Ny Cinemas LLP V. Union of India

Present writ petition has been filed challenging the order dated 6th July, 2022 passed by respondent No.2 and the notices dated 25th July, 2022, 17th August, 2022, and 26th August, 2022 issued by respondent No. 3. The petitioner also seeks to challenge Section 171 of the CGST Act, and Rules under Chapter XV of the CGST Rules, particularly Rules 126, 127, and 133, as null and void, contending that they are unconstitutional and violative of Articles 14 and 19 (1) (g) of the Constitution of India. Additionally, Rule 129 of the CGST Rules is challenged as null and void for being violative of the principles of natural justice. Learned senior counsel for the petitioner states that the petitioner has withdrawn the writ petition filed before Allahabad High Court. He asserts that vide the impugned order, respondent No.2 has erroneously determined that the petitioner has profiteered to the tune of Rs.2,66,99,340/- by not reducing the price of the goods or services supplied by it, in proportion to the tax rate reduction on account of the introduction of the new GST rates. The learned senior counsel for the petitioner explains that the petitioner owns and operates multiplexes in various locations across India and that the GST rates applicable to movie tickets had been reduced effective from 1st January, 2019. He contends that respondents No.2 and 3 determined that the petitioner had “profiteered” by comparing the average ticket prices in December 2018 to the prices between January 2019 and February 2020. He argues that respondents No.2 and 3 completely ignored the fact that between December 2018 and February 2020, the petitioner’s capital expenditure had increased, and that movie ticket prices are highly variable, depending on a host of factors. The learned counsel criticizes the simplistic comparison of average prices to determine ‘profiteering’ as illogical and arbitrary, arguing that such an approach fails to account for the dynamic and multifaceted nature of pricing in the cinema industry. The petition thus challenges both the methodology employed by the respondents and the legal framework underpinning their actions, asserting that the determinations of profiteering were made without proper consideration of relevant business factors and statutory principles.

Learned senior counsel for the petitioner submits that Rule 133(5) cannot be applied retrospectively, arguing that the impugned order and notice fail to consider relevant materials and instead rely on irrelevant materials. He further states that the impugned order erroneously applies sub-rule (3) of Rule 133, pointing out that the notice was issued after the final impugned order by respondent No.2, which amounts to impermissibly extending the scope of inquiry. Additionally, he asserts that the impugned order was issued beyond the time limit prescribed under the Rules. Upon issuing the notice, Mr. Sushil Kumar Pandey, Advocate, accepted notice on behalf of respondent No.1, while Mr. Zoheb Hossain, senior standing counsel, accepted notice on behalf of respondent No.2, and Mr. Anurag Ojha, learned senior standing counsel, accepted notice for respondent Nos.3 and 4. The court directed that counter-affidavits be filed within two weeks, with rejoinder affidavits, if any, to be filed before the next hearing date. Citing prior orders by the Court in cases such as Phillips India Limited Vs. Union of India & Ors. [W.P.(C) No.3737/2020], M/s Samsonite South Asia Pvt. Ltd. Vs. Union of India & Ors. [W.P.(C) No.4131/2020], and M/s Patanjali Ayurved Ltd. Vs. Union of India & Ors. [W.P.(C) No.4375/2020], the Court directed the petitioner to deposit the principal profiteered amount of Rs.2,66,99,340/- in six equated installments commencing 1st December, 2022. The Court stayed the interest amount directed to be paid by the respondents, as well as the penalty proceedings and further investigation by the National Anti-Profiteering Authority (NAA) in respect of the petitioner’s cinema halls for the extended period as provided for in the impugned order, until further orders. Additionally, the learned counsel for the parties were directed to file their short written submissions, not exceeding five pages each, prior to the next hearing date. The petitioner’s argument hinges on the assertion that the NAA does not have the authority to issue suo moto notices and initiate investigations, and that the orders issued are beyond the prescribed timeframe, thus violating principles of natural justice. The petitioner contends that the calculation of profiteering, which compares average ticket prices before and after the GST rate change, fails to account for variables such as increased capital expenditure and fluctuating movie ticket prices driven by multiple factors. The petitioner’s plea emphasizes the arbitrary nature of the NAA’s findings and the procedural lapses in the issuance of notices and orders. The court’s interim relief, allowing the petitioner to deposit the principal amount in installments while staying the interest, penalty, and further investigation, reflects a balanced approach, ensuring compliance while providing the petitioner an opportunity to present their case comprehensively. This procedural safeguard underscores the judiciary’s role in maintaining fairness in administrative actions and upholding the rule of law in the face of statutory and procedural complexities.

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