High Court Fare Approval Cannot Defeat GST Anti-Profiteering Mandate For Cinema Operators: GSTAT Delhi

The Delhi Bench of the Goods and Services Tax Appellate Tribunal (GSTAT) on 27 May held that permission granted by State authorities or the Telangana High Court to collect proposed ticket fares cannot override the statutory obligation under Section 171 of the CGST Act to pass on the benefit of GST rate reduction to consumers through a commensurate reduction in prices.

A Bench comprising Technical Member A. Venu Prasad dismissed the appeal filed by ASR Cinema LLP and affirmed the profiteering findings recorded by the Director General of Anti-Profiteering (DGAP). He observed:

“The moment there is a cut in the rate of G.S.T., the price of the commodity or the services rendered has to be reduced automatically to the extent of the reduction in the rate of tax.”

The case arose from allegations that ASR Cinema LLP failed to pass on the benefit of the reduction in GST on cinema admission tickets priced at Rs. 100 or less from 18% to 12%, effective from 1 January 2019. The DGAP found that instead of reducing ticket prices following the tax cut, the company increased the base prices and maintained the same cum-tax selling price, thereby depriving consumers of the benefit of the reduced GST rate.

Based on data available from GSTR-1 and GSTR-3B returns, the DGAP concluded that the company profiteered by Rs. 9.67 lakh during the period from 1 January 2019 to 30 September 2019. Despite repeated notices and opportunities, ASR Cinema LLP neither appeared before the Tribunal nor filed any submissions. The Tribunal therefore proceeded ex parte on the basis of the material available on record.

The company relied on orders of the Telangana High Court permitting theatres to collect proposed ticket fares. However, the Tribunal held that such permission was conditional and could not dilute the mandate of Section 171 of the CGST Act.

Referring to the Telangana High Court's decision in Sudarshan Theatre 35MM v. Union of India, the Tribunal observed that a reduction in GST rates must automatically translate into a corresponding reduction in prices.

It further noted that the company had not placed any material on record to demonstrate compliance with the conditions attached to the High Court's orders. It emphasised that no such permission could override the statutory requirement to pass on tax benefits to consumers.

Relying on the Delhi High Court's decision in Reckitt Benckiser India Pvt. Ltd. v. Union of India, the Bench also held that GST collected on the additional realisation formed part of the profiteered amount and had to be returned.

Therefore, the Tribunal determined the profiteered amount at Rs. 9,67,589, comprising base profiteering of Rs. 8,63,919 and GST of Rs. 1,03,670. Since the recipients could not be identified, it directed ASR Cinema LLP to deposit 50% of the amount in the Central Consumer Welfare Fund and the remaining 50% in the Telangana State Consumer Welfare Fund. It also directed payment of interest at 18% per annum from 28 June 2019 until the date of deposit.

However, the Bench declined to impose a penalty under Section 171(3A) of the CGST Act, holding that the provision came into force only on 1 January 2020 and could not apply retrospectively to the period under investigation.

Accordingly, the CESTAT dismissed the appeal.