Ravi Charaya Vs Hardcastle Restaurants Pvt. Ltd. (NAA)
Respondent is liable to pass on the benefit of GST rate reduction from 18% to 5% with denial of benefit of ITC, as was notified by the Central and the State Governments vide Notification No. 41/2017-Central tax (Rate) dated 14.11.2017 w.e.f. 15.11.2017. It is also established that the Respondent has not passed on the benefit of above tax reduction to his customers in terms of Section 171 (1) w.e.f. 15.11.2017 to 31.01.2018. On the basis of the pre rate reduction GST rate of 18% and the post rate reduction GST rate of 5% with denial of ITC of 9.11% of the turnover and the details of the product wise supplies made during the period from 15.11.2017 to 31.01.2018, as have been supplied by the Respondent himself, the amount of net higher sales realization due to increase in the base prices of the impacted products after comparing the average pre and post rate reduction prices of the products, despite the reduction in the GST rate from 18% to 5% or the profiteered amount is determined as Rs. 7,49,27, 786/- as per the provisions of Section 171(1) & (2) of the CGST Act, 2017 read with Rule 133 (1) of the CGST Rules, 2017.
Accordingly, the Respondent is directed to reduce prices of all the impacted products commensurately in respect of which profiteering has been computed as per Annexure-37 of the DGAP’s Report dated 15.06.2018 forthwith in terms of Rule 133 (3) (a) of the above Rules read with Section 171(1) of the above Act.
The Respondent is also directed to deposit 50% of the profited amount of Rs. 7,49,27,786/- i.e. Rs. 3,74,63,893/- in the Central Consumer Welfare Fund and the balance 50% in the Consumer Welfare Funds of the 10 States mentioned above as per the provisions of Rule 133 (3) (c) of the above Rules read with Section 171 (1) since the recipients who are millions of ordinary customers are not identifiable. The above amounts shall be deposited along with 18% interest payable from the dates from which the above amount was realized by the Respondent from his recipients till the date of deposit in the respective Consumer Welfare Funds as per the provisions of the above Rule. The above amount of Rs. 7,49,27,786/- along with the applicable interest thereon, shall be deposited within a period of 3 months from the date of passing of this order failing which it shall be recovered by the Commissioners of the Central and the State Tax of the concerned State Governments as per the provisions of their CGST/SGST Acts.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
A Report dated 15.06.2018 was received from the Applicant No. 5 i.e. the Director General of Safeguards (DGSG), now re-designated as Director General of Anti-Profiteering (hereinafter referred to as the DGAP) under Rule 129 (6) of the Central Goods & Services Tax (CGST) Rules, 2017. The brief facts of the case were that the Applicants No. 1 & 2 through their e-mails both dated 23.11.2017 and Applicants No. 3 & 4 vide their e-mails dated 15.11.2017 and 17.11.2017 respectively had filed complaints alleging that though the rate of Goods and Services Tax (GST) on Restaurant Services had been reduced from 18% to 5% w.e.f. 15.11.2017, the Respondent had increased the prices of the products which were being sold by him and had maintained the same prices which he was charging before the above reduction. They had also claimed that the Respondent had indulged in profiteering in contravention of the provisions of Section 171 of the CGST Act, 2017 and hence appropriate action should be taken against him.
2. The above applications were examined by the Standing Committee on Anti-Profiteering and were referred to the DGAP vide the minutes of its meetings dated 29.11.2017 and 20.12.2017 for detailed investigation under Rule 129 (1) of the CGST Rules, 2017.
3. The DGAP had called upon the Respondent vide notice dated 29.12.2017 to submit reply on the allegations levelled by the Applicants No. 1 to 4 and also to suo moto determine the quantum of benefit which he had not passed on to the consumers during the period between 15.11.2017 to 31.01.2018. The above Applicants were given an opportunity to inspect the non-confidential evidence/replies furnished by the Respondent between 24.05.2018 to 25.05.2018. However, the Applicants did not avail of this opportunity.
4. The respondent had submitted his reply on 05.01.2018 vide Annexure-11 and denied the allegations levelled against him and claimed that the benefit of reduction in the rate of tax had been neutralised due to withdrawal of Input Tax Credit (ITC) to him. The Respondent had furnished the required information/documents to the DGAP vide his letters dated 12.01.2018, 17.01.2018, 22.01.2018, 24.01.2018, 29.01.2018, 07.02.2018, 09.02.2018, 16.02.2018, 22.02.2018, 23.02.2018, 05.03.2018, 09.03.2018, 19.03.2018, 26.03.2018, 06.04.2018, 31.05.2018 and 01.06.2018.
5. The DGAP vide his above Report had informed that the Respondent had made the following contentions before him-:
a. That he was operating quick service restaurants under the brand name “McDonald’s” in the Western and Southern regions of India and was registered as a supplier under the GST in 10 States. He had also stated that he was running three tiers of restaurants depending upon the locality, the targeted customers, local competition etc. and was selling the same items at different prices based on the tier of the restaurant.
b. That the rate of GST on the Restaurant Services was reduced to 5% w.e.f. 15.11.2017 with the condition that the ITC on the goods or services used in supplying the restaurant services would not be available. He had further stated that as per Section 33 of the CGST Act, 2017 the amount of tax formed part of the price. He had also claimed that the price lists of the food and the beverages published by him for each tier of restaurants clearly showed that prior to 15.11.2017, the GST was being charged @ 18% and w.e.f. 15.11.2017 it had been levied @ 5% on the taxable value and thus, the commensurate benefit arising out of the reduction in the rate of tax had been passed on to the customers.
c. That the price revision made by him w.e.f. 15.11.2017 did not fall within the purview of Section 171 of the above Act as this provision applied in only those cases where the contract of supply/sale had been entered in to prior to the change in the rate of tax or ITC. He had also claimed that any such change did not amount to automatic change in the price unless it was agreed to by both the parties as per Section 64 A of the Sale of Goods Act, 1930. He had further claimed that any attempt to regulate the sale prices of the products being sold by him would violate his right to carry on trade as Article 19 (1) (g) of the Constitution and the provisions of Section 171 were not similar to the laws framed for controlling prices as per List III of Schedule VII of the Constitution.
d. That the cost of food and beverages had gone up due to the abrupt denial of ITC which had constrained him to increase the base prices to negate this impact and such increase was also not commensurate with the increase in the costs. He had also contended that the cost of the restaurant services had gone up by at least 15%. He had further contended that he could not avail ITC worth Rs. 8.70 Crore for the months of July to October, 2017 and could avail it only after 15.11.2017. He had also submitted that the quantum of ITC not shown in the GSTR-3B Returns would increase from Rs. 8.70 Crore to Rs. 9.33 Crore and would further increase by Rs. 50 Lakh after all the inward supplies were accounted for which would prove that he had not profiteered. He had further contended that prices of some premium products had been reduced from 11% to 22%.
e. That the rent for the restaurants in the shopping malls was charged on fixed or variable or semi-variable basis which was approximately 3.5% of the incremental turnover and was payable at the end of the year and since the bills for the same would be raised only at the year-end, he would not be eligible to claim ITC on such variable rent and he would suffer an estimated loss of Rs. 22.78 Lakh.
f. That for the computation of availability of ITC, additional ITC for the period from July, 2017 to 14.11.2017 should be a minimum of Rs. 10 Crore. The Respondent had also claimed that the transitional credit mentioned in TRAN-1 statement filed by him was not the correct indicator of the tax incurred as (i) credit of CENVAT was not available on the Central Excise Duty, (ii) his restaurants were operating under the Composition Scheme under which ITC on VAT was not allowed (iii) expenses on Petroleum were outside the GST and (iv) most of the inputs were taxable at higher rates. He had further claimed that he had reversed the ITC on the closing stock as on 14.11.2017 amounting to Rs. 4.18 Crore and hence he should be given deemed credit for the opening stock as on 01.07.2017 of Rs. 4.52 Crore.
6. The DGAP had stated in his report that the contention of the Respondent that provisions of Section 171 were not applicable in his case was not correct as they would be attracted as soon as there was reduction in the rate of tax or the benefit of ITC was available and they would not be dependent on whether the contract for supply was entered in to before such reduction or availability of ITC had come in to force and hence provisions of Section 64 A of the Sale of Goods Act, 1930 were not applicable. He had also stated that the argument of the Respondent that the provisions of Section 171 amounted to controlling the prices and thus infringed his right to trade under Article 19 (1) (g) of the Constitution was also not correct as this Section nowhere provided for control on the prices and its operation was limited to the extent of ensuring that the benefits of tax reduction and ITC were passed on to the consumers by way of commensurate reduction in the prices. The DGAP had further stated that the Central Govt. on the recommendation of the GST Council vide its Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 had reduced the rate of tax on restaurant services from 18% to 5% w.e.f. 15.11.2017 with the condition that the benefit of
7. The DGAP had also submitted that the Respondent was selling 1,844 products and after comparing the price lists published before and after 15.11.2017 when the rate of tax was reduced, which was indicated in Annexure-32, the Respondent had increased the base prices in respect of 1,774 (96.20%) products. He had further submitted that although the Respondent had charged GST @ 5% on and after 15.11.2017 but due to increase in the base price the customers were forced to pay the same price which was being charged from them before 15.11.2017 whereas they should have been charged the lower price after commensurate reduction due to reduction in the rate of tax and hence they were denied the benefit which had become due to them.
8. The DGAP had made detailed calculation of profiteering vide Annexure-37 of his report. He had also compared the ITC which was available to the Respondent till 31.10.2017 with the outward taxable supplies made till the above date. He had calculated the ITC from the period from 01.07.2017 to 31.10.2017 as the details of closing stock and ITC on such stock were not available in the GSTR-3B Return of November, 2017 filed by the Respondent. The DGAP had also intimated that date wise outward taxable turnover was also not supplied by the Respondent up to 14.11.2017. The DGAP while determining the ITC as a ratio of the total taxable turnover of the Respondent had taken into account the ITC for the period from July, 2017 to October, 2017, as was shown in the GSTR-3B Returns, which had been adjusted by adding the amount of ITC which was availed in the month of November, 2017 as per GSTR-3B Return and by excluding the amount of tax which was paid on inter unit branch transfers as per Sale Registers and the input tax credit pertaining to the period before July 2017 which was availed during the period between July, 2017 to October, 2017 as per the GSTR-3B Returns.
9. The DGAP had also mentioned that the Respondent had claimed that the ITC of Rs. 9.33 Crore approx. availed in November, 2017 and subsequently was on account of the invoices issued during the period of July, 2017 to October, 2017 and for ITC of Rs. 0.72 Crore, the invoices were not in his possession. The DGAP had intimated that out of the above claim, ITC of Rs. 8.51 Crore pertaining to the invoices issued from July, 2017 to October, 2017 which was availed during November, 2017, had been duly considered on the basis of the details submitted by the Respondent. He had further intimated that the ITC amounting to Rs. 1.54 Crore, which had not been considered while calculating the ITC, was available to the Respondent till 31.10.2017, comprised of: (i) ITC of Rs. 0.82 Crore availed in December, 2017 and subsequently, (ii) estimated credit of Rs. 0.50 Crore, invoices of which were not received by the Respondent and ITC was not availed in November, 2017 as per GSTR-3B Return and (iii) Rs. 0.22 Crore on account of rent for which bills were to be raised in March, 2018.
10. The DGAP had also informed that on the scrutiny of the GSTR-1 and GSTR-3B Returns and the ITC registers produced by the Respondent it was found that the ITC amounting to Rs. 33.96 Crore was available to the Respondent during the period between July, 2017 to October, 2017 which was approximately 9.11% of the taxable value of service of Rs. 372.62 Crore supplied by the Respondent during the same period excluding the inter-unit branch transfers. The rate of tax on the restaurant services was reduced from 18% to 5% w.e.f. 15.11.2017 and the benefit of ITC was not available to the Respondent w.e.f. the above date. The DGAP had calculated the ratio of denial of ITC as under:-
(Amount in Rs.)
