GST NAA Penalised Prasad Cinemas for Alleged Profiteering

The Goods and Services Tax (GST) probe body stated that Hyderabad’s Prasad Cinema profiteered as it failed to reduce ticket prices even after the applicable GST rate was reduced from 28% to 18% in January 2019.

The National Anti-Profiteering Authority (NAA) heard an application by the Director-General for Anti-Profiteering (DGAP) that conducted an inquiry into the profiteering law wielded against consumer goods companies such as L’Oréal India, Nestle India Ltd., among others.

In the case of Prasad Cinema, the period of inquiry was from 01 January 2019 to 30 June 2019, for a portion of which, from 01 January 2019 to 07 February 2019, the cinema business allegedly profiteered as it refused to reduce the ticket price following a reduction in the GST rate.

Starting 01 January 2019, the Central Government reduced the tax rate on tickets priced over Rs 100 each, from 28% to 18%. The GST rate on tickets priced at less than Rs 100 each, was reduced from 18% to 12%.

In its defence, Prasad Cinema pointed out that the entertainment tax levied before the introduction of GST was 17.30%. When GST was implemented, and the applicable rate was fixed at 28%, the cinema company did not increase ticket prices. Subsequently, on 01 January 2019, the GST rate was lowered to 18%, but it was higher than the earlier entertainment tax rate.

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Hence, the company claimed it earned no benefit after the implementation of GST, which could have been transferred to the customers, thus arguing it did not breach any provisions of the GST Act.

The DGAP contended even though the company did not increase the ticket prices when GST was introduced at 28%, that can not be grounds for not passing the benefit to consumers when the GST rate was reduced to 18%.

The DGAP argued that the company increased its base price when the tax rate was reduced, which meant the selling price of the ticket remained the same as before the GST rate reduction. The DGAP pointed out that the Prasad Cinemas raised the price from 08 February 2019.

The NAA found that Prasad Cinemas did resort to profiteering by way of either the base prices of the services to retain the same sale price when the tax was cut or by not reducing the sales price in proportion to the reduction in the tax rate.

The sum profiteered was held to be Rs 30,13,058, and the authority has ordered for depositing the amount. This amount has to be deposited with 18% interest which will be levied till the time the money is deposited. The business has been given three months for the deposit of the amount.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in