TaxTMI 
TaxTMI 
2020 (7) TMI 546
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....ubway Systems India Pvt Ltd.). In the application, it was alleged that despite 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 of tax reduction as he had increased the base prices of his products. Statement dated 07.02.2019 of Sh. Gaurav Sharma, Proprietor of the Respondent along with estimated cost of goods supplied by him was also enclosed with the recommendations of the Standing Committee. On receipt of the said reference from the Standing Committee on Anti-profiteering, a notice under Rule 129 (3) was issued on 12.07.2017 by the DGAP, calling upon the Respondent to reply as to whether he admitted that the benefit of reduction in the 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 the supporting documents. The Respondent was also allowed to inspect the relied upon non-confidential evidence/information which formed the basis of the investigation between 18.07.2019 and 22.07.2019, which was however not availed of by the Res....
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....ovided by him as confidential, in terms of Rule 130 of the Rules ibid. 6. The DGAP has also stated that based on a careful examination of the case record, including the reference received from the Standing Committee on Anti-Profiteering, various replies of the Respondent and the documents/evidence placed on record, it emerged that the main issues for 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 stated 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 (1) of the CGST Act, 2017, to ascertain whether the present case was a case of profiteering or not. Section....
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.... Turnover of the Respondent from the restaurant service supplies amounting to Rs. 28,54,334/- during the same period. Further, with effect from 15.11.2017, the rate of tax on restaurant service 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 given in Table-A below:- Table-A (Amount in Rs.) Particulars Jul-2017 Aug-2017 Sept.-2017 Oct.-2017 Total ITC Availed as per GSTR-3B (A)* 43,170 48,675 81,471 75,678 2,48,994 Total Outward Taxable Turnover as per GSTR-3B (B) 7,30,558 Ratio of Input Tax Credit to Net Taxable Turnover (C=A/B*100) 8.72% 10. The DGAP has further intimated that the analysis of the details of the item-wise outward taxable supplies made during the post-rate reduction period from 15.11.2017 to 31.06.2019 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....
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....e realization due to increase in the base prices of the service supplied, after netting off the impact of denial of ITC or in other words, the profiteered amount worked out to be Rs. 7,53,854/- including the GST on the base profiteered amount for the period of investigation which was detailed in Annexure-13 of his Report. It has also been stated by the DGAP that the service had been supplied by the Respondent in the State of Rajasthan only. 13. The DGAP has also claimed that the allegation of profiteering by way of either increasing the base prices of the products while maintaining the same selling prices or by way of not reducing the selling prices of the products commensurately, despite the reduction in the rate of GST from 18% to 5% w.e.f. 15.11.2017 stood confirmed against the Respondent and the extent of profiteering was Rs. 7,53,854/- (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 and it was decided to hear the parties on 17.01.2019. A Notice dated 06.01.2020 was also issued to the Respondent asking him to explai....
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....8.18 3.20% Dec'18 30,602.91 1,119,405.14 2.73% Mar'18 30,276.74 1,104,222.22 2.74% Jan'19 31,367.62 1,153,624.27 2.72% Apr-18 24,319.30 1,003,807.77 2.42% Feb'19 50,127.19 1,190,661.25 4.21% May'18 22,813.73 1,095,853.55 2.08% Mar'19 73,800.89 1,141,225.14 6.47% June'18 23,368.35 1,180,227.17 1.98% Apr'19 79,816.33 1,154,848.52 6.91% July'18 27,716.87 1,117,425.06 2.48% May'19 74,381.46 1,126,637.44 6.60% Aug'18 27,090.32 1,114,046.35 2.43% Jun'19 69,988.34 1,131,809.89 6.18% Total 264,353.06 9,760,166.85 489,501.35 11,391,814.62 c. That Right to trade was a fundamental right guaranteed under Article 19 (1) (g) of the Constitution of India and the right to trade included the right to determine prices which could not be taken away without any explicit authority under the law. The base sale price of the complained product was not controlled under any legislation or the Essential Commodities Act or the CGST Act and the Rules. Therefore, this form of price control was a violat....
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....list price as on 15.11.2017 should be considered instead of calculating average price based on the sales in the month of August 2017. The Respondent has submitted the summary of the base prices of the SOTD products as under:- Summary of Incorrect Base Price taken for SOTD Products-7 Products (In Rs.) SL Item Name Base Price (DGAP) Month of Base Price taken by DGAP Correct Base Price applicable on 14^th Nov 2017 Sum of Total Profiteering (DGAP Working) A Sum of Revised Profiteering after correct Base Price-B Difference (A-B) 1. SOTD 6 in Aloo Patty 105 Aug'17 110 9871 -1098 -10969 2. SOTD 6 in Chatpata or ck 105 Aug'17 110 1530 -170 1,700 3. SOTD 6 in Ckn Slice or M 105 Aug'17 110 1397 -155 1,552 4. SOTD 6 in Ckn Tik or cor 105 Aug'17 110 1777 -197 1,974 5. SOTD 6 in Corn & peas or 105 Aug'17 110 15388 4450 10,938 6. SOTD 6 in Hara Bhara or 105 Aug'17 110 1813 -201 2,014 7. SOTD 6 in Veg Shami or C 105 Aug'17 110 1890 -210 2,100 33,666 ....
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....also revealed from the perusal of the tax Invoices submitted by the Respondent that there was an increase in the purchase price of paddy in the year 2017 as compared to its price during the year 2016 which constitutes major part of the cost of the above product............... Therefore, due to the imposition of the GST on the above products as well as the increase in the purchase price of the paddy there does not appear to be denial of benefit of ITC as has been alleged by the applicant as there has been no net benefit of ITC available to the Respondent which could be passed on the consumers." The Respondent has also furnished month wise impact of royalty amount as per the Table given below:- Impact due to Royalty Expenses (Amount in Rs.) Month Total Profiteering Amount (DGAP Working) Revised Profiteering after royalty expenses adjustment Difference due to Royalty Expenses adjustment Nov'17 15,712.25 8,528.72 7,183.53 Dec'17 29,012.79 15,744.12 13,268.67 Jan'18 32,994.24 17,860.42 15,133.82 Feb'18 30,848.62 16,270.71 14,577.91 Mar'18 30,241.74 15,677.71 14,564.03 Apr'18 24,306.29 ....
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....covered from the Governments. The profiteered amount should also be reduced by Rs. 35,880/-. k. Impact on the Profiteered amount due to reduction in Base price of the products post GST rate should be considered :- That the DGAP has incorrectly applied a methodology similar to the "zeroing methodology" which was used by the anti-dumping authorities in certain countries like European Union (EU). The Government of India had taken a stand against such methodology at the World Trade Organization (WTO) and argued that while determining the dumping margins, all Stock Keeping Units (SKUs) should be taken in to consideration rather than only those which showed positive dumping. In the Report WT/DS141/AB/R dated 01.03.2001 of the Appellate Body of the WTO regarding Anti- Dumping Duties on Imports of Cotton-Type Bed Linen from India in which Indian exporters faced an anti-dumping action by the EU as the exporters were exporting different varieties of Bed Linen to the EU, the Government of India had objected to this approach of the European Commission and the matter was taken to the Dispute Settlement Body of the WTO which held in favour of Government of India. In the appeal file....
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....8 21,139.45 Aug'18 0.00 (15,713.32) 15,713.32 Jun'19 0.00 -6,021.17 6,021.17 21,734.49 Total 0.00 (132,506.26) 132,506.26 0,00 -102,003.88 102,003.88 234,510.14 I. MRP based product where denial of ITC is much higher in comparison with average ITC:- That he was selling few MRP based products like soft drinks and the GST rate applicable on some of these products was 28% plus 12% Cess. After 14.11.2017, the cost of goods sold had increased because ITC on 28% GST and 12% Cess was not available to him which had been charged by the vendor at the time of purchase. Therefore, the MRP based products where tax incidence had increased due to denial to ITC needed to be removed from the profiteered amount. m. Considerable approach should be adopted and request to drop the proceedings:- That as per DGAP's Report, the percentage of profiteered amount vis a vis net sales turnover was 3.56% and the DGAP has considered this impact only on the SKUs on which there was a positive impact on profiteering amount. The other benefits to the customers, reductions in the SKU rates, discounts and increase in the royalty expense ....
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....yed till the time the issue of constitutional validity and computation methodology was settled by the courts. 16. Supplementary Report was sought from the DGAP on the above submissions of the Respondent. In response, the DGAP vide his Report dated 09.03.2020 has furnished the following reply:- a. Para 1:- That after examining the reference, the Standing Committee on Anti-profiteering had decided to refer the matter to the DGAP for a detailed investigation which was received in his office on 01.07.2019. Accordingly, a notice under Rule 129 of the CGST Rules, 2017 was issued on 12.07.2019. Based on the facts and circumstances of the case, the investigation was carried out covering the period from 15.11.2017 to 30.06.2019 which was a reasonable period of time. Further, the legislative intent behind Section 171 of the CGST Act, 2017 was to pass on the benefit of tax rate reduction by way of commensurate reduction in prices. In other words, every recipient of goods or services has to get the due benefit from the supplier. Every supplier in the supply chain was legally required to pass on the benefit of tax rate reduction by maintaining the base price and charging GST at the ....
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....at as Rs. 105/- as per the sales data submitted by the Respondent. c. Para 3:- That as per the franchise agreement, the royalty expenses and advertisement charges were fixed at certain percentage of the net sales. These expenses were being paid by the Respondent before the rate reduction and the same were being paid by him after rate reduction also. Hence there appeared to be no increase in the expenses as there was no increase in the percentage which was fixed as per the franchise agreement. Moreover, in respect of GST paid by the Respondent on these expenses, he was availing ITC of the same before rate reduction but after rate reduction, the Respondent could not avail the ITC of the same in terms of Notification No. 46/2017 -Central Tax (Rate) dated 14.11.2017. Therefore, this impact of denial of ITC has duly been considered and accordingly ratio of ITC to Net Outward Taxable Turnover was calculated and the Respondent could have increased the base prices by that extent during the post GST rate reduction period i.e. from 15.11.2017 onwards, in order to negate the impact of ITC denial. Therefore, the benefit of ITC loss has been given to the Respondent. Further, the case o....
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....ual required commensurate reduction. There could be many marketing strategies or other promotional schemes which might compel the Respondent to reduce the prices of products more than the actual requirement. The Respondent was always at liberty to reduce the prices of his products up to any extent and bear the loss but this loss could not be appropriated with the due benefit of rate reduction available to the recipients or customers of the other products where the prices were not reduced commensurately by the Respondent. Hence, profiteering under the provisions of Section 171 of the CGST Act, 2017 was to be quantified at the products where prices were not reduced commensurately. g. Para 7:- That the MRP was the maximum price at which goods could be sold in retail. The value of transaction between the manufacturer and the wholesaler or the wholesaler and the retailer was invariably less than the MRP. Therefore, regardless of whether MRP was marked on the product or not, the pre and post-tax rate reduction transaction values were compared to determine profiteering. There was no significance of MRP in establishing profiteering. The total impact of ITC denial which included th....
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....bserved from the record that the Respondent is running a restaurant as franchisee of M/s Subway India Private Limited in Jaipur (Rajasthan) and is supplying various food products to the customers. It is also revealed from the plain reading of Section 171 (1) of the CGST Act, 2017 that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second about the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the record that there has been a reduction in the rate of tax from 18% to 5% w.e.f. 15.11.2017, on the restaurant service being supplied by the Respondent, vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 without benefit of ITC. Therefore, the Respondent is liable to pass on the benefit of tax reduction to his customers in terms of Section 171 (1) of the above Act. It is also apparent that the DGAP has carried out the present investigation w.e.f. 15.11.2017 to 30.06.2019. 20. It is also evident that the Respondent has been supplying different items during the period from 15.11.2017 to 30.06.2019 to his customers. Upon comparing the average selling prices as p....
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....rate reduction) have been compared and it has been found that the Respondent has increased the base prices by more than 8.72% i.e. by more than what was required to offset the impact of denial of ITC in respect of the products/items sold during the above period. Thus, it is apparent that the Respondent has resorted to profiteering as the commensurate benefit of reduction in the rate of tax from 18% to 5% has not been passed on by him. However, there was no profiteering in respect of the remaining items on which there was either no increase in the base prices or the increase in base prices was less or equal to the denial of ITC or these were new products launched post-GST rate reduction. 23. On the basis of the aforesaid pre and post reduction 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 from 15.11.2017 to 30.06.2019, the amount of net higher sale realization due to increase in the base prices of the products, despite the reduction in the GST rate from 18% to 5% with denial of ITC or the profiteered amount has come to Rs. 7,53,854/- including the GST on the base profiteered am....
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....he same can be relied upon. 25. The Respondent has vehemently argued that the DGAP has considered all the price revisions made by him after 15.11.2017 as a part of profiteered amount and has ignored the fact that a businessman has right to increase his prices on account of various reasons other than tax. It is pertinent to mention here that the scope of profiteering, as per Section 171 of the CGST Act, 2017, is confined to the question of whether the benefit accruing on account of rate reduction has been passed on to the recipients or not. It is apparent from the above narration of facts that the Respondent could have raised his pre rate reduction prices by 8.72% to offset the impact of denial of ITC but it has been found that he had increased them more than the above permissible limit as is clear from the perusal of Annexure-13 of the Report. Therefore, the Respondent has failed to pass on the benefit of tax reduction. The Respondent has not produced any evidence during the course of the investigation to the effect that the price rise effected by him was commensurate with the tax reduction. He has further claimed to have increased his prices in February 2019 on account of infla....
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....computing the extent of profiteering, the DGAP has taken the product wise average base price for the items supplied in the pre rate reduction period from the Respondent's invoices which the Respondent had himself submitted and not from any secondary data/ source. Therefore, the base price of SOTD of Rs. 105/- per item computed by the DGAP is based on the information supplied by the Respondent himself. Since there had been no sales of the above item between the period w.e.f. 01.11.2017 to 14.11.2017 the DGAP has taken the last sales which had been made by the Respondent in the month of August 2017, as the basis for calculation of the average base price of the SOTD items. As per the sales data submitted by the Respondent himself the average base price was mapped as Rs. 105/- per item which has been compared with the actual post rate reduction base price. Therefore, the DGAP has correctly taken the average base price of the SOTD items as Rs. 105/- for the pre rate reduction period and hence, the above contention of the Respondent is frivolous. 28. The Respondent has also contended that the franchisor i.e. M/s Subway India Pvt. Ltd. was charging 8% and 4.5% totalling 12.5% Royalty a....
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....s as the Respondent was not making supplies through the above platforms during the pre rate reduction period. The above claim of the Respondent is frivolous and hence, it cannot be accepted. 31. The Respondent has also claimed that the DGAP while calculating the profiteered amount has erroneously added 5% notional amount on account of GST which has been collected from the customers and deposited with the Government of India with the monthly GST returns. This contention of the Respondent is not correct because the provisions of Section 171 (1) and (2) of the CGST Act, 2017 require 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. The Respondent has not only collected excess base prices from the customers which they were not required to pay due to the reduction in the rate of tax but he has also compelled them to pay additional GST on these excess base prices which they should not have paid. By doing so, the Respondent has defeated the very objective of both the Central as well as the State Government which aimed to provide the benefit of rate redu....
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....er recipient or customer. Therefore, the above contention of the Respondent is not tenable. 33. The Respondent has also alleged that the DGAP has ignored the negative values and resorted to 'zeroing' to compute higher profiteering which was used by the anti-dumping authorities in certain countries which was opposed by the Government of India before the WTO and vide Report No. WT/DS141/AB/R dated 1.3.2001 of the Appellate Body of WTO, regarding Anti-Dumping Duties on imports of Cotton-Type Bed Linen from India, the stand of the Indian Government was accepted and it was held that the practice of 'netting off should be applied and hence the above methodology was binding on the DGAP while calculating profiteering. The above contention of the Respondent is not correct as no netting off can be applied in the cases of profiteering as the benefit has to be passed on to each customer which has to be computed on each SKU. The customers have to be considered as individual beneficiaries and they cannot be compared with dumped goods and netted off. This Authority has also clarified in its various orders that the benefit of tax reduction cannot be computed at the product, service or the entit....
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....e product or not. The DGAP has arrived at the profiteered amount by calculating the total impact of ITC denial which included the loss of ITC in respect of the MRP based items also. Therefore, MPR has no impact on the computation of the profiteered amount. Hence, the above plea of the Respondent is not maintainable. 36. The Respondent has further contended that the period of calculation of profiteered amount should be considered for a reasonable length of time. Therefore, keeping in mind the perishable nature of the items and various other factors the profiteered amount should be restricted up to March, 2018. In this context, we observe that while the rate of GST was reduced from 18% to 5% w.e.f. 15.11.2017, the Respondent had increased the base prices of his products immediately w.e.f. 15.11.2017 and had taken no steps to pass on the resultant benefit of tax reduction by commensurate fixing of prices of his supplies at any point of time till 30.06.2019. In other words, the violation of the provisions of Section 171 of the CGST Act 2017 has continued unabated in this case and the offence continues till date. The Respondent has not produced any evidence to prove from which date t....
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....passed on to each and every buyer at each SKU/unit/service level by treating them equally. The above provision also mentions "any supply" which connotes each taxable supply made to each recipient thereby making it evident that a supplier cannot claim that he has passed on more benefit to one customer on a particular product therefore he would pass less benefit or no benefit to another customer than what is actually due to that customer, on another product. Each customer is entitled to receive the benefit of tax reduction or ITC on each SKU or unit or service purchased by him subject to his eligibility. The term "commensurate" mentioned in the above Sub-Section provides the extent of benefit to be passed on by way of reduction in the price which has to be computed in respect of each SKU or unit or service based on the price and the rate of tax reduction or the additional ITC which has become available to a registered person. The legislature has deliberately not used the word 'equal' or 'equivalent' in this Section and used the word 'Commensurate' as it had no intention that it should be used to denote proportionality and adequacy. The benefit of additional ITC would depend on the co....
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....matical methodology adopted in the case of one sector cannot be applied to the other sector. Moreover, both the above benefits are being given by the Central as well as the State Governments as a special concession out of their tax revenue in the public interest and hence the suppliers are not required to pay even a single penny from their own pocket and therefore, they are bound to pass on the above benefits as per the provisions of Section 171 (1) which are abundantly clear, unambiguous, mandatory and legally enforceable. The above provisions also reflect that the true intent behind the above provisions, made by the Central and the State legislatures in their respective GST Acts is to pass on the above benefits to the common buyers who bear the burden of tax and who are unorganised, voiceless and vulnerable. The Respondent is trying to deliberately mislead by claiming that he was required to carry out highly complex and exhaustive mathematical computations for passing on the benefit of tax reduction which he could not do in the absence of the procedure framed under the above Act. However, no such elaborate computation was required to be carried out as the Respondent was to mainta....
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....ions have been filed challenging the orders passed by this Authority. These included WP (C) 378 of 2019 (Hindustan Unilever Ltd. v. Union of India) = 2019 (1) TMI 1368 - DELHI HIGH COURT, WP (C) 2347 of 2019 (Jubilant Food works Ltd. v. Union of India) = 2019 (5) TMI 568 - DELHI HIGH COURT and WP (C) 4213/2019 (Abbott Healthcare v. Union of India) = 2019 (5) TMI 563 - DELHI HIGH COURT in which the constitutional validity and computation methodology has been challenged and hence, the present proceedings should be kept pending till the above issues are settled. In this context, it would be relevant to mention that the Hon'ble High Court of Delhi has not directed this Authority to stop the proceedings in respect of the present case. Therefore, the present proceedings cannot be kept pending as they are to be completed within the prescribed period. Therefore, the above contention raised by the Respondent is not sustainable. 40. Based on the above facts the profiteered amount is determined as Rs. 7,53,8541- as has been computed vide Annexure-13 of the DGAP's Report dated 31.12.2019. Accordingly, the Respondent is directed to reduce his prices commensurately in terms of Rule 133 (3) (a....