2021-TIOL-01-NAA-GST
Director General of Anti-Profiteering Vs Dough Makers India Pvt Ltd
GST - Anti-Profiteering - Respondent No. 1 is a franchise of M/s Subway Systems India Pvt. Ltd - 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 - DGAP has reported that the ratio of ITC to the net taxable turnover had been taken for determining the impact of denial of ITC (which was available to Respondent No. 1 till 14.11.2017). On this basis of the statutory documents made available by Respondent No. 1, it was found that the ITC amounting to Rs. 17,16,253/- was available to Respondent No. 1 from the period July 2017 to October 2017 which was 8.72% of the net taxable turnover of restaurant service amounting 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 - 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 part of restaurant service during the period 15.11.2017 to 31.03.2019 were compared and it was established that Respondent No. 1 had 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 241 items (out of 255 items) sold during the same period and hence, the commensurate benefit of reduction in the rate of tax from 18% to 5% had not been passed on - profiteered amount came to Rs.78,41,754/- (including GST on the base profiteered amount) - Authority had observed certain discrepancies in the DGAP's Report dated 28.08.2019 and accordingly ordered reinvestigation in the matter in terms of 133(4) of CGST Rules, 2017 on the following grounds vide its I.O. No. 11/2020 dated 27.02.2020 - As per the directions of Authority passed vide I.O. No. 11/2020 dated 27.02.2020 under Rule 133 (4), the DGAP furnished his Report dated 26.06.2020 in accordance with Rule 129 (6) of the CGST Rules, 2017 - The DGAP has further reported that while a comprehensive investigation 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 - 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 and which was submitted on 09.09.2020.
Held:
++ 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- Central 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.
++ 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.
++ 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, Authority directs 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. 1 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 within a period of 3 months - Since 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. 01.07.2017 to 31.03.2019, hence the penalty prescribed under the above Section cannot be imposed on Respondent No. 1 retrospectively - this order is being passed 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: NAA
- Application disposed of: NAPA
