TaxTMI 
TaxTMI 
2020 (12) TMI 889
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.... Vide the application, it has been alleged that the Respondent had increased the base prices of his products and had not passed on the benefit of reduction in the GST rate from 18% to 5% w.e.f. 15.11.2017 vide Notification No.46/2017-Central Tax (Rate) dated 14.11.2017 by way of commensurate reduction in prices, in terms of Section 171 of the Central Goods and Services Tax Act, 2017. 2. On receipt of the aforesaid reference from the Standing Committee on Anti-profiteering, a Notice under Rule 129 of the Rules was issued by the Director-General of Anti-profiteering on 10.05.2019, calling upon the Respondent to reply as to whether he admitted that the benefit of reduction in GST rate w.e.f. 15.11.2017 had not been passed on to his recipients by way of commensurate reduction in prices and if so, to suo moto determine the quantum thereof and indicate the same in his reply to the Notice as well as to furnish all documents in support of his reply. Further, the Respondent was allowed to inspect the non-confidential evidence/information which formed the basis of the said Notice, during the period 20.05.2019 to 22.05.2019. However, the Respondent did not avail of the said opportunity. ....
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....o the recipient by way of commensurate reduction in prices." Thus, the legal requirement was abundantly clear that in the event of a benefit of input tax credit or reduction in the rate of tax there must be a commensurate reduction in the prices of the goods or services. Such reduction could obviously be in money terms only so that the final price payable by a consumer got reduced. That was the legally prescribed mechanism for passing on the benefit of input tax credit or reduction in the rate of tax to the consumers under the GST regime. Moreover, it was also clear that the said Section 171 simply did not provide a supplier of goods or services, any other means of passing on the benefit of input tax credit or reduction in the rate of tax to the consumers. 9. The DGAP has reported that it was alleged that the Respondent did not pass on the benefit of the reduction in the GST rate to the recipients. It was seen that the Respondent was dealing with a total of 233 items while supplying restaurant services before 15.11.2017. It was also seen that the Respondent had been dealing with a total of 280 items during the period 15.11.2017 to 31.03.2019. The DGAP has compared the average se....
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....mining the impact of denial of input tax credit (which was available to the Respondent till 31.10.2017). On this basis, the DGAP has found that input tax credit amounting to Rs. 3,35,471/- was available to the Respondent during the period July 2017 to October 2017 which was 8.85% of the net taxable turnover of restaurant service amounting to 37,90,741/- supplied during the same period. With effect from 15.11.2017, when the GST rate on restaurant service was reduced from 18% to 5%, the said input tax credit was not available to the Respondent. A summary of the computation of the ratio of input tax credit to the taxable turnover of the Respondent in the pre-GST period was furnished by the DGAP as is given in Table-A below: TABLE-A (Amount in Rs.) Particulars Jul-17 Aug-17 Sept.- 2017 Oct.- 2017 Total ITC Availed as per GSTR-3B (A) 83,555 92,187 83,383 76,346 3,35,471 Total Outward Taxable Turnover as per GSTR-3B (B) 10,65,175 8,91,019 9,36,894 8,97,653 37,90,741 The ratio of Input Tax Credit to Net Outward Taxable Turnover (C)= (A/B*100) 8.85% 12. The DGAP has further intimated that the analysis of the details of it....
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....7 (H) 295.00 Total profiteering (I=H-G) 14.98 14. The DGAP has further reported that on the basis of the scrutiny of the Respondent's records (item-wise supply invoices, turnover from supplies other than zero-rated, nil rated, and exempted supplies, ITC availability, and GST returns for the period 15.11.2017 to 31.03.2019), the impact of denial of the input tax credit was worked out. Thereafter the said impact of denial of ITC and the impact of the tax rate reduction were considered to compute the net impact thereof on item-wise prices of various items supplied by the Respondent based on which the item-wise commensurate prices were worked out. The quantum of profiteering was calculated based on the comparison of the said commensurate item-wise prices (average base prices) that ought to have been charged by the Respondent with the actual sale prices of the various items supplied by him in the post-tax-rate reduction period. The profiteered amount worked out to be Rs. 6,66,700/-(including GST on the base profiteered amount).The details of the computation were given in the Annex-12 of his report. The DGAP has also intimated that based on the details of outward supplies....
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....omers; that businesses also have the right to withdraw the discounts and other promotional offers any time and there was no rule governing that any deal or discount could not be withdrawn until the expiry of a specified period; that the DGAP has completely ignored the fact that discounts were given under special circumstances only and has instead calculated the average prices based on the total sales, including the discounted as well as normal sales, for the pre-tax rate reduction period from 01.11.2017 to 14.11.2017; that since he was offering discounts regularly and every year in the pre-tax rate reduction period and since he continued to do so as part of his sales promotion, DGAP ought to have calculated the average base prices of the various items supplied by him only on the basis of the normal sales (non discounted sales) made by him during the period 01.11.2017 to 14.11.2017; that the pre-tax rate reduction average price (without considered discounted sales) ought to have been compared with the post tax rate reduction average price since the basis of such a comparison should have been the same; that the DGAP has improperly calculated the weighted average price for the 83 item....
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.... 50.00 Oct'17 23 Chicken Teriyaki Sala 215.00 Oct'17 24 HaraBharaKabab Extr6 40.00 Oct'17 25 Rst Chicken Portn 50.00 Oct'17 26 SOTD 6in Aloo Pat & Ckn 75.63 Oct'17 27 SOTD 6in Crn Pea Tun 110.00 Oct'17 28 Tuna Add 6 in 50.00 Oct'17 29 Tuna Add Ft 100.00 Oct'17 30 Turkey Chicken SI 100.00 Oct'17 31 Turkey Chicken Slic 100.00 Oct'17 32 Turkey Extr 6 50.00 Oct'17 33 Veggie Patty Add 6in 40.00 Oct'17 34 Veg Shammi Add 6in 40.00 Oct'17 35 12 Cookies 350.00 Sept'17 36 12" Chicken Slice Egg Bkfst S 205.00 Sept'17 37 12" Paneer Tikka Flat Bd 245.00 Sept'17 38 6" Aloo Patty Flat Bd 135.00 Sept'17 39 6" Chicken Slice Egg Bkfst F 110.00 Sept'17 40 6" ChknTikka Flat Bd 160.00 Sept'17 41 6" Corn & Peas Flat Bd 135.00 Sept'17 42 6" Egg Cheese Bkfst Flat 110.00 Sept'17 43 6" Hara Bhara Kabab Flat Bd 120.00 Sept'17 44 6" Subway Club Flat Bd 165.00 ....
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....31.03.2019 which was 17 months approximately; that even though the GST rate was reduced only in November 2017, DGAP has inappropriately considered all the price revisions effected by him (the Respondent) after 15.11.2017 till the end of the investigation period, i.e. 31.03.2019, for calculation of the profiteered amount, completely ignoring the fact that he had the right to increase his product prices on account of various reasons other than tax; that the taxes were just one of the several elements that he was factoring for fixing the prices of his items; that it was pertinent to state that the right to trade was a fundamental right guaranteed under Article 19 (1) (g) of the Constitution of India and the right to trade included the right to determine prices and such right which had been granted by the Constitution of India could not be taken away without any explicit authority under the Law; that therefore, any form of price control was a violation of Article 19 (1) (g) of the Constitution of India; that due to incorporation of the higher item-wise prices charged by him after he had increased his product prices in January 2019 after 15 months of the GST rate reduction, the profitee....
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.... the prices of its products and he had increased the prices of his products after substantial period approximately 15 months from the date of rate reduction to meet out general inflation and other business related expenditure, that the DGAP was working like a price controlling authority and that there was no stipulation in the statute prescribing the mechanism to be followed by businesses for revision of prices and up to what period prices of products could not be increased. d. That the amount of profiteering computed by the DGAP included the element of 5% GST which had been paid to the Governments as CGST and SGST; that according to the DGAP, not only the base price should have been reduced but the GST paid should also have been proportionately reduced but fact remained that the entire GST collected by him from the recipients/ customers has already been deposited with the Government of India; that therefore, the addition of 5% GST to the basic profiteered amount was improper and should be removed and that the amount of said excess GST amount should be recovered from the respective Governments and that accordingly his liability would stand reduced by Rs. 31,748/- on this a....
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....lty Expenses @8% on Net Sale 8 8.99 Add: - GST@12% on Royalty charged by Subway India 0.96 1.079 Advertisement [email protected]% on Net Sale 4.5 5.06 Add: - GST@18% on Advertisement charged by Subway India 0.81 0.91 Total Invoice Value including GST 14.27 16.039 1.769% f. That the impact of the increase in royalty expenses on the profiteered amount worked out to Rs. 2,76,681/- and the same merited to be reduced while calculating the profiteered amount; that an increase in the purchase price/costs has been accepted in the case of Kumar Gandhrav versus M/s KRBL Limited decided by this Authority vide Order No. 03/2018 dated 04-05-2018 = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY; that he wished to highlight Para 7 of the above-said Order, which was as follows:- " It is also revealed that from the perusal of the tax Invoices submitted by the Respondent that there was an increase in the purchase price of paddy in the year 2017 as compared to its price during the year 2016 which constitutes a major part of the cost of the above product..." that the month-wise impact of the increase in r....
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....pplied zero for negative dumping margins and calculated only positive dumping margins and thereby arrived at higher dumping margins for Indian Exporters. The Government of India objected to this approach of the European Commission and the matter was taken to the Dispute Settlement Body of the World Trade Organization (WTO) which held in favour of the Government of India. In the Appeal filed by the EU before the Appellate Body, the Appellate Body held that the practice of not netting off positive dumping margins and negative dumping margins was not correct. Thus, the Government of India succeeded before the WTO Appellate Body that positive and negative margins must be taken together and therefore got lower dumping margins for Indian exporters. European Commission accepted the decision and revised dumping margins not only for bed liens cases but also for other cases against India. Therefore, the position taken by the Government of India before the WTO should be considered by the DGAP while calculating the profiteered amount. h. That accordingly, in his case, the computation of profiteering ought to have taken into account all those cases where he had reduced the prices more than c....
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.... complete the investigation and furnish the Report till 01.02.2020.; that he had only received an unsigned and undated copy of the DGAP's Report from this Authority on 06.02.2020 through email; that thus it has to be construed that the DGAP had failed to complete the investigation within such extended period and had also not approached this Authority for any further extension of time; that hence the proceedings should be dropped as time-barred. j. That he was also supplying a few MRP-based items like soft drinks, which attracted GST @ 28% plus 12% Cess; that post 14.11. 2017, his cost of supplies had increased because ITC was no longer available to him in respect of these MRP items despite the high GST rate applicable thereon; that therefore such MRP based products where tax incidence stood increased due to denial of ITC, merited to be removed from the profiteered amount. k. That the DGAP, while calculating the profiteered amount, has considered supplies made by him during the period November 2017 to March 2019, a period of almost 17 months; that the GST law did not prescribe until when a registered person has to keep the base prices same to comply with the anti-profiteer....
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....1368 - DELHI HIGH COURT, WP (C) 2347 of 2019 (Jubilant Food works Ltd. Vs Union of India) = 2019 (5) TMI 568 - DELHI HIGH COURT and WP (C) 4213/2019 Abbott Healthcare Vs Union of India) = 2019 (5) TMI 563 - DELHI HIGH COURT; that thus the instant proceedings should be kept in abeyance until the above issues were settled by the courts. 18. A supplementary Report was sought from the DGAP on the various submissions made by the Respondent. In response, the DGAP has, interalia, reported as follows:- a. That there was no specific mention of discounts in sales data/information provided by the Respondent during the investigation for the period 01.11.2017 to 14.11.2017 which was required under Section 15 (3) of the CGST Act, 2017. The Respondent was always at liberty to offer discretionary discounts depending on several variables but these discounts could be excluded from the value of supply only as per the provisions of Section 15 (3) of the CGST Act, 2017. The Respondent simply declared the reduced rate (discounted) as the total taxable value in the sales data submitted by him during the investigation. Moreover, the Respondent never claimed this fact in his written submissions....
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.... overnight in such a manner that even with a reduction in the rate of tax; the cum-tax selling price would remain unchanged. Therefore, there was no violation of Article 19 (1) (g) of the Constitution of India as DGAP has not attempted to examine or question the base price as Section 171 did not mandate control over the prices of the goods or services as they were to be determined by the Respondent. Section 171 only mandated that any reduction in the rate of the tax or the benefit of ITC which accrued to a supplier must be passed on to the consumers as both were the concessions given by the Government and the suppliers were not entitled to appropriate them. Such benefits must go to the consumers and in case they were not identifiable, the amount so collected by the suppliers was required to be deposited in the Consumer Welfare Fund. The DGAP, while investigating the case, has not examined the cost component included in the base price. He had only added the denial of ITC to the pre rate reduction base price. Hence, the provisions of Section 171 of the CGST Act, 2017 neither worked for controlling the price nor were these violative of Article 19 (1) (g) of the Constitution of India. ....
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....at extent during post GST rate reduction period i.e., 15.11.2017 onwards, to negate the impact of ITC denial. Therefore, the benefit of ITC loss had been given to the Respondent. Further, the case cited by the Respondent was different from the instant case as in the case of M/s KRBL, the pre-GST rate was nil and for the first time, a tax rate of 5% was imposed on the impugned product. e. That Section 171 of the CGST Act, 2017 that governed the anti-profiteering provisions reads as follows- "Any reduction in rate of tax on any supply of goods or services or the benefit of the input tax credit shall be passed on to the recipient by way of commensurate reduction in prices." Thus, the legal requirement was amply clear that in the event of a benefit of input tax credit or reduction in the rate of tax, there must be a commensurate reduction in prices of the goods or services. Such reduction could obviously be in terms of money only so that the final price payable by a consumer got reduced. The statute did not force the supplier to reduce the price more than the actual required commensurate reduction. There could be many marketing strategies or other promotional schemes which mig....
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....ing. It was pertinent to mention that since the total impact of ITC denial which included the loss of ITC in respect of MRP goods also, had been duly considered and accordingly ratio of Input Tax Credit to Net Outward Taxable Turnover was calculated for the pre rate reduction period hence the claim of the Respondent had no significance at this point of time. h. That as per practice, in all the cases of rate reduction, the investigation period was being considered from the date of rate reduction upto the month before the date of issue of Notice of Initiation of investigation. Accordingly, based on the facts and circumstances of this case, the investigation was carried out covering the period from 15.11.2017 to 31.03.2019. 19. The said supplementary Report of the DGAP dated 29.01.2020 was supplied to the Respondent vide this Authority's order dated 04.02.2020. In response, the Respondent, vide his submissions dated 25.09.2020 sent through his e-mail dated 25.09.2020, filed his submissions against the above Supplementary Report of the DGAP, whereby he has reiterated his contentions made vide his earlier submissions dated 03.03.2020. 20. We have carefully considered ....
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.... of ITC in respect of the "restaurant service" being supplied by the Respondent as a percentage of the taxable turnover from the outward supply of the products made during the pre-GST rate reduction period by taking into consideration the period from 01.07.2017 to 31.10.2017 and not up to 14.11.2017. This has been done because there was no reversal of ITC on the closing stock of inputs/input services and capital goods as of 14.11.2017 made by the Respondent as per the provisions of Section 17 of the CGST Act, 2017 read with Rule 42 and 43 of the above Rules. Accordingly, the ratio of ITC to the net taxable turnover has been taken for determining the impact of denial of ITC which was available to the Respondent till 31.10.2017. As per the case record, ITC amounting to 3,35,471/- was available to the Respondent during the period from July 2017 to October 2017 which was approximately 8.85% of Rs. 37,90,741/- of the turnover during the same period, as has been shown in Table-A supra. With effect from 15.11.2017, when the GST rate on restaurant service was reduced from 18% to 5%, the said ITC was not available to the Respondent. 24. It is further revealed from the analysis of the det....
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....on the various factors such as sales, inventory position, competitor's strategy, market penetration and customer loyalty (ii) the same customer may not have purchased the same product during the pre and the post-tax- rate reduction periods and (iii) a customer may have purchased a particular product during the pre rate reduction period and may not have purchased it in the post-tax- rate reduction period and (iv) the average base prices computed for a period of 14 days w.e.f. 01.11.2017 to 14.11.2017 or for the previous months provide highly representative and justifiable comparable average base prices. Based on the average pre rate reduction base prices, the commensurate base prices have been computed by adding denial of ITC of 8.85% and compared with the invoice wise actual base prices of the products as is evident from Table-B supra, as, the average pre rate reduction base prices were required to be compared with the actual post rate reduction base prices as the benefit is required to be passed on each product to each customer. In case, average to average base prices are compared for both the periods, the customers who have purchased the products on the base prices which were....
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.... was also giving to promote his sales and hence, they cannot be considered while computing the average or the actual base prices. The Respondent has also alleged that on 83 items the average base prices have been computed based on July, 2017 to October, 2017 prices. Further, to arrive at the base prices of the products before rate reduction, sales during the period 01.11.2017 to 14.11.2017 had been considered. If the sale of any particular product/item was not found during that period then, in that case, the sales of that particular product/item during previous months in a sequential manner beginning from October 2017, if the same was not found then previous month i.e. September 2017 and so on up to July 2017, had been considered to arrive at the base price of that product/item. Since the sales of 83 items were not found during the period 01.11.2017 to 14.11.2017, therefore, the sales of these items during the month of July 2017 to October 2017 had been considered. This had been done to arrive at the base prices of 83 items, which were required to establish the profiteering in respect of these 83 items, as these items had substantial sales in the post-tax rate reduction period. The....
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....Rules, the DGAP has only been mandated to investigate whether both the benefits of tax reduction and ITC which are the sacrifices of precious tax revenue made from the kitty of the Central and the State Governments have been passed on to the end consumers who bear the burden of the tax. The intent of this provision is the welfare of the consumers who are voiceless, unorganized and vulnerable. The DGAP has nowhere interfered with the pricing decisions of the Respondent and therefore, there is no violation of Article 19 (1) (g) of the Constitution. 29. The Respondent has also claimed that the DGAP while calculating the profiteered amount has erroneously added a 5% additional amount on account of GST which has been collected from the customers and deposited with the Government of India with the monthly GST returns. This contention of the Respondent is not correct because the provisions of Section 171 (1) and (2) of the CGST Act, 2017 require that the benefit of reduction in the tax rate is to be passed on to the recipients/ customers by way of commensurate reduction in price, which includes both the base price and the tax. The Respondent has not only collected excess base prices fr....
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....ncrease as the Respondent has increased his base prices by more than the permissible limit of 8.85% which he cannot claim to exclude from the profiteered amount. Therefore, the above claim of the Respondent cannot be accepted. 31. The Respondent has also relied upon the decision of this Authority given in the case of Kumar Gandhrav v. M/s KRBL Limited (Case Number 03/2018 dated 04.05.2018 = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY) to support his case. In this context, it is pertinent to mention that in the above case no benefit of the increase in the cost was given. Instead, the rate of tax had been increased from 0% to 5% on the product and hence the provisions of Section 171 (1) were not applicable as there was no tax reduction. Therefore, the facts of the above case are different from this case and hence, they cannot help the Respondent. 32. The Respondent has further averred that the DGAP while calculating the profiteered amount has incorrectly applied a methodology similar to the 'zeroing methodology' in this regard, we observe that no 'netting off can be applied in the cases of profiteering, as the benefit of tax rate reduction has to be pass....
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....the benefit has to be passed on each supply of goods and services. Hence, the above contentions of the Respondent are not correct as the Respondent cannot insist on applying the above methodology of netting off as has been approved in the above Report of the WTO as it would result in denial of benefit to the customers which would amount to a violation of the provisions of Section 171 of the above Act as well as Article 14 of the Constitution. 34. The Respondent has also argued that the DGAP had failed to complete the investigation within the prescribed time i.e. by 01.02.2020. In this case, reference from the Standing Committee on Anti-profiteering was received in the DGAP office on 02.05.2019, and the time limit to complete the investigation was extended up to 01.02.2020 by the Authority, in terms of Rule 129 (6) of the Rules, vide order dated 31.10.2019. Accordingly, the investigation was completed within the stipulated time and the Investigation Report dated 29.01.2020 was submitted before this Authority on 30.01.2020 under Rule 129 (6) of the CGST Rules, 2017. Hence, the report was submitted within the prescribed time limit/period in this case. The above contention of the Re....
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....nd hence we do not see any reason to accept this contention of the Respondent. We further observe that had the Respondent passed on the benefit before 31.03.2019, he would have been investigated only till that date. Therefore, the period of investigation from 15.11.2017 to 31.03.2019 has been rightly taken by the DGAP for computation of the profiteered amount. 37. The Respondent has further argued that various writ petitions have been filed challenging the orders passed by this Authority. These included WP (C) 378 of 2019 (Hindustan Unilever Ltd. Vs Union of India) = 2019 (1) TMI 1368 - DELHI HIGH COURT, WP (C) 2347 of 2019 (Jubilant Food works Ltd. Vs Union of India) = 2019 (5) TMI 568 - DELHI HIGH COURT and WP (C) 4213/2019 Abbott Healthcare Vs Union of India) = 2019 (5) TMI 563 - DELHI HIGH COURT in which the constitutional validity and computation methodology has been challenged and hence, the present proceedings should be kept pending till the above issues are settled. In this context, it would be relevant to mention that the Hon'ble High Court of Delhi has not directed this Authority to stop the proceedings in respect of the present case. 38. Based on the above fact....