Tax Vista Your weekly tax recap Edn. 24 - 30 November, 2020 By Dr. G. Gokul Kishore

NAA holds Rs. 241 crores as profiteered against FMCG major

In an order running to 234 pages involving exhaustive submissions of the company, multiple reports of Directorate General of Anti-dumping (DGAP) and various hearings, the National Anti-profiteering Authority (NAA) has held an FMCG Group (3 entities) as having profiteered Rs. 241 crores by not reducing prices commensurately when the tax rate was reduced from 28% to 18% from 15-11-2017. The company had argued that the methodology adopted by DGAP of comparing average base price during pre-rate reduction period with actual invoice price in post-rate reduction period was not correct and such method would lead to computation of profiteering amount even if there is no rate reduction. But the NAA has held that comparison of actual prices is not possible as it would involve millions of invoices. The NAA has also expressed the view that such pre-rate averaging was made only for 14 days and therefore, it would be reliable.

The company has contended that cost of production had gone up and therefore, price of certain SKUs was increased. The NAA has held that they waited for four months from implementation of GST and increased the prices exactly when rate reduction was made whereas such measure could have been undertaken on introduction of GST. Time-limit within which the proceedings should have been completed was argued as violated in this case as it is only for fresh investigation under Rule 133(5) of CGST Rules, further period of six months would be available whereas the NAA had directed the DGAP to further investigate under Rule 133(4) only. However, the NAA relying on its own guidelines whereby it has clarified that reports under Rule 133(4) are also "fresh reports" and judgments holding time-limits being only directory and not mandatory, has held that the proceedings were not hit by time-bar.

Arguments on rate reduction benefit having been passed on by way of post-sale discounts, continuation of sales promotion schemes and giving additional quantity have all been rejected by NAA either on the ground that evidences were not produced or that such decisions being business decisions are not covered by Section 171 of CGST Act which does not authorize any other method for passing such benefit except price reduction. Benefits shall be passed only through monetary terms and non-monetary methods are not acceptable, as per NAA. According to the order, passing of higher benefits on certain products cannot be adjusted against lower benefit passed on other products as a buyer may not buy both the products.

Like in other cases, NAA has not accepted the plea that computation should be made at the entity-level or HSN-level and it has reiterated that every buyer should get the benefit and therefore, rate reduction benefit should be computed at SKU-level only. Regarding the argument that anti-profiteering measure is meant to be transitory, an interesting observation can be found in the order - "Anti-profiteering provisions are bound to remain in the statute book till the registered persons cultivate the habit of voluntarily passing on the above benefits as a matter of routine." [DGAP v. Proctor & Gamble Home Products, Proctor & Gamble Hygiene and Healthcare and Gillette India Ltd. - 2020-VIL-91-NAA].

It is a matter of great concern that there is no statutory appellate remedy provided against the orders passed by NAA involving such astronomical amounts. When the stakes involved are so high, lack of clarity on methods to pass on the benefits coupled with non-acceptance of any other method may not contribute to a congenial business climate as the companies which come under the scanner of anti-profiteering are bound to be impacted heavily. The NAA has framed certain guidelines on methodology which are seen as predominantly administrative in nature. Non-issuance of proper show cause notice, not complying with time-limits and non-prescription of any definitive period for investigation are some of the major lacune in the anti-profiteering regime calling for remedial action.

Assailing vires through amendment - Sikkim High Court says no

After introduction of GST, those units which were enjoying excise duty exemption in specified States (area-based exemption) have been provided partial relief by way Budgetary Support Scheme for the residual period. The petitioner had filed writ petition seeking full refund of CGST and 50% of IGST under the said scheme or alternatively to provide special rate of refund equivalent to the exemption under the earlier area-based exemption. After conclusion of arguments, the High Court reserved judgment. The petitioner sought amendment to the writ petition whereby vires of the proviso to Section 174(2)(c) of CGST Act and Notification No. 21/2017-C.E. dated 18-7-2017 rescinding earlier exemption notifications was challenged.

The High Court noted that as per Order VI Rule 17 read with Section 151 of Civil Procedure Code, while the Court may allow amendment of pleadings which may be necessary to determine the real questions, the same shall not be allowed after commencement of trial with the exception that the matter (amendment) could not have been raised before despite due diligence of the party. It held that the present plea was not covered by such exception and did not allow such amendment [Sun Pharma Laboratories Ltd. v. UOI - 2020-VIL-587-SIK].

Notification providing for partial refund to such units under GST can be considered primarily as a deviation from the ingredients of proviso to Section 174(2)(c). As per this proviso, any tax exemption granted as an incentive against investment through a notification shall not continue as privilege if the said notification is rescinded on or after the appointed day. The Central Government has armed itself with such provision so that it is not bound to honour the promise made under the earlier regime though one may agitate the issue on the ground of promissory estoppel with or without success. When the provision is so eloquent, it is not known why the notification rescinding the earlier excise exemption along with such provision itself was not challenged at the time of filing writ petition in this case. Surprisingly, the prayer initially was restricted to grant of full refund or special rate of refund while the amendment apparently went to the root of the matter.

Testing test services for coverage under OIDAR Service

Online Information and Database Access and Retrieval Service (OIDAR) continues from Service Tax to GST regime. The definition is also more or less the same. Services provided from a foreign country to an individual in India for non-commercial purpose are exempted under Notification No. 9/2017-Integrated Tax (Rate) and this exemption excludes OIDAR service. Initially, the Authority for Advance Rulings (AAR), Karnataka had held that among the various types of tests conducted by the applicant, the third type was not covered under OIDAR service and therefore, the exemption as above would be applicable. Department filed appeal before the Appellate Authority for Advance Rulings (AAAR) arguing that the activity involved only minimal human intervention and therefore, was actually covered under OIDAR service which means exemption was not admissible.

The AAAR upheld department's contention after elaborately discussing in the backdrop of facts of the case, as to whether the human intervention in providing the testing services is minimal or not. While registration, taking computer based test, etc., were conducted through internet, the third type of test involved essay writing also which was evaluated by both the computer as well as human evaluator and this fact was contended, by the company, as human intervention being more than minimal and not covered under OIDAR service. The AAAR held that the scoring by a human scorer is only one of the processes involved in computer-based testing and the role of human scorer is to ensure reliability of the computer program and therefore, human intervention is minimal while providing such testing service thus making the activity classifiable under OIDAR service [Pr. Commissioner v. NCS Pearson - 2020-VIL-71-AAAR].

The AAAR has observed that reference is made to the European Commission VAT Committee Working Paper as there are no guidelines in Indian laws regarding the concept of minimum human intervention in electronically provided services. It is time for the CBIC to issue appropriate clarification particularly when such authorities are compelled to refer to clarification provided in other jurisdictions.

Transportation facility to employee with or without recovery - Employer liable to GST

Haryana AAR has held that providing transportation facility by employer to employees for commuting to office is liable to GST. The applicant had raised the question in both the situations of providing such facility free and those involving recovery of nominal amount. It appears that valuation was also part of the questions raised but the AAR has only held that Section 15 of CGST Act will be applicable without discussing as to applicability of the exact rule. The applicant had tried to argue that they are not in the business of providing transportation service to employees, there is no consideration involved in such cases and the facility is a consideration for the services provided by employee to employer which is not a supply of service as per Schedule-III of CGST Act.

The AAR has held that providing such transportation facility is in furtherance of business of the employer and therefore, even without consideration, as per Schedule-I, the supply being between related persons, would be liable to GST [Beumer India Pvt Ltd. - 2020-VIL-316-AAR]. The ruling is cryptic without detailed discussions in so far as the order portion is concerned. This is yet another ruling in the series of such rulings - some in favour and some against the taxpayer and the CBIC should intervene through a comprehensive clarification before audit parties from the department raise this issue all over the country.

(The author is an Advocate, Gokul & Subha Advocates, Chennai. The views expressed are personal)