State of officer Vs Bonne Sante (NAA)
The Respondent has further contended that the DGAP, while calculating the profiteered amount, was wrongly added a 5% notional amount without explaining any reasons and hence, the profiteered amount be reduced appropriately. This contention of the Respondent is not correct because the provisions of Section 171 (1) and (2) of the CGST Act, 2017 mandate that the benefit of reduction in the tax rate is to be passed on to the recipients/ customers by way of commensurate reduction in price, which includes both, the base price and the tax paid. In this connection, it would be appropriate to mention that the Respondent has not only collected excess base prices from the customers which they were not required to pay due to the reduction in the rate of tax but he has also compelled them to pay additional GST on these excess base prices which they should not have paid. By doing so, the Respondent has defeated the very objective of both the Central as well as the State Governments which aimed to provide the benefit of rate reduction to the general public. The Respondent was legally not required to collect the excess GST and therefore, he has not only violated the provisions of the CGST Act, 2017 but has also acted in contravention of the provisions of Section 171 (1) of the above Act as he has denied the benefit of tax reduction to his customers by charging excess GST. Had he not charged the excess GST the customers would have paid less price while purchasing goods from the Respondent and hence the above amount has rightly been included in the profiteered amount as it denotes the amount of benefit denied by the Respondent. The above amount can also not be paid to the eligible buyers from the Consumer Welfare Funds as the Respondent has not deposited it in the above Fund. Therefore, the above contention of the Respondent is untenable and hence it cannot be accepted.
The Respondent has relied upon the judgment passed by this Authority in the case of M/s Flipkart vide Order No. 05/2018 dated 18th July 2018 wherein it had been recorded that withdrawal of discounts was the prerogative of the supplier and did amount to On perusal of the above-cited case, it is observed that the issue in that case related to denial of discount of Rs. 500/-, which had been initially offered by the supplier to the buyer at the time of placing the order, but the same was withdrawn by the supplier at the time of supply. In these circumstances, it was held by this Authority that the withdrawal of such discount does not amount to profiteering, since the said discount offered had no connection with the base price of the products supplied. The facts of that case are totally at variance with the facts of the present case wherein the Respondent has claimed that giving discounts was a norm in the competitive world and a call of business. Therefore, the case cited above has no relevance in the context of the present case.
It is clear from the plain reading of Section 171(1) mentioned above that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second about the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the DGAP’s Report that there has been a reduction in the rate of tax from 18% to 5% w.e.f. 15.11.2017, vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 in the post GST period. It has been revealed from the DGAP’s Report that the ITC which was available to the Respondent during the period July 2017 to October 2017 is 7.39% of the net taxable turnover of restaurant services 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 ITC was not available to the Respondent. The DGAP in his Report has stated that the Respondent had increased the base prices of different items by more than 7.39% i.e. by more than what was required to offset the impact of denial of ITC, supplied as a part of restaurant services to make up for the denial of ITC post-GST rate reduction and on comparison of pre and post GST rate reduction prices of the items sold in respect of items sold. Accordingly, the quantum of profiteering has been computed to Rs. 7,33,043/- as per Annexure-10 of the DGAP’s Report dated 13.09.2019, which is correct and can be relied upon.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING APPELLATE AUTHORITY
1 The Present Report dated 13.09.2019, received on 16.09.2019 by this Authority, has been furnished by 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 by the DGAP with a recommendation to conduct a detailed investigation in respect of an application filed by the Applicant No. 1, originally examined by the Maharashtra State Screening Committee on Anti-profiteering under Rule 128 of the CGST Rules 2017. The Applicant No. 1 has alleged profiteering, in respect of restaurant service supplied by the Respondent (Franchisee of M/s Subway Systems India Pvt. Ltd.). 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 increased the base prices of his products and had not passed on the commensurate benefit of reduction in the GST rate from 18% to 5% w.e.f. 15.11.2017, effected vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017.
2. 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 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 by him 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 to evidence the same. The Respondent was also allowed to inspect the non-confidential evidence/information contained in the application from 04.2019 to 17.04.2019, which formed the basis of the investigation, which was not availed of by the Respondent.
3. The DGAP has reported that the period covered by the investigation was from 15.11.2017 to 31.03.2019 and that this Authority, vide its Order dated 19.06.2019, 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 has further stated that in response to the notice dated 09.04.2019 and subsequent reminders, the Respondent has submitted replies, vide his letters/e-mails dated 09.05.2019, 12.06.2019, 17.07.2019, 24.08.2019 and 05.09.2019. The Respondent has, inter-alia summited that he had availed ITC (ITC) during the period 01.07.2017 till 14.11.2017, and thereafter, no ITC has been availed. Vide his aforementioned emails/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) Copies of sample sale invoices and purchase invoices.
(e) Price lists of the products.
(f) Monthly invoice wise summary of item-wise sales for the period from July 2017 to March 2019.
(g) Details of ITC availed and utilized for the period from 01.07.2017 to 14.11.2017 by the Respondent.
5. The DGAP has reported that in terms of Rule 130 of the CGST Rules, 2017, the Respondent was informed by the DGAP 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 any information/documents furnished by him, as confidential in terms of Rule 130 of the Rules.
6. The DGAP has also reported that the reference from the Standing Committee on Anti-Profiteering, the various replies of the Respondent and the documents/evidence on record were 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 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 in his report has stated that vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017, GST rate on restaurant services has been reduced from 18% to 5% w.e.f. 11.2017 by the Central Government, on the recommendation of the GST Council with the condition that the ITC on the goods and services used in supplying the service was not taken.
8. 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 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 as per the above provisions was abundantly clear that in the event of a benefit of ITC or reduction in the rate of tax, there must be a commensurate reduction in the prices of the goods or services being supplied by a registered person and the final price being charged for each supply had to be reduced commensurately with the extent of the benefit and there was no other legally tenable mode of passing on such benefit of rate reduction or ITC to the recipients/consumers.
9. The DGAP has also mentioned that the assessment of the impact of denial of ITC, which was an uncontested fact, required the determination of ITC in respect of the restaurant service, as a percentage of the taxable turnover from the outward supply of “products”, during the pre-GST rate reduction period. In his report, the DGAP has also explained that 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%, it could be concluded 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 of the products supplied during the pre-GST rate reduction period, was carried out by taking into consideration the period from 01.07.2017 to 14.11.2017. However, it was also observed by the DGAP that some of the invoices received by the Respondent during the period 01.11.2017 to 14.11.2017 pertained to the services rendered for the entire month of November 2017 and there was no reversal of ITC reflected in GSTR-3B Return of November 2017 on account of closing stock of inputs as on 14.11.2017, which was to be used after 14.11.2017. Therefore, the taxable turnover and ITC for the period 01.11.2017 to 14.11.2017 has not been taken into account by the DGAP for 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 has been taken for determining the impact of denial of ITC which was available to the Respondent till 31.10.2017. On this basis, it was found by the DGAP that ITC amounting to Rs. 1,87,608/- was available to the Respondent during the period July 2017 to October 2017 which was 7.39% of the net taxable turnover of restaurant service amounting to Rs. 25,40,127/- 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 has been furnished by the DGAP in Table-A below:-
Table-A
(Amount in Rs.)
