Assistant Commissioner of State Tax Vs N. Rai Delights LLP (NAA)
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% 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 6.32% 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. It has been found that the Respondent had increased the base prices of different items by more than 6.32% 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 as Rs. 1,49,896/- as per Annexure-8 of the DGAP’s Report dated 17.09.2019, which is correct and can be relied upon.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING APPELLATE AUTHORITY
1. The present Report dated 17.09.2019, received on 18.09.2019 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 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 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.) despite reduction in the rate of GST from 18% to 5% w.e.f. 15.11.2017. It was alleged that the Respondent had increased the base prices of his products and had 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 in the present case the summary sheet of the extent of profiteering was prepared by the Deputy Commissioner of State Tax, Pune.
2. The DGAP has reported that on receipt of the said reference from the Standing Committee on Anti-profiteering, a notice under Rule 129 was issued on 11.04.2019 (Annex-1), 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 non-confidential evidence/ information from 04.2019 to 24.04.2019, which formed the basis of the investigation, which was not availed of by the Respondent.
3. The DGAP has further 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 09.2019, in terms of Rules 129(6) of the CGST Rules.
4. The DGAP has also stated that in response to the notice dated 11.04.2019 and subsequent reminders, the Respondent submitted his replies vide his letters/e-mails dated 19.04.2019 (Annex-3), 11.05.2019 (Annex-4), 19.08.2019 (Annex-5), and 26.08.2019 (Annex-6); That vide the aforementioned e‑mails/letters, the Respondent submitted the following documents/information:
(a) Sales details for the period from July 2017 to March 2019.
(b) Price list of products (pre and post 15.11.2017).
(c) Copies of GSTR-1 and GSTR-3B Returns for the period from July 2017 to March 2019.
(d) Copies of Electronic Credit Ledger for the period July 2017 to March 2019.
(e) Summary details of Input Credit Register for the period from October 2017 to March 2019.
5. The DGAP has reported that in terms of Rule 130 of the CGST Rules 2017, the Respondent had been asked by the DGAP vide notice dated 11.04.2019 to indicate whether any information/ documents furnished were confidential. However, the Respondent did not classify any of the information/ documents furnished by him as confidential in terms of Rule 130 of the Rules, ibid.
6. The DGAP has stated that the reference from the Standing Committee on Anti-Profiteering, the various replies of the Respondent 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 the Respondent was reduced from 18% to 5% w.e.f. 15.11.2017 and if so, whether the commensurate 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 Central Government, on the recommendation of the GST Council, vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017(Annex-7), had reduced the GST rate on the restaurant service from 18% to 5% e.f. 15.11.2017 with the condition that ITC on the goods and services used in the supply of said service would not be availed. Since the present case was a case of reduction in the rate of tax, 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 was abundantly clear that in the event of 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. Moreover, it was also clear that 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 the rate of tax to the consumers.
8. The DGAP in his report has mentioned that the Respondent had been dealing with a total of 200 items while supplying restaurant services before 15.11.2017. It was also seen that the Respondent had been dealing with a total of 227 items during the period from 15.11.2017 to 31.03.2019. On comparing the average selling prices as per the details submitted by the Respondent for the period 01.10.2017 to 14.11.2017 and the actual selling prices post rate reduction i.e. w.e.f. 15.11.2017, it was observed that the GST rate of 5% had been charged on the increased base prices on 129 items, which established that though the tax 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, inspite of 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 input tax.
9. The DGAP has also stated 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. For instance, 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 the supply 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 07.2017 to 31.10.2017 and not up to 14.11.2017. That this had been done because there was no reversal of ITC on the closing stock of inputs/input services and capital goods as on 14.11.2017 by the Respondent, 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.
10. 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 the Respondent till 31.10.2017). On this basis of the statutory documents made available by the Respondent, it was found that the ITC amounting to Rs. 81,264/- was available to the Respondent from the period July 2017 to October 2017 which was 6.32% of the net taxable turnover of restaurant service amounting to Rs. 12,86,453/- supplied during the same period. The said ITC was not available to the Respondent with effect from 15.11.2017 when the GST rate on restaurant service was reduced from 18% to 5%. A summary of the computation of ratio of ITC to the taxable turnover of the Respondent has been furnished by the DGAP as per Table-A below:-
Table-A
(Amount in Rs.)
