Case Law Details
DGAP Vs. Smookey Kitchen Foods OPC Pvt. Ltd. (CCI)
Introduction: The recent case of DGAP Vs. Smookey Kitchen Foods OPC Pvt. Ltd., a franchisee of Subway India Private Limited in Ghaziabad (Uttar Pradesh), has brought to light allegations of denying customers the benefit of tax reduction. The Competition Commission of India (CCI) carefully considered reports, submissions, and case records to assess the franchisee’s compliance with Section 171(1) of the CGST Act, 2017.
Detailed Analysis: The case revolves around the franchisee, M/s. Smookey Kitchen Foods OPC Pvt. Ltd., supplying various food products as part of the Subway brand. The investigation period spanned from 15.11.2017 to 30.06.2019, during which a reduction in the tax rate from 18% to 5% was implemented on restaurant services without Input Tax Credit (ITC) benefits.
DGAP’s findings revealed that the Respondent increased base prices of certain products more than necessary, despite the reduction in the GST rate. The denial of ITC post-GST rate reduction prompted the franchisee to offset the impact by raising base prices, resulting in a failure to pass on the commensurate benefit to consumers.
The methodology employed by DGAP in computing the profiteered amount was deemed correct by the CCI, justifying the comparison of discounted average base prices before and after tax rate reduction. The Respondent’s contention on exclusion of discretionary discounts was rejected, as transaction price under Section 15 of CGST Act, 2017 was considered for both base price determination and profiteering calculation.
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