PROFITEERING ON SUPPLY OF FOOD ITEMS (PIZZA) UPHELD

[Dr. Sanjiv Agarwal]

In one of the recent cases of anti-profiteering, the National Anti-profiteering Authority (NAA) held that the supplier had  not passed on the benefit of reduction in the rate of tax to his recipients, commensurate to the denial of ITC, during the period between 15.11.2017 to 31.05.2018 and accordingly, the quantum of denial of such benefit or the profiteered amount illegally earned by the supplier was determined (₹ 41.42 lacs) as per the provisions of Section 171 of CGST Act, 2017 read with Rule 133 (1) of the CGST Rules, 2017.

In Re: Kiran Chimirala and DGAP, CBIC, New Delhi v. Jubilant Food Work Ltd., Noida  2019 (2) TMI 295 - NATIONAL ANTI-PROFITEERING AUTHORITY   in the instant complaint, applicant stated that he had purchased garlic bread and veg. Pizza @ ₹ 129 and ₹ 440 respectively on 20.10.2017 from supplier’s restaurant in Bangalore. It was alleged that though the Goods & Services Tax (GST) rate on restaurant services was reduced from 18% to 5% w.e.f. 15.11.2017, the supplier had increased the base prices of the above food items and charged the same base prices which he was charging before the rate of tax was reduced and had he maintained the same base prices which he was charging before the tax reduction the consumers would have been benefited but in this case it had not happened.

The matter was referred to DGAP for investigation.  The Central Government vide its Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 had reduced the rate of GST from 18% to 5% w.e.f. 15.11.2017 on the restaurant services with the condition that the benefit of ITC would not be available on the goods and services supplied during the course of these services from 15.11.2017.

The supplier was engaged in the business of operating quick service restaurants under the brand name "Domino's Pizza" and had a pan-India presence with 1,128 outlets across 31 States and Union Territories in which they were registered under the GST and these outlets were maintaining consistency from taste to overall experience and the prices of all the products as shown in the menu were exclusive of all taxes/GST except in the State of Maharashtra prior to 01.07.2017.

The supplier was dealing in 393 items. After comparing the selling prices as per the invoices issued by the supplier, the increase in base prices after the reduction in the rate of tax w.e.f. 15.11.2017 was quite apparent in the case of 314 items (79.90% of 393 items) supplied by it.

The GST rate of 5% had been charged on the increased base prices of these 314 items, which confirmed the Respondent's contention that the tax amount was computed @ 18% prior to 15.11.2017 and @ 5% w.e.f. 15.11.2017, however, because of the increase in the base prices the cum-tax price paid by the consumers had not been reduced commensurately for all the above items, in spite of the reduction in the rate of tax.

It was revealed that supplier  had increased the base prices of a number of items supplied as a part of restaurant services to make up for the denial of ITC post-GST rate reduction. It had increased the base prices by more than 5.59% i.e. by more than what was required to offset the impact of denial of ITC in respect of 170 items out of total 393 items sold during the same period and therefore, in respect of these items the commensurate benefit of reduction in the rate of tax from 18% to 5% had not been passed on to the customers.

It was held that the supplier had  not passed on the benefit of reduction in the rate of tax to his recipients, commensurate to the denial of ITC, during the period between 15.11.2017 to 31.05.2018 and accordingly, the quantum of denial of such benefit or the profiteered amount illegally earned by the supplier was determined as ₹ 41,42,97,635/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017.  It was directed to reduce the prices by way of commensurate reduction keeping in view the reduced rate of tax and the benefit of ITC denied. Further, it was also directed to refund to the Applicant an amount of ₹ 5.65 along with interest @18% from the date of charging of the above amount from him till its refund and to deposit the balance amount of ₹ 41,42,97,629.35 as per the provisions of Rule 133 (3) (c) in the ratio of 50:50 in the Central and the State CWFs along with interest @ 18% till the same is deposited, within a period of 3 months.

GST Commissioners were directed to ensure that the amount due is got deposited from the Respondent along with interest and in case the same is not deposited necessary steps shall be taken by them to get it recovered.

Further, since the present investigation has been conducted between the period w.e.f. 15.11.2017 to 31.05.2018 only, the DGAP was directed to further investigate whether the said supplier has passed on the benefit of tax reduction to his customers after the above date or not and submit his findings to this Authority as per the provisions of the CGST Act, 2017.

Since supplier had denied the benefit of reduction in the rate of tax granted vide Notification dated 14.11.2017 to its customers, it was also held that supplier had committed an offence under Section 122(1)(i) of the CGST Act, 2017 and penalty was imposable.