1. The first investigation Report dated 05.04.2019 in the present case was received from the Applicant i.e. the Director General of Anti-Profiteering (DGAP) after detailed investigation under Rule 129(6) of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the case were that the Applicant had alleged that the Respondents had not passed on the benefit of reduction in the rate of GST from 28% to 18% w.e.f. 15.11.2017 to the recipients by way of commensurate reduction in the prices of the products being sold by them in terms of Section 171 of the CGST Act, 2017. The DGAP had also stated that the base prices of 1383 goods had been increased by the Respondents after the rate of tax was reduced on them and hence, the Respondents had contravened the provisions of Section 171(1) of the CGST Act, 2017. The DGAP had further reported that the Respondents had profiteered an amount of ₹ 2,43,93,90,580/- by denying benefit of tax reduction to their customers.

2. The DGAP in his Report had also submitted that the Respondents had claimed in their reply to the notice issued by him that the net price for a product (i.e. post reduction of discount allowed by way of claims) charged to the various trade partners should be considered for the purpose of the investigation into the alleged profiteering by the Respondents. In this regard the DGAP had claimed that perusal of the documents submitted by the Respondents revealed that the invoices raised by the Respondents’s trade partners pertained to the “Sales Promotion” services to the Respondents, which the Respondents had reimbursed to them. The said invoices nowhere indicated that they were related to passing on the benefit of reduction in the GST rate from 28% to 18% w.e.f. 15.11.2017. The DGAP had further claimed that no SKU-wise correlation could be established between the claimed texts which had appeared in the calculations and the details of the invoice-wise outward supplies submitted by the Respondents. He had also contended that Section 171 of the CGST Act, 2017 did not provide any other means of passing on the benefit of reduction in the rate of tax or input tax credit other than by way of commensurate reduction in the prices. As such, the deduction claimed on account of “Sales Promotion” services offered by the trade partners of the Respondents to them, could not be considered passing on of the benefit of GST rate reduction w.e.f. 15.11.2017. The DGAP had further contended that he had considered the taxable value of outward supplies made by the Respondents, as reflected in the GST Returns filed by the Respondents, as the basis for comparing the pre and the post GST rate reduction base prices.

3. The DGAP had also pleaded that the contention of the Respondents that the base prices were so increased as to offset the increase in the cost of production/raw materials, could not be accepted as increase in the prices of the raw materials had not happened overnight to coincide with the GST rate reduction w.e.f. 15.11.2017 and hence, it had no relevance in the context of GST rate reduction. The Respondents had also claimed to have passed on the benefit of GST rate reduction by extending consumer promotion schemes on certain SKUs, beyond 15.11.2017, however, the DGAP had claimed that the provisions contained in Section 171 of the CGST Act, 2017 did not provide for any other means of passing on the benefit of reduction in the rate of tax or benefit of input tax credit except by way of commensurate reduction in the prices. The DGAP had further claimed that it was the Respondents’s own business decision to extend the period of consumer promotion schemes, the cost of which could not be set off against the benefit that the Respondents should have passed on to their recipients on account of GST rate reduction w.e.f. 15.11.2017.

4. The DGAP had also stated that the contention of the Respondents that as the amount of refund which the was getting in the industrially backward areas of various States had reduced, which had resulted in increase in the cost, which was directly attributable to the reduced GST rate and accordingly, the same should have been considered for the purpose of investigation into the alleged profiteering by them, was not correct. DGAP had argued that as could be seen from the Notification 10(1)/2017-DBA-ll/NER dated 05.10.2017, eligible units were entitle to a refund of 58% of CGST or 29% of IGST paid through debit in the cash ledger account, in terms of Section 49 (1) the CGST Act, 2017, after utilization of the input tax credit of the CGST or IGST. Accordingly, prior to 15.11.2017, the Respondents were entitled to proportionate refund of CGST or IGST paid through cash ledger and w.e.f. 15.11.2017 the liability of the Respondents to make payment in cash had got reduced due to reduction in the rate of GST which had resulted in reduced refund in absolute terms. However, the DGAP had stated that there was no loss to the Respondents in relative terms as they were still eligible to get the same proportionate refund of actual CGST/IGST paid in cash as was available to them prior to the reduction in the rate of GST. Moreover, such refund of CGST or IGST paid in cash was also dependent on the amount of input tax credit utilized by the Respondents and could not always be attributed to the applicable GST rate. The DGAP had further stated that even after the GST rate reduction, if the input tax credit utilization by the Respondents was reduced, the refund amount might remain the same or it might even increase and Therefore, the claim of the Respondents, for giving deduction from the profiteered amount on account of reduction in the refund amount, was also not acceptable.

5. The DGAP had also submitted that the Respondents had also sought to deduct the cost of written off packing material with the old MRPs, which had become unusable due to the change in the prices on account of reduction in GST rate and advertisement costs etc. The DGAP had countered this claim of the Respondents by stating that the law provided for a legal remedy in such cases by way of affixing new MRP stickers along with the old MRP on the stock in hand as per letter No. WM-10(31)/2017 dated 16.11.2017, issued by the Ministry of Consumer Affairs, Food and Public Distribution, Government of India. The had further stated that there was no provision in the CGST Act, 2017 to allow the cost of packing material to be adjusted against the reduction in the prices on account of the lower GST rate and Therefore, the deduction claimed by the Respondents on this ground, was not admissible. He had also contended that the advertisement costs incurred by the Respondents were the outcome of their business decisions and the Respondents could not claim deduction on this account to increase the base prices of the goods impacted by the GST rate reduction.

6. The DGAP had also claimed that the Respondents had increased the base prices of the impugned goods when the rate of GST had been reduced from 28% to 18% w.e.f. 15.011.2017. He had further claimed that on the basis of the aforesaid pre and post-reduction GST rates and the details of outward taxable supplies (other than zero rated, nil rated and exempted supplies) of the impugned products made during the period from 15.11.2017 to 30.09.2018, as furnished by the Respondents, the amount of net higher sales realization due to increase in the base prices of the impacted goods, despite the reduction in the GST rate from 28% to 18% or in other words, the profiteered amount came to ₹ 2,43,93,90,580/-. The details of the computation were given in Annexure-17 of the DGAP’s Report dated 05.04.2019. The profiteered amount had been arrived at by comparing the average of the base prices of the impacted products sold during the period from 01.11.2017 to 14.11.2017 with the actual invoice-wise base prices of the products sold during the period from 15.11.2017 to 30.09.2018. The excess GST so collected from the customers had also been included in the aforesaid profiteered amount as the excess price collected from the recipients also included the GST charged on the additional base price.