Deputy Commissioner of State Tax Vs A. J. Enterprises (NAA)
NAA observe that the DGAP in his Report dated 20.08.2020 has mentioned the investigation period from 15.11.2017 to 30.09.2019 while the profiteering has been computed upto 31.10.2019 as has been shown in Annexure 25 of his Report. The DGAP vide his supplementary Report dated 24.11.2020 has also admitted that the profiteering amount has been computed for the period 15.11.2017 to 31.10.2019. Accordingly, the DGAP is directed to compute the profiteered amount till 30.09.2019 as per the notice issued to the Respondent.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. The present Report dated 20.08.2020 has been received from the Applicant No. 2 i.e. the Director General of Anti-Profiteering (DGAP) after detailed investigation under Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the present case are that a reference was received by the DGAP from the Standing Committee on Anti-Profiteering on 09.10.2019 recommending a detailed investigation in respect of an application alleging profiteering in respect of restaurant service supplied by Respondent despite 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 commensurate reduction in prices, in terms of Section 171 of the CGST Act, 2017. A summary sheet showing extent of profiteering, prepared by the Applicant No. 1 received from the Screening Committee, had also been enclosed with the reference received from the Standing Committee on Anti-profiteering.
2. The aforesaid issue was examined by the Maharashtra State Screening Committee which observed that the Respondent had not passed on the appropriate 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, whereby it was decided to refer the matter to the DGAP to initiate an investigation and collect evidence necessary to determine whether the benefit of reduction in the rate of GST on supply of “restaurant service” had been passed on by the Respondent to the recipients.
4. The DGAP in his report has stated that on receipt of the aforesaid reference from the Standing Committee on Anti-profiteering on 09.10.2019, a Notice under Rule 129 of the Rules was issued by the DGAP on 22.10.2019, calling upon the Respondent to reply as to whether the benefit of reduction in GST rate from 18% to 5% w.e.f. 15.11.2017, had 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 documents in support of his reply. Further, the Respondent was afforded an opportunity to inspect the non-confidential evidence/information which formed the basis of the said notice, during the period 31.10.2019 to 01.11.2019. However, the Respondent did not avail of the said opportunity.
5. The DGAP has further stated that the time limit to complete the investigation was extended up to 07.07.2020 from 08.04.2020 by this Authority, vide its Order dated 24.03.2020, in terms of Rule 129(6) of the CGST Rules, 2017. However, due to prevalent pandemic of COVID-19 in the country the DGAP was not able to complete the investigation on the above date i.e. 07.07.2020. Further, in terms of Notification No. 35/2020 —Central Tax dated 03.04.2020 as issued by the Central Govt. under Section 168 (A) of the CGST Act, 2017, where, any time limit for completion or compliance of any action, which fell during the period from the 20th day of March, 2020 to the 30th day of August, 2020, and where completion or compliance of such action had not been made within such time, then the time limit for completion or compliance of such action, was extended up to 31.08.2020, including for the purpose for furnishing of any report under the provision of the Central Goods and Service Tax Act, 2017. Therefore, the present Report has been submitted within the prescribed period of limitation as per Rule 129(6) of the CGST Rules, 2017. The period covered by the current investigation was from 15.11.2017 to 30.09.2019.
6. The DGAP further stated that in response to the notice dated 22.10.2019 and subsequent reminder letters dated 07.11.2019, 18.11.2019, 19.12.2019, 27.12.2019, 31.01.2020 & 03.03.2020 and Summons dated 08.01.2020 & 20.01.2020, the Respondent submitted his reply vide emails/letters dated 27.12.2019, 03.01.2020, 15.01.2019 28.01.2020, 31.01.2020, 28.02.2020, 10.03.2020, 12.03.2020 14.03.2020, 16.03.2020, 17.03.2020, 18.03.2020, 14.05.2020 22.05.2020, 25.05.2020, 26.05.2020, 28.05.2020, 12.06.2020 13.06.2020, 18.06.2020 and 29.06.2020.
7. The DGAP in his report has mentioned that vide the aforementioned emails/letters, the Respondent had also submitted the following documents/information:
(a) Copy of GSTIN Registration.
(b) Copies of GSTR-1 Returns for the period from July, 2017 to September, 2019.
(c) Copies of GSTR-3B Returns for the period from July, 2017 to September, 2019.
(d) Sales details for the period from July, 2017 to September, 2019.
(e) Price list of products (pre and post 15.11.2017).
(f) Sample invoices issued during the pre and post 15.11.2017.
(g) Input Tax Credit Register from Oct, 2017 to September, 2019.
8. The DGAP has also claimed that in the notice dated 22.10.2019, the Respondent was informed that if any information/documents were provided on confidential basis, in terms of Rule 130 of the Rules, a non-confidential summary of such information/document was required to be furnished. However, the Respondent had not classified his information/documents as confidential in terms of Rule 130 of the Rules.
9. The DGAP has reported that the reference received from the Standing Committee on Anti-profiteering, the various replies of the Respondent and the documents/evidences on record had been carefully scrutinised. The main issues to be examined 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, in terms of Section 171 of the CGST Act, 2017.
10. The DGAP has further reported that at the outset, it was noted 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 to be availed, vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017.
11. The DGAP has reported that before enquiring into the allegation of profiteering, 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 a benefit of ITC or reduction in rate of tax, there must be a commensurate reduction in the prices of the goods or services. Such reduction could obviously be in money terms only, so that the final price payable by a consumer got reduced. This was the legally prescribed mechanism for passing on the benefit of ITC or reduction in rate of tax to the consumers under the GST regime. Moreover, it was also clear that the said Section 171 simply did not provide a supplier of goods or services, any other means of passing on the benefit of ITC or reduction in rate of tax to the consumers.
12. The DGAP has reported that the assessment of the impact of denial of input tax credit, 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. 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 prices w.e.f. 15.11.2017, was up to 10%, one could conclude that there was no profiteering. However, if 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 from 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, because of the following reasons:-
a. There was no reversal of ITC on the closing stock of inputs and capital goods as on 14.11.2017 by the Respondent, which was required as per the provisions of Section 17 of the CGST Act, 2017 read with Rule 42 and 43 of the Rules.
b. The invoices on which ITC was availed during the month of November, 2017 pertained to the whole month whereas ITC was not available to the Respondent after 14.11.2017.
13. The DGAP has also 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 31.10.2017). On this basis, the finding was that ITC amounting to Rs. 2,04,744/- was available to the Respondent during the period July, 2017 to October, 2017 which was approximately 8.21% of the net taxable turnover of restaurant service amounting to Rs. 24,94,509/-, 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 ratio of ITC to the taxable turnover of the Respondent is given below at Table-A:-
