The Goods and Services Tax Appellate Tribunal (GSTAT) has held that a government-fixed maximum retail price does not absolve a supplier of its obligation to pass on tax benefits where it has the discretion to revise the price charged to its distributors or licensees.
The bench of Justice Mayank Kumar Jain (Judicial Member) and Anil Kumar Gupta (Technical Member) directed the Indian Railway Catering and Tourism Corporation Limited (IRCTC) to deposit ₹50,41,44,461 in Consumer Welfare Funds for failing to pass on the benefit of reduced tax incidence on “Rail Neer” packaged drinking water following the introduction of GST.
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The bench directed payment of interest at 18% from June 28, 2019, until deposit, and imposed a conditional 10% penalty.
The proceedings originated from an application filed by the then Commissioner of CGST and Central Excise, Audit Thane, alleging that IRCTC had not passed on the reduction in tax incidence on Rail Neer after GST came into force on July 1, 2017.
The complaint stated that the product had attracted central excise duty and VAT before GST, whereas the applicable GST rate became 18%. Despite the change, the maximum retail price of a one-litre bottle continued at ₹15 during the relevant period.
Following a reference from the Standing Committee on Anti-Profiteering, the Directorate General of Anti-Profiteering (DGAP) investigated the supplies. Its report, dated June 11, 2021, quantified profiteering at ₹50.41 crore for the period July 1, 2017, to May 31, 2020.
The computation compared the average pre-GST base prices during April–June 2017 with actual invoice prices after GST. It covered different categories of supplies, including deliveries within specified distances from Rail Neer plants and supplies made directly from the plants.
IRCTC argued that the Ministry of Railways determined the MRP of Rail Neer through circulars and that it could not independently reduce that price. It also submitted that it generally supplied the water to Railways, licensees, sub-licensees and contractors, who made the final retail sale to passengers.
The tribunal distinguished the MRP from the transfer price charged by IRCTC to these recipients.
Referring to Railway Board instructions authorising IRCTC to fix the transfer price for supplies to departmental and licensee-operated units, the bench held that IRCTC had the discretion necessary to pass on the tax benefit at its own stage of supply.
The transfer price comprised the basic price and applicable taxes. Accordingly, the tribunal held that IRCTC was required to reduce that price commensurately with the reduction in tax incidence.
Although IRCTC lacked authority to revise the MRP, the bench found that it could revise its transfer price. Its reliance on government control over the retail price therefore did not answer the allegation of profiteering.
Public sector status and subsidised pricing provided no exemption
IRCTC also argued that Rail Neer was supplied under a government mandate to provide safe drinking water to railway passengers. It described the activity as the discharge of a constitutional obligation and an essential governmental function.
The corporation further contended that Rail Neer was priced approximately 25% below competing packaged drinking water brands and that this subsidised pricing exceeded the tax benefit alleged to have been retained.
The tribunal rejected these defences, holding that Section 171 of the CGST Act does not distinguish between private and government organisations or exempt subsidised supplies.
It noted that IRCTC was a registered supplier manufacturing and selling packaged drinking water, collecting applicable taxes through invoices and filing returns. The statutory obligation to pass on tax benefits therefore applied to it.
The bench held that the government’s public welfare objective in providing safe drinking water did not exclude the supplies from the anti-profiteering framework.
The tribunal also rejected the contention that Rail Neer supplied on a complimentary basis to passengers of Rajdhani, Shatabdi, Duronto and other premium trains should be excluded from the profiteering calculation.
It reasoned that the cost of the water formed part of the fare collected from passengers. Describing the supply as complimentary did not, therefore, justify its exclusion.
IRCTC sought exclusion of supplies associated with seven plants that commenced operations after GST was introduced. It explained that plants operating under the public-private partnership model supplied water to it at prices determined through a bidding process.
The tribunal accepted the DGAP’s conclusion that IRCTC adopted the same selling prices for goods supplied from the different plants. It emphasised that IRCTC ultimately sold the water to licensees, sub-licensees and contractors.
Consequently, the bench did not accept the commencement of operations after GST as a sufficient ground to remove those supplies from the computation.
Objections to notice and methodology rejected
IRCTC challenged the investigation on the ground that the notice referred to the failure to reduce MRP, while the eventual computation relied on average base prices and transfer prices. It argued that this denied it an effective opportunity to meet the case against it.
The tribunal found that IRCTC had been informed of the allegations and had actively participated in the investigation. It had furnished invoice-wise sales details, GST returns, pre-GST tax returns and sample invoices.
The bench held that the computation was based on IRCTC’s transfer or selling prices and rejected the contention that the proceedings violated natural justice.
Relying on the Delhi High Court’s decision in Reckitt Benckiser India (P.) Ltd. v. Union of India, the tribunal also held that there need not be a single uniform mathematical formula for determining profiteering. The methodology could depend on the facts of the case, provided it was fair and reasonable.
The tribunal approved the methodology adopted by the DGAP and concluded that IRCTC had contravened Section 171.
₹50.41 crore to be deposited within one month
Accepting the DGAP’s report, the tribunal directed IRCTC to deposit the profiteered amount of ₹50,41,44,461 within one month of the order.
The amount must be divided equally between the Central Consumer Welfare Fund and the relevant State Consumer Welfare Funds, following the state-wise allocation in the investigation report. Where a State or Union Territory has not constituted a Consumer Welfare Fund, its share, together with interest, must be deposited in the Central Consumer Welfare Fund.
The tribunal directed payment of 18% interest from June 28, 2019, until the date of deposit. It held that interest could not be imposed for the preceding period because the relevant provision took effect on that date.
On penalty, the bench noted that Section 171(3A) became effective on January 1, 2020, and that the period of contravention extended beyond that date. It therefore held IRCTC liable to a penalty equal to 10% of the profiteered amount.
However, under the operative directions, the penalty will not be payable if IRCTC deposits the entire profiteered amount along with interest within 30 days of the order.
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