TaxTMI 
TaxTMI 
2020 (12) TMI 487
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....11.2017 and Applicants No. 3 & 4 vide their e-mails dated 15.11.2017 and 17.11.2017 respectively had filed complaints alleging that though the rate of Goods and Services Tax (GST) on Restaurant Services had been reduced from 18% to 5% w.e.f. 15.11.2017, the Respondent had increased the prices of the products which were being sold by him and had maintained the same prices which he was charging before the above reduction. They had also claimed that the Respondent had indulged in profiteering in contravention of the provisions of Section 171 of the CGST Act, 2017 and hence appropriate action should be taken against him. 2. The above applications were examined by the Standing Committee on Anti-Profiteering and were referred to the DGAP vide the minutes of its meetings dated 29.11.2017 and 20.12.2017 for detailed investigation under Rule 129 (1) of the CGST Rules, 2017. 3. The DGAP had called upon the Respondent vide notice dated 29.12.2017 to submit reply on the allegations levelled by the Applicants No. 1 to 4 and also to suo moto determine the quantum of benefit which he had not passed on to the consumers during the period between 15.11.2017 to 31.01.2018. The above Applicants ....
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....eed to by both the parties as per Section 64 A of the Sale of Goods Act, 1930. He had further claimed that any attempt to regulate the sale prices of the products being sold by him would violate his right to carry on trade as per Article 19 (1) (g) of the Constitution and the provisions of Section 171 were not similar to the laws framed for controlling prices as per List Ill of Schedule VII of the Constitution. d. That the cost of food and beverages had gone up due to the abrupt denial of ITC which had constrained him to increase the base prices to negate this impact and such increase was also not commensurate with the increase in the costs. He had also contended that the cost of the restaurant services had gone up by at least 15%. He had further contended that he could not avail ITC worth Rs. 8.70 Crore for the months of July to October, 2017 and could avail it only after 15.11.2017. He had also submitted that the quantum of ITC not shown in the GSTR-3B Returns would increase from Rs. 8.70 Crore to Rs. 9.33 Crore and would further increase by Rs. 50 Lakh after all the inward supplies were accounted for which would prove that he had not profiteered. He had further contende....
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....ral Tax (Rate) dated 14.11.2017 had reduced the rate of tax on restaurant services from 18% to 5% w.e.f. 15.11.2017 with the condition that the benefit of ITC would not be available on this service. 7. The DGAP had also submitted that the Respondent was selling 1,844 products and after comparing the price lists published before and after 15.11.2017 when the rate of tax was reduced, which was indicated in Annexure-32, the Respondent had increased the base prices in respect of 1,774 (96.20%) products. He had further submitted that although the Respondent had charged GST @ 5% on and after 15.11.2017 but due to increase in the base price the customers were forced to pay the same price which was being charged from them before 15.11.2017 whereas they should have been charged the lower price after commensurate reduction due to reduction in the rate of tax and hence they were denied the benefit which had become due to them. 8. The DGAP had made detailed calculation of profiteering vide Annexure-37 of his report. He had also compared the ITC which was available to the Respondent till 31.10.2017 with the outward taxable supplies made till the above date. He had calculated the ITC from ....
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....dent during the same period excluding the inter-unit branch transfers. The rate of tax on the restaurant services was reduced from 18% to 5% w.e,f. 15.11.2017 and the benefit of ITC was not available to the Respondent w.e.f. the above date. The DGAP had calculated the ratio of denial of ITC as under.- (Amount in Rs.) Particulars Jul, 2017 Aug., 2017 Sept., 2017 Oct., 2017 Total ITC Availed as per GSTR-3B (A) 5,40,24,699 8,00,76,997 9,10,56,885 11,08,97,125 33,60,55,706 Add: ITC of July, 2017 to October, 2017 availed in the month of November, 2017 GSTR-3B (Anex-34) (B) 68,74,072 1,36,41,705 2,01,97,587 4,43,97,474 8,51,10,837 Less: Tax on Inter unit branch transfer as per Sales register (C) 1,59,87,269 2,12,74,094 1,77,50,160 1,80,18,920 7,30,30,433 Less: Input Tax Credit pertaining to prior July, 2017 but availed in July, 2017 to October, 2017 GSTR-3B (Annex-35) (D) 62,71,753 4,55,180 4,51,567 13,49,417 85,27,917 Net Input Tax Credit available for the period July, 2017 to October, 2017 (E) = (A+B-C-D) 3,86,39,749 7,19,89,428 9,30,52,745 13,59,26,262 33,96,08,183 Total O....
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.... 8,36,602 2. Chhattisgarh 3,99,904 3. Goa 8,29,314 4. Gujarat 88,48,919 5. Karnataka 1,18,30,563 6. Kerala 13,34,341 7. Madhya Pradesh 9,68,540 8. Maharashtra 3,96,68,520 9. Tamilnadu 43,19,803 10. Telangana 58,91,280 Total: 7,49,27,786 13. The above Report was considered by this Authority in its sitting held on 05.07.2018 and it was decided to hear the interested parties by granting hearing on 24.07.2018 during which the Applicants No. 1 to 4 did not appear. The DGAP was represented by Sh. Akshat Aggarwal, Assistant Commissioner and Sh. Bhupinder Goyal Assistant Director (Costs). Sh. Suresh Lakshminarayan, Chief Finance Officer, Sh. Dinesh Agarwal, CA and Sh. Mayank Jain, Advocate appeared for the Respondent. 14. The Respondent had filed detailed written submissions on 24.07.2018, 09.08.2018, 16.08.2018 and 22.08.2018 and stated that the DGAP had grossly erred in applying the provisions of Section 171 of the CGST Act, 2017 which stated as under:- "Anti-Profiteering Measure 171. (1) Any reduction in rate of tax on any supply of goods or services or the benefit of input tax....
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....ond the scope of Section 171. 15. The Respondent had also claimed that the word "profit" in common parlance was understood as under:- MEANING SOURCE Advantage or gain in money or in money's worth Prem & Saharay's Judicial Dictionary of Words and Phrases The excess of revenues over expenditures in a business transaction Black's Law Dictionary The word profit connotes the idea of pecuniary gain Ravanna Subanna vs G.S. Kaggeerappa (AIR 1954 SC 653) = 1954 (5) TMI 33 - SUPREME COURT The financial gain in a transaction or enterprise; the excess of returns over outlay Shorter Oxford English Dictionary The Respondent had also contended that the DGAP had only considered the impact of ITC denial and had failed to consider other factors such as increase in the electricity bills, fuel costs, variable rent, royalty and commissions etc. He had further contended that as per WPI, prices of food articles had risen by 6.32% and that of fuel & power by 4.69% during the same period, however, the impact of ITC was considered. The Respondent had also claimed that the increased input prices were considered as a mitigating factor in the order dated 04.05.2018 passed by....
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....,085 G Incremental tax cost [(D+E+F) x 18%] 36,80,321 H Total incremental cost due to price revision [D+E+F+G] 9.72% 204,46,230 I Net Incremental revenue due to price revision [C-H] 22,40,07,306 EFFECTIVE MARGIN [l]/[A] 9.34% 17. The Respondent had also pleaded that the word "profiteering" had been defined as under:- 1. Profiteering Any conduct or practice involving the acquisition of excessive profits Mount vs Welsh To seek or obtain excessive profits, one who is given to making excessive profits Law Lexicon The taking advantage of unusual or exceptional circumstances to make excessive profits Black's Law Dictionary Make or seek to make an excessive profit Shorter Oxford English Dictionary Profiteering would mean taking advantage of unusual or exceptional circumstances to make excessive profits. Islamic Academy of Education vs State of Karnataka The Respondent had further pleaded that he had not made excessive and/ or unreasonable profit as he was hardly making profit, as the tax incremental cost computed by the DGAP was 9.11% as....
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....27,917/- pertaining to period prior to July 2017 but availed of during the period between July-October 2017 as the invoices were issued by the supplier late which must be given to him. He had further claimed that the GST liability on variable rent would be accounted for either on a monthly or yearly basis, although it was accruing daily which constituted 3.29% of the restaurant turnover which the Respondent would be denied. 19. The Respondent had also pleaded that during the period between July-October 2017, he had made inter-unit branch transfers of Rs. 49,26,86,384/- on which GST of Rs. 7,30,30,443/-was paid which had been wrongly excluded while computing the ratio of ITC denial to taxable turnover, being mere book entries, as he had suffered incremental cost on the mark up price. He had further pleaded that he had availed of ITC of Rs. 6,46,90,974/- on the inward supplies of Rs. 47,15,04,275/- which were used to make outward inter-unit branch transfers valued at Rs. 50,90,43,209/- on which GST of Rs. 7,03,22,927/- was paid and thus, he had paid additional GST of Rs. 56,31,954/- on inward supplies which had been denied to him by the DGAP. He had also alleged that the period of....
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....ue to increase in sales prices 9.43 % 9.43% Impact due to denial of ITC 12.24% 10.1%~10.3 Net marginal Gain/(Loss) (2.81%) (0.67~0.87%) 21. He had also argued that the calculation of the profiteered amount of Rs. 7.49 Crore was not correct as the DGAP had ignored the reduction in the prices made by him which had led to reduction in the profiteered amount and also due to the reason that the DGAP had calculated the profiteered amount @ 105%, i.e. base price + 5% GST when the 5% GST had already been deposited in the Government account and not retained by him and hence, no profiteering could be alleged on it. He had also admitted that on the basis the above submissions, the amount of alleged profiteering stood reduced to Rs. 3,17,03,988/-. 22. The Respondent had also contended that the relevant provisions of the CGST Act, 2017 or the CGST Rules, 2017 did not prescribe the methodology to be followed by the registered suppliers in order to comply with the anti-profiteering requirements. He had further contended that Rule 126 of the above Rules authorised this Authority to determine the Methodology and Procedure to decide whether the reduction in the rate of ....
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....GST Act provided for availment of the ITC up to a period of one year and hence he was entitled to claim the above ITC. He had also stated that the receipt of the goods and services had to be determined under the provisions of Section 12 and 13 of the CGST Act, 2017 as per which earlier of the date of issue of the invoice or the date of the receipt of payment was to be considered as time of supply and since the Respondent had claimed credit of ITC in respect of all such invoices which were dated on or before 14 November 2017 but accounted in the books of account on or after 14 November 2017, he should be allowed to avail the same. He had further stated that he was barred from taking benefit of ITC on inward supplies received after 14 November 2017 as per Section 12 and 13 of the CGST Act, 2017 which could not be construed as curtailing his vested right of availing the ITC for the inward supplies received on or before 14 November 2017. He had also cited the cases of Eicher Motors Ltd. v. Union of India 1999 (1) SCR 295 = 1999 (1) TMI 34 - SUPREME COURT, Samtel India Ltd. v. Commissioner of Central Excise (2003) 11 SCC 324 = 2003 (3) TMI 121 - SUPREME COURT and Binani Cement Ltd v. Co....
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....9,44,87,119 Add: ITC of July, 2017 to October, 2017 availed in the month of November, 2017 GSTR-3B (Anex-34) (B) 68,74,072 1,36,41,705 2,01,97,587 4,43,97,474 8,51,10,838 Add: ITC of July, 2017 to October, 2017 to 14 November availed in the month of December, 2017 2,37,237 7,08,187 9,47,249 22,49,103 1,14,39,498 1,55,81,273 Add: ITC of July 2017 to 14 November 2017 availed in the month of January 2018 4,55,861 5,73,870 10,57,272 19,62,917 35,77,711 76,27,630 Add: ITC of July 2017 to 14 November 2017 availed in the month of February 2018 1,95,426 1,43,501 2,72,150 3,50,443 6,91,633 16,53,153 Add: ITC of July 2017 to 14 November 2017 availed in the month of March, 2018 6,73,269 4,75,593 8,51,747 4,34,186 5,87,834 30,22,630 Less: Tax on inter unit branch transfer as per Sales register (C) 1,59,87,269 2,12,74,094 1,77,50,160 1,80,18,920 1,33,68,224 8,63,98,667 Add: Incremental tax cost on inter-unit branch transfer 9,22,289 7,45,701 9,05,270 25,73,392 4,85,302 ....
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....ed SKU wise summary of supplies and not B2C invoices for outward taxable supplies and random check of the invoices revealed that in some cases, ITC was availed by him without being in possession of the invoices on the date of availing of ITC which was in contravention of the provisions of Section 16 (2) (a) of the CGST Act, 2017 and thus it was not allowed. The DGAP had also claimed that he was justified in applying the anti-profiteering provisions at the product/SKU level, in the absence of invoice-wise outward taxable supplies data as the Respondent had failed to provide the same. 29. The DGAP had also contended that Para-13 on page 6 of his Report explained the rationale for rejecting the Respondent's contention that mere charging of the reduced GST rate of 5% demonstrated the absence of profiteering, as Section 171 required the passing on the benefit of reduction in the GST rate by way of a commensurate reduction in prices and in this case the prices were not so reduced which amounted to profiteering. He had further contended that Section 171 required that any reduction in the rete of the tax or the benefit of ITC which had accrued to a supplier must be passed on to the cust....
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....as not disallowed but was not considered while computing the ratio of denial of ITC to net turnover as this credit pertained to the period prior to implementation of GST which had no bearing on the supplies made during the period from July, 2017 to October, 2017. He had further stated that as the Respondent had received the tax invoices after 15.11.2017 hence he was not eligible to avail the ITC in terms of the Notification dated 14.11.2017, therefore the same could not be considered for computation of denial of input tax credit to the net turnover ratio. The DGAP had also maintained that as the Respondent had already availed ITC on the original purchase of inputs, the same had been considered in the computation of denial of ITC to net turnover. He had further maintained that the output tax liability on the inter-unit branch transfer turnover had been excluded from the ITC on the one hand and the inter-unit branch transfer turnover had been excluded from the outward taxable turnover on the other hand which neutralised the impact of branch transfer transactions on the computation. He had also informed that there was reversal of ITC on the closing stock of inputs and capital goods as....
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....m the perusal of Section 171 quoted above that (i) any reduction in the rate of tax on any supply of goods or services or (ii) the benefit of ITC shall be passed on to the recipient by way of (iii) commensurate reduction in prices. Since there had been reduction in the rate of tax in respect of the above services as per the above Notification the benefit of reduction was required to be passed on to the consumers. Similarly the benefit of ITC availed by the supplier was also to be passed on to the recipients. Mere charging of GST @ 50% w.e.f. 15.11.2017 did not amount to passing on the benefit of the above reduction as had been claimed by the Respondent. The Respondent had also claimed benefit of ITC as per TRAN-I Statement as well as per his GSTR-3B Returns for the period between 01.07.2017 to 14.11.2017 which was also required to be passed on to the consumers. Perusal of the Report filed by the DGAP nowhere showed that he had gone in to the cost component of the base price fixed by the Respondent as he had neither sought details of the cost of the inputs used by the Respondent nor of his profit margins and therefore, the allegation of computation of base price by the DGAP made by ....
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....nd it had no provisions for interference in the process of price fixing as had been alleged by the Respondent and hence there was no question of violation of the right of the Respondent granted under Article 19 (1) (g) nor of the laws framed for regulation of prices as per List Ill of Schedule VII of the Constitution. Both the claims made by the Respondent in this regard were farfetched and untenable in view of the specific provisions of Section 171. 34. It was also clear from the definition of 'profit' given by the Respondent in his submissions that it was the advantage or gain derived in a legal business transaction but the same could not be considered as profit if it was illegally derived by appropriating the benefits which were granted by the Government from the public funds to the consumers. The contention of the Respondent that the increase in the prices of food articles, electricity, fuel, variable rent, royalty and commissions etc. was not considered by the DGAP while calculating the profiteered amount was untenable because the DGAP had mandate to only examine whether the benefit of tax reduction or ITC had been passed on or not. He could not go into the factors which we....
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.... and hence he had profiteered by 0.32% which demolished his entire defence of having not profiteered. The amount of profiteering assessed by the DGAP could not be described as miniscule as it had been earned by fleecing millions of customers. 37. It was also apparent from the record that the DGAP had calculated the ratio of ITC to the total taxable turnover pertaining to the period between July, 2017 to October, 2017 as 9.11% on the basis of the GSTR-3B Returns filed by the Respondent. However, the Respondent had claimed that the above ratio should have been calculated on the basis of the ITC availed by him either in the month of October, 2017 or during the months of September and October, 2017 as the ratio would be 13.82% or 12.82% respectively which would show that he had not profiteered. The Respondent had not given any reason to explain why the above months should be picked up selectively. The only reason for the above contention appeared to be that the Respondent wanted to hide the fact that he had increased his prices more than the denial of benefit of ITC. The Respondent could not claim ITC after the Notification was issued on 14.11.2017 for the supplies made during the m....
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....f Rs. 142/- was charged for the above item. Vide invoice dated 15.11.2017 the base price was increased by Rs. 14.90/- to Rs. 135.24/- and Rs. 6.76/- were charged as CGST+SGST @ 5% and the above product was supplied at the same MRP of Rs. 142/-. Therefore, it was clear that the base price was increased by 12.38% which was more than the ratio of denial of ITC of 9.11%. The Respondent had not only compelled his customers to pay extra base price of Rs. 3.94, he had also forced them to pay extra GST of Rs. 0.20/- and thus the benefit of Rs. 4.14 had been denied to the customers. Had the Respondent not increased the price of the above product the same would have been supplied at the price of Rs. 137.86 only. Perusal of Annexure-32 further proved that the Respondent had arbitrarily increased his prices without taking in to account the audited financial statements and they were increased solely with the malafide intention of appropriating the benefit which was to be passed on to the general public. The Respondent had himself admitted that he had made net marginal gain of 2.81% and the total profiteering was to the tune of Rs. 3,17,03,988/- After this admission the Respondent could hardly c....
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....computation of the profiteered amount under Section 171 had to be done on the basis of the facts of each case and hence no general methodology and procedure could be prescribed for the same. The basic aim was to ensure that both the benefits of reduction in the rate of tax and ITC were passed on to the consumers by commensurate reduction in the prices. During the hearing the Respondent was repeatedly asked to put forth his own methodology and procedure in case he was not satisfied with the course of action adopted by the DGAP while assessing his liability for profiteering by the Respondent had failed to do so and therefore, all the objections raised by him in this behalf were frivolous and could not be accepted. 41. The Respondent had also pleaded that he was not aware at what level the price was to be reduced. In this connection the provisions of Section 171 were very clear which stated that both the benefits had to be given in the case of every supply. Therefore, the benefit was required to be passed on at the SKU level of each product as the recipient would be different in each supply of the product. Every consumer was entitled to receive the above benefits and no one could b....
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....ions of Section 171 of the above Act had resorted to profiteering as he had no ground whatsoever to increase his prices on the eve of tax reduction. The cases of Commissioner of Income Tax v. Vadilal Vallubhai and State of Punjab v. Gurdial Singh were of no help to him as the same were not relevant in the facts of the present case. The allegation of the Respondent that he had been directed to increase his prices by 9.11% only amounted to restriction on his right to fix the prices was misplaced as no such direction had been passed by the DGAP as the Respondent had himself revised the prices and while doing so he had deliberately pocketed the benefit which he was required to pass on to his customers, in additions to his regular margins, which being in contravention of the provisions of Section 171 of the above Act was liable to the consequences prescribed under Rule 133 of the above Rules. 44. The Respondent had also claimed that after 15.11.2017 the input tax paid by him had become a cost which needed to be factored in the price. This contention of the Respondent was frivolous as it appeared that he had no details of the input tax available to him on 15.11.2017 when he had increa....
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....it was clear that the Respondent had resorted to profiteering by charging more price than he could have charged by issuing wrong tax invoices. He had further acted in conscious disregard of the obligation which was cast upon him by the law, by issuing incorrect invoices in which the base price was deliberately enhanced exactly equal to the amount of reduced tax or more and thus he had denied the benefit of reduction in the rate of tax granted vide Notification dated 14.11.2017 to his customers. Accordingly he had committed an offence under Section 122 (1) (i) of the CGST Act, 2017 of the above Act. Therefore, a show cause notice was ordered to be issued to the Respondent to explain why the penalty under the provisions of the above Section should not be imposed on him. 48. The Respondent had filed Writ Petition No. 3492/2018 before the Hon'ble High Court of Bombay against the order dated 16.11.2018, passed by this Authority in the present proceedings, which vide its Judgement dated 01.10.2019 had remanded the case back to this Authority and directed the Respondent to appear before this Authority on 25.11.2019. However, the Respondent immediately thereafter had filed another Writ ....
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....ecision-making process". III. That in the present proceedings, it was clear that this Authority was deciding a case between the Respondent and S/Sh. Ravi Charaya, Chandranath Sarkar, Shreepad Shende, Jayasankar Venkatramani and the DGAP. Further, this Authority was also vested with penalty powers as also civil death by de-registration. Thus, this Authority was a Tribunal as per the judgments viz. Jaswant Sugar Mills Ltd. v. Lakshmichand & Ors. AIR 1963 SC 677, Kihoto Hollohan v. Zachillhu and ors. AIR 1993 SC 412, Associated Cement Companies Ltd. v. P.N. Sharma &Ors. AIR 1965 SC 1595 and Columbia Sportswear Company v. Director of Income Tax, Bangalore (2012) 11 SCC 224. IV. That although Section 171 of the CGST Act provided for the creation of this Authority, its constitution was prescribed under Rule 122 of the CGST Rules. This Authority comprised of the Chairman and Technical Members but there was no Judicial Member. The constitution of this Authority was having all trappings of a Tribunal which was vitiated as per the judgments passed in the cases of L. Chandra Kumar v. Union of India 1997 (92) ELT 318 (SC), Union of India v. R. Gandhi 2010 (261) ELT 3 (SC), Ma....
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....t as the DGAP has taken the above amount as additional sales realisation made by the Respondent on account of the Increase in the prices and not the profiteered amount as this amount has been assessed to be Rs. 7,49,27,786 only as per Annexure-37 of the report submitted by the DGAP." However, vide Para 16 of the same order. this Authority has recorded that "the respondent has also pleaded that the DGAP has concluded that the turnover has increased by Rs. 24,81,33,857 solely due to the increase in the base price by 10.45%." There was apparent contradiction in Para 35 and Para 16. IX. That in Para 36 of the above order, this Authority has observed that "the Respondent has himself admitted that the DGPA has calculated the ratio of denial of ITC to total taxable turnover as 9.11% whereas it was 9.43% as per his own assessment and hence he has profiteered by 0.32% which demolishes his entire defence of having not profiteered". Attention of this Authority was invited to the Table at Para 16, wherein the figure 9.43% was taken from the Table. The Respondent had submitted that his effective margin was 9.43% after considering his incremental revenue and incremental cost. I....
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....r the same. XI. That in Para 39 of the above order, this Authority has observed that "the Respondent has himself admitted that he had made marginal gain of 2.81% and the total profiteering was to the tune of Rs. 3,17,03,988. After this admission, the Respondent can hardly claim that the price increase was based on the audited statements." In this regard attention was invited to the Table at Para 20 wherein the Respondent had computed Net Marginal Gain/(Loss). The figure 2.81% was in brackets which meant loss. Clearly this Authority has misread the Net Marginal Loss as Net Marginal Gain. XII. That in Para 40 of the above order, this Authority has wrongly observed that the Respondent has failed to provide his methodology which has been duly recorded at Para 16, 20 and 27 of the above order. XIII. That this Authority was required to determine the 'methodology' and 'procedure for determination of the commensurate effect on the prices due to reduction in the tax rate or increase in the benefit of input tax credits availed by the Respondent. Methodology referred to the objective criteria and standards which would be applied to the case. In an order dated 09.09.....
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.... 19,58,72,177 1,90,38,776 17,68,33,401 XVII. That the net result was as follows:- MONTH NET INCREMENTAL REVENUE TOTAL ITC LOSS PROFITEERED AMOUNT Dec -2017 9,29,90,126 11,14,23,937 (1,84,33,811) Jan -2018 8,38,42,372 9,43,04,550 (1,04,62,178) Total 17,68,32,498 20,57,28,488 (2,88,95,990) XVIII, That the net incremental revenue due to price change was lower than the loss of ITC during the month of December 2017 and January 2018. The revised prices have fallen short of the loss of ITC and thereby, he has incurred a loss of Z 2,88,95,990/-. This clearly proved beyond doubt that the Respondent has not profiteered and the conclusions drawn by the DGAP were imaginary based on extrapolation and trend which deserved to be rejected by this Authority. XIX. That without prejudice to the above the preliminary issues raised in his submissions dated 23.10.2019 should be appropriately responded and the matter should be proceeded with only after he has been provided with the adequate response on the issues raised in the above submissions including the following:- (i) Whether this Authority would take cognisa....
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....cerned officials of the DGAP to ascertain the basis of computational methodology and legal fulfilment of Rule 126 of the CGST Rules. 50. A copy of the Respondent's submissions was supplied to the DGAP for filing clarifications under Rule 133 (2A) of the CGST Rules, 2017. Accordingly, the DGAP has filed his clarifications on 08.01.2020 wherein the DGAP has stated that the issues raised in the submissions of the Respondent have already been addressed in his original Report dated 15.06.2018 filed before this Authority. 51. Further, this Authority vide its order dated 15.06.2020 had directed the Respondent to file his consolidated submission by 25.06.2020. In response, the Respondent, vide his e-mail dated 13.07.2020 has filed his written submissions. This Authority vide its order dated 16.07.2020 had granted another opportunity of hearing to the Respondent on 04.08.2020. On the date of hearing i.e. 04.08.2020, the Respondent has made oral submissions and has filed written submissions date 03.08.2020. Both the submissions are being mentioned below:- a. Section 171 of the CGST Act must be interpreted to include costs including tax/ ITC, failing which it will be a violatio....
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....control is essentially a clog on the freedom of trade and commerce conferred the status of a fundamental right. However, wherever the circumstances so justify, the same has been treated as a reasonable restriction. However, such restriction on fundamental right has to be by legislative mandate only." iv. That provisions of Section 171 nowhere restrained the suppliers to revise prices coinciding with the change in rate of tax. If a supplier was free to revise prices any day before or after the date on which the rate has been changed, then he also ought to be free to revise the prices on the date of change in rate of tax to take care of the increased cost. Thus, denial of revision of price on account of increase in cost or only allowing partially for ITC loss while formulating the price under Section 171 on the date of change of rate would also amount to arbitrariness and unreasonableness, rendering all actions plainly in violation of Article 14 of the Constitution. v. That this Authority has adopted an interpretation in various cases that only tax reduction and ITC impact were to be considered while fixing the price under Section 171. In various matters, this Autho....
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....proach for their consideration, aided by such chairman who had judicial experience. ...It cannot, therefore, be disputed that the Regional Transport Authority under Chapter IV has to exercise both administrative and quasi-judicial functions as laid down in the various provisions of Chapter IV. The statute having provided for the necessity of permits, these provisions have an important bearing on the fundamental rights of the citizens to carry on their trade in the public transport business and these Tribunals which are constituted to exercise the important quasi-judicial functions have, therefore, their composition determined by the Legislature itself." iii. Consequently, failure to lay down the power and composition of this Authority in the CGST Act amounted to surrender of legislative power by the legislature and was consequently ultra vires Article 14 of the Constitution. C. CONSTITUTION OF AUTHORITY SANS A JUDICIAL MEMBER IS BAD IN LAW: i. That the anti-profiteering proceedings were initiated on the basis of a written complaint received under Rule 128 of the CGST Rules. As per Rule 133 of the CGST Rules, the complainant was given a copy of the DGAP's ....
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....ies and have no Judicial Members and therefore, the constitution of this Authority was correct was factually wrong, patently illegal and misconceived. Under the Securities Exchange Board of India, 1992; the final fact-finding authority was the Securities Appellate Tribunal which has a Judicial Member. Similarly, under telecom law, the final fact-finding authority was the Telecom Disputes Settlement and Appellate Tribunal which also has a Judicial Chairperson. Seen in this context, this Authority being the prosecutor, judge, jury, and also executioner against which there was no appeal mechanism should necessarily have a Judicial Member. D. SECTION 171 OF THE CGST ACT SUFFERS FROM THE VICE OF EXCESSIVE DELEGATION: i. That vide Section 171 (3) of the CGST Act read with Rule 126 of the CGST Rules, it was mandated that this Authority must determine a methodology whereby it could be determined whether or not there was an act of profiteering. In the formulation of such methodology, suitable guidance should statutorily have been provided to guide the exercise of powers by this Authority in the formulation of such methodology. The failure to provide such guidance amounted ....
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.... i. That in terms of Rule 128 of the CGST Rules, the Standing Committee and Screening Committees were empowered to receive written complaints in the prescribed form and examine accuracy and adequacy of the prima facie evidence to support the claim of the applicant on profiteering by the supplier and upon due satisfaction of the prima facie evidence of profiteering, forward the matter to the DGAP for a detailed investigation. Form APAF-I was the prescribed format for making a complaint under Rule 128 and the complainant was also required to attach self-attested copies of all documentary evidences like proof of identity, invoice, price list, detailed working sheet etc. ii. That in the present case, all the complainants have submitted copies of same invoice without any self-attested document like proof of identity, invoice, price list, detailed working sheet etc. Further, the complaint merely referred to decrease in rate of tax without any refence to denial of ITC to restaurants. There was no allegation to the effect that the increase in the base price was more than the ITC loss, and hence the complaint was neither accurate not adequate. iii. That as p....
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....power to determine the scope of investigation, it would render the provisions of Rule 133 (5) redundant and therefore, any interpretation which rendered any provision redundant or otiose was required to be eschewed. iv. That power under Rule 133 (5) (a) of the CGST Rules could be exercised by this Authority only subsequent to the receipt of the Report from the DGAP under Rule 129 (6). In the present case, this Authority has not issued any direction under Rule 133 (5) (a) and therefor DGAP has no right to expand the scope of investigation beyond complaint i.e. supply of "McCafe Reg Latte". v. That although the DGAP in the initiation notification dated 29 December 2017 has determined the scope of investigation as supply of "restaurant service" falling under the GST Tariff heading 996331, the investigation Report dealt with 1800 products. As per Entry 6 (b) of the Schedule II to the CGST Act, supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption) was a service and when such service was supplied by the restaurant, it ....
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....e complained product. Therefore, by law as also by practice of this Authority, the investigation and findings thereof were and should be restricted to the product complained and nothing else. In not following the principles of judicial uniformity, grave injustice and manifest arbitrariness would be caused to the Respondent which was patently illegal as per the Hon'ble Supreme Court's judgement in Damodar J. Malpani v. Collector of Central Excise 2002 (146) ELT 483 SC. In view of the above, in as much as goods/services involved under the present proceedings were concerned, the investigation Report of 1800 products went beyond the matter referred by the Standing Committee as well as was contrary to the initiation notification and therefore, ex-facie illegal and required to be quashed. G. LACK OF METHODOLOGY, PARAMETERS AND STANDARDS ARE BAD IN LAW: i. That Rule 126 of the CGST Rules provided that this Authority might determine a methodology and procedure for determination as to whether commensurate benefits have been passed on to the consumer. A bare perusal of this Authority's Methodology and Procedure, 2018 would show that it was purely determinative of procedural....
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.... and scientifically determine profiteering or otherwise. Additionally in W. P. No. 1745 of 2020, the private complaint, on the basis of which, the proceedings for profiteering were triggered, has been withdrawn, despite which this Authority proceeds to hear the matter anyway. Interim stay." iv. That it was a statutory duty cast upon this Authority to determine a methodology. Not providing a methodology would consequently, therefore, leave the assessee to the mercies of the DGAP and this Authority, as there were no principles/parameters/standards/norms, either specific or general for a statutory body to follow. This would be in contrast to Section 9A of the Customs Tariff Act, 1975 and the Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 which laid down clear and discrete principles for the Directorate General of Trade Remedies (a body which investigated cases of dumping and recommended imposition of appropriate duties) to follow. The absence of such principles in the statutory scheme for anti-profiteering proceedings greatly prejudiced the Respondent as a proper defence c....
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....to branch transfers be considered? Under GST law, in the case of supply between related persons where ITC was not fully available, the valuation was to be done as per Rule 30 of the CGST Rules, which was 110% of the cost of production/manufacture/acquisition. As Respondent regularly conducted branch transfers between various states, such incremental tax cost should be taken into account for computation of ITC. The Authority should clarify on this aspect. vii. In relation to the calculation of the ratio of ITC to turnover, whether turnover would be taken at gross level or after deduction of direct variable costs (rent, royalty and commission). The Respondent was paying increased royalty, rent and commission due to increased prices and therefore, he was not enjoying the money to that extent and consequently, this must be reduced. As an example, in the order dated 04 May 2018 of this Authority in Case No. 03/2018 (KRBL Limited), costs other than tax were also considered. viii. That as per the DGAP's Report, the ratio of ITC to turnover (9.11%) has been applied to each product individually sold after 15 November 2017. If such was the case, then ratio of ITC to turnove....
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....nding was also provided. In such a case, there were three methods available viz. (a) ITC loss against the audited financials (provided by the Respondent) (b) ITC loss extrapolated for the future (provided by the DGAP) and (iii) ITC loss on the basis of actuals (provided by the Respondent). In such a case, and in the absence of a particular method being notified in the statute or by this Authority, no one method could be called unscientific in comparison to the other. Therefore, this Authority should clarify which was the most appropriate computation methodology to be followed. xi. That reliance has also been placed on the order dated 26 June 2019 of this Authority in Case No. 42/2019 (Adarsh Marbles) wherein at Paragraph 34 (xvii) it was noted that the DGAP has investigated the case correctly and in line with the general principals adopted by this Authority. It is prayed that this Authority may kindly expound on these general principles so as to ascertain whether such principles have indeed been followed. xii. That this Authority in order dated 25 June 2020 in Case No. 33/2020 has held at Page 42/43 that computation of commensurate reduction in prices was a pure m....
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.... CGST Rules would be redundant. Therefore, the intent of the Government was apparent since had the same been directory, there was no requirement for the amendment in June 2019. Reliance in this regard has been placed on the judgment of the Hon'ble High Court of Karnataka in the case of RNS Infrastructure v. Income Tax Settlement Commission [MANU/KA/3116/2016] wherein it has been held that time period provided to the Income Tax Settlement Commission to pass an order under the Income Tax Act, 1961 was mandatory. The time limit stipulated under the Act was also mandatory for the reason that under the CGST Act, wherever the time limit could be extended, the provisions have specifically provided for it. However, in the present instance, there was no extension provided. Once the prescribed mandatory time period had passed, the jurisdiction of this Authority ceased to exist. Therefore, if the Authority did any act beyond the mandatory time period, the same would be without jurisdiction. Therefore, by implication, the proceedings before this Authority were time-barred and could not be resurrected. III. In the affidavit filed before the Hon'ble High Court of Bombay in Writ Petition....
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.... 11.14% Cost of Sales 36,611.30 39.34% 13.00%^# 5.11% Employee benefit expenses 14,073.40 15.12% 0.00% 0.00% Conducting Charges & Rent 8,590.00 9.23% 18.00% 1.66% Utilities 9,022.00 9.69% 8.98%^# 0.87% Advertising & sales promotion 5,465.00 5.87% 18.00% 1.06% Royalty 3,654.20 3.93% 18.00% 0.71% Maintenance & Repairs 2,903.80 3.12% 18.00% 0.56% Operating Supplies at Stores 1,382.90 1.49% 18.00% 0.15% Legal & Professional Fees 765.70 0.82% 18.00% 0.27% Others 5,850.70 6.29% 11.90% 0.75% Capital cost (B) 5,669.60 1.10% Restaurant equipment 3,961.20 4.26% 18.00% 0.77% Furniture and Fixtures 901.90 0.97% 18.00% 0.17% Office Equipment 4.70 0.01% 18.00% 0.17% Computers 27.30 0.03% 18.00% 0.01% Initial Location and License fee 498.10 0.54% 18.00% 0.10% Computer Software 276.40 0.30% 18.00% 0.00% TOTAL ITC (A) + (B) 12.24% ii. That the Respondent has taken the ITC availed in the m....
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....ht to exclude such ITC from the computation. Further, the Respondent has provided B2C outward supply invoices on sample basis as data was huge and itemized details from 1st November-14th November 2017 which duly formed part of the Annexure-36. The correct amount of ITC during the period of 1 July 2017 till 14 November 2017 has been computed by the Respondent as below:- PARTICULAR JUL-17 AUG-17 SEPT-17 OCT-19 1-14-NOV-17 TOTAL ITC Availed as per GSTR-3B (A) 54,025 80,077 91,755 1,10,897 57,734 3,94,487 Add: ITC of July, 2017 to October, 2017 availed in the month of November, 2017 GSTR-3B (Annex-34 (B) 6,874 13,642 20,198 44,397 85,111 Add: ITC of July, 2017 to 14 November, 2017 availed in the month of December, 2017 237 708 947 2,249 11,439 15,581 Add: ITC of July, 2017 to 14 November, 2017 availed in the month of January, 2018 456 574 1,057 1,963 3,578 7,628 Add: ITC of July, 2017 to 14 November, 2017 availed in the month of February, 2018 195 144 272 350 692 1,653 Add: ITC of July, 2017 to 14 November, 2017 availed in the month of March 2018 67....
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.... on the basis of audited Financial Statements which were for the whole year or ITC loss for October 2017 on the test basis to forecast expected ITC loss in future. Further, there could not be any reason to dismiss actual ITC loss for the relevant period (Dec-2017 to January-2018) and therefore, this Authority must project ITC loss on the other rational basis and compare the same with DGAP's projections to arrive at an independent and unbiased result. B. COMMENSURATE ADJUSTMENT IN PRICE COMPUTED BY DGAP IS ERRONEOUS: i. That in view of the denial of ITC, the production cost of the supplies has increased necessitating price revision. However, this price revision has resulted in incremental cost on (i) Royalty which the Respondent was paying to the Franchiser for using the brand McDonald's in his business. During the year 2017-18, royalty paid was 3.99% of the restaurant turnover and the Respondent was required to pay additional royalty merely because he was forced to raise base prices resulting in higher turnover (ii) Variable rent was being paid to the landlords for using their premises for operating restaurants. During the year 2017-18, variable rent paid was 3.29....
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....3.29% 0.59% 3.88% 3.88 4.23 0.35 Other expenses 0.96% 0.17% 1.13% 1.13 1.23 0.10 Base price without tax 100 109.11 9.11 ii. That the aforesaid computation has not factored increase in the inputs cost of other supplies due to inflation or other reasons which also needed to be factored so that the Respondent could earn reasonable profit on the restaurant business. Any restriction on the part of this Authority to deny adjustment of the prices due to increase in the costs would infringe upon fundamental right of the promoters/shareholders of the Respondent to carry business and earn reasonable profit. C. COMPUTATION OF THE PROFITEERED AMOUNT BY DGAP IS ERRONEOUS: i. That the DGAP has wrongly computed the amount of profiteering. If it was assumed that the scope of investigation was supply of restaurant service, the statement of net incremental revenue and profit after adjustment of loss of ITC would be as under:- INCREMENTAL REVENUE STATEMENT Revenue for period 15.11.2017 to 31.01.2018 at pre-rate change price (I) (as er Annexure-36 of the Investigation Report) 2,37,46,84,157 Revenue for period 15.11.....
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.... @5% 3.38 Total Value 142 142 Variable cost 11.7 13.15 1.45 (B) Royalty 4.71% 5.67% 6.37 Rent 3.88% 4.67 5.25 Other variable expenses 1.13% 1.36 1.53 ITC loss (C) (A)-(B)-(C) DGAP 9.11% 12.32 1.13 As per financials for 2016-17 12.24% 16.55 -3.1 On the basis of October 2047 10% 13.52 -0.07 As per ITC eligibility/availment 10.27% 13.89 -0.44 Actual 10.59% 14.32 -0.87 Thus, the Respondent has actually suffered financial loss on the supply of complained product instead of profit as has been alleged by the complainant/DGAP and therefore, the present proceedings must be dropped. iv. That as evidenced from Annexure-37 of the investigation Report, the DGAP has excluded those items where the price increase was not commensurate to the extent of 9.11%. This practice of zeroing was ex-facie illegal and incorrect as has been the stand of the Government of India before the World Tr....
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....rein, the product under consideration was a food item supplied at a restaurant. Further, the same notification has led to the anti-profiteering investigation against N. P. Foods as was in the present case. Therein, for the period from 01 July 2017 to 14 November 2017, the ratio of ITC to the restaurant was computed as 11.80%. This Authority thereafter has made a categorical finding that the average output increase in prices across all the products was 12.14%. The difference of 0.34% [12.14%-11.80%] was deemed to be miniscule and not warranting action under Section 171 of the CGST Act. Accordingly, the principles of N. P. Foods supra should be equally applicable to the present facts for the reason that the Respondent and the N. P. Foods were identically placed persons viz. both were franchisees and were engaged in the same taxable activity ii. That a bare perusal of Annexure-37 of the investigation Report showed that the DGAP has applied the cost of ITC (9.11%) to the average price pre-rate reduction and compared it with the average price post-rate reduction to arrive at the profiteering amount of Rs. 7.49 Crore. Such a computation was erroneous and contrary to the standard....
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....levant law has prescribed detailed methodology. A Few instances were given below by the Respondent:- LEGISLATION EXTRACT Maharashtra Unaided Private Professional Educational Institutions (Regulation of Admission and Fees) Act, 2015 Section. 15 Factors for determination of fee structure. - The Fees Regulating Authority shall determine the reasonableness of the fee structure proposed by every unaided institution, in respect of each professional course or group of courses, considering following factors: (i) the location (Urban or Rural) of the institution; (ii) the cost of land and building ; (iii) minimum mandatorily required infrastructure or facilities, as specified by the appropriate authority; (iv) the expenditure proposed or incurred on the facilities and amenities that are not mandatory as per the guidelines of the appropriate authority; (v) available number of qualified regularly appointed teaching and nonteaching staff as per the prescribed norms of the appropriate authority; (vi) expenses on the prescribed salaries of the teaching and non-teaching staff; the expenditure on administration and the maintenance; ....
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.... imported; where the sale is by a producer, the consideration exceeds the amount represented by the addition allowed by the normal trade practice in force on the 1st day of August, 1939, to the cost of production [of the article, such cost of production being deemed to be exclusive of the amount, if any, by which the price paid by the producer for any component part of the article exceeded- (i) the maximum price fixed for the component part under section 3 and in force at the time of its purchase by the purchaser; or (ii) where no maximum price has been so fixed for the component part, the amount represented by the addition allowed by normal trade practice in force on the 31st day of August, 1939, to the cost of production of the component part: Provided that where the addition allowed by such normal trade practice exceeds or is alleged to exceed 20 per cent, the dealer or producer, as the case may be, shall report the fact to the Controller General Who may either sanction such addition or, for reasons to be recorded in writing, order its variation; and the dealer or producer, as the case may be, shall be deemed to sell for a consideration which ....
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....son having the charge on behalf of the dealer or producer of the place where such contravention occurred, shall be liable to punishment provided by sub-section (1) of section 13, whether or not they were present when the contravention occurred. Section 3-C of Essential Commodities Act, 1955 in respect of Sugar price control There shall be paid to that producer an amount therefor which shall be calculated with reference to such price of sugar as the Central Government may, by order, determine, having regard to- (a) the minimum price, if any, fixed for sugarcane by the Central Government under this section (b) the manufacturing cost of sugar, (c) the duty or tax, if any, paid or payable thereon; and the securing of a reasonable return on the capital employed (means the return on net fixed assets plus working capital of a producer in relation to manufacturing of sugar including procurement of sugarcane at a fair and remunerative price determined under this section) in the business of manufacturing sugar. Sugar Price (Control) Order, 2018 issued under Section 3 of the Essential Commodities Act, 1955 Para 4 - Methodology for prescribing price of su....
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....y manufactured Scheduled formulations; "E.D. " means excise duty: Drug (Price Control) Order, 2013 issued under Section 3 of the Essential Commodities Act, 1955 Para 4 - Calculation of ceiling price of a scheduled formulation. Para 5 - Calculation of retail price of a new drug for existing manufacturers of scheduled formulations Para 6 - Ceiling price of a scheduled formulation in case of no reduction in price due to absence of competition Para 8 - Maximum retail rice Thus, it could be seen that the public was put to notice by the Government before as to how the fee or price would be computed to prevent profiteering or ensure availability of goods at fair prices. However, in the present case, despite having a mandate to determine methodology, this Authority has failed to determine / prescribe any such methodology leaving the suppliers to adopt their own methodology. The Government had felt that the provisions contained in Section 171 of the CGST Act were not sufficient to compute commensurate price, and therefore, Rule 126 of the CGST Rules mandated this Authority to determine methodology. If it was stated that Section 171 of the CGST Act was unambi....
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....to cover all activities of a citizen in respect of which income or profit is generated. Thus compelling HRPL to incur loss by not allowing adjustment towards direct and indirect increase in the cost of supply would be infringing right to carry on business under Article 19 (1)(g) which is done for profit. Ranjit Ice and General Mills Vs. State of Punjab [MANU/PH/0470/1990] Punjab Ice Price Control Act, 1968 empowered the District Magistrate to fix the maximum wholesale and retail price which may be charged by a dealer. The statement of objects and reasons of the Act reads as follows :-- "Some unscrupulous elements exploit the consumers by selling ice at exorbitant prices during summer season. With a view to end this exploitation, it has been decided to introduce the Bill enabling the fixation of price of ice." The petitioner challenged the constitutional validity of the Act on the ground that the power to fix price of the ice has been conferred on the District Magistrate without giving any guidelines. It is was also pleaded that the provisions of this Act are illegal, unreasonable and ultra vires of Articles 14 and 19(1)(g) of the Constitution of India. The Hon'ble....
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....en under the price control orders issued under Section 3 of the Essential Commodities Act to secure availability at essential commodity at fair prices, the courts have ensured recovery of the cost of production and a reasonable return to the producer. Therefore, in the present case where provisions of Section 171 of the GST Act are not intended to control price, there is no reason to deny recovery of the cost of production and a reasonable return to the supplier. III. That the provision of Section 171 must yield to Article 19 (1) (g) of the Constitution of India. If this Authority did not take into consideration the costs other than the input tax credit and also provide for a mechanism to generate a reasonable profit, the entire exercise would be ex-facie illegal and in complete defiance of the fundamental right to trade under Article 19 (1) (g) of the Constitution, which the Authority was required to implement. IV. That on 9 January 2018 the Respondent has revised the menu prices for 142 items and depending on the cost of inputs, market competition and other business exigency he was occasionally revising menu prices. If such revisions were also taken into computa....
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....ession or to carry on any occupation, trade or business, as Article 19 (1) (g) of the Constitution protected it. The supplier could fix any price/margin he wanted but in the event of invocation of Section 171, this Authority has only been mandated to ensure that the benefit which was a sacrifice of precious revenue from the kitty of the Central and State Governments, was passed on to the recipients. The soul of this provision was the welfare of the consumers who were voiceless, unorganized and scattered. The trade was bound to pass on the rate reduction benefit which became available to it due to revenue sacrificed by the welfare Government of a Socialistic economy. This Authority/ DGAP have neither the mandate nor have they meddled with the Respondent's rights to pricing/profits/margins/trade. Article 19 (1) (g) of the Constitution guaranteed all the citizens the right to freedom of trade and commerce and Section 171 of the Act or the Rules 126, 127 and 133 made thereunder nowhere infringe upon that Fundamental Right. The DGAP or this Authority have not acted in any way as price controllers or regulators as there was no legislative intent to regulate when it came to the price hike....
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....r the provisions of Section 164 of the above Act. Accordingly, the Central Government in terms of Section 171 (3) of the CGST Act, 2017 read with Section 2 (87) of the Act, has prescribed the powers and functions of this Authority, on the recommendation of the GST Council, which was a Constitutional federal body created under the 101st Amendment of the Constitution, as per Rule 127 and 133 of the CGST Rules, 2017. Further, the power to determine its own Methodology & Procedure has been delegated to this Authority under Rule 126 of the above Rules as per the provisions of Section 164 of the above Act as such power is generally and widely available to all the judicial, quasi-judicial and statutory authorities to carry out their functions and duties The above delegation has been granted to this Authority after careful consideration and there was no ground for claiming that the present delegation was excessive. Since the functions and powers to be exercised by this Authority have been approved by competent Authority, the same were legal and binding on the Respondent. This Authority in exercise of power delegated to it under the Rule 126 has notified the Methodology and Procedure vide N....
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....on in order to remove any doubt. The above Rule was just a re-iteration of the provisions of Section 171 (2) which was in the statute since the inception of the CGST Act, 2017. Further, the GST Tariff Heading 996331 covered "Services provided by Restaurants, Cafes and similar eating facilities including takeaway services, Room services and door delivery of food." Thus, the services provided by the Respondent also included eating facilities, including takeaway services, Room services and door delivery of food. Therefore, the DGAP's investigation Report dealt with the Restaurant Service as a whole (including eateries). G. Lack of methodoloay.t parameters and standards are bad in law: The GST Council, constituted under Article 279A of the Indian Constitution as a federal constitutional body, comprising the Finance Ministers of all the States, UTS and the Union Finance Minister, in its wisdom has rightly not prescribed any specific guidelines/mechanism/methodology to determine profiteering in Section 171 of the Act and the Rules made thereunder as the facts of each case were different for different sectors as well as in the same sector also. Hence, no fixed m....
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....he provisions of Section 16 (2) (a) of the CGST Act, 2017. Therefore, the ITC pertaining to the invoices issued on or after 01.11.2017 and availed during 1-14th November 2017 has been left out. Further, as the net taxable turnover for the same period has also been excluded from the total pre rate reduction turnover, this has no bearing on the computation of the impact of denial of input tax credit on the basis of the ratio of input tax credit to net taxable turnover during the period from 01.07.2017 to 31.10.2017. Reference was also made to points A, B & C on pages 3 to 7 of DGAP's Office letter No. 22011/API/5/2017/2594 dated 08.08.2020. 2. ITC pertaining to pre-GST period has been expunged: The DGAP has not considered the ITC pertaining to pre-GST period while computing ratio of denial of ITC to net turnover as this credit pertained to the period prior to the implementation of GST which has no bearing on the supplies made post-GST. 3. ITC pertaining to July. 2017 to November 14, 2017 which will be billed in subsequent months: The Respondent was eligible to avail ITC during July, 2017 to 14th November 2017 for all the services he was entitled to....
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.... commensurate reduction in prices. If such benefit was not passed on by way of reduction in price and the benefit was appropriated by the supplier, it amounted to profiteering. Also, the mandate of Section 171 of the CGST Act, 2017 was very clear which required that every recipient of goods or services has to get the due benefit from the supplier. Therefore, in the cases where the prices of the products were reduced more than what was required to, in those cases though there would be no profiteering but this extra reduction of price could not be adjusted against the other products where the reduction was less or not at par with the commensurate reduction. Every recipient was eligible for his due benefit from the supplier. The benefit of one recipient could not be adjusted with the other recipient. Further, the legal requirement of Section 171 was that in the event of a benefit of input tax credit or reduction in rate of tax, there must be a commensurate reduction in prices of the goods or services. The price included both the basic price and the tax charged on it. Therefore, any excess amount collected from the recipients, even in the form of tax, must be returned to the r....
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....nces of the case. 2. Refusal in increase in cost: 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 price. 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 reduced rate on such base price. Every supplier of goods and services was free to increase the price of his supply depending upon the various components affecting the cost of production/supply. But under the provisions of Section 171, no supplier could increase the base prices of the products overnight in such a manner that even with reduction in the rate of tax, the cum-tax selling price would remain unchanged. In the present case, the Respondent has increased the base prices overnight w.e.f. 15.11.2017, which proved that the petitioner's intent was to make profit out of the rate reduction. 4&5 The Respondent was absolutely free to exercise his right to practise any profession or to carry on any occupat....
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.... prices coinciding with the reduction in the rate of tax such that total price would be the same is within the four corners of Section 171 of the CGST Act. Submission of the DGAP is fallacious and inherently contradictory. Article 19(1)(g) of the Constitution of India guarantees a person to carry on business for profit. Profit is nothing but surplus of revenue over cost. In a situation, where any authority restrains any person to recover cost and thereby compel the said person to incur loss is nothing but a violation of his fundamental right to carry on business as guaranteed under Article19(I)(g) of the Constitution. [Ranjit Ice and General Mills vs State of Punjab, MANU/PH/0470/1990). In the present case, the DGAP has only considered impact of input tax credit ("ITC") to arrive at the factum of commensurate price and consequently, profiteering. As has been shown time and again by the Respondent, there was increase in cost of other inputs (for e.g., rent, royalty, aggregator commissions) directly attributed to change in the tax regime, however, DGAP has persistently refused to consider the same. Non-inclusion of these costs directly affects the fundamental right of the Respo....
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....s well as this Authority is bound to follow the same without the sanction of law and hence, all proceedings must necessarily abate. It is submitted that DGAP has failed to distinguish judgments relied by the Respondent and therefore, this Authority is bound to follow the same to maintain judicial discipline. II.B The composition of the National Anti- Profiteering Authority ("Authority") It in Rule 122 of the CGST Rules is correct in law per Sections 2(87) read with 164 of the CGST Act. Hence, there is no excessive delegation and the composition of this Authority is left just and proper and consequently, binding on the Respondent. This submission of the DGAP is denied in toto. It appears that the DGAP has failed to understand the purport of this averment. Section 171 of the CGST Act neither provides for the composition of the Authority nor prescribes qualifications etc. These have been left to the determination by the Government of India, under Rule 122 of the CGST Rules. It is trite that under law, "essential legislative functions" cannot be delegated [In Re: Delhi Laws Act, AIR 1951 SC 332]. One such essential legislative function is that of composition [Adambhai Ranab....
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....ion of appeal in the CGST Act. In as much as Authority for Advance Rulings is concerned, no one s compelled to approach them. Choice of forum is voluntary. Therefore, an independent scrutiny mechanism being absent, it is mandatory for a judicial member to be in the composition of the Authority. For this reason alone, the present proceedings must necessarily abate. II.D There is no excessive delegation re the absence of the methodology as the same has been done by the Authority in terms of Section 164 of the CGST Act. Further, the Authority has formulated a methodology in exercise of power under Rule 126 of the CGST Rules. The DGAP has also contended that no fixed methodology can be prescribed as facts vary from case to case. This averment of the DGAP is denied in toto. At the outset, it is submitted that no reference can be made to Section 164 of the CGST Act, since the exercise of powers by the Authority has to be in terms of rules notified under Section 171(3) of the CGST Act. Further, power under Section 164 of the CGST Act can only be exercised by the Government of India and not any other authority, which includes the Authority and DGAP and hence, such a statement by t....
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....th no authenticity thereof. In addition to supra, the Standing Committee has not conducted any examination of either adequacy or accuracy. The minutes dated 29 November 2017 itself show the comments that "only tax invoice attached." No further examination was carried out and a reference was made to DGAP. Hence, the very reference was without this Authority of law and entire proceedings must abate on this count itself. II.F The DGAP has contended that there is no illegality in investigating all products offered by the Respondent as (i) the investigation was qua restaurant services (ii) in terms of Section 171(2) of the CGST Act read with Rule 133(5) of the CGST Rules allows for an expanded investigation (iii) Section 171 requires that each and every supplier reduce prices commensurately such that benefit is passed on to each and every recipient. Denied in toto. The reliance placed on Rule 133(5) of the CGST Rules is ex-facie illegal since that is the power available with the Authority to direct a further investigation. The DGAP cannot suo moto justify expansion to all products of the Respondent under Rule 133(5) of the CGST Rules. In addition, the investigation was wi....
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.... Rules, as it stood on the date of receipt of the report dated 15 June 2018 of the DGAP. Hence, for this reason alone, the proceedings must be quashed forthwith. II.A.(i) to (iii) The DGAP has contended that no fixed methodology can be considered as facts differ from case to case. Further, on the point of methodologies available to the Respondent, cost of ITC has been considered. Denied in toto. It is submitted that the DGAP has misunderstood the averment. Sans a prescribed methodology, the Respondent averred that there cannot be preference towards a particular methodology as adopted by the DGAP since there were multiple methodologies available to the case of the Respondent itself and not for other sectors. This is not a case where the Respondent is asking for methodology for say, real estate being applied to the present facts. On the contrary, the Respondent has submitted that for their own case only, multiple methods of perspective were available with each being equal and hence, manner as followed by DGAP is not sacred. Re the contention of ITC, it is submitted that the same is not part of this averment but the subsequent ones. As shown infra, assuming without accepti....
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....voice (which the Respondent undoubtedly was) at the time of taking ITC and that the date of invoice be prior to 15 November 2017, as till such date all supplies were eligible to credit as provision of goods/ service was over as per time of supply provisions. As a matter of fact, the Respondent was in receipt of the goods/ services well before 15 November 2017. Hence, as both conditions, viz., (a) possession of the invoice at the time of taking ITC and (b) date of invoice as also time of supply being prior to 15 November 2017 are fulfilled and therefore, the Respondent is undoubtedly entitled to input tax credit and the DGAP cannot brush this claim aside. Detailed comments in this regard are made in the table at Annexure "A" In addition and specifically with reference to Sr. No. 6 of the table prepared by the DGAP in their submissions dated 08 August 2018, it is submitted that in any case, the Respondent provided full extract of the ITC register (submissions to DGAP dated 17 January 2018, 09 March 2018) and therefore, any ITC as deemed ineligible to the Respondent could have been expunged by the DGAP. However, to deny the entire ITC on the basis of a singular entry clearly shows ....
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.... arising due valuation rule of 110% of the cost of production under the CGST Rules. The 10% additional element and GST thereon is not included in the net ITC or net taxable turnover and therefore, non-consideration greatly prejudices the assessee. IIIA.(v) to (vii) The DGAP has merely stated that the report has been issued on the facts and therefore, contention of the Respondent is untenable. amount of ITC should necessarily be taken into consideration failing which, great prejudice will be caused to the Respondent. It is reiterated that the duty of the DGAP is to arrive at the cost of ITC for which, entitlement should be seen and not actual availment. The CGST Act contains a provision in Section 36 that ITC need not be taken in a month of the invoice itself, but can be taken up to September of the next financial year. Hence, when the CGST Act itself recognizes ITC as a fungible vested right, the DGAP in denying any ITC is ex-facie illegal. Considering this, the ratio of ITC to taxable turnover is 10.27% as provided by the Respondent in their reply dated 13 July 2020. Without prejudice, the Respondent has displayed as to how actual loss of ITC is 10.59% for the period D....
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....estaurant service, then individual product prices and increase/ decrease thereof is irrelevant and a comparison must be done on average of increased cost (direct & indirect) against average increase price of the restaurant service. On the Other hand if price are required to compared product then investigation must be limited to the compIained product alone. It is submitted that as per the Respondent's computation under different methods, the actual surplus revenue works out to between (-2.81%) to 0.32% and hence, cannot be construed as profiteering (applying de-minimis thresholds of N. P. Foods order dated 05 September 2018). The DGAP has not refuted this aspect and hence, connotes acceptance. Therefore, on this ground alone, the impugned proceedings deserve to be quashed forthwith. It is further submitted that profiteering if any, represents the amount of ill-gotten gain of the Respondent. As the Respondent has deposited the GST amount with the exchequer, it cannot represent a monies or assets of the Respondent and hence, inclusion of the same is ex-facie illegal. III.D The DGAP has contended that the order dated 05 September 2019 in N.P. Foods of the Authority cannot ....
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.... other than tax as that is the mandate of Section 171. Denied in toto. Section 171 of the CGST Act requires a commensurate reduction in 'price' and not 'tax'. Hence, when the DGAP is analyzing the aspect of correctness of 'price', all factors which affect the same should be duly considered. Judicial precedents clearly amplify the averment that a law considering all costs and ensuring a reasonable return is in compliance with the tenets of Article 19(1)(g) of the Constitution of India. The Authority in earlier orders has considered costs other than tax [order dated 04 May 2018 in case No. 03/2018 in KRBL Limited] Hence, it is imperative that other costs be factored in prior to arriving in a determination of profiteering. It is further submitted that the Respondent has a fundamental right to trade and business vide Article 19(1)(g) of the Constitution of India and therefore, price fixation coinciding with the day of change in rate of tax has no bearing whatsoever for fixing a charge of profiteering on the Respondent and is infact, completely irrelevant. II.4 and II.5 The DGAP has contended that Section 171 does not interfere with the fundamental right to trade enshrined i....
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....s no bearing on the present facts. Denied in toto. The ratio of ITC to cost of closing turnover of inventory being 13.80% shows that the approximate cost of ITC should be in the same range. The reason why the DGAP has computed the ratio at 9.11% is because of inclusion of the months of July and August 2017, during which period the Respondent was carrying forward pre-GST inventory and hence, artificially reduces the cost of ITC over the period July 2017 October 2017. Being akin to a statistical exercise, it is trite that outlier months of July 2017 and August 2017 be excluded from the present investigation. 56. A copy of the rejoinder of the Respondent was supplied to the DGAP for filing clarifications under Rule 133 (2A) of the CGST Rules, 2017. Accordingly, the DGAP has filed his clarifications on 16.10.2020 which are mentioned as under:- Para III A (iv) Point No. 1 & 2: That the product wise turnover would not suffice as in cases of rejections, the same would have to be deducted which was possible only in case of invoice wise details. Further, random checks of the invoices for the ITC availed in November, 2017 revealed that in some cases, credit was taken ....
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....r, the ITC for the period from July, 2017 to October, 2017, as furnished in the GSTR-3B Returns filed by the Respondent, has been considered by adding the amount of input tax credit pertaining to the period from July, 2017 to October, 2017, as furnished in the GSTR-3B Returns filed by the Respondent, but availed in the month of November, 2017 as per GSTR-3B Return and excluding the amount of tax paid on inter unit branch transfers as per Sales Register and the ITC pertaining to the period before July, 2017 which was availed during July, 2017 to October, 2017 as per GSTR- 3B Returns. Therefore, this contention of the Respondent was untenable. 57. The above clarifications of the DGAP were supplied to the Respondent for filing final re-joinder vide order dated 21.10.2020. Accordingly the Respondent has filed re-joinder dated 28.10.2020. The submissions of the Respondent are mentioned as follows:- Paragraph reference in DGAP submissions dated 15 October 2020 Allegation of DGAP Submission of Respondent Para IIIA(iv) Point No. 1 & 2 Period 01 November 2017 - 14 November 2017 cannot be included for the following reasons: Denied in toto. At the outset, it is submitted ....
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....e date of the invoice is prior to 15 November 2017 as this represents a vested right of the Respondent to take ITC per Section 16(4) of the CGST Act. DGAP has not provided any comment whatsoever with respect to Section 16(4) of the CGST Act. Further, mere exclusion of both ITC and turnover for November 2017 being neutral is illogical and devoid of common sense. It is submitted that by same logic, if turnover and ITC for the month of July 2017 is excluded of the computation of the DGAP, there is vast change in the ITC percentage as shown below. Hence, this reason of the DGAP is erroneous and devoid of common sense. Para II.6 Adjustment towards ITC on closing stock on 14 November 2017 is not to be taken since exclusion of ITC and turnover for the month of November 2017 results in no change of the cost of ITC for the period July 2017 -October 2017. Denied in toto. It is submitted that detailed submissions have been made in the rejoinder dated 21 September 2020 and the same may be treated as part and parcel of the present submission. Further, it is reiterated that exclusion of both ITC (including reversal and transitional credits) an over for November 2017 cannot and ....
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....espondent, the revise computation of the alleged profiteering was computed in Annexure -2. However, there would not be any profiteering if profiteering was computed for supply of restaurant service per initiation notification dated 29 December 2017. 58. The Respondent has also filed additional submissions dated 21.11.2020 wherein it has been submitted that the alleged complaint was against a supply made from an outlet of the Respondent having GSTIN 27AAAFH1333H1ZT, located in the State of Maharashtra and therefore, alleged profiteering investigation under Section 171 (2) has to remain confined to the supplies made vide the said GSTIN. However, the investigation Report has covered supplies made by other GSTIN also and therefore, investigation in respect of the following GSTlNs was ultra vires of Section 171 (2) of the CGST Act:- S.No. GSTIN State 1. 24AAAFH1333H1ZZ Gujarat 2. 30AAAFH1333H1Z6 Goa 3. 22AAAFH1333H1Z3 Chhattisgarh 4. 23AAAFH1333H1Z1 Madhya Pradesh 5. 32AAAFH1333H1Z2 Kerala 6. 33AAAFH1333H1ZO Tamil Nadu 7. 29AAAFH1333H1ZP Karnataka 8. 36AAAFH1333H1ZU Telangana 9. 37AAAFH1333H1ZS ....
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.... 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 or both." 60. Keeping in view the above provisions of Section 171 the following issues need to be determined in the present proceedings:- (iv) Whether the Respondent has passed on the benefit of tax reduction to his customers w.e.f. 15.11.2017 as per the provisions of Section 171 (1) or not? (v) If not then what is the quantum of the profiteered amount as per the provisions of Section 171 (1) read with the Explanation attached to Section 171? (vi) Whether he is liable to the penalty prescribed under Section 171 (3A)? 61. It is also revealed that the Applicants No. 1 to 4 had lodged complaints on 15.11.2017, 17.11.2017 and 23.11.2017, alleging that t....
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....t The DGAP had also intimated that the date wise outward taxable turnover was also not supplied by the Respondent up to 14.11.2017. The DGAP while determining the ITC as a ratio of the total taxable turnover of the Respondent had taken into account the ITC for the period from July, 2017 to October, 2017, as was shown in the GSTR-3B Returns, which had been adjusted by adding the amount of ITC which was availed in the month of November, 2017 as per GSTR-3B Return (Annexure-34) and by excluding the amount of tax which was paid on inter unit branch transfers as per the Sales Register (Annexure-33) and the input tax credit pertaining to the period before July 2017 which was availed during the period between July, 2017 to October, 2017 as per the GSTR-3B Returns (Annexure-35). 64. On the basis of the analysis of the details of the product-wise outward taxable supplies made during the period between 15.11.2017 to31.01.2018, the DGAP had found that the Respondent had increased the base prices of the items supplied by him to neutralise the effect of ITC of 9.11% which was not available to him after the rate reduction w.e.f. 15.11.2017. The DGAP had compared the pre and post GST rate redu....
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....ion was listed before the Hon'ble High Court on 06.07.2020 when it was withdrawn by the Petitioner with the liberty to raise all the issues before this Authority. Accordingly, the Respondent has raised the following issues vide his submissions mentioned above, which have been discussed in the subsequent paras. 67. The Respondent has stated that as per Rule 133 (1) the last date for passing of the order in this case was on or before 17.09.2018 as the order was required to be passed within a period of three (3) months from the date of receipt of the Report from the DGAP on 18.06. 2018, however, the order was passed on 16.11.2018, therefore, the proceedings have abated and could not be revived under the remand proceedings. In this connection perusal of the record shows that the Report of the DGAP was received by this Authority on 18.06.2018 and was considered by this Authority in its meeting held on 05.07.2018 and the Respondent was directed vide notice dated 05.07.2018 to appear on 24.07.2018. The Respondent had filed his written submissions on 24.07.2018 which were sent to the DGAP on 24.07.2018 for filing Report on the reply filed by the Respondent. The DGAP had filed his Report....
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.... DGAP under Para 17 could not be excluded from the period of 3 months is incorrect as every reply filed by the DGAP has to be considered as a Report under Rule 129 (6). Hence, the present proceedings have not abated and therefore, the above claim of the Respondent is not tenable. 68. In this connection it would also be relevant to mention that the time limit prescribed under Rule 133 (1) is only directory and is not mandatory as no consequences have been provided in the above Rule or the CGST Act, 2017 in case the limit of 3 months is not observed. The Hon'ble High Court of Delhi while considering the time limit specifically prescribed under Rule 133 (1) vide its order dated 27.01.2020 passed in W.P. (C) 969/2020 in the case of M/s. Nestle India Ltd. & another. v. Union of India & others has ruled as under:- "We also observe that prima facie, it appears to us that the limitation of period of six months provided in Rule 133 of the CGST Rules, 2017 within which the Authority should make its order from the date of receipt of the report of the Directorate General of Anti Profiteering, appears to be directory in as much as no consequence of non adherence of the staid period ....
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....nths by amending the Rule 133 (1) would become redundant is untenable. Accordingly, the judgment of the Hon'ble High Court of Karnataka in case of RNS Infrastructure v. Income Tax Settlement Commission [MANU/KA/3116/2016] is also not being relied. Hence all the claims made by the Respondents on the ground of not observing the time limit prescribed by the above Rule or its being mandatory are wrong. 71. The Respondent has also stated that the order dated 16.11.2018 was passed in a cursory manner as was evident from Para 35 and 16 of the order. Vide Para 35 it was recorded that "The respondent has wrongly claimed that the DGAP had assessed that the respondent had made a profit of due to the average increase in the base price by 10.45%. The claim made by the Respondent is incorrect as the DGAP has taken the above amount as additional sales realisation made by the Respondent on account of the increase in the prices and not the profiteered amount as this amount has been assessed to be Rs. 7,49,27,786 only as per Annexure-37 of the report submitted by the DGAP." However, vide Para 16 of the same order this Authority has recorded that "the respondent has also pleaded that the DGAP has ....
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.... the range of 0.67% to 2.81% of the turnover. Therefore, the observations made by this Authority in Para 36 of the order are absolutely correct and hence, the claim made by the Respondent on this ground is completely wrong and fallacious. 73. The Respondent has also claimed that the findings recorded in Para 37 of the order dated 16.11.2018 were not correct as he had given reasons in Para 18 of the above order for computing the ratio of ITC to turnover on the basis of the ITC availed during the month of October or September and October 2018. In this connection it would be pertinent to mention that computation of the above ratio on the basis of the ITC availed by the Respondent during the month of September or September and October had no reason except that the ratio if calculated on the basis of the ITC availed in these months would have been more than the ratio of 9.11% computed by the DGAP. The Respondent had failed to explain why the above ratio should not be calculated from the month of July to October 2018 or why it should not be computed on the basis of the ITC availed during the month of August 2018. The most appropriate, reasonable and justifiable method would have been ....
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....as mentioned as "Net margin/Gain/(Loss). The above figure cannot be treated to be loss when the Respondent has himself admitted profiteering of Rs. 3, 17,03,988/- vide Para G (Vlll) (ii) of his submissions dated 24.07.2018. Hence, the above claim of the Respondent is incorrect. 75. The Respondent has also contended that in Para 40, this Authority has wrongly observed that the Respondent has failed to provide his methodology which has been duly recorded at Para 16, 20 and 27 of the order. In this regard it would be relevant to mention that the Respondent had allegedly floated three methodologies viz. (i) on the basis of the incremental cost on royalty, rent and other expenses (ii) on the basis of the audited financial statements and (iii) on the basis of the ratio of ITC to turnover from 01.07.2017 to 14.11.2017. Perusal of the above methodologies shows that all of them were based on different parameters and they basically computed the loss and profit of the Respondent and not the amount of benefit to be passed on. Even if the Respondent had computed the denial of ITC more than 9.11% it was incumbent upon him to prove to what extent the price increase made by him has resulted in ....
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....untenable. 76. The Respondent has also argued that this Authority was required to determine the 'methodology' and 'procedure' but the Respondent was unaware about framing of methodology nor he has been provided any computation methodology till date. The above contention of the Respondent is frivolous as the 'Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and ITC or for computation of the profiteered amount has been outlined in Section 171 (1) of the CGST Act, 2017 itself which provides 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 plain reading of the above provision that it mentions "reduction in the rate of tax or benefit of ITC" which means that if any reduction in the rate of tax is ordered by the Central and the State Governments or a registered supplier avails benefit of additional ITC post GST implementation, the same have to be passed on by him to his recipients since both the above benefits are being given by the above Governments out of their scarce and precious tax reven....
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.... fixed mathematical methodology can be prescribed to determine the amount of benefit which a supplier is required to pass on to a buyer. Similarly, computation of the profiteered amount is also a mathematical exercise which can be done by any person who has elementary knowledge of accounts and mathematics as per the Explanation attached to Section 171. However, to further explain the legislative intent behind the above provision, this Authority has been authorised to determine the Procedure and Methodology' which has been done by it vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017. However, no fixed mathematical formula, in respect of all the Sectors or the products or the services, can be set for passing on the above benefits or for computation of the profiteered amount, as the facts of each case are different. In the case of one real estate project, date of start and completion of the project, price of the flat/shop, mode of ayment of price or instalments, stage of completion of the project, rates of taxes pre and post GST implementation, amount of CENVAT credit and ITC available, total saleable area, area sold and the taxable turnover received before....
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....e reduction in the rate of tax w.e.f. 15.11.2017 he was required to maintain the pre rate reduction base price of Rs. 120.34 but he had increased it by Rs. 14.90 to Rs. 135.24 and charged Rs. 6,76 on account of GST @ 5% and again sold it at the price of Rs. 142/- as is evident from the invoice dated 15.11.2017 and hence, he had not only forced his customers to pay extra base price of Rs. 3.94 but he had also compelled them to pay additional GST of Rs. 0.20 on the above additional price and hence he had denied the benefit of tax reduction or he had profiteered to the extent of Rs. 4.14 by increasing his prices by 12.38% instead of 9.11% on the above item. Had the Respondent not increased the price of the above product the same would have been supplied at the price of Rs. 137.36 only. It is abundantly clear from the above narration of the facts and the law that no elaborate mathematical calculations are required to be prescribed separately for passing on the benefit of tax reduction and computation of the profiteered amount. This Authority was under no obligation to provide the same to the Respondent. The Respondent cannot deny the benefit of tax reduction to his customers on the abo....
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....Hence, he has furnished wrong information in his GSTR-2A Returns. The total turnover of restaurant supplies for the above two months of Rs. 213,84,28,503/- has been reduced by adjustment of Rs. 194,25,56,326/- by the Respondent and the net sales realization due to price rise has been shown as Rs. 19,58,72,177/- for the above two months. Additional variable expenses on account of price increase have been computed @ 9.72% as Rs. 1,90,38,776/- and net incremental revenue has been shown as Rs. 17,68,33,401/-. No reasons for adjustment have been explained by the Respondent. The variable expenses have been computed as per the convenience of the Respondent as they were not required to be computed separately as they were already built in the price increase made w.e.f. 15.11 2017 and hence all the computations shown in these Tables are wrong and hence they cannot be relied upon. 79. The Respondent has also pleaded that the 8 issues mentioned in Para 12 of his submissions dated 23.10.2019 including the 12 issues raised in Para 16 of his submissions dated 04.12.2019 should be appropriately responded and the matter should be proceeded with only after he has been provided with the adequate r....
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.... 14 of the Constitution. The Respondent has also placed reliance on the judgment passed in the case of Sodan Singh & Ors. V. New Delhi Municipal Committee & Ors. supra perusal of which shows that it pertains to the right to carry on business on the pavements of roads in Delhi and hence the facts of the above case are not similar to the present case and hence the law settled in the above case is not applicable in the present case. 81. The Respondent has also averred that the fundamental right enshrined in Article 19 (1) (g) could be reasonably restricted, however, if the price did not secure a reasonable return on the capital employed, such a fixation of price would be violation of the above Article. Thus, while determining profiteering direct or indirect increase in the cost must also be considered. In this regard it would be appropriate to mention that the Respondent is only required to pass on the benefit of tax reduction under Section 171 (1) and it nowhere places restriction on the right of the Respondent to fix his prices and profit margins. Neither this Authority or the DGAP has mandate to fix prices under Section 171 (1) nor they are acting as price controllers or regulat....
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....le 14 on the ground that he has not been allowed to include his costs in the prices on the date of reduction in the rate of tax as such a claim would be against the provisions of Section 171 (1). The Respondent had enough time from 01.07.2017 to 14.11.2017 to increase his prices due to increase in his cost however, sudden increase in his cost on 15.11.2017 is a deliberate attempt not to pass on the benefit of tax reduction and appropriate the amount of benefit. Therefore, the above contention of the Respondent is not maintainable. 83. The Respondent has also contended that this Authority has stated in its various orders that only tax reduction and ITC impact were to be considered while fixing the prices under Section 171 and the cost was not to be considered. This approach was also adopted in the order dated 16.11. 2018 which was set aside by the Hon'ble High Court of Bombay. In this connection it would be appropriate to mention that the Hon'ble High Court has not considered the issue of cost in its judgement dated 01.10.2019 at all and it has set aside the above order by observing in Para 29 that:- "We conclude that when the three members of the Authority had heard the....
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....e provisions of Article 14. In this regard the Respondent has also drawn reference to the judgment of the Hon'ble High Court of Gujarat in the case of Adambhai Ranabhai v. The Regional Transport Authority supra, however, the law settled in the above case is not applicable as this Authority has been legally constituted and conferred with powers and functions in terms of Section 171 (2), 171 (3), 164 read with Rule 122 and 127. Hence, the above claim of the Respondent is not tenable. 85. The Respondent has vehemently argued that this Authority was a Tribunal as it was discharging adjudicatory and quasi-judicial functions with grave consequences and hence fair and impartial justice could be dispensed only if there were Judicial Member(s) in this Authority and in majority. Reliance in this regard has been placed on the cases of L. Chandra Kumar v. Union of India, Union of India v. R. Gandhi, Madras Bar Association v. Union of India, S. Manoharan v. The Deputy Registrar and Ors., Order dated 20 September 2019 of the Hon'ble High Court of Madras in Revenue Bar Association v. Union of India and Order dated 13.11.2019 of the Hon'ble Supreme Court in Roger Mathew v. South Indian Bank Lim....
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....ed to be exercised by an analogous/similar court/Tribunal with a different name. However, by virtue of the constitutional convention while constituting the analogous court/Tribunal it will have to be ensured that the appointment and security of tenure of Judges of that court would be the same as of the court sought to be substituted.... it is not possible for us to accept that under recognised constitutional conventions, judicial power vested in superior courts cannot be transferred to coordinate courts/Tribunals. The answer is, that such transfer is permissible. But whenever there is such transfer, all conventions/customs/practices of the court sought to be replaced have to be incorporated in the court/Tribunal created. The newly created court/Tribunal would have to be established in consonance with the salient characteristics and standards of the court which is sought to be substituted." (Emphasis supplied) In the case of Rojer Mathew supra, the Hon'ble Court was inter alia considering provisions of the Finance Act, 2017 which led to merger of several Tribunals as well as the rules therein, where one of the issue was absence of a Judicial Member. With regard to this questio....
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....d not a ministerial Tribunal. It is an important cog in and is part of court attached system of administration of justice unlike a ministerial Tribunal which is more influenced and controlled and performs functions akin to machinery of administration. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 95. .... The term "experience in law" is an expression of wide connotation. It presupposes that a person should have the requisite qualification in law as well as experience in the field of law. However, it is worthwhile to note that having a qualification in law is not equivalent to having experience in law and vice versa. "Experience in law", thus, is an expression of composite content and would take within its ambit both the requisite qualification in law as well as experience in the field of law...." Some findings of the Hon'ble Supreme Court in the case of Namit Sharma supra, reproduced herein above, have been reversed by the Hon'ble Court in the Review Petition filed by the Union of India. The Judgment in the review Petition has been reported as Union of India v. Namit Sharma (2013) 10 SCC 359. The relevant findings from the said judgment are reproduced he....
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.... 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." The duties of this Authority have been further elaborated in Rule 127 of the CGST Rules, 2017 which reads as follows:- "127. Duties of the Authority.- It shall be the duty of the Authority,- (i) to determine whether any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit has been passed on to the recipient by way of commensurate reduction in prices; (ii) to identify the registered person who has not passed on the benefit of reduction in the rate of tax on supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices; (iii) to order, (a) reduction in prices; (b) return to the recipient, an amount equivalent to the amount not passed on by way of commensurate reduction in prices along with interest at the rate of eighteen percent. from the date of collection of the higher amount tiff the date of the return of such amount or recovery of....
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....ion 3 of the said Act provides for the composition of the Authority. Again, the Medical Council of India has been constituted under the Indian Medical Council Act, 1956. The various disciplinary powers which it exercises under the Act can be said to be quasi-judicial in nature but it does not require a Judicial Member in its Council. The constitution and composition of the Council is provided in Section 3 of the said Act. The Institute of Chartered Accountants of India has been constituted under the Chartered Accountants Act, 1949. The ICAI also exercises quasi-judicial functions over its registered members and can pass orders which have far reaching consequences affecting the rights of Chartered Accountants but even its composition does not require a Judicial Member's presence. Its composition is provided in Section 9(2) of the above Act and the same does not include a mandatory Judicial Member. Similarly, the Assessing Officers, Commissioners of Appeal under the Income Tax Act, 1961 and the CGST Act, 2017, the Authorities on Advance Rulings under both the above Acts and the Dispute Resolution Panel under the Income Tax Act, 1961 all perform quasi- judicial functions but there ....
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....nterpretation given by the Respondent is not being followed. This Authority can also not examine the vires of Rule 122 as has been suggested by the Respondent as per the law settled in the case of L. Chandra Kumar supra as it has no power to examine the vires of Section 171 (3) and 164 under which it has been framed. 89. The Respondent has also argued that the reasoning give by this Authority that the SEBI and TRAI etc. were specialized bodies and have no Judicial Members was not correct as the final fact finding authoritywas the Securities Appellate Tribunal constituted under the Securities Exchange Board of India Act, 1992 which has a Judicial Member. Similarly, the Telecom Disputes Settlement and Appellate Tribunal also has a Judicial Chairperson. In this regard it would be relevant to mention that both the above Tribunals cannot be compared with this Authority as they are appellate bodies whereas this Authority is not an appellate body or a Tribunal. The above Tribunals are also not fact finding authorities as has been claimed by the Respondent. Hence, the above contention of the Respondent is not correct. 90. The Respondent has further argued that vide Section 171 (3) re....
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....etailed guidelines to determine margin of dumping, injury margin and non-injurious price have been provided in the Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995. Similarly, detailed methodologies have been prescribed with respect to Safeguard Duty and Countervailing Duty. Therefore, in the absence of the guidelines exercise of power by this Authority was arbitrary. In this respect it is unambiguous methodology has been duly prescribed under Section 171 to pass on the benefits of tax reduction and ITC and computation of profiteering, hence, no separate guidelines are required to be framed in this regard. Accordingly, the above claim of the Respondent cannot be accepted. 93. The Respondent has also alleged that in terms of Rule 128 the Standing and the Screening Committees were empowered to receive written complaints in the prescribed form APAF-I only with supporting documents and prima facie examine accuracy and adequacy of the evidence to initiate investigation. In the present case, all the complainants have submitted copies of the same invoices without any self-attested identity doc....
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.... the other products except the product in respect of which the complaint was made unless this Authority had passed an order as per Rule 133 (5) of the CGST Rules, 2017. In this connection it would be relevant to refer to Section 171 (1) and (2) of the CGST Act, 2017 which state 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." (Emphasis supplied) It is clear from the perusal of the above Sub-Sections that the benefits of tax reduction and ITC are to be passed on by each registered person by commensurate reduction in prices on each supply to every recipient and this Authority is empowered to examine whether th....
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....reduced is required to be investigated by the DGAP and report submitted to this Authority to determine whether the above benefits have been passed on as per the provisions of Section 171 of the above Act. Moreover Section 171 (2) of the above Act empowers this Authority to examine all such cases in which the benefit of tax and ITC is required to be passed on. Since account of ITC is kept for all the products in one common ledger/Register the same cannot be apportioned product wise hence, all the products being supplied by the Respondent are required to be investigated to determine whether the benefit of tax reduction after duly considering the denial of ITC has been passed on on each product to each buyer or not. Rule 133 (5) is a mere clarification of the provisions of Section 171 (2) and hence, the DGAP has rightly conducted investigation in respect of all the products in respect of which the rate of tax was reduced, with prior notice to the Respondent and hence, no order was required to be passed under Rule 133 (5) by this Authority. Moreover, the Applicant No. 2 in his email dated 23.11.2017 (Annexure-I of the Report) had intimated the DGAP as under:- "Since the implem....
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....receipt of the Report from the DGAP under Rule 129 (6). In the present case, this Authority has not issued any direction under Rule 133 (5) (a) and therefore, the DGAP has no right to expand the scope of investigation beyond the supply of McCafe Reg Latte. As has been discussed in Para supra no order was required to be passed by this Authority under Rule 133 (5) (a) nor the DGAP has expanded the investigation on his own and hence the above claim of the Respondent is incorrect. 96. The Respondent has further stated that although the DGAP in the notice dated 29 December 2017 has determined the scope of investigation as supply of "restaurant service" but he has investigated 1800 products. As per Entry 6 (b) of the Schedule Il to the CGST Act, the restaurant service was a single supply and hence the DGAP could not have investigated 1800 products and therefore, the Investigation Report itself was contrary to the scope of investigation determined by the DGAP. In this connection it would be appropriate to mention that as per the provisions of Section 171 (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 rec....
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....ted that in the case of Gaurav Gulati supra there was no conclusive evidence on record that the Respondent has not passed on the benefit of ITC in respect of the other projects, hence other projects were not required to be investigated. In the case of Rahul Sharma the rate of tax had not been reduced on the complained product, hence, provisions of Section 171 (1) were not attracted. In respect of the cases of Varun Goel and Pallavi Gulati supra there was no evidence on record to investigate other projects of the Respondents and hence other projects were not ordered to be investigated. In the case of Sukhvir Rohilla supra the Respondent was having only one project and hence there was no question of investigating his other projects. Therefore, the above cases do not support the claim of the Respondent. 99. Reliance has also been placed on the order dated 30 June 2020 of the Hon'ble High Court of Gujarat in the case of Sapphire Foods India Private Limited v. Union of India wherein by way of ad-interim relief, it was directed that the proceedings would only continue to the extent of the complained product. Further reliance has also been placed on the order dated 19 July 2019 of the ....
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....e law settled in the above case is not being relied. 101. The Respondent has further claimed that a bare perusal of this Authority's Methodology and Procedure, 2018 would show that it was purely determinative of procedural aspects and aspects of methodology for determining profiteering have not been addressed in it. In this regard it is again reiterated that the substantive part of the Methodology to pass on the benefit of rate reduction and computation of profiteering has been clearly outlined in Section 171 (1) and hence separate Methodology & Procedure was not required to be prescribed under Rule 126. Hence, the above plea of the Respondent is not maintainable. 102. The Respondent has also contended that failure to formulate and communicate the methodology has tainted the proceedings due to lack of fairness and transparency, as has been held by the Hon'ble High Court of Bombay in the judgement dated 01 October 2019. In this regard it would be relevant to state that as has been mentioned above the order dated 16.11.2017 has not been set aside due to non prescribing of the methodology under Rule 126. Such a claim amounts to contempt of the judgement of the Hon'ble High Court....
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....gation should be restricted to the months of September 2017 and October 2017 as the Respondent was carrying on transitional inventory on 01 July 2017 and hence, purchases for the months of July 2017 and August 2017 were not representative of normal business. Therefore, the most apt representative months would be September 2017 and October 2017 as procurements were within the GST regime and would help this Authority in arriving at the true cost of the ITC. In this regard perusal of the CGST Act, 2017 shows that it prescribes the following conditions for entitlement to ITC:- (i) The Respondent should be in possession of a tax invoice or debit note issued by a supplier registered under this Act or such other tax paying documents as may be prescribed. (ii) The Respondent has received the goods or services or both. (iii) The Respondent, subject to the provisions of section 41, has paid the tax charged in respect of such supply to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply : and (iv) The Respondent has furnished the return under Section 39. Further, with effect from 15.11.2017. ....
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....-AUTO 119-020002 Obsolete Inventory - Toys 119-020003 Inventory - B' Part Materials 119-021 Inventory Non-Product (DC) 5,15,83,164 TOTAL 5,97,42,226 Store and Spares - Inventory 119-040001 Store & Equipment Spares-Godown - 119-040002 Stores & Equipments spares - TOTAL - Ops. Supplies - Inventory 119-040 Inventory - Operating Supplies 1,31,56,021 119-041-AUTO 119-041 Inventory - Operating Supplies (DC) 61,70,674 Total 1,93,26,696 Other Inventory 119-010001 IT Spare at HO - 119-010002 Spare at HO - 119-020 Inventory - McBucks - DC - 119-040003 INVENTORY - TRAINING MATERAIL - DC - 119-050 Inventory - Linen - Delivery Material - 119-051 Inventory - Linen (DC) 66,03,722 119-051-AUTO Inventory - Linen (DC) - Auto - TOTAL 66,03,722 GRAND TOTAL 30,30,36,268 PROVISIONAL GST 4,18,08,194 F....
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.... Shimer the Lighting concept 20.11.2017 14.11.2017 9360 13. 145 13.11.2017 Atul Kudtarkar & Associates 21.11.2017 14.11.2017 4500 Total 76074 Based on the above reasons the period of investigation for determination of ITC and turnover has been rightly taken from 01 July 2017-31 October 2017 and the period from 01 November 2017-14 November 2017 has been correctly ignored by the DGAP. Accordingly, the reasons given at Paragraph 15 of the investigation Report are also correct. Mere furnishing of the ITC Register and the stock-statement when their correctness cannot be ascertained does not establish the claim of the Respondent. Therefore, the period of investigation cannot be restricted to the months of September 2017 and October 2017 as the computation of the ITC has been done correctly by the DGAP by considering the period from July 2017 to October 2017. As has been detailed above the Respondent has no ground to claim that the months of July and August were not representative of normal business as it can also be claimed that the business was also not normal during the months of September and Oct....
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....ice. The Respondent has only been denied the benefit of ITC on his inputs w.e.f. 15.11.2017 and therefore, he can increase his prices to the extent of denial of ITC which would cover the above additional costs also. Further, the provisions of Section 171 (1) do not prescribe that while passing on the benefit of tax reduction increase in the cost of the Respondent would also be considered and hence the ratio of ITC to turnover has been rightly computed by the DGAP on the basis of the gross turnover and hence the variable costs cannot be deducted from it. In this regard the Respondent has also cited the order dated 04 May 2018 passed by this Authority in the Case No. 03/2018 of Kumar Gandharv v. KRBL Limited by claiming that the costs other than tax were also considered in this case. In this regard it would be pertinent to state that the rate of tax was not reduced in the above case and hence the provisions of Section 171 were not attracted as they apply in the case of rate reduction only and hence the above case is not applicable in the facts of the present case as the rate of tax has been reduced. 108. The Respondent has further contended that as per the DGAP's Report, the ratio....
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.... his case. He has also submitted that the de-minimis threshold should be applied in his case also as was applied the case of N. P. Foods due to the difference of 0.34%between ITC cost at entity-level and average price-increase at the entity level. In this respect it is apparent from the record that the Respondent has been denied benefit of ITC of 9.11% of the turnover w.e.f. 15.11.2017 whereas he has increased his prices by an average of 10.45%. It is also apparent from the Annexure-36 that the increase in prices ranges from 9.12% to 100.09% in respect of 1730 products out of 1844 products which constitutes 93.82% of the total products sold by the Respondent, as is evident from Annexure-32 of the Report. Therefore, the increase in the prices cannot be claimed to fall under the de-minimis threshold. The above ratio can also not be computed at the entity level as the benefit is to be passed on each product. Therefore, no comparison can be made between the case of N. P. Foods and that of the Respondent and hence, the above claim of the Respondent cannot be accepted. 111. The Respondent has further argued that there were three methods available viz. (a) ITC loss against the audited ....
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....he Respondent by maintain the pre rate reduction base price and by increasing it by 9.11% due to denial of ITC and then by charging GST @ 5%. The whole exercise purely mathematical and simple. Therefore, the law settled in the above case is not applicable. 114. The respondent has further claimed that in the absence of any specific methodology the suppliers needed to devise their own methodology to comply with the requirement of Section 171 (1) which could be based on (i) Estimation of loss of ITC on the basis of audited annual statements of the previous years or (ii) Estimation of loss of ITC on the basis of test period or (iii) Actual loss of ITC during the subsequent months. In this regard the Respondent has furnished a Table for the year 2016-17 on the basis of the audited financial statements which shows the Operating Revenue as Rs. 93059.00 Lakh and the Operating Cost as Rs. 88319.00 Lakh being 94.91% of the Operating Revenue. The Capital Cost has been shown as Rs. 5,669.60 Lakh being 1.10% of the Operating Revenue and impact on the cost as % of Operating Revenue has been shown as 12.24%. Perusal of the above Table shows that the Respondent has not computed the amount of be....
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.... March 2018 and (iii) ITC availed in the month of July 2017 to October 2017 pertaining to the pre-CST period has been excluded although as per the CGST Act, the time of supply was from July 2017 to October 2017 and the Respondent was eligible and has availed the ITC. In this regard it would be appropriate to mention that the Respondent was availing CENVAT Credit of tax paid on input services and capital goods along with ITC of VAT on the purchase of goods in the pre-GST period and has carried forward Transitional Credit of Rs. 5.18 Crore on 01.07.2017 for the stock held on 30.06.2017. Full ITC was allowed to the Respondent after implementation of the GST w.e.f. 01.07.2017 on purchase of Inputs, Input Services and Capital Goods on or after 01.07.2017 which the Respondent has also availed. The Respondent has informed during the investigation that he usually carried the same level of inventory at the end of each period and therefore, carried the same level of inventory as on 30.06.2017 and on 31.10.2017. Therefore, for the purpose of computing ratio of denial of ITC to taxable turnover, the ITC for the period from July, 2017 to October, 2017, as furnished in the GSTR-3B Returns filed ....
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....incremental tax cost incurred on the inter-unit branch transfers but he has not included the corresponding turnover in his computations. Accordingly, he has computed the ratio of ITC to turnover as 5.17% for the month of July 2017, 7.95% for August 2017, 11.16% for the month of September 2017, 14.72% for the month of October 2017, 14.21% from 01.11.2017 to 14.11.2017 and total ratio as 10.27%. The above calculation of the ratios of denial of ITC to turnover is completely wrong, manipulated, illogical, devoid of material evidence and in violation of the provisions of Section 15 & 16 of the above Act as has been explained above and hence the same cannot be taken to be correct and no reliance can be placed on it. 118. The Respondent has submitted another Table vide which he has claimed to have computed the actual loss of ITC in the month of December 2017 and January 2018 as per the GSTR-2A Returns for the inward supplies and GSTR-3B Returns for the outward supplies and has arrived at the % of denial of ITC to turnover as 10.59%. Perusal of the above Table shows that all the computations made by the Respondent for the above months are hypothetical as he was not eligible to claim ben....
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....ld increase additionally and he would not be able to recover it through the increase in his prices. The above claim of the Respondent is frivolous, wrong and illogical and hence the same is not tenable. 120. The Respondent has further argued that if he was allowed to increase his prices by 9.11%, he would be able to recover additional cost in the form of ITC + variable expenses only to the extent of 8.22%, thus he would suffer net loss of 0.89% as has been claimed by him in the Table mentioned supra. As discussed in detail above the Respondent would not suffer any loss in case he increase his prices by 9.11% on account of denial of ITC, as he would recover the additional amount paid on royalty, rent and other variable expenses from the increase in the prices as all three of them form part of the prices of his products. Hence, the above argument of the Respondent is not convincing 121. The Respondent has also stated that the aforesaid computation has not factored increase in the input cost of other supplies due to inflation or other reasons. The above claim of the Respondent is illogical as there could not have been any sudden increase in the inflation on the intervening night....
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...., illogical and arbitrary as it cannot be understood how he would fix a price by which he was going to suffer loss of 0.87% and how it can be exactly similar to the pre rate reduction price. The post rate reduction price fixed by the Respondent was fixed with the sole motive of not passing on the benefit of tax reduction by misleading the customers and no such grand calculations were done by him which are being shown by him now as he had simply adopted the pre rate reduction price. Therefore, the above claim of the Respondent is not tenable. 125. The Respondent has also alleged that the DGAP has used methodology of 'Zeroing' which was used by the Anti-dumping Authorities in the European Union (EU) to compute profiteering which was incorrect. In this regard, the Respondent has referred to the Report No. WT/DSl41/AB/R dated 01.03.2001 of the Appellate Body of the World Trade Organisation (WTO) regarding Anti-Dumping Duties on imports of Cotton-Type Bed Linen from India vide which it was held that the methodology of 'Zeroing' could not be applied and the methodology of 'netting off' should be applied and both the negative and positive margins should be considered while applying the....
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....o the ordinary customers by sacrificing their tax revenue. The Respondent was legally not required to collect the excess GST and therefore, he has not only violated the provisions of the CGST Act, 2017 but has also acted in contravention of the provisions of Section 171 (1) of the above Act as he has denied the benefit of tax reduction to the ordinary buyers by charging excess GST. Had he not charged the excess GST the customers would have paid less price while purchasing goods from the Respondent and hence the above amount has rightly been included in the profiteered amount as it denotes the amount of benefit denied by the above Respondent as per the Explanation attached to Section 171. It would also be appropriate to state here that price includes tax also. Therefore, the amount of profiteering cannot be reduced to Rs. 3,17,03,988/- on account of deposit of additional GST as per the submissions dated 23 July 2018 of the Respondent. 127. The Respondent has also submitted that the DGAP has applied the cost of ITC of 9.11% to the average price pre-rate reduction and compared it with the average price post-rate reduction to arrive at the profiteering amount of Rs. 7.49 Crore. Such....
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....pondent has also averred that no methodology has been provided under Rule 126 although there were multiple instances where the Government had sought to control prices to prevent profiteering or ensure availability of essential goods at fair prices in which the relevant law has prescribed detailed methodology viz. Maharashtra Unaided Private Professional Educational Institutions (Regulation of Admission and Fees) Act, 2015, J & K Hoarding and Profiteering Prevention Ordinance, 2000, Section 3-C of Essential Commodities Act, 1955 in respect of Sugar Price Control, Sugar Price (Control) Order, 2018 issued under Section 3 of the Essential Commodities Act, 1955, Drug (Price Control) Order, 2013 issued under Section 3 of the Essential Commodities Act, 1955 and Drug (Price Control) Order, 1995 provided such methodology. In this connection it would be appropriate to mention that contours of the substantive methodology have already been prescribed under the provisions of Section 171 of the above Act to compute the benefit of tax reduction as well the amount of profiteering as has been discussed in detail in Para supra, hence no separate prescription is required to be made on this account. T....
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.... same has been given to the ordinary consumer by the Central and the State Governments from their precious tax revenue by cutting down on the welfare schemes. The Respondent cannot misappropriate it against his profit at the expense of voiceless, unorganised and vulnerable public. Section 171 also does not require consideration of cost as it requires computation of the benefit of tax reduction to be passed on by the Respondent and in case he does not pass it then the profiteered amount has to be computed. Therefore, the reliance placed by the Respondent on the above judgements is misplaced which does not help his case. 130. The Respondent has also submitted that if this Authority did not take into consideration the costs and also did not provide for a mechanism to generate a reasonable profit the entire exercise would be unconstitutional. On this aspect it would be relevant to note that as has been discussed in detail in Para Supra Section 171 only provides for passing on the benefit of tax reduction and does not provide for considering costs while passing on such benefit. Moreover, this Authority is under no obligation to suggest ways to the Respondent to increase his profit wi....
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....e claim of the Respondent cannot be accepted. 133. The Respondent has further submitted that if the ITC on the closing stock was excluded, then actual transitional credit of Rs. 5.18 Crore has to be included in the quantum of ITC as it pertained to the inventory carried forward into the GST era as on 01 July 2017. Accordingly, the ITC for the period from 01 July 2017 to 14 November 2017 would be Rs. 45,82,56,308/-. Consequently, the ratio of ITC to the turnover would be 11.03%. As discussed supra the Respondent has carried forward the transitional credit of Rs. 5.18 Crore which has been duly considered by the DGAP and hence the ratio of ITC to turnover cannot be taken as 11.03% as has been claimed by the Respondent. 134.The Respondent has also claimed that he has reversed ITC of Rs. 4,18,28,194/- on inventory of Rs, 30.30 Crore. Therefore, the ITC was 13.80% of the value of the inventory and hence the ratio of 9.11% was illogical as the DGAP has included the month of July 2017 in his computations, which was an outlier data. In this connection it is to be noted that the ratio has to be computed for the period from 01.07.2017 to 31.10.2017 on the basis of the GSTR-3B Returns fi....
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....and up to 100.09% on the same date from which the rate of tax was reduced. The Respondent cannot claim to have extended the benefit of ITC on the one hand and withdraw it on the other hand on the same day on the ground that the profiteered amount could not be more than 3.44%. Any extra amount charged by the Respondent on the pretext of passing on the benefit of tax reduction has to be considered as the profiteered amount otherwise the provisions of Section 171 would be rendered superfluous and redundant. Therefore, the above claim of the Respondent is untenable. 137. It is further submitted by the Respondent that the correct cost of ITC was 10.78% and hence, the net output payment in tax prior to the rate change was 7.22% (18% - 10.78%) and therefore, the actual reduction in tax after the rate change was 5.54% (being 5% of 1 10.78). Subsequently, the actual benefit of reduction in the rate of tax was 1.68% (7.22% - 5.54%). Further, there was incremental cost of 1.16% (on base price increase solely due to additional ITC cost) in the form of variable rent etc. and therefore, the amount of the benefit of the reduction in the rate of tax after adjustment of the ITC and incremental c....
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....iterated that the complaint was made in respect of all the products sold by the Respondent as is clear from the complaint of the Applicant No, 2 which has been discussed in para supra. Section 171 (2) so requires that all the products on which the rate of tax has been reduced should be investigated. Hence, the investigation has to be conducted in respect of all the GSTlNs. Therefore, the above claim of the Respondent is not maintainable. 139. Based on the above findings it is abundantly clear that the Respondent is liable to pass on the benefit of GST rate reduction from 18% to 5% with denial of benefit of ITC, as was notified by the Central and the State Governments vide Notification No. 41/2017-Central tax (Rate) dated 14.11.2017 w.e.f. 15.11.2017. It is also established that the Respondent has not passed on the benefit of above tax reduction to his customers in terms of Section 171 (1) w.e.f. 15.11.2017 to 31.01.2018. On the basis of the pre rate reduction GST rate of 18% and the post rate reduction GST rate of 5% with denial of ITC of 9.11% of the turnover and the details of the product wise supplies made during the period from 15.11.2017 to 31.01.2018, as have been supplied....