DGAP Vs. Smookey Kitchen Foods OPC Pvt. Ltd. (NAA)
We have carefully considered the Reports furnished by the DGAP, the contentions of the Respondent, and the other material placed on record. We observe that this case pertains to a franchisee of M/s Subway India Private Limited in Ghaziabad (Uttar Pradesh) who is supplying various food products to his recipients/ customers. We also find that there has been a reduction in the rate of tax from 18% to 5% w.e.f. 15.11.2017 on the restaurant service being supplied by the Respondent, effected vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017, with the conditionality of denial of ITC. Therefore, it is a case wherein the Respondent was liable to pass on the benefit of tax reduction to his customers in terms of Section 171 (1) of the above Act. It is also apparent that the DGAP has carried out the present investigation w.e.f. 15.11.2017 to 30.06.2019 and that the investigation has found this case to be one where the provisions of Section 171 of the CGST Act 201 have indeed been contravened.
However, we observe that the DGAP, vide its clarificatory report dated 14.06.2020. has reported that while computing the quantum of profiteering, the sales data of the World Sandwich Day (WSD) on 03.11.2017 has been excluded while working out the product-wise base prices for the pre-tax rate reduction period, i.e. from 01.11.2017 to 14.11.2017. We find that under this offer, the Respondent was offering one similar product free for every product purchased by a customer on 03.11.2017. We also observe that the DGAP has reported that the sales data of the World Sandwich Day (WSD) was excluded because the sales data of 03.11.2017 (WSD) was an outlier and hence an exception. We find this exclusion improper because in several similar cases pertaining to other franchisees of M/s Subway India. the sales data of WSD or sales data related to a similar “Buy One Get One” scheme, was not excluded by the DGAP while computing profiteering in similar cases of franchisees of M/s Subway India. It is apparent that this exclusion of the sales data of 03.11.2017 makes the computation of profiteering in this case different from the computation made in the case of Order Nos. 14/2020, 17/2020, 18/2020. and 36/2020 wherein the DGAP has not excluded the sales data of Buy One Get One (BOGO) offer or the WSD offer offered by those Respondents while working out the product-wise base prices for the period from 01.11.2017 to 14.11.2017. Hence the method used for computation of profiteering, in this case, becomes an aberration and thus unacceptable.
In terms of the above observation and without dwelling upon any other aspect of the case and without going into any other contentions of the Respondent, this Authority, under the powers conferred on it under Rule 133(4) of the CGST Rules read with Section 171 of the CGST Act 2017, directs the DGAP to reinvestigate this case and recompute the quantum of profiteering by duly incorporating the sales data of the World Sandwich Day as on 03.11.2017 in the calculation of the pre-tax rate reduction prices. While reinvestigating the matter on the above lines, all other contentions made by Respondent before this Authority during the course of the hearings may also be considered.
The DGAP shall submit his Report after reinvestigation on the above lines. The Respondent is directed to extend all necessary assistance to the DGAP and furnish him necessary documents or information required during the course of the investigation.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. The present Report dated 28.01.2020 has been received on 29.01.2020 from the Director-General of Anti-Profiteering (DGAP) after a 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 from the Standing Committee on Anti-profiteering on 01.07.2019, to conduct a detailed investigation alleging profiteering despite a reduction in the rate of GST from 18% to 5% w.e.f. 15.11.2017 against the Respondent. The complainant had alleged that the Respondent had increased the base prices of his products and not passed on the benefit of reduction in the GST rate 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.
2. The DGAP, in his report, has stated that on receipt of the aforesaid reference from the Standing Committee on Anti-profiteering on 01.07.2019, a Notice under Rule 129 (3) of the CGST Rules, 2017 was issued to the Respondent on 09.07.2019, calling upon him 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 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 supporting documents to evidence the same. The Respondent was also allowed to inspect the non-confidential evidence/information which formed the basis of the said Notice, during the period 07.07.2019 to 19.07.2019, which was not availed by the Respondent.
3. The DGAP has reported that the period covered by the current investigation was from 15.11.2017 to 30.06.2019 and that this Authority, vide its Order dated 27.12.2019, had extended the time limit for completion of the investigation up to 31.03.2020, in terms of Rule 129 (6) of the Rules.
4. The DGAP has further stated that, in response to the Notice dated 09.07.2019 and subsequent reminders, the Respondent has submitted his replies vide his e-mails/letters dated 09.09.2019, 24.09.2019, 23.10.2019, 13.11.2019. 18.11.2019, 19.11.2019, 26.11.2019, 29.11.2019, 04.12.2019, and 13.01.2020. His contentions are summed up as follows: –
a) That no benefit had accrued to him as a result of the reduction in the rate of tax from 18% to 5% because there was an increase in the cost of raw material which was directly proportionate to the cost of sales and therefore he had increased the prices of his products to cover the increased costs; that his gross profit ratio for the period from 01.07.2017 to 14.11.2017 was 51.86% and for the period from 15.11.2017 to 31.03.2018, the gross profit ratio was 54.74 %, which implied an additional gross profit of Rs. 46,248/- as per Table-A below: –
Table-A
FIGURES IN INR
