Wednesday, 10 October 2018 10:19

National Anti-profiteering Authority : Shri Pawan Sharma & DGAP, Indirect Taxes & Customs Vs M/s Sharma Trading Company, Jaipur: Case No. 6/2018 : 7th September, 2018

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Case No.     6/2018

Date of Institution   03.07.2018
Date of Order     07.09.2018

In the matter of:

1.   Shri Pawan  Sharma  c/o Kalptaru  Departmental   & General  Stores, JP  SVS-P,  Jaipur- 302017.

2.   Director   General  Anti-Profiteering,   Indirect  Taxes  & Customs,  New Delhi-110001.


M/S   Sharma   Trading    Company, Jaipur


1.  Sh. B. N.  Sharma,   Chairman
2.  Sh.  J.  C.  Chauhan,   Technical  Member
3.   Ms.  R.  Bhagyadevi,   Technical  Member

1.    None for the Applicant  No.1.
2.    Sh. Akshat  Aggarwal  Assistant  Commissioner  and Sh.   Bhupender Goyal Assistant  Director  (Costs) for the Applicant   No. 2.
3.    Sh. Subash  Joshi,   Proprietor  and Sh. Vishal Sharma  Advocate  for the Respondent.


1.   This report dated 16.03.2018,   has been received from the Applicant No.  2 i.e. Director General of Safeguards (DGSG) now re-designated as Director General 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 an application dated 22.11.2017 was filed  by the Applicant  No.  1 before the  Standing  Committee, constituted under Rule 123 (1)   of the above Rules,  alleging that the Respondent had not passed on the benefit of reduction in the rate of tax  by  lowering the  price of Vaseline VTM  400  ml.,   (here-in-after referred  to  as  the  product)  which  he  had  purchased  from  the respondent,  when  the  Goods  and Services  Tax  (GST)  was  reduced from 28% to 18%   on this product on 15.11.2017. He had also alleged that  he had  bought  the  above  product  from  the  Respondent   @  Rs. 213.63/-  per  unit vide   tax  invoice   No.   GSA25066  on   26.09.2017 which  included GST @ 28% and the Respondent had charged the same  price when  he  had  purchased the  above  product vide  tax invoice   No.  GSA37782  on  15.11.2017  when  the  GST  had  been reduced to  18%.   He  had thus  claimed  that  the  Respondent  had indulged  in  profiteering  in contravention of the provisions of Section 171   of the CGST Act,  2017 and hence appropriate action should be taken against him.

2.  The above application was examined  by the Standing Committee on Anti-Profiteering  and was referred to the DGAP,  vide minutes of it's meeting dated 29.11.2017    for detailed investigation under Rule 129 (1) of the CGST Rules,  2017.

3. The DGAP had issued  notice to the Respondent on 29.12.2017    to submit his reply on the allegation levelled by the Applicant No. 1   and also to suo moto determine  the quantum of benefit which he had not passed on after the reduction in the rate of GST. The Respondent was also requested to provide copy of the balance sheet, invoices of sales  and  purchases  and  returns  filed  by  him.   The  DGAP  has informed  that  the  Respondent  in   his  replies   dated  12.01.2018,  24.01.2018,    09.02.2018, 28.02.2018   and 12.03.2018  had stated that he was a distributor and stockist  of M/s Hindustan Unilever Limited (hereinafter referred to as the HUL)  and had supplied 20 units of the above product to the Applicant  No.   1    vide  invoice  No. GSA37782 dated  15.11.2017   however this supply was returned  by the Applicant No.   1    vide  Goods  Return  invoice  No.   534 dated  15.12.2017    against which  Credit  Note  No. AA021330  was  issued  by him on 23.12.2017 and  hence  the  above  transaction    did  not  amount  to  the  supply  of goods  and therefore,   it did not fall under the ambit  of Section  171 of the  above  Act.  The  DGAP  has 'also   informed  that  the  Respondent had also  contended  that  the  peak sale  period for the  above  product was  during  winters  and  before  coming  into  force  of the  GST  it was being   sold   under   various   Consumer   Promotion   Schemes   (CPS) during  the  lean  season  by offering  additional  quantity  or along  with some  additional    products   and  such  CPS  were   usually  withdrawn during the winters.   He has further  informed  that the  Respondent  had also    submitted   that   the   Scheme   launched   during   the   month   of September,   2017  by  offering  additional   quantity  of the  product  was not withdrawn   in November,   2017 and the  MRP was  retained  at Rs. 235/- for 400 ml. of Vaseline   which was the MRP for 300 ml. and thus the  benefit  of  reduced   rate  of tax was  passed  on  to the  recipients through  the additional  quantity  of 100 ml. The  DGAP  has also stated that  the  Respondent   had  claimed  that  the  product  was  sold  @  Rs. 0.59  per ml. after 15.11.2017  as compared to it's price of Rs.  0. 73 per ml. during the month of November, 2017 and hence there was decrease of more than 18% in the price resulting in passing on of the benefit of reduction  in the  rate of the tax.  The  DGAP has further intimated that the Respondent had also maintained that the price of the above product was reduced from  Rs. 235/- to Rs. 233/- w.e.f. 13.12.2017  which  had  also resulted  in passing  on the  benefit  of tax reduction  along with supply of enhanced  quantity  of Vaseline.

4.   The  DGAP  has  reported  that  the  contention  of the  Respondent  that no profiteering  was  involved  in  the present  case as the Applicant  No. 1    had returned  the  product  on 15.12.2017  which  was  sold  to him on 15.11.2017    and  a credit  note  had  been  issued  in his   favour  by the Respondent  and hence the above transaction  was  null and void was not  correct   as  Section   171  of  CGST  Act,   2017   required  that  the benefit  of tax reduction  should  be passed  on at the time of supply  of the  goods  and  services  and  any future  event  related  to that  supply would  not  render  the  transaction   of original  supply  infructuous.  The DGAP  has also  reported  that the GST rate on the  product  had been reduced  from  28%  to  18% vide  Notification  No.  41/2017-Central   Tax (Rate)   dated  14.11.2017,    with effect from  15.11.2017    and hence the benefitof  tax   reduction   was   required   to   be  passed   on  by  the Respondent.He  has  further   reported  that  the  claim   made  by the Respondent  that the  benefit  of GST rate reduction  had been  passed on  by  increasing   the  quantity  of Vaseline  from  300  ml. to 400  ml. without  any increase  in the MRP was  not tenable  as the Respondent was not competent  to either  increase the quantity  of the product or to reduce  the  MRP w.e.f.    15.11.2017    as it was  not in his stock  and on which full Input Tax Credit  (ITC)   of 28%  had been availed  by him.  The DGAP  has also submitted  that the  base  price  of the  product,   at the time   of  GST   rate  reduction   w.e.f. 15.11.2017, was   increased   to maintainthe  same   selling   price  which   was   prevalent   before  the reduction    and   therefore, the   Respondent    had   indulged    in  the profiteering  and had thus  contravened  the  provisions  of Section  171 of the CGST Act,  2017.

5.  The  DGAP   has  also  intimated   that  the  Respondent    had  himself admittedthat  the  Applicant   No.    1  had  purchased   1 O    units  of  the product  on 26.09.2017   from  him, vide  invoice  No.  GSA25066  at the base price Rs. 166.90/-   per unit on which  the price charged  including GST was Rs. 213.63/-   per unit. The Applicant  No.1 had again bought 20 units of the product  on 15.11.2017,    vide invoice  No.  GSA37782  in whichthe  base   price  was  shown   as  Rs.  181.05/-   and  the  price chargedincluding   GST  was  mentioned   as  Rs.  213.63/-    per  unit. Therefore,    the  DGAP  has concluded  that  although  the  GST  on the product  was  reduced  from  28% to  18%  w.e.f.  15.11.2017, the  price realised  by the  Respondent   including  GST  from  the Applicant  No.  1 had remained  unchanged  at Rs. 213.63/-  per unit,  which  showed that the  unit  base  price  was  enhanced   by  Rs.   14.15/-  (Rs.  181.05-Rs. 166.90) and therefore,   profiteering  to the extent of Rs 14.15/- per unit was proved  against  the Respondent.  The  DGAP  has also stated that the Applicant  No.1 had again  purchased  11  units of the product  vide invoice  No.  GSA42046   dated  28.11.2017    from  the  Respondent   on which  the  same   net  price  of  Rs.  213.63/-    inclusive   of  GST  was charged   thus,   profiteering   of  Rs  14.15/-    per  unit  was  established against  him.

6.  The   DGAP   has.  concluded    by  stating   that   the   Respondent    had profiteeredto the  extent  of Rs. 5,50,370/- from  November,    2017  to January,   2018  which  included  the  profiteering   of Rs.  184/- made  by him from the Applicant  No. 1   on the sale of the 11  units of the product on  28.11.2017. He  has  further   stated   that   the   Respondent   had profiteered  an amount  of Rs. 2,41,922/-    @ Rs. 16.69/-  including GST @ 18% per unit on the sale of 14,495 units and Rs.3,08,448/-  @ Rs. 14.88/- including GST @  18% per unit on _the  sale of 20,729 units between the period of 15.11.17  to 31.01.2018. Thus an amount of Rs 5,50,370/-  was profiteered by the Respondent in the supply of 35,244 units of the  product as per the following chart which amounted to violation of the provisions of Section 171 of the CGST Act,  2017:-


7.  The above report was• considered by the Authority in  it's meeting held on 23.03.2018  and it was decided to hear the Applicant No. 1    and 2 and the Respondent on 10.04.2018.   However, the Applicant No. 1   did not appear during the hearing and vide his letter dated 09.04.2018 showed his  satisfaction over the investigation  report. The Applicant No.2   was   represented   by   Sh.    Akshat   Aggarwal,    Assistant Commissioner  and Sh. Bhupender Goyal,  Assistant Director  (Cost). Sh.  Subhash Joshi proprietor appeared on behalf of the Respondent alongwith  his  Counsel  Sh.  Vivek  Sharma  during  the  process  of hearing.    The   Id.   Counsel   for  the  Respondent   submitted   detailed written   submissions    on   10.4.2018    as  well   as   additional   written submissions    on   23.4.2018 in  which   it  was   submitted    that   the Respondent  was a distributor  of HUL and he was  bound to follow the price pattern and other sale policies decided  by the HUL. He has also explained  the  entire  chain  of purchase  of the  product  made  by him from  the  HUL.  and  it's  subsequent   sale  to  the  retailers  during  the period  prior to  15.11.2017, from  15.11.2017 to 07.12.2017 and from 08.12.2017  to 31.01.2018   as per the table  given  below  in which  the Respondent  has been mentioned  as the Noticee:-


8. The Respondent  has stated that before  15.11.2017,    the productwas purchased  by him from the HUL @ Rs. 158.66/- per unit on which tax at  the  rate  of  28%   i.e.   Rs.   44.42/-  was  paid  by  him  which  was subsequentlyavailed  as ITC and thereafter,  the  product  was sold  at Rs. 213.64/-  inclusive  of 28% GST and 4.06%   margin.   He has also stated  that  on  14.11.2018    he  had  1288 units   of the  product  in his stock,   which  were  bought  @  Rs.  158.66/-  per  unit  excluding   GST however,   On   15.11.2017 after  reduction  in the  GST,   the  purchase price on the  stocks was  increased  from  Rs. 158.66/-  to Rs. 172.77/- excluding  GST  by the HUL in its software.   He has further  stated that although the  tax  was   reduced   from   28%  to   18%,   the  software suppliedby  the  HUL  showed  per  unit  price  of the  product  as  Rs. 172.77/-  per unit on which  he had paid GST @18% and earned  profit margin  of 4.06%.  He has also claimed  that  on the closing  stock,  the differential  amount  of Rs.   14.11/-   (Rs. 172. 77/- - Rs.   158.66/-),   along with the  ITC benefit  of Rs. 0.03/-  (Rs.  8.28/-  - Rs. 8.25/-)  due to the change  in the rate of tax had been recovered  by the HUL from him on 26.02.2018.    He  has   also   submitted   a  copy   of  the   letter   dated 21.11.2017    issued  by the  HUL to all  it's   Redistribution   Stockists  in which they were  asked to refund the excess  ITC which  was available tothem   on  the   closing   stocks   as  on   15.11.2017  to  the   HUL. Therefore  he has further  stated  that  profit,   if  any,  was  made  by the HUL and not by him,  as the excess  amount  of Rs.   18,217.90/-   stood debited from his account  on 26.02.2018    to the HUL for the 1288 units of the product which were in  his  stock as on 14.11.2017.    He has also furnished    a   copy   of   The    Bank   Certificate    and   the   Chartered Accountant's   Certificate  in this behalf.  He has further  contended that the  cumulative   benefit  of  reduction   in the  tax  available   on  all  the Stock  Keeping  Units  (SKU)  of which  the  product  was  part of,  which came  to  Rs.  5, 18,443. 741-,  had  been  debited  on 26.02.2018   to the account  of  the  HUL;   and  the  Respondent   had  not  profited  in  any manner  with  the  reduction  in the  rate  of tax  from  28%  to  18% on 15.11.2017.

9.  The  Respondent   has  also  submitted   that  during  the  period  w.e.f.  15.11.2017 to 07.12.2017,    he had bought  the  product  from the HUL at the higher  rate of Rs.   172. 771/- and paid  18% GST,  i.e.   Rs.  31.10/- which   was  availed  by him  as  ITC.  He  has  also  submitted  that  the product  was  sold for  Rs. 213.64/-  per unit including   GST and 4.06% margin  and hence  his margin  had remained  the same,  therefore,  no profiteering   was  done   by  him.    He  has  further   submitted    that  on 08.12.2017,   the  MRP  of the 'product  was  reduced  from  Rs. 235/- to Rs.  233/-  by  the  HUL  due  to  which  his  purchase   price  had  been reduced  from  Rs.  172. 77/- to  Rs.   171.30/-  excluding   GST.  He has also  claimed   that  he had  bought  the  product  from  the  HUL  @  Rs. 171.30/-   per unit on which  GST of 18%,  i.e. Rs 30.83/-  was  paid by him and ITC was  claimed  and the product  was sold for Rs.  211.82/- per unit inclusive  of 4.06% margin  and  18% GST  and therefore,  his margin had remained  the same. He has also  claimed  that actually,  he had lost Rs.   0.07/-  per unit  during  each transaction   and hence  even after reduction   in  the MRP w.e.f.  08.12.2017, no additional   profit had accrued  to  him.   The  Respondent   has further  claimed   that  he was merely  an intermediary   in the supply  chain and  had not profited  due to the reduction  in the rate of tax.

10. The Respondent  has also argued that the  notice dated 29.12.2017  and the  Report  by the  DGAP  dated  16.03.2018  were  void  ab-initio  as the product  bought  by the  Applicant   No.  1    had  been  returned  by him and thereforehe had  not suffered  any loss.   He has further  argued  that the term 'supply'  was defined  in Section 7 (1) (a) of the CGST Act, 2017 and under Section  34 (1) of the above Act,   where  the goods  were  returned, the supplier  was  required  to issue a credit  note and mention  the details of the  credit  note  in the  GST  return  filed  for the  month  in which  such note was issued  and hence  it was evident  that there  was  a provision  in the Act  itself for  negating  a supply  transaction   and  since  it was  not in disputethat  the  transaction    stood  annulled   by  the  Applicant   No.    1 himself on 15.12.2017  therefore,   no profiteering  could be alleged by him. He has  also  relied  upon  the  law settled  by the  Hon'ble   High  Court  of Kerala in the case of Grasim Industries Ltd. V. State of Kerala [1994] 1994  377  (Kerala) in which  it was  ruled that a sales return meant a return of the very goods purchased by the buyer in whole or in part and it was a reversal of the sale,  as if the sale had not taken place in respect of the  returned goods and therefore  contemplated a return before the goods were appropriated and used by the buyer. He has also contended that applying the same principle in the present case, the transaction of supply did not exist and hence the entire proceedings were contrary to the provisions of the law as the contention of the DGAP that any subsequent transaction of return of goods would not negate the original   transaction    of   supply   of  goods   was   not   correct   and   the proceedings  were required to be set aside on this ground  itself.

11.  The  Respondent   has also  averred  that  Section  171 of the  CGST Act, 2017  provided  that  any benefit  of reduction  in the  rate of tax should  be passed  on to the  recipient  by way of commensurate   reduction  in prices however  there  was  no mechanism  mentioned  in  the  CGST  Act  on the factoring  of commensurate   reduction  in the  prices  and  the  Act  did  not provide any methodology  for determining  the meaning of the term "commensurate    reduction  in prices."   He has further  averred  that the Act also did not provide any time period/ time frame within which such commensurate   reduction  in prices was to take  place  in the  absence  of which   a  reasonable   time   period  was   required   to   be  given  to  any registered  person  to  bring  about  the  necessary   reduction   in  prices  in view of the reduction  in the GST rate since there  were various  practical issues  as  also  various   legal  requirements   which  were  required  to  be complied  with.   He has further  averred  that  it was  impossible  to change the  entire  pricing  mechanism,    labelling  and  packaging   overnight  as  it was settled that the law could not force a person to do a thing which was impossible   as  was  enshrined   in the  legal  maxim   "Lex Non  Cogit Ad lmpossibilia".

12. The Respondent has also pleaded that para 16 of the  Report dated 16.03.2018, had failed to consider the benefit of additional grammage as it was  stated  that  the  Respondent being  an  intermediary  could  not increase the grammage. He has contended that there was no provision in the law which debarred him from getting benefit of grammage as an intermediary  and  in  the  entire  supply  chain  any  benefit which  was available  to a manufacturer   was  also available  to  an  intermediary   and the GST law did not make any distinction  on this account.  He has further pleaded  that had the increase  in weight  been considered,   it would  have established  that the commensurate   benefit had been passed-on.

13. The  Respondent   has also claimed  that the excess  ITC and the excess purchase  price that was recovered  by the HUL from the Respondent  had been deposited  by the HUL in the Consumer  Welfare  Fund (CWF).   The Respondent  has further  claimed  that the  profit of Rs.  14.15/-   had been calculated  by the  DGAP  by presuming  that  the difference   between  the original  base  price  and  the  increased   base  price  was  earned  by the Respondent,   which  was  not correct  as the base  price was  increased  by the  HUL  post the  change  in the  rate of tax,   and this  increase   in base price was  also earned  by the  HUL,   therefore,    profiteering,    if any, could not be attributed  to the Respondent.

14.  During the course  of the proceedings   the HUL was also asked to clarify the  claims  made  by the  Respondent   in  respect  of the  increase  in the base  price,  recovery  of excess  ITC and the  deposits  made  by it in the CWF. The HUL vide its reply dated 03.05.2018    had admitted  that it had asked  its Redistribution  .Stockist   to credit  the  excess  ITC to its account and also that it  had deposited  the same in the CWF after recovering  the same from them.

15. The  DGAP  vide  his  reply  received  by the  Authority  on 03.07.2018    on the  letter  dated  03.05.2018 of the  HUL  has stated  that  the  profiteered amount could   not have been recovered  by the HUL from  its Stockists  as there was no such provision  in  Section  171 of the CGST Act,  2017.

16. We have carefully  considered  the submissions  made by both the parties as well  the  material   placed   on  the  record  and  it  is  revealed  that  the Respondenthas  himself  admitted  through  the  Table  submitted  by him vide  his submissions   dated  23.4.2018   that  prior to the  reduction  in the GST  on the  product  from  28%  to  18% w.e.f.   15.11.2017    it was  being purchased  by the Respondent  at the base price of Rs.   158.66/-  per unit with GST  of Rs.   44.42/-  @ 28% and the total  purchase  price was  Rs. 203.08/   per unit and it was being sold by him on the price of Rs. 213.63/- per unit after  adding  his margin  @ 4.06%  of Rs.   10.55/-.   He had  1288 units of the  product  in stock  on  14.11.2017. He has also  admitted  that after  15.11.2017  he  had  sold    the  product   at  the  base  price  of  Rs. 172.77/-   after levying GST of Rs.  31.10/-@ 18% and charging  margin of Rs.   9.77/-  per unit and the  product  was sold   by him at the price of Rs. 213.64/-.    Therefore,   it is  clear  that there  was  no  reduction  in the  sale price charged  by him   although  the rate of GST was  cut by 10%,   rather the base price was increased  by Rs.  14.11/- per unit by the Respondent. The same price was charged  by him on all the transactions   made by him between  15.11.2017    to 7.12.2017.   The base  price was  reduced  by Rs. 2/- w.e.f.   8.12.2018    by the  HUL  after which  sale  price  of Rs.   211.82/- was charged  by the Respondent whereby there was excess realisation of Rs. 12.11/- per unit. The Respondent has further admitted that he had sold   1 O    units of the  product to the Applicant   No. 1    vide  invoice No. GSA25066 dated 26.9.2017   on which the base price was charged as Rs.  166.90/-  and the sale price including  the GST @ 28% was realised as Rs.  213.63/-.   It is also acknowledged by the Respondent that he had sold 20 units of the  product to the above Applicant vide  invoice No. GSA37782  dated  15.11.2017  in which the  base price was shown as Rs. 181.05/- and the selling  price was Rs. 213.63/-  and hence the base price was enhanced  by Rs.  14.15/-  per unit by the Respondent.   It has further been  acknowledged   by the  Respondent  that  the  above  Applicant  had purchased  11  units of the product from the Respondent  vide invoice  No. GSA42046  dated  28.11.2017 in which  again  an amount  of Rs.   14.15/- per unit was  over  charged  from  him. The  Respondent   was  also aware that   the   rate   of  tax   had   been   reduced   from   28%  to   18%  w.e.f. 15.11.2017  on the  above  product  which  has been  correctly  charged  by him in the  above  3 tax  invoices  issued  by him to the  above  Applicant. Therefore,  it is established  from the record  as well  as the  admission  of theRespondent    himself   that   he   had   resorted   to   profiteering    by increasing  the base price in violation  of the provisions  of Section  171  of the above Act and had thus  not passed on the benefit of reduction  in the rate of tax  by commensurately   reducing  the  price  of his product  rather the  base  price  was  increased  by him exactly  by the  same  amount  by which the tax had been  reduced.  The Respondent   has claimed  that the HUL  had  changed   the  base  price  in  its  software   and  hence  he  was bound to charge the increased  base price at the time of issuing  invoices. However, the   Respondent    being  a  registered   dealer   having   GSTIN 08AAEFS7072E1Z4    under  the CGST/SGST  Acts  2017  was fully  aware of the reduction  in the  rate of tax of the product  issued  vide  Notification No.   41/2017-   Central  Tax  (Rate)  dated   14.11.2017, with  effect  from 15.11.2017  and Section  171 of the above Act and hence  he was legally bound not to charge the enhanced  base price resulting  in negation  of the effect  of  reduction   in the  rate  of tax  and  thus  he  cannot  escape  his  accountability  of passing  on the benefit of the reduction  in the rate of tax to his  customers.   The  Respondent  has also not produced  any evidence to show  that  he had objected  to the  increase   made  by the  HUL in the base price or under what provisions of the above Acts he was bound to follow the  instructions given to  him by the  HUL  vide  it's letter  dated 21.11.2017,  vide which the excess amount of ITC was credited by him to the  HUL  in  respect  of  the  above  product,  in   contravention  of  the provisions of Section 171 of the Act and also charge the increased base price. Thus it is established that he had profiteered to the extent of Rs. 5,50,370/-   on  account  of  the  increased base  price  charged  by him including GST from 15.11.2017 to 31.1.2018 as has been mentioned in the  table  shown  in  para 6  supra.  It has also  been  proved that the Respondent had profiteered an amount of Rs.   184/- @  Rs 16.69/-per unit including GST @  18% by supplying 11  units of the product to the Applicant No. 1   on 28.11.2017,   therefore, he has violated the provisions of Section 171 of the above Act.

17. The  Respondent  has  also  claimed that  all the  units  of the  product bought by the above Applicant on 15.11.2017  had been returned by him on 15.12.2017  and accordingly the transaction of supply  had become infructuous and  hence  no  profiteering could  be  alleged  against him. However,  this contention of the• Respondent is not correct as the supply of goods stood completed on 15.11.2017  as soon as the tax invoice was issued by him after receipt of entire consideration and delivery of the goodswas   made  to   the   above  Applicant.  This  transaction  was admittedly reflected by Respondent in his return for the month of November,  2017.  The goods were returned by the above Applicant  on 15.12.2017  on which  the Respondent  had issued  a credit  note in favour of the above  Applicant  vide which  the cost  of the goods  as well  as the GST  charged  was  refunded  to the  above  Applicant,   which  was  again mentioned  by him in his return for the month of December,   2017 as per the provisions   of  section   34  of  the  CGST   Act,   2017.   In  case  the transaction made   on   15.11.2017  had   been   negated   there   was   no question  of its having  been  reflected  in the  return filed for the month of November,   2017  and hence this averment  of the Respondent  cannot be accepted.    As  soon  as the  Respondent   had  issued  the  tax  invoice  on 15.11.2017    after   increasing    the   base   price   he   had   violated   the provisions   of  Section   171.  The   law  settled   in  the   case   of  Grasim Industries Ltd. Supra cited by the Respondent is of no help to him as the same is  based on entirely different facts as the issues involved in this case were whether the  returned goods were  of the same quality which  was   supplied   and  whether  return  of  these   goods  to  the headquarter and not to the branch from where they were supplied made the  Grasim  Industries  entitled  for  deduction  of  their  value  from  its turnover or not. The issue in the present case is whether  the supply made by Respondent on 15.11.2017  was nullified or not and hence the findings recorded in the above case are not being relied  upon.

18. The Respondent has also averred that Section 171 of the Act did not provide for   any  methodology   for   determining   the   commensurate reduction in the  prices.  The  argument advanced  by the  Respondent appears to be frivolous as it involves only mathematical  calculation of the amount by which the tax had been reduced i.e.  by 10% and after subtracting the same from the existing Maximum Retail Price (MRP), the MRP was  to  be re-fixed  as  per the  provisions   of the  Legal  Metrology (Packaged   Commodities)   Rules,   2011.   It was  also  mandatory   for  the Respondent  to declare  the reduced  MRP by affixing  additional  sticker or stamping  or on line printing  as per the letter  No. WM-10(31 )/2017 dated 16.11.2017  issued  by the Ministry  of Consumer  Affairs,  Food and Public Distribution.   Govt.  of  India  which  he  has  failed  to  do.   The  GST  law requires  that  the  commensurate   benefit  as a result  of  reduction  in the rate of tax  or  ITC  has to  be  passed  on to the  recipients   on each  and every  product  which  the  Respondent   has  not  done.  It would  also  be pertinent to mention  here that this Authority  has already  promulgated  the "Methodoloy   and  Procedure"   as required  under  Rule  126 of the  CGST Rules,   2017 for determining  whether  both the above  benefits  have been passed  on  or  not  vide  it's   Notification   dated  27.03.2018. It is further made  clear  that  this  Authority   is not mandated  to  be a price  regulator. Section  171 only stipulates  that any benefit of reduction  in the rate of the tax  or the  ITC which  accrues  to  a supplier  must  be passed  on to the consumers  as both are the concessions  given  by the Government  from its own revenue  and the suppliers  cannot  appropriate  them  as they  are not entitled  to do so.   Both the benefits must go to the consumers  and in case they  are  not identifiable  the  amount  so collected  by the  suppliers should  be deposited   in the  CWF  so that  it can  be  used  in the  public interest.  In case of any legal or logistical difficulties  the amount  of benefit collected   by the  suppliers   can  always  be  deposited   in  the•  CWF  but cannot  be retained  by the  suppliers  as it does  not belong  to them.   The Respondent   has  made   no  effort  to  pass  on  the   benefit  which   had become  due after  reduction  in the rate of tax to his customers  rather he had  increased   the   base   price   and  had  infact   illegally   collected   an amount  equal to the  reduction  which  had accrued  due to the change  in the rate of tax.  He has also not followed  the 2011  Rules supra citing his practical  and  logistical  problems,   which  does  not appear  to  be correct and  hence  he has contravened   the  provisions  of the  Section  171. The Respondent  was at no stage  required to perform  an impossible  act and hence the  doctrine  of "Lex  non cogit  ad impossibilia"   does  not apply  in his case.

19. The  Respondent   has  also  claimed  that  the  HUL  had  enhanced   the quantity of Vaseline  from 300 ml. to 400 ml. and charged  the same MRP of Rs. 235/- after the tax was reduced and hence the benefit of reduction hadbeen   passed    on   to   the   customers. The   contention    of   the Respondentmade   in  this   regard   is  completely    untenable    as  the Respondent  was in no position to enhance the quantity  of the product as he was  only an agent  and  not the manufacturer   of the  product  and the units  of product  sold  by him w.e.f.  15.11.2017  were  from  the  stock  on which  he had availed  full  ITC of 28% and hence  he was  duty bound to pass on the benefit by reducing  his base price.

20.  The  Respondent   has  also  contended  that  the  excess  ITC credited  by him to the HUL as per the letter dated 21.11.2017  had been deposited inthe   CWF   and   hence   he   could   not   be   held   accountable    for profiteering.   However  it is apparent from the record that the Respondent had  been  instrumental   in issuing  incorrect  tax  invoices  on  15.11.2017 and 28.11.2017    as well  as in the case of supply  of 35,244   units of the product  sold by him between  the period of 15.11.2017    to 31.01.2018 in which  he had increased  the base price  of the product  in order to negate the benefit  of reduction  in the  rate of tax and extract  illegal  profit from his customers  which was exactly equal to the amount  of reduction   in the rate of tax and hence any subsequent  deposit  of such excess  amount  in to the CWF cannot absolve  him of the allegation  of profiteering.

21.  It  is  clear   from   the   narration   of  the  facts   stated   above   that   the Respondent  has indulged  in profiteering  in violation  of the provisions  of Section  171   of the CGST  Act,  2017 and has not passed  on the benefit of  reduction  of tax  as  per the  Notification  dated  14.11.2017 supra  in respect of the above  product to his customers  and therefore,   he is liable for  action   under   Rule   133  of  the  CGST   Rules,   2017,   the  relevant provisions  of which state as under:-

"133.    x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-xx-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x

(3)Where  the  Authority  determines   that  a  registered   person  has not passed  on the  benefit  of the  reduction  in the  rate  of tax  on the supply  of goods  or services  or the  benefit  of  input  tax  credit  to the recipient  by way  of commensurate   reduction   in   prices,  the  Authority may order-

(a)  reduction  in prices:

(b)  return to the recipient,   an amount  equivalent  to the amount  not passed on by the way of commensurate  reduction  in prices along with interest  at the  rate of eighteen  percent  from the date  of collection  of thehigher   amount   till  the  date  of  the   return  of  such  amount   or recovery  of the  amount  including  interest  not returned,   as the case may be;

(c) the  deposit   of  an  amount   equivalent   to  fifty  percent   of  the amount  determined   under   the  above  clause  in the  Fund  constituted under section  57 and the remaining   fifty  percent  of the amount  in the Fund  constituted   under   section  57 of the  Goods  and  Services  Tax Act,  2017 of the concerned  State,  where the eligible  person  does not claim return of the amount  or is not identifiable;

(d) imposition   of penalty as specified  under the Act;  and

(e)   x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-xx-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x

22.  Accordingly,   the Respondent  is directed  to reduce the sale  price of the product  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 his customers.

23.  Since  the  price  of the   product  and the  GST  charged  by him from  the above Applicant   in respect  of the tax invoice  issued  on 15.11.2017 has been returned  by him to the Applicant   No.   1    the amount  of profiteering is  not being determined  however,   in   respect  of the tax invoice  issued by him to the above Applicant   on  28.11.2017 the amount  of profiteering  is determined  as Rs.   184/-as  has been mentioned  in para  16 supra which shall  be returned  by him  to the  Applicant   No.   1    with  interest  @  18% w.e.f.  28.11.2017   till the  same is  paid.   Based on the  details of the supplies made by the Respondent to the other recipients who are not identifiable  the amount of profiteering is determined as Rs.  5,50, 186/- excluding the amount of Rs. 184/-,  which  shall be deposited  by him along  with  interest  @   18%   to  be  calculated  from  the  first  of  the subsequent  month  in   which  the  profiteering  was  done   as  per the  amount which  has been mentioned   in the Table shown  in para 5  above, till  it is  paid.  The  DGAP  shall  ensure  that  in case  the  above  amount pertaining  to the Respondent  in respect  of the above  product  has been deposited  by the  HUL in  the CWF,   the balance  amount  due as interest is calculated  and got deposited  from the above Respondent.   In case the above  amount  has  not  been  deposited  or  short  deposited,   the  same shall be got deposited  from the Respondent  by the DGAP alongwith  the interest.   The   above   amount   shall   be  further   got   deposited   in  the respective   CWF  of  the  Central  or the  State  Government   as  per the provisions  of Rule  133  (c)  of the  CGST  Rules,    2017  by the  DGAP  as per the ratio prescribed  under the above Rule.

24.  We have also carefully  considered  the issue of imposition  of penalty   on theRespondent    as   the   allegation of   profiteering    has   been   duly establishedagainst  him.   It is clear  from  the  facts  of the  present  case thatthe   Respondent    was   fully   aware   of   the    Notification    dated 14.11.2017 whereby  the rate of GST was reduced  on the above product from 28%  to 18%.   He was also fully aware of the provisions of Section
171 of the above Act whereby he was bound to pass on the benefit of reduction  in the rate of tax by commensurate reduction in the price  of the above product. However, the Respondent has deliberately  acted in defiance of the above law and hence he is guilty  of the conduct which is contumaciousand  dishonest.   He  has  further   acted  in   conscious disregard   of the  obligation  which  was cast upon him  by the law,   by issuing  incorrect  invoices  in which the   base  price  was  deliberately enhanced exactly equal to the amount of reduced tax and thus he had deniedthe  benefit  of  reduction  in   the  rate  of  tax  granted  vide Notification   dated   14.11.2017  to  his   customers.    Accordingly    he  has committed  offence  under  Section  122 (1) of the CGST  Act,  2017 which states as under:-

"122.   Penalty for certain  offences

( 1)  Where a taxable  person who-

(i)Supplies any goods or services or both without  issue of any invoice  or  issues an incorrect or false  invoice with regard to any such supply; (Emphasis  supplied)


He shall be liable  to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded or  the tax  not reduced under section 51  or short-deducted or deducted but not paid to the Government or tax not collected under section 52 or short- collected  or collected  but not  paid to the Government or input tax credit availed   of or passed on or distributed irregularly,   or the refund claimed fraudulently,   whichever is higher."

25. Accordingly,  it is proposed to impose penalty on the Respondent under Section 122  of the CGST Act,  2017 read with Rule 133 (d)  of the CGST Rules,  2017.  However,  before the penalty is  imposed the Respondent is hereby given  notice as to why such penalty should not be imposed on him.

26. Any  amount ordered to be paid or deposited by the Respondent under this order shall be paid or deposited  by him within   a period of 3 months from the date of receipt of this  order and in case the same is  not paid  or deposited  by  him  within   the  prescribed  time  the  same  shall    be  recovered  by the  DGAP  as per the  provisions  of the  CGST  Act,  2017 and paid to the entitled  person  or deposited  in the concerned   head of account of the Central  or the State Government.

27. A copy of this order be sent to both the Applicants  and the Respondent free of cost. File of the case be consigned   after completion.

(B. N.  Sharma)

(J.  C. Chauhan)
Technical  Member

 (R. Bhagyadevi)
Technical  Member

Certified  copy
Secretary  NAA
Dated:  07.09.2018

F. No. 22011/NAN09/201 

Copy to:-
1. M/s Sharma Trading  Company,  M-129,  Mahesh Colony,  Tonk Phatak, Jaipur-302015
2. Sh. Pawan Sharma,  c/o Kalpataru  Departmental  & General  Stores,  JV SVS-P,  A-140,  Saraswati  Nagar,  Opp. Sec-6,  Malviya  Nagar,  Jaipur- 302017
3. Director  General  Anti-Profiteering,  Indirect Taxes & Customs,  2nd Floor, Bhai Vir Singh Sahitya Sadan,  Bhai Vir Singh Marg,  Gale Market,  New Delhi-110001

Additional Info

  • Date Range (yyyy-mm-dd): Friday, 07 September 2018
  • Court/Authority: National Anti-Profiteering Authority
  • Tax Type: Goods and Services Tax
  • Subject: Shri Pawan Sharma & DGAP, Indirect Taxes & Customs Vs M/S Sharma Trading Company, Jaipur : Case No. 6/2018 : 7th September, 2018
  • Petitioner/Appellant: Shri Pawan Sharma & DGAP, Indirect Taxes & Customs Vs M/s Sharma Trading Company, Jaipur
  • Respondent: Shri Pawan Sharma & DGAP, Indirect Taxes & Customs Vs M/s Sharma Trading Company, Jaipur
  • Appl no. or Appl year: Case No. 6/2018
  • Supreme Court Location: Delhi
  • AAR Location: Delhi
  • Authority: Supreme Court
  • AAR GST State Location: Kerala
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