In Part 3 of this article, we shall be discussing the actions taken by the anti-profiteering authority (NAA) in the past and various issues dealt with in the Hon'ble Delhi High Court order.
Investigations by DGAP and orders of NAA:
The NAA, based on complaints filed by consumer or on a suo moto basis, recommended initiation of investigation for various sectors to examine whether reduction in rate of tax or the benefit of input tax credit has been passed on.
After investigation by DGAP, furnishing of report, and examination of the said report, various orders were passed by NAA, inter alia, holding as follows:
- The methodology adopted by the DGAP for FMCG, real estate and various other sectors was confirmed
- Profiteering for FMCG sector was arrived at by comparing pre-rate reduction average prices to category of customers with post-rate reduction actual prices for each transaction
- Profiteering for real estate sector was arrived at by comparing credit to turnover ratio pre-GST with credit to turnover ratio post GST
- Benefits passed on by way of grammage were permitted in the first case relating to FMCG, but was later disallowed in subsequent cases, resulting in inconsistent approach
- Cost increase as a factor was considered in certain matters, based on establishing evidence for previous such increases
- Profiteering amount was further inflated with GST on profiteering, on the basis that such extra GST was collected from customer which resulted in the customer paying extra, even though GST had been deposited with the Government
- It was also held that withdrawal of complaints cannot be a ground for discontinuing ongoing existing investigations.
Writ petitions before Delhi High Court and its judgment
In the absence of any appellate mechanism, several writ petitions were filed before various High Courts challenging the NAA orders, in the absence of any appellate mechanism. Since the matter was seized before Delhi High Court, the Government filed transfer petition in Hon'ble Supreme Court and accordingly, various petitions were transferred from various High Courts to Delhi High Court.
By its judgment dated 29.01.20241, the Hon'ble Delhi High Court upheld the constitutional validity of the provisions, holding that there was no excessive delegation and no requirement to includes have judicial member in NAA, while also deciding on various important issues pertaining to anti-profiteering. While adjudicating on the constitutionality of the provisions, the High Court made the following observations:
Increase in costs can be considered:
The Court held that the manufacturer/supplier, despite reduction on rate of tax or availability of ITC benefits, can raise the prices based on commercial factors. If there is any variation on account of other factors—such as any costs necessitating the setting off of such reduction of price—the same needs to be justified by the supplier and must be established on a cogent basis. It should not be a mere pretense or a device to circumvent the statutory obligation of reducing the prices commensurately. Thus, based on the principle of rebuttable presumption, the Court has permitted adjustment for other factors.
Benefit to be passed on each SKU for each supply:
The Court inter alia held that the benefit of tax reduction has to be passed on for each supply of SKU to each buyer. Where the benefit is not passed on, it has been held that the profiteered amount has to be calculated on each SKU.
Thus, the benefit must be passed
- Qua each supply
- Qua each SKU
- To each buyer
Further, on the issue of legal metrology, the Court held that the argument of Petitioners that it is legally impossible to pass on the benefits by reducing the price of goods in cases of low priced products is untenable in law. The Court referred to rounding off provisions (50 paise or above / below) in relation to MRP and held that there would be no legal impossibility in reducing the MRP even in such cases. . Accordingly, the Court directed that the benefit must be passed on, clarifying that there is no inconsistency between Section 171 and the MRP rounding-off provisions.
Grammage:
With respect to passing of benefit by way of increased grammage, the Court has held that the provision requires passing of benefit by way of reduction in prices. It further held that such a mandate cannot be tampered with by the supplier by substituting the benefit with any other form such as increase in volume or weight, or by supply of additional or free material or by offering festival discount like 'Diwali Dhamaka' or cross-subsidisation.
While observing the above, the aspect of product with additional grammage not being a comparable product, or being considered as a new product without any comparative reference pricing, or to compare prices on a per gram basis, was not considered.
Further, the High Court has, inter alia, held the following:
- Various inconsistencies in approach of NAA highlighted by Petitioners may result in setting aside of the orders passed by NAA, but will not render the Section unconstitutional or result in excessive delegation.
- That the methodology adopted of comparing ITC to turnover ratio for real estate is incorrect. Further, observations were made with respect to passing of benefit for bookings made pre and post GST.
- No fixed formula can be laid down to compute profiteering as no one size fits all approach can be adopted.
- No time period is required to be provided till when such price-reduction has to be offered, as the reduced price needs to take effect so long as there is no other factor countering the same.
- Section 64A of SOGA is inapplicable, and contracts (whether pending, executed, concluded) need to be implemented keeping in view mandate enshrined in Section 171
- Interest is applicable in case of delay in depositing profiteering amount, and Rule 133 which provides for interest is within rule making power
- GST on profiteering is rightly included in profiteering, since by compelling the buyers to pay additional GST on higher price, the supplier has not only defeated the interest of Government but also acted against interest of consumers. This factor has been held against assessee by the High Court, despite the fact that GST collected on such higher price was already deposited with the Government. amount on such additional realization is collected from consumers
- Section 171 is constitutionally valid
- There is no excessive delegation
- There is no requirement of judicial member and there is no vested right of an appeal
Against the judgment of the Hon'ble Delhi High Court dated 29.01.2024, multiple Special Leave Petitions have been filed before the Hon'ble Supreme Court challenging both the constitutionality of the provisions and various other observations made therein. Meanwhile, challenge to the orders passed by NAA on issues other than constitutionality, such as methodology and procedural aspects, continue to remain pending before the Hon'ble Delhi High Court in a batch of matters.
Footnote
1 2024 (82) G.S.T.L. 344 (Del.)
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