TaxTMI 
TaxTMI 
2018 (11) TMI 1073
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....eir 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 inspect the non-confidential evidences/rep....
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....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 of some premium products had been reduced from 11% to 22%. e. That the rent for the re....
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....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 period from 01.07.2017 to 31.10.2017 as the details of the closing stock as on 14.1 1.2017 and the ITC on ....
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....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. Therefore, the DGAP had concluded that the Respondent had not passed on the benefit of reduction in the rate of tax fro....
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....mitted 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 not clear. The Respondent has also cited the law settled in the cases of Commissioner of income Tax v. Calcutta Knitwears (2014) 6 SCC 444, Union of India v. National Federation of the Blind (2013) 10 SC....
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....ot 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 hence the profit worked out to be 9.43% as against 10.45% computed by the DGAP as per the following table:- DESCRIPTION AMOUNT IN e AMOUNT IN A Revenue for 15 November to 31 January 2018 on price before revisio....
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...., 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 the VAT regime no credit was availed of/carried forward as he was availing the Composition, therefore, as all future procurements would suffer GST, for calculating the impact of the denial of GST, the months of July and August should not be considered. He has also submitted that the ITC availed of in the month of October 2017 was 13.82% and the ITC for the months of September and October 2017 was 12.28% and therefore the ITC for the month of October 2017 only or the average of September 2....
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....1.2017 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 has also submitted that in determining the price the historical data as is available at the time of decision making is used to estimate the likely cost of sales. He has further submitted that there was an abrupt change in the tax regime on 14 November 2017 whereby the Government had denied the benefit of ITC to the restaurant services which had resulted in significant increase in the cost which needed immediate price revision. He has also stressed that the methodology adopted by the DGAP ha....
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....elegate 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 "commensurate" change in pricing would be assessed as a trend or in percentage terms. He has further stated that there was no recognition of various non-GST factors like market conditions, demand and supply, rising/ falling input costs, each of which might independently warrant a reduction or increase in prices and how in respect of common goods or services which would be procured and used across the business e.g. fuel, security and audit services, such costs would be apportioned to the various segments of the business. 24. The Resp....
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....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 have profiteered. 27. The Respondent has also submitted that the DGAP had claimed that as per Section 171 determination of profiteering was required to be done in absolute terms, then the entire investigation was vitiated as it had been done on aggregate or consolidated data and the DGAP should have determined each and every factor against each and every product for determining profiteering. The respondent has also calculated the ratio of denial of ITC a under:- He has also claimed that the net effect of the denial of ITC was 10.27....
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....y 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 payable by a consumer got reduced. He has further argued that Section 171 did not provide a supplier any other means of passing on the benefit of ITC or reduction in rate of tax to the consumer. He has also pleaded that the increase in the cost of inputs including royalty, variable rent and other expenses was a factor in the determination of the price but it was independent of the output GST rate and hence it could not be claimed that the elements of cost unrelated to GST where affected by the change in the output GST rate and therefore, the in....
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....sfer 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 basis of summary sales. The DGAP has also alleged that during random check of the invoices on which ITC was availed in November, 2017, the credit was taken by the Respondent without being in possession of these invoices on the date of availing ITC, in contravention of the provisions of Section 16 (2) (a) of the CGST Act, 2017 and therefore, the ITC pertaining to the invoices issued on or after 1 st November 2017 and availed during 1-14 November 2017 had been left out. He has also intimated that the net turnover for the above period had also b....
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.... 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 and hence there is hardly any scope for misinterpretation of the marginal note mentioned as 'Anti-Profiteering Measures' and there is no justification in construing the same in the manner which has been suggested by the Respondent. Therefore, it is respectfully submitted that the law settled in the cases of Commissioner of income Tax v. Calcutta Knitwears (2014) 6 SCC 444, Union of India v. National Federation of the Blind (2013) 10 SCC 772, Commissioner of Income-Tax v. Ahmedbhai Umarbhai & Co. 1950 AIR 134, N. C. Dhoundial v. Union of ....
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....tion 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 respect of the Respondent. 35. The Respondent has wrongly claimed that the DGAP had assessed that the Respondent had made a profit of Rs. 24,81,33,857/- due to the average increase in the base price by 10.45%. The claim made by the Respondent is incorrect as the DGAP has taken the above amount as additional sale realisation made by the Respondent on account of the increase in the prices and not the profiteered amount as this amount has been assessed to be Rs. 786/- only as per Annexure-37 of the Report submitted by the DGAP. Since the above amount o....
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....sed 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 loss of ITC which he had failed to do. 38. It is also revealed from the Report of the DGAP 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 had neutralised the impact of branch transfer transactions on the computation of ratio of ITC to total taxable turnover and hence amounts of Rs. 49,26,86,384/- and Rs. 47,15,04,275/- had rightly not been included in the calculation. Per....
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....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 it would be pertinent to mention that this Authority in exercise of the powers conferred on it under Rule 126 of the above Rules has already promulgated the "Methodology and Procedure" vide it's Notification dated 28.03.2017 which has been prominently displayed on it's website. It is regrettable that the Respondent is raising this issue without consulting the website. The Respondent has also claimed that the provisions of Section 171 and Rules 122-137 could not be enforced in the absence of machinery provisions which also proves that the Respondent has....
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....vel 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 basis of his own convenience. There is also no problem in settling the issue of commensurate reduction which can be calculated after taking in to account the reduction in the rate of tax or grant of benefit of ITC both of which can be easily determined in the absolute figures and hence there should be no difficulty in reducing the prices commensurately, therefore, there is no question of it's assessment as a trend or in percentage terms. The provisions of Section 171 are only concerned about passing on the above two benefits and have no connection with the f....
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.... 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 account. 45. The claim of the Respondent that the calculation of profiteering has been done on aggregate or consolidated data and not in the absolute terms is wrong as this calculation has been done through a very comprehensive exercise carried out by the DGAP as has been shown in Annexures-32 to 37, the veracity of which cannot be challenged. The amount of Profiteering has been meticulously assessed on each and every product by the DGAP and therefore, the same can be fully relied upon. The calculation of ratio of denial of ITC has been worked out as 10.27% by the Respon....