GSTAT Rejects DGAP's Mechanical Price Comparison in MRF Corporation Anti-Profiteering Case
Background and Overview
The GST Appellate Tribunal recently delivered a significant ruling in the matter of DG Anti Profiteering Vs MRF Corporation Pvt. Ltd., arising under Section 171 of the Central Goods and Services Tax Act, 2017 read with Rules 129 and 130 of the CGST Rules, 2017. The case revolves around allegations that MRF Corporation Pvt. Ltd. failed to transmit the benefit of a GST rate reduction to end consumers — a question that ultimately led the Tribunal to question the very methodology adopted by the Directorate General of Anti-Profiteering (DGAP) in computing the alleged profiteering amount.
The matter carries significant implications for how anti-profiteering investigations are conducted, particularly on the question of whether market-driven cost increases and commercial realities must be factored into the DGAP's assessment before concluding that an assessee has violated Section 171 of the CGST Act, 2017.
Genesis of the Dispute
The DGAP filed its initial investigation report dated 27.02.2020, alleging that MRF Corporation Pvt. Ltd. had not passed on the benefit arising from the reduction in GST rates from 28% to 18%, which came into effect on 27.07.2018. The allegation was that the Respondent had artificially inflated its base prices following the rate cut, thereby retaining for itself what should have been transferred to consumers in the form of lower prices.
The erstwhile National Anti-Profiteering Authority (NAA), however, was not satisfied with the investigation conducted by the DGAP. Vide Interim Order No. 37/2020 dated 11.12.2020, the NAA invoked Rule 133(4) of the CGST Rules, 2017 and remanded the matter back to the DGAP with specific directions for fresh investigation. The NAA identified multiple contradictions and lacunae in the DGAP's findings that warranted re-examination.
Key Concerns Raised by the NAA in Its Interim Order
Contradiction Regarding "SP EP PRIMER GREY – 1 Liter"
The NAA observed that as per a letter dated 27.07.2020, the DGAP itself had admitted that the base price of Rs. 214/- of the product "SP EP PRIMER GREY – 1 Liter" prevailing during the pre-rate reduction period was maintained unchanged in the post-rate reduction period as well. The NAA noted:
"If it is taken to be correct, then there is no issue of not passing on the benefit of tax reduction by the Noticee as he has maintained the same base price in the post rate reduction period."
This directly contradicted the DGAP's report dated 27.02.2020, which had alleged that the Respondent had increased base prices to negate the GST benefit. The NAA directed the DGAP to resolve this contradiction.
Discrepancy in "SP EP PRIMER GREY – 4 Liter" Pricing
With respect to the product "SP EP PRIMER GREY – 4 Liter", the NAA noted that:
- The base price prior to 18.06.2018 was Rs. 797/-
- From 27.07.2018 to 31.10.2018, the base price was Rs. 829/-
- It was revised to Rs. 854/- only with effect from 01.11.2018
Importantly, the Respondent had produced invoices dated 21.07.2018 and 27.06.2018 demonstrating that the base price of Rs. 829/- was already in place from 18.06.2018 — before the GST rate reduction took effect on 27.07.2018. Therefore, there was no actual increase in base price post rate reduction, at least up to 31.10.2018.
The DGAP had argued in clarifications that the product "SP EP PRIMER GREY – 4 L" with product code 500125 was not found in outward invoice data for the period 01.07.2018 to 26.07.2018 and was therefore treated as a new product launched post rate reduction, with profiteering computed as NIL. However, the NAA noted that the DGAP had itself computed profiteering of Rs. 20/- in respect of this product in Annexure-19 of the Report dated 27.02.2020 — and that the Respondent's submissions referenced a different product code, V13160460, as seen in the invoice dated 04.08.2018 issued in favour of M/s Rajesh Hardwares, Kanyakumari.