2019 (1) TMI 22 – NATIONAL ANTI-PROFITEERING AUTHORITY – TMI – Profiteering – manufacturers of Fast Moving Goods Consumer Goods (FMCGs) – benefit of reduction in the rate of tax not passed – increase in the base price – contravention of the provisions of Section 171 of the CGST Act, 2017 – Held that:- The fact that the GST rates have been reduced vide Notification No. 41/2017-Central Tax (Rate) dated 14 11.2017, with effect from 15.11.2017 is not in dispute. The Respondent is a distributor who is duly registered under the above Act and hence the benefit of rate reduction was required to be passed on by him to the recipients as per the provisions of Section 171 of the CGAT Act, 2017 – From the perusal of the invoices dated 11.10.2017 and 30.11.2017 it is noticed that the Respondent had increased the base price of Garnier Nat Shade 3 from ₹ 24.41 (price charged prior to rate reduction) to ₹ 26.48 (price charged after rate reduction). Similarly from the perusal of Annexure-13
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t hold good in as much as he is registered supplier under the CGST/SGST Act, 2017 and is bound to follow the notification dated 14.11.2017 to pass on the benefit of GST rate reduction. The legal obligation imposed upon him cannot be .ignored only because he is not the manufacturer who controls the prices, as he is accountable as a supplier to pass on the benefit of GST rate reduction. There is no evidence to show that he had corresponded with the manufacturer for decrease in the base prices on account of the GST rate reduction. Hence it is apparent that the Respondent inspite of his legal obligation has enhanced the prices of all the 293 products and resorted to profiteering.
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It is also established from the above facts that the Respondent had issued incorrect invoices while selling all 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 compelled them to pay additional GST on th
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eceived from the Directorate General of Anti-Profiteering (DGAP) under Rule 129 (6) of the Central Goods & Services Tax (CGST) Rules, 2017. The brief facts of the present case are that on the receipt of a reference dated 27.02.2018, where a complaint was filed with the Secretary National Anti-Profiteering Authority (NAA), alleging that certain major manufacturers of Fast Moving Goods Consumer Goods (FMCGs) including M/s. Garnier Laboratories Ltd., had not passed on the benefit of reduction in the rate of tax from 28% to 18% w.e.f. 15.11.2017, was forwarded to the DGAP for necessary action and the DGAP had forwarded it to the Standing Committee to prima facie verify the veracity of the complaint. The Standing Committee vide the minutes of it's meeting dated 13.04.2018 requested the DGAP to initiate investigation under Rule 129 (1) of the CGST Rules, 2017 stating that the Respondent had not fully passed on the benefit of the tax reduction from 28% to 18% granted vide Notification
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um of benefit which he had not passed on during the period between 15.11.2017 to 31.03.2018 on the above product. The Respondent was also requested to provide copy of the audited balance Sheet, Price List for the products sold after 15.11.2017 but not sold during 01.11.2017 to 14.1 1.2017, details of outward taxable supplies from 01.11.2017 to 31.03.2018 for all the products impacted by GST rate reduction w.e.f. 15.11.2017. 3. The Respondent in response to the above notice submitted various documents vide his replies dated 06.07.2018 and 31.07.2018. After examination of the replies submitted by the Respondent the DGAP has informed that the Respondent had contended that they had passed on the benefit of reduction in the tax rate to the customers by way of a GST Scheme No. SCH1700722, by giving a discount of 12.5% on the product. The DGAP has further intimated that after the investigation, it was found that the Respondent was required to sell the said goods at the pre 15.11.2017 base pri
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26.48 per piece, which was more than the pre rate reduction price of ₹ 24.41 per piece, charged by the Respondent for the same product. 5. The DGAP has further stated that the details submitted by the Respondent were analysed and it was found that 388 products supplied by the Respondent during the period between 15.11.2017 to 31.03.2018 were impacted by the reduction in the rate of GST from 28% to 18% w.e.f. 15.11.2017. Out of the above 388 products 81 products were not sold during the period between 01.11.2017 to 14.11.2017 and hence, the reference prices for calculating the profiteering amount for these products were not available. Of out these 81 products, 41 products were newly introduced items post GST rate reduction w.e.f. 15.11.2017. For the remaining 40 items, the reference prices for calculation of the profiteered amount had been taken from the price list (for the period pre 15.11.2017) submitted by the Respondent, which further revealed that out of these 40 items, the b
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ggarwal, Assistant Commissioner and Sh. Bhupender Goyal, Assistant Director (Costs). The Respondent was represented by Sh. Mukesh Malik. 7. The Respondent vide his written submissions filed on 18 09.2018 and 21.09.2018 stated that the demand raised on him was incorrect as he was only a distributor of the products in question. He has further added that the MRP was fixed by the manufacturer i.e. M/S L'oreal and the billing system was based on the web based software of the manufacturer in which he could upload the quantity of the products to be sold to his customers. He further added that other figures such as MRP, Basic Rate, Discount, if any and GST calculations etc. were loaded/ printed by the manufacturer's software itself. He also stated that if he wanted to give any cash discount (on the basis of the Dealer's better payment terms etc.) out of his earnings, this discount entry could be uploaded by him in the end of the billing amount before arriving at the final payable f
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e questioned for any such revision of MRP. He has further contended that the calculation made by the DGAP was incorrect and the proposed demand was in excess of the profiteering liability. He has also stated that the present notice by proposing cancellation of registration obtained by him under GST the law as a measure of penalty was not only grossly disproportionate to the alleged contravention, but was also extremely prejudicial to the very sustenance of his operations. 9. The Respondent again vide his written submissions dated 03.10.2018 stated that as per the mathematical calculations the reduction in the GST was 7.8% so far as the above product was concerned. He has claimed that considering the base price of the product as 100, gross price inclusive of GST @ 28% would be 128 and the gross price inclusive of GST @ 18% would be 118 and hence due to reduction on ₹ 128 of ₹ 10 (128 – 118 = 10) the percentage reduction would be 10/128 = 7.8%. He has also submitted that he h
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ed that his sale invoices showed that the MRP of ₹ 35 was not increased to ₹ 40 but the MRP of ₹ 40 was decreased to ₹ 35 during the two months of September and October 2017, when the manufacturer had allowed a Special Promo Discount of ₹ 5 on the MRP for a short period of 2 months as a Consumer promotion benefit. He has also added that the manufacturers had not increased the MRP to ₹ 40 which had prevailed for several months before the GST Rate was reduced from 28% to 18%. He has further added that the total quantity sold by him between 15.11.2017 to 31.03.2018, between 15.11.2017 to 31.03.2018 from the Closing Stocks available as on 14.11.2017 and the benefit to be passed on and the total benefit passed on through GST schemes was mentioned below:- Units Value Total Qty Sold between 15.11.2017 to 31.03.2018 158468 Total Qty sold between 15.11.2017 to 31.03.2018 from Closing Stock as on 14.11.2017 (A) 23298 17,18,661.0 Benefit to be passed on (A) 1,3
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d since M/S L'oreal and the Respondent were two different legal entities undertaking transactions on principal to principal basis and neither section 171 of the CGST Act nor under any provisions of the CGST Rules could be invoked against it in the proceedings initiated against the Respondent. It further stated that without prejudice, it had taken all the necessary steps and was under a bona-fide belief that the price benefit on account of reduction in the GST rate had already been passed on to it's customers. It further added that the pricing of the products sold by the distributors was not controlled by the it and that the alleged statement made by the Respondent that the software was controlled by it and sale price of the distributors was also fixed by it was not correct, as it did not exercise any control whatsoever on the prices through the software. It also maintained that according to the agreement, the distributor was entitled to give discounts and sell the goods at a pr
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3 from ₹ 24.41 (price charged prior to rate reduction) to ₹ 26.48 (price charged after rate reduction). Similarly from the perusal of Annexure-13 of the DGAP's Report it is clear that to retain the MRPs of all his products at pre-GST rate reduction the Respondent had increased the base prices of his products to the extent of GST rate reduction. Thus it is established that out of the 388 products the base prices of 293 (259+34) products were increased by him inspite of the rate reduction to maintain the pre rate reduction prices. Accordingly the Respondent has charged increased base prices on the above products thus indulging in profiteering. 14. Accordingly, the Respondent has denied the benefit of Re. 3,43,109/- to his customers which he was required to pass on to them and thus it has been established that the Respondent has acted in contravention of the provisions of section 171 of the CGST Act, 2017 by not providing commensurate reduction in the prices of the produc
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tember and October regular promotional discounts were given on most of the products. Therefore the discounts provided to the customers after GST rate reduction are required to be considered as the on going existing promotional schemes during the pre-GST rate reduction period. The argument of the Respondent that the prices were controlled by the manufacturer does not hold good in as much as he is registered supplier under the CGST/SGST Act, 2017 and is bound to follow the notification dated 14.11.2017 to pass on the benefit of GST rate reduction. The legal obligation imposed upon him cannot be .ignored only because he is not the manufacturer who controls the prices, as he is accountable as a supplier to pass on the benefit of GST rate reduction. There is no evidence to show that he had corresponded with the manufacturer for decrease in the base prices on account of the GST rate reduction. Hence it is apparent that the Respondent inspite of his legal obligation has enhanced the prices of
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case are not identifiable the above amount of profiteering of ₹ 3,43,109/- along with interest shall be deposited by the Respondent in the Consumer Welfare Fund of the Central Government and the State of Delhi respectively as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017 under the supervision of the DGAP. The above amount shall be deposited within a period of 3 months by the Respondent from the date of receipt of this order failing which the same shall be recovered by the concerned Central/State GST Commissioner as per the provisions of the CGST/SGST Act, 2017 and shall be deposited as has been directed vide this order. Since the present investigation in to the issue of not passing on the benefit of reduction in the rate of tax by the Respondent has been conducted w.e.f. 15.11.2017 to 31.03.2018 only, the DGAP is directed to further investigate the quantum of profiteering which the Respondent has made thereafter and submit his report accordingly. 18. It is also
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