Deputy Commissioner of State Tax Vs Le Reve Pvt. Ltd. (National Anti-Profiteering Authority)
The Respondent has also contended that right to trade was a fundamental right guaranteed under Article 19(1)(g) of the Constitution of India and the right to trade including the right to determine prices and such right which had been granted by the Constitution of India could not be taken away without any explicit authority under the Law. Therefore, this form of price control was a violation of Article 19(1)(g) of the Constitution of India. The contention of the Respondent is not correct as this Authority or the DGAP has not acted in any way as a price controller or regulator as they don’t have the mandate to regulate the same. The Respondent is free to exercise his right to practice any profession or to carry on any occupation, trade or business, as per the provisions of Article 19 (1) (g) of the Constitution. He can also fix his prices and profit margins in respect of the supplies made by him. Under Section 171 this Authority has only been mandated to ensure that both the benefits of tax reduction and ITC which are the sacrifices of precious tax revenue made from the kitty of the Central and the State Governments are passed on to the end consumers who bear the burden of the tax. The intent of this provision is the welfare of the consumers who are voiceless, unorganized and vulnerable. This Authority is charged with the responsibility of ensuring that both the above benefits are passed on to the general public as per the provisions of Section 171 read with Rule 127 and 133 of the CGST Rules, 2017. This Authority has nowhere interfered with the business decisions of the Respondent and therefore, there is no violation of Article 19 (1) (g) of the Constitution.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
ORDER
1. The Present Report dated 09.09.2019, received on 12.09.2019 by this Authority, has been furnished by the Applicant No. 2 i.e. the Director-General of Anti-Profiteering (DGAP). under Rule 129(6) of the Central Goods & Services Tax (CGST) Rules. 2017. The brief facts of the present case are that a reference was received from the Standing Committee on Anti Profiteering on 27.03.2019 recommending a detailed investigation in respect of an application, originally examined by the Maharashtra State Screening Committee on Anti-profiteering. The Applicant No. 1 has filed the application under Rule 128 of the CGST Rules 2017, alleging profiteering in respect of restaurant service supplied by the Respondent (Franchisee of M/s Subway Systems India Pvt. Ltd.). In the application, it was alleged that despite the reduction in the rate of GST from 18% to 5% w.e.f. 15.11.2017, the Respondent had not passed on the commensurate benefit since he had increased the base prices of his products. Records showed that the worksheet indicating the extent of profiteering sent by the Screening Committee was also received by the DGAP along with the above recommendation of the Standing Committee on 27.03.2019.
2. The DGAP in his report has stated that on receipt of the said reference from the Standing Committee on Anti-profiteering on 27.03.2019, a notice under Rule 129 was issued on 09.04.2019 (Annex-1). 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 the recipients by way of commensurate reduction in prices 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 the supporting documents. The Respondent was also allowed to inspect the non-confidential evidence/information which formed the basis of the investigation from 15.04.2019 to 17.04.2019. which was not availed of by the Respondent.
3. The DGAP further stated that the period covered by the current investigation was from 15.11.2017 to 31.03.2019 and this Authority vide its Order dated 19.06.2019 (Annex-2), had extended the time limit to complete the investigation up to 26.09.2019, in terms of Rules 129(6) of the CGST Rules.
4. The DGAP further stated that in response to the notice dated 09.04.2019 and subsequent reminders, the Respondent has submitted replies vide letters/e-mails dated 05.05.2019 (Annex-3), 11.05.2019 (Annex-4), 21.05.2019 (Annex-5), 27.05.2019 (Annex-8), 19.08.2019 (Annex-11), 22.08.2019 (Annex-12), 23.08.2019 (Annex-13) and 26.08.2019 (Annex-14) whereby the Respondent has summited that he had availed Input Tax Credit (ITC) during the period July 2017 till 14.11.2017 and thereafter no ITC has been availed. Vide the aforementioned e-mails/letters, the Respondent submitted the following documents/information:
(a) Copies of GSTR-1 Returns for the period July 2017 to March 2019.
(b) Copies of GSTR-3B Returns for the period July 2017 to March 2019.
(c) Copies of Electronic Credit Ledger for the period July 2017 to March 2019.
(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 summary of item-wise sales for the period from October 2017 to March 2019.
(h) Details of ITC availed, utilized and reversed for the period July 2017 to 14th November 2017 by the Respondent.
5. Further, the DGAP has reported that in terms of Rule 130 of the CGST Rules, 2017, the Respondent had also been informed by the DGAP vide notice dated 09.04.2019 that if any information/documents provided by him were confidential, a non-confidential summary of such information/documents could be furnished by him. However, the Respondent did not classify his information/ documents as confidential, in terms of Rule 130 of the Rules.
6. The DGAP has also stated that the reference from the Standing Committee on Anti-Profiteering, the various replies of the Respondent 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 the Respondent was reduced from 18% to 5% w.e.f. 15.11.2017 and if so. whether the commensurate benefit of such reduction in the rate of GST had been passed on by the Respondent to his recipients. in terms of Section 171 of the CGST Act, 2017.
7. The DGAP has further reported that the Central Government. on the recommendation of the GST Council, has reduced the GST rate on the restaurant service from 18% to 5% w.e.f. 15.11.2017 with the condition that the ITC on the goods and services used in supplying the service was not taken vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017. Since it was a case of reduction in the rate of tax it was important to examine the provisions of Section 171 of the CGST Act, 2017 to ascertain whether the present case was a case of profiteering or not. Section 171(1) reads as follows:- “Any reduction in rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in prices.” Thus, the legal requirement of the above provision was abundantly clear that in the event of benefit of ITC or reduction in rate of tax. there must follow a commensurate reduction in the prices of the goods or services being supplied by a registered person and that the final price being changed for each supply had to be reduced commensurately with the extent of benefit and that there was no other legally tenable mode of passing on such benefit of rate reduction or ITC to the recipients/consumers.
8. The DGAP in his report has mentioned that the Respondent has been dealing with a total of 337 items while supplying restaurant services before and after 15.11.2017. On comparing the average selling prices as per details submitted by the Respondent for the period 01.07.2017 to 14.11.2017, and the prices post 15.11.2017 it was evident that 68 items supplied by him were launched in the post-rate reduction regime. He has been charging the lower GST rate of 5% on the increased base price of the other items, which confirmed that the tax amount was computed @ 18% before 15.11.2017 and @ 5% w.e.f. 15.11.2017. And because of this increase in base prices, the cum-tax prices paid by the consumers were 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.
9. The DGAP has also reported that the assessment of the impact of denial of ITC, which was an uncontested fact, required the 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. For instance, if the ITC in respect of restaurant service was 10% of the taxable turnover of a registrant till 14.11.2017 (which became unavailable w.e.f. 15.11.2017) and the increase in the base price w.e.f. 15.11.2017, was up to 10%, then there would be no profiteering. However, if in the same example, the increase in the pre-GST rate reduction base prices 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 the pre-GST rate reduction period has to be carried out by taking into consideration the period from 01.07.2017 to 31.10.2017 and not up to 14.11.2017. It was done due to the reason that certain invoices as furnished by the Respondent for the period 01.11.2017 to 14.11.2017 actually reversal of ITC was done by the Respondent in respect of such invoices. Therefore. for the current investigation, the taxable turnover and ITC for the period 01.11.2017 to 14.11.2017 was excluded and not taken into account for the calculation of the percentage of ITC available to the Respondent.
10. The DGAP in his report has further stated 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 the Respondent till 14.11.2017). As per the monthly GST Returns submitted by the Respondent. it was found that the ITC amounting to Rs. 2.99,442/- was available to him during the period July 2017 to October 2017 which was 8.01% of the net taxable turnover of restaurant service amounting to Rs. 37,34.976/- supplied during the same period. Further, with effect from 15.11.2017 the GST rate on restaurant service was reduced from 18% to 5% and hence. the said ITC was not available to the Respondent. A summary of the computation of ratio of ITC to the taxable turnover of the Respondent has been furnished by the DGAP as per Table-A below:-
Table-A
(Amount in Rs.)
