2019-TIOL-GST-256 Dated: Wednesday, February 06, 2019

CGST RULES NOTIFICATIONS

IGST RATE NOTIFICATION

02/2019

Seeks to rescind Sl. No. 10D of Notification No. 09/2017-Integrated Tax (Rate) dated 28.06.2017 in relation to exemption of IGST on supply of services having place of supply in Nepal or Bhutan, against payment in Indian Rupees

GST HIGH COURT CASES

2019-TIOL-29-HC-KAR-GST

Singhi Buildtech Pvt Ltd Vs Additional Commissioner Of Commercial Taxes

GST - Suspicion that the directors would be involved in circular trading with other companies located in Bengaluru and Hosur -Respondent officers visited the registered office of the petitioner at No.59, Money Point, Opposite BMTC Bus Stand, Bengaluru - due to administrative convenience, the day-to-day business activities of the petitioner were also being carried out from the premises of M/s. Steel Hypermart Pvt. Ltd., at ground floor of the building situated at No.2/1A, Mannat, Nanjappa Road, Shanthinagar, Wilsoan Garden, Bengaluru-560027 – accordingly, the respondent officials begun conducting the search in the said premises - It is the grievance of the petitioner that respondent officers have sealed the said premises without authority of law; that Section 67 [4] of the Act does not empower the respondent No.3 to seal the business premises since access to the business premises was not denied by the petitioner as reflected in the order impugned – Respondent Revenue contended that computer system wherein the business transaction of the company was stored, including the tally software stopped functioning all of a sudden along with internet connection abruptly; that in the absence of tally information and internet connection, complete verification of the books of accounts of the company was not possible as the same was maintained in the tally software in the server; that the directors of the petitioner company did not put any efforts to set out the said disruption; that there being denial of access to the computer system, Section 67[4] was invoked to seal the premises in question.

Held: Revenue counsel submits that the premises of the petitioner company in question shall be unsealed/de-sealed in the presence of the petitioner on any date convenient to the petitioner subject to the petitioner co-operating for inspection/search of the computer system and other records available in the premises - Court is of the considered view that the justice would be sub-served in directing the Revenue to unseal the premises in question on 04.02.2019 at 11.00 a.m., which is convenient to the petitioner and the petitioner shall cooperate for inspection/search of the premises in question, including the computer system – Petition is disposed of: High Court [para 10]

- Petition disposed of : KARNATAKA HIGH COURT

2019-TIOL-28-HC-MAD-GST + Case Story

Jeyyam Global Foods Pvt Ltd Vs UoI

GST - Sections 68, 129 of CGST Act, 2017 - Classification of 'Dried Chick Peas', whether under Chapter 0713 and exempted or under Chapter 2106 and taxable - Squad officer can intercept the goods, detain them for the purpose of preparing the relevant papers for effective transmission to the jurisdictional assessing officer - However, it is not open to the squad officer to detain the goods beyond a reasonable period - final call will have to be taken only by the jurisdictional assessing officer - Commissioner of Commercial Taxes, Chennai directed to issue a circular to all the inspecting squad officers in Tamil Nadu not to detain goods or vehicles where there is a bonafide dispute as regards the exigibility of tax or rate of tax - Circular to embody the essence of the Kerala High Court decision in N.V.K. Mohammed Sulthan Rawther and Sons and Willson Vs. Union of India - 2018-TIOL-170-HC-KERALA-GST - Circular to be issued within eight weeks - in view of the undertaking by petitioner that they would not press for the refund of the amount paid and abide by the outcome of the proceedings that may be initiated by Assistant Commissioner, Salem II Division, present proceedings quashed and petition allowed: HC [para 6 to 8, 11, 12]

- Petition allowed : MADRAS HIGH COURT

GST NAA CASE

2019-TIOL-04-NAA-GST

Jubilant Food Work Ltd

GST - Section 171 of the CGST Act, 2017 - Anti-Profiteering - Applicant stating that he had purchased 1 SGB Stuffed GB(Garlic Bread) and 1Med NHT Veg Extrava (Medium Veg Pizza) after paying Rs.129/- and Rs.440/- per item respectively vide invoice dated 20.10.2017 from the restaurant being run by the respondent in Bengaluru - applicant further states that he had purchased the two items again on 19.11.2017 by paying an amount of Rs.139/- and Rs.485/- respectively; that although the GST on restaurant services was reduced from 18% to 5% w.e.f 15.11.2017, the respondent had increased the base prices of the above food items and charged the same base price which he was charging before the rate of tax was reduced and had he maintained the same base prices which he was charging before the tax reduction, the consumers would have been benefited but in this case it did not; that, therefore, the respondent had profiteered and accordingly action should be taken against him.

Held: It is apparent from the record that the respondent had during the period from 15.11.2017 to 31.05.2018 had increased the base prices by more than 5.59% i.e by more than what was required to offset the impact of denial of ITC in respect of 170 items from 5.75% to as high as 84.55% out of a total of 393 items sold during the same period and, therefore, in respect of these items the commensurate benefit of reduction in rate of tax from 18% to 5% had not been passed on to the customers by the respondent - it is also established after analysis of the impact of denial of ITC and the details of the outward supplies that the amount of net higher sale realization due to increase in the base prices of the services, despite reduction in the GST rate from 18% to 5% with denial of ITC or in other words the profiteered amount was Rs.41,42,97,635/- as per the meticulous calculations made by DGAP and which amount is inclusive of the amount of Rs.5.65 which had been profiteered by the respondent from applicant no. 1 - As regards respondents allegation that no methodology has been prescribed for determination and calculation of profiteering, it needs mention that the Authority has already notified the same vide its notification dated 28.03.2018 under rule 126 of CGST Rules, 2017 and is available on its website - no fixed method can be prescribed as various parameters are required to be taken into account while making such computation and the same varies from industry to industry and from one product to another - provisions of s.171 are very explicit and state that the recipient has to be given the benefits of tax reduction and the ITC on every supply commensurate with such reduction - it was the duty of the Respondent to ascertain on which of his products the rate of tax had been reduced and after taking into account the impact of denial of ITC to what extent the prices should have been increased - whole exercise needs no directions from the Authority as it involves simple mathematical calculation - mere charging of tax @5% after the tax reduction cannot be taken to mean that they have passed on the benefit of such reduction when the respondent had increased the base prices to negate the impact of tax reduction - all claims made by respondent of having suffered losses due to denial of ITC are not supported by financial statements and hence are completely unworthy of reliance - claim of the respondent that he was entitled to increase the prices by 7% instead of 5.59% due to denial of ITC is completely exaggerated and cannot be accepted -Respondent is labouring under the utterly wrong impression that the central focus of section 171 of the Act was he and his products whereas the central focus is the recipient or the customer who is required to be given both the above benefits commensurately when he buys even a single product - denial of these benefits would be hit by Article 14 of the Constitution if the customer is not given the benefit on the ground that the respondent had passed on the benefit on a particular product in place of another product which he may not buy - Each and every customer is entitled to receive both the benefits without discrimination - provisions of anti-profiteering have, therefore, to be applied at each and every product/Stock Keeping Unit (SKU) level and the respondent has no unfettered discretion to allow them selectively or as per his own whims and fancies - Respondent should remember that the benefit of tax reduction and ITC has been granted by the Central and State governments to the public out of their own revenue and he is not required to pay it from his own account and, therefore, he cannot pocket it on one or the other pretext - Respondent is quite ignorant of the fact that on the one hand he is claiming that the anti-profiteering provisions made u/s 171 amount to price regulation and on the other hand he is supporting the ‘Price Control Anti-Profiteering (Mechanism to Determine Unreasonably High Profit) (Net Profit Margin) Regulations, 2014 promulgated by the Malaysian Government and the ‘Net Dollar Margin Rule' of the Australian Government, both of which regulate prices whereas the section 171 of the CGST Act, 2017 does not provide for such regulations and its only aim is to pass on the benefit of tax reduction and ITC without going into the issues of price and profit fixation -the respondent had not only forced the recipients to pay more price over the permissible limit but has also compelled them to pay additional GST on this amount and had he not done so the recipients would have paid less price - as the customers have paid additional GST which they were not required to pay, it amounts to denial of passing on of the benefit to them - Respondent must remember that section 171 requires passing of tax reduction to the recipients or the customers and does not authorise the respondent to collect additional GST illegally thus negating the benefit which has been given by the Government - DGAP has rightly concluded that any excess amount of GST collected from the recipients amounts to profiteering which must be returned to the recipients and in case the recipients are not identifiable, the same should be deposited in the Consumer Welfare Fund - contention of the respondent that the profiteered amount should be calculated by considering him as an entity and not on each Stock Keeping Unit (SKU) is irrational and against the basic provisions of s.171 of the Act which require him to pass on the benefit of rate reduction to every recipient on every supply - benefit due to a customer cannot be denied to him on the claim that the same has been passed on to another customer on another product - Even if each restaurant owned by the respondent was assessed separately for profiteering, the conclusion would have been the same as the respondent was charging the same prices in each of his outlets and was also centrally fixing the prices - hence he has been rightly assessed for profiteering collectivley - there is also no justification for ‘netting off' the increases and the decreases in the prices of the various products as the benefit is required to be passed on each SKU and profiteering is required to be computed only in respect of those SKUs where prices have been increased by more than 5.59% - any scrutiny of price increase made by the respondent which is not commensurate with the denial of ITC certainly falls in the ambit of profiteering and it cannot be termed as price control or price regulation and hence it does not violate the provisions of article 19(1)(g) of the Constitution - there is no restriction on the respondent to fix his prices keeping in view the various factors but such an exercise should not violate the provisions of s.171 of the Act - respondent has been duly put to notice and full opportunity of being heard and defend himself has been repeatedly granted to him as and when it was requested by him and he has also filed detailed submissions along with the oral arguments, hence he cannot claim that there has been violation of the principle of audi alteram partem - in the present case, the benefit of ITC works out to be 5.59% and the Respondent could have increased his prices to the extent of 5.59% but as is evident from the report of the DGAP the prices of the products have been increased from 5.75% to 84.55% - DGAP has considered only those products on which there has been increase of more than 5.59% - accordingly, 170 products have been impacted and the profiteered amount on these products during the period 15.11.2017 to 31.05.2018 has been rightly computed as Rs.41,42,97,635/- as per rule 133(1) of the Rules, 2017 - Respondent is directed to reduce his prices by way of commensurate reduction keeping in view the reduced rate of tax and the benefit of ITC denied - respondent is directed to refund to the applicant an amount of Rs.5.65 along with interest @18% from the date of charging the above amount till its refund - Respondent is directed to deposit the balance amount of Rs.41,42,97,629.35 in the ratio of 50:50 in the Central and State CWFs (of 31 States/UTs) along with interest @18% till the same is deposited, within a period of 3 months -Respondent has committed an offence u/s 122(1)(i) of the CGST Act, 2017 hence SCN is to be issued proposing imposition of penalty - For the period post 31.05.2018, DGAP to investigate whether the benefit of tax reduction has been passed and to report findings to the authority: National Anti-Profiteering Authority

- Application disposed of : NAA

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