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TMI Blog2020 (4) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. The DGAP in his Report has stated that the Respondent had increased the base prices of different items by more than 7.39% i.e. by more than what was required to offset the impact of denial of ITC, supplied as a part of restaurant services to make up for the denial of ITC post-GST rate reduction and on comparison of pre and post GST rate reduction prices of the items sold in respect of items sold - Accordingly, the quantum of profiteering has been computed to ₹ 7,33,043/- as per Annexure-10 of the DGAP's Report dated 13.09.2019, which is correct and can be relied upon. The profiteered amount is determined as ₹ 7,33,043/- as has been computed in Annexure-10 of the DGAP Report dated 13.09.2019. Accordingly, the Respondent is directed to reduce his prices commensurately in terms of Rule 133 (3) (a) of the above Rules. The Respondent is also directed profiteered by the Respondent as ordered by this Authority is deposited in the CWFs of the Central and the State Government of Maharashtra - File be consigned after completion. - Case No. 17/2020 - - - Dated:- 13-3-2020 - DR. B.N. SHARMA, CHAIRMAN, SH. J. C. CHAUHAN, TECHNICAL MEMBER, SH. AMAND SHAH, TECHNICAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The DGAP has further stated that in response to the notice dated 09.04.2019 and subsequent reminders, the Respondent has submitted replies, vide his letters/e-mails dated 09.05.2019, 12.06.2019, 17.07.2019, 24.08.2019 and 05.09.2019. The Respondent has, inter-alia summited that he had availed ITC (ITC) during the period 01.07.2017 till 14.11.2017, and thereafter, no ITC has been availed. Vide his aforementioned e-mails/letters, the Respondent submitted the following documents/information: (a) Copies of GSTR-1 Returns for the period July 2017 to March 2019. (b) Copies of GSTR-3B Returns for the period July 2017 to March 2019. (c) Copies of Electronic Credit Ledger for the period July 2017 to March 2019. (d) Copies of sample sale invoices and purchase invoices. (e) Price lists of the products. (f) Monthly invoice wise summary of item-wise sales for the period from July 2017 to March 2019. (g) Details of ITC availed and utilized for the period from 01.07.2017 to 14.11.2017 by the Respondent. 5. The DGAP has reported that in terms of Rule 130 of the CGST Rules, 2017, the Respondent was informed by the DGAP that if any information/documents pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined that if the ITC in respect of restaurant service was 10% of the taxable turnover of the Respondent till 14.11.2017 (which became unavailable w.e.f. 15.11.2017) and the increase in the pre-GST rate reduction base prices w.e.f. 15.11.2017, was up to 10%, it could be concluded that there was no profiteering. However, if the increase in the pre-GST rate reduction base prices w.e.f. 15.11.2017, was by 14%, the extent of profiteering would be 14% - 10% = 4% of the turnover. Therefore, this exercise to work out the ITC in respect of restaurant service as a percentage of the taxable turnover of the products supplied during the pre-GST rate reduction period, was carried out by taking into consideration the period from 01.07.2017 to 14.11.2017. However, it was also observed by the DGAP that some of the invoices received by the Respondent during the period 01.11.2017 to 14.11.2017 pertained to the services rendered for the entire month of November 2017 and there was no reversal of ITC reflected in GSTR-3B Return of November 2017 on account of closing stock of inputs as on 14.11.2017, which was to be used after 14.11.2017. Therefore, the taxable turnover and ITC for the period 01.11.2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old during the same period and hence, the commensurate benefit of reduction in the rate of tax from 18% to 5% had not been passed on. 12. The DGAP has also reported that the next issue to be examined was to determine the quantum of profiteering made in this case and for this purpose, only those items where the increase in base prices was more than what was required to offset the impact of denial of ITC, had been considered and the DGAP has furnished the calculation in Table-B below in respect of item 12 Chicken Tandoori Sub for which average base price had been calculated during the pre-GST rate reduction period of 01.11.2017 to 14.11.2017 and then profiteering had been calculated for post-GST rate reduction (Invoice no. 1/A-13083 dated 15.11.2017):- Table-B (Amount in Rs.) Name of the product (A) 12 Chicken Tandoori Sub Total Quantity sold during 1 st Nov 2017 to 14 th Nov 2017 (B) 5 Sum of taxable value during 1 st Nov 2017 to 14 th Nov 2017 (C) 1305 Average base price during 1 st Nov 2017 to 14 th Nov 2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 171 of the CGST Act, 2017 should not be fixed. Sh. Neeraj Rai, Partner appeared for the hearings. 16. The Respondent vide his written submissions dated 18.10.2019 has made the following submissions stating:- a. That the methodology applied in DGAP's report dated 13.09.2019 to arrive at profiteering was incorrect as the data used to arrive at profiteering was not a comparable data since average base prices in the pre-rate reduction regime were compared with the item-wise transactions in the post rate reduction. Further, the DGAP has used two sets of the average base prices, first from 01.11.2017 to 14.11.2017 and second from 01.07.2017 to 31.10.2017 for comparison with the item-wise transactions post 14.11.2017. Further, the DGAP has calculated the average base prices for the period from 01.11.2017 to 14.11.2017 after factoring the discount although the actual base prices of the menu were much higher. He has further stated that giving discount was a norm in the competitive world and depended on various factors. It was the call of the business to decide upon the period and quantum of discounts that were needed to be given to sustain in business and to attract mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.06 GST on Advertisement 18% 18% GST Amount 0.81 0.910 Total Amount 5.31 5.97 0.66 Total 14.27 16.037 1.77 % of Incremental Cost 1.77 d. That after moving to the composition scheme w.e.f. 15.11.2017, he was not allowed to avail ITC on Capital Goods. Hence, to calculate the profiteered amount, he needed to factor in the loss of ITC from Capital Goods, which was 1.074% and the same was needed to be considered for arriving at profiteering. He has also illustrated his loss of ITC on Capital Goods in the Table below:- Non Availability of ITC of Capital Goods Party Name Date of purchase Basic Amount GST Paid Stellar Gastronom Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e calculation factoring in the above points, the profiteering worked out to merely ₹ 66,010/- which was less than 1% of taxable sales from period 15.11.2017 to 31.03.2018. 17. A supplementary report was sought from the DGAP on the issues raised by the Respondent vide his above-mentioned submissions and the DGAP vide his submissions dated 31.10.2019 has clarified as under:- a. That as per the provisions of the CGST Act, 2017 and Rules made thereunder, the effective price on which tax was levied was discounted price. Hence, the DGAP has taken the discounted price in the pre and post GST rate reduction regime. In his report dated 13.09.2019, the DGAP has arrived at the reference base prices of the products by dividing the total quantity supplied to the total taxable value charged (after discount) for the products during the period 01.11.2017 to 14.11.2017. Further, the reference base prices of the products which were not supplied during the period from 01.11.2017 to 14.11.2017, were taken from the sales data for the period from July-2017 to October-2017. b. That the reference base price for SOTD products have been taken as ₹ 110/-. Further, the reference base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the prerogative of the supplier and did not amount to profiteering. ii. That he has the right to withdraw discounts and other promotional offers anytime and no rule implied that a discount could not be withdrawn until the expiry of a specified period. The DGAP has completely ignored the fact that only under special circumstances discount was given and the average base prices had been calculated based on discounted and normal sales during the period from 01.11.2017 to 14.11.2017, whereas they ought to have been calculated only based on normal sales made during that period. iii. That the comparison of base prices done against all the items for the period July-2017 to October-2017 should be excluded from the scope of calculation of profiteering. iv. That as per the attached SOTD sample bills of Store No. 58855, the base rate was as follows:- (a) No 12730 Dt 10/11/17 SOTD Base Rate ₹ 110/- Total bill ₹ 130/- (inclusive 18% GST). (b) No 12836 Dt 11/11/17 SOTD Base Rate ₹ 110/- Total bill ₹ 130/- (inclusive 18% GST). (c) No 12730 Dt 10/11/17 SOTD Base Rate ₹ 110/- Total bill ₹ 130/- (inclusive 18% GST). (d) No 13078 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been prescribed under Section 171 of the CGST Act and the Rules to keep the base prices the same. The DGAP while calculating the profiteered amount, has considered sales up to the period from November-2017 to March-2019, i.e. a period of almost 16 months for his investigation, which was unacceptable. Hence, the profiteered amount should be calculated up to 31.03.2018. Beyond that period any increase in prices should be purely considered as a business decision and should not be part of the profiteered amount ix. That right to trade was a fundamental right guaranteed under Article 19 (1) (g) of the Constitution of India, which included the right to determine prices and the same could not be taken away without any explicit authority under the Law. Therefore, this form of price control was a violation of Article 19 (1) (g) of the Constitution of India. x. That the DGAP, while calculating the profiteered amount, wrongly added a 5% notional amount which was charged and collected from customers on the profiteered amount and deposited with the Government. Therefore, the addition of this 5% amount should be removed and hence the profiteered amount should be reduced by ₹ 34, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the prices of the goods or services or both shall be the profiteered amount. We find it pertinent to mention that Section 171 of the CGST Act, 2017 provides that the benefit has to be passed on in respect of each supply made by a registered person. As per the above provisions of Section 171 of the Act, there is no connection between the term profiteering and Profit . The scope of profiteering is confined to the question of whether the benefit accruing on account of reduction in the tax rate or the benefit of ITC as the case may be, has been passed on to the recipient/consumer or not. In the context of the same, the Respondent has made submissions relating to increase in his costs on account of royalty, advertisement charges and inflation which does not have any ramification on the computation of the amount of profiteering. Further, provisions of Section 171 of the Act mandates that profiteering has to be calculated on each supply/transaction and therefore it has to be calculated on each actual invoice/actual supply in the relevant period, comparing the prices mentioned therein with the prevailing base prices before the reduction in the tax rate and in the availability of ITC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during the period 01.11.2017 to 14.11.2017 were taken from the sales data for the period July-2017 to October-2017. Hence, the above claim of the Respondent cannot be accepted. 23. The Respondent has argued that the methodology adopted by the DGAP was not correct and the CGST Act has no mentioned it. In this regard, it is pertinent to mention that the main contours of the Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and the benefit of ITC are enshrined in Section 171 (1) of the CGST Act, 2017 itself which states that Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. It is clear from the perusal of the above provision that it mentions reduction in the rate of tax on any supply of goods or services or benefit of ITC which means that the benefit of tax reduction or ITC has to be passed on at the level of each supply of Stock Keeping Unit (SKU) or unit to each buyer of such SKU or unit and in case it is not passed on the profiteered amount has to be calculated on each SKU unit. Further, the above Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal ITC which would be required to be passed on to the buyers of such units. Further, the facts of the cases relating to the Fast Moving Consumer Goods (FMCGs), restaurants, construction and cinema houses are completely different and therefore, the mathematical methodology employed in the case of one sector cannot be applied in the other sector otherwise it would result in denial of the benefit to the eligible recipients. Moreover, both the above benefits have been granted by the Central as well as the State Governments by sacrificing their tax revenue in the public interest and hence the suppliers are not required to pay even a single penny from their own pocket and hence they have to pass on the above benefits as per the provisions of Section 171 (1) which are abundantly clear, unambiguous and mandatory which truly reflect the policy of the legislatures. 24. The Respondent has further contended that for calculating the average base price, the DGAP has calculated the price after factoring the discount however, the actual base price of the menu was much higher than the price after factoring the discount. Therefore, the average base price of the items should be considered wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther product) is also not possible as the same buyer may not have purchased the very same product during both the above periods and some of the buyers may have purchased some products during the post rate reduction period and not during the pre-rate reduction period or vice versa. It has been admitted by the Respondent that he had charged different base prices to his customers for the same product on different days of a particular week/month during the pre-rate reduction period and therefore, the only alternative available was to compute the average base prices for the above period so that comparison could be made with the post rate reduction actual base prices. Therefore we do not find any merit in the above claim of the Respondent. 26. The Respondent has further contended that in India, Subway Systems India Pvt. Ltd. charges 8% and 4.5% totalling 12.5% Royalty and Advertisement Charges and after moving to the composition scheme, his royalty cost has directly increased by 1.77%. In this connection, it would be appropriate to refer to the definition of the profiteered amount given in the Explanation attached to Section 171 which has been quoted above. It is clear from the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rices were lesser than the commensurate base prices of the products supplied by him, i.e. where he had passed on excess benefit to his customers/recipients. The above contention of the Respondent is not correct because the computation done by the DGAP, is based on the transaction value as per the provisions of Section 15 of the CGST Act, 2017 and all discounts including the supply of free Sub, which do not form part of such value, cannot be included in the price of the product. The Respondent has himself submitted that the discounts offered by him were in accordance with his general market practice which was being followed by him in the course of his business, which every other similar franchisee was also doing to promote his sales. The excess benefit passed on one product can also not be set off against the other product since the benefit is required to be passed on to every buyer and no buyer can be denied the benefit on the ground that it has been passed on the other buyer. Therefore, the above contentions of the Respondent cannot be accepted. 29. The Respondent has further contended that the annual inflation cost was approximately 6% and hence, profiteering should be calcula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to trade including the right to determine prices and such right which had been granted by the Constitution of India could not be taken away without any explicit authority under the Law. The contention of the Respondent is not correct as this Authority or the DGAP has not acted in any way as a price controller or regulator as they do not have the mandate to regulate the same. The Respondent is absolutely free to exercise his right to practice any profession or to carry on any occupation, trade or business, as per the provisions of Article 19 (1) (g) of the Constitution. He can also fix his prices and profit margins in respect of the supplies made by him. Under Section 171 this Authority has only been mandated to ensure that both the benefits of tax reduction and ITC which are the sacrifices of precious tax revenue made from the kitty of the Central and the State Governments are passed on to the end consumers who bear the burden of the tax. The intent of this provision is the welfare of the consumers who are voiceless, unorganized and vulnerable. This Authority is charged with the responsibility of ensuring that both the above benefits are passed on to the general public as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eering. On perusal of the above-cited case, it is observed that the issue in that case related to denial of discount of ₹ 500/-, which had been initially offered by the supplier to the buyer at the time of placing the order, but the same was withdrawn by the supplier at the time of supply. In these circumstances, it was held by this Authority that the withdrawal of such discount does not amount to profiteering, since the said discount offered had no connection with the base price of the products supplied. The facts of that case are totally at variance with the facts of the present case wherein the Respondent has claimed that giving discounts was a norm in the competitive world and a call of business. Therefore, the case cited above has no relevance in the context of the present case. 34. It is clear from the plain reading of Section 171(1) mentioned above 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 DGAP's Report that there has been a reduction in the rate of tax from 18% to 5% w.e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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