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TMI Blog2020 (11) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... m and applied 5% GST thereon, by either maintaining the pre-rate reduction selling prices or even increasing them in the post-rate reduction period and thus he had resorted to profiteering. In support of her allegation, the above Applicant had submitted copies of tax invoices dated 11.11.2017 and 15.11.2017 vide which she had purchased "Short Capuccino" from the Respondent. 2. The application was examined by the Standing Committee on Antiprofiteering in its meeting held on 02.07.2018 and as per the minutes of the meeting it was decided to refer the matter to the Director General of Anti-Profiteering (DGAP) to investigate and collect necessary evidence to determine whether the benefit of reduction in the rate of tax on the restaurant service had been passed on by the Respondent to his recipients as per the provisions of Rule 129 (1) of the above Rules. 3. The DGAP had sought extension to complete the investigation, which was extended upto 31.12.2018 by this Authority vide its orders dated 09.10.2018 and 15.11.2018 in terms of Rule 129 (6) of the CGST Rules, 2017. After completing the investigation the DGAP had submitted his Report under Rule 129 (6) of the CGST Rules, 2017 on 27.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Respondent had claimed that in the month of October 2017, he had completed 5 years and had opened his 100th store and to celebrate the occasion he had offered all short/tall size handcrafted beverages at Rs. 100 (inclusive of all taxes) and this offer was only for one day i.e. on 28.11.2017 and was valid at his all stores in India, except 6 office stores which did not operate on weekends. 7. The Report had further mentioned that the Respondent had claimed that total sales made by him on an all India basis on 28.11.2017 were 2.35 lakh drinks which was 7 times more than his usual sales and he had received an amount of Rs. 2.32 Crore, which was 2.3 times more than his usual sales on a Saturday. 8. The DGAP had also submitted that while determining the ITC as a percentage of the total taxable turnover of the Respondent, the ITC for the period from July, 2017 to 14th November, 2017, as furnished in the GSTR-3B Returns, had been adjusted by excluding the amount of ITC on inter-unit branch transfers (as per ITC Register) and while determining the net taxable turnover of the Respondent during the period from July, 2017 to 14th November, 2017, the total taxable turnover (excludin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , nil rated and exempted supplies) during the period from 15.11.2017 to 30.06.2018, the DGAP had estimated the amount of net higher sale realization due to increase in the base prices of the products. The DGAP had stated that 571 products were sold during the period from 01.11.2017 to 14.11 9017 and after scrutiny of the outward supplies it was found that 51 more products were also sold by the Respondent. 10. The DGAP had calculated the profiteered amount as Rs. 4,51,29,600/- by comparing the average base prices of the 51 products sold during the period from 01.10.2017 to 31.10.2017 and 571 products sold during the period from 01.11.2017 to 14.11.2017, with the actual basic prices of the said products sold during the period from 15.11.2017 to 30.06.2018. This profiteered amount had been arrived at in respect of those supplies where the base prices, post 15.11.2017, were increased by more than 10.83% (impact of denial of input tax credit). 11. After perusal of DGAP's Report, this Authority in its meeting held on 02.01.2019 had decided to hear the Applicants and the Respondent on 18.01.2019 and accordingly notice was issued to all the interested parties. On the request of the Respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d further submitted that the DGAP while computing the average base prices prior to 14.11.2017 had taken incorrect value of quantities. He had also claimed that the DGAP had reduced the value of credit notes issued during the period from 01.10.2017 to 31.10.2017 for 51 products and for the period from 01.11.2017 to 14.11.2017 in respect of 571 products but had failed to reduce the corresponding quantity relating to the credit notes which had resulted in net sales being divided by the incorrect value of quantity. In other words this had resulted in calculation of alleged profiteering on a product even when there was no profiteering by the Respondent. 15. The Respondent had also claimed that he had adopted a policy of increasing the prices twice in a financial year, the first increase was w.e.f. 18.04.2018 by 3.75% which was ignored by the DGAP while computing the average prices. The Respondent had further claimed that he was following a differential pricing policy for his various formats of stores viz. Airport Stores, Tier-I City Stores and Tier-2 City Stores. He had also mentioned that in the absence of any prescribed valuation methodology under the GST law with regard to profiteer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered as exceptional supplies and must be ignored for the purpose of computation of average price per product since these supplies could not be treated as an indicator of the sales trend. 18. The Respondent had further argued that while computing the alleged amount of profiteering, the DGAP had sought to compare the tax inclusive price of the product sold by the Respondent, however, the Respondent had deposited tax in the account of the Government. 19. The Respondent had also averred that if his above objections were to be considered by the DGAP, the alleged profiteered amount would be reduced from Rs. 4,5129,600/- to Rs. 1,34,86,898/-. He had further averred that the DGAP's approach to compare the average price with the actual price on a pan India basis was incorrect. If the DGAP had compared the average price for both the periods then the net profiteering would be Rs. 24,23,497/- and not Rs. 4,51,29,600/-. 20. He had also pleaded that the pricing for the products was based on various factors such as cost of raw materials, cost of services, inflation, consumer price index, food price index, exchange rate, market conditions, competition, business strategy and pricing adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rule 126 of the CGST Rules, 2017 empowered this Authority to determine the methodology and procedure for computing the extent of profiteering. However, no precise computation methodology or principles had been formulated by this Authority. The anti-profiteering provisions enacted in Australia and Malaysia were supported by the detailed set of rules for determining the manner in which the 'unreasonably high profits' or 'price exploitation' would be computed. In light of the legislations enacted in other countries upon introduction of GST, it was essential for this Authority to expressly set out detailed regulations for providing the methodology for commuting the extent of profiteering. 23. He had further claimed that right to trade was a fundamental right guaranteed under Article 19 (1) (g) of the Constitution of India. Right to trade included the right to determine prices and such right could not be taken away without any explicit authority under the law passed by the Parliament or the State legislature under Entry 34 of the Concurrent List (List III) of the Seventh Schedule to the Constitution of India. 24. He had also contended that the benefit of reduced rate of GST was pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es made on 28.10.2017 and that in respect of the new stores / markets there could be no element of profiteering as these stores did not operate prior to 15.11.2017. He had further stated that the average price increase made by him from 15.11.2017 was 9-10%, which was less than the loss of ITC of 11.79% as calculated by the DGAP and therefore he had passed on more benefit than the loss of ITC to him. He had also tabulated the trend of price increases made by him since 2014-15 onwards as is given in the Table-5 below:- Table -5 Period Average percentage of price increase for food and beverages April-14 4.73% July-14 to December-14 3.90% April-15 6.54% October-15 4.67% April- 16 2.33% October-16 3.38% April-17 4.12% 27. The Respondent vide his submission dated 16.07.2019 had stated that the investigation period from 15.11.2017 to 30.06.2018 was excessive. He had relied on the decision of this Authority given in the case of Mohammad Azid Ramzanj and another v. M/s. Adarsh Marbles (2019-TIOL-42-NAA-GST) = 2019 (6) TMI 1337 - NATIONAL ANTI-PROFITEERING AUTHORITY. He had also submitted that in the above case this Authority had held that the stock holding period and perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otes had been inadvertently included in the total quantity, instead of being excluded. The contention of the Respondent that duplicate sale entries had been considered in the working for November, 2017 in respect of the supplies made in the State of Maharashtra had also been examined by the DGAP and vide his Report dated 26.12.2018 he had modified his calculations and therefore the profiteered amount was reduced from Rs. 4,51,29,600/- to Rs. 2,42,82,996/- as has been given in the Table-7 below:- Table -7 S. No. State & Code (Place of Supply) Profiteering (Rs.) 1 Delhi (07) 86,34,890 2 Haryana (06) 10,41,014 3 Karnataka (29) 12,17,384 4 Maharashtra (27) 1,16,64,413 5 Tamil Nadu (33) 4, 66,846 6 Telangana (36) 7,22,196 7 Uttar Pradesh (09) 3,50,141 8 West Bengal (19) 1,86,112 Total 2,42,82,996/- 30. The DGAP had further claimed that the Respondent had submitted outward taxable supplies (other than zero rate, nil rated and exempted supplies) for all the stores and on comparison of the old stores sales data with the new stores sales data, it was observed that the Respondent had sold products at the same prices in both the stores. Therefore, the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product sold in the Airport channel. Considering the fact that the price variation was almost Rs. 15/- or there was almost 7.3% difference in prices, it appeared from the contention of the Respondent that while comparing the City Stores prices of the product with the Airport Stores prices the DGAP should have adopted a different methodology:- Article Description Airport Stores Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Nov-17 Apr-18 Tall Latte 170 180 185 190 195 210 220 Tall Java Chip Frappuccino 200 205 210 215 225 245 255 Tall C Macchiato 195 205 210 225 245 265 270 Article Description Tier 1 City Stores Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Nov-17 Apr-18 Tall Latte 155 165 170 175 180 195 205 Tall Java Chip Frappuccino 185 190 195 200 210 230 240 Tall C Macchiato 190 200 205 210 225 245 250 Article Description Tier 2 City Stores Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Nov-17 Apr-18 Tall Latte 155 165 170 175 180 195 205 Tall Java Chip Frappuccino 185 190 195 200 210 230 240 Tall C Macchiato 190 200 205 210 225 245 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Authority. 37. The DGAP has stated that after receipt of the aforesaid order from this Authority, notice was issued on 23.12.2019 calling upon the Respondent to submit fresh information/documents. The Respondent has submitted his replies to the said Notice, vide letters dated 30.12.2019, 22.01.2020 and 28.01.2020. The response of the Respondent, vide the said letters, has been summed up by the DGAP as follows:- (a) The Respondent has stated that it was normal for him to increase prices and both internal and external factors were considered while deciding to raise prices. There were many reasons or factors that were responsible for pricing decisions of goods and services which might be regular or abrupt but were primarily receptive to business market and customer considerations, Generally, pricing decision for any goods or services was based on various factors such as cost of raw materials, cost of services, inflation, consumer price index, food price index, exchange rate, market conditions, competition, business strategy and pricing adopted in similar markets etc. The Respondent has also added that the food and beverage industry typically followed a pattern of periodic inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tward supplies reconciled with GSTR-3B Returns for the period from July, 2017 to June, 2018. iv. Submissions with regard to increase in prices w.e.f. 18.04.2018 along with supporting documents. 39. The DGAP has also submitted that es per the directions of this Authority passed vide I.O. No. 18/2019 dated 05.12.2019, he had initiated re-investigation in the case. At the time of submission of the earlier investigation Report dated 26.12.2018, the Respondent had submitted all the requisite information and data which was not sufficient for the current re-investigation. Accordingly, during the reinvestigation the Respondent was asked to submit the data again. Hence the case had been reinvestigated again on the basis of fresh information/documents submitted by the Respondent. 40. The DGAP has further submitted that the various replies of the Respondent and the documents/evidence on record has been examined by him in detail. The issue for investigation was whether the rate of GST on the restaurant services provided by the Respondent was reduced w.e.f. 15.11.2017 and if so, whether the Respondent had passed on the benefit of such reduction in tax rate to the recipients in terms of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in Rs.) Particulars Jul, 2017 Aug, 2017 Sept, 2017 Oct, 2017 1st November to 14th November, 2017 Total ITC Availed as per GSTR-3B Returns (A) 11685510 23747582 26450928 39479987 54815528 15,61,79,535 Less: Tax on Inter unit branch transfers as per ITC Register (B) 3801244 3300201 2531613 2323742 844760 1,28,01,560 Net ITC available for the period 01.07.2017 to 14.11.2017 (A-B) 7884266 20447381 23919315 37156245 53970768 14,33,77,975 Total Outward Taxable Turnover as per GSTR-1 Returns (D) 319337086 297103612 289021303 330916091 149898633 1,38,62,76,725 Less: Inter unit branch transfers included in B2B sales as per GSTR-1 Returns (E) 45560740 31224231 28723245 44952105 20079253 17,05,39,574 Net Outward Taxable Turnover for the period 01.07.2017 to 14.11.2017 (F)=(D-E) 273776346 265879381 260298058 285963986 129819380 1,21,57,37,151 Ratio of ITC to Net Outward Taxable Turnover (G) = (C/F) 11.79 43. The DGAP has also contended that as regards the issue of recalculating the average pre-GST base prices separately for the Tier-1, Tier-2 City Stores and the Airport stores and compare them with the actual base pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items of the Respondent i.e. Restaurant Service had also been arrived at in the similar way. However, the average base prices for other channels were different from the channel shown in the Table above and accordingly, profiteering has been calculated channel-wise by the DGAP. 45. The DGAP has also stated that on the basis of the aforesaid pre and post-reduction GST rates, the impact of denial of ITC and the details of outward supplies (other than zero rated, nil rated and exempted supplies) during the period from 15.11.2017 to 30.06.2018, the product wise sale registers were reconciled with the GSTR-I and GSTR-3B Returns and the amount of net higher sale realization due to increase in the base prices of the service, despite the reduction in the GST rate from 18% to 5% (with denial of input tax credit) has been worked out. The DGAP has found that total 1365 items in each category i.e. Tier-1, Tier-2 City Stores and Airport Stores were sold during the period from 01.11.2017 to 14.11.2017 by the Respondent. After scrutiny of the Respondent's outward supplies during the period from July, 2017 to October, 2017 the DGAP has found that there were additional 141 items in October, 2017, 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the recipient by way of commensurate reduction in prices", had been contravened in the present case. The place of supply-wise total profiteered amount as computed by the DGAP was Rs. 1,04,70,664/(One Crore Four Lakh Seventy Thousand Six Hundred and Sixty Four). 49. The above Report dated 05.02.2020 was carefully considered by this Authority and it was decided that the Applicants and the Respondent be asked to appear before this Authority on 25.02.2020. The Respondent was issued notice on 10.02.2020 asking him to explain why the above Report of the DGAP should not be accepted and his liability for violating the provisions of Section 171 of the CGST Act, 2017 should not be fixed. During the course of the hearings no one appeared for the Applicant No. 1, Ms. Gayatri, Joint Commissioner, appeared for the Applicant No. 2 and the Respondent was represented by Mr. Nikhil Chandrana, Chief Finance Officer, Mr. Arun Ramachandran, Tax Head, Mr. Jay Paleja, General Manager, Mr. Pratik Jain and Mr. Sumit Lunker Authorised Representatives. The Respondent has filed his written submissions dated 25.06.2020 and 13.08.2020. The issues raised by the Respondent in his above submissions have been me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Store Tier 2 City Store April 2015 170 155 155 October 2015 180 165 165 April 2016 185 170 170 October 2016 190 175 175 April 2017 195 180 180 November 2017 210 195 195 April 2018 220 205 205 The Respondent has also undertaken a similar analysis for another product viz. "Tall Java Chip Frappuccino" as is given below:- Month Base Price in INR Airport store Tier 1 city store Tier 2 city store April 2015 200 185 185 October 2015 205 190 190 April 2016 210 195 195 October 2016 215 200 200 April 2017 225 210 210 November 2017 245 230 230 April 2018 255 240 240 It was further submitted that with the change in rate of tax with effect from 15.11.2017, in addition to the aforesaid factors for revision in prices, loss of ITC has become an additional factor requiring immediate adjustment in prices. Despite the above mentioned factors, the 'price to customer' was adjusted only to recover the increased cost. due to denial of ITC. In view of this, price increase made on 18.04.2018 should be ignored for the purposes of calculation of the amount of profiteering. 53. The Respondent has also stated that after rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntified amount, considering that there has been a substantial increase in cost, the same should be made available as an offset against the alleged profiteering. If such offset was not granted, it would lead to grave injustice to the Respondent. 57. The Respondent has further claimed that the investigation ought to have been restricted to the product in respect of which the complaint was made. He has also added that the present investigation has been initiated in response to the complaint filed by the Applicant No. 1 in respect of 'Short Capuccino' purchased by her at one of the Respondent's outlets on two dates viz. 11.11.2017 and 15.11.2017. Therefore, the scope of the DGAP's investigation should have been restricted to the product for which the complaint was made and it could not be simply expanded to include all the products sold by the Respondent. It was also submitted that as per Section 171 of the CGST Act, the emphasis was to pass on the benefit of reduction in the price to 'the recipient' and by seeking to compute profiteering on all the products, the DGAP has not restricted himself to the product sold to the complainant/recipient but for all the recipients, which was beyo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent on a case to case basis, the DGAP ought to have computed the average prices for the period post 15.11.2017 so as to similarly neutralize the impact of differential pricing and spot discount schemes offered by the Respondent on a case to case basis. 60. The Respondent has also argued that in the absence of any prescribed methodology, arbitrary approach has been followed by the DGAP. He has further argued that Rule 126 of the CGST Rules empowered this Authority to determine the methodology and procedure for computing the extent of profiteering. However, no precise computation methodology or principles have been formulated by this Authority. It was also submitted that the methodology to determine whether the taxpayer has passed on the benefit of reduced rate of GST or enhanced input tax credits was one of the essential ingredients of Section 171 of the CGST Act. Consequently, the absence of the aforesaid methodology would lead to a scenario wherein the entire investigation conducted by the DGAP would become a futile exercise. It was also pleaded that the concept of anti-profiteering has been introduced in various countries such as Australia and Malaysia vide which detaile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the name of "Starbucks-A Tata Alliance" or "Starbucks Coffee-A Tata Alliance" where he sells Coffee, Tea, Iced Beverages and food items. The Respondent is selling his products through the Airport Stores situated in Mumbai and Delhi, Tier-I City Stores located in Mumbai, Delhi, Gurugram, NOIDA, Chandigarh, Mohali and Kolkata and Tier-2 City Stores located in Bangalore, Chennai, Hyderabad, Pune, Ahmedabad, Surat and Vadodra. Presently he has 132 stores in the country situated in 11 States/UTs. It is also revealed that the rate of tax on the products being sold by the Respondent was reduced from 18% to 5% without the benefit of ITC vide Notification No. 46/2017-Central Tax dated 14.11.2017 w.e.f. 15.11.2017 and therefore, there is no dispute that the Respondent was required to pass on the benefit of rate reduction to his buyers as per the provisions of Section 171 (1) of the CGST Act, 2017. Since the denial of ITC benefit that was available to the Respondent prior to 15.11.2017 has now become part of his cost, hence the base prices of the products being sold by the Respondent could be increased to compensate the loss of ITC. 64. It is further revealed that the Applicant No. 1 vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submission of the Respondent had directed the DGAP to re-compute the base prices and the profiteered amount separately for the above stores under Rule 133 (4) of the CGST Rules, 2017 vide its Interim Order No. 18/2019 dated 05.12.2019. The DGAP was further directed to find out whether the increase in the prices made by the Respondent w.e.f. 18.04.2018 was justified or not. Accordingly, the DGAP has submitted his investigation Report dated 05.02.2020 to this Authority as per the directions passed in the above order. The DGAP has recomputed the ratio of ITC to the Net Outward Taxable Turnover as 11.79% w.e.f. 01.07.2017 to 14.11.2017 vide Table-D of his above Report which has also been duly accepted by the Respondent and hence the same can be fully relied upon. 65. Accordingly, the DGAP based on the pre and post reduction GST rates, the impact of denial of ITC, the details of the outward taxable supplies other than zero rated, nil rated and exempted made during the period from 15.11.2017 to 30.06.2018, as per the product wise sales registers reconciled with the GSTR-1 and GSTR-3B Returns, has computed the amount of net higher sale realization or the profiteered amount due to incre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the DGAP has recorded the following findings while verifying the claim of the Respondent regarding regular increases in his prices twice in a year:- "17. As regards the third issue to investigate on the basis of the evidence whether the increase in the price made by the Noticee w.e.f. 18.04.2018 was justified. It is observed from the submission of the Noticee that they increase the price of his items two times in a year mostly in the month of April and October. Section 171(1) reads as "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." On this submission NAA may take a view as it contains a legal point which pertains to the price revision." It is quite apparent from the above findings that the DGAP has not explained the evidence which was examined by him while arriving at the finding of increase in the prices by the Respondent twice in a year. The above finding of the DGAP is unreasoned, not based on supporting evidence, is cryptic, summary and cursory and hence, the same cannot be accepted. The claim of the DGAP that the issue of price increase invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 020), as on 15.11.2017 (page 151-157), April, 2017 (page 158-164), October, 2016 (page 165-169), April, 2016 (page 170-174), October, 2015 (page 175-178) and April, 2015 ( Page 179-182) however, from these Price Lists it cannot be concluded that he has increased his prices twice in a year as the details supplied by him are incomplete, unsystematic, incomprehensible and do not included all the Price Lists w.e.f. April, 2014 to April, 2019 as per the claim made by him, hence they cannot be relied upon. 71. It is also established from the below mentioned Table-A furnished by the Respondent that he has claimed to have increased his prices by 910% on 15.11.2017 whereas the denial of ITC amounted to 11.79%. Therefore, the claim made by the Respondent that he has increased his prices twice every year as per the percentage shown in the Table is incorrect as he could not have sold his products at loss and he is trying to justify his claim as an afterthought, whereas actually he has increased his prices by more than 11.79% as is evident from the perusal of Annexure-4. Therefore, both the above claims made by the Respondent are incorrect:- Table-A Sr.No. Period Average percentage of pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Therefore, the claim made by the Respondent that he had increased his pieces twice every year as per the percentage increase mentioned in Table-A cannot be accepted:- Table-C Month Base Price in INR Airport Store Percentage Increase Tier 1 City Store Percentage Increase Tier 2 Store City Percentage Increase Apr-15 200 2.50% 185 2.70% 185 2.70% Oct-15 205 190 190 Apr-16 210 2.43% 195 2.63% 195 2.63% Oct-16 215 2.38% 200 2.50% 200 2.50% Apr-17 225 4.65% 210 4.76% 210 4.76% Nov-17 245 8.88% 230 9.52% 230 9.52% Apr-18 255 4.08% 240 4.34% 240 4.34% 74. The Respondent has similarly submitted the price increase trend in respect of his product "Tall Macchiato" along with the copies of the invoices placed at page 120-142 for his various types of Stores which again do not establish the claim of periodical increase in the prices due to their being no comparison of the price increases overtime twice a year. The details of the claim made by the Respondent in respect of all the three above mentioned products are mentioned hereunder in Table-D which clearly prove that the percentage increase claimed by the Respondent twice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the tax reduction however, it is revealed from the investigation carried out by the DGAP that he has increased his prices by more than the above percentage. The Respondent has not increased his prices commensurate to the denial of ITC benefit even once in the post rate reduction period and he has continued to increase them constantly which establishes that the Respondent has no intention of passing on the benefit of tax reduction as provided under the provisions of Section 171 (1). The Respondent even at this stage continues to be in violation of the above Section and hence, the price increase made by him during the month of April, 2018 or subsequently cannot be ignored while computing the profiteered amount. 78. The Respondent has also stated that the DGAP has confirmed that the Respondent has been making price increases periodically but he has requested this Authority to take a final view on the same. If such effect was considered, the alleged amount of profiteering would be reduced to INR 33,82,472/-. In this regard it would be appropriate to refer to the findings recorded by this Authority in paras supra where it has been held that the observation of the DGAP that the Respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lleged profiteering. In this connection perusal of the Report of the DGAP dated 05.02.2020 and Annexure-4 of the Report shows that the Respondent has increased his prices by more than 11.79% w.e.f. the intervening night of 14/15.11.2017, the date from which the rate reduction was notified. Such a coincidence is unheard off and appears to be deliberate to deny the benefit of rate reduction as the costs of the Respondent could not have suddenly risen during the above night. Moreover, this Authority is only concerned about the passing on the benefit of rate reduction as per the provisions of Section 171 (1) and has no mandate to look in the costs of the Respondent. The Respondent has every right to increase his prices depending on increase in his costs but he cannot refuse to pass on the benefit of tax reduction on the ground that his costs have abruptly increased. It is also on record that the Respondent has himself admitted in his submissions that he had increased his prices w.e.f. 15.11.2017 only to absorb the loss of denial of ITC and incremental increase in his costs was not built in the post rate reduction prices, therefore, he cannot resile from his above claim and seek set off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation to collect evidence necessary to determine whether the benefit of reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit has been passed on to the recipient by way of commensurate reduction in prices, in terms of Section 171 of the Central Goods and Services Tax Act, 2017 and the rules made thereunder. b) Responsibility for coordinating anti-profiteering work with the National Anti-profiteering Authority, the Standing Committee and the State level Screening Committees. Therefore, it is apparent from the above 0M that the DGAP is charged with the responsibility to investigate and collect evidence necessary to determine whether both the above benefits have been passed on or not. No fetters have been placed either in the CGST Act, 2017 or Rule 129 of the CGST Rules, 2017 which provide that the DGAP shall restrict his investigation to the complained goods or services and he would overlook commission of an offence which has been committed in respect of the provisions of Section 171 (1), while supplying other goods or services if it comes to his notice during the course of the investigation. Since, the DGAP is the investigating arm o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground to believe that the Respondent in the above case might have denied benefit of ITC on his other products. Since profiteering has been established in respect of the products other than the complained product, the same have been correctly investigated as per the provisions of Section 171 read with Rule 129 and hence the proceedings cannot be dropped on the ground that no profiteering was found in respect of the complained product. 85. The Respondent has also contended that even if it was assumed that the DGAP was correct by stating that at the entity level the ratio of ITC to sales was ~11.79% then any price increase upto 11.79% was justifiable and since the average price increase made by the Respondent from 15.11.2017 was ~9-10%, there was no profiteering. In this connection it would be appropriate to mention that as per the provisions of Section 171 (1) every buyer is entitled to the benefit of tax reduction which has to be passed on to him on every product and the same cannot be passed on at the entity level. Any passing of benefit at entity level would amount to denial of commensurate benefit which would fall foul of the provisions of Article 14 of the Constitution as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recipient by way of commensurate reduction in prices." It is clear from a cursory perusal of the above Sub-Section that it mentions "reduction in the rate of tax or benefit of ITC" which means that the benefit of tax reduction or ITC has to be passed on by a registered supplier to his buyers since both the above benefits are granted by sacrificing tax revenue by the Central and the State Governments and they cannot be appropriated by a registered person. It also signifies that the above benefits are to be passed on each product or unit of construction or service to every buyer and in case they are not passed on, the denial of benefit or the profiteered amount has to be computed for which investigation has to be conducted in respect of all such products/units/services. What would be the 'profiteered amount' has been clearly mentioned in the explanation attached to Section 171 which is quoted as under:- "Explanation:- For the purpose of this section, the expression "profiteered" shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch case are different. In the case of one real estate project, date of start and completion of the project, price of the flat/shop, mode of payment of price or instalments, stage of completion of the project, rates of taxes pre and post GST implementation, amount of CENVAT and ITC availed/available, total saleable area, area sold and the taxable turnover received before and after the GST implementation would always be different from the other project and hence the amount of benefit of additional ITC to be passed on in respect of one project would not be similar to the other project. Therefore, no set procedure/methodology/guidelines 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 FMCGs, restaurant service, construction service and cinema service are completely different from each other and therefore, the mathematical methodology employed in the case of one sector cannot be applied in the other sector. Moreover, both the above benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res that the suppliers should have complete freedom to fix their prices and profit margins. It is strange that the Respondent is seeking to regulate prices when he is not even ready to pass on the benefit of tax reduction which he is not required to pay from his pocket as it has been granted to him by the Central and the State Governments from their precious tax revenue. Therefore, the above contention of the Respondent is not tenable. 89. It was also averred that the Respondent has immediately passed on the benefit of reduced GST rate to his customers after offsetting the increased cost due to denial of input tax credit which was evident from the fact that the 'price to customer' for 'Short Capuccino' was reduced from INR 183/- to INR 179/-. In this regard it would be appropriate to mention that the Respondent has quoted the product on which he has not increased his price by more than 11.79% whereas it is evident from para 16 and Annexure-4 of the Report dated 05.02.2020 filed by the DGAP that the Respondent had profiteered an amount of 1,04,70,664/- including the GST on the products on which he has increased his prices by more than 11.79%. It would also be relevant to mention he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this connection it would be appropriate to mention that the Respondent has not only collected excess base prices from his customers which they were not required to pay due to the reduction in the rate of tax but he has also compelled them to pay additional GST on these excess base prices which they should not have paid. The Respondent has thus defeated the objective of both the Central and the State Governments to provide the benefit of rate reduction to the ordinary customers by sacrificing their tax revenue. 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 the ordinary buyers by charging excess GST. Had he not charged additional 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 above Respondent. It would also be appropriate to state here that price includes CST also. Therefore, the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral and the State GST, as per the provisions of the CGST/SGST Acts, 2017 under the supervision of the DGAP and shall be deposited as has been directed vide this order. A detailed Report shall also be filed by the concerned Commissioners of the Central and the State GST through the DGAP indicating the action taken by them within a period of 4 months from the date of this order. 96. It is also evident from the above narration of the facts that the Respondent has denied benefit of rate reduction to the buyers of his products 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 for violation of the provisions of Section 171(1) during the period from 15.11.2017 to 30.06.2018 and therefore, he is apparently liable for imposition of penalty under the provisions Of Section 171 (3A) of the above Act. However, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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