TaxTMI 
TaxTMI 
TaxTMI 
2020 (4) TMI 569
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....ofiteering in respect of restaurant service supplied by the Respondent (Franchisee of M/s. Subway Systems India Pvt. Ltd.). In the application, it was alleged that despite the reduction in the rate of GST from 18% to 5% w.e.f. 15.11.2017, the Respondent had not passed on the commensurate benefit since he has increased the base prices of his products. Record shows that the worksheet indicating the extent of profiteering sent by the Screening Committee was also received by the DGAP along with the above recommendation of the Standing Committee on 27.03.2017. 2. The DGAP in his report has stated that on receipt of the said reference from the Standing Committee on Anti-profiteering, a notice under Rule 129 (3) was issued on 08.04.2019 (Annex-2), calling upon the Respondent to reply as to whether he admitted that the benefit of reduction in GST rate w.e.f. 15.11.2017, had not been passed on to his recipients by way of commensurate reduction in prices and if so, to suo-moto determine the quantum thereof and indicate the same in his reply to the notice as well as furnish all supporting documents. The Respondent was also allowed to inspect the relied upon non-confidential evidence/informat....
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....or determination were whether the rate of GST on the service supplied by the Respondent was reduced from 18% to 5% w.e.f. 15.11.2017 and if so, whether the benefit of such reduction in the rate of GST had been passed on by the Respondent to his recipients, in terms of Section 171 of the CGST Act, 2017. 7. The DGAP has further reported that the GST rate on the restaurant service had been reduced from 18% to 5% w.e.f. 15.11.2017 along with the condition that no ITC on the goods and services used in supplying the service would be available to the Respondent vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017. Since it was a case of reduction in the rate of tax, it was important to examine the provisions of Section 171 of the CGST Act, 2017 to ascertain whether the present case was a case of profiteering or not. Section 171 (1) reads as follows:- "Any reduction in rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in prices." Thus, the legal requirement of the above provision was abundantly clear that in the event of a benefit of ITC or reduction in the rate of tax, there must follow ....
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....rvice was reduced from 18% to 5% and no ITC was available to the Respondent. A summary of the computation of the ratio of ITC to the taxable turnover as furnished by the DGAP is at Table-A below:- Table-A (Amount in Rs.) Particulars Jul 17 Aug 17 Sept 2017 Oct 2017 Total Total Outward Taxable Turnover as per GSTR-3B (A) 8,76,260 8,64.783 7,96,749 8,14,566 33,52,358 ITC Availed as per GSTR-3B (B) 63,369 84,567 72,859 82,552 3,03,347 The ratio of ITC to Net Outward Taxable Turnover (C)= (A/B*100) 9.05 % 10. The DGAP has also submitted that the analysis of the details of item-wise outward taxable supplies made during the post-rate reduction period (from 15.11.2017 to 31.03.2019) revealed that the base prices of the different items supplied by the Respondent had been increased by the Respondent, presumably, to offset denial of ITC. The pre and post rate reduction prices of the items sold by the Respondent during the period from 01.07.2017 to 14.11.2017 (Pre-GST rate reduction) and from 15.11.2017 to 31.03.2019 (Post-GST rate reduction) were compared and it was found that the Respondent had increased the base prices of the products supplied by him by more than ....
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....e.f. 15.11.2017 stood confirmed against the Respondent and that the extent of profiteering was Rs. 20,80,087/- (inclusive of GST). Thus the provisions of Section 171 (1) of the CGST Act, 2017 had been contravened by the Respondent in the present case. 14. The above Report of the DGAP was considered by this Authority on 17.09.2019 and it was decided to hear the Respondent on 03.10.2019. Sh. Neeraj Rai, Director represented in person. 15. The Respondent vide his written submissions dated 18.10.2019 made the following submissions:- a. The Respondent stated that in DGAP's report dated 13.09.2019, the method applied to arrive at profiteering was incorrect as the data was not a comparable data since average base prices in the pre-GST periods were used and compared with the item-wise prices in the post-rate reduction period i.e. after 14.11.2017. Further, for the pre-rate reduction period itself, two sets of dates have been used, first from 01.11.2017 to 14.11.2017 and the second from 01.07.2017 to 31.10.2017. He stated that the above method was untenable since for calculating the average base prices for the period 01.11.2017 to 14.11.2017, the DGAP has calculated the ....
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....ice 4.5% of Basic Price Advertisement Amount 4.5 5.06 GST on Advertisement 18% 18% GST Amount 0.81 0.910 Total Amount 5.31 5.97 0.66 Total 14.27 16.037 1.77 % of Incremental Cost 1.77 d. The Respondent further submitted that after moving to the composition scheme w.e.f. 15.11.2017, he was disallowed ITC on Capital Goods, which needed to be treated as a loss of ITC from Capital Goods in the computation of profiteering by the DGAP. The same is illustrated below:- Non Availability of ITC of Capital Goods (Amount in Rs.) Party Name Invoice Number Date of purchase Basic Amount GST Paid Stellar Gastronom Pvt. Ltd. TC/T/18-19/104 27.04.2018 71045 12788.1 Nirmal Sales Agencies 163 23.04.2018 16299 2933.84 Stellar Gastronom Pvt. Ltd. TC/T/18-19/147 04.05.2018 41640 7495.2 Stellar Gastronom Pvt. Ltd. TC/T/18-19/1193 11.05.2018 5280 950.2 Stellar Gastronom Pvt. Ltd. TC/T/18-19/235 11.05.2018 1750 210 Stellar Gastronom Pvt. Ltd. TC/T/18-19/2236 22.05.2018 249409 44893.62 Stellar Gastronom Pvt. Ltd. TC/T/18-19/317 14.06.2018 78200 14076 ....
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....oned points in the final calculation. He further mentioned that as per Annexure 6 of the DGAP Report, the profiteering worked out to be 12% at the Cilantro level and 16% for the store No. 55117. The profiteering percentage was over and above 9.05% ITC and 5% GST which he was paying under the composition scheme. Other Submissions:- h. The Respondent also stated that as per his calculations after factoring in the above points, related to considering correct Average Base Prices of all the items, Royalty and Advertisement Charges impact on his costing, loss of ITC in Capital Goods, excluding Profiteering on the BOGO Sales (Free SUBs), factoring general inflation and limiting the scope of arriving at profiteering till 31.03.2018, the profiteering worked out to be merely Rs. 22,101/- as per Annexure-5, which was less than 1% of the Taxable Sales for the period 15.11.2017 to 31.03.2018. 16. A supplementary report was sought from the DGAP on the various submissions made by the Respondent. In response, the DGAP, after considering the above submissions made by the Respondent, has furnished his issue-wise report, which is as below:- a. In terms of CGST Act, 2017 and Rules made the....
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.... than the commensurate base prices of the impugned products have not been considered. 17. The Respondent, vide his submissions dated 11.11.2019, filed his contentions against the above supplementary report of the DGAP, which are as below:- a. That he did not agree with the findings of the DGAP because it was common in the restaurant business to offer discretionary discounts to customers and these discounts largely depended on market practices and factors such as sales, inventory position, competitor strategy, market penetration, customers' loyalty etc. He cited the decision of this Authority given in the case of M/s Flipkart (Case No. 5/2018 dated July 18, 2018 = 2018 (7) TMI 1490 - NATIONAL ANTI-PROFITEERING AUTHORITY) wherein it was held that withdrawal of discount was a prerogative of the supplier and did not amount to profiteering. He also stated that he has the right to withdraw discounts and other promotional offers anytime and no rule implied that a discount could not be withdrawn until the expiry of a specified period and that the DGAP had completely ignored this fact in as much as the average base prices had been calculated based on discounted and normal sales durin....
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....7 597.65 2,333.47 (1,735.83) 42,247.95 1.Apr'18 86,410.52 28,874.89 57,535.63 15,939.96 41,960.89 (26,020.93) 31,514.71 2.May'18 96,046.95 29,137.77 66,909.18 17,462.94 43,462.86 {25,999.92) 40,909.26 3.Jun'18 111,075.31 27,531.27 83,544.04 13,069.86 28,464.59 {15,394.73) 68,149.31 4.Aug'18 162,881.47 36,665.04 126,216.43 59.39 - 59.39 126,275.82 5.Aug'18 144,198.09 36,437.95 107,760.15 162.67 - 162.67 125,495.41 6.Sept'18 163,382.80 37,887.39 125,495.41 - - - 148,807.34 7.Oct'18 198,264.08 45,672.94 152,591.15 2,336.88 6120.69032 (3,783.81) 125,503.37 8.Nov'18 170,562.07 42,227.26 128,334.82 2,263.39 5,094.83 (2,831.44) 110,285.94 9.Dec'18 142,026.94 31,741.00 110,285.94 - - - 100,285.94 10.Jan'19 136,462.02 36,261.25 100,200.76 - - - 100,200.76 11.Feb'19 161,936.78 61,389.44 100,547.34 2,070.80 4,216.03 (2,145.23) 98,402.11 12.Mar'19 174,512.13 66,543.80 107,968.32 11,610.85 23,342.75 (11,731.90) 96,236.42 2,012,880.1 543,175.02 1,469,705.09 67,206.78 157,886.10 (90,679.31) 1,379,025.78 d. That the DGAP should have co....
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.... Rs. 110/- on 23.08.2017; that he was submitting sample bills to evidence his above claim in respect of both his stores; that after taking the correct SOTD base price of Rs. 110/-, the amount of profiteering would stand reduced by Rs. 13,263/-. g. The Respondent submitted that the finding of the DGAP relating to Royalty and Advertisement Charges expenses paid to M/s Subway Systems India Private Limited, the franchisor, was flawed, though it was indeed an internal agreement between him and the franchisor however, post 15.11.2017, his royalty cost increased by 1.77% and he had to increase the base prices of his products to compensate for the loss that arose due to his migration to the GST scheme from 18% to 5% rate; that the DGAP should have considered this 1.77% increase in royalty while calculating the Profiteering amount as it increased his costs as detailed in Annexure 2 below:- Annexure-2 Calculation of GST impact on Royalty and Advertisement Expenses (Amount in Rs.) Particular before 15/11/2017 After 15/11/2017 Incremental cost % Sales price including GST 118 118 Basic price 100 112.38 GST 18% 5% GST Amount 18 5.62 Total....
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....the price of one: that under BOGO, he has passed on the benefit to the customers through the same Invoice and therefore all the sales on BOGO dates should be excluded from the scope of calculating profiteering; that he was enclosing sample invoice of BOGO and the dates of BOGO for both his stores, as is given below:- For Store No 57692 (a) Inv. No. 25010 dated 9/5/18 Amount Rs. 185/-. (b) Inv. No. 33039 dated 12/9/18 Amount Rs. 255/-. (c) Inv. No. 39816 dated 9/1/19 Amount Rs. 220/-. For Store No 55117 (a) Inv. No. 42413 dated 2/11/18 Amount Rs. 220/-. (b) Inv. No. 42423 dated 2/11/18 Amount Rs. 2201-. (c) Inv. No. 42450 dated 2/11/18 Amount Rs. 220/-. S. No. BOGO Offer in Store No. 57692 BOGO Offer in Store No. 55117 1 13th December 2017 2nd Nov 2018 2 10th Jan 2018 3 24th Jan 2018 4 28th Feb 2018 5 21st March 2018 6 11th April 2018 7 25th April 2018 8 9th May 2018 9 30th May 2018 10 25th July 2018 11 8th August 2018 12 29th August 2018 13 12th September 2018 14 26th September 2018 15 10th October 2018 16 24th October 2....
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....which included the right to determine prices and such right which has been granted by the Constitution of India, could not be taken away without any explicit authority under the law; that therefore, this form of price control was a violation of Article 19 (1) (g) of the Constitution of India. k. That in case of a few products, on which he had not only passed the benefit of the reduction in tax rate but had reduced the basic prices further, and incurred substantial losses, have not been considered by the DGAP; that the DGAP, while calculating the profiteered amount, had not considered the prices of products which had been reduced by him and that as such the DGAP has considered such impact as zero, ignoring the negative values. I. That the DGAP, while calculating the profiteered amount, has wrongly added 5% GST to the amount profiteered, apparently on account of GST, which was collected from customers and deposited with government and hence could not be considered profiteering. On this account, the profiteered amount should stand reduced by Rs. 99,052/-. 18. We have carefully considered the Report of the DGAP, the submissions made by the Respondent and the Applicant and the othe....
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....ion 171 of the CGST Act 2017 provides that the "profiteered amount" is to be computed in respect of each supply made by a registered person. As per the above-said provisions, there is no connection between the term "profiteered" and "Profit". The scope of profiteering is confined to the question of whether the benefit accruing on account of reduction in the tax rate or the benefit of ITC as the case may be, has been passed on to the recipient/consumer or not. In the context of the same, some of the submissions made by the Respondent, i.e. those relating to increase in cost on account of royalty, advertising charges and inflation has increased due to the cost of raw materials do not have any ramification on the computation of the amount of profiteering. Further, it is pertinent to mention that Section 171 of the Act, ibid, mandates that profiteering has to be calculated on each supply/transaction and therefore it has to be calculated on each actual invoice/actual supply in the relevant period, comparing the prices mentioned therein with the prevailing base prices before the reduction in the tax rate in the availability of ITC. It is also pertinent that for the computation of profite....
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....m 18% to 5%, the ITC was not available to the Respondent. The DGAP in his Report has stated that the Respondent had increased the base prices of different items by more than 9.05% i.e. by more than what was required to offset the impact of denial of ITC, supplied as a part of restaurant service to make up for the denial of ITC post-GST rate reduction. 22. One of the contention made by the Respondent is that the methodology applied by the DGAP to arrive at profiteering was incorrect as the data was not comparable, as two sets of average base prices have been used to compare the item-wise transactions post 14.11.2017, first during the period from 01.11.2017 to 14.11.2017 and second from 01.07.2017 to 31.10.2017. He has stated that the above method was completely incomparable. The above contention of the Respondent is not correct. It is evident from the DGAP's Report that the reference base prices of the items have been arrived at by dividing the total quantity supplied to the total taxable value charged after discount for the items during the period from 01.11.2017 to 14.11.2017. Further, the base prices of the products which were not supplied during the period 01.11.2017 to 14.....
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....laborate upon this legislative intent behind the law, this Authority has notified the 'Procedure and Methodology' vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017. However, no fixed formula which fits all the cases of profiteering can be set while determining such a "Methodology and Procedure" as the facts of each case are different. In one real estate project, date of start and completion of the project, price of the house/commercial unit, mode of payment of the price, stage of completion of the project, rates of taxes, amount of ITC availed, total saleable area, area sold and the taxable turnover realized before and after the GST implementation would always be different from the other project and hence the amount of benefit of additional ITC to be passed on in respect of one project would not be similar to another project. Therefore, no set parameters can be fixed for determining methodology to compute the benefit of additional ITC which would be required to be passed on to the buyers of such units. Moreover, this Authority under Rule 126 of the CGST Rules, has the power to `determine' Methodology & Procedure and not to 'prescribe'....
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....post discount. Also, as per the sample invoices submitted by the Respondent vide submissions dated 11.11.2019, it was observed that he did not mention in the invoices that the discounts were given due to the GST rate reductions. On the other hand, these invoices revealed that the discounts offered (Sub of the Day-SOTD) were as per the general discount pattern which was being followed by the Respondent in the course of his business. Therefore, the above discounts cannot be construed to have been given due to the GST rate reductions and hence, the above claim of the Respondent cannot be accepted. 25. The Respondent has also contended that the base price in respect of Sub of the Day (SOTD) was Rs. 110/- which was incorrectly mapped to Rs. 105/- by the DGAP in many cases while working out the base rate for the period from July-2017 to October 2017. The same needed to be corrected and all SOTD should be worked with Base Price of Rs. 110/- only for both the stores. However, the record of the case reveals that the Respondent, at no point in time, has furnished any invoice/ supply document that shows SOTD as an item supplied/ sold by him. Since no invoice mentions SOTD as an item supplied....
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....ion attached to Section 171. It is clear from the above explanation that an increase or decrease in the cost of a supplier, due to increase in royalty, advertisement charges or the costs towards the renovation of the store, has no ramification on the amount of profiteering which is computed in line with the provisions of Section 171 of the CGST Act. In case a supplier has not passed on the benefit of the tax rate reduction by way of a commensurate reduction in prices on each of his supplies at the level of each invoice, anti-profiteering provisions will apply to him, irrespective of his costs or whether he makes profits or losses. In any case, the payments made by the Respondent on account of Royalty and Advertisement Charges are purely an internal agreement between the franchiser and the franchisee without any connection with the anti-profiteering provisions applicable to the franchisee, i.e. the Respondent. Hence, this contention of the Respondent is not accepted. 27. The Respondent has further contended that after moving to the composition scheme w.e.f. 15.11.2017, he was disallowed ITC on Capital Goods. To calculate the profiteered amount, he needed to factor in the loss of I....
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....ry buyer and no buyer can be denied the benefit on the ground that it has been passed on the other buyer. Therefore, the above contentions of the Respondent cannot be accepted. 29. The Respondent has contended that the inflation cost was approximately 6% and hence, profiteering should be calculated until 31.03.2018. In this regard, it is pertinent to mention here that the scope of profiteering is confined to the question of whether the benefit accruing on account of rate reduction has been passed on to the recipients or not. The Respondent had no ground to increase his prices on the intervening night of 14/15th November 2017 on account of inflation as he had no data to substantiate the above increase on the above date. Therefore, the contention of the Respondent relating to the increase in his costs on account of inflation does not have any ramification on the computation of profiteering. Therefore, this contention of the Respondent cannot be accepted. 30. The Respondent has also contended that the profiteering amount i.e. Rs. 20,80,087/- was incorrect. As per Annexure-6 of the Respondent's submissions dated 18.10.2019, the profiteering has been worked out to be 12% for the C....
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....nly and have no mandate to look into fixing of prices of the products which the Respondent was free to fix. If there was an increase in his costs the Respondent should have increased his prices before 15.11.2017. however, it cannot be accepted that his costs had increased exactly on the intervening night of 14.11.2017/15.11.2017 when the rate reduction had happened which had forced him to increase his prices exactly equal to the reduction in the rate of such tax. Such an uncanny coincidence is unheard off and hence there is no doubt that the Respondent has increased his prices for appropriating the benefit of tax reduction to deny the above benefit to the consumers. 33. The Respondent has also claimed that the additional burden borne by the Respondent as GST has not been considered. In this connection, it would be appropriate to mention that the provisions of Section 171 (1) and (2) of the CGST Act, 2017 mandate that the benefit of reduction in the tax rate is to be passed on to the recipients/ customers by way of commensurate reduction in price, which includes both, the base price and the tax paid. In this connection, it would be appropriate to mention that the Respondent has not....
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....onsumers who are voiceless, unorganized and vulnerable. This Authority is charged with the responsibility of ensuring that both the above benefits are passed on to consumers in line with the provisions of Section 171 read with Rule 127 and 133 of the CGST Rules, 2017. This Authority has in no manner interfered with the business choices made by the Respondent. Therefore, the contention of the Respondent that these proceedings violate Article 19 (1) (g) of the Constitution, has no legal basis. 35. The Respondent has further contended that the DGAP, while calculating the profiteered amount, had not considered the prices of products which had been reduced by him and that the DGAP has considered such impact as zero, ignoring the negative values. In this regard, we observe that no 'netting off' can be applied in the case of profiteering, as the benefit that has to be passed on to each customer has to be necessarily computed on each product supplied. Zeroing or netting off, as demanded by the Respondent, would imply that the amount of benefit not passed on certain supplies (to certain customers/ recipients) would be subtracted from the amount of any excess (more than commensurate....