TMI Blog2020 (4) TMI 570X X X X Extracts X X X X X X X X Extracts X X X X ..... recipient/consumer or not. It is clear from the plain reading of Section 171 (1) mentioned above 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 DGAP's Report that there has been a reduction in the rate of tax from 18% to 5% w.e.f. 15.11.2017, vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 in the post GST period. It has been revealed from the DGAP's Report that the ITC which was available to the Respondent during the period July 2017 to October 2017 is 6.32% of the net taxable turnover of restaurant services 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 ITC was not available to the Respondent - Based on the above facts the profiteered amount is determined as ₹ 1,49,896/- as has been computed in Annexure-8 of the DGAP Report dated 17.09.2019. Accordingly, the Respondent is directed to reduce his prices commensurately in terms of Rule 133 (3) (a) of the above Rules. The Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation No. 46/2017-Central Tax (Rate) dated 14.11.2017 by way of commensurate reduction in prices, in terms of Section 171 of the CGST Act, 2017. The DGAP has reported that in the present case the summary sheet of the extent of profiteering was prepared by the Deputy Commissioner of State Tax, Pune. 2. The DGAP has reported that on receipt of the said reference from the Standing Committee on Anti-profiteering, a notice under Rule 129 was issued on 11.04,2019 (Annex-1), 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 furnish all supporting documents. The Respondent was also allowed to inspect the non-confidential evidence/ information from 22.04.2019 to 24.04.2019, which formed the basis of the investigation, which was not availed of by the Respondent. 3. The DGAP has further reported that the period covered by the current investigation was from 15.11.2017 to 31.03.2019 and that this Authority, vide its Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 171 (1) reads as 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. Thus, the legal requirement was abundantly clear that in the event of benefit of ITC or reduction in the rate of tax, there must be a commensurate reduction in the prices of the goods or services. Further, such a reduction could be in money terms only so that the final price payable by a consumer got commensurately reduced. This was the legally prescribed mechanism for passing on the benefit of ITC or reduction in the rate of tax to the consumers under the GST regime. Moreover, it was also clear that Section 171 simply did not provide a supplier of goods or services, any other means of passing on the benefit of ITC or reduction in the rate of tax to the consumers. 8. The DGAP in his report has mentioned that the Respondent had been dealing with a total of 200 items while supplying restaurant services before 15.11.2017. It was also seen that the Respondent had been dealing with a total of 227 items during the period from 15.11.2017 to 31.03.2019. On comparing the average selling prices as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,2641- was available to the Respondent from the period July 2017 to October 2017 which was 6.32% of the net taxable turnover of restaurant service amounting to ₹ 12,86,4531- supplied during the same period. The said ITC was not available to the Respondent with effect from 15.11.2017 when the GST rate on restaurant service was reduced from 18% to 5%. A summary of the computation of ratio of ITC to the taxable turnover of the Respondent has been furnished by the DGAP as per Table-A below:- Table-A (Amount in Rs.) Particulars July 2017 August 2017 September 2017 October 2017 Total ITC Availed as per GSTR-3B (A) 18178 20913 25754 16418 81264 Total Outward Taxable Turnover as per GSTR-3B (B) 270785 273731 522681 219256 1286453 The ratio of Input Tax Credit to Net Outward Taxable Turnover (C)= (NB) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 186.25 Base price with denial of input tax credit @6.32% (E=D*1.0632) 198.02 GST @ 5% (F= E*5%) 9.90 Commensurate price to be charged w.e.f. 15.11.2017 (G=E+F) 207.92 Selling price per unit as per Invoice No. 1/A-27319 dated 17.04.2018 220 Total profiteering (1=H-G) 12.08 13. The DGAP has further stated that based on the aforesaid pre and post-reduction in GST 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 15.11.2017 to 31.03.2019, as per the product-wise sales registers reconciled with the GSTR-1 and GSTR-3B Returns, the amount of net higher sale realization due to increase in the base prices of the service, despite the reduction in GST rate from 18% to 5% (with denial of ITC) or in other words, the profiteered amount came to ₹ 1,49,896/-(including GST on the b e profiteered amount). The details of the computation were furnished by the DG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing the amount of profiteering, has incorrectly considered the base price of SOTD as ₹ 105/- instead of ₹ 110/-; that since a wrong base price had been considered by the DGAP for the computation, it needed to be revisited since the impact of this flaw in the computation worked out to ₹ 8,545/-; that he wanted to submit a detailed working of the same along with copies of sale invoices issued by him in the month of November 2017, which reflect the correct base price at ₹ 110/-; that the revised calculation on this aspect was as per the Table below:- Summary of SOTD Base Price Impact (Amount in Rs.) Item Name Base Price as DGAP Correct Base Price Profiteering Amount as per DGAP Profiteering Amount as per Our Calculation Difference SOTD 6in Aloo Patty or 105 110 2,217.93 8.00 (2,209.93) SOTD 6in Chatpata or Ck 105 110 2,093.41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.5 5.06 Add: - GST@18% on Advertisement charged by Subway India 0.81 0.91 Total Invoice Value including GST 14.27 16.039 1.769% d. That the profiteered amount should be reduced by ₹ 41,559/- as per the month-wise impact of royalty on the profiteered amount, which is given below:- (Amount in Rs.) Month Profiteering Amount as DGAP Report Revised Profiteering Amount After Royalty Adjustment Difference due to Royalty Nov-17 12,123.15 8,658.59 (3,464.56) Dec-17 9,933.84 7,122.88 (2,810.97) Jan-18 14,643.61 10,479.40 (4,164.21) Feb-18 11,939.56 8,622.77 (3,316.79) Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 896/-. However, the DGAP had not taken into account the prices of those items where prices had been reduced as compared to optimal prices. Therefore, the profiteered amount should be calculated after taking into account the increase and decrease in the prices of his products. During the period November 2017 to March 2019, the total benefit passed to customers through reductions in prices was ₹ 84,631/-. Hence profiteered amount should be reduced further by ₹ 84,631/-. The item-wise summary has been furnished by the Respondent as is given below:- Summary of Items-Price Reductions (Amount in Rs.) Product Name DGAP Commensurate Benefit Base Price(Including Tax @ 5%) Actual Sale Price Benefit Passed to the customers 2 Cheese Add6in 40.19 40.00 (4.54) Cheese Add6in 20.09 20.00 (3.12) 12 Aloo Patty Sub 264.86 180.00 (763.71) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 Chicken Teriyaki Sub 174.99 155.00 (99.95) 6 ChknTikka Sub 165.50 125.00 (15,592.64) 6 ChknTikka Sub 165.50 145.00 (451.01) 6 ChknTikka Sub 165.50 155.00 (84.00) 6 Corn Peas Sub 141.78 125.00 (1,895.88) 6 Corn Peas Sub 141.78 135.00 (20.33) 6 GreenPeasPatty Sub 127.82 90.00 (189.12) 6 GreenPeasPatty Sub 127.82 125.00 (5.65) 6 HaraBharaKabab Sub 127.82 90.00 (340.41) 6 HaraBharaKabab Sub 127.82 125.00 (508.18) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cookie 37.83 30.00 (86.17) Fresh Value Meal (1N) 56.52 50.00 (3,094.97) Fresh Value Meal (IN) 56.52 55.00 (12.13) Med Fountain Drink 47.45 40.00 (349.93) Rst Chicken Salad 165.50 150.00 (961.02) Subway Club Salad 174.99 150.00 (599.75) Tuna Salad 174.99 150.00 (149.94) Turkey Chicken Slice 174.99 150.00 (199.92) Turkey Salad 174.99 150.00 (74.97) (84,631.09) g. That various issues, such as competition pricin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71 of the CGST Act shows that it provides as under:- (1). Any reduction in rate of tax on any supply of goods or services or the benefit of Input Tax Credit shall be passed on to the recipient by way of commensurate reduction in prices. (2). The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether Input Tax Credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him. (3). The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed. (3A) Where the Authority referred to in sub-section (2) after holding examination as required under the said sub-section comes to the conclusion that any registered person has profiteered under sub-section (1), such person shall be liable to pay penalty equivalent to ten per cent of the amount so profiteered: PROVIDED that no penalty shall be leviable if the profiteered amount is deposited wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the supplier) and he is obligated by Section 171 of the CGST Act, 2017 to ensure that the benefit of the reduction in the rate of tax and/ or benefit of ITC (which is a sacrifice of revenue from the kitty of Central and State Governments in a welfare state) was passed on to the recipients, and, if tracked down the entire value chain, to the end consumers. The welfare of the consumers who are voiceless, unorganized and scattered is the soul of this provision. This Authority has been working in the interest of consumers as the trade is bound to pass on the benefit of tax reduction and ITC which became available to it due to revenue sacrificed by the Government. This Authority does not, in any manner, interfere in the business decisions of the Respondent and hence the functioning of this Authority and the anti-profiteering machinery is within the confines of the four walls of the provisions of Section 171 of the CGST Act 2017 and in no way violates the tenets of Article 19 (1) (g) of the Constitution. Keeping the above observations in mind, we proceed to address the specific issues raised by the Applicants and the Respondent in the present case. 19. The Respondent has contended tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be considered while calculating profiteering. In this connection, it would be appropriate to refer to the definition of the profiteered amount given in the Explanation attached to Section 171 which has been quoted above. It is clear from the above explanation that an increase or decrease in the cost of a supplier or due to increase in royalty, advertisement charges has no ramification on the amount of profiteering which is computed in line with the provisions of Section 171 of the CGST Act. In case a supplier has not passed on the benefit of tax rate reduction by way of a commensurate reduction in prices on each of his supplies at the level of each invoice, anti-profiteering provisions will apply to him, irrespective of his costs or whether he makes profits or losses. In any case, the payments made by the Respondent on account of Royalty and Advertisement Charges are purely an internal agreement between the franchiser and the franchisee without any connection with the anti-profiteering provisions applicable to the franchisee, i.e. the Respondent. Hence, this contention of the Respondent is not accepted. 21. The Respondent has further contended that the DGAP while calculat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain supplies (to certain customers/ recipients) would be subtracted from the amount of any excess (more than commensurate) benefit passed on other products and the resultant amount would be determined as the profiteered amount. If this flawed methodology is applied the Respondent shall be entitled to subtract the amount of benefit which he has not passed on from the amount of such excess benefit which he has claimed to have passed, 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 appropriated or adjusted against the benefit of tax rate reduction that ought to accrue to another recipient or customer. Therefore, the contention of the Respondent is not accepted. 23. The Respondent has further contended that various factor like competitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son to accept this contention of the Respondent. We further observe that had the Respondent passed on the benefit before 31.03.2019, he would have been investigated only till that date. Therefore, the period of investigation i.e. from 15.11.2017 to 31.03.2019 has been rightly taken by the DGAP. 25. The Respondent has further contended that right to trade was a fundamental right guaranteed under Article 19 (1) (g) of the Constitution of India and the right to trade including the right to determine prices and such right which had been granted by the Constitution of India could not be taken away without any explicit authority under the law. Therefore, this form of price control was a violation of Article 19 (1) (g) of the Constitution of India. The above contention of the Respondent is not correct as this Authority or the DGAP has not acted in any way as a price controller or regulator as they do not have the mandate to regulate the same. The Respondent is free to exercise his right to practice any profession or to carry on any occupation, trade or business, as per the provisions of Article 19 (1) (g) of the Constitution. He can also fix his prices and profit margins in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .32% i.e. by more than what was required to offset the impact of denial of ITC, supplied as a part of restaurant services to make up for the denial of ITC post-GST rate reduction and on comparison of pre and post GST rate reduction prices of the items sold in respect of items sold. Accordingly, the quantum of profiteering has been computed as ₹ 1,49,8961- as per Annexure-8 of the DGAP's Report dated 17.09.2019, which is correct and can be relied upon. 28. Based on the above facts the profiteered amount is determined as ₹ 1,49,896/- as has been computed in Annexure-8 of the DGAP Report dated 17.09.2019. Accordingly, the Respondent is directed to reduce his prices commensurately in terms of Rule 133 (3) (a) of the above Rules. The Respondent is also directed to deposit an amount of ₹ 1,49,8961- in two equal parts of ₹ 74,948/- each in the Central Consumer Welfare Fund and the Maharashtra State Consumer Welfare Fund, as the recipients are not identifiable, as per the provisions of Rule 133 (3) (c) of the above Rules along with 18% interest payable from the dates on which the above amount was realized by the Respondent from his recipients till the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
