The brief facts of the case are that M/s Raymond Ltd. had not passed on the benefit of tax reduction from 28% to 18% w.e.f. 15.11.2017 on “After-Shave Lotion Park Avenue Good Morning 50 ml" which was supplied to M/s Big Bazaar with same MRP of ₹ 115/- per unit before and after reduction of GST by government.
The respondent has pleaded that the rate of GST was reduced from 28% to 18% w.e.f. 15.11.2017 and accordingly. he had reduced the rate of GST from 28% to 18% in the invoices issued by him to his customers and hence he had passed on the benefit of tax reduction. The above plea of the Respondent is wrong and misleading as mere charging of GST @ 18% after the tax reduction does not amount to passing on the benefit of tax reduction in view of the fact that the respondent had increased the base prices of his products w.e.f. 15.11.2017 and then charged GST @ 18% on them whereas he was legally bound not to increase them. The Respondent had continued to charge the same cum tax prices which he was charging before the tax reduction and hence, he has not passed on the benefit of tax reduction. Therefore, the above plea of the Respondent is hollow and hence, it cannot be accepted.
The Respondent has also argued that the it has given discount of 7.81% on the face of invoice to customers. In this connection it would be relevant to point out that as per the provisions of Section 171 (1) “Any reduction in rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in prices.” Therefore, there is no provision of passing on the benefit of tax reduction by way of offering discounts and it should be invariably passed on by commensurate reduction in the prices only. As has been discussed above, the Respondent was required to pass on benefit of 10% rate reduction whereas he has passed on benefit of 7.81% only and thus he has not passed on the full benefit of tax reduction. This benefit was to be calculated on each product and hence it would be different for different products based on their prices whereas the Respondent has passed benefit at the uniform rate, which is wrong and illegal. The Respondent has not produced any evidence to establish how he had arrived at the 7.81% discount.
The Respondent has also argued that the interpretation of Section 171 of CGST Act done by the DGAP was not correct as passing of the benefit of GST rate reduction through discounts etc. was in full compliance with the provisions of Section 171 of CGST Act. However, it is clear from plain reading of the provisions of Section 171 (1) that the benefit of tax reduction can be passed only by commensurate reduction in the price and not be any other means including the discounts. Moreover, the discount of 7.81% claimed to have been passed on account of tax reduction has been arbitrarily and wrongly computed by the Respondent and was also not commensurate with tax reduction of 10%. Not even a single tax invoice produced by the Respondent shows that the above discount was given on account of tax reduction. Moreover, the discounts so offered by the Respondent do not satisfy the conditions imposed under Section 15 (3) of the CGST Act, 2017 quoted supra. The strategy adopted by the Respondent to first increase the base prices from 15.11.2017 and then offer discount shows that he had no bonafide intention of passing on the benefit of tax reduction. Hence, the above claim of the Respondent is not tenable.
As already discussed above, the benefit has to be passed on by way of reduction in prices and hence, it cannot be passed in any other manner as per the convenience of the Respondent. Therefore, all the above claims of the Respondent cannot be accepted.
Held by NAA
Based on the above facts, it is established that both the above Respondents have acted in contravention of the provisions of Section 171 of the CGST Act, 2017 and have not passed on the benefit of reduction in the rate of tax to their recipients by commensurate reduction in the prices. Accordingly, the amount of profiteering in respect of the Respondent No. 1 is determined as ₹ 18,48,34,084/-. The profiteered amount in respect of the Respondent No. 2 is determined as ₹ 38,64,891/-.
Both the Respondent are directed to reduce the prices of the impacted products as per the provisions of Rule 133(3)(a) of the CGST Rules. 2017. keeping in view the reduction in the rate of tax so that the benefit of tax reduction is passed on to the recipients.
The Respondents are also directed to deposit the profiteered amounts mentioned above along with the interest to be calculated @ 18% from the date when the above amounts were collected by them from the recipients till the above amounts are deposited.
Show Cause Notices be issued to the respondents directing them to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the Central Goods & Services Tax Rules, 2017 should not be imposed on them.
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