lt is mandatory to pass on the profit to the consumers

The Competition Commission of India in the case of Rahul Sharma v. Cinema Ventures (P.) Ltd. [Case No. 07 of 2024 dated July 10, 2024], held that passing on the profit to the consumer is mandatory and as per Rule 133 (1) of the Central Goods and Service Tax Rules, 2017 ("the CGST Rules") and directed the Cinema Ventures to deposit the profiteered amount of Rs. 54,44,642/- along with interest. The interest was calculated at 18% from the date the amount was collected in excess from customers until the amount was deposited.

Facts:

Mr. Rahul Sharma ("the Applicant") filed a complaint with the Competition Commission of India ("CCI") and addressed allegations of profiteering by Cinema Ventures Pvt Ltd. ("the Respondent") that the Respondent did not pass on the benefit of a GST rate reduction for movie tickets. Specifically, from January 1, 2019, the GST rate on tickets priced above Rs. 100 was reduced from 28% to 18% vide Notification No. 27/2018-Central Tax (Rate) dated December 12, 2018. Despite this reduction, the Respondent allegedly maintained the same ticket prices without reducing them to reflect the lower tax rate.

The Applicant alleged that the Respondent increased the base ticket price from Rs. 390.63 to Rs. 423.73 while maintaining the same selling price of Rs. 500. Thus, not reflecting the reduction in GST in the ticket price. The Directorate General of Anti-Profiteering ("DGAP") was tasked with investigating this claim. The DGAP's findings revealed that the Respondent did not reduce the ticket prices proportionately with the GST reduction. Consequently, the Commission determined that the Respondent had profiteered an amount of Rs. 54,44,642. The Respondent was directed to deposit this amount, along with interest, into the Central and Telangana State Consumer Welfare Funds and to adjust ticket prices accordingly to pass on the GST benefit to customers.

Hence, aggrieved by the circumstances, the Applicant filed the present complain before the CCI.

Issue:

Whether passing on the benefits of tax reductions to customers mandatory?

Held:

The Competition Commission of India in Case No. 07 of 2024 held as under:

· Observed that, the Respondent's actions amounted to profiteering by either raising base prices or failing to lower the final ticket prices adequately. This practice was found to be in violation of Section 171 of the CGST Act, which mandates that the benefits of any reduction in tax rates should be passed on to consumers.

· Held that, the total profiteered amount was determined to be Rs. 54,44,642, for the period from January 1, 2019, to April 30, 2019. The Respondent was directed to deposit this amount, along with interest at 18% from the date of collection, into the Central Consumer Welfare Fund and the Telangana State Consumer Welfare Fund as per the provisions of Rule 133(3)(c) of the CGST Rules, in equal parts. Additionally, the Respondent was required to reduce ticket prices to reflect the GST reduction. Hence, the penalty prescribed under section 171 (3A) of the CGST Act could not be imposed retrospectively for the said period.

Our Comments:

Section 171 of the CGST Act governs "Anti-profiteering measures". Section 171(1) of the CGST Act states that any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit ("ITC") shall be passed on to the recipient by way of commensurate reduction in prices.

The anti-profiteering provisions under the GST law were introduced to ensure that businesses pass on the benefits of tax rate reduction or input tax credit to the consumers. This is done by reducing prices proportionately. The aim is to prevent unjust enrichment at the expense of the consumer.

In the case of Reckitt Benckiser India Private Limited v. Union of India [W.P. (C) 7743/2019 dated January 29, 2024], the Delhi High Court has upheld the validity of the anti-profiteering provisions under the GST law, marking a significant development in India's taxation landscape.

The petitions were filed before the Delhi High Court challenging the constitutional validity of Section 171 of CGST Act and the CGST Rules 122, 124, 126, 127, 129, 133 and 134 as well as the legality of the notices proposing imposition or orders imposing penalty issued by the National Anti-Profiteering Authority ("NAA") under Section 122 of CGST Act read with Rule 133(3)(d) of CGST Rules and the final orders passed by NAA, whereby the petitioners, who were companies running diverse businesses ranging from hospitality, Fast-Moving Consumer Goods ("FMCG") to real estate, have been directed in accordance with Section 171 of the CGST Act, to pass on the commensurate benefit of reduction in the rate of tax or the ITC to its consumers / recipients along with interest.

The Court further noted that Section 171 of the CGST Act is viewed as a measure to ensure that the benefits of reduced tax rates and ITC are passed on to consumers, aligning with the GST regime's objectives. It is not seen as a price control measure but rather to prevent unjust enrichment. Section 171 of the CGST Act is in line with the Directive Principles of State Policy ("DPSPs") in the Constitution, particularly Article 38(1), Article 39(b), and Article 39(c) of the Constitution. The section establishes an authority to determine whether suppliers have passed on the benefits of ITC and reduced tax rates, and to exercise other prescribed powers and functions. Section 171 of the CGST Act falls within the law-making power of the Parliament under Article 246-A of the Constitution dealing with the ancillary and necessary aspects of GST and is not beyond the legislative competence of the Parliament.

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