GST – Anti-profiteering – Allegation that certain major manufacturers of FMCG have not passed on the benefit of reduction in the GST rate 

DIRECTOR GENERAL ANTI-PROFITEERING Vs SATYA ENTERPRISES: NAA (Dated: January 22, 2019)

GST: Anti-profiteering – Allegation is that certain major manufacturers of Fast Moving Consumer Goods (FMCG) have not passed on the benefit of reduction in the GST rate from 28% to 18% w.e.f 15.11.2017 by maintaining the prices of their products at the pre-GST rate levels – invoices issued by respondent for supply of ‘Beauty cream 50gms’ manufactured by M/s Patanjali Ayurveda Ltd. sent to DGAP for further action – Respondent stated that he was getting commission on purchases made from the manufacturer and was getting a discount of approximately 33% when the rate of tax was 28% and which was reduced to approximately 22% when the rate of tax had come down to 18%; that respondent was charging a fixed commission of 5% on the basis of purchases made by him – DGAP in its report has concluded that the respondent had increased the base price of the ‘Beauty Cream 50gm’ when the rate of tax was reduced from 28% to 18% so as to keep the cum-tax selling price the same as it was prior to the rate reduction on 15.11.2017; that the amount of profiteering in respect of 109 products supplied by the respondent during the period 15.11.2017 to 31.05.2018 was Rs.6,06,752.72 – Respondent during the hearing before the Authority submitted that they had no control over the MRPs as the same were fixed by the manufacturer M/s Patanjali Ayurveda Ltd. and he was bound to charge the same as per the instructions of the manufacturer.

Held: Invoice dated 12.11.2017 issued by respondent reveals that discounted base price of ‘Beauty Cream 50gm’ was Rs.48.60 per unit when the rate of tax was 28% and it was being sold at the MRP of Rs.62.21 per unit – Further, invoice dated 29.11.2017 indicates that the discounted base price of the said product was increased to Rs.52.73 per unit after the GST was reduced to 18% and it was again sold at the MRP of Rs.62.22, therefore, it is apparent that the respondent had increased the base price by Rs.4.13 per unit and maintained the same base price which he was charging before the reduction in the rate of tax – it is established that the respondent had denied the benefit of reduction in the rate of tax to his customers by increasing the base price exactly by the amount by which the tax was reduced – respondent has resorted to profiteering in violation of the provisions of section 171 of the CGST Act, 2017 – respondent had further compelled the recipients to pay additional GST on the increased price @18% and had he not increased the base price and charged additional GST, his customers would have got benefit of further reduction in MRP, therefore, the additional amount of tax collected also amounts to profiteering made by respondent – respondent has not raised any objection against the calculation arrived at by the DGAP and hence the same is to be held as the profiteered amount – argument of the respondent that MRPs were fixed by the manufacturer M/s Patanjali Ayurveda Ltd. which he was bound to charge and he could not reduce the same on his own is not tenable as he was bound to reduce the MRPs of the products which were sold by him post 15.11.2017 since he was registered under the CGST/SGST Acts and thus he was legally bound to faithfully implement the provisions of s.171 of the Act – best course for the respondent would have been to pass on the benefit of reduced rate of GST to his customers and claim compensation from the manufacturer – respondent cannot be absolved of his legal obligation on the plea that he had no control on the fixing of the MRPs – mere charging of the fixed commission percentage @5% on the sales made by him does not amount to passing on the benefit, hence respondents plea is frivolous and cannot be accepted – respondent directed to reduce sales prices of all the products, the base prices of which he has increased w.e.f 15.11.2017, immediately, commensurate to the reduction in the rate of tax and pass on the benefit to his customers – respondent also directed to deposit an amount of Rs.6,06,752.72 along with interest @18% in the Consumer Welfare fund as per the provisions of rule 133(3)(c) of the CGST Rules, 2017 – amount to be deposited within 3 months – since respondent has deliberately acted in defiance of law, he is guilty of the conduct which is contumacious and violative of provisions of section 171 of the CGST Act – offence committed u/s 122 of the CGST Act, 2017, hence notice to be issued for imposition of penalty: NAA

Application disposed of

2019-TIOL-236-HC-DEL-IT