 FY 2016-17 33,895.00 2.93% 6,155.00 2.97% Sales Increase by 3% and Profit increase by 3% FY 2017-18 34,619.00 2.14% 7,347.00 19.37% Sales Increase by 2% but Profit increase by 19% Quarter ending Dec. 2015 8,226.55 1,488.60 Quarter ending Dec. 2016 8,124.00 -1.25% 1,333.00 -10.45% Sales decrease by 1% and Profit decrease by 10% Quarter ending Dec. 2017 8,323.00 2.45% 1,70
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as concluded that due to non-passing of the benefit of rate reductions by the Respondent there has been a sharp increase in his prices 15. While quantifying the extent of profiteering for the period w.e.f. 15.11.2017 to 28.02.2018, the Report states that the total number of items affected by the reduction in the rates of GST were 12,016 comprising of 1836 base packs. The DGAP has also stated that out of the above items, 11,820 items comprising of 1814 base packs constituting 99.71% of the sale value of the total impacted Items were affected by the rate reduction from 28% to 18% and the balance 196 items comprising of 22 base packs constituting 0.29% of the sale value of total impacted Items were affected by the GST rate reduction from 18% to 12%. Therefore he has concluded that the amount of net higher sales realization on account of increase in the base prices of the products after the reduction in the GST rates either from 28% to 18% or from 18% to 12%, or the total amount of profite
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ained from the web portals. The DGAP has also submitted the details of the calculations made by him vide Annexure- 25. 16. The Report also submits that the Respondent had recovered an amount of ₹ 36.19 Crores from his RSs on the stocks held by them on 14.11.2017 as had been alleged by the Applicant No. 1 also, by issuing debit notes to the RSs, while ₹ 6,47,131 could not be recovered from seven of the RSs. The Report further states that the amount earned by the RSS was beyond the scope of investigation and therefore it's correctness had not been confirmed, however the Report claims that the Respondent had admitted it to be the profiteered amount and had suo-moto sought to deposit it in the CWF. 17. The DGAP has also informed that the Respondent had claimed and utilized as per TRAN-2 statements filed by him credit of ₹ 76.06 Crores except for the UT s of Delhi, Puducherry, Goa, Dadra & Nagar Haveli and Daman & Diu during the period w.e.f. July, 2017 to Dece
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d person shall, subject to such conditions, limitations and safeguards as may be prescribed, including that the said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient, be allowed to take credit at such rate and in such manner as may be prescribed. " (emphasis supplied) 18. The DGAP has contended that as per the above provision, the Respondent was bound to pass on the credit availed through TRAN-2 statements by reducing the prices to be paid by the recipients. He has further contended that the Respondent was asked to furnish copies of the invoices to show that the benefit of credit had been passed on to the customers, but the Respondent had failed to do so. The DGAP has also averred that after examining the sale reports for the months of November and December, 2017 it was found that the Respondent had sold the items on which he had availed TRAN-2 credit at the same prices at which these items had been sold in the normal course of busi
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ning the same selling prices which were existing on 14.11.2017 or had not reduced the selling prices of the products commensurately, despite reduction in the GST rates from 28% to 18% or from 18% to 12% w.e.f. 15.11.2017. He has also stated that the Respondent had himself admitted profiteering and suo moto quantified the profiteered amount, hence, the provisions of Section 171 (1) of the CGST Act, 2017 had been contravened by the Respondent in the present case. The DGAP had further stated that the extent of profiteering was determined as ₹ 419.67 Crores plus the TRAN-2 credit amounting to ₹ 76.06 Crores which was entirely on account of Central Taxes and hence the total profiteering was held to be amounting to ₹ 495.73 Crores. He has further submitted that the Authority may direct the Respondent the deposit the amount of ₹ 36.19 Crores in the CWF which was recovered by him from his RSS as it amounted to the profiteered amount. 20. The DGAP's Report dated 15.0
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Profiteering Authority (NAA) and conferred it with specific powers under Chapter XV of the CGST Rules, 2017. According to the Respondent Rule 126 which states as under gives power to the Authority to determine the methodology and procedure:- Rule 126: Power to determine the methodology and procedure: The Authority may determine the methodology and procedure for determination as to whether the reduction in the rate of tax on the supply of goods or services or the benefit of input tax credit has been passed on by the registered person to the recipient by way of commensurate reduction in prices. The Respondent has claimed that laying down of the methodology with sufficient clarity and lucidity and informing all stakeholders viz. manufacturers, dealers, retailers, service providers, customers etc.; was of critical importance because that alone could ensure equity, consistency, uniformity and clarity. The methodology and procedure referred to in the Rule should lay down the basic principles
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ted that no one should be allowed to make extra profit while the Government had reduced the tax rate for the benefit of the consumers but at the same time extra quantities given to the consumers for the same price, curtailment of fiscal incentives, extra costs incurred which were clearly attributable to the rate change, price reduction effected through trade channels to reduce the prices for the end customers and reimbursement of such payments and the total taxes already deposited etc.; should be taken into consideration before alleging profiteering. The Respondent has acknowledged that this Authority in exercise of the powers conferred upon it under Rule 126 of the CGST Rules, 2017 has notified "Methodology and Procedure" for determination as to whether the reduction in the rate of tax on the supply of goods has been passed on by a registered person to the recipient by way of commensurate reduction in the prices or not, but he has claimed that the above "Methodology and
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ufficiently demonstrate his bonafides. The Respondent has also tried to support his claims by giving various examples through which benefit of tax reductions could be passed on. 23. The Respondent on 09.08.2018 has further made detailed written submissions in which he had reiterated the various submissions made before the DGAP. In addition he has also raised certain legal issues by quoting the provisions of Section 171 and submitted that this Authority was the institutional mechanism under the GST law to check unfair profit-making activities by the trading community and the main function of the Authority was to ensure that the traders were not realizing unfair profit by charging higher prices from the consumers in the name of GST. He has also referred to the GST flier which was published by the Central Board of Excise & Customs (CBEC) to provide an overview of the anti-profiteering provisions which clarified that the intent of these provisions was to protect the end consumer from a
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ty of taking unfair advantage of a situation to make a large profit, often by selling goods that are difficult to get at a very high price: Wikipedia: – Profiteering is a pejorative term for the act of making a profit by methods considered unethical. Thus, 'profiteering' according to him was a pejorative term which connoted unethical, immoral, illegal and contumacious conduct on the part of a company whereby it earned disproportionately large and unfair profit. The Respondent has claimed that a company's intent and conduct under the given circumstances keeping in view it's complexity of the operations and feasibility of implementing various alternatives etc. were critical and important factors before judging it's actions as honest and bonafide or as dishonest and contumacious resulting in undue gain to it. He has also contended that the spirit of the law was required to be considered before deciding as to whether the actions taken by the company were in the best int
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him nor there was any profiteering. He has further submitted that he had computed the amount on the assumption that the benefit of rate changes needed to be passed on immediately and that there was no lead time available for liquidating the pipeline stocks and therefore, he had suo-moto determined the amount of excess realization and volunteered to deposit it into the CWF vide his letters dated 04.12.2017 and 08.01.2018, even before investigation was launched. He has also intimated that he had deposited into the CWF a sum of ₹ 124 Crores although based on the actual calculations the cumulative excess realization did not exceed ₹ 121.5 Crores. He has also pleaded that he had regularly updated the authorities about his intentions of depositing the amounts profiteered into the CWF, but was surprised for being served with a notice dated 10.01.2018 by the DGAP for initiation of investigation. He has also stated that the above notice made it appear as if someone had complained th
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lso submitted that the interpretation of Section 171 of CGST Act, 2017 made by the DGAP was too literal and completely ignored the intent, object and purpose of the above provision. Referring to the various judicial pronouncements of the Apex Court he has stated that the modern trend was to construe a statute purposively with the intent of ascertaining the object and intent of the law and to so harmoniously interpret the provision that it furthered the intent, object and purpose of the statute and hence a law intended to check profiteering must be purposively construed. He has also claimed that the emphasis of the Section was on non-retention of benefit of tax rate reduction by the manufacturer/dealer and passing it on to the recipient and not on the mode of such passing on whereas the Report had taken the literal meaning and prescribed only one mode of passing on the benefit by way of commensurate reduction in the prices. He has claimed that as long as it was clearly demonstrated by a
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lished trade practices. 26. The Respondent has also claimed various deductions on account of PD, TTSM, and FD etc. and claimed that it has been a trade practice prevalent in the FMCG industry to effectively reduce the prices by offering more quantity of goods supplied either by weight, volume or number for the same price and the schemes like buy one get one free, get three for the price of two, two liters for the price of one and seven grams for the price of five grams etc. were popular and prevalent in the trade where both the manufacturers and the consumers recognized them as a price reduction mechanism. He has therefore claimed that in case of a 10% price reduction, either the price itself could be lowered by 10% or equivalent extra goods or quantity could be offered to the recipients and in either of the situations, both, the seller and the buyer regarded it as an effective price reduction. The consumers recognized the grammage increase as a definite benefit and that the advertisem
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he above mentioned Rules to such packages would lead to absurdity. He has also quoted Rule 2 (m) of the above Rules which states as under:- "retail sale price", means the maximum price at which the commodity in packaged form may be sold to the ultimate consumer and the price shall be printed on the package in the manner given below; "Maximum or Max. retail price Rs…………./Rs………….inclusive of all taxes or in the form MRP Rs………../Rs……………incl.; of all taxes taking into account the fraction of less than fifty paisa to be rounded off to the preceding rupee and fraction of above 50 paise and up to 95 paise to the rounded off to fifty paise;" Quoting an example of his product Clinic Plus Shampoo, the Respondent has submitted that the price of a sachet of tie above Shampoo which was priced at ₹ 1/- would need to be reduced to 0.92 paise to give effect to the rate reduction and going b
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quot; Therefore, the Respondent has claimed that the law on packaged commodities, thus, specifically permitted sale of the value-based packages at the lower denominations. He has further claimed that Rule 5 (3) was a separate code in itself that dealt with the value- based packages and in view of the non-obstante clause, such packages could be sold at the above denominations and therefore his rationale for passing on the benefit of GST rate reductions by increasing doe grammage for such packs should have been allowed by the DGAP as such grammage increase was a definite benefit to the consumers and hence reduction in the effective prices paid by them was to be allowed to the extent of ₹ 119.67 Crores to him on account of additional grammage from the profiteered amount. He has further submitted that if the Authority did not consider it as a price reduction, it should at least accept that these packs with higher grammage would be regarded as new packages with a quantity that was dif
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as MT dealers were large in number and were organized. He has claimed that the MT dealers had agreed and accordingly the excess amount in base prices recovered from them was reimbursed and therefore, while calculating the profiteered amount he had rightly deducted the amounts which were already passed on to the MT dealers however, The DGAP despite agreeing that the reimbursement was given to the MT had disallowed any such deduction. The Respondent has also submitted that he has passed on the benefit of the rate reductions by way of reimbursement through the debit or credit notes and the actual figures from the GST returns should be taken into account after considering them. The Respondent has also submitted that Section 171 dealt with passing on of benefit to the recipient by way of commensurate reduction in the price and the term recipient was defined in Section 2 (93) of the above Act, as under:- "recipient of supply of goods or services or both means (a) Where a consideration i
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pacted both the sale price and the net realization. He has also cited the details of benefit of this incentive as under:- Cost of production (in Rupees) Raw Material cost 45.00 Production costs 9.00 Other costs 9.00 profit 11.00 Less incentive from Government -3.00 Base Price 71.00 From the above illustration the Respondent has claimed that the base price charged by the Respondent was influenced by the absolute amount of incentive and although the DGAP had admitted that the quantum of benefit had been reduced in the absolute terms but he had denied the deduction on this account. He has also stated that when the incentive value was reduced it would necessitate an offsetting increase in the base price and therefore the increase in he base price to the extent of reduction in the incentive value could not form part of the profiteering computation. 29. The Respondent has also claimed that in order to expedite the passing of the benefits to the consumers wherever possible by way of revised M
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xtra GST collection as a result of increase in the base price which had already been deposited with the Government and thus the Government had received more GST than what it would have received had there been no change in the base prices and accordingly an amount of ₹ 64 Crores should be allowed as deduction from the profiteered amount in as much as this amount had already been deposited with the Government as tax:- Particulars Pre-15.11.2017 Post 15.11.2017 Post 15.11.2017 (no change in base price) Differential amount due to higher base price 1 2 3 4 5 Base Price charged to Stockist 71.00 77.30 71.00 6.30 GST 19.90(28%) 13.90 (18%) 12.80 (18%) 1.10 Total invoice price to the stockist 90.90 91.20 83.80 7.40 31. The Respondent has further stated that the sales to the Central Police Force (CPF) and the Central Railway Police Force (CRPF) were made at the base rates which excluded GST as was the case in respect of the CSD however, the DGAP had included these sales in the profiteered
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nd from the contract manufacturers for the same product in support of his claim. 33. The Respondent has further submitted that despite inflationary pressures, he has passed on the full benefits of the GST rate reductions and has not increased his prices until February, 2018. He has taken objection to the DGAP's Report which has alleged that the Respondent had made extra profit due to the rate reduction without corresponding increase in the sales and this was due to the GST benefits which had not been passed on by him to the consumers. The Respondent has also claimed that the DGAP had not appreciated that the introduction of GST had necessitated key accounting changes. He has also contended that increase/decrease in the profit of a Company was influenced by multiple factors such as volume, mix, cost of materials, inflation and overhead efficiencies etc. and not just sales growth. 34. The Respondent has further submitted that the voluntary offer made by him on account of excess reali
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funded by him to the MT by way of such notes. He has also claimed that the Report did not explain why the differential amount reflected in the Report was grossed up for GST at the applicable rate of tax of 18% / 12%. 35. The Respondent has also submitted that the TRAN-2 credit of ₹ 76.06 Crores availed by him was not a subject matter of this investigation and hence the same could not be added to the alleged profiteered amount under Section 171. He has also stated that reliance has been placed on the sales report for the months of November and December 2017, for drawing an inference that he had not passed on the benefit of TRAN-2 credit that he had availed. He has claimed that he had filed for credit for the period between July to December 2017 only in February 2018 and hence he could not have said to have availed the above credit in the months of November and December 2017. Consequently, the question of passing the benefit of TRAN-2 did not arise and hence the allegation was fact
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ded as a supply of goods on which CGST/SGST/UGST/IGST could have been charged. He has further claimed that the taxes or duties on such stocks were paid under the laws existing in the pre-GST regime and hence such taxes or duties did not qualify as input tax under the definition given in the Act and accordingly, the TRAN-2 credit could not be considered as ITC under the above Act. He has also contended that Section 171 dealt with passing of the benefit of the ITC but given that the Tran-2 credit did not qualify as ITC under the above Act, Section 171 could not be invoked and accordingly, TRAN-2 amount could not be added to the amount of alleged profiteering under Section 171. Quoting the relevant provisions of the transitional credit the Respondent has claimed that a depot of a manufacturer was not required to be registered under the previous tax regime because the Excise Duty (ED) was required to be paid only at the time of clearance from the factory and there was no requirement for re
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e or partial credit was allowed when the documents were not available, accordingly the Respondent has submitted that on all counts this demand on account of TRAN-2 credit was not legal, valid and proper. Further the Respondent vide his written submissions dated 14.9.2018 and 27.9.2018 has reiterated his earlier submissions with few changes in the figures of various amounts. As per the latest submissions the amounts suo-moto determined and deposited into the CWF has been claimed to be ₹ 124.04 Crores as has been shown in Table 1 after claiming the deductions of ₹ 320.70 Crores as has been shown in Table 2 below:- Table-1 Date Period Amount deposited (Rs. cr.) 04.12.2017 15.11.2017 to 30.11.2017 59.94 08.01.2018 01.12.2017 to 31.12.2017 59.04 05.03.2018 & 10.04 2018 01.01.2018 to 28.02.2018 5.06 Total 124.04 Table-2 (in Rs. Crores) 1 Benefit passed on through extra grammage 119.67 2. Benefit given to Modern Trade 26.37 3. Packing material written off in view of rate chang
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r to prove that promotional schemes were passed on to the customers. 38. The Respondent was directed to show cause vide notice dated 29.08.2018 why penalty should not be imposed on him for violation of the provisions of the CGST Act, 2017 in reply to which vide his submission dated 14.09.2018 the Respondent has stated that the penalty could be imposed only after the determination of profiteering against him. He has further submitted that the penalty could be imposed only when his action was contumacious and actuated by desire to cheat the revenue however, in the present case it was evident that within six days of the GST rate changes, he had approached the Chairman, CBIC to ensure that he fulfilled the mandate of the law and then he had acted in accordance with the guidance received. He has also claimed that he had also ensured that the hundreds of his retailers did not profiteer and he had himself not kept or profited even by a rupee and also volunteered to deposit an amount of ₹
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to GST rate reductions w.e.f. 15.11.2017. The Respondent has further submitted that the computation of grammage deployment of ₹ 119.67 Crores was provided by him to the DGAP on a monthly basis. Details of which were as below:- (in Rs. Crores) Letter dated Annexure No. Grammage deployment 05th March 2018 3 11.35 09th March 2018 2 48.12 10th April 2018 2 60.19 119.67 40. The Authority had also asked him to resubmit the details of grammage deployment in the format of Annexure-25 prepared by the DGAP however, he had failed to do so. The Respondent has also claimed that the increase in the grammage was done in response to the GST rate reductions and not during the regular course of business. He has also submitted that the grammage changes were done to ensure that the benefit of rate reductions could be passed on to the consumer expeditiously by adjusting grammage wherever it was feasible and possible. He has also enclosed sample newspaper advertisements and copies of the letters from
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he consumers, based on which he had deposited an amount of ₹ 59.94 Crores and ₹ 59.04 Crores vide his letters dated 04.12.2017 and 08.01.2018 respectively in the CWF. The Respondent has also contended that he had come to know that a complaint had been filed by an anonymous applicant on 10.01.2018 when he has received notice for initiation of investigation under Rule 129 of the CGST Rules, 2017 by the DGAP. The Respondent has admitted that he had no legal authority to recover the amount on account of the benefit on the transition stock lying with his RSS. He has also submitted that he had done this as a matter of good governance and the proposal to recover the benefit earned by the RSS on transition stock was not due to any legal authority which he had. He has claimed that he had sought guidance from the DGAP on the modalities of passing on the benefits to the consumers vide his letter dated 25.01.2018 2018 and the DGAP vide his notice dated 21.02.2018 had enquired whether t
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and details of publicity of this grammage increase alongwith newspaper advertisements, screen shots of Company's Website, electronic and digital advertisements, advertisements on the E-commerce website, and the advertisements on the packs. He has also submitted that he had issued a letter dated 21 .11.2017 to his RSS stating that "as per GST regulation, we need to pass on the benefit to the end consumers through MRP reduction/ increased fill levels". On the similar lines two more letters dated 14.12.2017 and 31.01.2018 were issued to the RSS mentioning that "the benefit of lower taxes across the portfolio are being passed on in the form of lower MRP or higher grammage". He has also submitted that the RSS were using the distribution management software for placing orders with him on which the latest price or grammage was available at a product level and hence, all grammage changes were clearly known to the RSS via software. He has further submitted that due to cl
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d with Consumer Buying Unit (CBU) codes was submitted by the Respondent out of which 44,690 products had more than one CBU code. He has further submitted that as far as Annexure-25 of his Report was concerned, the calculations were based on pre and post reductions in the GST rates and the details of the outward taxable supplies for the period between 15.11.2017 to 28.02.2018 as had been submitted by the Respondent. 44. We have carefully examined the DGAP's Report, the written and the oral submissions made by the Respondent and all the documents that are placed on record. It is revealed from the record that there is no dispute that the Central Government, on the recommendation of the GST Council, had reduced the GST rates w.e.f. 15.11.2017 on several goods from 28% to 18% and from 18% to 12% vide Notification No. 41/2017-Central Tax (Rate) dated 14.11.2017. The main products being sold by the Respondent on which these rates were reduced have been shown in the table below:- Sl. No. C
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by the DGAP, the contents of which have not been rebutted by the Respondent by producing any cogent evidence, in which item wise profiteering has been computed by the DGAP on the basis of the data provided by the Respondent himself that the Respondent had denied benefit of ₹ 419.67 Crores to his customers by increasing the base prices w.e.f. 15.11.2017 the day from which the rate reductions had come in to force. This increase was either exactly equal to the benefit of rate reductions or was more than such reductions. The Respondent had no ground to increase the base prices except that he wanted to appropriate the benefit of tax reductions. Had his intentions been bonafide he should not have increased his base prices and instructed his RSS to reduce their prices. The rates of tax were recommended to be reduced by the GST Council in it's meeting held on 10.11.2017 and within a period of 4 days the Respondent had manipulated his software by increasing the base prices of as many
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mself admitted that he had resorted to profiteering as only the profiteered amount could be deposited in the CWF. Perusal of the Audited Financial Results published by the Respondent also shows that during the year 2017-18 after the rates of tax were reduced his sales had increased only by 2% but his profits had increased by 19%, during the quarter ending December, 2017 his sales had increased by 2% but his profits had increased by 28% and during the quarter ending March, 2018 his sales had increased by 3% whereas his profits had increased by 24% whereas during the year 2016-17 before the rates of tax were reduced his sales had increased by 3% and his profits had also increased by 3%. Therefore, it is established that the increase in his profits was entirely due to the increase in the base prices made by the Respondent through which he had denied the benefit of tax reduction to his customers and appropriated the tax benefits himself. Hence, it is established beyond any iota of doubt th
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o ensure that both the benefits of reduction in the rate of tax and ITC are passed on to the consumers by commensurate reduction in the prices. As per the provisions of the above Rule the Authority has power to 'determine' and not 'prescribe' the methodology. During the course of the present proceedings the Respondent was repeatedly asked to suggest alternate methodology if he was not satisfied with the computation of the profiteered amount made by the DGAP but the Respondent has failed to do so. The Respondent has also calculated the profiteered amount himself and deposited the same in the CWF which clearly shows that he was aware of the concepts of profiteering, commensurate and reduction in the prices. Therefore, all the objections raised by him in this behalf are frivolous and cannot be accepted. 47. The Respondent has also referred to the dictionary meaning of profiteering and claimed that he had not resorted to profiteering. However, it is quite clear from the rec
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ing or selling it. It is respectfully submitted that the above cases are not relevant in the facts of the present case in as much as Section 171 of the CGST Act, 2017 does not deal with profit it only applies in the case of profiteering. Profiteering as laid down in the CGST law read with the CGST Rules only implies that whenever there is reduction in the rate of tax or benefit of ITC is available both of them should be passed on to the recipient in the form of commensurate reduction in the prices. There is no element of profit or costing involved in the present case. Therefore, the above judgements are of no help to the Respondent. 49. In this connection it would be relevant to apply the ratio of the judgement passed on the issue of profiteering in the case of Glaxo Smithkline Pharmaceuticals Limited, Civil Appeal No. 1939 of 2004 and Civil Appeal No. 1940 of 2004= 2014 (3) TMI 113 – SUPREME COURT by the Hon'ble Supreme Court vide which the Hon'ble Court had upheld the decisio
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Supreme Court. The argument of the Id. Additional Solicitor General before the Hon'ble Supreme Court was that the scheme of the two DPCOs, 1987 and 1995 was very clear that once the price was notified for a formulation, the sale to the consumer could only be at the notified price and it was an absolute obligation on all persons not to sell any formulation to any consumer at a price exceeding the price which was the MRP price. The Id. Additional Solicitor General also argued that the words "carried into effect" read with "within 15 days" indicated the outer limit and there could not be two different prices in the distribution chain. The benefit of the price reduction would mandatorily have to be passed on to the consumer from the moment the reduction became operative and therefore there could not be one price that was operational at the end-point of the distribution chain and another price upstream in the distribution chain. It was also argued that it was possib
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h learned Additional Solicitor General that the period of 15 days is simply a grace period or cooling period allowed to manufacturers to adjust their business in a manner where appropriate arrangements are made with regard to the unsold stocks in the distribution chain. The argument of the manufacturer or distributor, if accepted, that the stocks cleared by the manufacturer before the fifteenth day can be sold to the consumer at the higher unrevised price then, in our view, that may result in same formulation being offered for sale to a consumer at two different prices. We find ourselves in agreement with the submission of the learned Additional Solicitor General that the current price list is simply the price reflecting the currently operating notified price under the DPCO. Once a price is notified for a formulation, it takes effect immediately and sale of the formulation to the consumer has only to be at the notified price". The Hon'ble Supreme Court referring to it's ju
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law settled in the above case the Respondent was bound to reduce the prices on the products being sold by him w.e.f. 15.11.2017 and in case he was not able to do so he should have immediately deposited the profiteered amount in the CWF which he had failed to do promptly as has been outlined in the paras supra. The Hon'ble Court had also taken strong exception to the profiteering and hence the Respondent has to bear the consequences of the profiteering as per the provisions of the CGST Act, 2017. 50. The Respondent has also claimed that he had informed the Chairman CBIC vide his letters dated 21.11.2017 and 04.12.2017 that he was sincere in passing on the benefit of tax reduction where ever it was possible and would suo-moto deposit the excess realization in case it was not possible to do so. However, it is apparent from the record that the Respondent had tried to mislead the authorities by making false claims as he had acted quite contrary to the claims which were made by him in hi
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teered amount only after he had realized that a complaint dated 17.11.2017 had been lodged against him for profiteering. The Respondent had also not deposited the entire amount of profiteering by claiming a number of deductions. He has also claimed that passing of benefit of tax reductions through commensurate reduction in the prices was not the only way to pass on the benefit as the same could be done by supplying additional quantity of goods for the same price. However, this contention of the Respondent is without any basis as he had infact increased the base prices or maintained the same base prices which he was charging before the tax reduction whereas he should have reduced them keeping in view the reductions made in the rates of tax. The Respondent had given no choice to his customers and forced them to accept the additional quantity by paying more price, tax and profit margin whereas they should have got the benefit of tax reduction in the shape of commensurate reduction in the
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8 01.12.2017 to 31.12.2017 59.04 05.03.2018 & 10.04.2018 01.01.2015 to 28.02.2018 5.06 Total 124.04 53. It is further revealed that on 21.11.2017 the Respondent had written the following letter to his RSs:- Hindustan Uniliver Limited, Uniliver House, B D Sawant Marg Chakala, Andheri East Mumbai 400099 Tel +91 (22) 39830000 Web: www.hul.co.in CIN: 115140MH1933PLC002030 Date: 21st November 2017 To: All the Redistribution Stockist (RS) of Hindustan Uniliver Limited Dear Business Partner, Sub: Revision in GST rates with effect from 15.11.2017 and passing o benefits to end consumers. We thank you very much for your continued support during the GST implementation. As you are aware, basis the recent Centre [CGST/IGST] and State Government [SGST] Notifications, the GST rates for some of our categories like Washing Powder, Dish Wash, Skin Care, Hair Care, Deodorants, Colour Cosmetics amongst others, have been reduced effective 15th November 2017 (Predominately from 28% to 18%). When GST was
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In the meantime, should you have any questions, feel free to get in touch with us through Lever care at levercare.customer@uniliver.com or 1800-425-29010r directly reach out to your respective TSO/KAE/ASM. We are hopeful that we shall continue to work with you in the spirit of extending the best value to the trade and the end consumers Your Truly, Mohit Sud General Manager, Customer Development, Central 54. Perusal of the above letter shows that the Respondent had admitted that the rate of GST had been reduced on the products which were being sold by him. He had also mentioned in this letter that when the GST was implemented w.e.f. 01.07.2017 he had reimbursed the differential tax due to incremental cost on account of the closing stock which was held by the RSS as on 30.06.2017. He had also intimated that due to reduction in the rate of tax the ITC available to the RSS on the stocks existing with them as on 15.11.2017 would be higher and they would be paying output tax at lower rate. H
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red to sell it at the rate of 18% and claim ITC and hence they would have passed on the benefit of reduction in the GST tax rates to the customers. But by issuing the above letter the Respondent has not only denied ITC to his RSS but has also restrained them from passing on the benefit of reduction of tax rates to their customers. On specific query raised during the proceedings the Respondent was asked to intimate under what authority he had directed his RSS not to pass on the benefit and refund the amount of ITC which was legally due to them, however, he had admitted that he had no sanction of law to do so and his act was illegal. The Respondent could also not intimate the plan through which he proposed to pass on the benefit of tax reductions to the consumers as had been mentioned in his above letter. Therefore, it is clear that the claims made by the Respondent in this letter were false and misleading as he could never have passed the benefit of tax reductions to his customers who w
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in the CWF as an afterthought after he had come to realize that a complaint had been made against him for not reducing the prices and for recovering the excess ITC. The best course available to the Respondent in this case would have been to write to his RSS to pass on the benefit of tax reduction to the customers and claim ITC on the input tax paid by them @ 28% which the Respondent had failed to do and hence the claims made by the Respondent through the above letter and similar letters written to the CBIC and the DGAP cannot be believed and relied upon. 56. Initially vide Annexure 5 of his written submissions dated 10.08.2018, the Respondent had furnished the following statement as has been shown in the Table-3 given below, which showed that the amount actually collected in excess was ₹ 480.91 Crores and after deducting the fiscal incentives denied to him he had claimed that the net excess realization had been ₹ 435 Crores. But the DGAP has estimated an amount of ₹ 4
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the base price) 5454.10 2. Total GST that would have been levied, recovered and paid to Government @ 18% 981.20 3 Total 6435.30 4 Total recovery of base price by increasing the base price 5774.80 5 GST levied, recovered and paid to Government @ 18% 1039.00 6 Total 6813.80 58. The Respondent further states that the amount of ₹ 57.80 Crores was not liable for recovery since this amount had been paid to the Government as tax and accordingly he was accountable only for ₹ 320.70 Crores excess amount collected by him as follows: 1. Benefit passed on through extra grammage 119.67 2. Benefit given to Modern Trade 26.37 3. Packing material written off in view of rate change 7.80 4. Loss of fiscal incentive entitled for recoupment 45.31 5. Deposited with Consumer Welfare Fund 124.04 6. Total 323.19 7. Extra collection by the Company (5774.80 – 5454.10) 320.70 8. Excess Paid 2.5 59. From the above submissions of the Respondent it is clear that the Respondent is not denying the fact th
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ipients according to Section 171 of the CGST Act, 2017. The DGAP has based his opinion on the proviso to Section 140 (3) of the CGST Act, 2017. The relevant excerpts of which are reproduced below:- Section 140. (3) A registered person, who was not liable to be registered under the existing law, or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of notification No. 26/2012-Service Tax, dated the 20th June, 2012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi- finished or finished goods held in stock on the appointed day subject to the following conditions, namely:- (i) such inputs or goods are used or intended to be used for making taxable supplies under this Act; (ii) t
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supplied) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Explanation 1.-For the purposes of sub-sections (3), (4) and (6), the expression "eligible duties" means- (i) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957; (ii) the additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, 1975; (iii) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975. (iv) the additional duty of excise leviab/e under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978; (v) the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985; (vi) the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985; and (vii) the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001, in respect of inputs held in stock and inputs contained in sem
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t "you are hereby requested to reply to this notice on or before 25.01.2018 stating whether you admit that the benefit of reduction in tax rate or input tax credit has not been passed on to the consumers by way of commensurate reduction in price". Therefore, the allegation that the Respondent was not put to notice would not hold good as the legal definition of ITC is inclusive of TRAN-2 credit as per Section 140 (3) read with Rules 117 (4) (a) (i) and 117 (4) (a) (ii), which make it very clear that the transitional credit availed through TRAN-2 statements was nothing but ITC for all intents and purposes of the above Act. The Respondent has also claimed that definition of ITC did not include the TRAN-2 credit. The CGST Act, 2017 gives the definition of ITC in Section 2 (63) read with Section 2 (62) and the definition of TRAN-2 credit flows from Section 140 (3) of the said Act read with Rule 117 of the CGST Rules, 2017 which state as under:- "Section 2 (62). "input ta
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icular case is Section 140 (3) of the Act. As reproduced above, Sub-Section (3) of Section 140 is the relevant provision which deals with persons who shall be entitled to take credit of eligible taxes and duties in respect of the inputs held in stock or the inputs contained in the shape of semi-finished or finished goods held in stock on the appointed day. Section 140 (3) specifically deals with TRAN-2 credit that is made available to all the registered persons other than the manufacturers with or without tax paid documents. There is no doubt that transitional credit is on eligible taxes and duties that are relevant to the pre-GST period, as claimed by the Respondent, however, one has to read the relevant provision along with the Rule 117 of CGST Rules 2017, which clearly states that this credit which is availed under Section 140 (3) is nothing but the ITC available under the GST. Rule 117 is reproduced below:- 117. (4) (a) (i) A registered person who was not registered under the exist
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asis supplied). 62. Thus, from a plain reading of Section 140 (3) when read with Rule 117 (4) (a) (i) and 117 (4) (a) (ii), it becomes very clear that the credit availed by the Respondent under Section 140 (3) as TRAN-2 credit is nothing but ITC, under the GST regime. Therefore, the Respondent's claim that TRAN-2 credit did not fall under the definition of ITC fails the test of law miserably and hence cannot be accepted. The respondent has also contended that the TRAN-2 credit, as availed under Section 140 (3) by him did not fall under the purview of Section 171 as it pertained to the credit in respect of the inputs held in stock as on 30.06.2017. It would be appropriate to note here that the TRAN-2 credit is available to any eligible taxable person under Section 140 (3) of the Act and it's proviso very categorically states that "the said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient, be allowed to take credit at such rat
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ore, the Authority finds that the DGAP has rightly included the entire amount of ₹ 76.06 Crores in the scope of his investigation. 63. In the instant case, the fact that the Respondent has availed the TRAN-2 credit of ₹ 76.06 Crores is not in dispute as he has failed to produce any evidence to prove, either before DGAP or before the Authority that this benefit of Tran-2 credit has been passed on by way of reduced prices. Moreover, the Respondent, on page 23, point (d) of his written submissions dated 14.09 2018 has mentioned that the law did not mandate passing of TRAN-2 credit, which is not correct and hence his contention cannot be accepted. In the light of the above facts, it can be concluded that the Respondent has not passed on the benefit of TRAN-2 credit to any of his recipients, which under Section 140 (3) read with Section 171 of the Act, he was required to pass on. Therefore, the plea of the Respondent to claim this amount of ₹ 76.06 Crores of Tran-2 credit
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as mandated this Authority to ensure that no supplier is allowed to make undue profit by pocketing any benefit intended by the Government to be passed on to the recipients through the suppliers. Any GST rate reduction by the Government should always be seen as a sacrifice made by the Government from it's own kitty of revenue, in the interest of the consumers in particular and society at large. Therefore, Section 171 requires a supplier to pass on any benefit of rate reduction or of ITC being made available to him, to his recipients. While ensuring this, the Authority is of the view that this Section needs to be purposively construed and due regard should also be given to the prevalent trade practices. The emphasis should be laid on non-retention of benefit of reduction of tax rates by a suppliers and its due passage to the recipient. What is important is to ascertain whether the supplier has enriched himself illegally or has passed on the benefit in accordance with the legal provis
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ring the fact that reducing the prices on low value products could be cumbersome and sometimes impractical. The Respondent in his submissions dated 27.09.2018 has claimed that he had passed total benefit of ₹ 119.67 Crores in the shape of additional grammage out of which an amount ₹ 67.03 Crores was directly proportional to the reduction in the tax rates while an amount of ₹ 39.94 Crores has been in excess of the rate reductions and an amount of ₹ 12.69 Crores was less than the GST rate reductions. The Respondent has produced a letter from his Auditors and sample advertisements to show that the benefit of rate reductions was passed on either by way of reduction in the MRPs or through the higher grammage. These advertisements dated 15.11.2017, 16.11.2017, 25.12.2017 and 29.12.2017 state that they were published with the following messages viz. 'Ghata GST Badi Bachat', 'get the benefits of reduced GST rates on your wide range of Products', 'GST
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practices the Respondent was granted another opportunity to legally establish his claim. The Authority had asked the Respondent to supply information in the following format so that the issue of passing of benefit through increased grammage could be settled. To establish the above mentioned fact, the Respondent was required to show for every product affected by the rate reductions, that the benefit of more grammage was given to the recipients as soon as there were rate changes; that the benefit was commensurate with the rate changes and that to prove the cause-effect relationship between the CST rate reductions and grammage increase it should not be a continuation of any ongoing business promotion activity and should be substantiated with documentary evidences. The Respondent, through an e-mail sent by the Secretary, NAA, dated 02.11.18, was asked to give the above information, in the prescribed format, so as to legally substantiate his claim. The Respondent vide his reply dated 14.11
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has claimed a deduction of ₹ 39.08 Crores on account of the prices reduced more than the GST rate reduction. The Respondent claims that on some products and SKUs, he has reduced the effective selling prices by more than he was actually mandated to, due to the GST rate reductions. Hence, a total amount of ₹ 39.08 Crores, he argues, should be deducted from the net profiteered amount as had been calculated by the DGAP. The DGAP in its report has rejected this claim of the Respondent. 67. The Authority is of the view that Section 171 of the CGST Act, 2017, puts the onus of passage of any benefit of the GST rate reductions or ITC to the recipient on the supplier. The keyword to be emphasised here is "commensurate reduction". The law expects that commensurate reduction to the extent of the rate reductions should be given by the Respondent. Any greater reduction in prices is entirely a business call taken by the Respondent well within his right and hence there is no grou
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benefit given to the customers from the profiteered amount devoid of merit and cannot be accepted. 68. With regard to the balance amount claimed as grammage benefit in respect of the 110 CBI-J codes of his products when compared with Annexure-25 of the DGAP's Report which is the basic document for computing the profiteered amount, it is found that there are variations in the claim made by the Respondent. On analysis it is found that:- 1. A total deduction of 118.68 Crores has been claimed by the Respondent on account of the additional grammage passed to the customers by him in respect of a total of 335 products. 2. Out of these 335 products, 14 products were already being sold prior to 15.11.2017, under the same CBU code, with same grammage and same MRPs. Therefore, no grammage benefit due to GST rate reductions can be given. 3. 7 products were not reflected in the Sales Register given to the DGAP therefore, they were not even the part of the calculation of the profiteered amount.
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17 but under different CBI-J codes, with same grammage benefit to be given due to GST reductions. Hence, no deduction can be allowed. 9. Hence, benefit can be given only in case of 79 products. The total amount of deduction that can be allowed, from the claimed amount of ₹ 118.68 Crores comes to ₹ 68,77,50,749 only. The summary of the grammage benefit is given in the following Table:- Therefore, an amount of ₹ 68.77 Crores can be allowed to be deducted from the profiteered amount on account of the benefit which has been passed on by the Respondent in the shape of additional grammage as per the following table however the balance amount claimed by him cannot be allowed. Therefore, it is made clear that this deduction has been given to the Respondent due to the fact that the anti-profiteering measures have been incorporated in the tax laws for the first time and he had tried to pass on the benefit of tax reductions by increasing the quantity of his products. However, in
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e Respondent to make payment in cash has got reduced due to reduction in the rates of tax which has resulted in reduced refund in absolute terms. The Authority, after due deliberation over this point, is of the view that there is absolutely no doubt that the area based exemption is a fiscal incentive given by the Government to any manufacturer. Though the benefit of refund is now limited only to CGST and IGST, as per Notification No. 10(1)/2017- DBA-II/NER, dated 05.10.2017, the fact remains that the incentive is limited to the extent of tax paid and it is a flawed picture being projected by the Respondent by claiming that he was in loss in the absolute terms. The DGAP is right in his assessment that there was no loss in absolute terms to the Respondent, since he was still eligible to get the same proportionate refund of actual CGST/IGST paid in cash as was available to him prior to the reduction in the rates of GST. Moreover, there exists no direct correlation between the MRP of the p
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Bazaar and Reliance Fresh, etc. The Respondent has claimed that when the goods were sold to the MT, the base price was revised in the invoices because the old packs which were lying in the pipeline on the date of announcement of GST rate reductions carried the old MRPs and it was suggested to the MT dealers that since the packs carried the old MRPs, if they were to reduce the prices for their consumers, the same would be reimbursed. This according to the Respondent was a suitable method to pass on the benefit to the MT. He has claimed that the MT dealers had agreed and accordingly the excess amount in base prices recovered from them was reimbursed and therefore the trade discounts given to the MT should be allowed to him amounting to ₹ 26.37 Crores, as a deduction from the profiteered amount. He has also produced various communications exchanged between him and the MT to prove that the offers of tax benefit were extended to the end consumers. From the various documents produced
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ductions unless the MRP was revised by the Respondent on the packs and the bar codes were changed, which does not seem to have happened. The Authority, thereby finds his claim short of any credence and hence the same cannot be accepted. 71. Packing material write off: The Respondent has also asserted that he should be given the benefit of the cost which he had to incur in writing off the packaging material which he had to dispose of, as it could no longer be used after the GST rate changes. He has also claimed that he had to write off the packaging material worth ₹ 7.80 Crores. The DGAP's Report finds that the Govt. of India had allowed the manufactures to use the old packing material and to affix the revised MRP while the original MRP was visible. The Auditors report submitted by the Respondent through his written submission dated 27.09.2018 also mentions the grammage only and there is no mention of writing off of the existing packing material. The Respondent, on Page 14 of
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ondent, on account of packing material write off, is not supported by any legal provisions and therefore for the reasons discussed above it is inadmissible. 72. Tax collected on profiteered amount: The Respondent has further claimed the benefit of tax on tax and submitted two different figures of ₹ 63.99 Crores and 57.80 Crores on this account. As shown in the table given in the preceding paragraphs, the Respondent has stated that if the base prices would have remained unchanged; the GST deposited would have been lesser than what he has already paid to the Government. He has also stated that the DGAP has not appreciated the extra GST collection as a result of increase in the base prices which has already been deposited with the Government and thus Government has already received more GST than what it would have received had there been change in the base prices. Accordingly, the above amount should be allowed as deduction. However, it is apparent from the record that the Responden
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7; 128/- then this is a clear cut case of profiteering. Although, the supplier here might have paid the extra tax of ₹ 1.53 to the Government but he cannot claim this as a deduction from his profiteered amount as the recipient has paid ₹ 1.53 more than the amount he was supposed to pay. This entire sum of ₹ 1.53 amounts to profiteering done by the supplier. The Anti-profiteering provisions specified in the CGST Act and Rule 127 of the CGST Rules make it amply clear that the recipients get their rightful due in the form of reduction in the prices on account of reduction in the GST tax rates. Therefore, this Authority is of the view that since, the recipients of the Respondent have been compelled to pay extra GST which should be included in the profiteered amount. Hence, the Respondent's claim to deduct this amount is dismissed. 73. Sales to CPF and CRPF: The Respondent, in his written and oral submissions, has stated that he had sold his goods through CSD and claim
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ted 31.08.2018 has submitted that in the case of CSD the benefit was extended since there was no price increase but in the case of the above two organizations the same was earlier denied by him. The DGAP has admitted that this amount of ₹ 3.80 Crores could be allowed to be deducted from the profiteered amount. The Authority is in absolute agreement with the DGAP's revised opinion and allows the deduction of the above amount from the profiteered amount as no excess realization had taken place. This benefit of ₹ 3.80 Crores is being extended as there was no increase in the base prices of these supplies. 74. Sales of semi-finished goods: The Respondent has also submitted that the DGAP's Report had computed profiteering on the sales of semi- finished goods also which were sold to the third party manufacturers for further processing. Since these sales were not made for consumption as the finished goods were ultimately purchased back by the Respondent, the amount of sales
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t namely Coffee but for other products no evidence has been provided to prove that these goods were returned to him for further processing. In the case of Coffee also, the Respondent has not been able to provide any clear and conclusive proof to establish that the sent and the received back goods pertained to the same Batch or were exchanged during the same period of time. The Respondent has also not claimed that the prices had been reduced and his only claim is that it was a semi- finished product. Therefore the claim of the Respondent to the extent of ₹ 2.63 Crores made on this ground cannot be accepted. 75. Wrongly collected the ITC credit from RSs: The Respondent in his written submissions dated 21.06.2018 has intimated that he had collected ₹ 36.19 Crores from his RSS which was the excess realization made by them on the closing stocks as on 15.11.2017. He vide his letter dated 27.07.2018 addressed to the Authority had intimated that an amount of ₹ 36.19 Crores ha
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is RSS or is required to be recovered from him as has been directed above, in the profiteered amount of ₹ 419.67 Crores. Since this amount has been held to be profiteered amount by this Authority the same shall be deposited in the Central and the CWF of the concerned States as per the calculation to be made by the DGAP and released by him accordingly as an amount of ₹ 36.19 Crores has already been deposited by the Respondent out of the above amount of ₹ 36.25 Crores. 76. The DGAP has also mentioned in his Report that the Respondent had not furnished the details of the TRAN-2 credit availed by him in respect of the Union Territories which have now been supplied by him vide his letter dated 27.07.2018 perusal of which shows that the Respondent had claimed an amount of ₹ 2.91 Crores as such credit in the UT of Delhi. Hence the total profiteered amount on account of denial of benefit of ITC is determined as ₹ 76.06 + ₹ 2.91 Crores i.e. ₹ 78.97 Cror
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+ 3.80) Crores, an amount of ₹ 383.35 (455.92-72.57) Crores is confirmed as the amount the benefit of which has been denied by the Respondent to his customers. Accordingly as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017 fifty percent of the amount of ₹ 383.35 Crores i.e. ₹ 191.68 Crores is required to be deposited in the Central CWF and the balance amount is to be deposited in the CWF of the concerned State. Since the Respondent has already deposited an amount of ₹ 160.23 (124.04 + 36.19) Crores in the Central CWF, he is hereby directed to deposit an amount of ₹ 31.45 (191.68 – 160.23) Crores in the Central CWF and the balance amount of ₹ 191.68 Crores shall be deposited by him in the CWFs of the States. As the amount of ₹ 36.25 Crores is to be separately calculated and apportioned by the DGAP to the Central and the State CWFs the balance amount of 173.50 Crores shall be deposit by the Respondent in the CWF of the concerned S
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d by them as per the provisions of the CGST/SGST Acts. The action taken by them in pursuance of this order shall be reported by them to this Authority within a period of 4 months from the date of this order through the DGAP. Since the present investigation has been conducted for the period between 15.11.2017 to 28.02.2018, the DGAP is directed to conduct further investigation to ascertain whether the Respondent has passed on the benefit of tax reductions in respect of all the products being sold by him and in case it is found that he has not done so further Report shall be submitted by him quantifying the amount of profiteering. 79. From the above discussion it is clear that the Respondent has resorted to profiteering being very well aware of the law and the rules which warranted him to pass on the benefit of GST rate reductions. Further he has also consciously and illegally recovered the excess realisation which was due to his RSS as ITC and thereby denied the benefit of tax reduction
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