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GST - No profiteering made on sale of 'Hara Bhara Kabab Sub' - respondent had increased base price to make good loss which occurred due to denial of ITC post GST rate reduction: NAPA

Published: Sep 28, 2018

By TIOL News Service

NEW DELHI, SEPT 28, 2018: A whole gamut of goods seem to be affected by the Profiteering bug.

Earlier cases related to purchase of cars, Basmati rice, lifts, Almirah, Vaseline, residential flats, Maybelline FIT Me foundation.

The present case concerns "Hara Bhara Kabab Sub" (product).

The applicant alleges that the Respondent has not passed on the benefit of reduction in the rate of GST in restaurant service when he had purchased 6 such products.

It is further alleged that the respondent has increased the base price of the product from Rs.130/- to Rs.145/- when the GST had been reduced from 18% to 5%. Inasmuch as the respondent had indulged in profiteering in contravention of the provisions of section 171 of the CGST Act.

The DGAP submitted his report and the applicant was called for hearing on 29.05.2018. The respondent did not appear.

However, M/s Subway Systems India Pvt. Ltd., the owners of the Subway brand and which had appointed the respondent as its franchisee appeared for the hearing and submitted that they worked on franchisee model and no consideration was taken from the respondent except the royalty on the net turnover; that M/s Subway was not involved in fixing the price of the products and it was solely the call of the franchisee to fix the prices; that no ITC was being passed on by M/s Subway as the franchisee was free to buy the raw material from the local sources; that only the ingredients and the products to be served were decided by M/s Subway.

The DGAP was also directed to file a reply on the ITC aspect of the pre and post GST era and to extend the investigation to the other outlets and products of M/s Subway. The DGAP informed that GST on restaurant service had been reduced from 18% (with ITC) to 5% (without ITC) w.e.f 15.11.2017 and, therefore, investigation could not be conducted for the period prior to 15.11.2017 and that there were almost 600 outlets of M/s Subway all over the country and without separately investigating each one of them, no comments could be offered.

The respondent appeared on 13 August and informed that Rs.452/- which was alleged to have been charged from the customers on 14.11.2017 (wrongly indicated as 14.11.2018) was due to the system error and the respondent had no intention of overcharging; that the rates of the impugned goods were increased due to denial of ITC and the DGAP had not alleged any profiteering on this behalf.

The National Anti-Profiteering Authority observed that -

+ GST on restaurant service had been reduced vide notification 46/2017-CTR from 18% to 5% and ITC had been disallowed;

+ That the applicant had purchased the goods from respondent who had increased the base price from Rs.130/- to Rs.145/-

+ That the respondent had increased the base price to make good the loss which had occurred due to denial of ITC post GST rate reduction;

+ That the respondent had increased the average base price by 12.14% to neutralize the denial of ITC of 11.80% and such increase is commensurate with the increase in the cost of the product on account of denial of ITC;

+ Allegation of not passing on the benefit of rate reduction is not established against the respondent;

+ As regards the issue of alleged profiteering of Rs.452/- made on the supply of products on 14.11.2017, same cannot be treated as profiteering in terms of section 171 of the Act as there was no rate reduction on 14.11.2017 but the same had occurred w.e.f. 15.11.2017 only.

Concluding that the respondent had not contravened the provisions of section 171 of the Act, the application was dismissed as being bereft of any merits.

(See 2018-TIOL-08-NAPA-GST)