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2021 (1) TMI 844 - NAPA - GSTProfiteering - restaurant service supplied by the Respondent - allegation that the reduction in the rate of tax not passed on by way of commensurate reduction in price - contravention of section 171 of CGST Act - penalty - HELD THAT - It is revealed from the record that the Respondent is running a restaurant as a franchisee of M/S Subway Systems India Private Limited in Maharashtra and is supplying various food products to customers. It is also revealed from the plain reading of Section 171 (1) of the 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 30.06.2019. It is also evident that the Respondent has been dealing with a total of 137 items during the period from 15.11.2017 to 30.06.2019. The DGAP has reported that the GST rate of 5% has been charged w.e.f. 15.11.2017 however the base prices of 133 products have been increased more than their commensurate prices w.e.f. 15.11.2017 which establishes that because of the increase in the base prices the cum-tax prices paid by the consumers were not fixed 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 ₹ 6,85,531/- as has been computed in Annexure-15 of the DGAP s Report dated 27.12.2019. 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, are not identifiable, the Respondent is directed to deposit an amount of ₹ 6,85,531/- in two equal parts of ₹ 3,42,766/- 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 ₹ 6,85,531/- 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. Penalty - HELD THAT - The Respondent has denied the benefit of GST rate reduction to the customers of his products w.e.f. 15.11.2017 to 30.06.2019, 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 for imposition of penalty under the provisions of the above Section. However, a perusal of the provisions of Section 171 (3A) under which penalty has been prescribed for the above violation shows that it has been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019 and it was not in operation during the period from 15.11.2017 to 30.06.2019 when the Respondent had committed the above violation and hence, the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively. Accordingly, notice for the imposition of penalty is not required to be issued to the Respondent.
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. Issue-wise Detailed Analysis: 1. Whether the Respondent passed on the commensurate benefit of reduction in the rate of tax to his customers: The Respondent, a restaurant franchisee, was investigated for not reducing prices commensurately after the GST rate on restaurant services was reduced from 18% to 5% effective 15.11.2017. The Director General of Anti-Profiteering (DGAP) found that although the GST rate was reduced, the Respondent increased the base prices of 133 out of 137 items, effectively negating the benefit of the tax reduction. The DGAP concluded that the Respondent did not pass on the benefit of the tax reduction to customers as mandated by Section 171 of the CGST Act, 2017. 2. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 committed by the Respondent: The investigation revealed that the Respondent failed to provide complete and relevant documents and did not cooperate fully with the DGAP. The DGAP determined that the Respondent increased the base prices of items by more than the 9.64% required to offset the denial of Input Tax Credit (ITC). As a result, the DGAP computed the profiteered amount to be ?6,85,531/-, including GST on the base profiteered amount. The DGAP's methodology involved comparing pre-rate reduction prices with post-rate reduction prices while considering the impact of the denial of ITC. Respondent's Contentions and DGAP's Clarifications: - The Respondent argued that the DGAP incorrectly computed the ITC to taxable turnover ratio and should have considered the period from 01.11.2017 to 14.11.2017. The DGAP clarified that the Respondent did not reverse the ITC on the closing stock as required and included ITC availed for the entire month of November 2017, which was incorrect. - The Respondent contended that the increased base prices were due to the withdrawal of ITC and other cost increases. The DGAP maintained that the Respondent was required to pass on the benefit of tax reduction to consumers and that the increase in prices was not justified. - The Respondent claimed that the DGAP's methodology was arbitrary and that no specific methodology for calculating profiteering was prescribed in the CGST Act or Rules. The DGAP responded that the methodology was based on the provisions of Section 171 and that the computation was a mathematical exercise to determine the commensurate reduction in prices. Authority's Findings: - The Authority found that the Respondent deliberately withheld data and did not cooperate with the investigation, which justified the DGAP's methodology. - The Authority agreed with the DGAP's computation of the profiteered amount and directed the Respondent to deposit ?6,85,531/- in the Consumer Welfare Funds of the Central and Maharashtra State Governments. - The Authority noted that the Respondent violated Section 171 (1) of the CGST Act, 2017 by not passing on the benefit of the tax reduction to customers. - The Authority did not impose a penalty under Section 171 (3A) of the CGST Act, 2017, as it was not in operation during the period of violation. Conclusion: The Respondent was found to have violated the provisions of Section 171 (1) of the CGST Act, 2017 by not passing on the benefit of the GST rate reduction to customers. The Respondent was directed to deposit the profiteered amount in the Consumer Welfare Funds and reduce prices commensurately. The Authority also directed the Commissioners of CGST/SGST Maharashtra to monitor compliance with the order.
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