GST - Anti-profiteering - Respondent has no liberty to arbitrarily decide in respect of which products he would pass on benefit: NAA
By TIOL News Service
NEW DELHI, OCT 09, 2018: THE applicant informs that he had purchased Maggi Noodle packs, each weighing 35 gms., having Maximum Retail Price (MRP) of Rs.5/- from the Respondent on 06.11.2017 and on 28.11.2017.
The Applicant alleges that prior to 15.11.2017, the Respondent was charging 18% GST on the product's base price of Rs.3.96/- per pack, however, after the GST rate was reduced from 18% to 12% w.e.f. 15.11.2017, the Respondent had started charging 12% GST on the product's increased base price of Rs.4.17/- per pack.
Thus, the Respondent had increased the base price of the product from Rs.3.96/- to Rs.4.17/- after the GST rate applicable on the product was reduced from 18% to 12%.
The Applicant also claimed that by increasing the base price of the product it's cum-tax price had remained unchanged at Rs.4.67/- which showed that the Respondent had not passed on the benefit of the reduction of GST rate to him and, therefore, the respondent had profiteered.
The period covered by the current Investigation is from 15.11.2017 to 28.02.2018.
The Applicant was given an opportunity by the DGAP to inspect the non-confidential reply furnished by the Respondent, however, he did not avail of the said opportunity, instead, he had sent a letter dated 15.06.2018, informing that he had got clarity on how the overall GST benefit had been passed on in respect of the Maggi Noodles as a whole as it was not possible to pass on the GST benefit of 25 praise on Rs.5/- packet of Maggi Noodles . He had also informed that he was withdrawing his complaint lodged against the Respondent and with further request to close the case. "
The Respondent submitted that he had passed on the benefit of GST rate reduction in respect of the product bearing MRP of Rs. 5/- through other packs of Maggi Noodles having different gamma. The Respondent further submitted that in the case of the impugned product the price reduction would have been around 21 paise to the retailer and around 25 paise to the ultimate consumer which would have been inconvenient to both the retailer and the consumer whereas on Maggi Noodles pack of 70 Gms. bearing MRP of Rs.12/- per pack, the benefit on account of GST rate reduction for the retailer would have been approximately 56 paise against which the respondent had reduced the price by 92 paise with reduced MRP of Rs.11/- and thus, the benefit in respect of Rs.5/- MRP pack had been passed on by reducing the price of other packs of Maggi Noodles by more than what was required. Therefore, the Respondent had claimed that the benefit of GST rate reduction had been passed on in respect of Maggie Noodles as a whole.
The DGAP submitted that the applicant had sought to withdraw the application and requested for closure of the case. Nonetheless, after investigation it is proved that the respondent had indulged in profiteering and, therefore, such withdrawal was of no consequence ; that the respondent had sold the product in the State of Uttar Pradesh only and, therefore, the State concerned for the purpose of distribution of the profiteered amount of Rs.90,778/- was Uttar Pradesh only.
The Anti-profiteering authority noted that the following issues need to be settled in the present proceedings -
1) Whether the benefit accrued due to reduction in the rate of tax of one product can be passed on via another product or not?
2) Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 in this case?
3) If yes then what was the quantum of profiteering?
After examining the provisions of section 171 of the CGST Act, 2017, the Authority observed thus -
++ The base price of the product was Rs.3.96/- per pack before 15.11.2017 which was increased to Rs. 4.17/- per pack by the Respondent after the rate of tax on the product was reduced from 18% to 12% vide Notification dated 14.11.2017 and the product was sold to the recipients @ Rs. 4.67/- per pack. The Respondent was required to sell the product @ Rs. 4.43/- per pack due to reduction in the tax rate and hence he has resorted to profiteering of Rs. 0.24/- per pack. Therefore, there is no doubt that the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in the price charged by the Respondent which amounts to violation of the provisions of Section 171 of the above Act.
++ The Respondent had no legal sanction to increase the base price of the product on his own and what was required of him was that he should have only reduced the MRP of the product by taking in to account the effect of the reduction in the rate of tax. The Respondent was further required to fix the MRP keeping in view the provisions of the Legal Metrology (Packaged Commodities) Rules, 2011 which prescribe the methodology of fixing the MRP keeping in view the rounding off the price.
++ The Respondent had no mandate to deny the benefit of reduction of the tax rate due to the problem of legal tender as he had no legal authority to fix MRP arbitrarily. It was for the customers to furnish the required legal tenders and therefore, the Respondent cannot be allowed to resort to profiteering. The Ministry of Consumer Affairs has already issued detailed instructions vide it's Notification dated 16.11.2017 for notifying the reduced MRP which have not been followed by the above Respondent.
++ The Respondent has contended that he had passed on the benefit in respect of the product by way of reducing the MRP of the 70 Gms. products. The Respondent has no such liberty to arbitrarily decide in respect of which products he would pass on the benefit and in respect of which products he would not pass such benefit. As per the provisions of Section 171 of the Act the benefit has to be passed on to each recipient and the same cannot be selectively granted or denied.
++ It is also clear that the Maggi Noodle pack of 35 Gms. is distinct from a 70 Gms. pack and both the packs may be bought by the different recipients/customers and hence the benefit accruing to one customer cannot be given or denied to another nor can the benefit given to one set of customers arbitrarily enhanced and set off against the another. No such adjustments are permissible under the Act.
The Respondent was directed to refund an amount of Rs.2,253/- to the Applicant alongwith interest @ 18% p.a. Since the other customers of the product are not identifiable, the Respondent was hereby directed to deposit the balance amount of Rs.88,525/- along with the interest at 18% P.A. till the date of deposit in the respective Central or State Consumer Welfare Fund within a period of 3 months from the date of receipt of this order.
The Authority also directed issuance of SCN for imposition of penalty prescribed under Section 122 of the Act read with rule 133 (3) (d) of the CGST Rules, 2017.
The Commissioner of State Tax, Uttar Pradesh was also instructed to monitor this order by ensuring that the amount profiteered by the Respondent, as ordered by the Authority, is refunded or deposited within the above period.
(See 2018-TIOL-09-NAA-GST)
