DCIT Vs Dough Makers India Pvt. Ltd (NAA)
It was alleged that Respondent No. 1 supplying restaurant service 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.
Held By NAA
In this case 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, we direct 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 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, 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 Commissioner.
It is evident from the above narration of facts that Respondent No. 1 has denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus committed an offence under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty under the provisions of the above Section. However, 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. Accordingly, Show Cause Notice directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him is not required to be issued.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. The Present Report dated 28.08.2019 was received from Applicant No. 2 i.e. the Director-General of Anti-Profiteering (DGAP) after a detailed investigation 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 by the DGAP, to conduct a detailed investigation in respect of an application (originally examined by the Maharashtra State Screening Committee on Anti-profiteering) filed under Rule 12 of the CGST Rules 2017, alleging profiteering in respect of restaurant service supplied by the Respondent No. 1 (Franchisee of Respondent No. 2) despite the reduction in the rate of GST from 18% to 5% w.e.f. 15.11.2017. 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. The DGAP has reported that the summary sheet of the extent of profiteering was prepared by Applicant No. 1, which was also enclosed with the reference received from the Standing Committee on Anti-profiteering. The above issue was examined by the Maharashtra State Screening Committee and upon being prima facie satisfied that Respondent No. 1 had contravened the provisions of Section 171 of the CGST Act, 2017, it forwarded the said complaint with its recommendation to the Standing Committee on Anti-profiteering for further action vide its letter dated 21.02.2019.
2. The above complaint was examined by the Standing Committee on Anti-profiteering in its meeting held on 11.03.2019, and vide its minutes, the said complaint was forwarded to the DGAP for detailed investigation.
3. After completing the investigation, the DGAP submitted his report under Rule 129 (6) of CGST Rules, 2017 on 29.08.2019 pertaining to the period w.e.f. 15.11.2017 to 31.03.2019.
4. The DGAP in his report has stated that on receipt of the said reference from the Standing Committee on Anti-profiteering, a notice under Rule 129 was issued on 09.04.2019 calling upon Respondent No. 1 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 furnish all supporting documents. Respondent No. 1 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 Respondent No. 1.
5. The DGAP has further reported that in response to the notice dated 09.04.2019 and subsequent reminders, Respondent No. 1 submitted his replies vide his letters/e-mails dated 18.04.2019, 29.04.2019, 07.05.2019, 20.05.2019, 21.05.2019, 30.05.2019, 31.07.2019, 02.08.2019, 14.08.2019, 16.08.2019, and 22.08.2019. Respondent No. 1 submitted that he had availed Input Tax Credit (ITC) during the period July 2017 till 14th November 2017 and thereafter he has not availed any ITC. Respondent No. 1 further submitted that due to the nature of his business and the fact that he had multiple outlets, a significant number of invoices were being generated daily, due to which he was unable to provide invoice-wise details of the supplies made by him and could provide day wise outward taxable supplies reconciled with the GSTR-1 and GSTR-3B Returns.
6. Vide the aforementioned e-mails/letters, Respondent No. 1 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 invoice-wise summary of item-wise sales for the period from October 2017 to March 2019.
(h) Details of ITC availed, utilized, and reversed during the period from July 2017 to 14th November 2017.
(i) Details of Closing Stock of inputs on 14th November 2017.
7. The DGAP, in his report, has mentioned that in terms of Rule 130 of the CGST Rules, 2017, Respondent No. 1 had been asked by the DGAP vide notice dated 09.04.2019 to indicate whether any information/ documents furnished were confidential. However, Respondent No. 1 did not classify any of the information/ documents furnished by him as confidential in terms of Rule 130 of the Rules, ibid.
8. The DGAP has reported that the reference from the Standing Committee on Anti-Profiteering, the various replies of Respondent No. 1, 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 Respondent No. 1 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 Respondent No. 1 to his recipients, in terms of Section 171 of the CGST Act, 2017.
9. The DGAP has also reported that at the outset, it was noted that the Central Government, on the recommendation of the GST Council, vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017, had reduced the GST rate on the restaurant service from 18% to 5% w.e.f. 15.11.2017, with the proviso that ITC on the goods and services used in the supply of said service would not be availed.
10. The DGAP has further stated that before inquiring into the allegation of profiteering, it was important to examine Section 171 of the CGST Act 2017 which governs the anti-profiteering provisions under GST. Section 171(1) and 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 commensurate reduction in prices.” Thus, the legal requirement was abundantly clear that in the event of the benefit of ITC or reduction in the rate of tax, there must be a commensurate reduction in the prices of the goods or services. Further, such a reduction could be in money terms only so that the final price payable by a consumer got commensurately reduced. This was the legally prescribed mechanism for passing on the benefit of ITC or reduction in the rate of tax to the consumers under the GST regime and that Section 171 of the CGST Act, 2017 simply did not provide a supplier of goods or services, any other means of passing on the benefit of ITC, or reduction in the rate of tax to the consumers.
11. The DGAP has reported that Respondent No. 1 had been dealing with a total of 255 items while supplying restaurant services before and after 15.11.2017. Upon comparing the average selling prices as per details submitted by Respondent No. 1 for the period 01.10.2017 to 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 246 items (96.47% of 255 items) supplied by him. This increase in the base prices has been indicated in Annexure-16 (Confidential). The lower GST rate of 5% had been charged on the increased base prices of these 255 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, 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.
12. The DGAP has also stated that the assessment of the impact of denial of ITC, 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. The DGAP has further illustrated with an example that if the ITC in respect of restaurant service was 10% of the taxable turnover of the Respondent No. 1 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 up to 10%, it could be concluded 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 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. The reason for doing the same has been stated by the DGAP as below:-
a. Reversal of ITC on the closing stock of inputs and capital goods as on 14.11.2017 had been effected by Respondent No. 1. The said reversal of credit was not in accordance with the provisions of Section 17 of the CGST Act 2017 read with Rule 42 and 43 of the CGST Rules.
b. The invoice-wise outward taxable turnover for November 2017 was not provided by Respondent No. 1 to compute taxable turnover for the period 01.11.2017 to 14.11.2017.
c. Random checks of the invoices of ITC availed in November 2017 revealed that in some cases, credit was taken by Respondent No. 1 without fulfilling the prescribed conditions, and also some discrepancies were noticed in ITC availed. For instance, Respondent No. 1 availed ITC amounting to Rs. 22,368/- in November 2017 based on invoice no. TRL – 135 dated 01.11.2017, issued by M/s Tremont Reality LLP and ITC amounting to Rs. 25,032/- on the strength of invoice no. 270517180107316 dated 02.11.2017 issued by M/s Vamona Developers Pvt. Ltd. A scrutiny of the above invoices has revealed that while the first of the two invoices pertains to the monthly rental charges paid by Respondent No. 1 for the period from 01.11.2017 to 30.11.2017, the latter invoice relates to the license fee paid for the period from 01.11.2017 to 30.11.2017, implying thereby that the services mentioned in these invoices had not yet been received by the Respondent No. 1 on the date he had availed the ITC in respect thereof, which was a clear violation of the provisions of Section 16(2) (b) of the CGST Act, 2017.
13. The DGAP has further 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. A summary of the computation of the ratio of ITC to the taxable turnover in the case of Respondent No. 1 has been furnished by the DGAP as per Table-A below:-
Table-A
(Amount in Rs.)
