GST Anti-Profiteering Body Penalises Prasad Cinema

The government’s GST probe body has held that Hyderabad’s Prasad Cinema profiteered as it failed to reduce ticket prices even after the applicable goods and services tax rate was reduced from 28% to 18% in January 2019.

The National Anti-Profiteering Authority (NAA) was hearing an application by the Director General for Anti-Profiteering (DGAP) that conducted an investigation into the profiteering allegation. This is the first anti-profiteering order against a services firm. So far, the anti-profiteering law has been wielded against consumer goods companies such as L’Oréal India, Nestle India Ltd., among others.

In the case of Prasad Cinema, the period of investigation was between Jan. 1 - Jun. 30, 2019, for a portion of which, between Jan. 1 to Feb. 7, 2019, the cinema company allegedly profiteered as it failed to reduce the ticket price despite a cut in the GST rate.

Starting Jan. 1, 2019, the central government reduced the tax rate on tickets priced above 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 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 Jan. 1, 2019 the GST rate was reduced to 18%, yet it was higher than the earlier entertainment tax rate.

Hence, the company argued it received no benefit after the introduction of GST which could have been passed to the consumers, thereby claiming that did not violate 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 cannot 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. It then reduced the price from Feb. 8, 2019, the DGAP pointed out.

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

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