TaxTMI 
TaxTMI 
2023 (12) TMI 229
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....also observed that the DGAP had reported that the sales data of the World Sandwich Day (WSD) was an outlier and hence an exception. We find this exclusion improper because in several similar cases pertaining to other franchisees of M/s Subway India, the sales data of WSD or sales data related to a similar "Buy One Get One" scheme, was not excluded by the DGAP while computing profiteering in similar cases of franchisees of M/s Subway India. It was apparent that the exclusion of the sales data of 03.11.2017 makes the computation of profiteering in this case different from the computation made in the case of Order Nos. 14/2020, 17/2020, 18/2020, and 36/2020 wherein the DGAP had not excluded the sales data of Buy One Get One (BOGO) offer or the WSD offer offered by those Respondents while working out the product-wise base prices for the period from 01.11.2017 to 14.11.2017. Hence the method used for computation of profiteering, in this case, becomes an aberration and thus unacceptable". ii. "In terms of the above observation and without dwelling upon any other aspect of the case and without going into any other contentions of the Respondent, this Authority, under the powers co....
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.... same period. Further, when the GST rate on restaurant service was reduced from 18% to 5%, the said ITC was not available to the Respondent. A summary of the computation of ration of ITC to the taxable turnover of the Respondent had been furnished in Table-A below: - "Table- A" (Amount in Rs.) Particulars Jul-2017 Aug-2017 Sept.-2017 Oct.-2017 Total Total Outward Taxable Turnover as per GSTR-3B(A) 4,84,207 4,11,860 3,75,948 3,78,577 16,50,592 ITC Availed as per GSTR-3B (B) 24,294 26,549 19,937 28,802 99,582 Ratio of ITC to Net Outward Taxable Turnover (C) =B/A*100 6.03% (e) The Analysis of the details of item-wise outward taxable supplies during the period 15.11.2017 to 30.06.2019, reveals that the Respondent had increased the base prices of different items supplied as part of restaurant service to make up for the denial of ITC post-GST reduction. To ascertain the profiteering on the basis of the aforesaid pre and the post GST rates, the DGAP had explained the methodology with the help of one illustration viz. of a particular item "6" 'Paneer Tikka' for which the average base price had been calculate....
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...., whereas it ought to have been excluded as an exception or an outlier; that due to this inclusion of the discounted prices on 03.10.2017, for calculation of the average price pre-GST rate reduction, the computation has become flawed and has resulted in an inflated quantification of the profiteered amount; that in other words, it was very common in the restaurant business to offer discretionary discounts to customers based on the business and market practices such as sales, inventory position, competition, competitor strategy, market penetration, customer loyalty, and other similar factors; that as the supplier, he was not only offering these discounts but also had the right to withdraw the discounts and promotional offers anytime and that there was no rule governing that any deal or discount could not be withdrawn until the expiry of a specified period; (c) That the DGAP has erred by computing the average pre rate reduction prices based on the total sales, by including the discounted as well as normal sales, during the period 01.11.2017 to 14.11.2017; that if the discounted prices of the World Sandwich Day had been excluded the profiteered amount would stand reduced by Rs....
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.... words, though the tax rate reduction from 18% to 5% became effective from 15.11.2017 and thereafter there was no change in the tax for restaurant service, the DGAP has calculated the quantum of profiteering for the entire period till June 2019, ignoring the fact that the Respondent had the fundamental right to increase the prices of his products, which he has exercised only after 15 months (approx.) from the of tax rate reduction and thus the DGAP has worked like a price controlling authority improperly; that there were no guidelines in the statute itself that prescribed the mechanism to be followed by the Respondent for revision of price and up to what period, the prices of products should not be increased; that thus the profiteered amount ought not be calculated on the increased price of the products in his case. (g) That the DGAP has erred in including the 5% GST paid by him in the profiteered amount because the GST has been paid to the government was based on the base price charged to the customers. Since, according to the DGAP's report, the base price should have been reduced and accordingly, the GST amount payable should also be less than as compared to the actu....
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....as been alleged by the applicant as there has been no net benefit of ITC available to the Respondent which could be passed on the consumers." (k) That increase in the delivery expenses paid to online E-Commerce platforms and online food delivery providers ought to have been considered by the DGAP while calculating the base prices after rate reduction; that online food delivery has emerged as one of the most fast-paced developments in the e-commerce space; that this sector has revolutionized the entire outlook towards the food industry as consumers now have the privilege to choose from a wide variety of cuisines, anywhere, anytime from a range of restaurants listed online; that this has happened due to the emergence of the concept of 'aggregator business model', wherein the business players provide a single online window to customers for ordering food online from a wide variety of restaurants registered on the portal. The aggregators were collecting a fixed margin of the order amount received by the restaurant from the customer as service charge and in turn, handled the actual delivery of food itself; that he had started working with aggregators like Swiggy, Zomato,....
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.... - (7,260.62) (7,260.62) (13,634.54) Mar'18 - (24,120.23) (24,120.23) Jan'19 - (6,774.62) (6,774,62) (30,894.85) Apr'18 - (19,916.16) (19,916.16) Feb'19 - (4,233.88) (4,233.88) (24,150.04) May'18 - (24,415.28) (24,415.28) Mar'19 - (2,427.42) (2,427.42) (26,842.70) June'18 - (15,442.96) (15,442.96) Apr'19 - (3,597.65) (3,597.65) (19,040.61) July'18 - (15,358.48) (15,358.48) May'19 - (4,213.05) (4,213.05) (19,571.53) Aug'18 - (26,450.92) (26,450.92) Jun'19 - (4,336.00) (4,336.00) (30,786.92) Total - (137,797.33) (137,797.33) - (78,614.07) (78,614.07) (216,411.40) (m) That he had also been supplying a few MRP based products like soft drinks that attracted GST @28% plus 12% Cess; that in the post-rate reduction period, his costs had increased because the ITC on 28% GST and 12% Cess was not available to him anymore; that in such cases of supply of MRP based products where the tax incidence on him had increased due to denial of ITC, ....
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....he year ending March 2018, he had incurred losses @36.27% and in the year ending March 2019, his losses had increased to 43.89%; that as a result of the losses, he had received instructions from his franchisor, M/s Subway India, either to relocate his store or to close down; that the profiteered amount should be calculated at the entity level based on his Profit & Loss (P&L) account and not item (SKU) wise; that accordingly, he has placed on record a chart of his Profit & Loss Account as a percentage of his Turnover, which is as below :- SI. No. Total Turnover Total Expenses Net Profit % of Turnover Year Ended March 2018 Rs. 42,23,300 Rs. 57,55,216 Rs (15,31,916) (36.27%) Year Ended March 2019 Rs. 42,54,848 Rs. 55,64,855 Rs (18,67,577) (43.89%) (p) That as per the DGAP Report, the percentage of the profiteered amount to his net sales turnover was 9.91%; that this calculation has been worked out based on only those products/ SKUs where the commensurate benefit was not passed on without adjusting those cases where a higher than commensurate benefit was passed on to the customers; that discounts offered by him to his customers were....
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....20 whereby he reiterated his earlier submissions and also contended that the subject proceedings were without jurisdiction and barred by limitation. He substantiated his above claim stating that as per Rule 128 (2) of CGST Rules, 2017, all applications from interested parties, on issues of local nature or those forwarded by the Standing Committee, were required to be first examined by the State Level Committee and then the Screening Committee should, within two months from the date of receipt of the written application or within such extended period not exceeding a further period of one month, for reasons to be recorded in writing, as might be allowed by this Authority, upon being satisfied that the supplier had contravened the provisions of Section 171, forward the Application with its recommendations to Standing committee for further action; that in the DGAP Report, nothing was mentioned either about the complaint or the examination of the Application by the State Level Screening Committee and as to when the complaint was forwarded by the State Level Screening Committee to the Standing Committee recommending further investigation; that therefore it was not clear to him whether th....
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....orld Sandwich Day had been excluded from the profiteering calculation. The same might be included for calculation of profiteering as had been done in other cases Reported by DGAP, the DGAP had clarified that on re-verification of all the documents/ reply submitted by the Respondent, it was observed the Respondent had extended the benefit of World Sandwich Day (hereinafter referred to as WSD) on 02.11.2018 and in 6 invoices on 03.11.2018. The Respondent also enclosed sample copies of the invoices reflecting the special offer (BOGO). From the perusal of these invoices and invoices of 03.11.2017, it was observed that these invoices contained special offer of WSD. For example: "Table- D" (Amount in Rs.) Invoice No. 1/A-9172 dated 03.11.2017 Invoice No. 1/A-26991 dated 02.11.2018 Item Price (Rs.) Qty Item Price (Rs.) (IN) WSD BTPH 6 inch Sub 0.00 2 12" Hara Bhara Kabab Sub 600 6" - Paneer Tikka Sub 70.00 2 (IN) WSD BOGO Any Ft 0.00 6" - Chicken Seekh Sub 77.50 2 12" -Hara Bhara Kabab Sub 0.00 From the perusal of above table, it was observed that the transaction value was reflected in main course items only ....
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....ting suitable method based on the facts and circumstances of each case as well as the nature of the goods or services supplied. There could not be any fixed methodology for determination of the quantum of benefit to be passed on. C. That for the contentions raised by the Respondent on Profiteering amount should be calculated up to the next price revision after post GST rate reduction, considering that after GST rate reduction any change of price was due to the business reasons only, the DGAP had clarified that the period of investigation was not prescribed under the GST Act or Rules. The DGAP follows the practice of taking the period of investigation from the date of rate reduction till the previous month of the date on which notice of investigation was issued. Section 171 (1) of the CGST Act, 2017 was very clear which states that any reduction in the rate of tax or the benefit of ITC had to be passed on to the recipient by way of commensurate reduction in price. Therefore, Section 171 of the CGST Act, 2017, was neither violative of Article 19 (1) (g) of the Constitution of India nor does it interfere with the right to trade, as Section 171 of the CGST Act, 2017 nowhere se....
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....of ITC on pre rate reduction transaction value (exclusive of tax). The DGAP does not go into the increased cost incurred by the Respondent and does not go into the costing of the product. As regards the additional cost of GST paid under Reverse Charge by the Respondent to Subway India Private Limited on the increased amount of Royalty and Advertisement Expenses, it was stated that these was the part of the business process and hence was inbuilt in the basic cost of the product/item. Any increase on this account can't be passed on to consumer by cutting into the tax relief provided by the Government. Therefore, in all circumstances, reduced tax benefit had to be passed on to the consumer. Further, the case cited by the respondent was different from the instant case as in the case of M/s KRBL, the pre-GST rate was nil and for the first time a tax of 5% was imposed on the impugned product. G. That for the contention raised by the Respondent that increases in delivery expense paid to Online E-Commerce Platforms should be considered in calculation of base price after rate reduction; it was to mention that DGAP does not look into aspect of costing in course of this investiga....
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....ST Act, 2017. On receipt of the aforesaid reference from the Standing Committee on Anti-profiteering on 01.07.2019, a Notice under Rule 129 of the CGST Rules, 2017 was issued by the Director General of Anti-profiteering on 09.07.2019. calling upon the Respondent to reply as to whether he admitted that the benefit of reduction in GST rate w.e.f. 15.11.2017, had not been passed on to his recipients by way of commensurate reduction in price and if so, to suo moto determine the quantum thereof and indicate the same in his reply to the Notice as well as furnish all documents in support of his reply. The procedure followed by the Standing Committee and Screening Committee might be obtained from him directly. 7. The above report was carefully considered by NAA and a copy of the investigation report dated 01.02.2021 was provided to the Respondent as per the Minutes of the meeting of Authority held on 03.02.2021 to file his consolidated written submissions in respect of the above report of the DGAP. The Respondent vide letter dated 22.03.2021 (confidential) filed his written submissions. 8. Copy of the above submissions dated 22.03.2021 filed by the Respondent was supplied to the DGAP....
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....rom 15.11.2017 to 30.06.2019 that Respondent had increased the base prices of his products/items supplied as a part of restaurant service to make up for the denial of ITC post GST rate reduction. The pre and post GST rate reduction prices of the items sold during the period from 01.07.2017 to 14.11.2017 (Pre-GST rate reduction) and 15.11.2017 to 30.06.2019 (Post-GST rate reduction) have been compared and it has been found that Respondent has increased the base prices by more than 6.03% 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 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. 12. In the matter of contention raised by Respondent that the DGAP, for computation of the profiteered amount, has compared the discounted average base prices of the products which were being charged by the Respondent during the pre-tax rate reduction period with the actual post-tax rate reduction base prices of these products. Further, as regards exclusion of any type of discretionary discount....
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.... base price more than the commensurate denial of ITC, the customer had to bear not only the increased base price but also the excess GST levied on it. Hence, the same was incorporated by the DGAP for the purpose of calculation of profiteered amount. The Commission also finds that the Respondent has collected profiteered amount in the form of excess price and GST on it and as the 5% additional GST amount was part of profiteered amount, it could not be reduced. Therefore, the above contention of Respondent is not maintainable. However, the Respondent is at liberty to claim excess amount of tax paid by him to the concerned Jurisdictional Commissionerate. 15. The Respondent has also contended that increase in royalty expense paid to Subway India Private Limited @1.769% should be considered in calculation of base price after rate reduction. As regards the additional cost of GST paid under Reverse Charge by the Respondent to Subway India Private Limited on the increased amount of Royalty and Advertisement Expenses, the Commission finds that these were the part of the business process and hence were inbuilt in the basic cost of the product/item. Any increase on this account can't b....
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....nd accordingly ratio of input tax credit to Net Outward Taxable Turnover has been calculated for the pre-rate reduction period. Thus, the claim of the Respondent is not maintainable. 19. Based on the above facts the profiteered amount is determined as Rs. 6,58,523/- as has been computed in Annexure-1 & 2 of the DGAP's Report dated 29.01.2021. Accordingly, we direct the Respondent 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 is directed to deposit an amount of Rs. 6,58,523/- in two equal parts of Rs. 3,29,261.50/- each in the Central Consumer Welfare Fund and the Uttar Pradesh 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 from his recipients till the date of its deposit. The above amount of Rs. 6,58,523/- 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 t....