Hussain Shoaib Kothalia Vs Subwest Restaurant LLP (NAA)
The brief facts of the case are that an application was filed by the Applicant No. 1 with the Maharashtra State Screening Committee on Anti-profiteering alleging profiteering in respect of restaurant service supplied by the Respondent despite the reduction in the rate of GST from 18% to 5% w.e.f. 15.11.2017 vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 by way of not making a commensurate reduction in price, in terms of Section 171 of the CGST Act, 2017.
Held by NAA
Based on the facts and as per the provisions of Sec 171 (1) read with Rule 133 (1) the profiteered amount is determined as Rs. 6,85,531/- as has been computed in Annexure-15 of the DGAP’s Report dated 27.12.2019. Accordingly, the Respondent is directed 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, are not identifiable, the Respondent is directed to deposit an amount of Rs. 6,85,531/- in two equal parts of Rs. 3,42,766/- each in the Central Consumer Welfare Fund and the Maharashtra State Consumer Welfare Fund as per the provisions of 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. 6,85,531/- 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 the concerned CGST/SGST Commissioners.
It is also evident from the above narration of the facts that the Respondent has denied the benefit of GST rate reduction to the customers of his products w.e.f. 15.11.2017 to 30.06.2019, in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST Act, 2017, and therefore, he is liable for imposition of penalty under the provisions of the above Section. However, a perusal of the provisions of Section 171 (3A) under which penalty has been prescribed for the above violation shows that it has been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019 and it was not in operation during the period from 15.11.2017 to 30.06.2019 when the Respondent had committed the above violation and hence, the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively. Accordingly, notice for the imposition of penalty is not required to be issued to the Respondent.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. The present Report dated 27.12.2019 had been received from the Applicant No. 2, i.e. the Director General of Anti-Profiteering (DGAP), after a detailed investigation under Rule 129 (6) of the Central Goods and Service Tax (CGST) Rules, 2017. The brief facts of the case are that an application was filed by the Applicant No. 1 with the Maharashtra State Screening Committee on Anti-profiteering alleging profiteering in respect of restaurant service supplied by the Respondent despite the reduction in the rate of GST from 18% to 5% w.e.f. 15.11.2017 vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 by way of not making a commensurate reduction in price, in terms of Section 171 of the CGST Act, 2017.
2. The aforesaid issue was examined by the Maharashtra State Screening Committee on Anti-profiteering which observed that the Respondent had not passed on the benefit to his customers on account of reduction in tax rate and forwarded the complaint to the Standing Committee on Anti-profiteering for further action.
3. The Standing Committee on Anti-profiteering examined the reference received from the Maharashtra State Screening Committee in its meeting held on 15.05.2019 and it was decided to refer the matter to the DGAP to initiate an investigation and collect the evidence necessary to determine whether the benefit of reduction in the rate of GST on the supply of “restaurant service” had been passed on by the Respondent to the recipients. The Assistant Commissioner of Sales Tax (D-819), Nodal Division-II, Mazgaon, Mumbai-10, had prepared a summary of the profiteered amount computed on the basis of ratio of ITC available to the taxable turnover of the Respondent which was also enclosed with the reference of the Standing Committee on Anti-profiteering.
4. On receipt of the aforesaid reference from the Standing Committee on Anti-profiteering on 28.06.2019, a Notice under Rule 129 of the CGST Rules, 2017 was issued by the DGAP 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 prices and if so, to suo moto determine the quantum thereof and indicate the same in his reply to the Notice as well as to furnish all the documents in support of his reply. Further, the Respondent was given an opportunity by the DGAP to inspect the non-confidential evidence/information which formed the basis of the said Notice, during the period 17.07.2019 to 19.07.2019. However, the Respondent did not avail of the said opportunity. The period covered by the DGAP during the current investigation was from 15.11.2017 to 30.06.2019.
5. The Respondent replied to the above said Notice of the DGAP vide various letters but did not furnish the complete and relevant documents. Hence, Summons under Section 70 of the CGST Act, 2017 read with Rule 132 of the CGST Rules, 2017 were issued by the DGAP on 19.09.2019 to Shri Chetan Arora (Designated Partner) and Shri Mitul Trivedi (Authorized Representative of the Respondent), asking them to appear in the office of DGAP on 26.09.2019 and produce the relevant documents. In response to the Summons dated 19.09.2019, the Respondent neither appeared nor submitted the complete required documents and instead vide letter dated 24.09.2019 requested extension of time for a period of 3 weeks.
6. Accordingly, the DGAP issued another Summons dated 27.09.2019 to Shri Chetan Arora (Designated Partner) and Shri Mitul Trivedi (Authorized Representative of the Respondent). However, the Respondent neither appeared nor submitted the requisite documents and vide letter dated 09.10.2019, requested further extension for a period of one week. Vide e-mail dated 19.10.2019, the Respondent submitted partial documents. Accordingly, a final reminder dated 31.10.2019 was sent by the DGAP to the Respondent requesting him to submit the remaining documents but vide his letter dated 04.11.2019 he informed that his system had crashed in the month of January, 2018 and the data was lost completely from the Subway system and even the headquarters of M/s Subway Systems India Pvt. Ltd. was not able to fetch the details and expressed his inability to submit the requisite documents/information.
7. Vide Letters/e-mails dated 10.12.2019 and 16.12.2019, the DGAP requested the Respondent to submit a letter of undertaking/affidavit with regard to non-availability/recovery of data up to January, 2018 and to furnish a copy of the correspondence and e-mails exchanged with Subway headquarters and with service providers to recover the lost data to ascertain the veracity of the claims made by him. However, the Respondent failed to respond to the above communications.
8. In response to the Notice dated 09.07.2019 and subsequent reminders vide letter/e-mails dated 23.07.2019, 02.08.2019, 20.08.2019, 02.09.2019, 31.10.2019, 10.12.2019, 16.12.2019 and summons dated 19.09.2019 and 27.09.2019, the Respondent submitted his replies vide e-mails/letters dated 22.07.2019, 19.08.2019, 26.08.2019, 30.08.2019, 12.09.2019, 24.09.2019, 25.09.2019, 09.10.2019, 19.10.2019 and 06.11.2019. The submissions of the Respondent were summed up by the DGAP as follows:
a. That he had increased the base prices of the menu items by 10.80% post 15.11.2017, as the Central Government had disallowed ITC vide Notification No. 46/2017- Central Tax (Rate) dated 14.11.2017 with effect from 15.11.2017 and as per ITC working during the period from July, 2017 to 14.11.2017, ITC amounting to Rs. 5,26,236/- was available which came to approx. 10% of the total turnover. Further, the price increase affected by him was commensurate with the loss/denial of ITC which was earlier permitted in terms of capital nature/assets and other purchases and expenses during the year along with regular purchase bills.
b. That upon reduction of the rate of tax from 18% to 5% without ITC with effect from 15.11.2017, he had passed on the benefit on the pricing of other popular selling items to the extent which could offset the loss due to the withdrawal of ITC.
c. That his system had crashed in January, 2018 due to which he had lost the data completely from his subway system and even the headquarters of M/s Subway Systems India Pvt. Ltd., the franchisor, were not able to fetch the details from the cloud and expressed his inability to submit the requisite sale register from July, 2017 to January, 2018.
9. The DGAP has stated that vide the aforementioned e-mails/letters, the Respondent has submitted the following documents/information:
(a) Copies of GSTR-1 Returns for the period July 2017 to June 2019.
(b) Copies of GSTR-3B Returns for the period July 2017 to June 2019.
(c) Ledger of ITC maintained in Tally.
(d) Copies of Sales invoices for the period 20.09.2017 to 31.01.2018 (Approx. 4,800 pages in PDF format)
(e) Sales details for the period from February, 2018 to June,
(f) Reconciliation of ITC Ledgers and GSTR-3B for the period July, 2017 to Nov, 2017
(g) Price lists of the products. (Pre and Post 15.11.2017) along with the percentage increase in prices post 15.11.2017.
(h) Sample Sale Invoices pre and post-tax rate reduction period.
(i) Month-wise summary of ITC lost during the FY 2018-19.
10. The DGAP has stated that the Respondent had submitted the documents in a piecemeal manner and he had not co-operated with the investigation. The DGAP has further submitted that the Respondent had tried to delay the investigation by not submitting the requisite documents and by requesting for repeated extensions of time for submitting his data in each of his replies; further the Respondent had not submitted the invoice-wise details of his outward taxable supply during the period from 01.07.2017 to 31.01.2018, in the absence of which, the DGAP had requested the Respondent to map the Menu product names in the Sale register to determine the number of units of each of the products sold by him; further, the Respondent neither responded to the DGAP on this issue nor did he submit the desired information/documents.
11. The DGAP has also reported that the reference received from the Standing Committee on Anti-profiteering, the various replies of the Respondent and the documents/evidence on record were carefully scrutinized. The main issues to be examined in investigation 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 benefit of such reduction in the rate of GST had been passed on by the Respondent to his recipients/ customers in terms of Section 171 of the CGST Act, 2017.
12. The DGAP has stated that the Central Government, on the recommendation of the GST Council, had 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.
13. The DGAP has further reported that it was important to examine Section 171 of CGST Act, 2017 which governed the anti-profiteering provisions under GST. Section 171(1) reads as “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 was abundantly clear that in the event of benefit of ITC or reduction in the rate of tax, there must be a commensurate reduction in prices of the goods or services. Such reduction could obviously only be in absolute terms such that the final price payable by a consumer must get reduced. This was the legally prescribed mechanism for passing on the benefit of ITC or reduction in the rate of tax under the GST regime to the consumers. Moreover, it was clear that the said Section 171 simply did not provide a supplier of the goods or services any other means of passing on the benefit of ITC or reduction in the rate of tax to the consumers. Thus, the legal position was unambiguous and has been summed up by the DGAP as follows:
(a) A supplier of goods or services must pass on the benefit of ITC or reduction in the rate of tax to the recipients by way of reducing the prices thereof paid by the recipients; and
(b) The law did not offer a supplier of goods and services any flexibility to suo moto decide on any other modality to pass on the benefit of ITC or reduction in the rate of tax to the recipients.
The DGAP has added that the law did not offer a supplier of goods and services, flexibility to pass on the benefit of ITC or reduction in the rate of tax on one product, say ‘X’ by reducing the prices of any other product, say ‘Y’.
14. The DGAP has further stated that it was clear from the Menu Price List and the invoice-wise sale register for the part period that the Respondent had been dealing with a total of 137 items while supplying restaurant services before and after 15.11.2017. As per the details submitted by the Respondent for the period before 14.11.2017, the increase in base prices after the reduction in GST rate w.e.f. 15.11.2017 was evident in respect of 133 items (97.08% of 137 items) supplied by him. This increase in the base price was mentioned in the report by the DGAP. The lower GST rate of 5% had been charged on the increased base price of these 133 items, which confirmed that the tax amount was computed @ 18% before 15.11.2017 and @ 5% w.e.f. 15.11.2017. However, the fact was that because of the increase in base prices the cum-tax price paid by the consumers was not reduced commensurately for all the items supplied by the Respondent. Therefore, the issue to be investigated was whether the increase in base prices was solely on account of the denial of ITC or not.
15. The DGAP has also reported that the assessment of the impact of denial of input tax credit which was an uncontested fact required 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. To illustrate, if the ITC in respect of restaurant service was 10% of the taxable turnover of the Respondent till 14.11.2017 (which became unavailable w.e.f. 15.11.2017) and the increase in the pre-GST rate reduction base price w.e.f. 15.11.2017, was upto10`)/0, one could conclude that there was no profiteering. However, if the increase in the pre-GST rate reduction base price 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 during the pre-GST rate reduction period had to be carried out, though by taking into consideration the period from 01.07.2017 to 31.10.2017 and not up to 14.11.2017. This had been done by the DGAP for the following reasons:
(a) In terms of the provisions of Section 17 of the CGST Act, 2017 read with Rule 42 and 43 of the Rules, Respondent was required to reverse the ITC on the closing stock of inputs and capital goods held on 14.11.2017. However, the Respondent had not reversed any amount of ITC on account of closing stock of inputs and capital goods held on 14.11.2017.
(b) The invoice-wise outward taxable turnover for November 2017 was not provided by the Respondent to compute taxable turnover for the period 01.11.2017 to 14.11.2017.
(c) The ITC ledger submitted by the Respondent for the month of November 2017 revealed that in some cases, credit was taken by the Respondent without fulfilling the prescribed conditions, and also some discrepancies were noticed in ITC availed. For instance, the Respondent availed ITC of Rs. 27,000/- in November 2017 on the invoice for the monthly rental charges for the period 01.11.2017 to 30.11.2017, which the Respondent had not received on the date of availing input tax credit, in violation of provisions of Section 16(2) (b) of the CGST Act, 2017.
16. The 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 the Respondent till 14.11.2017 but not thereafter. On this basis, the findings of the DGAP were that ITC amounting to Rs. 4,54,734/- was available to the Respondent during the period from July, 2017 to October, 2017 which was approximately 9.64% of the net taxable turnover of restaurant service amounting to Rs. 47,18,983/- 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 the Respondent. A summary of the computation of the ratio of ITC to the taxable turnover of the Respondent was furnished by the DGAP as is given in Table below:
Table
(Amount in Rs.)
