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TMI Blog2023 (8) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... of M/s. Le Reve Pvt. Ltd. had directed the DGAP to examine M/s. Subway Systems India Pvt. Ltd. for possible violation of Section 171 of the CGST Act, 2017 under Rule 133(5) of the CGST Rules, 2017 read with the provisions of Section 171 (2) of the CGST Act, 2017. 2. Para No. 39 of the Order No. 14/2020 passed in the case of M/s Le Reve Pvt. Ltd. is reproduced as follows:- "Furthermore, the DGAP vide his Supplementary Report dated 09.12.2019 has reported that M/s Subway Systems India Pvt. Ltd. (SSIPL) had also profiteered by charging royalty and advertisement expenses on the increased value of net taxable sales which was allowed to the franchisee (in this case, the Respondent) to offset the impact of denial of ITC. Further, M/s SSIPL was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rule 133 (5) (b) of the CGST Rules, 2017 since there are adequate reasons to believe that M/s Subway Systems India Pvt. Ltd. may have profiteered by charging the royalty and advertisement charges on the increased net taxable sales." 3. The DGAP vide his Report dated 26.02.2021 had inter-alia submitted the following points: - i. On receipt of the above reference on 13.03.2020, a notice under Rule 129 of the Rules was issued by the DGAP on 15.05.2020 to the Respondent. ii. The period covered by the current investigation was from 01.07.2017 to 31.03.2020. iii. In response to the notice dated 15.05.2020, the Respondent replied vide letters/e-mails dated 22.08.2020, 28.08.2020, 11.11.2020, 05.02.2021, 09.02.2021, 10.02.2021 and submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of his franchisees and such charges were also mutually (contractually) agreed with the franchisees. Advertisement charges also had nothing to do with individual prices of products sold by the franchisee or his ability to pass the discounts in terms of Section 171 of the CGST Act to customers. v. Further, the DGAP has stated that in the present case the main issues for determination were:- a. Whether the Respondent had profiteered by prescribing sales prices of the products to all his franchises, disproportionate to the loss of ITC and charging Royalty and Advertisement charges on such increased net taxable sales value from his franchises, who were denied the benefit of input tax credit, subsequent to reduction in the GST rate fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as seen from the sample Agreement between the Franchisee and the Franchisor, the following clause was reproduced as below:- "c. You will be solely responsible for all costs of building and operating the Restaurant, including, but not limited to, sales or use tax, goods and services tax, value added tax, excise tax or other similar tax (sales tax), other taxes, fees, customs, stamp duty, other duties, governmental registrations, construction costs and permits, equipments, furniture, signs, advertising, insurance, food products, labor, utilities, salaries, fees and rent................". The brief profile submitted by the Respondent stated that:- "Subway Franchisees are independent parties that wish to operate a Restaurant under a Subway ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 171 (1) of the Act were not applicable in the instant case. 4. This Commission has carefully considered the DGAP's Report dated 26.02.2021 and the documents/information placed on record and it has been revealed that the National Anti-Profiteering Authority (NAA) vide its Order No. 14/2020 dated 11.03.2020 passed in the case of M/s Le Reve Pvt. Ltd. had directed the DGAP to examine M/s Subway Systems India Pvt. Ltd for possible violation of Section 171 of the CGST Act, 2017 under Rule 133(5) of the CGST Rules, 2017 read with the provisions of Section 171(2) of the CGST Act, 2017. As per the directions of the NAA vide the above Order, the DGAP has submitted his Report. 5. Upon perusal of the Report of the DGAP, we observe th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of building and operating the Restaurant, including, but not limited to, sales or use tax, goods and services tax, value added tax, excise tax or other similar tax (sales tax), other taxes, fees, customs, stamp duty, other duties, governmental registrations, construction costs and permits, equipments, furniture, signs, advertising, insurance, food products, labor, utilities, salaries, fees and rent.........." Therefore, it is clear that the Franchisees were free to operate their business and were also liable to pay the taxes and obtain necessary permissions. 7. It is further observed that the rate of GST in respect of Royalty Services was 12% and the rate of GST on Advertisement Charges was 5% in case of Print media and 18% (other than ..... X X X X Extracts X X X X X X X X Extracts X X X X
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