TaxTMI 
TaxTMI 
2020 (4) TMI 570
X X X X Extracts X X X X
X X X X Extracts X X X X
....lied 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 all supporting documents. The Respondent was al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m 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 means of passing on the benefit of ITC or reduction in the rate of tax to the consumers. 8. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7. 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 273731 522681 219256 1286453 The ratio of Input Tax Credit to Net Outward Taxable Turnover (C)= (NB) 6.32% 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 increasing the base prices of the products while maintaining the same selling price or by way of not reducing the selling prices of the products commensurately, despite the reduction in G....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 obligation to pay royalty and advertisement charges @ 8% and 4.5% of his net sales respectively to M/s Subway India Private Limited and was issued a tax invoice for royalty and advertisement charges plus applicable GST. Post 14.11.2017, royalty payout had increased @1.769% and the same should be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 passed to customers through reductions in prices was Rs. 84,631/-. Hence profiteered amount should be reduced further by Rs. 84,631/-. The item-wise summary has been furnished by the Respondent as is given below:- Summary of Items-Price Reductions (Amount in Rs.) Product Name DGAP Commensurate Benefit Base Price(Including Tax @ 5%) Actual Sale Price Benefit Passed to the customers 2 Cheese Add6in 40.19 40.00 (4.54) Cheese Add6in 20.09 20.00 (3.12) 12" Aloo Patty Sub 264.86 180.00 (763.71) 12" Chicken Ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) 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 Fountain Drink 47.45 40.00 (349.93) Rst Chicken Salad 165.50 150.00 (961.02) Subway Club Salad 174.99 150.00 (599.75) Tuna Salad 174.99 150.00 (149.94) Turkey & Chicken Slice 174.99 150.00 (199.92) Turkey Salad 174.99 150.00 (74.97) (84,631.09) g. That various issues, such as competition pricing, long term strategies for market penetration, the profit margin for sustaining in the market, life cycle of the product, economic and social conditions, cost of the products and capital expenditure etc. played a vital role at the time of fixing the products. Therefore, the commensurate base prices should be appropriately adjusted on account of general inflation. h. That DGAP has calculated profiteered amount up to the period from November 2017 to March 2019 i.e. the period of investigation was almost 16 months after the change in the GST rate on the i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urate 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 functions as may be prescribed. (3A) Where the Authority referred to in sub-section (2) after holding examination as required under the said sub-section comes to the conclusion that any registered person has profiteered under sub-section (1), such person shall be liable to pay penalty equivalent to ten per cent of the amount so profiteered: PROVIDED that no penalty shall be leviable if the profiteered amount is deposited within thirty days of the date of passing of the order by the Authority. Explanation:- For the purpose of this section, the expression "profiteered" shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services of both." 18. In the context of deciding the present case, we observe that Section 171 of the CGST Act 2017 itself defines the term "profiteered" which means the amount determined o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....came 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 and hence the functioning of this Authority and the anti-profiteering machinery is within the confines of the four walls of the provisions of Section 171 of the CGST Act 2017 and in no way violates the tenets of Article 19 (1) (g) of the Constitution. Keeping the above observations in mind, we proceed to address the specific issues raised by the Applicants and the Respondent in the present case. 19. The Respondent has 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 while working out the base rate for the period from July 2017 to October 2017. However, the record of the case reveals that the Respondent, at no point in time, has furnished any invoice/ supply document that showed SOTD as an item supplied/ sold by him. Since no invoice mentioned SOTD as an item supplied, there was no ground for accepting Respondent's contention regarding SOTD. Further, we find that for computing the extent of profiteering, the DGAP has taken, as the basis,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ices 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. 21. The Respondent has further contended that the DGAP while calculating the profiteered amount, has erroneously added 5% amount of GST which has been charged and collected from customers on the profiteered amount and deposited with the Government. Therefore, the addition of this 5% amount should be removed. In this context, it is pertinent 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efit 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 on the benefit of reduction in the rate of tax to his recipients. Therefore, any benefit of tax rate reduction passed on to a particular recipient or customer cannot be appropriated or adjusted against the benefit of tax rate reduction that ought to accrue to another recipient or customer. Therefore, the contention of the Respondent is not accepted. 23. The Respondent has further contended that various factor like competition pricing, long term strategies for market penetration, the profit margin for sustaining in the market, life cycle of the product, economic and social conditions, cost of the products and capital expenditure, etc. played a vital role at the time of fixing the products. Therefore, the commensurate base price should be appropriately adjusted on account of general inflation. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....licit 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 contention of the Respondent is not correct as this Authority or the DGAP has not acted in any way as a price controller or regulator as they do not have the mandate to regulate the same. The Respondent is free to exercise his right to practice any profession or to carry on any occupation, trade or business, as per the provisions of Article 19 (1) (g) of the Constitution. He can also fix his prices and profit margins in respect of the supplies made by him. Under the provisions of Section 171 of the Act, ibid, this Authority has been only authorized to ensure that the benefit of tax reduction which is nothing but the sacrifice of tax revenue made by the Government is passed on to the consumers who actually bear the impact of the tax and not pocketed by the Respondent. The intent of this provision is the welfare of the consumers 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 w....