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TMI Blog2020 (7) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... rest 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... of various items like vegetables etc. b) That as per Notification No. 46/2017- Central Tax (rate) dated 14.11.2017, no ITC was available and hence he had increased the base prices of his products after the change in the GST rate from 18% with ITC to 5% without ITC. c) That as per ITC working during the period from July 2017 to 14.11.2017, ITC amounting ₹ 2,89,196/- was available which came to approximately 8.80%. Hence, the base prices had been increased to neutralize the denial of ITC. d) That since 15.11.2017, he had opted the 5% Composition Scheme with no benefit of setting off input credit on the purchases. Accordingly, the benefit of pricing on his popular items has been passed on by him to the extent which could cover the loss from the withdrawal of setting off of ITC received before 15.11.2017. 4. Vide the aforementioned e-mails/letters, the Respondent has also submitted the following documents/information:- (a) Copy of GSTIN Registration. (b) Copies of GSTR-1 and GSTR-3B Returns for the period from July 2017 to June 2019. (c) Copy of GSTR-9 Returns for the financial year 2017-2018. (d) Sales details for the period from August 2017 to June 2019. (e) P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DGAP has also submitted that the assessment of the impact of denial of ITC, which was an uncontested fact, required determination of the ITC in respect of "restaurant service", as a percentage of the taxable turnover from the outward supply of "products", during the pre-rate reduction period. For instance, if the ITC in respect of restaurant service was 10% of the taxable turnover of a registered person till 14.11.2017 (which became unavailable to him w.e.f. 15.11.2017) and if the increase in the base prices w.e.f. 15.11.2017 was less than 10%, then this would not be a case of profiteering. However, if the increase in the base prices w.e.f. 15.11.2017, was by a margin of 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 from the products supplied during the pre-GST rate reduction period had to be carried out, though by taking into consideration the period from 01.07.2017 to 31.10.2017 and not up to 14.11.2017. The DGAP has claimed to have done this because there was no reversal of ITC on the closing stock of inputs/input services and capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... post rate reduction. Further, the Respondent vide submissions dated 11.12.2019 had stated that those products having none or zero value were provided to the customers as free of cost and that no charge had been taken on those items. 11. The DGAP has also stated that after establishing the fact of profiteering, the next step was to quantify the same and only those items, where the increase in the base prices was more than what was required to offset the impact of denial of ITC, were considered and the calculation of the profiteered amount was carried out following the above principle. The DGAP has illustrated by an example, as per invoice No. 1/A-24358 dated 22.11.2017, in the case of item "6" Veggie Delite Sub", the extent of profiteering as per the procedure mentioned in Table-B below:- Table-B (Amount in Rs.) Name of the product (A) 6" Veggie Delite Sub Total Quantity sold during 1st Nov, 2017 to 14th Nov, 2017 (B) 232 Sum of taxable Value during 1st Nov, 2017 to 14th Nov, 2017 (C) 27840 Average base price during 1st Nov, 2017 to 14th Nov, 2017 (D=C/B) 120.00 Base price with denial of input tax credit @ 8.72% (E=D+D*8.72%) 130.19 GST @ 5% (F=E*5%) 6.51 Total price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 for 20 months and failed to appreciate that the GST rate had been reduced in the month of November 2017. The DGAP has considered all the price revisions made after 15.11.2017 as part of the profiteered amount and has completely ignored that the Respondent has right to increase his prices on account of various reasons other than tax which were also required to be considered for fixing the product prices. b. That the alleged profiteered amount has substantiality increased as compared to the total turnover during the period from February 2019 to June 2019 because in the month of February 2019, there was revision in the product prices to meet out the general inflation and other expenses. Before February 2019, the profiteered percentage was 2.05% of the turnover, however, during the months starting from February 2019 to June 2019, the profiteered percentage was 6.07% of the turnover i.e. there was almost three times increase in the profiteered percentage as compared to the other periods. He has also submitted month wise comparison chart as under:- Month wise Comparison Chart Profiteering Analysis month-wise Month Total Profiteering Amount Total Turnover % of Profiteering amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal and settled fact that fixation of prices was fundamental right of the business and there were no rules/regulations prescribed under the law for increasing the product prices after the rate reduction. e. Incorrect base price considered for some of the SOTD offering (Sub of the day Schemes 7 Product):- That Sub of the Day (SOTD) was one of his popular selling products across India and the price of the products under SOTD offering was fixed and remained fixed until there was price revision in the SOTD offer. The SOTD offer price was Rest. 110/- till 14.11.2017 i.e. the day before the change in GST rate from 18% to 5%. The DGAP has considered the base price of the 7 SOTD items as ₹ 105/- instead of ₹ 110/- which was applicable immediately before change in the GST rate. The price of ₹ 105/- has been considered on the basis of sales made during the period of August 2017. The average price of these items has been calculated by the DGAP based on the sales in the month of August 2017, where the DGAP could not find the sales of these SOTD items during the period from 01.11.2017 to 14.11.2017. Instead of taking a uniform period for all the products in the pre-GST rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Royalty charged by Subway India 0.96 1.079 Advertisement [email protected]% on Net Sale 4.5 5.06 Add: - GST@18% on Advertisement charged by Subway India 0.81 0.91 Total Invoice Value including GST 14.27 16.039 1.769% g. That the DGAP while calculating the profiteering amount, has considered the base prices of the products without considering the increase in the royalty expenses which was directly calculated on the basis of net sales. This did not come under the purview of ITC loss. Due to this increase in royalty expenses, impact on profiteered amount was ₹ 2,66,1991- and it should be reduced while calculating profiteered amount. h. The Respondent has also relied upon the decision of this Authority given in the case of Kumar Gandhrav v. KRBL Limited (Case Number 03/2018 dated 04.05.2018) = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY wherein increase in the purchase price/cost of goods has been accepted by this Authority while determining the profiteered amount. He has also reproduced the relevant Para 7 of the above said Order as under:- "It is also revealed from the perusal of the tax Invoices submitted by the Respondent that there was an increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hance of getting the orders from the customers. During the subject period, the Respondent had paid ₹ 17,16,774/- as delivery fee. Therefore, delivery fee inclusive of GST needed to be considered while calculating the profiteering amount. j. 5% additional GST amount added on profiteered amount should be removed: - That the GST of 5% which has been paid to the Government was based on the base price charged to the customers. Since, according to the DGAP the base price should have been reduced accordingly, the GST amount payable should also be less than as compared to the actual GST amount collected from the customers. However, the GST amount collected on the increased base prices from the customers has been already deposited with the Government of India along with monthly tax liability. Therefore, the addition of 5% GST amount was required to be removed and the profiteered amount should be recovered from the Governments. The profiteered amount should also be reduced by ₹ 35,880/-. k. Impact on the Profiteered amount due to reduction in Base price of the products post GST rate should be considered :- That the DGAP has incorrectly applied a methodology similar to the "ze ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 (2,479.98) 2,479.98 Sept'18 0.00 -11,535.43 11,535.43 14,015.41 Dec'17 0.00 (3,438.80) 3,438.80 Oct'18 0.00 -8,530.72 8,530.72 11,969.52 Jan'18 0.00 (3,780.46) 3,780.46 Nov'18 0.00 -19,315.51 19,315.51 23,095.97 Feb'18 0.00 (7,040.39) 7,040.39 Dec'18 0.00 -6,829.82 6,829.82 13,870.21 Mar'18 0.00 (13,551.68) 13,551.68 Jan'19 0.00 -8,524.70 8,524.70 22,076.38 Apr-18 0.00 (16,991.57) 16,991.57 Feb'19 0.00 -22,670.77 22,670.77 39,662.35 May'18 0.00 (25,335.33) 25,335.33 Mar'19 0.00 -6,903.91 6,903.91 32,239.23 June'18 0.00 (28,744.75) 28,744.75 Apr'19 0.00 -5,962.37 5,962.37 34,707.12 July'18 0.00 (15,429.97) 15,429.97 May'19 0.00 -5,709.48 5,709.48 21,139.45 Aug'18 0.00 (15,713.32) 15,713.32 Jun'19 0.00 -6,021.17 6,021.17 21,734.49 Total 0.00 (132,506.26) 132,506.26 0,00 -102,003.88 102,003.88 234,510.14 I. MRP based product where denial of ITC is much higher in comparison with average ITC:- That he was selling few MRP based products like soft drinks and the GST rate applicable on some of these products was 28% plus 12% Cess. After 14.11.2017, the cost of goods s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of fixing the price of the products. o. That various petitions were pending in the High Courts in which the petitioners had raised important issue regarding constitutional validity of the anti-profiteering provisions along with computation method/procedures adopted by this Authority for calculating profiteering amount. These included WP (C) 378 of 2019 (Hindustan Unilever Ltd. v. Union of India) = 2019 (1) TMI 1368 - DELHI HIGH COURT, WP (C) 2347 of 2019 (Jubilant Food works Ltd. v. Union of India) = 2019 (5) TMI 568 - DELHI HIGH COURT and WP (C) 4213/2019 (Abbott Healthcare v. Union of India) = 2019 (5) TMI 563 - DELHI HIGH COURT. Hence, the proceeding should be stayed till the time the issue of constitutional validity and computation methodology was settled by the courts. 16. Supplementary Report was sought from the DGAP on the above submissions of the Respondent. In response, the DGAP vide his Report dated 09.03.2020 has furnished the following reply:- a. Para 1:- That after examining the reference, the Standing Committee on Anti-profiteering had decided to refer the matter to the DGAP for a detailed investigation which was received in his office on 01.07.2019. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o arrive at the base price of the products before rate reduction, sales during the period from 01.11.2017 to 14.11.2017 had been considered. If sale of any particular product/item was not found during this period then, in that case, the sales of that particular product/item during previous months i.e. from August 2017 to October 2017 had been considered to arrive at the base price of the that product/item. Since the sales of these 7 SOTD items were not found during the period from 01.11.2017 to 14.11.2017, therefore, the sale of these items during the month of August 2017 had been considered and during August 2017, the basic sale price of these 7 SOTD items was arrived at as ₹ 105/- as per the sales data submitted by the Respondent. c. Para 3:- That as per the franchise agreement, the royalty expenses and advertisement charges were fixed at certain percentage of the net sales. These expenses were being paid by the Respondent before the rate reduction and the same were being paid by him after rate reduction also. Hence there appeared to be no increase in the expenses as there was no increase in the percentage which was fixed as per the franchise agreement. Moreover, in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that extent. f. Para 6:- That the contention of the Respondent that impact on the profiteered amount due to reduction in the base prices of the products post GST rate reduction should be considered, was incorrect. Section 171 of the CGST Act, 2017 which governed the anti-profiteering provisions under GST, required that in the event of a benefit of ITC or reduction in rate of tax, there must be a commensurate reduction in prices of the goods or services. Such reduction could obviously be in terms of money only, so that the final price payable by a consumer got reduced. The statute did not force the supplier to reduce the prices more than the actual required commensurate reduction. There could be many marketing strategies or other promotional schemes which might compel the Respondent to reduce the prices of products more than the actual requirement. The Respondent was always at liberty to reduce the prices of his products up to any extent and bear the loss but this loss could not be appropriated with the due benefit of rate reduction available to the recipients or customers of the other products where the prices were not reduced commensurately by the Respondent. Hence, profiteering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.02.2020, he had highlighted the same with all requisite details and documentary evidence for kind consideration. 18. We have carefully considered the all the Reports furnished by the DGAP, the submissions made by the Respondent and the other material placed on record. On examining the various submissions we find that the following issues need to be addressed:- a. Whether the Respondent has passed on the commensurate benefit of reduction in the rate of tax to his customers? b. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 committed by the Respondent? 19. It is observed from the record that the Respondent is running a restaurant as franchisee of M/s Subway India Private Limited in Jaipur (Rajasthan) and is supplying various food products to the 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% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017, when the GST rate on restaurant service was reduced from 18% to 5%, the said ITC was not available to the Respondent. 22. It is further revealed from the analysis of the details of item-wise outward taxable supplies made during the period from 15.11.2017 to 31.06.2019 that the Respondent had increased the base prices of his products/items supplied as a part of restaurant service to make up for the denial of ITC post GST rate reduction. The pre and post GST rate reduction prices of the items sold during the period from 01.08.2017 to 14.11.2017 (Pre-GST rate reduction) and 15.11.2017 to 30.06.2019 (Post-GST rate reduction) have been compared and it has been found that the Respondent has increased the base prices by more than 8.72% i.e. by more than what was required to offset the impact of denial of ITC in respect of the products/items sold during the above period. Thus, it is apparent that the Respondent has resorted to profiteering as the commensurate benefit of reduction in the rate of tax from 18% to 5% has not been passed on by him. However, there was no profiteering in respect of the remaining items on which there was either no increase in the base prices or the increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... base price which is more than the commensurate base price, would not get the benefit of tax reduction. Such a comparison would be against the provisions of Section 171 as well as Article 14 of the Constitution which require that each customer has to be passed on the benefit of tax reduction on each purchase made by him. The above methodology employed by the DGAP for computing the profiteered amount appears to be correct, reasonable, justifiable and in consonance with the provisions of Section 171 of the CGST Act, 2017 and has been successively approved by this Authority in the cases of tax reduction and hence the same can be relied upon. 25. The Respondent has vehemently argued that the DGAP has considered all the price revisions made by him after 15.11.2017 as a part of profiteered amount and has ignored the fact that a businessman has right to increase his prices on account of various reasons other than tax. It is pertinent to mention here that the scope of profiteering, as per Section 171 of the CGST Act, 2017, is confined to the question of whether the benefit accruing on account of rate reduction has been passed on to the recipients or not. It is apparent from the above narr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent and therefore, there is no violation of Article 19 (1) (g) of the Constitution. 27. The Respondent has further argued that the base price of 7 SOTD items which were sold by him was ₹ 110/- per item till 14.11.2017 but the base price has been incorrectly mapped by the DGAP as ₹ 105/- while working out the average base price for the pre rate reduction period. However, the record of the case reveals that the Respondent, at no point in time, has furnished any invoice/ document which showed that the price of the SOTD items had been fixed as ₹ 110/- by the Respondent. It is also apparent that for computing the extent of profiteering, the DGAP has taken the product wise average base price for the items supplied in the pre rate reduction period from the Respondent's invoices which the Respondent had himself submitted and not from any secondary data/ source. Therefore, the base price of SOTD of ₹ 105/- per item computed by the DGAP is based on the information supplied by the Respondent himself. Since there had been no sales of the above item between the period w.e.f. 01.11.2017 to 14.11.2017 the DGAP has taken the last sales which had been made by the Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the base prices. In this respect it would be appropriate to state that the payment of delivery fee including the GST has no connection with the base prices as the Respondent has admitted increase in his sales due to use of the E-commerce platforms which has resulted in his earning more profits. There is no evidence on record which can establish that the Respondent has not recovered the delivery fee from his buyers. There is also no question of including the hypothetical ITC on the GST which would have been available to the Respondent in the post rate reduction period while calculating the pre rate reduction average base prices as the Respondent was not making supplies through the above platforms during the pre rate reduction period. The above claim of the Respondent is frivolous and hence, it cannot be accepted. 31. The Respondent has also claimed that the DGAP while calculating the profiteered amount has erroneously added 5% notional amount on account of GST which has been collected from the customers and deposited with the Government of India with the monthly GST returns. This contention of the Respondent is not correct because the provisions of Section 171 (1) and (2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcess benefit which he has claimed to have passed on which would result in complete denial of benefit to the customers who were entitled to receive it. It has to be kept in mind that every recipient/ customer is entitled to the benefit of the tax rate reduction by way of reduced prices and Section 171 does not offer the Respondent to suo moto decide on any other modality to pass on the benefit of reduction in the rate of tax to his recipients. Therefore, any benefit of tax rate reduction passed on to a particular recipient or customer cannot be adjusted against the benefit of tax rate reduction that ought to accrue to another recipient or customer. Therefore, the above contention of the Respondent is not tenable. 33. The Respondent has also alleged that the DGAP has ignored the negative values and resorted to 'zeroing' to compute higher profiteering which was used by the anti-dumping authorities in certain countries which was opposed by the Government of India before the WTO and vide Report No. WT/DS141/AB/R dated 1.3.2001 of the Appellate Body of WTO, regarding Anti-Dumping Duties on imports of Cotton-Type Bed Linen from India, the stand of the Indian Government was accepted and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP based products where tax incidence has been increased due to the denial of ITC needed to be removed from the profiteered amount. In this regard, we find no ground to deviate from the submissions of the DGAP that the MRP was the maximum price at which the goods could be sold in retail. The value of transaction between the manufacturer and the wholesaler or the wholesaler and the retailer was invariably less than the MRP. Therefore, to determine the profiteering in respect of the MRP based items, the pre and post rate reduction transaction values were compared by the DGAP, regardless of whether the MRP was marked on the product or not. The DGAP has arrived at the profiteered amount by calculating the total impact of ITC denial which included the loss of ITC in respect of the MRP based items also. Therefore, MPR has no impact on the computation of the profiteered amount. Hence, the above plea of the Respondent is not maintainable. 36. The Respondent has further contended that the period of calculation of profiteered amount should be considered for a reasonable length of time. Therefore, keeping in mind the perishable nature of the items and various other factors the profiteered am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the above benefits are to be passed on any supply i.e. on each Stock Keeping Unit (SKU) of each product or unit of construction or service to every buyer and in case they are not passed on, the quantum of denial of these benefit or the profiteered amount has to be computed for which investigation has to be conducted in respect of all such SKUs/units/services by the DGAP. What would be the 'profiteered amount' has been clearly defined in the explanation attached to Section 171. These benefits can also not be passed on at the entity/organisation/branch/invoice/product/ business vertical level as they have to be passed on to each and every buyer at each SKU/unit/service level by treating them equally. The above provision also mentions "any supply" which connotes each taxable supply made to each recipient thereby making it evident that a supplier cannot claim that he has passed on more benefit to one customer on a particular product therefore he would pass less benefit or no benefit to another customer than what is actually due to that customer, on another product. Each customer is entitled to receive the benefit of tax reduction or ITC on each SKU or unit or service purchased by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of additional ITC to be passed on in respect of one project would not be similar to the other project. Therefore, no set procedure or mathematical methodology can be framed for determining the benefit of additional ITC which has to be passed on to the buyers of the units. Moreover, this Authority under Rule 126 has been empowered to 'determine' Methodology & Procedure and not to 'prescribe' it. Similarly, the facts of the cases relating to the sectors of Fast Moving Consumer Goods (FMCG), restaurant service, construction service and cinema service are completely different from each other and therefore, the mathematical methodology adopted in the case of one sector cannot be applied to the other sector. Moreover, both the above benefits are being given by the Central as well as the State Governments as a special concession out of 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 therefore, they are bound to pass on the above benefits as per the provisions of Section 171 (1) which are abundantly clear, unambiguous, mandatory and legally enforceable. The above provisions also reflect that the true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the products which the Respondent is free to fix. However, it cannot be accepted that his costs had increased on the intervening night of 14.11.2017/15.11.2017 when the rate reduction had happened which had forced him to increase his prices exactly equal or more then the reduction in the rate of tax. Such an uncanny coincidence is unheard off and hence there is no doubt that the Respondent has increased his prices for appropriating the benefit of tax reduction to deny the above benefit to his customers. Therefore, the above claim of the Respondent cannot be accepted. 39. The Respondent has further argued that various writ petitions have been filed challenging the orders passed by this Authority. These included WP (C) 378 of 2019 (Hindustan Unilever Ltd. v. Union of India) = 2019 (1) TMI 1368 - DELHI HIGH COURT, WP (C) 2347 of 2019 (Jubilant Food works Ltd. v. Union of India) = 2019 (5) TMI 568 - DELHI HIGH COURT and WP (C) 4213/2019 (Abbott Healthcare v. Union of India) = 2019 (5) TMI 563 - DELHI HIGH COURT in which the constitutional validity and computation methodology has been challenged and hence, the present proceedings should be kept pending till the above issues are settle ..... X X X X Extracts X X X X X X X X Extracts X X X X
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