Non imposition of penalty retrospectively in case of violation of Anti-Profiteering provision1
Facts of the case
In this given case the respondent had not passed on the benefit of additional Input tax Credit (ITC) to the above Applicant as well as to other 124 house and plot buyers who had purchased from him in his Project "Eldeco County". As per the provisions of Section 171 (1) of the CGST Act, 2017 the respondent violated the provision of Section 171 of the CGST Act 2017.
The Authority in its above Order had also observed that the Respondent had not denied that the benefit of ITC had accrued to him which he was required to pass on to his buyers.
Contention of Respondent
It was argued that the penal provisions under Section 122 of the Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be invoked and nor penalty should be imposed as there was no violation of any of the above provisions. It was argued that even though there was no methodology prescribed to measure the benefit, the calculations were made based on the best assessment which showed that there was intention to comply with the provisions of Section 171.
Here the respondent relied on the judgment 2where it was held as under-
But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An Order imposing penalty for failure to carry out a statutory obligation is the result of quasi criminal proceedings, and the penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Where penalty should be in imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the Statute.
It is apparent from the perusal of Section 122 (1)(i) of the CGST Act 2017, that the violation of the provisions of Section 171 (1) is not covered under it as it doesnot provide penalty for not passing on the benefits of tax reduction and ITC.
It only provides for imposition of penalty for not issuing an invoiceor for issuing an incorrect or false invoice in respect of any supply of goods or services or both. Perusal of proviso attached to this Section alsoshows that it provides for imposition of penalty of ten thousand rupees or equal to the tax evaded or the tax not deducted under section 51 orshort deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid tothe Government or input tax availed or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher.
Since, theprofiteered amount is not a tax imposed under the CGST Act, 2017, the above penalty cannot be imposed for violation of the anti-profiteering provisions made under Section 171 of the above Act. It is further revealed that vide Section 112 of the Finance Act, 2019 specific penalty provisions have been added for violation of theprovisions of Section 171 (1) which have come in to force w.e.f. 01.01.2020, by inserting Section 171 (3A) which provides as under:-
(3A) Where the Authority referred to in sub-section (2) after holding examination as required under the said subsectioncomes to the conclusion that any registered person has profiteered under sub-section (1), such person shallbe liable to pay penalty equivalent to ten per cent, of the amount so profiteered:
Provided that no penalty shall be leviable if the profiteered amount is deposited within thirty days of the date ofpassing of the order by the Authority.
Explanation:- For the purpose of this section, the expression "profiteered" shall mean the amount determined onaccount of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit ofinput tax credit to the recipient by way of commensurate reduction in the price of the goods or services of both.
Since no penalty provisions were in existence between the periodwhen the Respondent had violated theprovisions of Section 171 (1), the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively.Accordingly, the notice dated 27.05.2019 issued to the Respondent for imposition of penalty under Section 122 (1) (i) is hereby withdrawn andthe present penalty proceedings launched against him are accordingly dropped.
1 DIRECTOR GENERAL OF ANTI-PROFITEERING Vs VIJETHA SUPERMARKETS PVT LTD[Case No.43/2020]
1 Hindustan Steel Ltd. v. State of Orissa AIR 1970 (SC) 253 [2002-TIOL-148-SC-CT-LB]