TaxTMI 
TaxTMI 
2018 (11) TMI 1073
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....2017 and Applicants No. 3 & 4 vide their emails dated 15.11.2017 and 17.11.2017 respectively had filed complaints alleging that though the rate of Goods and Services Tax (GST) on Restaurant Services had been reduced from 18% to 5% w.e.f. 15.11.2017, the Respondent had increased the prices of the products which were being sold by him and had maintained the same price which he was charging before the above reduction. They had also claimed that the Respondent had indulged in profiteering in contravention of the provisions of Section 171 of the CGST Act, 2017 and hence appropriate action should be taken against him. 2. The above applications were examined by the Standing Committee on Anti-Profiteering and were referred to the DGAP vide the minutes of it's meetings dated 29.11.2017 and 20.12.2017 for detailed investigation under Rule 129 (1) of the CGST Rules, 2017. 3. The DGAP had called upon the Respondent to submit reply on the allegation levelled by the Applicants No. 1 to 4 and also to suo moto determine the quantum of benefit which he had not passed on to the consumers during the period between 15.11.2017 to 31.01.2018. The above Applicants were given an opportunity to i....
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.... by both the parties as per Section 64 A of the Sale of Goods Act, 1930. He has further claimed that any attempt to regulate the sale price of the products being sold by him would violate his right to carry on trade as per Article 19 (1) (g) of the Constitution and the provisions of Section 171 were not similar to the laws framed for controlling prices as per List Ill of Schedule Vll of the Constitution. d. That the cost of food and beverages had gone up due to the abrupt denial of ITC which had constrained him to increase the base prices to negate this impact and such increase was also not commensurate with the increase in the costs. He has also contended that the cost of the restaurant services had gone up by at least 15%. He has further contended that he could not avail ITC worth Rs. 8.70 Crores for the months of July to October, 2017 and could avail it only after 15.11.2017. He has also submitted that the quantum of ITC not shown in the GSTR 3B would increase from Rs. 8.70 Crores to Rs. 9.33 Crores and would further increase by 50 Lakhs after all the inward supplies were accounted for which would prove that he had not profiteered. He has further contended that prices o....
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.... Tax (Rate) dated 14.11.20171 had reduced the rate of tax on restaurant services from 18% to 5% w.e.f. 15.11.2017 with the condition that the benefit of ITC would not be available on this service. 7. The DGAP has also submitted that the Respondent was selling 1,844 products and after comparing the price lists published before and after 15.11.2017 when the rate of tax was reduced, which was indicated in Annexure-32, the Respondent had increased the base price in respect of 1,774 (96.20%) products. He has further submitted that although the Respondent had charged GST @ 5% on and after 15.11.2017 but due to increase in the base price the customers were forced to pay the same price which was being charged from them before 15.11.2017 whereas they should have been charged the lower price after commensurate reduction due to reduction in the rate of tax and hence they were denied the benefit which had become due to them. 8. The DGAP has made detailed calculation of profiteering vide Annexure37 of his report. He has also compared the ITC which was available to the Respondent till 14.1 1.2017 with the outward taxable supplies made till the above date. He has calculated the ITC from the....
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....July, 2017 to October, 2017 which was approximately 9.11% of the taxable value of service of Rs. 372.62 Crores supplied by the Respondent during the same period excluding the inter-unit branch transfers. The rate of tax on the restaurant services was reduced from 18% to 5% w.e.f. 15.11.2017 and the benefit of ITC was not available to the Respondent w.e.f. the above date. The DGAP has calculated the ratio of denial of ITC as under:- 11. On the basis of the analysis of the details of the item-wise outward taxable supplies made during the period between 15.11.2017 to 31.01.2018, the DGAP had found that the Respondent had increased the base prices of the various items supplied by him to neutralise the effect of denial of ITC after the rate reduction. The DGAP had compared the pre and post GST rate reduction prices of the items sold during the period between 15.11.2017 to 31.01.2018 and after taking into account the entire quantity of the products sold during the above period, had found that the Respondent had increased the average output taxable value i.e. the base price by 10.45% to offset the denial of input tax credit of 9.11% as was evident from Annexure-36 of the report. Theref....
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....eded in his Report that the Respondent had charged GST @ 5% to his consumers and therefore, commensurate benefit had been passed on to them. It has also been claimed by the Respondent that the DGAP had admitted that there was no incremental ITC available and therefore no benefit was to be passed on by the Respondent. He has further claimed that despite admission that Section 171 nowhere aimed at price regulation and it's purpose was only to ensure that benefit of reduction in the rate of tax or ITC was passed on to the recipients by way commensurate reduction in the prices, the DGAP had gone in to the computation of base price by invoking the marginal note, i.e. "Anti-Profiteering Measure" which was illegal. He has further claimed that as per the settled law pronounced on the interpretation of the statutes, marginal notes were considered as internal aid to construction and while construing such provisions, the first and the foremost rule was of literal construction and in case the provision was unambiguous and the legislative intent was clear, the other rules of construction were not be called into aid since they were to be called for aid only when the legislative intention was....
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....of the true meaning of the word "profit". 16. The Respondent has also pleaded that the DGAP had concluded that the turnover had increased by 24,81 ,33,857/- solely due to the increase in the base prices by 10.45%, which could not be taken as profit accruing to the Respondent as there was increase in the (a) Royalty, as the Respondent was paying royalty to M/S McDonald's India Pvt. Ltd. which was 3.99% of the restaurant turnover and amounted to incremental royalty of 99,00,540/- on the incremental turnover attributed solely to the price increase during the year 2017-18 (b) Variable rent, which was 3.29% of the restaurant turnover, whereby he had paid an incremental rent of 81 ,63,604/- on the incremental turnover attributed solely to price increase during the above year and (c) Other variable expenses like payments made to various service providers and during the year 201718, such expenses were 0.96% of the restaurant turnover and he had paid incremental expenses of 23,82,085/- on the incremental turnover attributable solely to the price increase. He has further pleaded that on the incremental revenue of 24,81,33,857/-, he had incurred incremental cost of 2,21 hen....
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....ost and in case he increased the prices by ? 100, he would only get 00.28 after paying out royalty, variable rent and the outside services and therefore, the prices must be at least increased by 10.09% [9.11*100/0.902] and not 9.11% as had been calculated by the DGAP to recover the tax cost. He has further averred that the profiteering had to be due to excessive profit which was not the case in the present proceedings as the increased realisation was extremely minuscule, and therefore, the inevitable conclusion was that he had passed on the commensurate benefits and he had not violated the provisions of Section 171 of the CGST Act, 2017. 18. The Respondent has also stated that the DGAP had found that the net increase in the cost due to denial of ITC was 9.11%, which was arrived at on the basis of the ITC availed during the months of July 2017 to October 2017. He has further stated that the quantum of ITC during the months of July and August was very low as compared to the ITC in the months of September and October due to the reason that he was carrying inventory upwards of Rs. 25 Crores on which no ITC had been claimed under the GST and since this inventory was procured under th....
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.... and the date wise outward taxable turnover for the month of November 2017 was not provided by the Respondent to compute the taxable turnover for the period between 1 November 2017 - 14 November 2017. The Respondent has claimed that he had supplied the ITC Register w.e.f. 01.07.2017 to 30.11.2017 on 19.01.2018 and 22.03.2018, the Stock Statement as on 30.06.2017 and 14.11.2017 on 09.03.2018 and the details of the Stock Keeping Unit (SKU) wise sales w.e.f. 01.11.2017 to 14.11.2017 and 15.11.2017 to 30.11.2017 on 10.04.2018 and hence the allegation of not providing these details was incorrect. He has further claimed that perusal of Annexure 36 (Columns G & H and J & K) and Annexure 37 (Columns I & J and L & M) of the Report framed by the DGAP provided SKU wise turnover in terms of units and price for the period between 01-14 November and for the period of 15-30 November 2017 and hence the above allegation was wrong. He has also asserted that if the period of investigation was considered as 01 July 2017 to 14 November 2017, the tax cost resulting from denial of ITC would jump to 10.29% or in the bare minimum to 10.06% which can prove that he had not profiteered. 20. The Respondent ....
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....t of a taxing statute, could not be enforced in the absence of machinery provisions for computation of the profiteered amount as per the law settled in the cases of CIT v. B. C. Srinivasa Shetty (1981) 2 SCC 460 and Commissioner of Central Excise v. Larsen & Toubro Ltd. (2016) 1 SCC 170. He has further pleaded that the above Act did not provide for a mechanism of computation or any guidelines and had left framing of methodology and computation to the Authority which was illegal as it was settled that legislature could not delegate it's authority under a statute without appropriate guidelines as per the law pronounced in the case of Indian Aluminium Co. Ltd. and Anr. v. The State of Bihar and Ors. 1994 (1) PLJR as the antiprofiteering provisions placed an unbridled discretion in the hands of the Authority and hence the present proceedings were not maintainable. 23. The Respondent has also stated that it was not clear whether the price alteration was required to be done at the entity level, State level, locational level, product level, category level or SKU level, each of which would bring about a different result in the pricing. There was also no indication whether a "commens....
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....ial of ITC therefore, the gross price charged had remained static. He has also claimed that in the tax law it was settled that a literal meaning was to be adopted as opposed to any other construction thereof as had been held in the cases of Commissioner of Income Tax v. Vadilal Valiubhai (1972) 86 ITR 2 (SC) and State of Punjab v. Gurdial Singh AIR 1980 SC 319. The Respondent has also alleged that the dictum to increase the base price only by 9.11% was nothing but a direct restriction on the prices of the services offered by the Respondent. 26. The Respondent has also claimed that prior to 15 November 2017, the input tax paid on inward supplies other than those listed under Section 17(5) of the CGST Act, 2017 was not cost and therefore, it was not factored in the price however after 15 November 2017, the input tax paid had become a cost which needed to be factored in the price. He has further claimed that the transitional credit of Rs. 5,18,17,311/- was also required to be included in the month of July 2017 as per the comments dated 09 August 2018 of the DGAP for working out the ratio of ITC versus the taxable turnover which would then be 10.50% and hence he cannot be held to ha....
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....allowed. The DGAP has also claimed that he was justified in applying the anti-profiteering provisions at the product/SKU level, in the absence of invoice-wise outward taxable supplies data as the Respondent had failed to provide the same. 29. The DGAP has also contended that Para-13 on page 6 of the Report explained the rationale for rejecting the Respondent's contention that mere charging of the reduced GST rate demonstrated the absence of profiteering as Section 171 required the passing on a benefit of reduction in the GST rates by way of a commensurate reduction in prices and in this case the price was not so reduced. He has further contended that Section 171 required that any reduction in the rete of the tax or the benefit of ITC which had accrued to a supplier must be passed on to the consumers as both are the concessions given by the Government and the suppliers were not entitled to appropriate them and in case the consumers were not identifiable, the amount so collected by the suppliers was required to be deposited in the Consumer Welfare Fund (CWF). He has also argued that commensurate reduction could obviously only be in absolute terms, so that the final price payab....
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....l the ITC in terms of the Notification dated 14.11.2017, therefore the same could not be considered for computation of denial of Input Tax Credit to net turnover ratio. The DGAP has also maintained that as the Respondent had already availed ITC on the original purchase of inputs, the same had been considered in the computation of denial of ITC to net turnover. He has further maintained that the output tax liability on inter-unit branch transfer turnover had been excluded from the ITC on the one hand and the inter-unit branch transfer turnover has been excluded from the outward taxable turnover on the other hand which neutralised the impact of branch transfer transactions on the computation. He has also informed that there was reversal of ITC on the closing stock of inputs and capital goods as on 14.11.2017 made by the Respondent which was not available in the GST-3B of November, 2017. The DGAP has also alleged that the Respondent had submitted details of SKU wise summary sales for the period between 1-14 November, 2017 but had not submitted invoice wise B2C outward taxable supplies pertaining to this period, therefore, net taxable turnover could not be computed on the b....
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....equired to be passed on to the consumers. Similarly the benefit of ITC availed by the supplier was also to be passed on to the recipients. Mere charging of GST @ 5% w.e.f. 15.11.2017 does not amount to passing on the benefit of the above reduction as has been claimed by the Respondent. The Respondent had also claimed benefit of ITC as per TRAN-I statement as well as per his GST-3B returns filed for the period between 01.07.2017 to 14.11.2017 which was also required to be passed on to the consumers. Perusal of the Report filed by the DGAP nowhere shows that he had gone in to computation of the base price fixed by the Respondent as he has neither sought details of the cost of the inputs used by the Respondent nor of his profit margins and therefore, the allegation of computation of base price by the DGAP made by the Respondent is completely wrong. The DGAP has only tried to investigate whether the benefits of reduction in the rate of tax and the ITC have been passed on to the customers by the Respondent or not as per the provisions of Section 171 or not. It is absolutely clear even from a cursory perusal of the provisions of Section 171 that they are completely unambiguous and clear ....
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.... as per List Ill of Schedule Vll of the Constitution. Both the claims made by the Respondent in this regard are farfetched and untenable in view of the specific provisions of Section 171. 34. It is also clear from the definition of 'profit' given by the Respondent in his submissions that it is the advantage or gain derived in a legal business transaction but the same cannot be considered as profit if it is illegally derived by appropriating the benefits which are granted by the Government from the public funds to the consumers. The contention of the Respondent that the increase in the prices of food article, electricity, fuel, variable rent, royalty and commissions etc. was not considered by the DGAP while calculating the profiteered amount is untenable because the DGAP has mandate to only examine whether the benefit of tax reduction or ITC has been passed on or not. The order passed in the Case of Kumar Gandharv v. KRBL Ltd. on 04.05.2018 by this Authority pertains to Basmati in the case of which the GST was increased from 0% to 5% and hence there has been no reduction in the rate of tax and therefore, the provisions of Section 171 were not attracted as is the case in r....
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....rns filed by the Respondent. However, he has claimed that the above ratio should have been calculated on the basis of the ITC availed by him either in the month of October, 2017 or during the months of September and October, 2017 as the ratio would be 13.82% or 12.82% respectively which would show that he had not profiteered. The Respondent has not given any reason to explain why the above months should be picked up selectively. The only reason for the above contention appears to be that the Respondent wants to hide the fact that he had increased his prices more than the denial of benefit of ITC. The Respondent cannot claim ITC after the Notification issued on 14.11.2017 for the supplies made during the months of July to October, 2017 during the months of December 2017 to March 2018 and hence the DGAP has rightly denied him the benefit of ITC of Rs. 1,15,88,010/-. He has further rightly denied him the benefit of ITC of Rs. 85,27,917/- as the tax invoices in respect of the supplies made during the period of July to October, 2017 were received by the Respondent late. The Respondent must have been prudent enough to make necessary provisions for payment of rent to avoid los....
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....them to pay extra GST of Rs. 0.20/- and thus the benefit or Rs. 4.14/- per piece had been denied to the customers. Had the Respondent not increased the price of the above product the same would have been supplied at the MRP of Rs. 137.86/- only and the customer would have got the benefit of Rs. 4.14/- in the MRP. Perusal of Annexure-32 further proves that the Respondent had arbitrarily increased his prices without taking into account the audited financial statements and they were increased solely with the malafide intention of appropriating the benefit which was to be passed on to the general public. The Respondent has himself admitted that he had made net marginal gain of 2.81% and the total profiteering was to the tune of Rs. 3,17,03,988/-. After this admission the Respondent can hardly claim that the price increase was based on the audited statements. 40. The Respondent has also claimed that no methodology has been prescribed under the CGST Act or the Rules which can be followed by the suppliers in order to comply with the anti-profiteering measures and this Authority had also not notified such methodology under Rule 126 of the CGST Rules, 2017. In this connection....
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....both the benefits of reduction in the rate of tax and the ITC are passed on to the consumers by commensurate reduction in the prices. During the hearing the Respondent was repeatedly asked to put forth his own methodology and procedure in case he was not satisfied with the course of action adopted by the DGAP while assessing his liability for profiteering but the Respondent has failed to do so and therefore, all the objections raised by him in this behalf are frivolous and cannot be accepted. 41. The Respondent has also pleaded that he was not aware at what level the price was to be reduced. In this connection the provisions of Section 171 are very clear which state that both the benefits have to be given in the case of every supply. Therefore, the benefit is required to be passed on at the product level as the recipient would be different in each supply of the product. Every consumer is entitled to receive the above benefits and no one can be denied these benefits on the ground that they shall be passed on at the entity level, State level, locational level or the SKU level. The Respondent has no discretion to deny these benefits on any ground or to grant them on the....
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.... of Commissioner of Income Tax v. Vadilal Vallubhai (1972) 86 ITR 2 (SC) and State of Punjab v. Gurdial Singh AIR 1980 SC 319 are of no help to him as the same are not relevant in the facts of the present case. The allegation of the Respondent that he had been directed to increase his prices by 9.11% only amounted to restriction on his right to fix the prices is misplaced as no such direction has been passed by the DGAP as the Respondent has himself revised the prices and while doing so he has deliberately pocketed the benefits which he was required to pass on to his customers in addition to his regular margins which being in contravention of the provisions of Section 171 of the above Act is liable to the consequences prescribed under Rule 133 of the above Rules. 44. The Respondent has also claimed that after 15.11.2017 the input tax paid by him had become a cost which needed to be factored in the price. This contention of the Respondent is frivolous as he had no details of the input tax available to him on 15.11.2017 when he had increased the prices. The Respondent has been duly given the benefit of transitional credit and therefore, he should not have any grievance on this acc....
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....rned Central and State GST Commissioners are directed to ensure that the amount due is got deposited from the Respondent along with interest and in case the same is not deposited necessary steps shall be taken by them to get it recovered from the Respondent as per the provisions of the CGST/SGST Acts under the supervision of the DGAP. They are further directed to submit report in compliance of this order within a period of 4 months. Since the present investigation is only up to 31.01.2018 the DGAP is directed to investigate the quantum of denial of both the above benefits till the Respondent reduces/had reduced his prices commensurately and submit his Report. 48. As per the above narration of the facts it is clear that the Respondent has resorted to profiteering by charging more price than that he could have charged by issuing incorrect tax invoices. He has further acted in conscious disregard of the obligation which was cast upon him by the law by issuing incorrect invoices in which the base prices were deliberately enhanced exactly equal to the amount of reduced tax and benefit of ITC and thus he had denied the benefit of ITC and reduction in the rate of tax granted vide Notif....