Director-General of Anti-Profiteering Vs Urban Essence (Prop. Aniket Nagnath Nimbalkar) (NAA)
We observe that as per the C.B.I.C. Press Release No. 62/2018, dated 18.10.2018, the last date to avail ITC in respect of invoices or debit notes relating to such invoices pertaining to the period from July 2017 to March 2018 was extended up to 31st December 2018. However, the Respondent has not submitted the details of the same to the DGAP during the investigation. Therefore, in the interest of natural justice and keeping in view that Covid 19 pandemic could have prevented the Respondent from making his submissions in a timely manner, we are of the view that the matter needs to be reinvestigated by the DGAP under Rule 133(4) of the CGST Rules, 2017. On his part, the Respondent is directed to fully cooperate with the DGAP in the process of reinvestigation which includes submission of the requisite invoices/ debit notes pertaining to his supplies during the period July 2017 to October 2017, the ITC of which might have been claimed later till 31.12.2018.
Therefore, without going into any merits of the case and without dwelling on the submissions made by the Respondent and the Applicant at this stage, we find this case to be a case that requires to be reinvestigated by the DGAP based on the above observations of this Authority. Thus, we direct the DGAP to reinvestigate the matter as per provisions of Rule 133(4) of the CGST Rules 2017.
FULL TEXT OF THE ORDER OF NAA
1. The present Report dated 23.03.2020 has been furnished by 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 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 under Rule 128 (2) 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 of tax reduction as he had increased the base prices of his products.
2. The DGAP has reported that on receipt of the said reference from the Standing Committee on Anti-profiteering, a notice under Rule 129(3) of the CGST Rules, 2017 was issued on 23.10.2019 calling upon the Respondent to reply as to whether he admitted that the benefits of reduction in the 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 the supporting documents. The Respondent was also allowed to inspect the relied upon non-confidential evidence/information which formed the basis of the investigation between 30.10.2019 and 31.10.2019, 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 31.10.2019.
4. The DGAP has also stated that in response to the notice dated 10.05.2019 and subsequent reminders, the Respondent submitted his replies vide his letters/e-mails dated 12.11.2019, 18.12.2019, and 27.12.2019.
5. The reference received from the Standing Committee on Anti-profiteering, the various replies of the Respondent, and the documents/evidence on record had been carefully scrutinized by the DGAP. The main issues to be examined were:-
a) Whether the rate of GST on the service supplied by the Respondent was reduced from 18% to 5% w.e.f. 15.11.2017.
b) If so, whether the benefit of such reduction in the rate of GST had been passed on by the Respondent to their recipients, in terms of Section 171 of the CGST Act, 2017.
6. Further, the DGAP has reported 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 condition that the ITC on the goods and services used in supplying the service was not to be taken.
7. Further, the DGAP has reported that the Respondent’s claim of passing on the benefit of GST rate reduction by providing an extra quantity, free add-ons, Incentive/Offers to Customer, discounts, etc. had been examined and it was seen that the said Section 171 of CGST Act, 2017 nowhere aimed at providing extra quantity and free add-ons, incentive/offers to the customers and discounts and its purpose was only to ensure that the benefit of any reduction in the rate of tax on any supply of goods or services or the benefit of ITC was passed on to the recipients by way of commensurate reduction in prices. Further the transaction value was always exclusive of discount in any form.
8. Further, the DGAP has reported that the Respondent was dealing with a total of 340 items while supplying restaurant services before 15.11.2017. Upon comparing the average selling prices as per details submitted by the Respondent for the period 01.07.2017 to 14.11.2017 and the actual selling prices post rate reduction, i.e. with effect from 15.11.2017, it was seen that the GST rate of 5% had been charged on the increased base price which established that though the amount was computed @ 18% before 15.11.2017 and @ 5% w.e.f. 15.11.2017, the fact was that because of the increase in base prices, the cum-tax price paid by the consumers was not reduced commensurately, despite the reduction in the GST rate. Therefore, having established the fact that the base prices were increased post 15.11.2017, the only remaining point for determination was whether the increase in base price was solely on account of the denial of ITC. Despite several reminders, the Respondent failed to submit the sample copies of Invoices pre and post rate reduction.
9. Further, the DGAP has submitted that the assessment of the impact of denial of ITC, 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. Therefore, the 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. From the perusal of GSTR 3B Returns for the month of November, December 2017 filed by the Respondent it was observed that the Respondent had not reversed any ITC though he was no longer eligible to avail credit of ITC on the closing stock of inputs/input services and capital goods after 14.11.2017 which was required under the provisions of Section 17 of the CGST Act, 2017 read with Rule 42 and 43 of the CGST Rules, 2017. Therefore, the taxable turnover and input tax credit for the period 01.11.2017 to 14.11.2017 had not been considered to work out the ratio of ITC to taxable turnover.
10. Further, the DGAP has submitted 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 account, it was observed that as per the Return/statutory documents submitted by the Respondent, it was observed that ITC amounting to 1,43,873/- was available to the Respondent during the period July 2017 to October 2017 which was 7.54% of the net taxable turnover of restaurant service amounting to 19,07,509/- 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 the ratio of ITC to the taxable turnover of the Respondent was given in ‘Table-H’ below:
Table-H
(Amount in Rs.)
