Profiteering clause validity where Base price of product increased after reduction in GST rate

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Profiteering clause validity where Base price of product increased after reduction in GST rate

2019 TaxPub(GST) 0175 (NAPA)

IN THE NATIONAL ANTI-PROFITEERING AUTHORITY

B.N. SHARMA, CHAIRMAN, J.C. CHAUHAN, TECHNICAL MEMBER, R. BHAGYADEVI, TECHNICAL MEMBER, AMAND SHAH, TECHNICAL MEMBER

R.K. Gupta, Director General of Anti-Profiteering v. Abbott Healthcare (P) Ltd.

Case No. 15/2019

5 March, 2019

Application disposed off.

Applicant No. 1 by: R.K Gupta

Applicant No. 2 by: Gayatri, Deputy Commissioner and Manoranjan, Assistant Commissioner

Respondent No. 1 by: Khomba Singh, Prakash Birla, Prabhat Ranjan and Ashish Jani, Company Representatives, Sanjeev Saraf, Chartered Accountant, J.P. Singh and Shalini Ranjan, Advocates

Respondent No. 2 by: None.

Respondent No. 3 by: J.K. Arora, Chartered Accountant & Harsh Arora

ORDER

  1. This report, dated 22-10-2018, has been received by this Authority from the Director General of Anti-Profiteering (DGAP) under Rule 129(6) of the Central Goods and Service Tax (CGST) Rules, 2017. The brief facts of the present case are that an application dated 22-1-2018 was filed by the Applicant No. 1 before the Standing Committee constituted under Rule 128 of the above Rules alleging that the Respondent No. 1 had not passed on the benefit of reduction in the rate of tax as he had increased the MRP of “Melaglow Rich (Niacinamide) Depigmentation & Glow Restoration Cream’ (here-in-after referred to as the product) from Rs. 365 to Rs. 415 per unit post implementation of the GST. He had also submitted an image of the label of the product, which showed that the MRP of the product was mentioned as Rs. 365 per unit however, another pasted sticker on the label indicated that the “MRP post CST” was Rs. 415 per unit, which amounted to an increase of Rs. 50 per unit post implementation of the GST. The label also disclosed that the product was marketed by the Respondent No. 1 and manufactured by the Respondent No. 2. The Applicant No. 1 had further informed vide his email dated 10-7-2018 that the above product was purchased by him from the Respondent No. 3. The Applicant No. 1 had also claimed that since the Respondents had increased the MRP of the product after the rate of tax was reduced on it, they 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 them.
  2. The above complaint was examined by the Standing Committee and vide the minutes of its meeting dated 13-4-2018 it had requested the DGAP to initiate investigation under Rule 129(1) of the CGST Rules, 2017 and collect evidence necessary to determine whether the benefits of reduction in the rate of tax or Input Tax Credit (ITC) had been passed on by the Respondents to their recipients or not.
  3. In this connection, the DGAP had called upon the Respondent No. 1 vide his Letter, dated 18-5-2018, to submit the tax rate structure and MRP of the product (i) prior to GST regime and (ii) post GST regime before 15-11-2017 and after 15-11-2017. Emails dated 21-5-2018 and 31-5-2018 were also sent to the Respondent No. 1 to submit the required information but no reply was received from him. The DGAP had also asked the Respondent No. 2 vide his Letter, dated 13-6-2018to submit similar information which he had sought from the Respondent No. 1, who vide his email dated 18-6-2018 had sought 15 days’ time to submit the reply however, no reply was received.
  4. A Notice under Rule 129 of the CGST Rules, 2017, was issued on 16-7-2018 by the DGAP, directing the Respondents to intimate as to whether they admitted that they had contravened the provisions of section 171 of the CGST Act, 2017, by increasing the price of the product after implementation of the CST w.e.f. 1-7-2017. The Respondents were also asked to suo moto determine the quantum of profiteering, if any, on account of increase in the price of the product and indicate the same in their replies to the Notice issued by the DGAP. Further, the Respondents were also given an opportunity to inspect the non-confidential evidences/information received from the complainant on any working day between 23-7-2018 to 25-7-2018. The Respondent No. 3 visited the office of the DGAP on 25-7-2018 to inspect the same. However, the Respondents No. 1 & 2 did not inspect the record. Vide e-mail, dated 15-10-2018, the complainant was requested to inspect the non-confidential evidences/replies submitted by the Respondents on 17-10-2018 or 18-10-2018 and he had inspected the non-confidential information submitted by the Respondent No. 1 on 18-10-2018.
  5. The DGAP had requested for granting extension in time to complete the investigation up to 8-11-2018 which was allowed by this Authority under Rule 129(6) of the above Rules, vide its order, dated 31-7-2018. The present investigation pertains to the period between 1-7-2017 to 31-7-2018.
  6. The DGAP in his Report has stated that the Respondent No. 1 in reply to his notice had supplied information regarding period-wise applicable tax structure, MRP and the selling price of the product vide his Letter, dated 25-7-2018, the details of which are mentioned in the table given below:–
Period Excise Duty Rate Avg VAT/ GST Rate MRP (Rs.) Abbotts Actual Selling Price (excluding VAT/ GST) (Rs.)
Pre-GST (Upto 6-5-2016) Central Excise Duty exemption till 6-5-2016 as the product was manufactured at Baddi Plant (Area-based exemption under Notification No. 49/2003-CE and 50/2003-CE, dated 10-6-2003) 12.5% 348 222.72
Pre-GST (7-5-2016 to March, 2017) 12.5% on abated MRP of 65% = 8.13% of MRP 12.5% 348 222 72
Pre-GST (April, 2017 to June, 17) 12.5% on abated MRP of 65% = 8.13% of MRP 12 5% 365 233 60
Post-GST (1-7-2017 to 14-11-2017) 0% 28% 415 233.44
Post-GST (15-11-2017 onwards)

0%

18% 382 233.08
  1. The DGAP has also stated that the Respondent No. 1 was also asked, vide Letter, dated 25-9-2018, to submit the details regarding GSTN registrations obtained, details of the invoice-wise outward taxable supplies of the above product other than zero rated from 1-7-2017 to 31-7-2018 along with the certified summary of the same, Melaglow Credit Note register for the period from July, 2017 to July, 2018, Melaglow Debit Note register for the period from July, 2017 to July, 2018, Copies of GSTR-1 and GSTR- 3B returns for the State of Delhi, for the period from July, 2017 to July, 2018, copies of two sample sale and purchase invoices of the goods under investigation for the period from July, 2017 to July, 2018. The Respondent No. 1 vide his reply dated 4-10-2018 had submitted the above mentioned details and documents to the DGAP.
  2. The DGAP has further stated that the Respondent No. 2 had submitted reply to the notice issued by him, vide his Letter, dated 27-7-2018which stated that he had got the product manufactured on job work basis from M/s. Helios Pharmaceuticals and had sold the same to the Respondent No. 1 on transaction value and the MRP had been fixed by Respondent No. 1 himself. The Respondent No. 2 had further informed that the product was manufactured in a factory located at Baddi, Himachal Pradesh which was availing area-based exemption in terms of Notifications No. 49/2003-CE and 50/2003-CE both dated 10-6-2003, till 6-5-2016. Therefore, the applicable rate of tax was the average rate of Value Added Tax (VAT) @12.5% upto 6-5-2016 and post 6-5-2016, Central Excise Duty (CED) @12.5% was applicable on the abated MRP (65%) of the product. The Respondent No. 2 had also submitted invoices issued by him to the Respondent No. 1 for the pre-GST and post-GST periods. The details of the invoices are mentioned in the table below:–
S.No. Invoice No. Invoice Date Transaction Value per Unit (Rs.)
1 SH/00009/16-17 28-4-2016 68.61
2 SH/00013/17-18 25-5-2017 94.23
3 GHP/17-18/00006 28-8-2017 64.58
4 GHP/17-18/00045 11-12-2017 64.58
  1. The DGAP has also intimated that he had sent an e-mail to the Respondent No. 2 on 6-9-2018 asking him to submit the copy of the Central Excise invoices, evidencing payment of CED post 06 05 20 Id and the Respondent No. 2 vide his e-mail dated 19-9-2018 had informed that the product was being manufactured for him by from the job worker viz. M/s. Helios Pharmaceuticals at its manufacturing facility located in Village Malpur, P.O. Bhud, Baddi, Teh. Nalagarh, Distt.-Solan, Himachal Pradesh-173205 and the CED was being paid by M/s. Helios Pharmaceuticals. The Respondent No. 2 had also submitted the desired invoices and the documents to the DGAP.
  2. The DGAP has further intimated that vide his reply dated 27-7-2018, the Respondent No. 3 had submitted that he had purchased the product from M/s. Aditya Pharmaceuticals (Distributor of Respondent No. 1) at a price of Rs. 259 38 exclusive of taxes. The Respondent No. 3 had also submitted his purchase tax Invoice No. Sl/17-18/28781. dated 27-1-2018issued by M/s. Aditya Pharmaceuticals, showing the MRP as Rs. 415. M/s. Aditya Pharmaceuticals had also provided its purchase Invoice No. 3194078993, dated 28-10-2017 issued by the Respondent No. 1, mentioning the MRP as Rs. 415.
  3. The DGAP has also informed in his Report that the Central Government on the recommendations of the GST Council had reduced the CST rate on the above product from 28% to 18% w.e.f. 15-11-2017 vide Notification No. 41/2017-Central Tax (Rate), dated 14-11-2017, in consequence of which the Respondents were required to sell the above product on the base price which was being charged by them before 15-11-2017 and levy CST @18% so that the benefit of reduction in the rate of tax could be passed on to their customers.

The DGAP while examining the replies and invoices submitted by the Respondents No. 1 and 2 has further intimated that the following tax structure was applicable during the pre-GST and post-GST periods in respect of the above product:–

S. No. Supplier Tax/Duty Rate of Taxi Duty Tax Amount Remarks
1 M/s. Helios Pharmaceutical Is (Job Worker) CED 8.13% 29.66 12 5% on 65% of MRP of Rs. 365
2 M/s. Sami Labs Ltd. (Manufacturer) CST 2% 1.88 On the Central Excise invoice value of Rs. 94.23
3 M/s. Abbott Healthcare Pvt. Ltd. 12.50% 292 On the VAT invoice value of Rs. 233 60
Total Tax Amount 60.74
Pre GST Tax rate 30.06% Rs. 60 74 as a % of Rs. 202.06 (Rs. 233 60

–Rs. 29.66

–Rs 1.88

Post-GST tax rate 28% w.e.f. 1-7-2017
  1. The DGAP has also intimated that during the investigation, it had been observed that the total tax incidence on the product was 30 (Rs 60.74 tax on the base price of Rs. 202.06) in the pre-GST period, which was reduced to 28% at the time of implementation of the GST w.e.f. 1-7-2017. He has further intimated that as post-GST implementation the tax rate was reduced, the provisions of section 171 of the CGST Act, 2017 were attracted.
  2. The DGAP has further intimated that the base price (excluding taxes) of the Respondent No. 1 during the pre-GST era, was Rs. 202.06 [Rs. 233.60 (-) Rs. 29.66 (-) Rs. 1.88], which was increased to Rs. 230.90 (average base price for the sales made during the period 1-7-2017 to 31-7-2018) and thus, it was clear that the MRP had been increased by the Respondent No, 1 and the Respondents No. 2 & 3 were not responsible for profiteering.
  3. The DGAP has also submitted that the Respondent No. I was required to sell the above product at the pre-GST base price of Rs. 202.06 and charge lower GST w.e.f. 1-7-2017 and 18% w.e.f. 15-11-2017 on such base price, to pass on the benefit of reduction in the rate of tax, however, it was apparent from the sales data submitted by him that the per unit base price of the product was increased w.e.f. 1-7-2017 after the GST had come in to force, from Rs. 202.06 to Rs. 230.90 (average base price for the sales made during the period 1-7-2017 to 31-7-2018). The DGAP has further submitted that since the Respondent No. 1 was a supplier registered under the GST, he was legally bound to pass on the benefit of reduction in the rate of GST to his customers immediately w.e.f. 1-7-2017 and 15-11-2017 however, by increasing the base price of the product and also by increasing the cum-tax price charged from the recipients post GST, the benefit of GST rate reduction was not passed on by the Respondent No. 1 to his customers. Therefore, the DGAP has concluded that in respect of the above product, supplied by the Respondent No. I during the period between 1-7-2017 to 31-7-2018, the amount of profiteering came to Rs. 96,59,716.26 on account of increase in its base price as had been furnished in Annexure-15 by him.
  4. The above Report was received on 25-10-2018 and was considered by the Authority in its sitting held on 30-10-2018 and it was decided to hear the Applicants and the Respondents on 15-11-2018.
  5. Three personal hearings were accorded to the parties on 15-11-2018, 13-12-2018 and 19-12-2018, wherein the Applicant No. 1 Shri R.K. Gupta appeared in person, the Applicant No. 2 was represented by Smt. Gayatri, Deputy Commissioner and Shri Manoranjan, Assistant Commissioner; the Respondent No. 1 was represented by Shri Khomba Singh, Shri Prakash Birla, Shri Prabhat Ranjan and Shri Ashish Jani, Company Representatives, Shri Sanjeev Saraf, Chartered Accountant, Shri J.P. Singh and Smt. Shalini Ranjan, Advocates; none appeared for the Respondent No. 2 and the Respondent No. 3 was represented by Shri J.K. Arora, Chartered Accountant & Shri Harsh Arora.
  6. An email dated 12-12-2018 was also received from the Respondent No. 2 stating that since it was a matter to be defended by the Respondent No. 1, hence his presence should be exempted.
  7. During the hearing, the Respondent No. 1 has stated that the Respondent No. 2 had manufactured the above product and he had only procured it from him. The Respondent No. 1 has further stated that the DGAP had done incorrect comparison between the pre-GST and post-GST rates and that the comparison should have been done only between the post-GST rates. The Respondent No. 1 has also claimed that from the date of launch of the product and till 1-3-2017, he had offered Rs. 28 as discount, which had not been counted by the DGAP The above Respondent was also asked to supply the details of the MRP change at various stages of supply chain along with the date of change of MRP for all the products supplied by him by the Authority.
  8. The Respondent No. 1 has filed his first written submissions on 19-11-2018, in which he has denied the allegation of profiteering and submitted that the DGAP’s Report was incorrect on facts as well as in law. He has also submitted that the product was based on a phytochemical formula, with de-pigmenting action that lightened the dark spots and it was not a mass-consumption or an essential product. He has also intimated that he was procuring the product from the Respondent No. 2 and it was being produced at Baddi, Himachal Pradesh and was availing area based CED exemption in terms of Notification Nos. 49/2003-CE and 50/2003-CE, both dated 10-6-2003 till 6-5-2016. He has further intimated that with effect from 7-5-2016, the product attracted CED, @ 12.5% on the abated MRP (65% of the MRP), which amounted to duty rate of 8.125%. He has also contended that the average rate of VAT applicable on the sale of the product was 12.5%. He has also supplied the summary of the applicable tax structure on the product during the pre-GST and the post-GST regime which is mentioned in the table given below:–

Applicable tax structure on the Product

Period Central Excise duty (CED) Central Excise rate Avg. VAT/ GST Rate MRP (Rs.) AHPLs Actual Selling Price (Rs.)
Pre-GST period (Up to 6-5-2016) Exempted from Central Excise Duty, as the product was manufactured at a manufacturing facility in Baddi (availing area based exemption) 0% 12.50% 348 222.72
Pre-GST Period (From 7-5-2016 to March 2017) Attracted Central Excise Duty 12.5% on abated MRP of 8.125 effective rate 12.50% 348 222.72
Pre-GST Period (March 2017 to June 2017) Attracted Central Excise Duty 12.5% on abated MRP of 8.125% 12.50% 365 233.60
Post GST Period (from 1-7-2017 to 14-11-2017) 0% 28% 415 233.44
Post GST Period (15-11-2017 onwards) 0% 18% 382 233.08
  1. The Respondent No. 1 has also submitted that section 171 of the CGST Act, 2017 was not applicable in the instant case since its scope was restricted to the cases where there was a reduction in the rate of GST and it did not extend to the reduction in the rate of GST as compared to the pre-GST indirect tax rates. The Respondent No. I has also submitted that the rates of various taxes/duties leviable during the pre-GST period and the pre-CST price of the product have been used to conclude that the benefit of reduction in the rate of tax has not been passed on by way of commensurate reduction in the prices. He has further submitted that the word “reduction” in the “rate of tax” used in section 171 of CGST Act, 2017 was restricted to the reduction in the “rate of GST” which provided the basis for the antiprofiteering measures.
  2. The Respondent No. 1 has also submitted that the DGAP had recorded in his Report that the base price of the product was increased after 1-7-2017 and hence the benefit of reduction in the tax rate was not passed on to the recipients. He has further submitted that for invoking the provisions of sub-section 171(1) the necessary precedent condition was a reduction in the rate of tax on supply of good and services and hence there had to be:–

(i) A reduction,

(ii) The reduction should be in the “rate of tax”; and the rate of tax should be on “supply” of goods and services however, in the present case, the necessary precedent condition was not satisfied, since there was no reduction in “rate of tax” on the product When the GST was introduced w.e f. 1-7-2017 and the “tax” pertained to the tax imposed under the CGST Act, 2017. He has further contended that there could have been no reduction in the rate of GST, when the GST was introduced and brought into force for the first time with effect from 1-7-2017.

  1. The Respondent No I has further submitted that the aforesaid interpretation of the term “rate of tax” on any “supply” of goods or services, was unambiguous with reference to the various provisions of the GST law The terms “rate of tax” and “tax” were not specifically defined under the CGST Act or the State GST Acts and hence, the issue whether the various taxes and duties levied prior to the introduction of the GST were liable to be included within the scope of the term “rate of tax” had to be determined. He has also claimed that section 9 of the CGST Act, 2017 and section 5 of the Integrated Goods and Services Tax (IGST) Act, 2017 i.e. the charging provisions, stated that there shall be levied a “tax’ called the CGST or the IGST on all the intra/inter-state supplies of goods or services or both thus, in these sections, the term “tax” had expressly been mentioned as CGST/IGST/SGST. He has further claimed that the term “tax” has been used in the charging provisions to denote the tax levied on the taxable event of “supply”, and not to any other tax or duty levied on a taxable event other than “supply” and hence the term “tax” did not cover a tax imposed on a taxable event other than supply” hence, a tax on the manufacture of goods viz. the CED or a tax on the sale of goods i.e. the Central Sales Tax (CST) or the VAT did not fall under its ambit.
  2. He has further drawn attention to section 14 of the CGST Act, 2017 and averred that the term ‘change in the rate of tax’ used therein was limited to the change in the rate of COST leviable under the above Act and the same could not be extended to cover pre-GST taxes. He has further contended that if the intention of the legislature was to empower the Authority to investigate cases based on the rates of taxes or duties levied prior to the introduction of the GST and the rate of CST levied after introduction of the GST the provisions of section 171 of the CGST would have been worded accordingly, in the absence of which the Authority did not have the legislative mandate to investigate and compare the GST rates with the rates of taxes or duties levied prior to the introduction of GST. He has further averred that the section did not make any reference to the taxes levied under the indirect tax enactments in force prior to the introduction of the GST and hence the term reduction in the “rate of tax” on supply of goods or services had to be read in conjunction with the succeeding words “on any supply of goods or services” and could not be read in isolation. The Respondent No. 1 has also argued that when the expression “reduction in the rate of tax’ has been used along with the succeeding words ‘on any supply of goods or services”, the said succeeding words could not be ignored while interpreting the scope Of the expression “reduction in rate of tax” and hence, any interpretation which rendered some words in the statutory provision as superfluous or redundant had to be avoided. He has also placed reliance on the judgements recorded in the cases of Aswini Kumar Ghose v. Arabinda Bose, AIR 1952 SC 369, Rao Shiv Bahadur Singh v. State of U.P. AIR 1953 SC 394 and J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of U.P. AIR 1961 SC 1170.

Thus, he has argued that the scope of section 171 had to be interpreted as being limited to the reduction in the rate of tax levied on supply of goods or services i.e. to the reduction in the rate of GST.

  1. The Respondent No. 1 has also pleaded that the term “rate of tax’ was employed in the singular form and hence the term used in section 171 was “rate of tax”, and not ‘rates of taxes’ and if the intention of the legislature was to empower the Authority to investigate cases based on the rates of taxes or duties levied prior to the introduction of GST and the rate of GST levied after introduction of the GST, section 171 would have employed the plural term ‘rates of taxes’. He has further pleaded that wherever the legislature intended to refer to the provisions of the erstwhile indirect tax enactments, the term ‘existing law’ had been used, however, in section 171 there was no reference to any tax levied under the “existing law”.
  2. The Respondent No. 1 has also submitted that the legal maxim contemporanea exposito, which was used by the courts to interpret any ambiguous law was applicable in this case also. The Respondent No. 1 has also argued that the Authority on its website had published its mandate and had also defined profiteering in reply to the FAQs however, the same did not have the force of the law. He has further cited the judgments of the Hon’ble Supreme Court passed in the cases of:

(i) K.P. Varghese v. Income Tax Officer, 1982 SCR (1) 629

(ii) Desh Bandhu Gupta and Co. v. Delhi Stock Exchange Association Ltd., (1979) 3 SCR 373 and

(iii) Spentex Industries Ltd. v. CCE 2015 (324) ELT 686 (SC) : 2015 TaxPub(EX) 2161 (SC)

and submitted that the legislative intent behind section 171 was to empower the Authority to investigate cases of profiteering on account of change in the rate of GST only and any comparison of the rates of various taxes and duties levied before introduction of GST, with the rate of GST levied under the GST enactments, and the conclusions derived based on such comparison, were beyond its legal mandate.

  1. He has also claimed that section 171 has been introduced to ensure that a reduction in the rate of GST on any supply of goods or services was passed on by a commensurate reduction in the price. As these rates had been reduced on a number of products it was imperative that the benefit of reduction in the rates was passed on to the consumers and was not pocketed by the suppliers which would amount to unjust enrichment. The Respondent No. 1 has further claimed that he had dutifully reduced the price of the product post reduction in the rate of GST with effect from 15-11-2017 which was clear from the table given below:–
Period Rate MRP (Rs.)
1-7-2017 14-11-2017 28% 415
15-11-2017 onwards 18% 382
  1. The Respondent No. 1 has also submitted that even if it was assumed that the scope of section 171 extended to the reduction in the rate of CST as compared to the pre-CST indirect tax rates, it was not applicable in his case since there was no “reduction in rate of tax” with effect from 1-7-2017, rather, there was an increase in the rate of tax w.e.f. 1-7-2017. He has further submitted that In the table given in Para 14 of the Report, the pre-GST tax rate had been computed by calculating the tax amount of Rs. 60.74 as a% of Rs. 202.06 i.e. by reducing the amount of CED and CST from the VAT invoice value of Rs. 233.60, however, this method of calculation was incorrect in as much as —

l On a product where MRP had been affixed, the effective tax rate had to be calculated on the total taxes leviable at all stages in the distribution chain which were included in the MRP of the product, divided by a denominator arrived at MRP less all the applicable taxes.

l The method of calculating the tax only up to the stage of sale by the Respondent and ignoring the tax paid subsequently in the distribution chain, was incorrect.

l The method of calculating the denominator as Respondent’s selling price less the taxes, was also incorrect.

  1. The Respondent No. 1 has further submitted that if the rate of tax was computed as per the above formulation, the pre-GST rate worked out to be 24.62% and since the rate of GST applicable on the product w.e.f. 1-7-2017 was 28%, there was no reduction in the rate of tax as was clear from the following table:–
Particulars Effective rate computation as per the DGAP Report Correct method of effective rate computation
Central Excise Duty 29.66 29.66
CST 1.88 1.88
VAT (upto the stage of Abbott’s sale price) 29.2 29.2
VAT (in the distribution chain beyond sale by Abbott i.e. in subsequent sales) 0 11.36
(A) Numerator — Total Tax 60.74 72.10
(B1) Denominator — Abbott’s sales price minus taxes 233.60 — 60.74 = 202.06
(B2) Denominator — MRP of the product (i.e. Rs. 365) minus all applicable taxes 365 — 72.10 = 292.90
Effective tax rate A/B1 = 60.74/202.06 = 30.06% A/B2 = 72.10/292.90 — 24.62%
  1. The Respondent No. 1 has further submitted that the computation had been done without thorough understanding of the pricing structure of the product and the tax computation method under the prevailing indirect tax laws. He has also contended that by following an arbitrary computation methodology, the DGAP has calculated the effective tax rate (pre-GST) as 30.06% and has wrongly concluded that the tax rate has been reduced to 28% (post GST), however, the total effective tax rate (pre-GST) was 24.62%, which had increased to 28% post GST (an increase of around 3.38%). He has further contended that the very invocation of section 171 on the ground that there was a “reduction in the rate of tax” was wrong.
  2. The Respondent No. 1 has also submitted that the conclusion of the DGAP that the base price of the product was increased post GST, was incorrect as there was no such increase in the base price, which was maintained at around Rs. 233 pre and post GST. He has further submitted that the Report was based on two basic wrong assumptions viz.

(i) that there was a reduction in the rate of tax and

(ii) that the base price of the product was increased as the base price at which the goods were sold was Rs. 233.60 during the period up to 30 June 2017 (pre-GST) and Rs. 233 44 during the period from 1 July 2017 (post-GST)

  1. The Respondent No. 1 has also claimed that the increase in the MRP was due to increase in the indirect tax rates on account of introduction of GST and due to revision of pricing structure due to withdrawal of the discount which was earlier taken in to account while fixing the MRP Which could not be brought under the purview of section 171. He has further claimed that the DGAP had ignored that the cause for increase in the MRP was not due to increase in the base price or profiteering but was on account of following factors:–

(a) Up to 6-5-2016, i.e. up to the period when CED exemption was applicable, CED was not factored in the selling price since the said duty was exempted

(b) With effect from 7-5-2016, when the above exemption was withdrawn the applicable CED rate was 12.5% on 65% of MRP i.e. @ 8.125%, however, he had not increased his MRP. He has also stated that the product continued to be supplied at the earlier MRP of Rs. 348 and base price of Rs. 222.71. He has further stated that the CED was borne by him by factoring discount in the pricing structure, to ensure that the burden was not passed on to the consumers. He has also argued that the normal price increase due to inflation was kept on hold since the launch of the product in April 2015 till March 2017, when a marginal increase of 4.89% was made otherwise he was increasing the price annually. He has further argued that the base price of the product was maintained at the same level, pre-GST and post GST.

  1. The Respondent No. 1 has also pleaded that he had compensated losses of his trade partners by paying approx. Rs. 6 Lakhs due to introduction of GST. He has also submitted the details of MRP of his product and that of other companies to claim that not only he but they had also increased their MRPs.–
Competition Brand Name MRP Pre-GST MRP @ 28% GST MRP @ 18% GST
Melaglow Rich 20 gm 365 415 382
Biluma 15 gm <

 

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