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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 ..... ators and he was only collecting Royalty and Advertisement Charges from his Franchisees for selling proprietary products of Subway, on the net sales declared by individual Franchisees. The rate of Royalty and Advertisement Charges were mutually agreed with the Franchisee and the Respondent had nothing to do with the individual products sold to the customers. The Franchisee was only supposed to pay the Royalty Charges @ 8% and Advertisement Charges @ 4.5% as the case might be on the net sales. The Respondent did not have any control on the base price offered by his Franchisees to their customers and the amount of Input Tax Credit availed by his Franchisees - Further, the consideration for sale of products was not received by the Respondent from his Franchisee and it was retained by the individual Franchisees and accounted for as revenue in their individual books of accounts. It is clear that the Franchisees were free to operate their business and were also liable to pay the taxes and obtain necessary permissions. Since, there had been no reduction in the rate of tax in respect of the services i.e. Royalty Service and Advertisement Services provided by the Respondent, the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng authority for the products to be sold by the franchisee, provides his sale and purchase software to the franchisee and also charges royalty and advertisement charges on the increased base price charged by the franchisee. Therefore, this Authority finds no reason to differ with the finding of the DGAP that there may be chances of profiteering by M/s SSIPL in respect of charging of royalty and advertisement charges on the increased value of net taxable sales. Therefore, the Authority, in line with the provisions of Section 171 (2) of the CGST Act, 2017 and as per the amended Rule 133 (5) (a) of the CGST Rules 2017 directs the DGAP to further examine M/s Subway Systems India Pvt. Ltd. for possible violations of the provisions of Section 171 of the CGST Act 2017 and to submit his report as per the provisions of Rule 133 (5) (b) of the CGST Rules, 2017 since there are adequate reasons to believe that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nchises, 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 from 18% to 5% (on restaurant service) w.e.f. 15.11.2017 with the condition that the ITC on the goods and services used in supplying the service was not taken as per Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 and if so, b. Whether the Respondent had passed on such benefit to the recipients, in terms of Section 171 of the CGST Act, 2017. vi. The DGAP has further submitted that sub-section (1) of Section 171 of the CGST Act states that- Any reduction in rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in prices . 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% for other than Print media since implementation of GST and there had been no change in the rates of tax in respect of these services. Therefore, the provisions of Section 171 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit of additional ITC or reduction in the rate of tax by way of commensurate reduction in the prices of the goods or services supplied by him. Hence, it is the responsibility of the Respondent to comply with the provisions of Section 171 of the CGST Act, 2017. Therefore, the contention made by the Respondent is not correct. x. The DGAP in view of the above has concluded that both the conditions envisaged under 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 that the Respondent was working ..... X X X X Extracts X X X X X X X X Extracts X X X X
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