Page 33 - GSTL_21st May 2020_Vol 36_Part 3

2020 ] LEVY OF GST AND PROFITEERING ON SUPPLY OF SANITARY NAPKINS J59
the recipients in respect of number of SKUs and excess benefit had been passed
on in respect of other SKUs. J.J. had adjusted excess benefit passed on to some
recipients against the commensurate benefit passed on to certain other recipients.
Based on DGAP report, NAA observed that the product “Sanitary Nap-
kin” was exempted and attracted NIL rate of GST vide Notification No. 19/2018-
C.T. (Rate), dated 26-7-2018, w.e.f. 27-7-2018. However, prior to 27-7-2018 this
product attracted 12% GST with the benefit of ITC on the inputs and input ser-
vices which was denied from 27-7-2018 as the product was exempted from levy
of tax. The GST paid on the inputs and on input service post rate reduction was a
cost to the supplier, hence the base prices of the products would increase to the
extent of denial of ITC. Accordingly the DGAP based on the turnover and the
ITC available to the respondent had estimated the ratio of ITC to the taxable
turnover as 9.4%. DGAP has estimated the profiteered amount for 81 SKUs sup-
plied by JJ as ` 42,70,18,581/-. It may be a fact that the MRP may not have been
increased but the fact remains that the base price of the product had increased
more than 9.4% which was allowed on account of denial of ITC. Therefore, any
increase beyond 9.4% amounts to profiteering.
On jurisdiction of Standing Committee, NAA observed that complaint
was well within jurisdiction. As per Rule 128 of the CGST Rules, the Standing
Committee on receipt of an application either from an interested party or from a
Commissioner or any other person can examine as to whether the provisions of
Section 171 have been violated. In the present case the application was received
from the Commissioner and the Principal Chief Commissioner and on prima facie
finding that the provisions of Section 171 have been violated it was forwarded
for detailed investigation to the DGAP.
On methodology and procedure, it observed that Rule 126 of the CGST
Rules empowers the authority to determine the methodology and procedure for
determining as to whether the provisions of Section 171 have been violated. In
exercise of the powers under Rule 126 of the CGST Rules, 2017, the Authority has
to determine ‘Procedure & Methodology’ which is evident from all orders. There
cannot be a fixed methodology for determination of the profiteered amount as
each case is different and determination of the profiteered amount depends on
the facts of that case. The mathematical methodology applied in the case where
the rate of tax has been reduced and ITC disallowed cannot be applied in the
case where the rate of tax has been reduced and ITC allowed. Similarly, the
mathematical methodology applied in the case of Fast Moving Consumer Goods
(FMCGs) cannot be applied in the case of construction services. Therefore the
question of prescribing any mathematical methodology does not arise but de-
pending on facts of each case the Authority has been determining the mathemat-
ical methodology as per the provisions of Rule 126.
The NAA also noted that M/s. Apollo Hospitals, who was the seller of
the impugned product, had clearly increased the base price of the product as can
be seen from the invoices. But as the benefit of ITC was not available to it post
27-7-2018, so the reversal of ITC on the closing stock was the extra cost on it. As
per the records, reversal of ITC by it is more than excess realization on closing
stock after denial of ITC benefit w.e.f. 27-7-2019, therefore no profiteering can be
concluded on its part and hence, Section 171(1) does not hold good in respect of
Apollo Hospitals.
GST LAW TIMES  21st May 2020  33