2023 (12) TMI 229 - CCI - GST

Company violates Section 171 CGST Act by not passing GST rate reduction benefits to customers, ordered to deposit Rs. 6,58,523 in Consumer Welfare Funds

Director General of Anti-Profiteering, Central Board of Indirect Taxes & Customs, Versus M/s Smookey Kitchen Foods OPC Pvt. Ltd., (Franchisee of M/s Subway Systems India Pvt. Ltd.),

Director General of Anti-Profiteering, Central Board of Indirect Taxes & Customs, Versus M/s Smookey Kitchen Foods OPC Pvt. Ltd., (Franchisee of M/s ... Issues Involved:1. Exclusion of sales data on World Sandwich Day (WSD).2. Alleged non-passing of GST rate reduction benefit.3. Calculation methodology for profiteering.4. Period of investigation.5. Inclusion of additional GST in profiteered amount.6. Consideration of increased business expenses.7. Impact of discounts and price reductions.8. Jurisdiction and limitation of proceedings.9. Penalty imposition.Summary:1. Exclusion of sales data on World Sandwich Day (WSD):The DGAP excluded the sales data of WSD on 03.11.2017, considering it an outlier. However, the NAA found this exclusion improper as similar sales data were included in other franchisee cases. The DGAP was directed to reinvestigate and include WSD data in the calculation.2. Alleged non-passing of GST rate reduction benefit:The Respondent was accused of not passing the benefit of GST rate reduction from 18% to 5% effective 15.11.2017. The DGAP found that the Respondent increased base prices of products more than the commensurate reduction required, leading to profiteering.3. Calculation methodology for profiteering:The DGAP used the average base prices from 01.11.2017 to 14.11.2017 to calculate profiteering. The Respondent contended this method was flawed due to the inclusion of discounted prices. The NAA upheld the DGAP's methodology, finding it reasonable and justifiable.4. Period of investigation:The Respondent argued that the profiteering calculation should be limited to the next price revision post-GST rate reduction. The NAA clarified that the investigation period from 15.11.2017 to 30.06.2019 was appropriate and not violative of Article 19 (1) (g) of the Constitution.5. Inclusion of additional GST in profiteered amount:The Respondent contended that the 5% additional GST amount should be removed from the profiteered amount. The NAA found this inclusion correct as the customer bore the increased base price and excess GST. The Respondent was advised to claim the excess tax paid from the jurisdictional Commissionerate.6. Consideration of increased business expenses:The Respondent argued that increased royalty and advertisement expenses should be considered in the base price calculation. The NAA rejected this, stating these costs were part of the business process and could not offset the tax relief provided by the government.7. Impact of discounts and price reductions:The Respondent claimed that discounts offered and lower prices charged to some customers should reduce the profiteered amount. The NAA found that each customer is entitled to the full benefit of tax reduction, and benefits passed to one set of customers cannot offset increased prices for others.8. Jurisdiction and limitation of proceedings:The Respondent argued that the proceedings were without jurisdiction and barred by limitation. The NAA clarified that the investigation was initiated within the prescribed period, and the procedure followed was appropriate.9. Penalty imposition:The NAA found the Respondent liable for profiteering but did not impose a penalty under Section 171 (3A) as the violation period was before the section came into force on 01.01.2020.Conclusion:The NAA directed the Respondent to deposit Rs. 6,58,523/- in the Consumer Welfare Funds of the Central and Uttar Pradesh State Governments within three months, along with interest. The Commissioners of CGST/SGST were instructed to ensure compliance and submit a report within four months.