Director-General of Anti-Profiteering Vs Hungry Eyes (NAA)
An application alleging profiteering in respect of restaurant service supplied by the Respondent (Franchisee of M/s Subway Systems India Pvt. Ltd.) after a prima-facie examination by the Maharashtra State Screening Committee on Anti-profiteering under Rule 128 (2) of the CGST Rules 2017. Vide the application, it has been 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 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 Central Goods and Services Tax Act, 2017.
Held by NAA
As per the provisions of Sec 171 (1) read with Rule 133 (1) the profiteered amount is determined as Rs. 6,66,700/- as has been computed in Annexure-12 of the DGAP’s Report dated 29.01.2020. 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. 6,66,700/- in two equal parts of Rs. 3,33,350/- each in the Central Consumer Welfare Fund and the Maharashtra State 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 from the dates on which the above amount was realized by the Respondent from his recipients till the date of its deposit. The above amount of Rs. 6,66,700/- 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 CGST/SGST Commissioners.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING APPELLATE AUTHORITY
The present Report dated 29.01.2020 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 02.05.2019 recommending a detailed investigation in respect of an application alleging profiteering in respect of restaurant service supplied by the Respondent (Franchisee of M/s Subway Systems India Pvt. Ltd.) after a prima-facie examination by the Maharashtra State Screening Committee on Anti-profiteering under Rule 128 (2) of the CGST Rules 2017. Vide the application, it has been 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 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 Central Goods and Services Tax Act, 2017.
On receipt of the aforesaid reference from the Standing Committee on Anti-profiteering, a Notice under Rule 129 of the Rules was issued by the Director-General of Anti-profiteering on 10.05.2019, 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 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 to furnish all documents in support of his reply. Further, the Respondent was allowed to inspect the non-confidential evidence/information which formed the basis of the said Notice, during the period 20.05.2019 to 22.05.2019. However, the Respondent did not avail of the said opportunity.
3. The DGAP has reported that the period covered by the current investigation was from 15.11.2017 to 31.03.2019.
4. The time limit to complete the investigation was extended upto 01.02.2020 by this Authority, in terms of Rule 129(6) of the Rules, vide Order dated 31.10.2019.
5. The DGAP has also reported that in response to the Notice dated 10.05.2019 and subsequent reminders, the Respondenthad submitted his reply vide e-mails/letters dated 19.06.2019, 22.07.2019, 27.07.2019, 07.10.2019, 10.10.2019, 19.10.2019, 22.11.2019,and 25.11.2019.
6. Vide the aforementioned e-mails/letters, the Respondent had also submitted the following documents/information:
(a) Sales Details for the period from July 2017 to March 2019.
(b) Price Lists of products (pre and post 15.11.2017).
(c) GSTR-1 and GSTR-3B Returns for the period from July 2017 to March 2019.
(d) Electronic Credit Ledger for the period from July 2017 to March 2019.
(e) Summary details of Input Credit Register for the period from July 2017 to November 2019.
7. The DGAP has also reported that 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. The main issues to be examined 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 Central Goods and Services Tax Act, 2017.
8. The DGAP has further reported that at the outset, it was noted that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on the restaurant service from 18% to 5% w.e.f. 15.11.2017 with the condition that the input tax credit on the goods and services used in supplying the service was not to be taken, vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017. Before inquiring into the allegation of profiteering, it was important to examine Section 171 of the Central Goods and Services Tax 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 input tax credit 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 a benefit of input tax credit or reduction in the rate of tax there must be a commensurate reduction in the prices of the goods or services. Such reduction could obviously be in money terms only so that the final price payable by a consumer got reduced. That was the legally prescribed mechanism for passing on the benefit of input tax credit or reduction in the rate of tax to the consumers under the GST regime. Moreover, it was also clear that the said Section 171 simply did not provide a supplier of goods or services, any other means of passing on the benefit of input tax credit or reduction in the rate of tax to the consumers.
9. The DGAP has reported that it was alleged that the Respondent did not pass on the benefit of the reduction in the GST rate to the recipients. It was seen that the Respondent was dealing with a total of 233 items while supplying restaurant services before 15.11.2017. It was also seen that the Respondent had been dealing with a total of 280 items during the period 15.11.2017 to 31.03.2019. The DGAP has compared 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., w.e.f. 15.11.2017 and it was found that the GST rate of 5% had been charged on the increased base prices of 170 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, despite 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 the input tax credit. Despite several reminders, the Respondent had failed to submit the sample copies of Invoices pre and post rate reduction.
10. The DGAP has submitted that the assessment of the impact of denial of the input tax credit, which was an uncontested fact, required the determination of the input tax credit 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. To illustrate, if the input tax credit 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 price w.e.f. 15.11.2017, was upto 10%, one could conclude that there was no profiteering. However, if the increase in the pre-GST rate reduction base price 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 input tax credit 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. The DGAP has done this because there was no reversal of input tax credit on the closing stock of inputs/input services and capital goods on 14.11.2017 by the Respondent, which was required under the provisions of Section 17 of the Central Goods and Services Tax Act, 2017 read with Rule 42 and 43 of the Rules.
11. The DGAP has also submitted that the ratio of input tax credit to the net taxable turnover had been taken for determining the impact of denial of input tax credit (which was available to the Respondent till 31.10.2017). On this basis, the DGAP has found that input tax credit amounting to 3,35,471/- was available to the Respondent during the period July 2017 to October 2017 which was 8.85% of the net taxable turnover of restaurant service amounting to 37,90,741/- 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 input tax credit was not available to the Respondent. A summary of the computation of the ratio of input tax credit to the taxable turnover of the Respondent in the pre-GST period was furnished by the DGAP as is given in Table-A below:
TABLE-A
(Amount in Rs.)
