TaxTMI 
TaxTMI 
2020 (4) TMI 570
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....teering in respect of restaurant service supplied by the Respondent (Franchisee of M/s Subway Systems India Pvt. Ltd.) despite reduction in the rate of GST from 18% to 5% w.e.f. 15.11.2017. It was alleged that the Respondent had increased the base prices of his products and had not passed on the benefit of reduction in the GST rate from 18% to 5% w.e.f. 15.11.2017, affected vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 by way of commensurate reduction in prices, in terms of Section 171 of the CGST Act, 2017. The DGAP has reported that in the present case the summary sheet of the extent of profiteering was prepared by the Deputy Commissioner of State Tax, Pune. 2. The DGAP has reported that on receipt of the said reference from the Standing Committee on Anti-profiteering, a notice under Rule 129 was issued on 11.04,2019 (Annex-1), 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 ....
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....Tax (Rate) dated 14.11.2017(Annex-7), had reduced the GST rate on the restaurant service from 18% to 5% w.e.f. 15.11.2017 with the condition that ITC on the goods and services used in the supply of said service would not be availed. Since the present case was a case of reduction in the rate of tax, it was important to examine Section 171 of the CGST Act 2017 which governed the anti-profiteering provisions under GST. Section 171 (1) reads as "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 was abundantly clear that in the event of benefit of ITC or reduction in the rate of tax, there must be a commensurate reduction in the prices of the goods or services. Further, such a reduction could be in money terms only so that the final price payable by a consumer got commensurately reduced. This was the legally prescribed mechanism for passing on the benefit of ITC or reduction in the rate of tax to the consumers under the GST regime. Moreover, it was also clear that Section 171 simply did not provide a supplier of goods or services, any other mea....
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....e provisions of Section 17 of the CGST Act, 2017 read with Rule 42 and 43 of the CGST Rules, 2017. 10. The DGAP has further reported that the ratio of ITC to the net taxable turnover had been taken for determining the impact of denial of ITC (which was available to the Respondent till 31.10.2017). On this basis of the statutory documents made available by the Respondent, it was found that the ITC amounting to Rs. 81,2641- was available to the Respondent from the period July 2017 to October 2017 which was 6.32% of the net taxable turnover of restaurant service amounting to Rs. 12,86,4531- supplied during the same period. The said ITC was not available to the Respondent with effect from 15.11.2017 when the GST rate on restaurant service was reduced from 18% to 5%. A summary of the computation of ratio of ITC to the taxable turnover of the Respondent has been furnished by the DGAP as per Table-A below:- Table-A (Amount in Rs.) Particulars July 2017 August 2017 September 2017 October 2017 Total ITC Availed as per GSTR-3B (A) 18178 20913 25754 16418 81264 Total Outward Taxable Turnover as per GSTR-3B (B) 270785 ....
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.... tax credit @6.32% (E=D*1.0632) 198.02 GST @ 5% (F= E*5%) 9.90 Commensurate price to be charged w.e.f. 15.11.2017 (G=E+F) 207.92 Selling price per unit as per Invoice No. 1/A-27319 dated 17.04.2018 220 Total profiteering (1=H-G) 12.08 13. The DGAP has further stated that based on the aforesaid pre and post-reduction in GST rates, the impact of denial of ITC and the details of outward supplies (other than zero-rated, nil rated and exempted supplies) during the period 15.11.2017 to 31.03.2019, as per the product-wise sales registers reconciled with the GSTR-1 and GSTR-3B Returns, the amount of net higher sale realization due to increase in the base prices of the service, despite the reduction in GST rate from 18% to 5% (with denial of ITC) or in other words, the profiteered amount came to Rs. 1,49,896/-(including GST on the b e profiteered amount). The details of the computation were furnished by the DGAP in the Annex-8 of his report dated 17.09.2019. The DGAP has also stated that the said service had been supplied by the Respondent in the State of Maharashtra only. 14. The DGAP has concluded that the allegation of profiteering by way of either increa....
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....ct of this flaw in the computation worked out to Rs. 8,545/-; that he wanted to submit a detailed working of the same along with copies of sale invoices issued by him in the month of November 2017, which reflect the correct base price at Rs. 110/-; that the revised calculation on this aspect was as per the Table below:- Summary of SOTD Base Price Impact (Amount in Rs.) Item Name Base Price as DGAP Correct Base Price Profiteering Amount as per DGAP Profiteering Amount as per Our Calculation Difference SOTD 6in Aloo Patty or 105 110 2,217.93 8.00 (2,209.93) SOTD 6in Chatpata or Ck 105 110 2,093.41 7.55 (2,085.86) SOTD 6in Ckn Slice or M 105 110 1,533.09 5.53 (1,527.56) SOTD 6in Ckn Tik or Cor 105 110 529.19 1.91 (527.28) SOTD 6in Corn & Peas or 105 110 7.78 0.03 (7.75) SOTD 6in Nara Bhara or 105 110 2,194.58 7.92 (2,186.66) 8,575.98 30.94 (8,545.05) c. That as per his franchise agreement with the franchisor i.e. M/s Subway Systems India Pvt. Ltd., he was under legal obligati....
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....1 (41,559.52) e. That the DGAP, while calculating the profiteered amount, had wrongly added a 5% notional amount without explaining any reasons. This amount appeared as the GST component. The amount of GST had been charged and collected from customers and deposited with the government. Therefore, the addition of the above mentioned 5% amount should be removed and due to this, the profiteered amount should be reduced by Rs. 7138/-. f. That the DGAP ought to have considered the positive and negative price variations in respect of all the SKUs which were above and below the optimal price to arrive at the profiteered amount. Profiteered amount should be calculated after considering reduction as well as increases in the prices. The DGAP had calculated item-wise/SKU-wise analysis and calculated profiteering amount of Rs. 1,49,896/-. However, the DGAP had not taken into account the prices of those items where prices had been reduced as compared to optimal prices. Therefore, the profiteered amount should be calculated after taking into account the increase and decrease in the prices of his products. During the period November 2017 to March 2019, the total benefit passe....
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.... (765.09) 6" PaneerTikka Sub 141.78 125.00 (5,788.37) 6" PaneerTikka Sub 141.78 135.00 (74.55) 6" Rst Chicken Sub 165.50 125.00 (5,788.31) 6" Rst Chicken Sub 165.50 135.00 (74.55) 6" Subway Club Sub 174.99 125.00 (1,499.68) 6" Subway Club Sub 174.99 155.00 (139.93) 6" Tuna Sub 174.99 125.00 (1,399.70) 6" Tuna Sub 174.99 155.00 (39.98) 6" Turkey & Chicken Slice 174.99 125.00 (749.84) 6" Veggie Delite Sub 127.82 125.00 (223.03) 6" Veggie Patty Sub 141.78 125.00 (2,483.10) 6" VegShammi Sub 141.78 125.00 (2,466.32) B.M.T. Salad 174.99 150.00 (74.97) Cheese Add6in 20.09 20.00 (5.67) Cheese Add6in 20.09 20.00 (14.08) Chicken Tandoori Salad 165.50 150.00 (263.51) Chicken Teriyaki Salad 174.99 150.00 (574.76) ChknTikka Salad 165.50 150.00 (635.52) Cookie 37.83 25.00 (115.50) Cookie 37.83 30.00 (86.17) Fresh Value Meal (1N) 56.52 50.00 (3,094.97) Fresh Value Meal (IN) 56.52 55.00 (12.13) Med Fou....
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...., submissions made by the Respondent and the material placed on the file. On examining the various submissions we find that the following issues need to be addressed:- a. Whether there was any violation of the provisions of Section 171 (1) of the CGST Act, 2017 in this case? b. If yes what was the additional benefit of ITC that had to be passed on to the recipients? 17. The Perusal of Section 171 of the CGST Act shows that it provides as under:- (1). Any reduction in rate of tax on any supply of goods or services or the benefit of Input Tax Credit shall be passed on to the recipient by way of commensurate reduction in prices." (2). The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether Input Tax Credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him. (3). The Authority referred to in sub-section (2) shall exercise such powers and discharge such functi....
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....computation of profiteering, the actual transaction value of a product in the pre and post-tax rate reduction periods was compared. Hence, the pricing and the amount of profit/loss at the end of the supplier becomes irrelevant for the computation of profiteering. We also find it pertinent to mention that this Authority has no legislative mandate to fix the prices or the profit margins in respect of any supply (which are the rights of the supplier) and he is obligated by Section 171 of the CGST Act, 2017 to ensure that the benefit of the reduction in the rate of tax and/ or benefit of ITC (which is a sacrifice of revenue from the kitty of Central and State Governments in a welfare state) was passed on to the recipients, and, if tracked down the entire value chain, to the end consumers. The welfare of the consumers who are voiceless, unorganized and scattered is the soul of this provision. This Authority has been working in the interest of consumers as the trade is bound to pass on the benefit of tax reduction and ITC which became available to it due to revenue sacrificed by the Government. This Authority does not, in any manner, interfere in the business decisions of the Respondent ....
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....he above period so that comparison could be made with the post rate reduction actual base prices. Therefore we do not find any merit in the claim of the Respondent. 20. The Respondent has further contended that he pays royalty charges @8% and advertisement charges @4.5 on the total sales to M/s Subway India Pvt. Ltd. Post rate reduction, the royalty payout had been increased by 1.769% and therefore, the increase in royalty should be considered while calculating profiteering. In this connection, it would be appropriate to refer to the definition of the profiteered amount given in the Explanation attached to Section 171 which has been quoted above. It is clear from the above explanation that an increase or decrease in the cost of a supplier or due to increase in royalty, advertisement charges 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 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 pro....
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....riations in respect of all the SKUs which were above and below the optimal price. In this context, it is pertinent to mention that no 'netting off' can be applied in the case of profiteering, as the benefit has to be passed on to each customer which is required 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) benefit passed on other products and the resultant amount would be determined as the profiteered amount. If this flawed methodology is applied the Respondent shall be entitled to subtract the amount of benefit which he has not passed on from the amount of such excess benefit which he has claimed to have passed, which will result in complete denial of benefit to the customers who were entitled to receive it. It has to be kept in mind that every recipient/ customer is entitled to the benefit of the tax rate reduction by way of reduced prices and Section 171 does not offer the Respondent to suo moto decide on any other modality to pass o....
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....er words, the violation of the provisions of Section 171 of the CGST Act 2017 has continued unabated in this case and the offence continues to date, The Respondent has nowhere produced any evidence to prove from which date the benefit was passed on by him. The fact that the Respondent has not complied with the law till 31.03.2019 implies that profiteering has to be computed for the entire period and hence we do not see any reason to accept this contention of the Respondent. We further observe that had the Respondent passed on the benefit before 31.03.2019, he would have been investigated only till that date. Therefore, the period of investigation i.e. from 15.11.2017 to 31.03.2019 has been rightly taken by the DGAP. 25. The Respondent has further contended that right to trade was a fundamental right guaranteed under Article 19 (1) (g) of the Constitution of India and the right to trade including the right to determine prices and such right which had been granted by the Constitution of India could not be taken away without any explicit authority under the law. Therefore, this form of price control was a violation of Article 19 (1) (g) of the Constitution of India. The above....
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....at the ITC which was available to the Respondent during the period July 2017 to October 2017 is 6.32% of the net taxable turnover of restaurant services supplied during the same period. With effect from 15.11.2017, when the GST rate on restaurant service was reduced from 18% to 5%, the ITC was not available to the Respondent. It has been found that the Respondent had increased the base prices of different items by more than 6.32% i.e. by more than what was required to offset the impact of denial of ITC, supplied as a part of restaurant services to make up for the denial of ITC post-GST rate reduction and on comparison of pre and post GST rate reduction prices of the items sold in respect of items sold. Accordingly, the quantum of profiteering has been computed as Rs. 1,49,8961- as per Annexure-8 of the DGAP's Report dated 17.09.2019, which is correct and can be relied upon. 28. Based on the above facts the profiteered amount is determined as Rs. 1,49,896/- as has been computed in Annexure-8 of the DGAP Report dated 17.09.2019. Accordingly, the Respondent is directed to reduce his prices commensurately in terms of Rule 133 (3) (a) of the above Rules. The Respondent is also di....