TaxTMI 
TaxTMI 
2021 (1) TMI 844
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....e of GST 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 not making a commensurate reduction in price, in terms of Section 171 of the CGST Act, 2017. 2. The aforesaid issue was examined by the Maharashtra State Screening Committee on Anti-profiteering which observed that the Respondent had not passed on the benefit to his customers on account of reduction in tax rate and forwarded the complaint to the Standing Committee on Anti-profiteering for further action. 3. The Standing Committee on Anti-profiteering examined the reference received from the Maharashtra State Screening Committee in its meeting held on 15.05.2019 and it was decided to refer the matter to the DGAP to initiate an investigation and collect the evidence necessary to determine whether the benefit of reduction in the rate of GST on the supply of "restaurant service" had been passed on by the Respondent to the recipients. The Assistant Commissioner of Sales Tax (D-819), Nodal Division-II, Mazgaon, Mumbai-10, had prepared a summary of the profiteered amount computed on the basis of ratio of ITC available to the taxable turnover of the Respondent which w....
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....st completely from the Subway system and even the headquarters of M/s. Subway Systems India Pvt. Ltd. was not able to fetch the details and expressed his inability to submit the requisite documents/information. 7. Vide Letters/e-mails dated 10.12.2019 and 16.12.2019, the DGAP requested the Respondent to submit a letter of undertaking /affidavit with regard to non-availability/recovery of data up to January, 2018 and to furnish a copy of the correspondence and e-mails exchanged with Subway headquarters and with service providers to recover the lost data to ascertain the veracity of the claims made by him. However, the Respondent failed to respond to the above communications. 8. In response to the Notice dated 09.07.2019 and subsequent reminders vide letter/e-mails dated 23.07.2019, 02.08.2019, 20.08.2019, 02.09.2019, 31.10.2019, 10.12.2019, 16.12.2019 and summons dated 19.09.2019 and 27.09.2019, the Respondent submitted his replies vide e-mails/letters dated 22.07.2019, 19.08.2019, 26.08.2019, 30.08.2019, 12.09.2019, 24.09.2019, 25.09.2019, 09.10.2019, 19.10.2019 and 06.11.2019. The submissions of the Respondent were summed up by the DGAP as follows: a. That he had in....
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....te documents and by requesting for repeated extensions of time for submitting his data in each of his replies; further the Respondent had not submitted the invoice-wise details of his outward taxable supply during the period from 01.07.2017 to 31.01.2018, in the absence of which, the DGAP had requested the Respondent to map the Menu product names in the Sale register to determine the number of units of each of the products sold by him; further, the Respondent neither responded to the DGAP on this issue nor did he submit the desired information/documents. 11. The DGAP has also reported that the reference received from the Standing Committee on Anti-profiteering, the various replies of the Respondent and the documents/evidence on record were carefully scrutinized. The main issues to be examined in the investigation were whether the rate of GST on the service supplied by the Respondent was reduced from 18% to 5% w.e.f. 15.11.2017 and if so, whether the benefit of such reduction in the rate of GST had been passed on by the Respondent to his recipients/ customers in terms of Section 171 of the CGST Act, 2017. 12. The DGAP has stated that the Central Government, on the recommendati....
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....eduction in GST rate w.e.f. 15.11.2017 was evident in respect of 133 items (97.08% of 137 items) supplied by him. This increase in the base price was mentioned in the report by the DGAP. The lower GST rate of 5% had been charged on the increased base price of these 133 items, which confirmed that the tax amount was computed @ 18% before 15.11.2017 and @ 5% w.e.f. 15.11.2017. However, the fact was that because of the increase in base prices the cum-tax price paid by the consumers was not reduced commensurately for all the items supplied by the Respondent. Therefore, the issue to be investigated was whether the increase in base prices was solely on account of the denial of ITC or not. 15. The DGAP has also reported that the assessment of the impact of denial of input tax credit which was an uncontested fact required determination of the ITC in respect of "restaurant service" as a percentage of the taxable turnover from the outward supply of "products" during the pre-GST rate reduction period. To illustrate, if the ITC in respect of restaurant service was 10% of the taxable turnover of the Respondent till 14.11.2017 (which became unavailable w.e.f. 15.11.2017) and the increase in t....
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....the Respondent. A summary of the computation of the ratio of ITC to the taxable turnover of the Respondent was furnished by the DGAP as is given in Table below: Table (Amount in Rs.) Particulars July 2017 August 2017 September 2017 October 2017 Total ITC Availed as per GSTR-3B(A)* 1,18,312 1,27,319 1,07,139 1,01,964 4,54,734 Total Outward Taxable Turnover as per GSTR-3B (B) 11,45,395 11,43,249 12,90,075 11,40,264 47,18,983 The ratio of ITC to Net Outward Taxable Turnover (C)= (A/B) 9.64% 9.64% 17. The DGAP has further mentioned that the analysis of the details of item-wise outward taxable supplies during the period from 15.11.2017 to 30.06.2019 revealed that the Respondent had increased the base prices of different items supplied as a part of restaurant service to make up for the denial of ITC post GST rate reduction. The pre and post GST rate reduction prices of the items sold as a part of restaurant service during the period 15.11.2017 to 30.06.2019 were compared and it was established that the Respondent had increased the base prices by more than 9.64% (i.e., by more than what was required to offset t....
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....ce List B 110/- 3. GST@ 18% C=B*18% 19.80/- 4. Selling price (including GST) D=B+C 129.80/- 5. GST Rate E 18% 5% 6. Denial of ITC of 9.64% as per table- 'B' above F=B*9.64% 10.60/- 7. Commensurate Base price (post Rate reduction) (Excluding GST) G=B+F 120.60/- 8. Commensurate Selling price (post Rate reduction) (including GST) H=105% of G 126.63/- 9. Selling price (including GST) as per Menu Price List I 130.20/- 10. The excess amount charged or Profiteering per unit J=I-G 3.57/- 11. Total quantity Sold in Post reduction illustrative month of Feb.-2018 K 26 12. Total Profiteering L=J*K 92.82/- 20. Citing the above Table, the DGAP has stated that the Respondent did not reduce the selling price commensurately of the "6 Inch Western Egg and Cheese" when the GST rate was reduced from 18% to 5% w.e.f. 15.11.2017, vide Notification No. 46/2017 Central Tax (Rate) dated 14.11.2017 and hence he profiteered by an amount of Rs. 92.82 in respect of the said....
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.... Authority on 16.01.2020. The Respondent was issued a notice on 31.12.2019 to explain why the above Report of the DGAP should not be accepted and his liability for violating the provisions of Section 171 of the CGST Act, 2017 should not be fixed. The Respondent had requested for an adjournment of the hearing scheduled on 16.01.2020 which was allowed by this Authority. Accordingly, the first hearing in the matter was held on 10.02.2020 wherein none appeared for either of the Applicants while Sh. Rakesh Kumar, Authorised Representative, Sh. Aneesh Mittal, Advocate, and Ms. Nikita Singh, Intern, appeared for the Respondent. During the course of the proceedings before this Authority, the Respondent has filed written submissions on 31.01.2020, 16.03.2020, 02.07.2020, and 29.07.2020. Vide his above-mentioned submissions, the Respondent has interalia submitted: a. That the DGAP has incorrectly computed the ratio of ITC availed to the taxable turnover as 9.64% instead of 9.86%; that the formula adopted by the DGAP, for quantifying the impact of the withdrawal of ITC on the product- prices, was based on certain assumptions which might not be always correct; that in this case, reduc....
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....ts and capital goods held by him as of 14.11.2017; ii. The invoice-wise outward taxable turnover for 01.11.2017 to 14.11.2017 period was not provided by him to the DGAP; and iii. ITC amounting to Rs. 27,000/- was wrongly taken by him in November 2017 based on an invoice for his rent for the period from 01.11.2017 to 30.11.2017 since it was a period in which the services covered by the invoice had not been received. c. In this context, the Respondent has contended that none of the aforesaid reasons advanced by the DGAP for excluding the ITC and the turnover for the period from 01.11.2017 14.11.2017 for the computation were correct; that the said exclusion was frivolous because:- i. Since the unutilized ITC as of 14.11.2017 could not be utilized for payment of GST on outward supplies w.e.f. 15.11.2017, its reversal or non-reversal was immaterial, ii. The invoice-wise details of the outward supplies for the 01.11.2017 to 14.11.2017 period were submitted by him and the same has been acknowledged in para 13(d) of the DGAP's report, and iii. When the service covered by the landlord/ service supplier's invoice has actually bee....
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....17, to pass on the benefit of reduction in the rate of tax by way of a commensurate reduction in prices did not mean that the Respondent could not increase the base prices of his products even if there has been an increase in his cost of inputs; that the price of a product - depended not only upon the rate of tax, but also on the cost of inputs, fixed cost, availability or otherwise of ITC, the position of supply and demand, the degree of competition, etc.; that he placed his reliance on the case of Kumar Gandharv v. KRBL Ltd. 2018-TIOL-2-NAA GST = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY, wherein this Authority has held that an increase in the MRP of packed and branded rice, on account of increase in the purchase price of the loose rice, was justified g. That any increase in the base prices during the post-tax rate reduction period on account of denial of ITC benefit or genuine commercial reasons could not be termed as profiteering and treating the same as profiteering amounted to unreasonable price control or price regulation which violated the freedom of trade and commerce granted to a citizen under Article 19 (1) (g) of the Constitution of India. ....
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....without considering the impact of factors such as cost of inputs, fixed costs, supply and demand position, etc.; that during 2018-19, the increase in his expenditure on account of salaries and staff welfare, rent, electricity and material cost contributed 9.32%, 28% and 5.42% respectively in the total cost but the same has not been considered by the DGAP; that he had increased the prices of his menu items with effect from 30.01.2019 on account of increase in the cost of inputs and hence the period from 01.02.2019 to 30.06.2019 should be excluded from the computation of the profiteered amount; that if the period from February 2019 to June 2019 was excluded from the purview of the investigation, the amount of profiteering would be Rs. 4,72,421/-. j. That the profiteered amount computed by the DGAP also included the element of GST unjustifiably, since the entire amount representing CGST and SGST recovered by the Respondent from his customers has been paid by him to the Governments as CGST and SGST per the provisions of Section 76(1) of the CGST Act, 2017 and the identical provisions under the Maharashtra GST Act, 2017; that thus there was no question of including the element ....
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....pondent has included the ITC availed by him for the whole of the month of November 2017 for making this calculation whereas he could have availed ITC only till 14.11.2017 and not through the entire month; that in the calculation proposed by the Respondent, he has also incorrectly included the element of ITC of the compensation cess availed by him in his GSTR3B return, which could not have been lawfully taken and used for payment/ discharge of any taxes in the pre-GST period other than for discharging the output liability of compensation cess and hence the said ITC of compensation cess could not be included in the computation of profiteering in this case; c. Further, the Respondent's submission related to his not having availed ITC in the post-tax rate reduction period, i.e. after 15.11.2017, was factually incorrect as his own books of account, more specifically his General ledger of CGST Account confirmed that he has availed ITC amounting to Rs. 27,000/- in the month of November 2017 on the strength of an invoice for the monthly rental charges paid by him for the period 01.11.2017 to 30.11.2017, the extract of which is as below:- d. The DGAP had also reported that....
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....s also stated that the implementation of the provisions of Section 171 of the CGST Act 2017 was not in conflict with the right to carry any trade or business guaranteed under Article 19(1) (g) of the Constitution and as such there was no violation of the Article. g. On the issue of the methodology adopted by the DGAP for the computation of profiteering, the DGAP has reported that it had consistently adopted the period of investigation as one that started from the event of a reduction in the rate of tax or availability of input tax credit (i.e. 15.11.2017 in the present case) till the latest month of receipt of a reference from the Standing Committee (i.e. June 2019 in the present case) in all the cases. Hence there was no arbitrariness in respect of the same. h. On the contention of the Respondent that every increase in the base prices of the products should not be presumed to be profiteering, the DGAP has stated that he had not attempted to examine or question the base prices as Section 171 did not mandate control over the prices of the goods or services as they were to be determined by the supplier. Section 171 only mandated that any reduction in the rate of tax....
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.... open to the Respondent to return the tax amount to the recipients by issuing credit notes and adjusting his tax liability for the subsequent period to that extent. j. On the contention of the Respondent that he had reversed the ITC on his closing stock as of 14.11.2017 and has not availed any ITC post 14.11.2017, the DGAP has clarified that on perusal of the Respondent's GSTR-3B returns for the month of November 2017 and afterward, it is evident that the Respondent had not reversed any amount of input tax credit on account of closing stock of input and capital goods held by him as of 14.11.2017. The DGAP has reported that, therefore, the aforesaid claim of the Respondent was incorrect, frivolous, misleading, and was thus liable to be rejected. 27. We have carefully considered the case record, the Reports furnished by the DGAP, the submissions made by the Respondent, and the other material placed on record. On examining the various submissions we find that the following issues need to be addressed:- a. Whether the Respondent has passed on the commensurate benefit of reduction in the rate of tax to his customers? b. Whether there was any violation of th....
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....a Pvt. Ltd. he had submitted that the franchisor was also not able to fetch the required data, therefore, he was not in a position to submit the requisite information. This submission of the Respondent is not correct and appears to be a deliberate attempt to mislead because of the fact that when the DGAP, vide his letters/e-mails dated 10.12.2019 and 16.12.2019, had asked the Respondent to submit affidavit/undertaking in respect of non-availability of information and to furnish evidence/copies of his correspondence made with the franchisor M/S Subway Systems India Pvt. Ltd., the Respondent never responded on the above issue to the DGAP nor he submitted affidavit/undertaking. It is thus clear to us that the Respondent has deliberately not submitted the requisite data to the DGAP to avoid his liability for profiteering. b. That from the record, it is also evident that the details of taxable supplies submitted by the Respondent for the period from 01.02.2018 to 30.06.2019 mentioned multiple product descriptions for a single product rendering the data unusable for the purpose of any meaningful examination and computation of profiteered amount. Therefore, the DGAP had no option....
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....-wise Menu Price Lists of the pre-rate reduction and post-rate reduction periods, in view of the peculiar circumstances of this case. Accordingly, the methodology adopted by the DGAP for computation of profiteered amount is appropriate, reasonable and correct in these circumstances. 31. While comparing the pre rate reduction cum-tax selling prices with the post-tax rate reduction selling prices as per the Menu Price Lists the DGAP has duly taken in to account the impact of denial 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. Further, the Respondent has not submitted the required data/information for computing the taxable turnover for the period from 01.11.2017 to 14.11.2....
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.... exempted supplies) during the period from 15.11.2017 to 30.06.2019, the amount of net higher sale realization due to increase in the base prices of the products, despite the reduction in the GST rate from 18% to 5% with denial of ITC or the profiteered amount has come to Rs.6,85,531/- as per Annexure-15 of the Report of the DGAP including the GST on the base profiteered amount. The details of the computation have been given by the DGAP in his Report. 34. The Respondent has argued that the DGAP has wrongly computed ITC/Turnover ratio as 9.64% instead of 9.86%. In this regard, it is observed that the total ITC availed by the Respondent during the period from July 2017 to October 2017, as per GSTR-3B Returns filed by him, was Rs. 4,54,734/- and the total outward taxable turnover for the same period, as per GSTR-3B Returns, was Rs. Therefore, the ITC to taxable turnover ratio for the pre rate reduction period comes out to 9.64%{(4,54,734/47,18,983) * 100} which has been correctly computed by the DGAP as mentioned in Table-A above. Hence, the claim of the Respondent that the DGAP has wrongly computed the ITC to taxable turnover ratio for the pre-tax rate reduction period is not tena....
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....ence, the claim of the Respondent that DGAP has not considered the ITC and Turnover for the period from 01.11.2017 to 14.11.2017 while computing the ratio of ITC to turnover for the pre rate reduction period is not tenable and cannot be accepted. 36. The Respondent has also claimed that the DGAP ought to have considered 'utilized' ITC instead of 'availed' ITC while computing the ratio of ITC to turnover for the pre-tax rate reduction period. In this regard, it is pertinent to mention that as per the provisions of Section 16 of the CGST Act, 2017, every registered person is legally bound to keep record of the ITC availed by him on inputs and input services which are used in the furtherance of his outward supplies. Therefore, the quantum of ITC availed is directly proportional to the quantum of inputs/ input services utilized and thus to the outward supplies of a registered person. On the other hand, utilization of ITC depends upon the will of the registered person since every registered person has an option to pay his tax liability either in the form of cash or by utilizing the available ITC/ credit as per his convenience. Therefore, it is clear to us that the utilization of ITC ....
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....mention that the Respondent has full right to fix his prices under Article 19 (1) (g) of the Constitution but he has no right to appropriate the benefit of tax reduction under the garb of the above right. The DGAP has not acted in any way as a price controlling authority as he does not have the mandate to do so. Under Section 171 read with Rule 129 of the above 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. It is also pertinent that 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. 39. The Respondent has also pleaded that the DGAP while arriving at profiteering has failed to appreciate that different factors at different points in time affect the costing and pricing of a product and therefore, no straight jacket formula could be us....
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....odology to be adopted in the computation of profiteering. Therefore, in the absence of any methodology in the Rules, the entire approach adopted by the DGAP, and this Authority was without jurisdiction. The above contention of the Respondent is not correct. In this regard, it is submitted that the 'Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and ITC has been mentioned in Section 171 (1) of the CGST Act, 2017 itself which states that "Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices." It is clear from the perusal of the above provision that it mentions "reduction in the rate of tax or benefit of ITC" which means that the benefit of tax reduction or ITC has to be passed on by a registered dealer to his customers since it is a concession which has been granted from the public exchequer which cannot be misappropriated by a supplier. It also means that the above benefits are to be passed on each Stock Keeping Unit (SKU) or unit of construction to each buyer and in case they are not passed on, the profiteered amount ha....
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....additional ITC which would be required to be passed on to the buyers of such units. Moreover, this Authority under Rule 126 has the power to 'determine' Methodology and Procedure and not to 'prescribe' it. However, fixation of the commensurate price is purely a mathematical exercise that can be easily done by a supplier keeping in view the reduction in the rate of tax and his price before such reduction or the availability of additional ITC post implementation of GST. Further, the facts of the cases relating to the Fast Moving Consumer Goods (FMCGs), restaurants, construction, and cinema houses are completely different and therefore, the mathematical methodology employed in the case of one sector cannot be applied in the other sector otherwise it would result in denial of the benefit to the eligible recipients. Moreover, both the above benefits have been granted by the Central as well as the State Governments by sacrificing their tax revenue in the public interest and hence the suppliers are not required to pay even a single penny from their pocket and hence they have to pass on the above benefits as per the provisions of Section 171 (1) of the CGST Act 2017 which are abundantly cl....
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....ate reduction, the commensurate benefit of reduction in the rate of tax from 18% to 5% has not been passed on. Therefore, the above claim of the Respondent cannot be accepted. 42. The Respondent has relied upon the judgements passed by the Hon'ble Supreme Court in the cases of Commissioner of Income Tax Bangalore v. B. C. Srinivas Shetty 460 and Eternit Everest Ltd. v. UOI 1997 (89) ELT 28 (Mad) and stated that there was no machinery provision in the anti-profiteering measures and hence they could not be enforced. On this aspect, it is to be noted that no tax has been imposed under the above measures and hence the law settled in the above cases is not applicable. However, it would be relevant to mention here that Section 171 (2) of the CGST Act, 2017 and Rules 122, 123 129, and 136 of the CGST Rules, 2017 have provided elaborate machinery in the form of this Authority, the Standing and Screening Committees, the DGAP and a large number of field officers of the Central and the State Taxes to implement the anti-profiteering provisions. Therefore, the Respondent cannot allege that no machinery has been provided to implement the above measures. 43. The Respondent has also cited th....
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.... by this Authority did not prescribe the period up to which the profiteered amount is to be calculated. Therefore, keeping in mind the perishable nature of the items and various other factors the profiteered amount should be restricted up to January 2019. In this context, we observe that while the rate of GST was reduced from 18% to 5% w.e.f. 15.11.2017, the Respondent had increased the base prices of his products immediately w.e.f. 15.11.2017 and had taken no steps to pass on the resultant benefit of tax reduction by way of commensurate fixation of the prices of his supplies at any point of time till 30.06.2019. In other words, the violation of the provisions of Section 171 of the CGST Act 2017 has continued unabated in this case and the offence continues to date. The Respondent has not produced any evidence to prove from which date the benefit was passed on by him. The fact that the Respondent has not complied with the law till 30.06.2019 requires that the profiteering is computed till the above period and 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 30.06.2019, he would have be....
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....of framing the Rules under the CGST Act, 2017 to the Central Government as per 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 the Authority, on the recommendation of the GST Council, which is 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 and Procedure has been delegated to this Authority under Rule 126 of the above Rules as per the provisions of Section 164 and 171 (3) 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 at several levels and therefore, there is no ground for claiming that the present delegation is excessive. Since the functions and powers to be exercised by this Authority have been approved by competent bodies, the same are legal and binding on the Respondent. Therefo....