GSTAT Sets Aside Rs.1.49 Crore Profiteering Order, Grants Full Relief to Assessee

The case is about an action under Section 171 of the Central Goods and Services Tax Act, 2017, filed on a complaint that a company had profited by not transferring the benefit of Input Tax Credit (ITC) to its consumers. Prior to GST, the company used to be a dealer in dental products and bore Countervailing Duty (CVD) at 12.5% and Special Additional Duty (SAD) at 4% on imports. With the roll-out of GST on July 1, 2017, these charges were substituted by IGST at 18% with the advantage of claiming ITC.

The erstwhile National Anti-Profiteering Authority (NAA) directed the company to pass on Rs. 4,78,085 to the customer and ordered a fresh, broader investigation by the DGAP covering all products. In its subsequent report, the DGAP concluded the total profiteering to be Rs. 1,29,39,594. This amount was later revised to Rs. 1,49,81,077, as the DGAP contended that since no credit was availed in the pre-GST period, the entire ITC availed post-GST should be considered an additional benefit to be passed on to recipients. The company, however, asserted that because it was not eligible for CENVAT or CST credit in the pre-GST regime, the question of an “additional” benefit did not arise.

Issue Raised: Whether the DGAP’s conclusion that the entire post-GST ITC was a “profiteered amount” was legally and factually sustainable, particularly in light of the company’s argument that it had no prior credit to compare against.

GSTAT’s Decision: The Tribunal, being dissatisfied with the DGAP’s report for its lack of explicit evidence, adopted an inquisitorial stance and went straight to verifying from the company‘s buyers. Of the 56 buyers, 49 confirmed that they had experienced the benefit of the ITC. Five of the remaining businesses were found to be closed due to liquidation or the death of the sole proprietor. Only one buyer stated they did not receive the benefit because they were not GST-registered at the time.

The tribunal concluded that there was “no material worth the name” to support the DGAP’s claim that a sum of Rs. 1,49,81,077 had been profiteered. The Tribunal highlighted that the DGAP’s own report essentially admitted it could not establish whether the price reduction was “commensurate with the benefit of ITC”. The DGAP noted that prices were increased for 158 SKUs and decreased for 316 SKUs, yet it failed to demonstrate that the overall effect resulted in profiteering. Thus, the GSTAT determined that the benefit had, in fact, been passed on. The DGAP’s report was thus rejected, and the proceeding was shut down.

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