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2020 (7) TMI 546 - NAPA - GSTProfiteering - restaurant service supplied by the Respondent (Franchisee of M/s Subway Systems India Pvt Ltd.) - allegation that the benefit of reduction in the rate of GST not passed on by way of commensurate reduction of price - contravention of section 171 of CGST Act - penalty - HELD THAT - The profiteered amount is determined as 7, 53, 8541- as has been computed vide Annexure-13 of the DGAP s Report dated 31.12.2019. 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 above are not identifiable the Respondent is directed to deposit an amount of 7, 53, 854/- in two equal parts of 3, 76, 927/- each in the Central Consumer Welfare Fund and the Rajasthan 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 7, 53, 854/- 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 Commissioner. Penalty - HELD THAT - The Respondent has denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act 2017 and he has thus resorted to profiteering. Hence he has committed an offence under section 171 (3A) of the CGST Act 2017 and therefore he is liable to penal action under the provisions of the above Section - Accordingly a notice be issued to him directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules 2017 should not be imposed on him.
Issues Involved:
1. Whether the Respondent passed on the commensurate benefit of reduction in the rate of tax to his customers. 2. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 committed by the Respondent. Detailed Analysis: Issue 1: Whether the Respondent passed on the commensurate benefit of reduction in the rate of tax to his customers. The investigation by the Director General of Anti-Profiteering (DGAP) revealed that the GST rate on restaurant services was reduced from 18% to 5% effective from 15.11.2017, without the benefit of Input Tax Credit (ITC). The Respondent increased the base prices of his products by more than the required percentage to offset the denial of ITC, thus not passing the benefit of the tax reduction to his customers. The DGAP calculated that the ITC available during the period from July 2017 to October 2017 was 8.72% of the net taxable turnover. However, the Respondent increased the base prices of his products by more than 8.72%, leading to a net higher sale realization due to the increase in base prices despite the reduction in the GST rate. This resulted in a profiteered amount of ?7,53,854/-, including GST on the base profiteered amount. Issue 2: Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 committed by the Respondent. The Respondent argued that the DGAP considered all price revisions made after 15.11.2017 as part of the profiteered amount and ignored the right to increase prices due to business reasons. However, the investigation found that the Respondent failed to pass on the benefit of tax reduction commensurately. The DGAP's methodology for computing the profiteered amount, which involved comparing pre and post rate reduction base prices and accounting for the denial of ITC, was deemed correct and reasonable. The Respondent's argument that the DGAP acted as a price-controlling authority was dismissed, as the DGAP's mandate was to investigate whether the benefits of tax reduction and ITC were passed on to consumers. The Respondent's claim that the base price of certain items was incorrectly mapped was also rejected, as the DGAP used the sales data provided by the Respondent. The argument that the increase in royalty and advertisement charges should be considered was dismissed, as these charges were already included in the base prices during the pre-rate reduction period. The Respondent's reliance on the case of Kumar Gandhrav v. M/s KRBL Limited was found inapplicable, as the facts of that case were different. The Respondent's contention that the DGAP should have considered the delivery fee paid to online e-commerce platforms was also rejected, as there was no evidence that the delivery fee was not recovered from buyers. The DGAP's inclusion of the 5% GST amount in the profiteered amount was upheld, as the excess GST collected from customers was required to be refunded or deposited in the Consumer Welfare Fund. The Respondent's argument that the DGAP incorrectly applied a methodology similar to the 'zeroing methodology' was dismissed, as the benefit of tax reduction must be passed on to each customer on each product. The claim that the DGAP ignored the negative values and resorted to 'zeroing' was also rejected, as the benefit of tax reduction must be computed on each SKU. The Respondent's plea to restrict the calculation of the profiteered amount to a reasonable length of time was dismissed, as the violation of Section 171 continued unabated till 30.06.2019. The argument that the CGST Act did not prescribe a method for computing the profiteered amount was also dismissed, as the methodology for passing on the benefits of tax reduction and ITC was outlined in Section 171 (1) of the CGST Act, 2017. Conclusion: The Respondent was found to have denied the benefit of tax reduction to customers in contravention of Section 171 (1) of the CGST Act, 2017, resulting in a profiteered amount of ?7,53,854/-. The Respondent was directed to reduce prices commensurately and deposit the profiteered amount in the Central and Rajasthan State Consumer Welfare Funds along with interest. The Respondent was also liable for penal action under Section 171 (3A) of the CGST Act, 2017. The Commissioners of CGST/SGST Rajasthan were directed to ensure compliance with the order.
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