TaxTMI 
TaxTMI 
2020 (8) TMI 601
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....ed under Rule 128 of the CGST Rules 2017, alleging profiteering 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 to 18% to 5% w.e.f. 15.11.2017, the Respondent had not passed on the commensurate benefit since he had increased the base prices of his products. 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) of the CGST Rules, 2017 was issued on 14.05.2019, 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/information or any data which formed the basis of the said notice between 21.05.2019 and 23.05.2019, which was however not availed of by the Res....
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....ill operated by him) was being received and ITC of GST paid on rent for the Subway outlet was being apportioned by him on the basis of the ratio of its area to the total area of his 18 outlets. b. His other Subway outlet was operating on a revenue-sharing basis with M/S Mumbai International Airport Limited (hereinafter referred to as "the MIAL"), where 28% of the revenue earned was being shared by him with M/s. MIAL. 6. The DGAP has also reported that in terms of Rule 130 of the CGST Rules 2017, Respondent had also been informed by the DGAP vide notice dated 1405.2019 'that if any information/documents provided by him were confidential, a non-confidential summary of such information/documents could be furnished by him. However, the Respondent did not classify any of the information/documents provided by him as confidential in terms of Rule 130 of the Rules, ibid. 7. DGAP has also reported that based on a careful examination of the case records including the reference from the Standing Committee on Anti-Profiteering, various replies of the Respondent and documents/evidence placed....
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....dent, DGAP has compared the average selling prices for the period from 01.10.2017 to 14.11.2017 with the prices post rate reduction i.e. w.e.f. 15.11.2017 and it was observed that the Respondent had maintained pre rate reduction base prices of 9 items, I item which was sold pre rate reduction was not sold post rate reduction whereas the base prices of 9 items were either increased or GST @18% was charged for some time even after rate reduction leading to a net higher cum-tax price incidence on the consumers. As per the data submitted by the Respondent, it was revealed that the Respondent has charged a lower GST rate of 5% on the increased base prices on some of the other items, where earlier the tax amount was computed @18% before 15.11.2017 and @5% w.e.f. 15.11.2017. Hence, because of the increase in base prices, the cum-tax paid by the customers was not reduced commensurately for 94 items despite rate reduction. Therefore. the only remaining point for determination was whether the increase in base price was solely on account of denial of ITC. 11. Further, the DGAP has intimated that the assessment of the impact of denial of ITC, which was an uncontested fact, required determin....
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.... submitted by the Respondent (B) 33,31,260 34,26,895 31,43,854 36,31,189 1,35,33,198 The ratio of Input Tax Credit to Net Outward Taxable Turnover (C)=(A/B) 11.16% 13. 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 31.04.2019) 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 what was required to offset the impact of denial of ITC in respect of items sold during the same period and hence. the commensurate benefit of reduction in the rate of tax from 18% to 5% had not been passed on. 14. The DGAP has further stated that the next step was to compute the amount of profiteering in this case. It was pertinent that as....
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....usive of GST). Thus the provisions of Section 171 (1) of the CGST Act, 2017 had been contravened by the Respondent in the present case. 17. The DGAP has further reported that the inquiry conducted by the Joint Commissioner (AE), CGST & CX, Mumbai East was limited only to the Subway franchise of the Respondent (Franchisee Code M61382" and "61383") and the outward supplies made by him out of his other outlets had not been examined. 18. The above Report of the DGAP was considered by this Authority and it was decided to hear the Respondent on 20.11.2019. A notice dated 01.11.2019 was also issued to the Respondent asking him to reply why the Report dated 25.10.2019 furnished by the DGAP should not be accepted and his liability for profiteering under Section 171 of the CGST Act, 2017 should not be fixed, However, the Respondent did not appear for the hearing and sought adjournment vide his submissions dated 18.11.2019. Sh. Shashi Mathews, Advocate, and Sh. Abhishek Boob, Advocate represented the Respondent. 19. The Respondent vide his written submissions dated 24.12.2019 stated:- a. That the said 2 outlets of the Respondent were operated under a franchise agreement with....
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....of goods or services or benefit of ITC had been passed on by a registered person by way of commensurate reduction in prices. However, to date, neither the CGST Act nor the CGST Rules nor any other form of delegated legislation had prescribed any method of computation by which an amount of profiteering' could be computed. Even this Authority under the Goods and Services Tax Methodology and Procedure, 2018 which had been notified in terms of Rule 126 of the CGST Rules did not prescribe any specific methodology to be adopted in the computation of profiteering. e. That no guidelines whatsoever had been framed leaving the issue to the complete discretion of the investigating authority (i.e. the DGAP) who for the first time in his Report was devising a particular method by which it was seeking to determine an amount which was allegedly profiteered. Given the absence of knowledge of the basis on which the DGAP had to act, the Respondent was compelled to accept any procedure adopted by DGAP and the opportunity of full defence to the Respondent was also curtailed. f. That the method adopted by the DGAP had no statutory sanction and could not be regarded as a mandatory pres....
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....iance of the law. In the absence of a prescribed methodology, there was an arbitrary exercise of the power by the DGAP without any jurisdiction, k. That pricing of the products was a complex exercise and the products were usually not priced individually and in isolation at a unit level. In a free market, several considerations such as those of demand and supply, fixed and variable costs, prices of raw materials, logistics, product range, product mix, suppliers position in the market, entity-level operational costs, market situation, inflation, consumer segment, etc. costs and benefits at an entity level, division level, and product category level were all influencers of any pricing decision, Typically. the cost of taxes was only one of the elements which determined the final price. l. That the Respondent sold his products to various categories of customers viz Individual Customers and Institutional Customers and while making such sales, the prices of the products depended on the category of each customer- Moreover, prices to an Individual Customer were always different than the prices to an Institutional Customer (who was sold on negotiated prices, by giving appro....
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....ucts was arrived at and to explain the transactions entered into between him and his customers. The above manner of adjudication has deprived the Respondent with an opportunity to explain his case or give alternative data before issuance of the Report by the DGAP and the same was therefore violative of the principles of natural justice. p. That it was a well-settled principle in law that granting an opportunity of hearing was an integral part of the principles of natural justice, He has relied upon the judgment of the Hon'ble Supreme Court passed in the case of Dharampal Satyapal Ltd. V. Dy- Commissioner Of C. Ex. 2015 (320) ELT 3 (SC) = 2015 (5) TMI 500 - SUPREME COURT wherein the Hon'ble Supreme Court has observed that even in administrative actions, where the decision of the authority may result in civil consequences, a hearing before taking a decision was necessary- Further, in the case of Escorts Farms Ltd. v. Commissioner (2004) 4 SCC 281 = 2004 (2) TMI 683 - SUPREME COURT, the Hon'ble Supreme Court has also; held that "Right of hearing to a necessary patty is a valuable right. Denial of such right is serious breach of statutory procedure and violation of rules of na....
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....of alleged profiteering were computed for the period from 01.11.2017 to 14.11.2017 (or for the month of October 2017 for products not sold in the above period), Based on the ITC ratio and the base prices, the alleged profiteering amount has been computed for the period from 15.11.2017 to 30.04.2019 (i.e. 532 days). The basis of said computation of alleged profiteering was completely arbitrary as the Respondent could not be expected to retain the same selling prices over a period of over more than 17 months. Several factors affected the selling prices, including the inflation, increase in the cost of raw materials, rent revisions, cost of manpower, response to the pricing strategy adopted by the competitors, etc. s. That this Authority in the case of Kumar Gandharv v. KRBL Ltd. (Case No. 03/2018) = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY, has itself accepted the fact that an increase in production costs was a valid consideration while determining the quantum of profiteering. t. That the provisions of Section 171 of the CGST Act coupled with the Report of the DGAP having an investigation period of almost 1 and half year, sought to restrict the right ....
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....equent price revisions could not be attributed to the Rate Amendment Notification, w. That the total amount of alleged profiteering of Rs. 87,856/- pertained to charging the wrong rate of tax (i.e. charging tax at the rate of 18% or 40%) despite the Rate Amendment Notification, as described below:- S.NO. YEAR PROFITEERING AMOUNT 1. 2017 (from 15.11.2017) 63,356 2. 2018 22,500 TOTAL 87,856 x. That for the period from 15.11.2017 to 04.01.2018, there was an admitted error on account of the wrong charging of tax, leading to profiteering of Rs. 87,856/- (which included the incorrectly charged tax of Rs, 56,168/- that had been duly paid to the Government, and has not been retained illegally by the Respondent. There was alleged profiteering calculated by the DGAP to the extent of Rs, 78,261/- which was in respect of items such as Maxx chips, orange juice and fountain drinks. y. That the Respondent has not increased his base prices for 51 days (i.e. up to 04.01.2018) after the Rate Amendment Notification, and therefore, the allegation of alleged profiteering was completely baseless and arbitrary and any further revisions....
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....017 when the Rate Amendment Notification was notified which restricted the right to avail ITC. Further, as the invoices in respect of Rent pertained to the entire month of November 2017, the same could not be computed. ee. That while computing the ITC ratio for the period from 01.07.2017 to 31.10.2017, the DGAP had himself enquired from the Respondent to provide for the proportionate ITC in respect of the 2 outlets under investigation, which was duly provided by the Respondent. ff. That the DGAP ought to have considered the ITC in respect of stock as on 15.11.2017 and the proportionate ITC for 14 days in respect of the Rent invoice for the month of November 2017. The action of the DGAP in failing to consider the ITC for the said period itself showed the arbitrary manner of computation of ITC ratio for the said pre-rate reduction period and the alleged profiteering amount accordingly computed was therefore incorrect, and ought to be set aside. gg. That to arrive at the base price, the DGAP had considered the period from 01.11.2017 to 14.11.2017 (and wherever the price was not available, base price was calculated based on October 2017 prices). However, to a....
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....t jacket formula could be used for either arriving at a base price or for calculating profiteering, At the same time, the DGAP has also failed to appreciate that various factors had contributed to an increase in costs incurred by the Respondent. That the pricing of products was dependent on the expenses incurred by a company. Therefore, the increase in his costs ought to have been considered. kk. That the DGAP ought to have considered the additional costs that had been incurred by the Respondent during the implementation of GST and the transition from the earlier tax regime to an altogether new tax regime, As per DGAP's own report, the DGAP had examined 94 products which had been impacted by the rate reduction, Due to the said change, the Respondent was burdened with various additional costs, including change in IT systems, marketing costs, operating costs, etc. The Respondent had absorbed such increased tax costs not only during the implementation of GST but also during the rate reduction. There were also certain additional costs which had to be borne regularly, including the inflation-related increase in cost of raw materials, ingredients, services, etc. which were facto....
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.... and the Respondent had no real control over the prices of the products being sold. The POS was also controlled by M/s. Subway India and any revision in the prices was done by M/s. Subway India at the back-end. pp. That in the franchisee model, the purpose of controlling the prices by the franchisor was that the prices of products remained the same in a particular region and to avoid a situation that there was any variance in the menu prices at the whims and fancies of the franchisees in earning excessive profits, In this regard, e-mail communication regarding revised menu prices intimated by M/s. Subway India was annexed by the Respondent as Annexure-12. qq. That M/S Subway India also had control over the purchase of inputs and the same was periodically intimated to all franchisees, including the Respondent. In this regard, relevant intimation by the Respondent along with the relevant sheet providing information on the procurement of inputs was annexed as Annexure-13 by the Respondent. rr. That M/S Subway India was controlling the input procurement as well as the menu prices, if at all there was any profiteering, the same should be demanded from the fran....
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....ondent, the present exercise by the DGAP was effectively resulting in administration of price fixation which was not the intention of the anti-profiteering provisions. A mere change in GST rate could not necessarily lead to a reduction in price (without consideration of a commensurate increase in costs and expenses) and the business of a registered dealer was to be seen as a whole for the purposes of Section 171 of the CGST Act, 2017. ww. That it was well settled that the right to reasonable profit was a pan of the right to trade and any methodology prescribed under Section 171 could not be de-hors a reasonable profit that might be earned or cost incurred by an enterprise. MRP only indicated a price above which the goods could not be sold and it could not be assumed as the price realized by a person for all his supplies. It was a general commercial practice to sell goods at price less than the MRP and thus any price arrived on the basis of MRP alone was notional, not real, and could not form the basis to determine "commensurate" reduction in price. The DGAP has erred in adopting an average base price based on MRP without considering any of the relevant factors including th....
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....ods or services supplied. There could not be any fixed methodology for the determination of the quantum of benefit to be passed on, f. Point No. 36 to 45:- The DGAP has stated that the period of investigation was not prescribed in the CGST Act or Rules. The DGAP had followed the practice of taking the period of investigation from the date of rate reduction till the previous month of the day on which notice of investigation was issued. The DGAP did not seek to act as a price controlling authority but was required to take action if Section 171 of the CGST Act, 2017 was violated. g. Point No. 46:- The DGAP has stated that the benefits on account of denial of ITC had been already accounted for in the profiteering calculations. h. Point No. 47 to 49:- The DGAP has stated that the benefits passed on by the Respondent in some instances where the prices charged were lower than the prices arrived at after incorporating the impact of denial of ITC was to a different set of consumers, The sum of the total amount of such additional benefit passed could not be offset against the increased prices charged from another set of customers. i. Point No. 50 to 53:- T....
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.... mentioned in his earlier submissions dated 24.12.2019. In addition to the submissions dated 24.12.2019, the Respondent has made the following submissions, which are as below:- a. That that the DGAP has admitted that the methodology was adopted on a case to case basis, and there was no fixed methodology provided under the law for the determination of quantum of profiteering. Reliance was placed on the judgement of the Hon'ble Supreme Court given in the case of Commissioner of C. Ex. & Cus. Kerala v. Larsen & Toubro Ltd. 2015 (39) STR 913 (SC) = 2015 (8) TMI 749 - SUPREME COURT, wherein it was held as under:- "35 The aforesaid finding is in fact contrary to a long line of decisions, which have held that where there is no machinery for assessment, the law being vague, it would not be open to the assessing authority to arbitrarily assess to tax the subject. Various judgments of this Court have been referred to in the following passages from Heinz India (P) Ltd. State of (2012) 5 SCC 443 = 2012 (3) TMI 396 - SUPREME COURT." b. That in response to the DGAP clarifications that the prices could not change overnight on the date of change of tax rates, the Respond....
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....l communications between the Respondents and the franchisor, which clearly showed that the franchisor, i.e. M/S Subway India, was regulating the prices. g. That it was not even a case where the Respondent had increased his prices overnight to take benefit on account of a reduction in the rate of tax on the restaurant services. h. That the stand adopted by the DGAP in his report was that the only factor considered relevant for computation of alleged profiteering was tax rate, as opposed to several other factors that were relevant in the determination of pricing of a particular product by any company. In this regard, despite specific submissions made by the Respondent that in the business line of the Respondent, the pricing was dependant on several volatile factors and the prices could not remain constant for a long period, the DGAP has merely clarified that on account of reduction in the rate of tax, there must be a commensurate reduction in prices of goods or services. The said clarification by the DGAP itself led to price fixation, as the said analogy has been applied by the DGAP for a long period of more than 17 months. The price revision that has happened on 17....
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....etermined 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." 24. From Section 171 of the CGST Act 2017 it is clear that it itself defines the term "profiteered' which means the amount determined on account of not passing on the benefit of reduction in the rate of tax on supply of goods and services or both or the benefit of Input Tax Credit to the recipient by way of commensurate reduction in the prices of the goods or services or both. We also find it pertinent that Section 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 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 Responden....
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....tion in the tax rate, it is apparent from the DGAPs Report that there has been a reduction in the rate of tax from 18% to 5% w.e.f. 15.11.2017, vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 in the post GST period. It has been revealed from the DGAP's Report that the ITC which was available to the Respondent during the period July 2017 to October 2017 was 11.16% of the net taxable turnover of restaurant service 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. The DGAP in his Report has stated that the Respondent had increased the base prices of different items by more than 11.16% 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. 26. The DGAP for computation of the profiteered amount has compared the average base prices of the products which were being charged by the Respondent during the pre rate reduction period with the actual post rate reduction base prices of these products- It was not possible to compare the ....
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....ction and exercise such powers as were specifically mentioned in the CGST Rules, 2017. However, the Methodology and Procedure, 2018 notified by this Authority in terms of Rule 126 of the CGST Rules did not prescribe any specific methodology to be adopted in the computation of profiteering. Therefore, in the absence of any methodology in the Rules, the entire approach adopted by the DGAP, and this Authority was without jurisdiction. The above contention of the Respondent is not correct, In this regard, it is submitted that the 'Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and ITC has been mentioned in Section 171 (1) of the CGST Act, 2017 itself which states that "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," It is clear from the perusal of the above provision that it mentions "reduction in the rate of tax or benefit of ITC" which means that the benefit of tax reduction or ITC has to be passed on by a registered dealer to his customers since it is a concession which has been granted from the public exchequer w....
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.... 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 has the power to 'determine' Methodology & Procedure and not to 'prescribe' it However, fixation of the commensurate price is purely a mathematical exercise that can be easily done by a supplier keeping in view the reduction in the rate of tax and his price before such reduction or the availability of additional ITC post implementation of GST, Further, the facts of the cases relating to the Fast Moving Consumer Goods (FMCGs), restaurants, construction and cinema houses are completely different and therefore, the mathematical methodology employed in the case of one sector cannot be applied in the other sector otherwise it would result in denial of the benefit to the eligible recipients. Moreover, both the above benefits have been granted by the Central as well as the State Governments by sacrificing their tax revenue in the pub....
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.... from 18% to 5% has not been passed on. Therefore, the above claim of the Respondent cannot be accepted. 28. The Respondent has relied upon the judgement passed by the Hon'ble Supreme Court in the cases of CIT v. B. C. Srinivasa Setty (1981) 2 SCC 460 = 1981 (2) TMI 1 - SUPREME COURT, CCE v. Larsen & Toubro Ltd. (2016) 1 SCC 170 = 2015 (8) TMI 749 - SUPREME COURT and Commissioner of C Ex. & Cus. Kerala v. Larsen & Toubro Ltd. 2015 (39) STR 913 (SC) = 2015 (8) TMI 749 - SUPREME COURT and stated that there was no machinery provision in the anti-profiteering measures and hence they could not be enforced. On this aspect, it is to be noted that no tax has been imposed under the above measures and hence the law settled in the above cases is not applicable. However. it would be relevant to mention here that Section 171 (2) of the CGST Act, 2017 and Rule 122, 123, 129 and 136 of the CGST Rules, 2017 have provided elaborate machinery in the form of this Authority, the Standing and Screening Committees, the DGAP and a large number of field officers of the Central and the State Taxes to implement the anti-profiteering provisions, Therefore, the Respondent cannot allege that no machinery ha....
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....ricing of the products is a complex exercise and usually the products are not priced individually and in isolation at a unit level. Several considerations such as demand and supply, fixed and variable costs, price of raw material, logistics, market situation, inflation, consumer segment, etc. were all influencers of any pricing decision. However, the cost of taxes was only one of the elements which determined the final price. The same product might have different prices when sold to different categories of customers even though the base price is the same for each product as the outlet. In this connection, it would be pertinent to mention that the provisions of Section 171 (1) and (2) of the above Act require the Respondent to pass on the benefit of tax reduction to the consumers only 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 pri....
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....who are voiceless, unorganized, and vulnerable. This Authority is charged with the responsibility of ensuring that both the above benefits are passed on to the consumers/ recipients as per the provisions of Section 171 read with Rule 127 and 133 of the CGST Rules, 2017. This Authority has nowhere interfered with the business decisions of the Respondent. However, under the garb of commercial expediency the Respondent cannot misappropriate the amount of tax reduction granted from the public exchequer He has to account for how he has passed on the benefit which he has failed to do. Hence, the cases cited by him do not help his cause. 33. The Respondent has also contended that the approach to fix the selling price commonly for each category of sales was not proper. The discounts offered to the Institutional Customers had not been considered while undertaking the computation of the alleged profiteering amount It would be pertinent to mention here that Section 171 (1) requires that the Respondent should pass on the benefit of tax reduction from 18% to 5% w.e.f. 15.11.2017 which implies that he should have continued to charge the same base prices which he was charging on 14.11.2017 and....
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....is products. Therefore, the above-said case laws referred by the Respondent are of no help to him and the contention raised by him in this behalf is not tenable. 35. The Respondent has also referred to the definition of the term profiteering as per various dictionaries i.e. Black's Law Dictionary, Oxford Dictionary, and Advanced Law Lexicon. He has also stated that the act of profiteering occurs only in the cases where an assessee indulged in acts leading to excessive profit and in the present case, the Respondent has not earned any excessive profit as he has been suffering losses in respect of the 2 outlets under investigation, In this connection, it would be appropriate to refer to the definition of the profiteered amount given in the Explanation attached to Section 171 mentioned above which states that "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! Therefore, the definition of profiteering cited....
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....17 to 31.04.2019 has been rightly taken by the DGAP. The Respondent cannot claim protection under Article 14 of the Constitution when he has violated the above Article himself by denying the benefit of tax reduction to millions of customers, Hence, the cases relied upon by the Respondent are of no help to him, Therefore, the contention of the Respondent is not correct and hence, cannot be accepted. 37. The Respondent has also relied upon the decision of this Authority in the case of Kumar Gandharv V. KRBL Ltd. (Case No. 03/2018) = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY, wherein it has been allegedly accepted that the increase in the production costs was a valid consideration while determining the quantum of profiteering- In this context, it is pertinent to mention that in the above case no benefit of the increase in the cost was given, Instead, the rate of tax had been increased and hence the provisions of Section 171 (1) were not applicable as there was no tax reduction. Therefore, the facts of the above case referred by the Respondent are different from his case and hence, they cannot help him. 38. The Respondent has also pleaded that right to reasonable pr....
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....contention of the Respondent is not maintainable. 40. The Respondent has further contended that for the period from 15.11.2017 to 04.01.2013, out of the total amount of profiteering computed by the DGAP, an amount of Rs. 87,856/- was on account of an incorrect tax rate, out of which, an amount of Rs. 56,168/- had been duly paid as tax to the Government and had not been retained illegally by him. This contention of the Respondent is not correct because the provisions of Section 17 (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 the present case, it would be appropriate to mention that 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 Governments which aimed to provide the benefit of r....
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....stances where excess benefit passed on by the Respondent is considered, an amount of Rs. would be reduced from the total amount of alleged 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, Netting off implies that the amount of benefit not passed on certain SKUs will be subtracted from the amount of benefit passed on other SKUs and the resultant amount shall be determined as the profiteered amount. If this methodology is applied the Respondent shall be entitled to subtract the amount of benefit which he has not passed on from the amount of 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. Every recipient of goods or services is entitled to the benefit of the tax rate reduction by way of reduced prices and Section 171 does not Offer the Respondent any leeway 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 ....
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....ts should be reduced. In this regard, we find no ground to differ from the observation of the DGAP that the amount of profiteering is computed only from the data submitted by the Respondent vide his various submissions, Also the Respondent has not submitted any documentary evidence to prove his contention, Therefore, the contention of the Respondent is not tenable. 45. The Respondent has also pleaded that the DGAP while arriving at profiteering has failed to appreciate that different factors at different points in time affect the costing and pricing of a product and therefore, no straight jacket formula could be used for either arriving at a base price or for calculating profiteering. The pricing of products was dependent on various factors like increase in expenses and increase in cost due to GST implementation, change in IT systems, marketing costs, operating cost, increased cost of manpower and rental cost which should be considered while arriving at the profiteering. In this connection, it would be pertinent to mention that the provisions of Section 171 (1) and (2) of the above Act require the Respondent to pass on the benefit of tax reduction to the consumers only and have ....
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.... of ITC. The facts of the above-referred case are different from the present case. Therefore, the contention of the Respondent is not acceptable, 48. The Respondent has further contended that the right to reasonable profit was a part of the right of trade and any methodology prescribed under Section 171 of the Act, ibid, could not be de-hors a reasonable profit. In this regard, it is pertinent to mention that this Authority doesn't 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 Section 171 this Authority has only been mandated to ensure that both the benefits of tax reduction and ITC which are the sacrifices of precious tax revenue made from the kitty of the Central and the State Governments are passed on to the end consumers who bear the burden of the tax. This Authority is charged with the responsibility of ensuring that both the above benefits are passed on to the general public as per the provisions of Sectio....
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....is order, 52. Further, the DGAP vide his report dated 25.10.2019 has reported that the Respondent has 35 operational outlets at Mumbai International Airport, Terminal 2 and out of these 35 outlets, only 02 outlets were franchisees of M/s. Subway Systems India Pvt. Ltd. It is also clear to us that the Respondent has profiteered in his two Subway outlets. Therefore, as per the provisions of Section 171 (2) of the CGST Act, 2017, this Authority has reasons to believe that there is a need to investigate all the outlets of the Respondent since profiteering on the part of the Respondent has already been established in the case of his two Subway outlets as also the fact that supplies from various outlets of the Respondent are being made through a single GST registration and the same ITC Pool/Electronic Credit Ledger is being used for all the supplies being made from that registration. Therefore, this Authority, in line with the provisions of Section 171(2) of the CGST Act, 2017 and as per the amended Rule 133 (5) (a) of the CGST Rules 2017 directs the DGAP to further investigate all the other outlets of the said Respondent for violation of the provisions of Section 171 of the CGST Act ....