TaxTMI 
TaxTMI 
2021 (3) TMI 648
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....on (originally examined by the Maharashtra State Screening Committee on Anti-profiteering) filed under Rule 128 of the CGST Rules 2017, alleging profiteering in respect of restaurant service supplied by the Respondent No. 1 (Franchisee of Respondent No. 2) despite the reduction in the rate of GST from 18% to 5% w.e.f. 15.11.2017. It was alleged that Respondent No. 1 has increased the base prices of his products and has not passed on the benefit of reduction in the GST rate from 18% to 5% w.e.f. 15.11.2017, affected 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 CGST Act, 2017. The DGAP has reported that the summary sheet of the extent of profiteering was prepared by Applicant No. 1, which was also enclosed with the reference received from the Standing Committee on Anti-profiteering. The above issue was examined by the Maharashtra State Screening Committee and upon being prima facie satisfied that Respondent No. 1 had contravened the provisions of Section 171 of the CGST Act, 2017, it forwarded the said complaint with its recommendation to the Standing Committee on Anti-profiteering for fur....
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....d) Copy of Tran-1 Return along with copies of ST-3 returns for the period April 2017 to June 2017 (e) Copies of sample sale invoices and purchase invoices. (f) Price lists of the products. (g) Monthly invoice-wise summary of item-wise sales for the period from October 2017 to March 2019. (h) Details of ITC availed, utilized, and reversed during the period from July 2017 to 14th November 2017. (i) Details of Closing Stock of inputs on 14th November 2017. 7. The DGAP, in his report, has mentioned that in terms of Rule 130 of the CGST Rules, 2017, Respondent No. 1 had been asked by the DGAP vide notice dated 09.04.2019 to indicate whether any information/ documents furnished were confidential. However, Respondent No. 1 did not classify any of the information/ documents furnished by him as confidential in terms of Rule 130 of the Rules, ibid. 8. The DGAP has reported that the reference from the Standing Committee on Anti-Profiteering, the various replies of Respondent No. 1, and the documents/evidence on record had been carefully examined. The main issues for determination were whether the rate of GST on the service supplied by Respond....
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.... 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, despite the reduction in the GST rate. Therefore, the only remaining point for determination was whether the increase in base prices was solely on account of the denial of ITC. 12. The DGAP has also stated that the assessment of the impact of denial of ITC, 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. The DGAP has further illustrated with an example that if the ITC in respect of restaurant service was 10% of the taxable turnover of the Respondent No. 1 till 14.11.2017 (which became unavailable w.e.f. 15.11.2017) and the increase in the pre-GST rate reduction base price w.e.f. 15.11.2017, was up to 10%, it could be concluded that there was no profiteering. However, if the increase in the pre-GST rate reduction base price w.e.f. 15.11.2017, was by 14%, the extent of profiteering would be 14% - 10% = 4% of the turnover. Therefore, this e....
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....mounting to Rs. 1,96,90,023/- 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 ITC was not available to Respondent No. 1. A summary of the computation of the ratio of ITC to the taxable turnover in the case of Respondent No. 1 has been furnished by the DGAP as per 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)* 3,40,095 4,04,062 5,00,187 4,71, 909 17,16,253 Total Outward Taxable Turnover as per GSTR-3B (B) 50,52,696, 48,84,153 48,47,832 49,05,342 1,96,90,023 The ratio of ITC to Net Outward Taxable Turnover (C)= (A/B) 8.72% 8.72% *ITC availed as per GSTR-3B excludes ITC of Compensation cess amounting to Rs. 13,093/- as Respondent No. 1 did not have any output liability of compensation cess and the same was also reversed on 14.11.2017 by him. 14. The DGAP has further stated that the analysis of the details of item-wise outward taxable supplies during the period from 15.11.2017 to 31.03.2019, revealed that the base prices of different items supp....
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....ts commensurately, despite the reduction in GST rate from 18% to 5% w.e.f. 15.11.2017 stood confirmed against Respondent No. 1. On this account, Respondent No. 1 has realized an additional amount to the tune of Rs. 78,41,754/- from the recipients which included both the profiteered amount and GST on the said profiteered amount and hence, the provisions of Section 171(1) of the CGST Act, 2017 have been contravened by Respondent No. 1 in the present case. 18. The above Report was considered by this Authority in its sitting held on 30.08.2019 and it was decided to accord an opportunity of hearing to Respondent No. 1 on 17.09.2019. Notice was also issued to Respondent No. 1 directing him to explain why the Report dated 28.08.2019 furnished by the DGAP should not be accepted and his liability for violation of the provisions of Section 171 of the CGST Act, 2017 should not be fixed. However, Respondent No. 1 did not appear for the hearing and requested an adjournment. Sh. Rakish Kumar, Consultant, and Sh. Amish Mittal, Advocate, represented Respondent No. 1. Respondent No. I also filed his written submissions dated 31.10.2019 and 04.11.2019 against the report of the DGAP. 19. This A....
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....ority, vide para-25 of aforesaid I.O. No. 11/2020 dated 27.02.2020, had directed to furnish the report within a period of three months of this order i.e. on or before 26.05.2020. The said time limit was extended up to 30.06.2020 by virtue of Notification No. 35/2020Central Tax dated 03.04.2020 issued by Central Government under Section 168A of the CGST Act, 2017 which stated that where, any time limit for completion/ furnishing of any report, has been specified in, or prescribed or notified under the CGST Act, 2017 which falls during the period from the 20th day of March 2020 to the 29th day of June 2020, and where completion or compliance of such action has not been made within such time, then, the time limit for completion or compliance of such action, would be extended up to the 30.06.2020. 23. The DGAP in his report has also reported that in response to notice dated 05.03.2020 and subsequent reminders, Respondent No. 1 submitted his reply vide letters/e-mails dated 12.03.2020, 17.03.2020, 23.03.2020, and 18.05.2020. The reply of Respondent No. 1 has been summed up by the DGAP as follows:- i. That on account of the very large number of invoices and each invoice havin....
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.... e. Other sales, which were as per the price list. iii. That he relied on this Authority's order dated 21.11.2019 in case of Principal Commissioner of CGST, Mumbai West and DGAP Vs. Johnson & Johnson Ltd and others (case No. 59/2019) repotted as 2019-TIOL-59-NAA-GST (para 9 of the order), wherein this Authority has approved the DGAP's methodology of taking separate base price for each category of buyers for pre-rate reduction period when a supplier made supply of his goods through different channels to different categories of buyers at different prices. iv. That for re-computation of the profiteering amount, the above-mentioned order of this Authority ought to be followed; that, in other words, separate calculation of profiteering must be made in respect of each category of sale i.e. the sales through the Respondent No. 1's outlet in M/s. TCS, Pune, SOTD sales, Sales through food delivery companies like Swiggy, Zomato, Food panda, etc., promotional sales and other sales as per the price list by taking separate pre-rate reduction base price for each of these categories of sales; that unless this was done, the quantum of profiteering would get infla....
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.... invoice-wise for the period from July 2017 to 31.03.2019; that his pos system did not record the details in the manner sought by the DGAP; that he only had the details of the total number of items sold from a particular outlet in a month and that he could not map the items supplied to his supply invoices. ii. That while one invoice issued by an outlet on a particular date could contain more than one item, the entry made in the system only depicted the total number of items sold and the total of invoices; that for cross-checking, the total invoice amount was tallied with the total number of items sold for a particular month and the total price thereof; that for this reason, the information in the prescribed format sought by the DGAP could not be generated from his POS system and has to be compiled manually which was not possible as the total number of invoices generated for the period from April 2018 to March 2019 were 2,75,995 (Two lacs Seventy-Five Thousand Nine Hundred and Ninety-Five) and the total number of menu items supplied were 255.; that it was for this reason that he had, vide his e-mail dated 23.03.2020 (para-7a above), sent two datasets (i) Item-wise data for ....
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.... covering all the operational franchisees as on the date of the reduction in the rate of GST w.e.f. 15.11.2017 was initiated on 15.05.2020 against Respondent No. 2 as per the directions of this Authority under Rule 133 (4) of the CGST Rules, revised profiteering could not be computed due to limitations in the data furnished by Respondent No. 1 and the non-submission of documents by Respondent No. 2. Thus, the Report dated 28.08.2020, establishing the profiteering to the tune of Rs. 78,41,754/- (including GST on the base profiteered amount) may be considered as the final Report. The DGAP has also stated that a reference to the CGST Act, 2017 and CGST Rules, 2017 in the Report also included a reference to the corresponding provisions under the relevant SGST/UTGST/IGST Acts and Rules. 29. The above Report of the DGAP was considered by this Authority and it was decided to allow Respondent No. 1 to file his consolidated written submissions against the report of the DGAP. Accordingly, notice dated 07.07.2020 was issued to Respondent No. 1 to explain why the Report dated 26.06.2020 should not be accepted and his liability for violation of the provisions of Section 171 of the CGST Act, ....
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....f November 2017 into periods 01.11.2017 to 14.11.2017 and 15.11.2017 to 30.11.2017 to enable the calculation of turnover for the period from 01.11.2017 to 14.11.2017; that he had reversed the credit in respect of inputs and input services lying unutilized as on 14.11.2017 and hence he could not have utilized the credit that he had reversed. ii. That since there was no credit availed in respect of capital goods, there was no question of calculating the quantum of reversal in terms of Rule 43 of the CGST Rules. d. That he was required to pay the rent and license fee in advance and hence the credit taken based on invoices which had been received in the first week of the month ought to have been considered; that since the services covered by the invoices had been actually received by him, there was no question of the same not being considered for the calculation, more so because he had not received any communication from the jurisdictional assessing officer in this regard. e. That no finding has been recorded in the DGAP's report dated 28.08.2019 as to on what basis has he adopted the long period of investigation, covering one year and four and half month....
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.... period, thus inflating the profiteered amount; that the average prices could not be equated with actual transaction prices since the prices at his restaurant located at TCS Pune were at 10% lower and since his SOTD sales were made at lower prices; that the average price of an item during any particular period was lower than the actual price of an item listed in the price list; that since the method of identification of the items in respect of which profiteering has been alleged is incorrect, the calculation of the profiteered amount in respect of such items was also incorrect. h. That in several cases, for calculating the commensurate base price, instead of taking the base price of an item as of 14.11.2017 as per the price list, the DGAP has incorrectly adopted the average base price of that item in the period 01.10.2017 to 14.11.2017, which was lower than the listed base price of that item as on 14.11.2017; that the DGAP has done this on the ground that the item-wise base prices for the pre-tax rate reduction period were not furnished by him; that for calculating the profiteered amount in respect of an item, its actual transaction price should have been taken for the com....
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....s. m. That no standard computational methodology has been notified, either by the Central Government or by this Authority for determining whether a registered person has contravened the provisions of Section 171(1) of the CGST Act, 2017 and for computation of the profiteered amount. n. That in this case, an adverse conclusion has been drawn and profiteering amounting to Rs. 78,41,754/- has been determined because of his inability to furnish item-wise and invoice-wise information about the items supplied by him during the period from 15.11.2017 to 31.03.2019 due to limitations of his POS system and it was impossible to compile the same manually due to the enormity of data. o. That the way DGAP has concluded that he had profiteered and the way the profiteered amount has been computed was a clear contravention of the provisions of Article 19(1)(g) of the Constitution of India; that since tax was not the only component of the base price of an item, which depended upon several other factors like cost of inputs, fixed cost, supply & demand position, competition, etc; that before holding a registered person guilty of contravention of the provisions of Section 17....
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....rom Section 75AT to Section 75AZ of the Trade Practices Act, 1974 of Australia pertaining to "price exploitation in relation to the new tax system" (equivalent to profiteering in the GST laws). Section 75 AU(2) gave a clear cut definition of what constituted price exploitation in relation to the new tax system changes and in terms of this sub-section, for determining whether a corporation was guilty of price exploitation, it was seen as to whether the price of the supply during the "transition period" as defined in the Act, was unreasonably high even after taking into account the supplier's cost, supply and demand condition, and any other relevant matter; that Section 75AV authorized the Commission to formulate detailed guidelines for determining whether a corporation has indulged in price exploitation referred to in Section 75 AU(2); that the guidelines on price exploitation framed by ACCC gave a precise formula that if the new tax system changed cause tax and costs to fall by one dollar, then the prices should fall by one dollar and if on account of changes, the costs of a business rise by one dollar, the prices might rise by no more than that amount and that in any case, no ....
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.... this regard, reliance was placed on the Apex Court's judgement in the case of Hamdard Dawakhana and Anr Vs Union of India and Ors. AIR 1960 SC-554 (Paras 29 to 35 of the judgement). t. That the framing of Rules for determining whether a person has contravened the provisions of Section 171 (1 ) has been delegated to the Government but the CGST Rules 2017 nowhere prescribed any machinery provisions or computational methodology for determining whether a registered person has contravened the provisions of Section 171(1) and if so, how the profiteered amount would be calculated and for which period; that in this regard, Rule 126 of the Rules simply further delegated to this Authority the determination of the procedure & methodology for determining as to whether the registered person has passed on the benefit of reduction in the rate of tax or the benefit of ITC to the recipient by way of commensurate reduction in prices; that this amounted to sub-delegation of the legislative function, which was not permissible, as for this there was no provision either in Sec 164 or in Sec 171 of the CGST Act. The maxim delegatus non potest delegare was a well-settled law and sub-de....
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....lable. Respondent No. 1 belonged to an organized chain of restaurants in respect of which the GST Council itself had observed that they were factoring the ITC and transferring its benefit to the consumers. Therefore, the proceedings against Respondent No. 1 were unwarranted and misconceived and were in the nature of a roving inquiry. From the very beginning, Respondent No. 1 emphasized that he had not indulged in profiteering by pocketing the tax concession. If he had been indulging in profiteering, the same would have been reflected in his profits and loss a/c in form of abnormal profit, which was not the case. There was not even an allegation that Respondent No. I's profit during the period of investigation was abnormal. 30. A supplementary report was sought from the DGAP on the above submissions of Respondent No. 1 under Rule 133(2A) of the CGST Rules, 2017. The DGAP, vide his Supplementary Report dated 09.09.2020, has filed his clarifications under Rule 133(2A) of the CGST Act, 2017, wherein he has reported as under:- a. That Respondent No. 1 has reiterated his earlier submissions made vide letter dated 04.11.2019 that have been duly addressed vide DGAP Report d....
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....o the recipient by way of commensurate reduction in prices." Thus, the legal requirement was that in the event of a benefit of ITC or reduction in the rate of tax, there must be a commensurate reduction in prices of the goods or services. Such reduction could obviously only be in absolute terms so that the final price payable by a consumer got reduced. This was the legally prescribed mechanism for passing on the benefit of ITC or reduction in the rate of tax under the GST regime to the consumers. Moreover, it was clear that the said Section 171 simply did not provide a supplier of the goods or services any other means of passing on the benefit of ITC or reduction in the rate of tax to the consumers. Thus, the legal position was unambiguous and could be summed up as follows:- i. A supplier of goods or services must pass on the benefit of ITC or reduction in rate of tax to the recipients by commensurate reduction in prices. ii. The law did not offer a supplier of goods and services any flexibility to suo moto decide on any other modality to pass on the benefit of ITC or reduction in the rate of tax to the recipients. g. That the computation of the marginal ....
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....the upward revision of the base price became necessary. The dispute, in this case, was only on the point of whether the increase in the base price by Respondent No. 1 was only to that extent which was necessary to offset the effect of withdrawal of ITC benefit. In this regard, Respondent No. 1 decided to follow the recommendation of Respondent No. 2 given vide his email dated 14.11.2017, which was enclosed as Annexure A-I to the Written Submissions dated 30.10.2019, submitted by Respondent No. 1. Since as per Respondent No. 2's estimate, the average impact of the withdrawal of ITC benefit was 11% with 2% additional ITC loss if a franchisee opened new outlets, the above Respondent No. 2 vide e-mail dated 14.11.2017 recommended a 12.4% increase in the base price of menu items other than those sold on SOTD basis with rounding off to Rs. 5/- or Rs. 10/- and an increase of about 8.4% for the menu items sold as SOTD. Respondent No. 1 had adopted this pricing policy. Respondent No. 1 pleaded that the impact of the withdrawal of ITC benefit during the post-rate reduction period, which, as per the DGAP, was the ratio of ITC availment to the taxable turnover during the pre-rate reduction....
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....d during the period of investigation. d. That the calculation in this manner should have been done separately for each category of the sale in the very beginning when the investigation against Respondent No. 1 was initiated. There was no need for invoice-wise and menu item-wise calculation of profiteering and for asking Respondent No. 1 to give the voluminous invoice-wise and item-wise sales data in a prescribed format. It was unfair to reject Respondent No. 1's request for separate calculation for each category of sale on the ground that he did not give invoice-wise and item-wise data in the prescribed format, which Respondent No. 1 could not furnish, as the invoice-wise and item-wise data prescribed format could not be generated from his system due to various technical reasons as mentioned in his letter dated 18.05.2020 and given the very large number of 2,75,995 invoices for April 2018 to March 2019 period, with each invoice covering more than one of a total of 255 menu items being served, compiling such data manually was impossible. e. That from the DGAP's above clarification, it was clear beyond doubt that for determining whether a registered person h....
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....d require an inquiry for ascertaining whether it was due to bonafide commercial reasons or otherwise and in the latter case, would be treated as profiteering. But in this case, the reduction in the rate of GST was from 18% ad -valorem with ITC benefit to 5% ad-valorem without ITC benefit. Since the withdrawal of ITC benefit has the effect of increasing the input cost, revision of base price became necessary for offsetting the effect of withdrawal of ITC benefit. There was no notified standard formula for quantifying the impact of the withdrawal of ITC benefit. The DGAP quantified the impact of the withdrawal of ITC benefit based on ITC availment to taxable turnover ratio for the pre-rate reduction period and applied this ratio to the post-rate reduction period. But it was wrong to treat the ITC availment to taxable turnover ratio to be fixed and unchanging. As per Respondent No. I's estimate, this ratio might be higher and he would want to revise the base prices during the post-rate reduction period on that basis. When in cases of reduction in the rate of GST accompanied by the withdrawal of ITC benefit, the only point of dispute was whether the increase in base price was only ....
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.... price is the sole consideration for the supply." Further, Section 15(3) (a) provides that the value of the supply shall not include any discount which is given before or at the time of the supply if such a discount has been duly recorded in the invoice issued in respect of such supply. Thus, GST was chargeable on actual transaction value after excluding any discount (conditional as well as unconditional) and therefore, for the purpose of computation of profiteering menu price or pricelist or MRP could not be considered whereas actual transaction value was the correct amount which had been considered for computation of profiteering amount. The pricelist was the maximum price at which an item might be sold but it was not the actual sale price. c. That the contention of Respondent No. 1 that maximum of the average base price during post-tax rate reduction period was not correct as the average base price for each month for each SKU had been taken separately for calculation of the amount of profiteering. d. That Annexure-16 of his Report dated 28.08.2019 indicated the increase in % in the base prices only and it had no relation to the computation of profiteer....
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....could obviously only be in absolute terms so that the final price payable by a consumer got reduced. This was the legally prescribed mechanism for passing on the benefit of ITC or reduction in the rate of tax under the GST regime to the consumers. Moreover, it was clear that the said Section 171 simply did not provide a supplier of the goods or services any other means of passing on the benefit of ITC or reduction in the rate of tax to the consumers. Thus, the legal position was unambiguous and could be summed up as follows:- i. A supplier of goods or services must pass on the benefit of ITC or reduction in the rate of tax to the recipients by commensurate reduction in prices. ii. The law does not offer a supplier of goods and services any flexibility to suo moto decide on any other modality to pass on the benefit of ITC or reduction in the rate of tax to the recipients. Therefore, computation of the marginal gain/loss as per financial statements cannot be considered in the light of said statutory provisions. h. That Respondent No. 1 had been misleading the proceedings by comparing the reduced rate of GST @ 5% (without ITC) w.e.f. 15.11.2017 with....
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....in respect of time limits specified in the Customs Brokers Licencing Regulations/ Customs House Agents Licensing Regulations, were ipso-facto applicable to the present case as the time limit has been prescribed in the CGST Rules, 2017 framed by the Central Government under the legislative authority delegated under Section 164 of the CGST Act, 2017 and in terms of Section 166, these Rules were deemed to have the approval of the Parliament. b. That this Authority in its Order No. 99/2020 dated 11.12.2020 passed in the case of Hussain Shoaib Kothalia, Chennai & DGAP Vs. M/s. Subwest Restaurant LLP has upheld the methodology adopted by the DGAP for computation of profiteered amount by comparing the pre-rate reduction base price of the menu-item as per the price-list, as adjusted for withdrawal of ITC benefit w.e.f. 15.11.2017, with the post-rate reduction base price as per the post-tax rate reduction pricelist w.e.f. 15.11.2017 and adding 5% GST to the difference. That the above methodology was also evident from Para 23 and 24 of the DGAP's Report dated 27.12.2019 in the case of M/s. Subwest Restaurant LLP. This computational methodology has also been accepted by this Auth....
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....mine 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. 37. It is observed from the record that Respondent No. 1 is providing restaurant services as a franchisee of Respondent No. 2 and is supplying various food products to the customers. It is also revealed from the plain reading of Section 171 (1) of the CGST Act, 2017 that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second about the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the record that there has been a reduction in the rate of tax from 18% to 5% w.e.f. 15.11.2017, on the restaurant service being supplied by Respondent No. 1, vide Notification No. 46/2017-Centra Tax (Rate) dated 14.11.2017 without the benefit of ITC. Therefore, Respondent No. 1 is liable to pass on the benefit of tax reduction to his customers in terms of Section 171 (1) of the above Act. It is also apparent that the DGAP has carried out the present investigation w.e.f. 15.11.2017 t....
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....upplied 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 during the period from 01.07.2017 to 14.11.2017 (Pre-GST rate reduction) and 15.11.2017 to 30.03.2019 (Post-GST rate reduction) have been compared and it has been found that Respondent No. 1 has increased the base prices by more than 8.72% i.e. by more than what was required to offset the impact of denial of ITC in respect of the products/items sold during the above period. Thus, it is apparent that Respondent No. 1 has resorted to profiteering as the commensurate benefit of reduction in the rate of tax from 18% to 5% has not been passed on by him. However, there was no profiteering in respect of the remaining 09 items on which there was either no increase in the base prices or the increase in base prices was less or equal to the denial of ITC or these were new products launched post-GST rate reduction. 41. Based on the documents submitted by Respondent No. 1 and non-submission of documents by Respondent No. 2, the revised profiteering as per the direction of this Authority has not been computed by the DGAP. Thus, the repo....
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....of tax reduction on each purchase made by him. The above methodology employed by the DGAP for computing the profiteered amount appears to be correct, reasonable, justifiable and in consonance with the provisions of Section 171 of the CGST Act, 2017 and has been successively approved by this Authority in the cases of tax reduction and hence the same can be relied upon. 43. Respondent No. 1 has vehemently argued that the DGAP has submitted his report to this Authority on 29.08.2019 and this matter was required to be decided by 27.02.2020. This Authority vide its order dated 27.02.2020 had referred back the matter to the DGAP under Rule 133(4) of the CGST Act, 2017. The reference to the DGAP for further investigation under the above Rule was not to be treated as a new investigation. He has also placed reliance on the decision of Hon'ble Madras High Court in the case of KTR Logistic Solutions Pvt. Ltd. Vs. Commr. Of Customs and Ors. 2019-TIOL-2828-HC-MAD-CUS and the judgement of Hon'ble High Court of Delhi in the case of Impended Logistics vs. CC 2016-TIOL-1069-HC-DEL-CUS. It is pertinent to mention here that as per Rule 133 (4) of the CGST Rules, 2017, if this Authority opi....
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....more than the denial of ITC of 8.72% or more as is evident from Para 2 (A. 1) of the supplementary report dated 02.11.2019 of the DGAP which states that:- "As clearly detailed in Para 17 and 18 of the report dated 28.08.2019 that the Ratio of Input Tax Credit to Net Outward Taxable Turnover was 8.72% thus the Noticee could have increased the base price by 8.72% post GST rate reduction w.e.f. 15.11.2017 in order to negate the impact of ITC denial but as it is clear from Annexure 16 & 17 of the report dated 28.08.2019, the Noticee has increased the base prices on 241 items in the range of 15% to 102%....". Therefore, it is quite clear that the profiteered amount is not to the extent of 4% of the GST. Hence, the above claim of Respondent No. 1 cannot be accepted. 45. The Respondent No. 1 has further averred that the DGAP has calculated the ratio of ITC to Turnover for the period from 01.07.2017 to 31.10.2017 and has not taken into account the ITC availment for the period from 01.07.2017 to 14.11.2017 even though the details of ITC availment and the invoice-wise details of taxable outward supplies had been provided by the Respondent No. 1. In this regard, we observe that this has be....
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....t No. 1 has not produced any evidence to prove from which date the benefit was passed on by him. The fact that Respondent No. 1 has not complied with the law till 31.03.2019 requires that the profiteering is computed for the entire period and hence we do not see any reason to accept this contention of Respondent No. 1. We further observe that if Respondent No. 1 had 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 correctly taken by the DGAP for computation of the profiteered amount. 47. Respondent No. 1 has further contended that for identifying the items in respect of which increase in base prices during post-tax rate reduction period was made the base prices of the items as of 14.11.2017 should have been compared with the revised base prices of the items w.e.f. 15.11.2017 for the post-tax rate reduction period. But instead of calculating the increase in base prices in the above manner, the DGAP has compared the base prices during the pre-rate reduction period with the maximum of Average Base Price during each month from 15.11.2017 to 31.03.2019. The Respo....
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....easonable, justifiable, and in consonance with the provisions of Section 171 of the CGST Act, 2017. 48. He has also contended that instead of taking the base prices for the pre-rate reduction period as per Respondent No. 1's price list, the average base price during the period from 01.10.2017 to 14.11.2017 had been adopted, which was lower than the base price, as per the price list and that the Average price couldn't be equated with the Actual Transaction Price, on account of Sales from the restaurant located in TCS Pune, which had 10% lower prices, SOTD sales, promotional sales at discount and sales through Swiggy, Zomato, Food Panda, etc. which were also at a lower price. This understanding had been adopted by this Authority in the case of Johnson & Johnson Ltd. (case No. 59/2019), decided vide its Order dated 21.112019. In this connection, it would be relevant to mention that despite the orders of this Authority to Respondent No. 1 to promptly extend all co-operation to the DGAP and furnish the details/information/documents in the manner required for the investigation, the Respondent No. 1 has not furnished the channel wise details i.e. sales from the restaurant locat....
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.... Hence the above amount has rightly been included in the profiteered amount as it denotes the amount of benefit denied by Respondent No. 1 to his customers/ recipients. The above amount can also not be recovered from the Government as it is required to be deposited in the CWFs of the Central and the State Government. Therefore, the above amount has been correctly included in the profiteered amount by the DGAP, and therefore, the above contention of Respondent No. 1 is untenable and hence it cannot be accepted. 50. Respondent No. 1 has further contended that while calculating the profiteered amount vide Annexure 17, the DGAP has not taken into account the fact that in the case of the items sold as 'Sub of the Day (SOTD) items', the price of which as on 14.11.2017 was Rs. 110/- plus GST which was revised to Rs. 125/- including 5% GST w.e.f. 15.11.2017, translating into an increase of only 8.18% or Rs. 9/- in the base price from Rs. 110/to Rs. 119/-, was well within the impact of ITC withdrawal of 8.72% as calculated by the DGAP and hence there was no profiteering in the case of SOTD sales. However, the record of the case reveals that Respondent No. 1, at no point in time, ....
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....as to be conducted in respect of all such SKUs/units/services by the DGAP. What would be the 'profiteered amount' has been clearly defined in the explanation attached to Section 171. These benefits can also not be passed on at the entity/organization/branch/invoice/product/ business vertical level as they have to be passed on to each buyer at each SKU/unit/service level by treating them equally. The above provision also mentions "any supply" which connotes each taxable supply made to each recipient thereby making it evident that a supplier cannot claim that he has passed on more benefit to one customer on a particular product therefore he would pass less benefit or no benefit to another customer than what is actually due to that customer, on another product. Each customer is entitled to receive the benefit of tax reduction or ITC on each SKU or unit or service purchased by him subject to his eligibility. The term "commensurate" mentioned in the above Sub-Section provides the extent of benefit to be passed on by way of reduction in the price which has to be computed in respect of each SKU or unit or service based on the price and the rate of tax reduction or the additional I....
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....over, this Authority under Rule 126 has been empowered to 'determine' Methodology & Procedure and not to 'prescribe' it. Similarly, the facts of the cases relating to the sectors of Fast Moving Consumer Goods (FMCG), restaurant service, construction service, and cinema service are completely different from each other and therefore, the mathematical methodology adopted in the case of one sector cannot be applied to the other sector. Moreover, both the above benefits are being given by the Central as well as the State Governments as a special concession out of their tax revenue in the public interest and hence the suppliers are not required to keep even a single penny in their pocket and therefore, are bound to pass on the above benefits as per the provisions of Section 171 (1) which are abundantly clear, unambiguous, mandatory and legally enforceable. The above provisions also reflect that the true intent behind the above provisions, made by the Central and the State legislatures in their respective GST Acts is to pass on the above benefits to the common buyers who bear the burden of tax and who are unorganized, voiceless and vulnerable. The Respondent No. 1 is tryin....
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....contended by Respondent No. 1 that the DGAP while concluding that Respondent No. 1 was guilty of contravention of the provisions of Sec 171(1) of the CGST Act, 2017 has not considered that the base price of a product depended upon several other factors like cost of inputs, fixed cost, supply & demand position, competition, etc. In this connection, it would be pertinent to mention that the provisions of Section 171 (1) and (2) of the above Act require that Respondent No. 1 has to pass on the benefit of tax reduction to the consumers only and have no mandate to look into fixing of prices of the products which the Respondent No. 1 is free to fix. However, it cannot be accepted that his costs had increased on the intervening night of 14.11.2017/ 15.11.2017 when the rate reduction had happened which had forced him to increase his prices more than the denial of benefit of ITC. Such an uncanny coincidence is unheard of and hence there is no doubt that Respondent No. 1 has increased his prices for appropriating the benefit of tax reduction to deny the above benefit to his customers. Therefore, the above claim of the Respondent No. 1 cannot be accepted. 54. Respondent No. 1 has also poin....
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....ention that it should be used to denote proportionality and adequacy. The benefit of tax reduction would depend upon the price and quantum of reduction in the rate of tax from the date of its notification. Computation of commensurate reduction in prices is purely a mathematical exercise which is based upon the above parameters and hence it would vary from SKU to SKU or unit to unit or service to service and hence no fixed mathematical methodology can be prescribed to determine the amount of benefit which a supplier is required to pass on to a buyer. Therefore, the above contention of Respondent No. 1 is not maintainable. 56. The Respondent No. 1 has also relied upon the judgements passed by Hon'ble Apex Court in the case of Commissioner of Income Tax Bangalore v. B. C. Srinivasa Setty (1981) 2 SCC 460 and claimed that in the absence of the machinery provisions the provisions of Section 171 could not be implemented. In this connection, it is mentioned that under Section 171 (1) no tax has been imposed and hence no computation provisions mentioned in the above case are required to be made. As has been explained in Para supra the commensurate price can be fixed by Respondent No....
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....017 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 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 & 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 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 the competent bodies, the same are legally tenable and binding on Respondent No. 1. This Authority, in the exercise of the power delegated to it under Rule 126 of the Rules, ibid, has notified the Methodology and Procedure vide Notification dated 28.03.2018 which is also available on its webs....
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....f Respondent No. 1 is also not established by the present investigation which shows that he has not passed on the benefit of tax reduction and hence, the contention of Respondent No. 1 is frivolous and cannot be accepted. Thus, he has contravened the provisions of Section 171 of the CGST Act, 2017. Therefore, he is liable to pass on the said benefit to his customers/recipients, which he has failed to do. 59. The Respondent No. 1 has also relied upon the case of Rishi Gupta V. M/s. Flipkart Internet Pvt. Ltd. 2018-TIOL-04-NAA-GST wherein this Authority has observed that discounts have to be ignored while calculating profiteering amount. On perusal of the above-cited case, it is observed that the issue in that case related to denial of discount of Rs. 500/-, which had been initially offered by the supplier to the buyer at the time of placing the order, but the same was withdrawn by the supplier at the time of supply. In these circumstances, it was held by this Authority that the withdrawal of such discount did not amount to profiteering, since the said discount had no connection with the base price of the product supplied on the grounds that profiteering has to be calculated based....
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....plaint alleging non-passing on of the benefit of reduction in the rate of tax or additional ITC by any supplier/registered person can be made by any other person also as per the provisions of Rule 128(1). Therefore, the above claim of Respondent No. 1 is not correct and cannot be accepted. 62. The Respondent has also averred that there would have been no need to revise the base prices of items w.e.f. 15.11.2017 if the reduction in the rate of GST from 18% to 5% had been made without withdrawing the ITC. However, w.e.f. 15.11.2017, the rate of GST on restaurant services was reduced from 18% with ITC to 5% without ITC; therefore, the revision of base prices w.e.f. 15.11.2017 had become necessary as withdrawal of ITC had increased the cost of inputs. The above contention made by Respondent No. 1 is frivolous. In this regard, we find that while analyzing the item-wise outward taxable supplies, Respondent No. 1 was entitled to increase the base prices of his items by 8.72% to offset the denial of ITC. However, Respondent No. 1 had increased the base prices of different items supplied as a part of restaurant services by more than 8.72% i.e. by more than what was required to offset the....
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.... Section 171 (3A) of the CGST Act, 2017 has been inserted in the CGST Act, 2017 vide Section 112 of the Finance Act, 2019, and the same became operational w.e.f. 01.01.2020. However, during the period of investigation i.e. 15.11.2017 to 31.03.2019, there was no penal provision in the CGST Act, 2017 for the contravention of the provisions of Section 171 of the Act. Therefore, no penalty could be imposable on Respondent No. 1 under Rule 133 (3) (c) of the CGST Rules, 2017. In this regard, it is observed that the provisions of Section 171 (3A) have come into force w.e.f. 01.01.2020 whereas the period during which violation has occurred is w.e.f. 15.11.2017 to 31.03.2019, hence the penalty prescribed under the above Section is not proposed to be imposed on Respondent No. 1 retrospectively. 65. Based on the above facts the profiteered amount is determined as Rs. 78,41,754/- as has been computed in Annexure-17 of the DGAP Report dated 28.08.2019. Accordingly, we direct the Respondent No. 1 to reduce his prices commensurately in terms of Rule 133 (3) (a) of the above Rules. Further, since the recipients of the benefit, as determined above are not identifiable, Respondent No. I is direc....
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....as to be passed on or before 27.08.2020. However, due to the prevalent pandemic of COVID-19 in the country, this order could not be passed on or before the above date due to force majeure. Accordingly, this order is being passed today in terms of the Notification No. 91/2020-Central Tax dated 14.12.2020 issued by the Government of India, Ministry of Finance (Department of Revenue), Central Board of Indirect Taxes & Customs under Section 168 A of the CGST Act, 2017. 69. A copy each of this order be supplied to the Applicants, Respondents No. 1 & 2 and to the concerned Commissioners CGST/SGST for necessary action. File be consigned after completion. ============= Document 1 2 DETAILS OF INVOICE WISE OUTWARD TAXABLE SUPPLIES (OTHER THAN ZERO RATED, NIL RATED AND EXEMPTED 3 4 LEGAL NAME OF THE SUPPLIER: 5 TRADE NAME. IF ANY: DOUGHMAKERS INDIA PVT LTD 27AACCC8522A123 6 GST REGISTRATION NO.: 7 FOR THE MONTH: Apr-18 INVOICE INVOICE S.NO. NUMBER DATE GOODS/ SERVICES CODE GOODS/ SERVICES DESCRIPTION RATE MRP, IF ANY QUANTITY PER UNIT TOTAL AMOUNT DISCOUNT, IF ANY 9 TOTAL TAXABLE AMOUNT FATE ....