GSTAT Principal Bench Holds Cinema Must Pass On GST Rate Reduction to Consumers; Profiteered Amount to Be Deposited in Welfare Funds

Background and Proceedings
The case arose from a complaint by the Principal Commissioner, Hyderabad Commissionerate, alleging that ASR Cinema LLP failed to pass on the benefit of a GST rate reduction on cinema admission tickets from 18% to 12% effective 01.01.2019, as mandated by Notification No. 27/2018-Central Tax (Rate). The complaint was referred to the Director General of Anti-Profiteering (DGAP), who initiated an investigation under the Central Goods and Services Tax Rules, 2017.

The DGAP’s investigation, covering the period from 01.01.2019 to 30.09.2019, found that instead of reducing ticket prices commensurately with the GST rate cut, the Respondent increased the base prices of tickets, thereby maintaining the same cum-tax selling price. The investigation was conducted based on statutory returns due to the Respondent’s failure to provide requisite documents.

Findings and Legal Reasoning
The DGAP calculated that the Respondent profiteered to the extent of Rs. 9,67,589/- by not passing on the GST rate reduction to consumers. The GSTAT Principal Bench noted that Section 171 of the CGST Act, 2017 unequivocally requires any reduction in the rate of tax on goods or services to be passed on to recipients by way of commensurate price reduction. The Tribunal emphasized that this statutory obligation cannot be overridden by any conditional permissions granted by State authorities or interim court orders regarding ticket pricing.

The Tribunal also referred to relevant High Court decisions, including Sudarshan Theatre 35MM v. Union of India, which affirmed that the benefit of GST rate reduction must be passed on to consumers, and that State regulatory frameworks do not dilute this obligation.

Adjudication and Directions
The Tribunal adjudicated the matter ex parte due to the Respondent’s repeated non-appearance and failure to file submissions, despite confirmed service of notices. It accepted the DGAP’s methodology for computing the profiteered amount, including the GST component, in line with the Delhi High Court’s decision in Reckitt Benckiser India Pvt. Ltd. v. Union of India.

Regarding interest, the Tribunal held that interest at 18% per annum is payable on the profiteered amount from 28.06.2019 (the date of the relevant rule’s notification) until the date of actual deposit, as per Rule 133(3)(c) of the CGST Rules, 2017. However, it declined to impose a penalty under Section 171(3A) of the CGST Act, 2017, since the period of profiteering predated the enforcement of the penal provision.

Final Order
The GSTAT Principal Bench directed the Respondent to return the profiteered amount of Rs. 9,67,589/-, with 50% to be deposited in the Central Consumer Welfare Fund and 50% in the State Consumer Welfare Fund, Telangana, as the recipients were unidentifiable. The Respondent was also ordered to pay interest at 18% per annum from 28.06.2019 until the date of deposit, with compliance to be ensured by the jurisdictional CGST/SGST Commissioner.

This decision reinforces the statutory mandate that suppliers must pass on the benefit of tax reductions to consumers and clarifies that failure to do so constitutes actionable profiteering under the GST regime.