9911796707
TMI Blog2020 (8) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, alleging profiteering in respect of restaurant service supplied by the Respondent (Franchisee of M/s. Subway Systems India Pvt. Ltd.). In the application, it was alleged that despite the reduction in the rate of GST from to 18% to 5% w.e.f. 15.11.2017, the Respondent had not passed on the commensurate benefit since he had increased the base prices of his products. 2. The DGAP in his report has stated that on receipt of the said reference from the Standing Committee on Anti-profiteering, a notice under Rule 129 (3) of the CGST Rules, 2017 was issued on 14.05.2019, calling upon the Respondent to reply as to whether he admitted that the benefit of reduction in GST rate w.e.f. 15.11.2017, had not been passed on to his recipients by way of commensurate reduction in prices and if so, to suo-moto determine the quantum thereof and indicate the same in his reply to the notice as well as furnish all supporting documents. The Respondent was also allowed to inspect the relied upon non- confidential evidence/information or any data which formed the basis of the said notice between 21.05.2019 and 23.05.2019, which was however not availed of by the Respondent. 3. The DGAP has reported that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g apportioned by him on the basis of the ratio of its area to the total area of his 18 outlets. b. His other Subway outlet was operating on a revenue-sharing basis with M/S Mumbai International Airport Limited (hereinafter referred to as "the MIAL"), where 28% of the revenue earned was being shared by him with M/s. MIAL. 6. The DGAP has also reported that in terms of Rule 130 of the CGST Rules 2017, Respondent had also been informed by the DGAP vide notice dated 1405.2019 'that if any information/documents provided by him were confidential, a non-confidential summary of such information/documents could be furnished by him. However, the Respondent did not classify any of the information/documents provided by him as confidential in terms of Rule 130 of the Rules, ibid. 7. DGAP has also reported that based on a careful examination of the case records including the reference from the Standing Committee on Anti-Profiteering, various replies of the Respondent and documents/evidence placed on record, it emerged that the Respondent had around 35 restaurant outlets on the same GST registration ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te reduction i.e. w.e.f. 15.11.2017 and it was observed that the Respondent had maintained pre rate reduction base prices of 9 items, I item which was sold pre rate reduction was not sold post rate reduction whereas the base prices of 9 items were either increased or GST @18% was charged for some time even after rate reduction leading to a net higher cum-tax price incidence on the consumers. As per the data submitted by the Respondent, it was revealed that the Respondent has charged a lower GST rate of 5% on the increased base prices on some of the other items, where earlier the tax amount was computed @18% before 15.11.2017 and @5% w.e.f. 15.11.2017. Hence, because of the increase in base prices, the cum-tax paid by the customers was not reduced commensurately for 94 items despite rate reduction. Therefore. the only remaining point for determination was whether the increase in base price was solely on account of denial of ITC. 11. Further, the DGAP has intimated 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 " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.16% 13. The DGAP has also submitted that the analysis of the details of item-wise outward taxable supplies made during the post-rate reduction period (from 15.11.2017 to 31.04.2019) revealed that the base prices of the different items supplied by the Respondent had been increased by the Respondent, presumably, to offset denial of ITC. The pre and post rate reduction prices of the items sold by the Respondent during the period from 01.07.2017 to 14.11.2017 (Pre-GST rate reduction) and from 15.11.2017 to 31.03.2019 (Post-GST rate reduction) were compared and it was found that the Respondent had increased the base prices of the products supplied by him by more than what was required to offset the impact of denial of ITC in respect of items sold 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. 14. The DGAP has further stated that the next step was to compute the amount of profiteering in this case. It was pertinent that as a principle, only those items, where the increase in base prices was more than what was required to offset the impact of denial of ITC, were considered and the calculation was carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast was limited only to the Subway franchise of the Respondent (Franchisee Code M61382" and "61383") and the outward supplies made by him out of his other outlets had not been examined. 18. The above Report of the DGAP was considered by this Authority and it was decided to hear the Respondent on 20.11.2019. A notice dated 01.11.2019 was also issued to the Respondent asking him to reply why the Report dated 25.10.2019 furnished by the DGAP should not be accepted and his liability for profiteering under Section 171 of the CGST Act, 2017 should not be fixed, However, the Respondent did not appear for the hearing and sought adjournment vide his submissions dated 18.11.2019. Sh. Shashi Mathews, Advocate, and Sh. Abhishek Boob, Advocate represented the Respondent. 19. The Respondent vide his written submissions dated 24.12.2019 stated:- a. That the said 2 outlets of the Respondent were operated under a franchise agreement with M/s. Subway Systems India Pvt. Ltd. (Subway India) and each aspect of the operation of the said outlets was regulated by M/s. Subway India, The revision in prices of the products and Point of Sale was also regulated by M/s. Subway India and the Respondent did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of profiteering' could be computed. Even this Authority under the Goods and Services Tax Methodology and Procedure, 2018 which had been notified in terms of Rule 126 of the CGST Rules did not prescribe any specific methodology to be adopted in the computation of profiteering. e. That no guidelines whatsoever had been framed leaving the issue to the complete discretion of the investigating authority (i.e. the DGAP) who for the first time in his Report was devising a particular method by which it was seeking to determine an amount which was allegedly profiteered. Given the absence of knowledge of the basis on which the DGAP had to act, the Respondent was compelled to accept any procedure adopted by DGAP and the opportunity of full defence to the Respondent was also curtailed. f. That the method adopted by the DGAP had no statutory sanction and could not be regarded as a mandatory prescription at all and in the absence of guidelines as prescribed under Rule 126, the Respondent could not be held as being non-compliant with the requirements of Section 171 of the CGST Act. The Respondent has relied upon the judgments of the Hon'ble Supreme Court in the cases of CIT v. B.C. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considerations such as those of demand and supply, fixed and variable costs, prices of raw materials, logistics, product range, product mix, suppliers position in the market, entity-level operational costs, market situation, inflation, consumer segment, etc. costs and benefits at an entity level, division level, and product category level were all influencers of any pricing decision, Typically. the cost of taxes was only one of the elements which determined the final price. l. That the Respondent sold his products to various categories of customers viz Individual Customers and Institutional Customers and while making such sales, the prices of the products depended on the category of each customer- Moreover, prices to an Individual Customer were always different than the prices to an Institutional Customer (who was sold on negotiated prices, by giving appropriate discounts on the sale price). The same product might have different prices when sold to different categories of customers even though the base price was the same for each product at the outlet. While examining the matter for any alleged profiteering, the said factor should have been taken into account by the DGAP and, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it was a well-settled principle in law that granting an opportunity of hearing was an integral part of the principles of natural justice, He has relied upon the judgment of the Hon'ble Supreme Court passed in the case of Dharampal Satyapal Ltd. V. Dy- Commissioner Of C. Ex. 2015 (320) ELT 3 (SC) = 2015 (5) TMI 500 - SUPREME COURT wherein the Hon'ble Supreme Court has observed that even in administrative actions, where the decision of the authority may result in civil consequences, a hearing before taking a decision was necessary- Further, in the case of Escorts Farms Ltd. v. Commissioner (2004) 4 SCC 281 = 2004 (2) TMI 683 - SUPREME COURT, the Hon'ble Supreme Court has also; held that "Right of hearing to a necessary patty is a valuable right. Denial of such right is serious breach of statutory procedure and violation of rules of natural justice" He has also relied upon the judgment of the Hon'ble Delhi High court in the case of CCE v. SG Engineers 2015 (322) ELT 204 (Del.) = 2013 (7) TMI 905 - DELHI HIGH COURT wherein it was held that where the order did not notice the relevant facts, it was a cryptic order without any reasons and such an order was not sustainable for violation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring was completely arbitrary as the Respondent could not be expected to retain the same selling prices over a period of over more than 17 months. Several factors affected the selling prices, including the inflation, increase in the cost of raw materials, rent revisions, cost of manpower, response to the pricing strategy adopted by the competitors, etc. s. That this Authority in the case of Kumar Gandharv v. KRBL Ltd. (Case No. 03/2018) = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY, has itself accepted the fact that an increase in production costs was a valid consideration while determining the quantum of profiteering. t. That the provisions of Section 171 of the CGST Act coupled with the Report of the DGAP having an investigation period of almost 1 and half year, sought to restrict the right of the Respondent to decide the prices of his products for a prolonged period even in the normal course of his business, thereby acting as a price controlling authority, which was completely in violation of the fundamental rights of the Respondent under Article 19(1)(g) of the Constitution of India. That the Respondent was in the business of providing food items which mostly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That for the period from 15.11.2017 to 04.01.2018, there was an admitted error on account of the wrong charging of tax, leading to profiteering of Rs. 87,856/- (which included the incorrectly charged tax of Rs, 56,168/- that had been duly paid to the Government, and has not been retained illegally by the Respondent. There was alleged profiteering calculated by the DGAP to the extent of Rs, 78,261/- which was in respect of items such as Maxx chips, orange juice and fountain drinks. y. That the Respondent has not increased his base prices for 51 days (i.e. up to 04.01.2018) after the Rate Amendment Notification, and therefore, the allegation of alleged profiteering was completely baseless and arbitrary and any further revisions in the product prices were on account of various factors not related to the Rate Amendment Notification, z. That the Respondent also supplied aerated beverages which were prepared on the spot and items were taxable at the rate of 40%. Consequently, post the rate reduction, these items were sold at the tax rate of without any benefit of ITC, Accordingly, the loss of ITC computed by the DGAP has to be revised taking into account the fact that ITC loss on ae ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the DGAP ought to have considered the ITC in respect of stock as on 15.11.2017 and the proportionate ITC for 14 days in respect of the Rent invoice for the month of November 2017. The action of the DGAP in failing to consider the ITC for the said period itself showed the arbitrary manner of computation of ITC ratio for the said pre-rate reduction period and the alleged profiteering amount accordingly computed was therefore incorrect, and ought to be set aside. gg. That to arrive at the base price, the DGAP had considered the period from 01.11.2017 to 14.11.2017 (and wherever the price was not available, base price was calculated based on October 2017 prices). However, to arrive at the ITC ratio, the DGAP had ignored the period from 01.112017 to 14.11.2017. Such a skewed approach had also led to a skewed calculation of the ITC ratio and thus, the approach adopted by the DGAP has to be held to be incorrect. hh. That in the case of 2 product descriptions, the DGAP has compared different brand products with each other as the products considered before GST rate reduction were of a different brand from the products considered after the GST rate reduction with which they have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier tax regime to an altogether new tax regime, As per DGAP's own report, the DGAP had examined 94 products which had been impacted by the rate reduction, Due to the said change, the Respondent was burdened with various additional costs, including change in IT systems, marketing costs, operating costs, etc. The Respondent had absorbed such increased tax costs not only during the implementation of GST but also during the rate reduction. There were also certain additional costs which had to be borne regularly, including the inflation-related increase in cost of raw materials, ingredients, services, etc. which were factored in while determining the pricing of products, The DGAP had not factored in all these additional costs while computing the alleged profiteering liability, including costs which were directly co-related to implementation of the GST which was an arbitrary and unreasonable approach. Therefore, the findings in the Report were liable to be set aside. ll. That the Respondent had a policy of providing periodical increments in the remuneration offered to his various categories of employees. Accordingly, the cost of manpower was also a very relevant factor to be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Respondent. In this regard, relevant intimation by the Respondent along with the relevant sheet providing information on the procurement of inputs was annexed as Annexure-13 by the Respondent. rr. That M/S Subway India was controlling the input procurement as well as the menu prices, if at all there was any profiteering, the same should be demanded from the franchisor (i.e. M/S Subway India), which controlled the prices, and the Respondent should not be saddled with any liability on this account, as he was merely operating as per the terms of the Franchise Agreement. ss. That this Authority in the case of Jijrushu N. Bhattacharya v. M/s. NP Foods = 2018 (10) TMI 1338 - NATIONAL ANTI-PROFITEERING AUTHORITY, which was also a Subway franchisee (in respect of a market store) had held that there was no profiteering. Accordingly, in light of the submissions made in the above paragraphs and principles of judicial discipline, a similar finding ought to be rendered by this Authority in the facts of the present case. tt. That the whole approach of the DGAP was not only contrary to the statutory provisions but completely arbitrary and did not take into account the commercial realit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmercial practice to sell goods at price less than the MRP and thus any price arrived on the basis of MRP alone was notional, not real, and could not form the basis to determine "commensurate" reduction in price. The DGAP has erred in adopting an average base price based on MRP without considering any of the relevant factors including the tax incidence before GST. The DGAP has acted narrowly and arbitrarily by ignoring the relevant considerations and the Report unreasonably interfered with the right to carry on trade and was violative of Article 19(1)(g) and Article 300A of the Constitution of India. xx. That the DGAP has proceeded as if Section 171 was a consumer protection measure as opposed to a business regulation measure and the DGAP has failed to appreciate that GST law could not be used to protect consumer interest at the cost of businesses being forced to incur losses by virtue of a narrow interpretation of the law. That the Repot has failed to recognize the right of a business/ registered person to balance GST benefits and losses across its products/product channels to ensure that commensurate GST benefit was passed on to its recipients across its various sales on an ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es arrived at after incorporating the impact of denial of ITC was to a different set of consumers, The sum of the total amount of such additional benefit passed could not be offset against the increased prices charged from another set of customers. i. Point No. 50 to 53:- The DGAP has stated that the contentions of the Respondent in these paras have already been covered in the paras 15, 16, and 17 of the Report dated 25.10.2019. j. Point No. 54 to 56:- The DGAP has stated that the amount of profiteering was computed only from the data submitted by the Respondent vide various replies as mentioned in the report dated 25.10.2019, k. Point No. 57 to 66:- The DGAP has stated that the cost of the items/ inputs could not change overnight on the date of the change in the tax rate. l. Point No. 67:- The DGAP has stated that the methodology adopted by him in his Report was in line with the legal principles and this methodology has been consistent throughout in all similar cases and has been approved by this Authority. Regarding the methodology prescribed by the Authority, the procedure and methodology for determination of profiteering and intent thereof were determined by the Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from Heinz India (P) Ltd. State of (2012) 5 SCC 443 = 2012 (3) TMI 396 - SUPREME COURT." b. That in response to the DGAP clarifications that the prices could not change overnight on the date of change of tax rates, the Respondent had claimed that he did not change the prices overnight, and more so, with effect from 15.11,2017, when the rate of tax had changed on the restaurant service. As per his submissions made at Para 42 to 45 of the Submissions dated 24.12.2019 Page 18 to 19) and Annexure 9 of Submissions dated 24.12.2019 (Page No. 218 to 220) it has been clearly pointed out that out of the total amount of alleged profiteering amounting to Rs. 61,67,097/- the amount of alleged profiteering for the period up to 04.01.2018 was admittedly Rs. 78,261/- only, That the Respondent could not be expected to restrain from making a yearly revision of prices as per the settled principles of 'commercial expediency' as referred by the Respondent in his submissions dated 24.12.2019, which was done w.e.f. 05.01.2018, thereby leading to the computation of alleged profiteering as per the DGAP's report. c. That the amount of alleged profiteering in the present case was mostly on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid clarification by the DGAP itself led to price fixation, as the said analogy has been applied by the DGAP for a long period of more than 17 months. The price revision that has happened on 17.11.2017 (i.e. after the amendment in the rate of tax on restaurant services), there was a negligible profiteering for the period up to 04.01.2018. The considerable amount of profiteering pertained to price revision undertaken by the Respondent with effect from 05.01.2018 which was on account of several alien factors, and it was completely erroneous and arbitrary for the DGAP to factor profiteering for the price revision that has happened after more than 51 days from the date of amendment in the rate of taxes on restaurant services. 22. We have carefully considered the Report of 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 Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se may be, has been passed on to the recipient/consumer or not. In the context of the same, some of the submissions made by the Respondent, i.e. those relating to the increase in his costs on account of royalty, advertising charges and inflation due to the cost of raw materials do not have any ramification on the computation of the amount of profiteering. Further, Section 171 of the Act, ibid, 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 in the availability of ITC. For the computation of profiteering, the actual transaction value of a product in the pre and post-tax rate reduction period is compared- Hence, the pricing and the amount of profit/loss at the end of the supplier becomes irrelevant for the computation of profiteering. We also find it pertinent to mention that this Authority or the DGAP has no legislative mandate to fix the prices or the profit margins in respect of any supply (which are the rights of the supplier) and it is obligated by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the pre rate reduction period with the actual post rate reduction base prices of these products- It was not possible to compare the actual base prices prevalent during the pre and the post GST rate reduction periods due to the reasons that the Respondent was (i) selling his products at different rates to different customers based on the various factors such as sales, inventory position, competitor's strategy, market penetration and customer loyalty (ii) the same customer may not have purchased the same product during the pre and the post rate reduction periods and (iii) a customer may have purchased a particular product during the pre rate reduction period and may not have purchased it in the post rate reduction period or vice versa and (iv) the average base prices computed for a period of 14 days w.e.f. 01.11.2017 to 14.11.2017 or for the previous months provide highly representative and justifiable comparable average base prices. On the basis of the average pre rate reduction base price the commensurate base price has been computed by adding denial of ITC of 11.16% and compared with the invoice wise actual base price of the product as has been illustrated in Table-B supra, Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be passed on by a registered dealer to his customers since it is a concession which has been granted from the public exchequer which cannot be misappropriated by a supplier. It also means that the above benefits are to be passed on each Stock Keeping Unit (SKU) or unit of construction to each buyer and in case they are not passed on, the profiteered amount has to be calculated for which investigation has to be conducted on all such impacted SKUs/units, These benefits can also not be passed on at the entity/organization/branch level as the benefits have to be passed on to each recipient at each SKU/unit level. Further, the above Section mentions "any supply* which connotes each taxable supply made to each recipient thereby clearly indicating that a supplier cannot claim that he has passed on more benefit to one customer, therefore, he would pass less benefit to another customer than the benefit which is actually due to that customer, Each customer is entitled to receive the benefit of tax reduction or ITC on each SKU or unit purchased by him. The word "commensurate" mentioned in the above Section gives the extent of benefit to be passed on by way of reduction in the prices which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th 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 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 intent of the Central and State legislatures. Therefore, the above contention of the Respondent is frivolous and hence the same cannot be accepted. The Respondent cannot deny the benefit of tax reduction to his customers on the above untenable ground as Section 171 provides a clear cut methodology to compute both the above benefits. Further, in the present case, the methodology adopted by the DGAP for calculation of profiteering has been furnished as is given in the below table:- Table (Amount in Rs.) Name of the product (A) HARA BHARA PATTY 6" SUB (Z0358) Total Quantity sold during 01.11.2017 to 14.11.2017 (B) 158 Sum of taxable Value during 01.11.2017 to 14.11 2017 (C) 28119.26 Base Price during 01.11.2017 to 14.11.2017 (D=C/B) 177.97 Invoice Value for the Item in UI00000210 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, Therefore, the Respondent cannot allege that no machinery has been provided to implement the above measures. 29. The Respondent has also cited the extract from the minutes of the 17th GST Council Meeting wherein the Advisor to the Chief Minister, Punjab as well as the Chief Economic Advisor raised the issue of requirement of having a mechanism to compute profiteering with proper checks and balances. However, the issues raised by the above officers are incorrect as the methodology to compute the profiteering is itself contained in Section 171 of the CGST Act, 2017 as has been explained above. The Respondent has also pointed out that the Malaysian Government has introduced the Price Control and Anti-Profiteering (Mechanism To Determine Unreasonably High Profits for Goods) Regulations, 2018 and under the said Regulations, any profit earned over and above the determined 'Net Profit Margin' was considered as an unreasonably high profit rendering the supplier liable for penal action under the law. The anti-profiteering measures in Australia revolved around the 'Net Dollar Margin Rule' serving as the fundamental principle for the determination of price variances and changes as its gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction had happened which had forced him to increase his prices exactly equal to the reduction in the rate of such 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 the consumers. 31. The Respondent, in support of his above contention, has also relied upon the decision of the Hon'ble Supreme Court given in the case of Basant Industries v. Asst. Collector of Customs 1996 (81) ELT 195 (SC) = 1995 (1) TMI 89 - SUPREME COURT. Perusal of the above-said judgment shows that in that case, the Hon'ble Supreme Court had decided on an issue of valuation in the context of taxation, in a matter which has no similarity with the case before us wherein the issue of profiteering has to be decided per the provisions of Section 171 of the CGST Act 2017. Therefore, the above-mentioned case is also found to be of no help to the Respondent 32. The Respondent has further pleaded that an unitary approach looking at tax rate was not possible and a business-minded approach was needed while fixing the prices. He has also referred the principle Of 'commercial exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me base prices which he was charging on 14.11.2017 and should have charged 5% GST on them instead of 18% GST w.e.f. 15.11.2017. However, the Respondent had not done so and he had increased the base prices w.e.f. 15.11.2017 and then charged GST@5%. The above act of the Respondent amounts to denying the benefit of tax reduction. Therefore, to compute the profiteered amount the base price which was existing on 14.11.2017 was required to be compared with the base price which he had charged post rate reduction to ascertain whether the Respondent has passed on the benefit of tax reduction or not- Mere charging Of GST @5% post rate reduction does not amount to passing on of the benefit when the base price has been increased to offset the benefit. Therefore, the comparison of the base prices made by the DGAP is correct. Further, the investigation carried out by the DGAP reveals that the profiteering has been computed on the transaction value as per the provisions of Section 15 of the CGST Act, 2017 and all the discounts which do not form part of such value cannot be included in the price of the product 34. The Respondent has further contended that principles of natural justice had been vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h! Therefore, the definition of profiteering cited by the Respondent is not applicable as the definition of profiteered amount has been clearly given in the above Explanation and hence the above claim of the Respondent is not correct. Further, the provisions of Section 171 of the CGST Act, 2017 do not force the Respondent to fix his prices and profit margins in respect of the supplies made by him. 36. The Respondent has also contended that for the purpose of computation of the quantum of profiteering, the DGAP has taken a long period of more than 17 months i.e. from 15.11.2017 to 30.04.2019. It could not be expected from him to retain the same selling prices over a period of over more than 17 months keeping in view the various factors like inflation resulting into increase in the cost of raw materials, rent revisions, cost of manpower, response to the pricing strategy adopted by the competitors, etc. Profiteering, if any, should be restricted only up to 04.01.2018. He has also relied upon the cases of M/s. NP Foods (Case No. 9/2018) = 2018 (10) TMI 1338 - NATIONAL ANTI-PROFITEERING AUTHORITY, M/s. Hardcastle Restaurants Pvt. Ltd. (Case No. 14/2018) = 2018 (11) TMI 1073 - NATIONAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also pleaded that right to reasonable profit is a part of the right to trade, which is a fundamental right guaranteed under Article 19(1 of the Constitution of India and the right to trade included 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, Therefore, this form of price control was a violation of Article 19(1)(g) of the Constitution of India. 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 don't have the mandate to regulate the same. The Respondent is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which aimed to provide the benefit of rate reduction to the general public. The Respondent was legally not required to collect the excess GST and therefore, he has not only violated the provisions of the CGST Act, 2017 but has also acted in contravention of the provisions of Section 171 (1) of the above Act as he has denied the benefit of tax reduction to his customers by charging excess GST. Had he not charged the excess GST the customers would have paid less price while purchasing goods from the Respondent and hence the above amount has rightly been included in the profiteered amount as it denotes the amount of benefit denied by the Respondent. Therefore, the above contention of the Respondent is untenable and hence it cannot be accepted. 41. The Respondent has further contended that the DGAP has not considered the impact of ITC loss on the aerated beverages. On the account of various factors, these items were taxable at the rate of 40%, However, post-rate reduction, these items were sold at the tax rate of 5%, without ITC benefit Therefore, the loss of ITC on aerated beverages was much higher than the ITC ratio of 11.16% as computed by the DGAP. In this regard, it is pertinent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of tax rate reduction passed on to a particular recipient or customer cannot be appropriated or adjusted against the benefit of tax rate reduction due to another recipient or customer. Hence, this methodology of 'netting off' cannot be applied in the present case as the customers have to be considered as individual beneficiaries and they cannot be compared with dumped goods and netted off. This Authority has also clarified in its various orders that the benefit cannot be computed at the product, service, or entity level as the benefit has to be passed on each supply of goods and services, Hence, the above contentions of the Respondent are not correct as the Respondent cannot apply the above methodology of netting off as has been approved in the above Report of the WTO as it would result in denial of benefit to the customers which would amount to a violation of the provisions of Section 171 of the above Act as well as Article 14 of the Constitution, Accordingly, the profiteered amount cannot be reduced by Rs. 5,66,862/-. 43. The Respondent has also contended that While computing the ratio of ITC to Net Taxable Turnover, the DGAP has considered the period from 01.07.2017 to 31.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the consumers only and have no mandate to look into fixing of prices of the products which the Respondent was free to fix. If there was an increase in his costs the Respondent should have increased his prices before 15.11.2017, however, it cannot be accepted that his costs had increased exactly 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 to the reduction in the rate of such tax, We thus opine that the Respondent has increased the prices of his supplies only for appropriating the benefit of tax reduction to deny the above benefit to the consumers. 46. The Respondent has also claimed that he was operating both of his outlets under investigation under the franchisee model, wherein M/s. Subway Systems India Pvt. Ltd, was the ultimate authority which controlled the prices, POS and any revision in the prices and the Respondent has no real control over the prices of the products being sold. Therefore, profiteering, if any, should be demanded from the franchisor i.e. M/s. Subway India. Upon perusal of the agreement between the Respondent and M/s. Subway Systems India Pvt. Ltd. i.e. the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Section 171 read with Rule 127 and 133 of the CGST Rules, 2017. This Authority has nowhere interfered with the business decisions of the Respondent and therefore, there is no violation of Article 19 (1) (g) of the Constitution. 49. Based on the above facts the profiteered amount is determined as Rs. 61,67,097/- as has been computed in Annexure-15 of the DGAP's Report dated 25, 10.2019. 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 Rs. 61,67.097/- in two equal parts of Rs- 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 standing from the dates on which the above amount was realized by the Respondent from his recipients till the date of its deposit. The aggregate amount of Rs- 61 shall be deposited, as specified above, within a period of 3 months from the date of passing of this order failing which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CGST Act 2017 and to submit his Report as per the provisions of Rule 133 (5) (b) of the CGST Rules, 2017, since there are adequate reasons to believe that the Respondent may not have passed on the benefit of rate reduction to his customers in terms of Section 171(1) of the Act ibid, in the same manner as in the two outlets. 53. As per the provisions of Rule 133 (1) of the CGST Rules. 2017 this Order was required to be passed within a period of 6 months from the date of receipt of the Report furnished by the DGAP under Rule 129 (6) of the above Rules. Since the present Report has been received by this Authority on 30-10.2019, this Order was to be passed on or before 29.04.2020. However. due to the prevalent pandemic of COVID-19 in the country, this Order could not be passed before the above date due to force majeure. Accordingly, this Order is being passed today in terms of the Notification No. 55/2020-Central Tax dated 27.06.2020 issued by the Government of India, Ministry of Finance (Department of Revenue), Central Board of Indirect Taxes and Customs under Section 168A of the CGST Act, 2017. 54. A copy each of this order be supplied to the Applicant, the Respondent and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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