A massive ₹1.49 crore profiteering claim against a supplier of dental equipment was rejected by the GST Appellate Tribunal (GSTAT) after a direct verification with the supplier’s customers proved that the Input Tax Credit (ITC) benefit had, in fact, been passed on.
Issue
Can a significant profiteering claim, which was calculated by the Directorate General of Anti-Profiteering (DGAP) on the theoretical assumption that no Input Tax Credit (ITC) benefit was passed on, be legally sustained if a direct, on-ground verification with the actual buyers proves that the benefit was, in fact, passed on to them?
Facts
- The case began with a specific complaint from one customer against a supplier of dental equipment. The National Anti-profiteering Authority (NAA) confirmed this small, specific instance of profiteering. However, it also ordered a fresh, wider investigation into all other products supplied by the respondent.
- In this second, broader investigation, the DGAP concluded that the supplier had not provided sufficient evidence to prove that the benefit of the ITC they had availed had been passed on to their customers.
- Based on this alleged lack of evidence from the supplier, the DGAP took the extreme step of treating the entire ITC that the supplier had availed as an unpassed benefit. This resulted in a massive alleged profiteering calculation of ₹1.49 crore.
- The case then went to the GST Appellate Tribunal (GSTAT). The GSTAT, not satisfied with the DGAP’s theoretical calculation, directed the DGAP to conduct a direct verification with the supplier’s actual buyers.
- The results of this direct verification were overwhelmingly in the supplier’s favour: out of 56 buyers that were contacted, 50 buyers confirmed that they had indeed received the ITC benefits. Only one single, unregistered buyer (who couldn’t have availed ITC anyway) reported not receiving the benefit.
Decision
The GSTAT ruled decisively in favour of the assessee (the supplier).
- It held that the results of the direct verification with the customers provided no substantive evidence to support the DGAP’s huge profiteering claim of ₹1.49 crore. In fact, the on-ground evidence proved the opposite.
- The Tribunal therefore rejected the DGAP’s re-investigation report as being contrary to the verified facts.
- The entire proceeding was closed, with the GSTAT affirming that the supplier had, by and large, fulfilled their obligation to pass on the ITC benefits to their customers.
Key Takeways
- Direct Verification is the Strongest Evidence: The best and most conclusive way to check if a tax benefit has been passed on from a business to its customers is to actually ask the customers. The direct confirmation from the buyers in this case was the most powerful piece of evidence and completely demolished the DGAP’s theoretical calculation.
- Assumptions Cannot Replace Facts: The DGAP’s initial re-investigation report, which had assumed that the entire ITC was profiteered, was based on the supplier’s alleged failure to provide documentation. This assumption was proven to be factually incorrect when the actual recipients of the supply were contacted. An investigation cannot be based on assumptions when the facts can be verified.
- The Burden of Proof is a Two-Way Street: While a supplier has a responsibility to show how they have passed on a benefit, the investigating authority (DGAP) also has a responsibility to conduct a fair and thorough investigation. An extreme and punitive calculation that is based on a lack of cooperation, without any corroborating on-ground evidence, may not stand up to judicial scrutiny.
- The Crucial Role of the Appellate Tribunal: This case highlights the critical role of the GSTAT in the anti-profiteering framework. It acted as an effective and fair check on the powers of the investigating authority by insisting on a proper, fact-based verification process instead of just accepting the DGAP’s report at face value.