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2020 (12) TMI 889 - NAPA - GSTProfiteering - restaurant service supplied by the Respondent - allegation 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 - contravention of Section 171 of the Central Goods and Services Tax Act, 2017 - penalty - HELD THAT - It is revealed from the record that the Respondent is running a restaurant as a franchisee of M/s Subway India Private Limited in Maharashtra and is supplying various food products to the customers. It is also revealed from the plain reading of Section 171 (1) of he CGST Act, 2017 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 record 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, vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 without the benefit of ITC. Therefore, the Respondent is 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 present investigation has been carried out w.e.f. 15.11.2017 to 31.03.2019. It is also evident that the Respondent has been dealing with a total of 280 items during the period from 15.11.2017 to 31.03.2019. Upon comparing the average selling prices as per the details submitted by the Respondent for the period from 01.07.2017 to 14.11.2017 and the actual selling prices post rate reduction, i.e. w.e.f. 15.11.2017 to 31.03.2019 the DGAP has reported that the GST rate of 5% has been charged w.e.f. 15.11.2017 however the base prices of 170 products have been increased more than their commensurate prices w.e.f. 15.11.2017 which established that because of the increase in the base prices the cum-tax prices paid by the consumers were not reduced commensurately, despite the reduction in the GST rate. As per the provisions of Sec 171 (1) read with Rule 133 (1) the profiteered amount is determined as ₹ 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 ₹ 6,66,700/- in two equal parts of ₹ 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 ₹ 6,66,700/- shall be deposited, 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. This Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioners of CGST/SGST Maharashtra to monitor this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by this Authority is deposited in the CWFs of the Central and the Maharashtra State Government. A report in compliance of this order shall be submitted to this Authority by the concerned Commissioner within a period of 4 months from the date of receipt of this order.
Issues Involved:
1. Whether the Respondent has 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 has passed on the commensurate benefit of reduction in the rate of tax to his customers? The case revolves around the allegation that the Respondent, a franchisee of M/s Subway Systems India Pvt. Ltd., did not pass on the benefit of the GST rate reduction from 18% to 5% effective from 15.11.2017, as mandated by Section 171 of the Central Goods and Services Tax Act, 2017. The Director-General of Anti-Profiteering (DGAP) initiated an investigation based on a reference from the Standing Committee on Anti-Profiteering. The investigation covered the period from 15.11.2017 to 31.03.2019. The DGAP reported that the Respondent increased the base prices of 170 items post-GST rate reduction, thereby not reducing the cum-tax prices paid by consumers despite the reduction in the GST rate. The DGAP compared the average selling prices before the rate reduction (01.07.2017 to 14.11.2017) with the actual selling prices post-rate reduction (15.11.2017 to 31.03.2019) and found that the Respondent had increased the base prices more than the permissible limit, which should have been adjusted only to the extent of the denial of Input Tax Credit (ITC). The Respondent contended that the DGAP's methodology was arbitrary and did not consider the discretionary discounts offered to customers. However, the DGAP clarified that the average base prices were computed based on the actual transaction value as per Section 15 of the CGST Act, 2017, which includes discounts. The DGAP also considered sales data from previous months (July to October 2017) where sales were not found during the period 01.11.2017 to 14.11.2017. Issue 2: Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 committed by the Respondent? Section 171 of the CGST Act mandates that any reduction in the rate of tax or benefit of ITC must be passed on to the recipient by way of commensurate reduction in prices. The DGAP found that the Respondent had increased the base prices of 168 items more than the permissible limit of 8.85% (the impact of denial of ITC), thereby not passing on the benefit of the tax reduction to the customers. The profiteered amount was calculated to be ?6,66,700/-. The Respondent argued that the DGAP's methodology was akin to the "zeroing methodology" used in anti-dumping cases, which the Government of India had opposed at the WTO. However, the Authority clarified that netting off cannot be applied in profiteering cases as the benefit has to be passed on to each customer for each product. The Respondent also contended that the DGAP included 5% GST in the profiteered amount, which was already deposited with the Government. The Authority held that the excess GST collected due to increased base prices must be refunded to the customers or deposited in the Consumer Welfare Fund, as it was not supposed to be collected. The Respondent's claim that the DGAP failed to complete the investigation within the prescribed time was also dismissed, as the investigation was completed within the extended period allowed by the Authority. Conclusion: The Authority concluded that the Respondent had indeed violated the provisions of Section 171 of the CGST Act by not passing on the benefit of the GST rate reduction to the customers. The Respondent was directed to deposit the profiteered amount of ?6,66,700/- in the Central and Maharashtra State Consumer Welfare Funds, along with interest, within three months. The Commissioners of CGST/SGST Maharashtra were directed to monitor the compliance of this order.
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