Cinema Operator Cannot Use State-Set Ticket Price Limits To Avoid Passing On GST Cut To Consumers: GSTAT Delhi

The GST Appellate Tribunal (GSTAT), Principal Bench at Delhi, has held that a cinema operator cannot rely on State Government price regulations to avoid passing on the benefit of a GST rate reduction to viewers.

A single member coram of Judicial Member Justice Mayank Kumar Jain, observed that the orders relied on by Alankar Cinema did not prohibit it from reducing ticket prices after GST on cinema tickets was cut from 18% to 12% from January 1, 2019.

The tribunal observed, “In the absence of any cogent or corroborative evidence supporting the alleged grounds for the price hike, and considering the contradictory nature of the Respondent's pleadings, the increment in the base price of cinema tickets, as effected by the Respondent, is untenable and cannot be sustained in law.”

Alankar Cinema runs a single-screen theatre in Hyderabad, where tickets were priced at ₹100 for Balcony, ₹60 for Second Class and ₹30 for Third Class. After the GST rate was reduced, the cinema kept the same final ticket prices but increased the amount attributable to the base price.

The GST rate cut applied to cinema tickets priced at ₹100 or less. The rate was reduced from 18% to 12% with effect from January 1, 2019, under Notification No. 27/2018-Central Tax (Rate). Section 171 of the CGST Act requires a supplier to pass on a reduction in tax through a commensurate reduction in prices.

The Directorate General of Anti-Profiteering (DGAP) initially calculated profiteering of ₹9,75,827 for January 1 to September 30, 2019. After a further investigation covering October 2019, it added ₹43,453, taking the total to ₹10,19,280.

Alankar Cinema argued that ticket prices were regulated by the State Government and relied on government orders and orders of the Telangana High court. It also contended that the ticket amount included electricity, maintenance and security charges.

The tribunal rejected the price-regulation defence. It noted that the material produced by the cinema did not show that it was prohibited from reducing ticket prices. The State Government orders, the tribunal observed, prescribed a maximum price but did not prevent a theatre from charging less.

The tribunal also relied on the cinema's own admission that it had increased the base price while keeping the same cum-tax selling price. It found that the cinema had not produced evidence showing under which order of the Telangana High court it was permitted to make that increase.

On the argument about electricity, maintenance and security costs, the tribunal relied on the Delhi High court's ruling in Reckitt Benckiser. It observed that costing and market-related factors were not relevant to the anti-profiteering exercise, which was concerned with whether the GST reduction had been passed on through a commensurate reduction in price.

The tribunal further held that the Respondent had failed to discharge the rebuttable presumption under Section 170(1) of the CGST Act.

It observed, “We are of the view that the Respondent has failed to discharge rebuttable presumption under section 170(1) of CGST Act, 2017 by producing any cogent evidence to justify the increase in base price beyond its assertion that the Government had fixed the ticket prices. The Respondent's defence is therefore a mere pretence and a devise to circumvent the statutory implications of Section 171 of the CGST Act, 2017.”

As the recipients of the benefit could not be identified, the tribunal held that the case was covered by Rule 133(3)(c) of the CGST Rules. It also held that no penalty could be imposed because the relevant penalty provision came into force only from January 1, 2020, while the profiteering period ended on October 31, 2019.

The tribunal accepted both DGAP reports and directed Alankar Cinema to deposit ₹10,19,280 with 18% interest from June 28, 2019 to October 31, 2019, as applicable. Half the amount and interest is to go to the Central Consumer Welfare Fund and the remaining half to the Telangana State Consumer Welfare Fund. No penalty was imposed

For Applicant: Praveen Kumar, Additional Assistant Director/Authorised Representative

For Respondent: Hitendra Nath Rath, Counsel