AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (3) TMI 648
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 further action vide its letter dated 21.02.2019. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Respondent No. 1 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 h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 exercise to work out the ITC in respect of restaurant service as a percentage of the taxable turnover of the products supplied during....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 supplied as a part of restaurant service to make up for the denial of ITC post-GST rate reduction had been increased by the Respondent No. 1. The pre and post GST rate reduction prices of the items sold as a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 Authority, after carefully considering the Reports filed by the DGAP, the submissions of the above Applicants and the Respondent No. 1, and other material placed on record had observed certain discrepancies in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irtue 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 having more than one menu item, furnishing of invoice-wise details of outward supplies was not easy and thus he had furnished menu item wise and day-wise details of our outward supplies, that however, since this Authority had directed that the cal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....herein 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 inflated. v. That on account of the increase in the cost of inputs, he had increased the menu prices w.e.f. 30.01.2019, therefore, the period of February 2019 and March 2019 ought to be excluded for calculation of the profiteered amount. vi. That the profiteered amount must not include GST, as the amount collected b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t 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 October 2017 to March 2018 since invoice details were not available due to a change of his POS system and (ii) Invoice-wise data for April 2018 to March 2019, which did not contain the description of the menu items, as for this period, what could be compiled was either the data of item-wise sales along with the quantity and value or the data of invoice-wise sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ondent 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, 2017 should not be fixed. Respondent No. I filed his submissions dated 24.08.2020 in respect of the report of the DGAP and has stated:- a. That the DGAP's report had been received by this Authority on 29.08.2019, therefore, this matter was required to be decided by 27.02.2020, that a reference to DGAP for further investigation under Sub-rule (4) of rule 133 could not be treated as a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere 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 months (from 15.11.2017 to 31.3.2019); that during this long period, the cost of the inputs had increased and other factors influencing the prices had also changed; that the profiteered amount must be calculated only for a limited period in which the factors like cost of inputs, fixed cost, and other relevant factors did not change; that since the prices of various items had been revised upward w.e.f. 30.01.2019 on account of an increase in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 computation and not the average price. i. That as per his own calculations, if the actual base price as on 14.11.2017 as per the price list had been adopted instead of the average base price during the 01.10.2017 to 14.11.2017 period, the alleged profiteered amount would stand reduced to Rs. 9,22,410/- as against the alleged profiteered amount of Rs. 78,41,754/- calculated by the DGAP. j. That the DGAP had added 5% GST to the profiteered amount which was u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 171(1) of the CGST Act 2017, it was absolutely necessary to rule out that increase in base price during post-tax rate reduction period or failure to proportionately decrease the base price on account of changes in the laws resulting in the availability of the higher amount of ITC was not due to any genuine reason like increase in the cost of inputs or fixed cost, supply & demand position, etc. and the burden of proving that the increase in the base price or failure to decrease the base price was not due to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 price rise because of new tax system changes should be more than ten percent. q. That the Malaysian anti-profiteering law [Price Control and Anti-profiteering Act, 2011 read with Price Control and Antiprofiteering (Mechanism to Determine Unreasonably High Profits for Goods) Regulations)] laid down a strict formulaic methodology wherein the net profit margins of a business during the defined transition period could not exceed the business as on 01.01 2015. r. That in contrast to the above position, absolutel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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-delegation of legislative function was unauthorized unless the person, on whom such power was conferred, was allowed in the parent Act to delegate, either expressly or by necessary intendment. In this regard, reliance is placed on the judgment of the Apex Court in the case of District Collector, Chittoor Vs Chittoor Groundnut Traders Association AIR 1989 SC 989 wherein it was held that when the Essential Commodities Act conferred rule-making powers on the Central Government, which could subdelegate this power to the State Governments subjec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its 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 dated 28.11.2020. b. That the concerns related to channel-wise and transactions-wise profiteering raised by Respondent No. 1 were addressed in para-8 to 10 of the DGAP's Report dated 26.06.2020 wherein it was reported that channel-wise and transactions-wise profiteering could not be computed in the absence of requisite documents since the same had not been furnished by Respondent No.1. c. That the DGAP has not attempted to examine or question the base price as Section 171 of the CGST Act 2017 did not mandate control over the prices of the goods or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ds 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 gain/loss as per financial statements could not be considered in the light of the above statutory provisions. h. That the contention of Respondent No. 1 that he had not indulged in profiteering was wrong. The DGAP has done a detailed investigation based on the documents and information submitted by Respondent No. 1 and the report indicated the procedure followed by the DGAP and the basis of the computation made by the DGAP for determining the amount of profiteering. 31. The above supplementary report of the DGAP was supplied to Respondent No. 1 to file his consolidated submissions if any. Respondent No. 1 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 period, was not a static factor but varied from time to time depending upon the tax element on the major inputs like rentals and in this regard, it would be wrong to assume that the same during post-rate reduction period would remain on the same level as that during prerate reduction period. Therefore, revision in the base price of various menu items w.e.f. 15.11.2017, based on the recommendation of Respondent No. 2, was a prudent business decision to ensure that Respondent No. 1 earned a reasonable profit and at no point of time during post-tax rate reduction ended up selling his products below the cost price and did not pocket t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 has passed on the benefit of reduction in the rate of tax or ITC to his customers by way of commensurate reduction in prices, he didn't go into the cost component. f. That the anti-profiteering provisions of Section 171 of the CGST Act, 2017 and the Chapter XV of the CGST Rules, 2017 made under Section 164 of the Act, without any computational provisions either in the Act or in the Rules were unenforceable given the Apex Court's judgment in CIT vs. BC Srinivas Shetty (1981) 2 SCC 460. g. That Rule 126 of the CGST Rules, 2017 sub-delegating the power to determine the "methodology and procedure for determination as to whether the reduction in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....riod 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 to that extent which was necessary to offset the effect of withdrawal of ITC benefit or more than that and when there was no notified standard formula for determining the impact of the withdrawal of ITC benefit, it was wrong to initiate inquiry under Sec 171 against an assessee only on account of the small difference between post-tax rate reduction base price as fixed by him and the price as determined by the Department. k. That these submissions may be considered by the Hon'ble Authority along with Respondent No. 1's earlier submissions dated 30.10.2019, 4.11.2019, 11.12.2019, and 24.08.2020. 32. The above submissions of the Respondent No. 1 were supplied to the DGAP. The DGAP vide his su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ual 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 profiteering. The details of SKU wise computation of profiteering were given in Annexure-17 of his report dated 28.08.2019 wherein profiteering had been computed for each SKU by comparing pre-rate reduction average base price with month-wise post-rate reduction base price as Respondent No. 1 had not submitted the transaction wise details of outward taxable supplies. e. That Section 171 of the CGST Act, 2017 and Chapter XV of the CGST Rules, 2017, required the supplier of goods or services to pass on the benefit of the tax rate reduction to the recipients by way of commensurate reduction in prices. Price included both, the base price and the tax paid on it. If any supplier had charged more tax from the recipients, the aforesaid statutory provisions would req....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ide 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 that of GST @ 5% under composition scheme. Under the composition scheme, the supplier could not charge the Tax from the recipient. However, in the present case, Respondent No. 1 had opted for the normal scheme for payment of GST and was charging 18% GST from his recipients, which was reduced to 5%, and the same was charged by Respondent No. 1 w.e.f. 15.11.2019. Therefore, Section 171 of the CGST Act, 2017 got attracted in the present case as Respondent No. 1 had increased the base prices by more than what he ought to have done to offset the denial of ITC. i. That the case cited by Respondent No. 1 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. Further, there was no violation o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Authority in Para 19, 20 & 21 of its Order dated 11.12.2020. However, there was no reason for not apply the computational methodology adopted in the case of M/s. Subwest Restaurant in this case. Adopting different computational methodology for determining profiteering in the case of two identical assesses was a clear violation of the right to equality before law guaranteed under Article 21 of the Constitution of India. If the same computational methodology had been adopted in the present case, the profiteered amount would have been much less. c. That 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de 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 to 31.03.2019. 38. It is also evident that Respondent No. 1 has been supplying different items during the period from 15.11.2017 to 31.03.2019 to his customers. It has also been found that the GST rate of 5% has been charged by Respondent No. 1 w.e.f. 15.11.2017, however, the base prices of some of the products have been increased more than their commensurate prices w.e.f. 15.11.2017 which established that because of the increase in the base prices the cum-tax price paid by the consumers was not reduced commensurately, inspite of the reduction in the GST rate. 39. While comparing the average pre-tax rate reduction base prices with the post-tax rate reduction actual base prices the DGAP has duly taken in to account the impact of denial of ITC in respect of the "restaurant service" being supplied by Respondent No. 1 as a percentage of the taxable turnover from t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess 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 report dated 28.08.2020 submitted by the DGAP establishing the profiteered amount to the tune of Rs. 78,41,754/- (including GST on the base profiteered amount) has been considered. Based on the aforesaid pre and post-tax rate reduction rates of GST, the impact of denial of ITC, and the details of outward supplies (other than zero-rated, nil rated, and exempted supplies) during the period from 15.11.2017 to 31.03.2019, the amount of net higher sale realization due to the 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. 78,41,754/- including the GST on the base profiteered amount. The details of the computation have been given by the DGAP in Annexure-17 of his Report dated 28.08.2019. 42. The DGAP, for computation of the profiteered amount, has compared the average ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 opined that further investigation or inquiry was called for in the matter, it may, for reasons to be recorded in writing, refer the matter back to the DGAP to cause further investigation or inquiry as per the provisions of the Act and the Rules. Therefore, this Authority vide Order No. 11/2020 dated 27.02.2020 had referred back the matter to the DGAP to cause further investigation due to the reason that the profiteering ought to have been computed on the basis of the comparison of pre-rate reduction item-wise average base price with the actual transaction-wise/invoice-wise post-rate reduction price charged by the Respondent No. 1 in respect of his supplies as per the provisions of Section 171(1) and Section 171 (2) of the Act. Further, this Authority in Para 10 of guidelines dated 04.10.2019 has also notified that the Reports submitted by the DGAP under Rule 133(4) of the CGS....
X X X X Extracts X X X X
X X X X Extracts X X X X
....od 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 been done because although there was a reversal of ITC on the closing stock of inputs/input services and capital goods as on 14.11.2017 made by Respondent No. 1, but the reversal of the ITC was not in accordance with the provisions of Section 17 of the CGST Act, 2017 read with Rule 42 and 43 of the above Rules, and the invoice-wise outward taxable turnover for the month of November 2017 was not provided by the Respondent No. 1 to compute taxable turnover for the period from 01.11.2017 to 14.11.2017. It has also been illustrated that Respondent No. 1 has availed ITC of Rs. 22,368/- in November 2017 on invoice no. TRL - 135 dated 01.11.2017 issued by M/s. Tremont Reality LLP and of Rs. 25,032/- on invoice no. 270517180107316 dated 02.11.2017 issued by M/s. Vamona Developers Pvt. Ltd. however, Respondent No. 1 had received the former invoice for the monthly rental charges for the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Respondent No. 1 has also claimed that if instead of the average base prices for the period from 01.10.2017 to 14.11.2017, the actual base prices as of 14.11.2017 as per the price list, had been adopted, the alleged profiteered amount would come to Rs. 9,22,410/-. In this context, we observe that the DGAP for computation of the profiteered amount has compared the average base prices of the products which were being charged by Respondent No. 1 during the pretax rate reduction period with the actual post-tax rate reduction base prices of these products. It was not possible to compare the actual base prices prevalent during the pre and the post GST rate reduction periods due to the reasons that Respondent No. 1 was (i) selling his products at different rates to different customers based on the various factors (ii) the same customer may not have purchased the same product during the pre ra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 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 located in TCS Pune, SOTD sales, promotional sales at discount and sales through Swiggy, Zomato, Food Panda, etc. of the outward supplies to the DGAP during the course of the investigation and hence, there was no reason to separately consider the above supplies. Therefore, the allegation made by Respondent No. 1 on this ground is baseless. Further, a perusal of the above case relied upon by the Respondent No. 1 has revealed that in that case, the supplier has submitted the channel wise details of the outward supplies to the DGAP which Respondent No. 1 has not done, and hence the facts of the instant case are at variance with the case cited by the Respondent No. 1. Therefore, the above case cited by Respondent No. 1 cannot be relied upon. 49. Respondent No. 1 has also claimed that the DGAP while calculating the profiteered amount has erroneously added a 5% notional amount on account of G....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase 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, has furnished any invoice/ document which showed that the price of the SOTD items had been fixed as Rs. 110/- by the Respondent No. 1. It is also apparent that for computing the extent of profiteering, the DGAP has taken the product-wise average base price for the items supplied in the pre-tax rate reduction period from Respondent No. I's invoices which Respondent No. 1 had himself submitted and not from any secondary data/ source. Therefore, the base price of SOTD computed by the DGAP is based on the information supplied by Respondent No. 1 himself. Further, in case any such category existed and in case the base price thereof was increased from Rs. 110/- to Rs. 119/- i.e.by 8.23% which is less than the denial of ITC of 8.72%, then there would have been no profiteering computed. Therefore, the above contention of Respondent No. 1 is frivolous and unacceptable. 51. The Respondent No....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ject 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 ITC which has become available to a registered person. The legislature has deliberately not used the word 'equal' or 'equivalent' in this Section and used the word Commensurate' as it had no intention that it should be used to denote proportionality and adequacy. The benefit of additional ITC would depend on the comparison of the ITC/CENVAT which was available to a builder in the pre-GST period with the ITC available to him in the post GST period w.e.f. 01.07.2017. Similarly, 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lso 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 trying to deliberately mislead by claiming that he was required to carry out highly complex and exhaustive mathematical computations for passing on the benefit of tax reduction which he could not do in the absence of the procedure framed under the above Act. However, no such elaborate computation was required to be carried out if Respondent No. I had left unchanged the base prices of the products which he was charging as of 14.11.2017 and then added 8.72% of the base price on account of denial of ITC and charged GST @5% w.e.f. 15.11.2017. Instead of doing that he has raised his prices by adding more than 8.72% of the base prices as is evident from Table-A supra. It is clear from the above narration of facts and the law that no procedure or elaborate mathematical calculations are required to be prescribed separately for passing on the benefit of tax reduction. Respondent No. 1 cannot deny the b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....idence 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 pointed out that the Malaysian Government has enacted the Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profits for Goods) (Net Profit Margin) Act, 2011 which provided the mechanism to calculate profiteering. The anti-profiteering measures in Australia revolved around the 'Net Dollar Margin Rule' serving as the fundamental principle as its guideline. However, no such provision has been made under the CGST Act and the Rules. In this regard, it would be appropriate to mention that the above Act has been repealed by Malaysia as it was not found to be working properly. Moreover, this Act was promulgated to control prices after the introduction of GST in that Country. On the contrary, no provision for controlling prices has been made in the CGST Act, 2017. Similarly, the 'Net Dollar Margin Rule' applicable in Australia also provides a mechanism for price c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould 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. 1 by maintaining the pre-tax rate reduction base price and by increasing it by 8.72% due to denial of ITC and then by charging GST @ 5%. The whole exercise is purely mathematical and simple. Therefore, the above case-law cited by Respondent No. 1 does not apply in his case. 57. The Respondent No. 1 has further contended that the framing of Rules for determining whether a person has contravened the provisions of Section 171 (1) has been delegated to the Government. However, the CGST Rules, 2017 nowhere prescribe 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. Rule 126 simply further delegates to this Authority the determination of the procedure & methodology. This amounted to sub-delegation of the legislative function, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etent 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 website. However, it is submitted that no fixed/uniform mathematical methodology can be determined as the facts of each case differ. Therefore, the determination of the profiteered amount has to be done by taking into account the facts of each case. Therefore, the above contention of Respondent No. 1 is not maintainable and cannot be accepted. Hence, the cases relied upon by Respondent No. 1 also cannot be followed as there isn't any excessive delegation or sub-delegation. 58. Respondent No. 1 has further contended that the Notification reducing the rate of GST w.e.f. 15.11.2017 on the restaurant service from 18% with ITC benefit to 5% without ITC benefit had been issued based on the recommendations of the GST council made in its 23rd meeting held on 10.11.2017. From Para 65.23 of the Minutes of the Meeting, it could be seen that the rationale for reducing the rate of GST on restaurant service from 18....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 on the transaction value of supply. The facts of that case are totally at variance with the facts of the present case wherein Respondent No. 1 has claimed that giving discounts was a norm in the competitive world and a call of business. It is further observed that the profiteering has been correctly calculated in this case on the basis of the comparision of the transaction values of the supplies made by the Respondent No. 1 and the case cited by the Respondent No. 1 has no relevance. 60. The Respondent No. 1 has further contended that earning profits through lawful means was not a sin and he could be only held liable if he had earned profit by unlawful means. He has also cited the definitions given in Black's Law Dictionary and Oxford Dictionary on profiteering. In this connection, it would be appropriate to refer to the definition of the profiteered amount given in the Explanation attached to Sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 impact of denial of ITC. Hence there is no doubt that Respondent No. 1 has increased his prices for appropriating the benefit of tax reduction and to deny the above benefit to his customers. Therefore, the above claim of the Respondent No. 1 cannot be accepted. 63. Respondent No. 1 has also contended that this Authority in its Order No. 99/2020 dated 11.12.2020 passed in the case of Hussain Shoaib v. 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 added 5% GST to the difference. Adopting different computational methodologies for determining profiteering in the case of two identically placed assesses i.e. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 directed to deposit an amount of Rs. 78,41,754/- in two equal parts of Rs. 39,20,877/- each in the Central Consumer Welfare Fund and the Maharashtra State Consumer Welfare Fund as per the provisions of Section 171 read with Rule 133 (3) (c) of the CGST Rules 2017, along with interest payable @ 18% to be calculated from the dates on which the above amount was realized by the Respondent No. 1 from his recipients till the date of its deposit. The above amount of Rs. 78,41,754/- shall be deposited, as specified above, within a period of 3 months from the date of passing of this order failing which it shall be recovered by the concerned CGST/SGST Commissioner. 66. It is evident from the above narration of facts that Respondent No. 1 has denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus committed an offence under Section 171 (3A) of the above ....