9911796707
TMI Blog2020 (12) TMI 889X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Respondent had increased the base prices of his products and had not passed on the benefit of reduction in the GST rate from 18% to 5% w.e.f. 15.11.2017 vide Notification No.46/2017-Central Tax (Rate) dated 14.11.2017 by way of commensurate reduction in prices, in terms of Section 171 of the Central Goods and Services Tax Act, 2017. 2. On receipt of the aforesaid reference from the Standing Committee on Anti-profiteering, a Notice under Rule 129 of the Rules was issued by the Director-General of Anti-profiteering on 10.05.2019, 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 to furnish all documents in support of his reply. Further, the Respondent was allowed to inspect the non-confidential evidence/information which formed the basis of the said Notice, during the period 20.05.2019 to 22.05.2019. However, the Respondent did not avail of the said opportunity. 3. The DGAP has reported that the period cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s abundantly clear that in the event of a benefit of input tax credit or reduction in the rate of tax there must be a commensurate reduction in the prices of the goods or services. Such reduction could obviously be in money terms only so that the final price payable by a consumer got reduced. That was the legally prescribed mechanism for passing on the benefit of input tax credit or reduction in the rate of tax to the consumers under the GST regime. Moreover, it was also clear that the said Section 171 simply did not provide a supplier of goods or services, any other means of passing on the benefit of input tax credit or reduction in the rate of tax to the consumers. 9. The DGAP has reported that it was alleged that the Respondent did not pass on the benefit of the reduction in the GST rate to the recipients. It was seen that the Respondent was dealing with a total of 233 items while supplying restaurant services before 15.11.2017. It was also seen that the Respondent had been dealing with a total of 280 items during the period 15.11.2017 to 31.03.2019. The DGAP has compared the average selling prices as per details submitted by the Respondent for the period 01.07.2017 to 14.11.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2017). On this basis, the DGAP has found that input tax credit amounting to Rs. 3,35,471/- was available to the Respondent during the period July 2017 to October 2017 which was 8.85% of the net taxable turnover of restaurant service amounting to 37,90,741/- supplied during the same period. With effect from 15.11.2017, when the GST rate on restaurant service was reduced from 18% to 5%, the said input tax credit was not available to the Respondent. A summary of the computation of the ratio of input tax credit to the taxable turnover of the Respondent in the pre-GST period was furnished by the DGAP as is given in Table-A below: TABLE-A (Amount in Rs.) Particulars Jul-17 Aug-17 Sept.- 2017 Oct.- 2017 Total ITC Availed as per GSTR-3B (A) 83,555 92,187 83,383 76,346 3,35,471 Total Outward Taxable Turnover as per GSTR-3B (B) 10,65,175 8,91,019 9,36,894 8,97,653 37,90,741 The ratio of Input Tax Credit to Net Outward Taxable Turnover (C)= (A/B*100) 8.85% 12. The DGAP has further intimated that the analysis of the details of item-wise outward taxable supplies during the period from 15.11.2017 to 31.03.2019, revealed that the Respondent had increased the base prices of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voices, turnover from supplies other than zero-rated, nil rated, and exempted supplies, ITC availability, and GST returns for the period 15.11.2017 to 31.03.2019), the impact of denial of the input tax credit was worked out. Thereafter the said impact of denial of ITC and the impact of the tax rate reduction were considered to compute the net impact thereof on item-wise prices of various items supplied by the Respondent based on which the item-wise commensurate prices were worked out. The quantum of profiteering was calculated based on the comparison of the said commensurate item-wise prices (average base prices) that ought to have been charged by the Respondent with the actual sale prices of the various items supplied by him in the post-tax-rate reduction period. The profiteered amount worked out to be Rs. 6,66,700/-(including GST on the base profiteered amount).The details of the computation were given in the Annex-12 of his report. The DGAP has also intimated that based on the details of outward supplies of the restaurant service submitted by the Respondent, it was observed that the said service had been supplied by the Respondent in the State of Maharashtra only. 15. The DGAP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il the expiry of a specified period; that the DGAP has completely ignored the fact that discounts were given under special circumstances only and has instead calculated the average prices based on the total sales, including the discounted as well as normal sales, for the pre-tax rate reduction period from 01.11.2017 to 14.11.2017; that since he was offering discounts regularly and every year in the pre-tax rate reduction period and since he continued to do so as part of his sales promotion, DGAP ought to have calculated the average base prices of the various items supplied by him only on the basis of the normal sales (non discounted sales) made by him during the period 01.11.2017 to 14.11.2017; that the pre-tax rate reduction average price (without considered discounted sales) ought to have been compared with the post tax rate reduction average price since the basis of such a comparison should have been the same; that the DGAP has improperly calculated the weighted average price for the 83 items being supplied in the pre-tax rate reduction period by taking into account the sales made in the period from July 2017 to October 2017 since the DGAP could not find any sale of these 83 ite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey Chicken Slic 100.00 Oct'17 32 Turkey Extr 6 50.00 Oct'17 33 Veggie Patty Add 6in 40.00 Oct'17 34 Veg Shammi Add 6in 40.00 Oct'17 35 12 Cookies 350.00 Sept'17 36 12" Chicken Slice Egg Bkfst S 205.00 Sept'17 37 12" Paneer Tikka Flat Bd 245.00 Sept'17 38 6" Aloo Patty Flat Bd 135.00 Sept'17 39 6" Chicken Slice Egg Bkfst F 110.00 Sept'17 40 6" ChknTikka Flat Bd 160.00 Sept'17 41 6" Corn & Peas Flat Bd 135.00 Sept'17 42 6" Egg Cheese Bkfst Flat 110.00 Sept'17 43 6" Hara Bhara Kabab Flat Bd 120.00 Sept'17 44 6" Subway Club Flat Bd 165.00 Sept'17 45 6" Turkey Flat Bd 165.00 Sept'17 46 B.M.T. Add Ft 100.00 Sept'17 47 Chatpata Chana Patty Add 40.00 Sept'17 48 Chicken Slice Add Ft 100.00 Sept'17 49 Chicken Teriyaki Add 6i 50.00 Sept'17 50 Chicken Teriyaki Portn 50.00 Sept'17 51 Corn & Peas Extr 6 40.00 Sept'17 52 Green Peas Patty Sub 225.00 Sept'17 53 Hara Bhara Kabab Add 6i 40.00 Sept'17 54 Hare Bhara Kabab Extr FT 85.00 Sept'17 55 Liquid Egg Add 6 in 26.00 Sept'17 56 Rst Chicken Add Ft 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken away without any explicit authority under the Law; that therefore, any form of price control was a violation of Article 19 (1) (g) of the Constitution of India; that due to incorporation of the higher item-wise prices charged by him after he had increased his product prices in January 2019 after 15 months of the GST rate reduction, the profiteered amount has increased substantially in the months of February, 2019 and March, 2019 when compared with the monthly figures of the period from 01.07,2017 to 31.03.2019 because he had revised the prices of his products/ items in January 2019 to offset general inflation and higher expenses; that as per the DGAP's report, the quantum of profiteering was 3.19% of his turnover for the entire investigation period before February 2019, but for the period February- March 2019, it rose significantly to 6.53% of the turnover; that the same was reflected in the Chart below:- Month wise Comparison Chart Profiteered Amount Analysis month-wise Month Total Profiteered Amount Total Taxable Turnover Profiteering as a percentage of the Turnover Month Total profiteered Amount Total Taxable Turnover Profiteering as a percentage of the Tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed amount was improper and should be removed and that the amount of said excess GST amount should be recovered from the respective Governments and that accordingly his liability would stand reduced by Rs. 31,748/- on this account as shown in the monthly summary in the Chart below:- CHART Impact due to Inclusion of GST Amount Month Profiteered Amount as per DGAP Report-(A) GST Amount Included in Profiteered Amount- (B) Profiteered Amount excluding GST=(C=A-B) Nov'17 19,904.99 947.86 18,957.14 Dec'17 35,480.87 1,689.57 33,791.30 Jan'18 36,690.29 1,747.16 34,943.14 Feb'18 31,073.44 1,479.69 29,593.75 Mar'18 33,966.52 1,617.45 32,349.07 Apr'18 33,364.22 1,588.77 31,775.45 May'18 34,092.86 1,623.47 32,469.39 Jun'18 31,800.00 1,514.29 30,285.71 Jul'18 34,727.90 1,653.71 33,074.19 Aug'18 42,298.78 2,014.23 40,284.55 Sept'18 40,782.98 1,942.05 38,840.93 Oct'18 37,228.09 1,772.77 35,455.32 Nov'18 31,740.65 1,511.46 30,229.19 Dec'18 32,863.87 1,564.95 31,298.93 Jan'19 34,879.86 1,660.95 33,218.91 Feb'19 78,793.55 3,752.07 75,041.47 Mar'19 77,011.38 3,667.21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount was given in the Table below:- TABLE due to Royalty Expenses Month Total Profiteering Amount (DGAP Working) Revised Profiteering Impact after royalty expenses adjustment Difference due to Royalty Expenses adjustment Nov'17 19,904.99 10,528.76 9,376.23 Dec'17 35,480.87 18,183.02 17,297.85 Jan'18 36,690.29 19,177.16 17,513.13 Feb'18 31,073.44 16,098.99 14,974.45 Mar'18 33,966.52 17,668.40 16,298.12 Apr'18 33,364.22 17,398.22 15,966.00 May'18 34,092.86 17,733.27 16,359.59 Jun'18 31,800.00 16,838.93 14,961.07 Jul'18 34,727.90 18,232.47 16,495.43 Aug'18 42,298.78 22,313.64 19,985.14 Sept'18 40,782.98 21,577.40 19,205.57 Oct'18 37,228.09 19,194.57 18,033.52 Nov'18 31,740.65 16,281.35 15,459.30 Dec'18 32,863.87 16,814.18 16,049.70 Jan'19 34,879.86 19,468.17 15,411.69 Feb'19 78,793.55 61,866.01 16,927.53 Mar'19 77,011.38 60,644.27 16,367.12 666,700.25 390,018.81 276,681.45 g. That the DGAP had incorrectly applied a methodology similar to the "zeroing methodology" which was used by the anti-dumping authorities in certain countries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annexure 12 of DGAP report, the total of such negative entries, where the benefit passed on was more than commensurate, worked out to Rs. 3,21,498/-. The same ought to have been considered which would have reduced the profiteered amount by Rs. 3,21,498/ as detailed in the chart below:- CHART Impact on Profiteered amount due to reduction in prices-Annexure F Month Total Profiteering Amount as per DGAP Total Profiteering Amount as per our Calculation Difference Month Total Profiteering Amount as per DGAP Total Profiteering Amount as per our Calculation Difference Total Impact Nov'17 - (998.85) (998.85) Augt'18 - (14,600.30) (14,600.30) (15,599.15) Dec'17 - (1,667.23) (1,667.23) Sept'18 - (18,477.88) (18,477.88) (20,145.11) Jan'18 - (1,402.28) (1,402.28) Oct'18 - (20,152.09) (20,152.09) (21,554.37) Feb'18 - (3,474.47) (3,474.47) Nov'18 - (35,714.13) (35,714.13) (39,188,60) Mar'18 - (5,390.66) (5,390.66) Dec'18 - (37,221.58) (37,221.58) (42,612.25) Apr'18 - (5,976.95) (5,976.95) Jan'19 - (37,032.26) (37,032.26) (43,009.21) May'18 - (4,663.13) (4,663.13) Feb'19 - (56,263.38) (56,263.38) (60,926.51) &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of products was a complex exercise and products were not priced individually; that in a free market, several other factors like competition pricing, long term strategies for market penetration, profit margin for sustaining in the market, life cycle of the product, economic and social conditions, cost of the products and capital expenditure, inflation in man power cost, general year on year inflation etc. played important role in the fixing of the price of the products; that the GST law did not prescribe the method of computation of profiteering; that it was a new law and everyone was still trying to understand the application of the same on their businesses in November 2017; that the tax regime for 'restaurant service' had been changed within a short period of time of 4-month i.e. with effect from 15.11.2017 after the introduction of GST; that for these reasons, the impact of changes should be considered only for a certain specific period and that the period for calculation of profiteering amount should be limited to around 04 months from the date of tax rate reduction i.e. up to the period March 2018; that thus the period of calculation of profiteered amount in this ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been considered. If sale of any particular product/item was not found during that period then the sales of that particular product/item during previous months in a sequential manner beginning from October 2017, if the same was not found then previous month i.e. September 2017 and so on up to July 2017, had been considered to arrive at the base price of that product/item. Since the sales of 83 items were not found for the period 01.11.2017 to 14.11.2017, therefore, the sales of these items during the months of July to October 2017 had been considered. This had been done to arrive at the base prices of 83 items which was required to establish profiteering in respect of these 83 items as these items had substantial sales in post rate reduction period. b. That in the instant case, the Standing Committee on Anti-profiteering had examined the complaint and it was decided to refer the matter to the DGAP for detailed investigation, which was received in the office of DGAP on 02.05.2019. Accordingly, a Notice under Rule 129 of the CGST Rules, 2017 was issued to the Respondent on 10.05.2019. Based on the facts and circumstances of the case, the investigation was carried out covering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they were not liable to pay. Therefore, it was clear that the amount of extra tax (GST) on the increased base price was an amount paid by the customers/recipients which they were not supposed to pay. If any supplier had charged more tax from the recipients, the aforesaid statutory provisions would require that such amount be refunded to the eligible recipients or deposited in the Consumer Welfare Fund, regardless of whether such extra tax collected from the recipient had been deposited in the Government account or not. Besides, any extra tax returned to the recipients by the supplier by issuing a credit note could be declared in the return filed by the supplier and his tax liability would stand adjusted to that extent in terms of Section 34 of the CGST Act, 2017. Therefore, the option was always open to the Petitioner to return the tax amount to the recipients by issuing credit notes and adjusting his tax liability for the subsequent period to that extent. d. That as per the franchise agreement in the case of the Respondent, the royalty expense and advertisement charges were fixed as a certain percentage of the net sales. These expenses were being paid by the Respondent not only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 171 of the CGST Act, 2017, every recipient of goods or services was entitled to get his/her due share of the benefit. Hence, profiteering under the provisions of Section 171 of the CGST Act, 2017 was to be quantified at the products where prices were not reduced commensurately. Furthermore, it was pertinent to mention that every recipient of goods or services was entitled to get his/her due share of the benefit. In case one recipient got more benefit from the supplier than the commensurate benefit the statute did not allow the supplier to reduce the benefit due to another recipient to that extent. In other words, the benefit of rate reduction passed on to one customer more than the commensurate benefit could not be appropriated against the benefit due to other customer. Therefore, the Respondent's contention was beyond the scope of Section of the CGST Act, 2017. f. That in this case, reference from the Standing Committee on Anti- profiteering was received in the office of DGAP on 02.05.2019 and the time limit to complete the investigation was extended upto 01.02.2020 by this Authority, in terms of Rule 129 (6) of the Rules, vide Order dated 31.10.2019. Accordingly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. It is revealed from the record that the Respondent is running a restaurant as a franchisee of M/s Subway India Private Limited in Maharashtra and is supplying various food products to the customers. It is also revealed from the plain reading of Section 171 (1) of he CGST Act, 2017 that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second about the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the record that there has been a reduction in the rate of tax from 18% to 5% w.e.f. 15.11.2017, on the restaurant service being supplied by the Respondent, vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 without the benefit of ITC. Therefore, the Respondent is liable to pass on the benefit of tax reduction to his customers in terms of Section 171 (1) of the above Act. It is also apparent that the present investigation has been carried out w.e.f. 15.11.2017 to 31.03.2019. 22. It is also evident that the Respondent has been dealing with a total of 280 items during the period from 15.11.2017 to 31.03.2019. Upon comparing the average selling prices as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Respondent has increased the base prices by more than 8.85% i.e. by more than what was required to offset the impact of denial of ITC in respect of 168 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 in base prices was less or equal to the denial of ITC or these were new products launched post-GST rate reduction. 25. Based on the aforesaid change in the tax 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 31.03.2019, the amount of net higher sale realization due to increase in the base prices of the products, despite the reduction in the GST rate from 18% to 5% with denial of ITC or the profiteered amount has come to Rs. 6,66,700/- as per Annexure 12 of the Report of the DGAP including the GST on the base profiteered amount. The details of the computation have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod 01.11.2017 to 14.11.2017 which was completely arbitrary. This contention of the Respondent is not correct as the average base prices of the products have been arrived at by dividing the total taxable value by the post discount. Therefore, the computation done by the DGAP is based on the transaction value as per the provisions of Section 15 of the CGST Act, 2017 which reads as under:- "The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply." Further, Section 15 (3) (a) of the above Act also provides that the value of the supply shall not include any discount which was given before or at the time of the supply if such discount had been duly recorded in the invoice issued in respect of such supply and thus, the GST was chargeable on the actual transaction value after excluding any discount (conditional as well as unconditional) and therefore, actual transaction value has been rightly considered by the DGAP for computation of profiteering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eering, 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 facts that the Respondent could have raised his pre-rate reduction prices by 8.85% to offset the impact of denial of ITC but it has been found that he had increased them more than the permissible limit. Therefore, the Respondent has failed to pass on the benefit of tax reduction. The Respondent has not produced any evidence during the course of the investigation that the price rise affected by him was commensurate with the tax reduction. He has further claimed to have increased his prices in January 2019 on account of inflation and other expenses although at no stage between the period w.e.f. 01.11.2017 till 31.03.2019 he has produced any reliable evidence to show that he has passed on the benefit of tax reduction commensurately. Therefore, the DGAP has rightly computed the profiteered amount. Hence, the above contention of the Respondent is not tenable. 29. The Respondent has further contended that the right to trade was a fundamental right guaranteed under Article 19 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions 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 lesser item-wise price while purchasing food items 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. The above amount can also not be recovered from the Government as it is required to be deposited in the CWFs of the Central and the State Government. Therefore, the above amount has been correctly included in the profiteered amount by the DGAP, therefore, the contention of the Respondent is untenable and hence it cannot be accepted. 30. The Respondent has further contended that the franchisor i.e. M/s Subway India Pvt. Ltd. was charging 8% and 4.5% totalling 12.5% Royalty and Advertisement Charges on his net sales (on which GST @ 12% and 18% was also being charged respectively) and after 01.07.2017 his royalty cost has directly increased by 1.769% which has not been considered by the DGAP. In this connectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot passed on from the amount of such excess benefit which he has claimed to have passed on which will 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 and which had been 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MRP was the maximum price at which the goods could be sold in retail. The transaction price 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, MRP 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 CGST Act, 2017, the CGST Rules, 2017 and the Methodology and Procedure notified by this Authority did not prescribe the period up to which the profiteered amount is to be calculated. Therefore, keeping in mind the perishable nature of the items and various other factors the profiteered amount should be restricted up to March 2018. In this context, we observe that while the rate of GST was reduced from 18% to 5% w.e.f. 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsumer Welfare Fund and the Maharashtra State Consumer Welfare Fund as per the provisions of Rule 133 (3) (c) of the CGST Rules 2017, along with interest payable @ 18% to be calculated from the dates on which the above amount was realized by the Respondent from his recipients till the date of its deposit. The above amount of Rs. 6,66,700/- shall be deposited, as specified above, within a period of 3 months from the date of passing of this order failing which it shall be recovered by the concerned CGST/SGST Commissioners. 39. Further, this Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioners of CGST/SGST Maharashtra to monitor this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by this Authority is deposited in the CWFs of the Central and the Maharashtra State Government as per the details given above. A report in compliance of this order shall be submitted to this Authority by the concerned Commissioner within a period of 4 months from the date of receipt of this order. 40. A copy each of this order be supplied to Applicant, the Respondent, and the concerned Commissioner CGST/SGST Maharashtra for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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