Obligation of the Assessee to reduce the price of the ticket in line with tax rate reduction

The Hon’ble Telangana High Court in Sudarshan Theatre v. Union of India [Writ Petition Nos. 4760 and 5351 of 2021 dated June 21, 2024], dismissed the writ petitions and held that the Assessee violated Section 171 of the Central Goods and Services tax Act, 2017 (“the CGST Act”) by failing to reduce ticket prices immediately following the Goods and Services Tax (“GST”) rate reduction effective from January 1, 2019. Further, a reading of sections 171 & 172 of the CGST Act does not show any exception carved out in the event of non-reduction in the price of tickets, nor is the authority empowered to relax conditions so enumerated under section 171(1) of the CGST Act. The Hon’ble Court found no illegality or exception in the Authority’s order required the re-computation of profiteering.

Facts:

M/s. Sudarshan Theatre (“the Petitioner”), collected GST on cinema tickets at rates 28% and 18% for tickets priced above Rs. 100 and below Rs. 100, until December 31, 2018. Effective January 1, 2019, the GST rates were reduced to 18% and 12% respectively. However, the Petitioner reduced ticket prices only from March 11, 2019, and continued to charge the reduced prices until May 08, 2019, after which they maintained the lower prices. Despite not immediately lowering ticket prices for the first 2 months and 12 days after the tax rate reduction, the Petitioner still paid GST to the Government at the new rates of 18% and 12%.

The National Anti-Profiteering Authority alleged that the Petitioner failed to pass on the benefit of the reduced GST rates to consumers immediately and had profited from the interim period by charging higher prices. The whole dispute arises on this reduction of tax. The allegation is that once when the rate of tax stood reduced from the bracket of 28% and 18% to 18% and 12% w.e.f. January 01, 2019, the authority concerned was required to reduce the price of the tickets commensurate with the reduction in the tax so that the audience who are the end-beneficiaries get advantage of the reduction in the ticket price.

Hence, aggrieved by the circumstances, the Petitioner filed the present writ petition seeking the quashment of the order (“the Impugned Order”) to the aforesaid extent.

Issue:

Whether the Petitioner’s delay in reducing ticket prices in line with tax rate reduction violated Section 171 of the CGST Act?

Held:

The Hon’ble Telangana High Court in Writ Petition Nos. 4760 and 5351 of 2024 held as under:

• Observed that, the National Anti-Profiteering Authority had alleged that the Petitioner’s delay in adjusting ticket prices constituted a violation of Section 171 of the CGST Act, which mandates that any reduction in tax rates must be passed on to consumers through a corresponding reduction in prices.
• Noted that, the provision of Section 171(1) of the CGST Act has been introduced to ensure that the supplier of goods and services should not make profit from the reduction of the tax rate under the GST law. Rather the intention of the Government is that the moment the rate of tax under the GST is reduced, the benefit should immediately be passed on to the end-user by way of reduction in the prices commensurate with the reduction in the rate of tax. This, in other words, would mean that, the moment there is a cut in the rate of GST, the price of the commodity or the services rendered has to be reduced automatically to the extent of the reduction in the rate of tax. If the supplier continues to sell the product at the same price particularly when the prices are inclusive of GST, the respondent-Department or the beneficiary does not benefit by the Government’s decision in lowering the rate of tax.
• Held that, a reading of Sections 171 & 172 of the CGST Act does not show any exception carved out in the event non-reduction in the price of tickets, nor is the authority empowered to relax conditions so enumerated under Section 171(1) of the CGST Act. Accordingly, there was no illegality committed by the Authority which had passed the Impugned Order.

Our Comments:

The Government has actively started considering a reduction of GST rates for goods and services to keep the economy on the growth path. In this context, it’s important for all Entrepreneurs to be under anti-profiteering regulations under GST. The basis of anti-profiteering provisions in the GST rules is to ensure that any reduction in the GST rate and associated input tax credit benefit is passed on to the end consumer by way of a reduction in prices.

Section 171 of the CGST Act:

“(1) Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.”

As per Section 171 of the CGST/SGST Act, any reduction in the tax rate on any supply of goods or services, or any benefit of ‘input tax credit’, must be passed on to the recipient (for example, customer) by the registered person (e.g., trader) through a commensurate reduction in prices. Thus, if a trader is paying, say, Rs 100 less in the new tax rate on a certain item, he has to compulsorily sell that item for Rs 100 cheaper, so the customer benefits proportionally. Failure to do so would mean the trader is indulging in ‘profiteering’.

Key Industry Player’s Issues:

A writ petition was filed before the Hon’ble Delhi High Court in the matter of Reckitt Benckiser India (P.) Ltd v. Union of India [Writ Petition (Civil) No. 7743 of 2019 and Others dated January 29, 2024] by more than 170 companies like Reckitt, Abbott, HUL, Johnson and Johnson, etc. fiercely challenging the constitutional validity of Section 171 of the CGST Act read with Rules 122, 124, 126, 127, 129, 133 and 134 of the CGST Rules. Also, the Petitioners have challenged the legality of the notices and orders imposing penalties issued by the National Anti-profiteering Authority (NAA) under Section 122 of the CGST Act read with Rule 133(3)(d) of the CGST Rules.

In the case of Sh. Arnav Datta, Director General of Anti-Profiteering, Central Board Of Indirect Taxes & Customs v. Prescon Realtors And Infrastructure Pvt. Ltd., [Case No. 42/2022 dated July 22, 2022]wherein NAA held that in the DGAP’s Report, the ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 1.43% and during the post-GST period (July, 2017 to September, 2019), it was 5.69% in Project “Silver Oak”. This clearly confirms that post-GST, the Respondent has benefited from additional input tax credit to the tune of 4.26% [5.69% (-) 1.43%] of the turnover and the same was required to be passed on to the customers/flat buyers/recipients. The DGAP has calculated the amount of ITC benefit to be passed on to all the flat buyers as Rs. 3,45,28,279/- for the project ‘Silver Oak’ which was availed by the Respondent.

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