Goods and Services Tax – GST – By: – Dr. Sanjiv Agarwal – Dated:- 21-1-2019 – Can chocolates always taste sweet and crunchy ! The answer may be different for consumers and manufacturer or supplier of chocolates. The National Anti-profiteering Authority (NAA) has recently pronounced an Order dated 07.12.2018 that when GST was reduced from 28% to 18% on chocolates w.e.f. 15 November, 2018, but supplier did not reduced the prices but continued to sell at same prices, it was a case of profiteering in contravention of the provisions of section 171 of the CGST Act, 2017. [Pushpak Chauhan and DGAP, CBIC, New Delhi v. Harish Bakers & Confectioners Pvt. Ltd., Gurugram (2018) 12 TMI 473(NAA) ]. Brief Facts On a complaint by complainant to Standing Committee, it was alleged that despite reduction in GST rates from 28% to 18% w.e.f. 15.11.2017 on Nestle Munch Nuts and Cadbury Dairy Milk Chocolates , the supplier continued to sell these products at same price as before rate reduction which was
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pplier as also suo-moto determination of quantum of benefit which had not been passed on after price reduction between 15.11.2017 to 31.03.2018. It submitted that since base price had been increased by the distributors, it increased the base prices keeping the same profit margin (15 % and 12 %) and sold the products at the original maximum retail price (MRP) as there was no change in the MRP. While supplier submitted copies of purchase and sale invoices from November, 2017 to March, 2018 alongwith copies of returns, viz, GSTR-3B and GSTR-1, details of invoice wise outward supplies were not provided. The supplier also submitted that : The complaint against it of not passing on the benefit of reduction in the GST rate to the customers and making profit was wrong as it had given details of all the basic components of the prices of the chocolates on the invoices and the benefit of tax rate reduction has been passed to the complainant. It had not made any additional profit after the reducti
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e of tax on the chocolates from 28% to 18% w.e.f. 15.11.2017 as per the Notification No. 41/2017- Central Tax (Rate) dated 14.11.2017. It did not intend to benefit on account of tax reduction and had not contravened the provisions of Section 171 (1) of the CGST Act, 2017. Since the Distributor had increased the basic purchase price, it was also forced to increase the basic sale price however, it had not increased the profit margin. Quantity discounts through various schemes which could not be construed as discounts on the basic prices as they had no connection with the reduction in the rate of tax as these discounts were not provided on every purchase and the amount was also different on each schemes. It was further pleaded that the above discounts did not fall in the category of benefit of GST rate reduction given to it. It had not received any such benefit and it statutory obligation under Section 171 of the CGST Act, 2017 would arise only on the receipt of the benefit. It also relie
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nder GST Act require that you pass on the benefits of GST rate reduction given to you; to the consumers . Similarly, the distributor of Nestle Chocolates had also sold Nestle Munch Nuts 32 Gm. bars through it's various sales invoices between November 2017 to March 2018 giving a discount clearly mentioning on the invoices with GST benefits where applicable . It was observed by DGAP that though the base prices were increased but since discounts were given by the distributors to the retailer, it was bound to pass on the benefit of reduction in the rate of tax w.e.f. 15.11.2017 to the customers. It was responsible for passing on the benefit as it was a registered supplier under the CGST/SGST Act, 2017. It was revealed that supplier had purchased 910 units of Nestle Munch Nuts 32 Gm. and 4646 units of Cadbury Dairy Milk Chocolate during the period between 15.11.2017 to 31.03.2018. It had failed to supply the details of the invoices of the outward supplies pertaining to the above period
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on it and therefore, any excess amount collected from the recipients must be returned to them and if they were not identifiable, the same was to be deposited in the Consumer Welfare Fund (CWF). NAA findings Based on the submissions and DGAP report, the NAA observed as follows: The supplier had increased the base price by ₹ 1.56 per unit in respect of the Nestle Munch Nuts and ₹ 3.13 for the Cadbury Dairy Milk and hence the MRP charged on both the above products had remained ₹ 20/- and ₹ 40/- per unit respectively before and after the reduction in the rate of tax. Therefore, it was established that the supplier had in fact increased the base prices of these Chocolates and sold them at the same MRPs which he was charging before the reduction in the rate of tax instead of reducing the same and had hence not passed on the benefit of such reduction to the above complainant. The supplier was duly registered under the CGST/SGST Act, 2017 and therefore, he was under leg
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ince it had not received the benefit from the distributors and hence it would not pass on the same as it was bound by the provisions of Section 171 being a registered dealer. Mere charging of 18% GST after 15.11.2018 cannot be construed to have resulted in the passing of the benefit unless the MRPs were reduced and the base prices were maintained. The claim that profit margins had remained the same is also not tenable as it had not only increased the base prices but had also earned additional margin on the enhanced prices. It had further forced the customers to pay additional GST on the increased base prices otherwise the customers should have got further benefit of reduced base prices. Perusal of the tax invoices issued by both the distributors shows that they had given discounts to pass on the benefit of tax reduction with specific endorsements that it was required to pass on the benefit of reduced rate of GST. The supplier being a registered dealer under the CGST/SCST Act, 2017 is u
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lly charged from them. The supplier had also forced them to pay additional GST on the increased prices and had also earned additional profit through the incorrect tax invoices which would have otherwise resulted in further benefit to the customers in the shape of reduced prices. Conclusion The supplier was directed to reduce the sale prices of the above products immediately commensurate to the reduction in the rate of tax as was notified on 14.11.2017 and pass on the benefit of reduction in the rate of the tax to its customers. Further it was directed to refund the same to the complainant along with interest @ 18% w.e.f. 16.11.2017 till the same is paid Since supplier has also voluntarily deposited an amount of ₹ 1295/- in the Consumer Welfare Fund (CWF), therefore, the balance profiteered amount of ₹ 14,658.31 (15,958 – {1295 + 4.69}) will be deposited into the CWF by the supplier as per the provisions of Rule 133 (3) (c) of the CGST Rules, 2017 along with the interest at
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