State of Officer Vs Cilantro Diners Pvt. Ltd. (NAA)
The Respondent has further contended that the DGAP, while calculating the profiteered amount, had not considered the prices of products which had been reduced by him and that the DGAP has considered such impact as zero, ignoring the negative values. In this regard, we observe that no ‘netting off’ can be applied in the case of profiteering, as the benefit that has to be passed on to each customer has to be necessarily computed on each product supplied. Zeroing or netting off, as demanded by the Respondent, would imply that the amount of benefit not passed on certain supplies (to certain customers/ recipients) would be subtracted from the amount of any excess (more than commensurate) benefit passed on other products and the resultant amount would be determined as the profiteered amount. If this flawed methodology is applied the Respondent shall be entitled to subtract the amount of benefit which he has not passed on from the amount of such excess benefit which he has claimed to have passed, which will result in complete denial of benefit to the customers who were entitled to receive it. It has to be kept in mind that every recipient/ customer is entitled to the benefit of the tax rate reduction by way of reduced prices and Section 171 does not offer the Respondent to suo moto decide on any other modality to pass on the benefit of reduction in the rate of tax to his recipients. Therefore, any benefit of tax rate reduction passed on to a particular recipient or customer cannot be appropriated or adjusted against the benefit of tax rate reduction that ought to accrue to another recipient or customer. Therefore, the contention of the Respondent is not accepted.
The Respondent has relied upon the decision of 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 profiteering. On a perusal of the above-cited case, it is observed that the issue in that case related to denial of discount of Rs. 5001-, which had been initially offered by the supplier to the buyer at the time of placing the order, but the same was withdrawn by the supplier at the time of supply.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 a 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.
Based on the above facts the profiteered amount is determined as Rs. 20,80,087/- as has been computed in Annexure-11 of the DGAP Report dated 13.09.2019. 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. 20,80,087/- in two equal parts of Rs. 10,40,043.50/- each in the Central Consumer Welfare Fund and the Maharashtra 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 starting from the dates on which the above amount was realized by the Respondent from his recipients till the date of its deposit. The aggregate amount of Rs. 20,80,087/- 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 SGST Commissioner.
It is evident from the above narration of facts that the Respondent 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 resorted to profiteering. Hence, he has committed an offence under section 171 (3A) of the CGST Act, 2017 and therefore, he is liable to penal action under the provisions of the above Section. Accordingly, a notice be issued to him 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.
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 the 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 by the DGAP from the Standing Committee on Anti-Profiteering on 27.03.2019 recommending a detailed investigation in respect of an application, originally examined by the Maharashtra State Screening Committee on Anti-profiteering (Annex-1). The Applicant had filed an application under Rule 128 of the CGST Rules 2017, alleging profiteering in respect of restaurant service supplied by the Respondent (Franchisee of M/s Subway Systems India Pvt. Ltd.). In the application, 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 not passed on the commensurate benefit since he has increased the base prices of his products. Record shows that the worksheet indicating the extent of profiteering sent by the Screening Committee was also received by the DGAP along with the above recommendation of the Standing Committee on 27.03.2017.
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 (3) was issued on 08.04.2019 (Annex-2), 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 furnish all supporting documents. The Respondent was also allowed to inspect the relied upon non-confidential evidence/information or any data supplied by the Applicant No. 1 between 15.04.2019 and 17.04.2019, which was however not availed of by the Respondent.
3. The DGAP has reported that the period covered by the current investigation was from 15.11.2017 to 31.03.2019 and that this Authority, vide its Order dated 19.06.2019 (Annex-3)., had extended the time limit to complete the investigation up to 26.09.2019, in terms of Rule 129 (6) of the CGST Rules, on the request of the DGAP.
4. The DGAP has also reported that in response to the notice dated 09.04.2019 and subsequent reminders, the Respondent has submitted his replies vide his letters/e-mails dated 19.04.2019 (Annex-4), 12.06.2019 (Annex-5), 19.06.2019 (Annex-6), 17.07.2019 (Annex-7), 24 08.2019 (Annex-8) and 05.09.2019 (Annex-9), whereby the Respondent has submitted that he had availed Input Tax Credit (ITC) during the period from July 2017 till 14.11.2017 but thereafter he had not availed any ITC. Vide the aforementioned e-mails/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, separately, for two stores registered under the same GST registration number.
(f) Monthly invoice wise summary of item-wise sales for the period from July 2017 to March 2019.
(g) Details of ITC availed and utilised for the period July 2017 to 14th November 2017 by the Respondent.
5. The DGAP has also reported that in terms of Rule 130 of the CGST Rules 2017, the Respondent had also been informed by the DGAP vide notice dated 08.04.2019 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 of the information/documents provided by him as confidential, in terms of Rule 130 of the Rules, ibid.
6. The DGAP has also reported that based on a careful examination of the case records, including the reference from the Standing Committee on Anti-Profiteering, various replies of the Respondent and documents/evidence placed on record, it emerged that 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 has further reported that the GST rate on the restaurant service had been reduced from 18% to 5% w.e.f. 15.11.2017 along with the condition that no ITC on the goods and services used in supplying the service would be available to the Respondent vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017. Since it was a case of reduction in the rate of tax, it was important to examine the provisions of Section 171 of the CGST Act, 2017 to ascertain whether the present case was a case of profiteering or not. Section 171(1) reads as follows:-“Any reduction in rate of tax on any supply of goods or services or the benefit of 1TC shall be passed on to the recipient by way of commensurate reduction in prices.” Thus, the legal requirement of the above provision was abundantly clear that in the event of a benefit of ITC or reduction in the rate of tax, there must follow a commensurate reduction in the prices of the goods or services being supplied by a registered person and that the final price being changed on each supply had to be reduced commensurately with the extent of benefit and that there was no other legally tenable mode of passing on such benefit of ITC to the recipients/consumers.
8. Further, the DGAP has intimated 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-rate reduction period. For instance, if the ITC in respect of restaurant service was 10% of the taxable turnover of a registrant till 14.11.2017 (which became unavailable to him w.e.f. 15.11.2017) and if the increase in the base prices w.e.f. 15.11.2017 was less than 10%, then this would not be a case of profiteering. However, if in the same example, the increase in the base prices w.e.f. 15.11.2017, was by a margin of 14%, the extent of profiteering would be 14% – 10% = 4% of the turnover. In the instant case, profiteering was computed in the same manner as the above example for the period from 01.07.2017 to 14.11.2017. During the investigation, however, it was observed that certain invoices furnished by the Respondent for the period 01.11.2017 to 14.11.2017 actually pertained to the entire month of November 2017 and that no reversal of ITC was seen reflected in respect of such invoices (for the period from 15.11.2017 to 30.11.2017) in the GSTR-3B Returns of November 2017. Therefore, for the current investigation, the taxable turnover and ITC for the period 01.11.2017 to 14.11.2017 was excluded and not taken into account for the calculation of the percentage of ITC available to the Respondent.
9. The DGAP in his report has further intimated that the ratio of ITC to the Net Taxable Turnover has been taken as the basis for determining the impact of denial of ITC that was available till 31.10.2017. The monthly GST Returns of the Respondent show that the ITC amounting to Rs. 3,03,347/- was available during the period from July 2017 to October 2017 which worked out to be 9.05% of his Net Taxable Turnover from the restaurant service supplies amounting to Rs. 33,52,3581- during the same period. Further, with effect from 15.11.2017, the rate of tax on restaurant service was reduced from 18% to 5% and no ITC was available to the Respondent. A summary of the computation of the ratio of ITC to the taxable turnover as furnished by the DGAP is at Table-A below:-
Table-A
(Amount in Rs.)
