In a order that will have far reaching impact, the National Anti-Profiteering Authority (NAA) under GST has ruled that a manufacturer, dealer or retailer has no such liberty to arbitrarily decide in respect of which products to pass on the benefit of a GST rate cut and on which one to not pass the benefit.
The NAA has found a case of profiteering u/s 171 of CGST Act, 2017 by a dealer observing that benefit of reduction in rate of duty has not been passed on to applicants in respect of “Maggi Noodles pack of 35 grams." despite reduction in tax rate from 18% to 12% from November 15, 2017.
The NAA in their order noted that, base price of product was Rs. 3.96 per pack before November 15, 2017, but was increased to Rs. 4.17 per pack after reduction in GST rate, and that price after adding tax remained unchanged at Rs. 4.67 per pack.
Consequently NAA held that, “there is no doubt that the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in the price charged by the Respondent which amounts to violation of the provisions of Section 171”.
Noting the dealer’s contention that it passed the benefit by reducing the MRP of the 70 grams products, the NAA propounded that, “the Respondent has no such liberty to arbitrarily decide in respect of which products he would pass on the benefit and in respect of which products he would not pass such benefit.”
“This order mandates dealers to pass the benefit of rate reduction on each product. This may sound easier, but it could be a herculean task to change the price on all products specially the smaller size products” said Harpreet Singh, Partner, Indirect taxes at KPMG India.
"As per the provisions of Section 171 of the Act the benefit has to be passed on to each recipient and the same cannot be selectively granted or denied" explained NAA, while further stating that, "No such adjustments are permissible under the Act."
NAA added that Maggi Noodle pack of 35 grams is distinct from a 70 gram pack and both the packs may be bought by the different recipients/customers and hence the benefit accruing to one customer cannot be given or denied to another nor can the benefit given to one set of customers arbitrarily enhanced and set off against another.
“While Sec 171 does not clarify whether rate reduction needs to be passed on at the entity, business unit or product level, this order has held that it is to be passed at each product level. Thus, it appears that the order is an outcome of non-contextual appreciation of provisions of the GST legislation.” adds Singh
NAA said the dealer should have reduced MRP as per provisions of Legal Metrology (Packaged Commodities) Rules, 2011 r/w Notification issued by Ministry of Consumer Affairs and further observed that, “the Respondent had no mandate to deny the benefit of reduction of the tax rate due to the problem of legal tenders as he had no legal authority to fix MRP arbitrarily" and "resort to profiteering."
NAA has now directed the dealer to reduce price of product commensurate to reduction in tax rate and refund an amount to applicant/ deposit same in Consumer Welfare Fund along with interest at 18%. It also held the dealer liable to penalty on ground of issuance of incorrect invoices, while directing the Commissioner of State Tax, Uttar Pradesh to monitor the order under the supervision of the DGAP as per Rule 136 of the CGST Rules 2017.
The NAA has found a case of profiteering u/s 171 of CGST Act, 2017 by a dealer observing that benefit of reduction in rate of duty has not been passed on to applicants in respect of “Maggi Noodles pack of 35 grams." despite reduction in tax rate from 18% to 12% from November 15, 2017.
The NAA in their order noted that, base price of product was Rs. 3.96 per pack before November 15, 2017, but was increased to Rs. 4.17 per pack after reduction in GST rate, and that price after adding tax remained unchanged at Rs. 4.67 per pack.
Consequently NAA held that, “there is no doubt that the benefit of reduction in the GST rate was not passed on to the recipients by way of commensurate reduction in the price charged by the Respondent which amounts to violation of the provisions of Section 171”.
Noting the dealer’s contention that it passed the benefit by reducing the MRP of the 70 grams products, the NAA propounded that, “the Respondent has no such liberty to arbitrarily decide in respect of which products he would pass on the benefit and in respect of which products he would not pass such benefit.”
“This order mandates dealers to pass the benefit of rate reduction on each product. This may sound easier, but it could be a herculean task to change the price on all products specially the smaller size products” said Harpreet Singh, Partner, Indirect taxes at KPMG India.
"As per the provisions of Section 171 of the Act the benefit has to be passed on to each recipient and the same cannot be selectively granted or denied" explained NAA, while further stating that, "No such adjustments are permissible under the Act."
NAA added that Maggi Noodle pack of 35 grams is distinct from a 70 gram pack and both the packs may be bought by the different recipients/customers and hence the benefit accruing to one customer cannot be given or denied to another nor can the benefit given to one set of customers arbitrarily enhanced and set off against another.
“While Sec 171 does not clarify whether rate reduction needs to be passed on at the entity, business unit or product level, this order has held that it is to be passed at each product level. Thus, it appears that the order is an outcome of non-contextual appreciation of provisions of the GST legislation.” adds Singh
NAA said the dealer should have reduced MRP as per provisions of Legal Metrology (Packaged Commodities) Rules, 2011 r/w Notification issued by Ministry of Consumer Affairs and further observed that, “the Respondent had no mandate to deny the benefit of reduction of the tax rate due to the problem of legal tenders as he had no legal authority to fix MRP arbitrarily" and "resort to profiteering."
NAA has now directed the dealer to reduce price of product commensurate to reduction in tax rate and refund an amount to applicant/ deposit same in Consumer Welfare Fund along with interest at 18%. It also held the dealer liable to penalty on ground of issuance of incorrect invoices, while directing the Commissioner of State Tax, Uttar Pradesh to monitor the order under the supervision of the DGAP as per Rule 136 of the CGST Rules 2017.
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