NO ANTI-PROFITEERING BY SUBWAY FRANCHISEE

[Dr. Sanjiv Agarwal]

In one of the recent order dated 27.09.2018 issued by National Anti-profiteering Authority (NAA) in the case of Jijrusha N. Bhattacharya v. N.P. Foods (Franchisee Subway India)  (2018) 9 TMI 1763 (NAA),   it has been ordered that there was no anti-profiteering involved on sale of Hara Bhara Kabab (product) sold by the subway franchisee.

In the instant case, the respondent was a franchisee of ‘subway’ engaged in supply of breads / sandwiches. The applicant filed a complaint that the Respondent had not passed on the benefit of reduction in the rate of GST in restaurant service, when he had purchased i.e., ‘6 Hara Bhara Kabab Sub’ (product). It was also alleged that the Respondent had increased the base price of the product from ₹ 130/- to ₹ 145/- when the GST was reduced from 18% to 5% and that the Respondent had indulged in profiteering in contravention of the provisions of Section 171 of CGST Act, 2017.

It was submitted by the respondent that the Government had disallowed Input Tax Credit (ITC) on the purchase of material used in the restaurant service w.e.f. 15.11.2017 and hence it had increased the base price of his products after the change in the GST rate from 18% with ITC to 5% without ITC. It had also submitted copies of the bills, audited balance sheet, GSTR-1 & GSTR-3B and sales register in support of his contention.

The DGAP confirmed in his report that the rate of GST on the restaurant service had been reduced from 18% to 5% with the condition that ITC on the goods and services used in supplying the service will not be allowed vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 with effect from 15.11.2017. The DGAP had also stated that on scrutiny of the GSTR-1, GSTR-3B and the ITC Register submitted by the Respondent, it was observed that ITC amounting to ₹ 13,01,759/- was available to the Respondent during the period from July, 2017 to November, 2017 which came to approximately 11.80% of the taxable value of the service amounting to ₹ 1,10,29,612/- supplied during the same period but when the tax was reduced from 18% to 5%, the said ITC was not available to the Respondent. The DGAP has further stated that the analysis of the invoice-wise outward taxable supplies for the period w.e.f. 15.11.2017 to 28.02.2018 revealed that the Respondent had increased the base prices ranging from 6% to 17% of the different items supplied as a part of restaurant service to make good the loss of ITC post GST rate reduction.

The Authority observed from facts that Respondent had increased the base price of its products to make good the loss which had occurred due to denial of ITC post GST rate reduction. The Respondent had increased the average base price by 12.14% to neutralize the denial of ITC of 11.80% and such increase is commensurate with the increase in the cost of the product on account of denial of ITC. Therefore, the allegation of not passing on the benefit of rate reduction was not established against the Respondent.

The Authority concluded that the Respondent had not contravened the provisions of Section 171 of the CGST Act, 2017 and hence there was no merit in the application filed by the Applicant and the same was accordingly dismissed. Interestingly, the amount involved was a meager sum of few hundred rupees.