GSTAT Principal Bench Holds Cinema Operators Must Pass GST Rate Reduction to Consumers Under Section 171 CGST Act

Background and Proceedings
The proceedings originated from a complaint by the Principal Commissioner, GST Hyderabad, alleging that AMB Cinemas LLP failed to pass on the benefit of a GST rate reduction on cinema tickets from 28% to 18% effective 1 January 2019, as mandated by Notification No. 27/2018-Central Tax (Rate). The complaint was referred to the Director General of Anti-Profiteering (DGAP), who investigated whether the benefit was passed to consumers.

The DGAP found that AMB Cinemas continued to charge the same ticket prices post-rate reduction, effectively increasing the base price and denying consumers the benefit of the tax cut. The DGAP calculated a total profiteered amount of Rs. 1,16,35,128 for the period 1 January 2019 to 30 June 2019, after adjusting for amounts already deposited by the respondent.

Respondent’s Submissions
AMB Cinemas argued that ticket prices in Telangana are regulated by the state government under the Telangana Cinema (Regulation) Act, 1955, and that it acted in accordance with government orders and High Court directions. The respondent claimed to have reduced ticket prices temporarily and deposited a portion of the alleged profiteered amount, but later increased prices following High Court orders. It further contended that the DGAP misinterpreted Section 171 of the CGST Act and that any restriction on pricing would conflict with economic policy.

DGAP’s Clarifications
The DGAP maintained that the respondent was required to reduce prices to pass on the GST benefit, regardless of state price controls, and that the High Court’s orders did not exempt the respondent from anti-profiteering obligations. The DGAP also noted discrepancies in the respondent’s explanations and found no cogent evidence to justify the price increases.

Court’s Reasoning and Findings
The Tribunal examined whether the respondent’s price increases were justified by High Court orders and whether the respondent complied with Section 171 of the CGST Act. It found that:
– The respondent was fully aware of the GST rate reduction and initially complied by reducing prices and depositing a portion of the profiteered amount.
– The subsequent increase in ticket prices was not strictly in compliance with High Court directions, as the respondent failed to inform authorities as required and did not array the DGAP as a party in related writ petitions.
– The statutory obligation under Section 171 CGST Act is independent of state price controls, and GST authorities retain the power to enforce anti-profiteering provisions.
– The respondent’s actions, including contradictory pleadings and failure to disclose material facts, precluded any equitable relief.

The Tribunal accepted the DGAP’s methodology and calculations, holding that the respondent had indeed indulged in profiteering by not passing on the GST rate reduction to consumers.

Interest and Penalty
The Tribunal held that interest on the profiteered amount is payable only from 28 June 2019, the date when the relevant rule came into force, until the date of deposit. However, no penalty was imposed, as the penalty provision under Section 171(3A) became effective only from 1 January 2020, after the period of contravention.

Final Order
The GSTAT Principal Bench accepted the DGAP’s report, rejected the respondent’s objections, and directed AMB Cinemas LLP to deposit the profiteered amount along with interest at 18% (from 28 June 2019 to 30 June 2019) into the Central and Telangana State Consumer Welfare Funds in equal proportion. The judgment reinforces the mandatory requirement under Section 171 of the CGST Act for suppliers to pass on tax rate reductions to consumers through commensurate price reductions, irrespective of state-level price controls or other regulatory frameworks.