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TMI Blog2021 (1) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 by way of not making a commensurate reduction in price, in terms of Section 171 of the CGST Act, 2017. 2. The aforesaid issue was examined by the Maharashtra State Screening Committee on Anti-profiteering which observed that the Respondent had not passed on the benefit to his customers on account of reduction in tax rate and forwarded the complaint to the Standing Committee on Anti-profiteering for further action. 3. The Standing Committee on Anti-profiteering examined the reference received from the Maharashtra State Screening Committee in its meeting held on 15.05.2019 and it was decided to refer the matter to the DGAP to initiate an investigation and collect the evidence necessary to determine whether the benefit of reduction in the rate of GST on the supply of "restaurant service" had been passed on by the Respondent to the recipients. The Assistant Commissioner of Sales Tax (D-819), Nodal Division-II, Mazgaon, Mumbai-10, had prepared a summary of the profiteered amount computed on the basis of ratio of ITC available to the taxable turnover of the Respondent which was also enclosed with the reference of the Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adquarters of M/s. Subway Systems India Pvt. Ltd. was not able to fetch the details and expressed his inability to submit the requisite documents/information. 7. Vide Letters/e-mails dated 10.12.2019 and 16.12.2019, the DGAP requested the Respondent to submit a letter of undertaking /affidavit with regard to non-availability/recovery of data up to January, 2018 and to furnish a copy of the correspondence and e-mails exchanged with Subway headquarters and with service providers to recover the lost data to ascertain the veracity of the claims made by him. However, the Respondent failed to respond to the above communications. 8. In response to the Notice dated 09.07.2019 and subsequent reminders vide letter/e-mails dated 23.07.2019, 02.08.2019, 20.08.2019, 02.09.2019, 31.10.2019, 10.12.2019, 16.12.2019 and summons dated 19.09.2019 and 27.09.2019, the Respondent submitted his replies vide e-mails/letters dated 22.07.2019, 19.08.2019, 26.08.2019, 30.08.2019, 12.09.2019, 24.09.2019, 25.09.2019, 09.10.2019, 19.10.2019 and 06.11.2019. The submissions of the Respondent were summed up by the DGAP as follows: a. That he had increased the base prices of the menu items by 10.80% post 15.11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted the invoice-wise details of his outward taxable supply during the period from 01.07.2017 to 31.01.2018, in the absence of which, the DGAP had requested the Respondent to map the Menu product names in the Sale register to determine the number of units of each of the products sold by him; further, the Respondent neither responded to the DGAP on this issue nor did he submit the desired information/documents. 11. The DGAP has also reported that the reference received from the Standing Committee on Anti-profiteering, the various replies of the Respondent and the documents/evidence on record were carefully scrutinized. The main issues to be examined in the investigation were whether the rate of GST on the service supplied by the Respondent was reduced from 18% to 5% w.e.f. 15.11.2017 and if so, whether the benefit of such reduction in the rate of GST had been passed on by the Respondent to his recipients/ customers in terms of Section 171 of the CGST Act, 2017. 12. The DGAP has stated that the Central Government, on the recommendation of the GST Council, had reduced the GST rate on the restaurant service from 18% to 5% w.e.f. 15.11.2017 with the condition that the ITC on the go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport by the DGAP. The lower GST rate of 5% had been charged on the increased base price of these 133 items, which confirmed that the tax amount was computed @ 18% before 15.11.2017 and @ 5% w.e.f. 15.11.2017. However, the fact was that because of the increase in base prices the cum-tax price paid by the consumers was not reduced commensurately for all the items supplied by the Respondent. Therefore, the issue to be investigated was whether the increase in base prices was solely on account of the denial of ITC or not. 15. The DGAP has also reported that the assessment of the impact of denial of input tax credit which was an uncontested fact required determination of the ITC in respect of "restaurant service" as a percentage of the taxable turnover from the outward supply of "products" during the pre-GST rate reduction period. To illustrate, if the ITC in respect of restaurant service was 10% of the taxable turnover of the Respondent till 14.11.2017 (which became unavailable w.e.f. 15.11.2017) and the increase in the pre-GST rate reduction base price w.e.f. 15.11.2017, was upt010%, one could conclude that there was no profiteering. However, if the increase in the pre-GST rate reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lars July 2017 August 2017 September 2017 October 2017 Total ITC Availed as per GSTR-3B(A)* 1,18,312 1,27,319 1,07,139 1,01,964 4,54,734 Total Outward Taxable Turnover as per GSTR-3B (B) 11,45,395 11,43,249 12,90,075 11,40,264 47,18,983 The ratio of ITC to Net Outward Taxable Turnover (C)= (A/B) 9.64% 9.64% 17. The DGAP has further mentioned that the analysis of the details of item-wise outward taxable supplies during the period from 15.11.2017 to 30.06.2019 revealed that the Respondent had increased the base prices of different items supplied as a part of restaurant service to make up for the denial of ITC post GST rate reduction. The pre and post GST rate reduction prices of the items sold as a part of restaurant service during the period 15.11.2017 to 30.06.2019 were compared and it was established that the Respondent had increased the base prices by more than 9.64% (i.e., by more than what was required to offset the impact of denial of the input tax credit) in respect of 115 items (out of a total of 137 items) sold during the same period. Thus, the conclusion was that in respect of these items the commensurate benefit of reduction in the rate of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmensurate Base price (post Rate reduction) (Excluding GST) G=B+F 120.60/- 8. Commensurate Selling price (post Rate reduction) (including GST) H=105% of G 126.63/- 9. Selling price (including GST) as per Menu Price List I 130.20/- 10. The excess amount charged or Profiteering per unit J=I-G 3.57/- 11. Total quantity Sold in Post reduction illustrative month of Feb.-2018 K 26 12. Total Profiteering L=J*K 92.82/- 20. Citing the above Table, the DGAP has stated that the Respondent did not reduce the selling price commensurately of the "6 Inch Western Egg and Cheese" when the GST rate was reduced from 18% to 5% w.e.f. 15.11.2017, vide Notification No. 46/2017 Central Tax (Rate) dated 14.11.2017 and hence he profiteered by an amount of Rs. 92.82 in respect of the said product. Hence, the benefit of reduction in GST rate was not passed on to the recipients by way of commensurate reduction in the price, in terms of Section 171 of the CGST Act, 2017. Based on the above calculation as illustrated in the Table above, profiteering in the case of all the products supplied by the Respondent was worked out by the DGAP. 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority. Accordingly, the first hearing in the matter was held on 10.02.2020 wherein none appeared for either of the Applicants while Sh. Rakesh Kumar, Authorised Representative, Sh. Aneesh Mittal, Advocate, and Ms. Nikita Singh, Intern, appeared for the Respondent. During the course of the proceedings before this Authority, the Respondent has filed written submissions on 31.01.2020, 16.03.2020, 02.07.2020, and 29.07.2020. Vide his above-mentioned submissions, the Respondent has interalia submitted: a. That the DGAP has incorrectly computed the ratio of ITC availed to the taxable turnover as 9.64% instead of 9.86%; that the formula adopted by the DGAP, for quantifying the impact of the withdrawal of ITC on the product- prices, was based on certain assumptions which might not be always correct; that in this case, reduction in the rate of tax from 18% to 5% was accompanied by the withdrawal of ITC; that since the withdrawal of ITC has increased the cost of inputs, increase in the base price of the products to neutralize the effect of the withdrawal of ITC benefit was justified; that no computational methodology or formula for the calculation of the quantum of profiteering was prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the invoice had not been received. c. In this context, the Respondent has contended that none of the aforesaid reasons advanced by the DGAP for excluding the ITC and the turnover for the period from 01.11.2017 14.11.2017 for the computation were correct; that the said exclusion was frivolous because:- i. Since the unutilized ITC as of 14.11.2017 could not be utilized for payment of GST on outward supplies w.e.f. 15.11.2017, its reversal or non-reversal was immaterial, ii. The invoice-wise details of the outward supplies for the 01.11.2017 to 14.11.2017 period were submitted by him and the same has been acknowledged in para 13(d) of the DGAP's report, and iii. When the service covered by the landlord/ service supplier's invoice has actually been received by him, the ITC based on the said invoice could be denied just because, as per his Agreement with his landlord, the rent for a particular month was required to be paid in advance at the beginning of the month, more so, when no objection in this regard has been raised by the concerned jurisdictional assessing officer. d. That he was a franchisee of M/s. Subway Systems India Pvt. Ltd. (SSIPL); that it was the SSIPL, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , etc.; that he placed his reliance on the case of Kumar Gandharv v. KRBL Ltd. 2018-TIOL-2-NAA GST = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY, wherein this Authority has held that an increase in the MRP of packed and branded rice, on account of increase in the purchase price of the loose rice, was justified g. That any increase in the base prices during the post-tax rate reduction period on account of denial of ITC benefit or genuine commercial reasons could not be termed as profiteering and treating the same as profiteering amounted to unreasonable price control or price regulation which violated the freedom of trade and commerce granted to a citizen under Article 19 (1) (g) of the Constitution of India. h. That the methodology adopted by the DGAP for determining whether or not a registered person has passed on the benefit of reduction in the rate of tax to his customers by way of commensurate reduction in prices was neither prescribed in the CGST Act, 2017/ SGST Acts nor in the Rules made thereunder and that the notification issued by this Authority under Rule 126 of the CGST Rules, 2017 could not be applied like a statutory provision; that merely based on such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 01.02.2019 to 30.06.2019 should be excluded from the computation of the profiteered amount; that if the period from February 2019 to June 2019 was excluded from the purview of the investigation, the amount of profiteering would be Rs. 4,72,421/-. j. That the profiteered amount computed by the DGAP also included the element of GST unjustifiably, since the entire amount representing CGST and SGST recovered by the Respondent from his customers has been paid by him to the Governments as CGST and SGST per the provisions of Section 76(1) of the CGST Act, 2017 and the identical provisions under the Maharashtra GST Act, 2017; that thus there was no question of including the element of GST on the base profiteered amount; that if the element of GST was removed, the profiteered amount for the period from 15.11.2017 to 30.01.2019 would be Rs. 4,48,972/-. k. That Section 125 of the CGST Act 2017 provided that "any person" who contravenes any of the provisions of this Act or any Rules made thereunder, for which no penalty has been separately provided for in this Act, would be liable to a penalty which may extend to Twenty Five Thousand Rupees; that in the currency of the period of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pensation cess and hence the said ITC of compensation cess could not be included in the computation of profiteering in this case; c. Further, the Respondent's submission related to his not having availed ITC in the post-tax rate reduction period, i.e. after 15.11.2017, was factually incorrect as his own books of account, more specifically his General ledger of CGST Account confirmed that he has availed ITC amounting to Rs. 27,000/- in the month of November 2017 on the strength of an invoice for the monthly rental charges paid by him for the period 01.11.2017 to 30.11.2017, the extract of which is as below:- d. The DGAP had also reported that in terms of the provisions of Section 17 of the CGST Act 2017 read with Rule 42 and 43 of the CGST Rules 2017, the Respondent was required to reverse the ITC on the closing stock of inputs and capital goods held by him on 14.11.2017, which has not been complied with by the Respondent. e. Further, the DGAP has reported that while the Respondent has not submitted the details of his invoice-wise outward taxable turnover for the period from 01.11.2017 to 14.11.2017 despite repeated reminders of the DGAP, he had now submitted invoices of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 in the present case) till the latest month of receipt of a reference from the Standing Committee (i.e. June 2019 in the present case) in all the cases. Hence there was no arbitrariness in respect of the same. h. On the contention of the Respondent that every increase in the base prices of the products should not be presumed to be profiteering, the DGAP has stated that he had not attempted to examine or question the base prices as Section 171 did not mandate control over the prices of the goods or services as they were to be determined by the supplier. Section 171 only mandated that any reduction in the rate of tax or the benefit of ITC which accrued to a supplier must be passed on to the consumers as both were the concessions given by the Government and the suppliers were not entitled to appropriate them. Such benefits must go to the consumers and in case they were not identifiable, the amount so collected by the suppliers was required to be deposited in the Consumer Welfare Fund. The DGAP has further reported that the investigation has not examined the cost component included in the base price. It has only added the denial of ITC to the pre rate reduction base price. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y him as of 14.11.2017. The DGAP has reported that, therefore, the aforesaid claim of the Respondent was incorrect, frivolous, misleading, and was thus liable to be rejected. 27. We have carefully considered the case record, the Reports furnished by the DGAP, the submissions made by the Respondent, and the other material placed on record. On examining the various submissions we find that the following issues need to be addressed:- a. Whether the Respondent has passed on the commensurate benefit of reduction in the rate of tax to his customers? b. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 committed by the Respondent? 28. It is revealed from the record that the Respondent is running a restaurant as a franchisee of M/S Subway Systems India Private Limited in Maharashtra and is supplying various food products to customers. It is also revealed from the plain reading of Section 171 (1) of the CGST Act, 2017 that it deals with two situations, one relating to the passing on the benefit of reduction in the rate of tax and the second about the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above issue to the DGAP nor he submitted affidavit/undertaking. It is thus clear to us that the Respondent has deliberately not submitted the requisite data to the DGAP to avoid his liability for profiteering. b. That from the record, it is also evident that the details of taxable supplies submitted by the Respondent for the period from 01.02.2018 to 30.06.2019 mentioned multiple product descriptions for a single product rendering the data unusable for the purpose of any meaningful examination and computation of profiteered amount. Therefore, the DGAP had no option but to ask the Respondent to map the product descriptions appearing in the Menu Price List with his Sales Register to enable determination of the number of units of each product (as per the Menu Price List) supplied by him. However, the Respondent neither responded to the above direction of the DGAP nor submitted the requisite information to the DGAP. Hence, it is apparent that the Respondent has intentionally not submitted the complete information to the DGAP and has deliberately tried to derail the investigation. c. That the Respondent had submitted the invoices for the period from 01.11.2017 to 14.11.2017 in non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e products made during the pre-GST rate reduction period by taking into consideration the period from 01.07.2017 to 31.10.2017 and not up to 14.11.2017. This has been done because there was no reversal of ITC on the closing stock of inputs/input services and capital goods as of 14.11.2017 made by the Respondent as per the provisions of Section 17 of the CGST Act, 2017 read with Rule 42 and 43 of the above Rules. Further, the Respondent has not submitted the required data/information for computing the taxable turnover for the period from 01.11.2017 to 14.11.2017 in the requisite format to the DGAP therefore, the turnover for the period from 01.11.2017 to 14.11.2017 could not be considered. Accordingly, the ratio of ITC to the net taxable turnover has been taken for determining the impact of denial of ITC which was available to the Respondent till 31.10.2017. As per the case record, ITC amounting to Rs. 4,54,734/- was available to the Respondent during the period from July 2017 to October 2017 which was approximately 9.64% of Rs. 47,18,983/- of the turnover during the same period, as has been shown in Table-A supra. For computation of commensurate cum-tax selling price the DGAP has c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent during the period from July 2017 to October 2017, as per GSTR-3B Returns filed by him, was Rs. 4,54,734/- and the total outward taxable turnover for the same period, as per GSTR-3B Returns, was Rs. Therefore, the ITC to taxable turnover ratio for the pre rate reduction period comes out to 9.64%{(4,54,734/47,18,983) * 100} which has been correctly computed by the DGAP as mentioned in Table-A above. Hence, the claim of the Respondent that the DGAP has wrongly computed the ITC to taxable turnover ratio for the pre-tax rate reduction period is not tenable and cannot be accepted. 35. Further, the Respondent has contended that the DGAP has not considered the ITC and Turnover for the period from 01.11.2017 to 14.11.2017 while computing the ratio of ITC to taxable turnover for the pre rate reduction period. In this regard, it was noticed that as required according to the provisions of Section 171 of the CGST Act, 2017 read with Rules 42 and 43 of the CGST Rules, 2017, the Respondent had not reversed the ITC on the closing stock of inputs and capital goods as of 14.11.2017. Further, the case records have revealed that the Respondent had incorrectly availed ITC on the strength of certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and input services which are used in the furtherance of his outward supplies. Therefore, the quantum of ITC availed is directly proportional to the quantum of inputs/ input services utilized and thus to the outward supplies of a registered person. On the other hand, utilization of ITC depends upon the will of the registered person since every registered person has an option to pay his tax liability either in the form of cash or by utilizing the available ITC/ credit as per his convenience. Therefore, it is clear to us that the utilization of ITC has no direct relationship with the outward supplies of the registered person. Given the above facts, the factoring of the ITC 'availed' instead of the ITC 'Utilized' in the computation is the more reasonable, accurate and appropriate approach. Therefore, we take the view that the DGAP has rightly considered the ITC 'availed' while computing ITC to taxable turnover ratio for the pre-tax rate reduction period. Therefore the said contention of the Respondent cannot be accepted. 37. The Respondent has also averred that he was operating his outlet as a franchisee and the franchisor, i.e. M/S Subway Systems India Pvt. Ltd., was the vital auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The intent of this provision is the welfare of the consumers who are voiceless, unorganized and vulnerable. It is also pertinent that the DGAP has nowhere interfered with the pricing decisions of the Respondent and therefore, there is no violation of Article 19 (1) (g) of the Constitution. 39. The Respondent has also pleaded that the DGAP while arriving at profiteering has failed to appreciate that different factors at different points in time affect the costing and pricing of a product and therefore, no straight jacket formula could be used for calculating profiteering. The pricing of products was dependent on various factors like increase in expenses and increase in cost due to GST implementation, marketing costs, operating cost, cost of inputs, and the rental cost which should be considered while arriving at the profiteering. In this connection, it would be pertinent to mention that the provisions of Section 171 (1) and (2) of the above Act require the Respondent to pass on the benefit of tax reduction to 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 Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es." It is clear from the perusal of the above provision 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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al methodology employed in the case of one sector cannot be applied in the other sector otherwise it would result in denial of the benefit to the eligible recipients. Moreover, both the above benefits have been granted by the Central as well as the State Governments by sacrificing their tax revenue in the public interest and hence the suppliers are not required to pay even a single penny from their pocket and hence they have to pass on the above benefits as per the provisions of Section 171 (1) of the CGST Act 2017 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 of the CGST Act 2017 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 the quantum of profiteering has been furnished as is given in the below table:- Sl.No. Description Factors Pre Rate Reduction (up to 14.11.2017 Post-tax ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Rules 122, 123 129, and 136 of the CGST Rules, 2017 have provided elaborate machinery in the form of this Authority, the Standing and Screening Committees, the DGAP and a large number of field officers of the Central and the State Taxes to implement the anti-profiteering provisions. Therefore, the Respondent cannot allege that no machinery has been provided to implement the above measures. 43. 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 the 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to date. The Respondent has not produced any evidence to prove from which date the benefit was passed on by him. The fact that the Respondent has not complied with the law till 30.06.2019 requires that the profiteering is computed till the above period and hence we do not see any reason to accept this contention of the Respondent. We further observe that had the Respondent passed on the benefit before 30.06.2019, he would have been investigated only till that date. Therefore, the period of investigation from 15.11.2017 to 30.06.2019 has been rightly taken by the DGAP for computation of the profiteered amount. 45. The Respondent has also claimed that the DGAP while calculating the profiteered amount has erroneously added a 5% additional amount on account of GST which has been collected from the customers and deposited with the Government of India with the monthly GST returns. This contention of the Respondent is not correct because the provisions of Section 171 (1) and (2) of the CGST Act, 2017 require that the benefit of reduction in the tax rate is to be passed on to the recipients/ customers by way of commensurate reduction in price, which includes both the base price and the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial, and statutory authorities to carry out their functions and duties The above delegation has been granted to this Authority after careful consideration at several levels and therefore, there is no ground for claiming that the present delegation is excessive. Since the functions and powers to be exercised by this Authority have been approved by competent bodies, the same are legal and binding on the Respondent. Therefore the claim of the Respondent that present delegation is excessive and contrary to the delegatus non potest delegare principle is not tenable. Further the Respondent has placed reliance on the cases of Hamdard Dawakhana and Anr. v. Union of India and Ors. AIR 1960 SC-554, District Collector, Chittoor v Chittoor Groundnut Traders Association AIR 1989 SC 989 and the judgement passed by Hon'ble High Court of Kerala dated 03.09.2014 in writ Appeal No. 917 of 2014 filed by Ultratech Cement Ltd. In this regard, it is observed that the facts of the above cases are different from the present case, therefore, they are not applicable in the instant case. 47. Based on the above facts as per the provisions of Sec 171 (1) read with Rule 133 (1) the profiteered amount is d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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