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TMI Blog2020 (12) TMI 487X X X X Extracts X X X X X X X X Extracts X X X X ..... eir e-mails dated 15.11.2017 and 17.11.2017 respectively had filed complaints alleging that though the rate of Goods and Services Tax (GST) on Restaurant Services had been reduced from 18% to 5% w.e.f. 15.11.2017, the Respondent had increased the prices of the products which were being sold by him and had maintained the same prices which he was charging before the above reduction. They had also claimed that the Respondent had indulged in profiteering in contravention of the provisions of Section 171 of the CGST Act, 2017 and hence appropriate action should be taken against him. 2. The above applications were examined by the Standing Committee on Anti-Profiteering and were referred to the DGAP vide the minutes of its meetings dated 29.11.2017 and 20.12.2017 for detailed investigation under Rule 129 (1) of the CGST Rules, 2017. 3. The DGAP had called upon the Respondent vide notice dated 29.12.2017 to submit reply on the allegations levelled by the Applicants No. 1 to 4 and also to suo moto determine the quantum of benefit which he had not passed on to the consumers during the period between 15.11.2017 to 31.01.2018. The above Applicants were given an opportunity to inspect the non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1930. He had further claimed that any attempt to regulate the sale prices of the products being sold by him would violate his right to carry on trade as per Article 19 (1) (g) of the Constitution and the provisions of Section 171 were not similar to the laws framed for controlling prices as per List Ill of Schedule VII of the Constitution. d. That the cost of food and beverages had gone up due to the abrupt denial of ITC which had constrained him to increase the base prices to negate this impact and such increase was also not commensurate with the increase in the costs. He had also contended that the cost of the restaurant services had gone up by at least 15%. He had further contended that he could not avail ITC worth Rs. 8.70 Crore for the months of July to October, 2017 and could avail it only after 15.11.2017. He had also submitted that the quantum of ITC not shown in the GSTR-3B Returns would increase from Rs. 8.70 Crore to Rs. 9.33 Crore and would further increase by Rs. 50 Lakh after all the inward supplies were accounted for which would prove that he had not profiteered. He had further contended that prices of some premium products had been reduced from 11% to 22%. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 18% to 5% w.e.f. 15.11.2017 with the condition that the benefit of ITC would not be available on this service. 7. The DGAP had also submitted that the Respondent was selling 1,844 products and after comparing the price lists published before and after 15.11.2017 when the rate of tax was reduced, which was indicated in Annexure-32, the Respondent had increased the base prices in respect of 1,774 (96.20%) products. He had further submitted that although the Respondent had charged GST @ 5% on and after 15.11.2017 but due to increase in the base price the customers were forced to pay the same price which was being charged from them before 15.11.2017 whereas they should have been charged the lower price after commensurate reduction due to reduction in the rate of tax and hence they were denied the benefit which had become due to them. 8. The DGAP had made detailed calculation of profiteering vide Annexure-37 of his report. He had also compared the ITC which was available to the Respondent till 31.10.2017 with the outward taxable supplies made till the above date. He had calculated the ITC from the period from 01.07.2017 to 31.10.2017 as the details of closing stock and ITC on such s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was reduced from 18% to 5% w.e,f. 15.11.2017 and the benefit of ITC was not available to the Respondent w.e.f. the above date. The DGAP had calculated the ratio of denial of ITC as under.- (Amount in Rs.) Particulars Jul, 2017 Aug., 2017 Sept., 2017 Oct., 2017 Total ITC Availed as per GSTR-3B (A) 5,40,24,699 8,00,76,997 9,10,56,885 11,08,97,125 33,60,55,706 Add: ITC of July, 2017 to October, 2017 availed in the month of November, 2017 GSTR-3B (Anex-34) (B) 68,74,072 1,36,41,705 2,01,97,587 4,43,97,474 8,51,10,837 Less: Tax on Inter unit branch transfer as per Sales register (C) 1,59,87,269 2,12,74,094 1,77,50,160 1,80,18,920 7,30,30,433 Less: Input Tax Credit pertaining to prior July, 2017 but availed in July, 2017 to October, 2017 GSTR-3B (Annex-35) (D) 62,71,753 4,55,180 4,51,567 13,49,417 85,27,917 Net Input Tax Credit available for the period July, 2017 to October, 2017 (E) = (A+B-C-D) 3,86,39,749 7,19,89,428 9,30,52,745 13,59,26,262 33,96,08,183 Total Outward Taxable Turnover as per GSTR-1 (F) 1,03,58,60,891 1,07,44,33,448 99,87,33,437 1,10,98,64,117 4,21,88,91,893 Less: Inter unit branch transfer included in B23V sale as per Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,91,280 Total: 7,49,27,786 13. The above Report was considered by this Authority in its sitting held on 05.07.2018 and it was decided to hear the interested parties by granting hearing on 24.07.2018 during which the Applicants No. 1 to 4 did not appear. The DGAP was represented by Sh. Akshat Aggarwal, Assistant Commissioner and Sh. Bhupinder Goyal Assistant Director (Costs). Sh. Suresh Lakshminarayan, Chief Finance Officer, Sh. Dinesh Agarwal, CA and Sh. Mayank Jain, Advocate appeared for the Respondent. 14. The Respondent had filed detailed written submissions on 24.07.2018, 09.08.2018, 16.08.2018 and 22.08.2018 and stated that the DGAP had grossly erred in applying the provisions of Section 171 of the CGST Act, 2017 which stated as under:- "Anti-Profiteering Measure 171. (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." He had also claimed that the DGAP had conceded in his Report that the Respondent had charged GST @ 5% to his customers and therefore, commensurate benefit had been passed on to them. It had also been claimed by the Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess transaction Black's Law Dictionary The word profit connotes the idea of pecuniary gain Ravanna Subanna vs G.S. Kaggeerappa (AIR 1954 SC 653) = 1954 (5) TMI 33 - SUPREME COURT The financial gain in a transaction or enterprise; the excess of returns over outlay Shorter Oxford English Dictionary The Respondent had also contended that the DGAP had only considered the impact of ITC denial and had failed to consider other factors such as increase in the electricity bills, fuel costs, variable rent, royalty and commissions etc. He had further contended that as per WPI, prices of food articles had risen by 6.32% and that of fuel & power by 4.69% during the same period, however, the impact of ITC was considered. The Respondent had also claimed that the increased input prices were considered as a mitigating factor in the order dated 04.05.2018 passed by this Authority in the case of Kumar Gandharv & others v. KRBL Limited = 2018 (5) TMI 760 - NATIONAL ANTI-PROFITEERING AUTHORITY, but in spite of furnishing evidence no other factor was taken in to consideration. He had further claimed that while determining cost of a product, tax was just one component and the other factors had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r:- 1. Profiteering Any conduct or practice involving the acquisition of excessive profits Mount vs Welsh To seek or obtain excessive profits, one who is given to making excessive profits Law Lexicon The taking advantage of unusual or exceptional circumstances to make excessive profits Black's Law Dictionary Make or seek to make an excessive profit Shorter Oxford English Dictionary Profiteering would mean taking advantage of unusual or exceptional circumstances to make excessive profits. Islamic Academy of Education vs State of Karnataka The Respondent had further pleaded that he had not made excessive and/ or unreasonable profit as he was hardly making profit, as the tax incremental cost computed by the DGAP was 9.11% as against the incremental price margin of 9.43% and hence he had benefited only by 0.32%. He had also averred that the increased tax cost warranted revision in the prices to offset the tax cost and in case he increased the prices by Rs. 100, he would only get Rs. 90.28 after paying out royalty, variable rent and the outside services and therefore, the prices must be at least increased by 10.09% [9.11*100/0.902] and not by 9.11% as had been ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had also pleaded that during the period between July-October 2017, he had made inter-unit branch transfers of Rs. 49,26,86,384/- on which GST of Rs. 7,30,30,443/-was paid which had been wrongly excluded while computing the ratio of ITC denial to taxable turnover, being mere book entries, as he had suffered incremental cost on the mark up price. He had further pleaded that he had availed of ITC of Rs. 6,46,90,974/- on the inward supplies of Rs. 47,15,04,275/- which were used to make outward inter-unit branch transfers valued at Rs. 50,90,43,209/- on which GST of Rs. 7,03,22,927/- was paid and thus, he had paid additional GST of Rs. 56,31,954/- on inward supplies which had been denied to him by the DGAP. He had also alleged that the period of investigation had been arbitrarily taken from 1 July 2017 to 31 October 2017 on the ground that the break-up of the closing stock of inputs and the ITC on the closing stock as on 14 November 2017 was not available in the GSTR-3B Return of November 2017 and the date wise outward taxable turnover for the month of November 2017 was not provided by the Respondent to compute the taxable turnover for the period between 1 November 2017 - 14 November 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e price + 5% GST when the 5% GST had already been deposited in the Government account and not retained by him and hence, no profiteering could be alleged on it. He had also admitted that on the basis the above submissions, the amount of alleged profiteering stood reduced to Rs. 3,17,03,988/-. 22. The Respondent had also contended that the relevant provisions of the CGST Act, 2017 or the CGST Rules, 2017 did not prescribe the methodology to be followed by the registered suppliers in order to comply with the anti-profiteering requirements. He had further contended that Rule 126 of the above Rules authorised this Authority to determine the Methodology and Procedure to decide whether the reduction in the rate of tax or the benefit of input tax credit had been passed on by the registered person to the recipients by way of commensurate reduction in prices, however, no such methodology had been notified by it till date. He had also pleaded that Section 171 and Rule 122-137 being part of a taxing statute could not be enforced in the absence of machinery provisions for computation of the profiteered amount as per the law settled in the cases of CIT v. B. C. Srinivasa Shetty (1981) 2 SCC 46 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich were dated on or before 14 November 2017 but accounted in the books of account on or after 14 November 2017, he should be allowed to avail the same. He had further stated that he was barred from taking benefit of ITC on inward supplies received after 14 November 2017 as per Section 12 and 13 of the CGST Act, 2017 which could not be construed as curtailing his vested right of availing the ITC for the inward supplies received on or before 14 November 2017. He had also cited the cases of Eicher Motors Ltd. v. Union of India 1999 (1) SCR 295 = 1999 (1) TMI 34 - SUPREME COURT, Samtel India Ltd. v. Commissioner of Central Excise (2003) 11 SCC 324 = 2003 (3) TMI 121 - SUPREME COURT and Binani Cement Ltd v. Commissioner of Central Excise 2002 (143) ELT 577 (Tri. - Del.) = 2002 (2) TMI 221 - CEGAT, NEW DELHI in his support. 25. The Respondent had also alleged that the DGAP had claimed that the gross price had remained identical for the period up to 14 November 2017 and w.e.f. 15 November 2018 he had resorted to profiteering, however, it was an undisputed fact that the Respondent had revised his base prices both upward as well downward due to denial of ITC therefore, the gross prices ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 to 14 November 2017 availed in the month of February 2018 1,95,426 1,43,501 2,72,150 3,50,443 6,91,633 16,53,153 Add: ITC of July 2017 to 14 November 2017 availed in the month of March, 2018 6,73,269 4,75,593 8,51,747 4,34,186 5,87,834 30,22,630 Less: Tax on inter unit branch transfer as per Sales register (C) 1,59,87,269 2,12,74,094 1,77,50,160 1,80,18,920 1,33,68,224 8,63,98,667 Add: Incremental tax cost on inter-unit branch transfer 9,22,289 7,45,701 9,05,270 25,73,392 4,85,302 56,31,954 Net input-tax credit available for the period July, 2017 to October, 2017 (E)=(A+B+C-D) 4,73,95,583 7,50,91,460 9,82,35,750 14,48,45,720 6,11,47,417 42,67,15,930 Total Outward Taxable Turnover as per GSTR-1 (F) 1,03,58,60,891 1,07,44,33,448 99,87,33,437 1,10,98,64,117 50,77,76,041 4,72,66,67,934 Less: Inter unit branch transfer included in B23V sale as per Sale Register (G) 11,85,53,210 12,96,09,631 11,85,07,995 12,60,15,548 7,75,04,820 57,01,91,204 Net Outward Taxable Turnover for the period July, 2017 to October, 2017 (H)=(F-G) 91,73,07,681 98,48,23,817 80,02,25,442 98,38,48,569 43, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent's contention that mere charging of the reduced GST rate of 5% demonstrated the absence of profiteering, as Section 171 required the passing on the benefit of reduction in the GST rate by way of a commensurate reduction in prices and in this case the prices were not so reduced which amounted to profiteering. He had further contended that Section 171 required that any reduction in the rete of the tax or the benefit of ITC which had accrued to a supplier must be passed on to the customers as both were the concessions given by the Government and the suppliers were not entitled to appropriate them and in case the customers were not identifiable, the amount so collected by the suppliers was required to be deposited in the Consumer Welfare Fund (CWF). He had also argued that commensurate reduction could obviously only be in absolute terms, so that the final price payable by a consumer got reduced. He had further argued that Section 171 did not provide a supplier any other means of passing on the benefit of ITC or reduction in the rate of tax to his consumers. He had also pleaded that increase in the cost of inputs including royalty, variable rent and other expenses was a factor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of denial of ITC to net turnover. He had further maintained that the output tax liability on the inter-unit branch transfer turnover had been excluded from the ITC on the one hand and the inter-unit branch transfer turnover had been excluded from the outward taxable turnover on the other hand which neutralised the impact of branch transfer transactions on the computation. He had also informed that there was reversal of ITC on the closing stock of inputs and capital goods as on 14.11.2017 made by the Respondent which was not available in the GST-3B Return of November, 2017. The DGAP had also alleged that the Respondent had submitted details of SKU wise summary sales for the period between 1-14 November, 2017 but had not submitted invoice wise B2C outward taxable supplies pertaining to this period, therefore, net taxable turnover could not be computed on the basis of summary sales. The DGAP had also alleged that during random check of the invoices on which ITC was availed in November, 2017 the credit was taken by the Respondent without being in possession of these invoices on the date of availing ITC, in contravention of the provisions of Section 16 (2) (a) of the CGST A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TRAN-I Statement as well as per his GSTR-3B Returns for the period between 01.07.2017 to 14.11.2017 which was also required to be passed on to the consumers. Perusal of the Report filed by the DGAP nowhere showed that he had gone in to the cost component of the base price fixed by the Respondent as he had neither sought details of the cost of the inputs used by the Respondent nor of his profit margins and therefore, the allegation of computation of base price by the DGAP made by the Respondent was completely wrong. The DGAP had only tried to investigate whether the benefits of reduction in the rate of tax and the ITC had been passed on to the customers by the Respondent or not as per the provisions of Section 171. It was absolutely clear even from a cursory perusal of the provisions of Section 171 that they were completely unambiguous and clear and hence there was hardly any scope for misinterpretation of the marginal note mentioned as 'Anti-Profiteering Measures' and there was no justification in construing the same in the manner which had been suggested by the Respondent. Therefore, it was respectfully submitted that the law settled in the cases of Commissioner of income Tax v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the benefits which were granted by the Government from the public funds to the consumers. The contention of the Respondent that the increase in the prices of food articles, electricity, fuel, variable rent, royalty and commissions etc. was not considered by the DGAP while calculating the profiteered amount was untenable because the DGAP had mandate to only examine whether the benefit of tax reduction or ITC had been passed on or not. He could not go into the factors which were taken in to account by the Respondent while he fixed his prices. The order passed in the Case of Kumar Gandharv v. KRBL Ltd. on 04.05.2018 by this Authority pertained to Basmati Rice in the case of which the GST was increased from 0% to 5% and hence there had been no reduction in the rate of tax and hence the provisions of Section 171 were not attracted, which was not the case in respect of the Respondent as the rate of tax had been reduced. 35. The Respondent had wrongly claimed that the DGAP had assessed that the Respondent had made a profit of Rs. 24,81,33,857/- due to the average increase in the base prices by 10.45%. The claim made by the Respondent was incorrect as the DGAP had taken the above amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be 13.82% or 12.82% respectively which would show that he had not profiteered. The Respondent had not given any reason to explain why the above months should be picked up selectively. The only reason for the above contention appeared to be that the Respondent wanted to hide the fact that he had increased his prices more than the denial of benefit of ITC. The Respondent could not claim ITC after the Notification was issued on 14.11.2017 for the supplies made during the months of July to October, 2017 during the months of December 2017 to March 2018 and hence the DGAP had rightly denied him the benefit of ITC of Rs. 1,15,88,010/-. He had further rightly denied him the benefit of ITC of Rs. 85,27,917/- as the tax invoices in respect of the supplies made during the period of July to October, 2017 were received by the Respondent late. The Respondent must have been prudent enough to make necessary provisions for payment of rent to avoid loss of ITC which he had failed to do. 38. It was also revealed from the Report of the DGAP that the output tax liability on inter-unit branch transfer turnover had been excluded from the ITC on the one hand and the inter-unit branch transfer turnover h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re-32 further proved that the Respondent had arbitrarily increased his prices without taking in to account the audited financial statements and they were increased solely with the malafide intention of appropriating the benefit which was to be passed on to the general public. The Respondent had himself admitted that he had made net marginal gain of 2.81% and the total profiteering was to the tune of Rs. 3,17,03,988/- After this admission the Respondent could hardly claim that the price increase was based on the audited statements. 40. The Respondent had also claimed that no methodology had been prescribed under the CGST Act or the Rules which could be followed by the suppliers in order to comply with the anti-profiteering measures and this Authority had also not notified such methodology under Rule 126 of the CGST Rules, 2017. In this connection it would be pertinent to mention that this Authority in exercise of the powers conferred on it under Rule 126 of the above Rules had already promulgated the "Methodology and Procedure" vide it's Notification dated 28.03.2017 which had been prominently displayed on its website. It was regrettable that the Respondent was raising this issue w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent had also pleaded that he was not aware at what level the price was to be reduced. In this connection the provisions of Section 171 were very clear which stated that both the benefits had to be given in the case of every supply. Therefore, the benefit was required to be passed on at the SKU level of each product as the recipient would be different in each supply of the product. Every consumer was entitled to receive the above benefits and no one could be denied these benefits on the ground that they should be passed on at the entity level, State level or locational level or the product level. The Respondent had no discretion to deny these benefits on any ground or to grant them on the basis of his own convenience. There was also no problem in settling the issue of commensurate reduction in the price which could be calculated after taking in to account the reduction in the rate of tax or grant of benefit of ITC both of which could be easily determined in the absolute figures and hence there should be no problem in reducing the prices commensurately, therefore, there was no question of its assessment as a trend or in percentage terms. The provisions of Section 171 were only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argins, which being in contravention of the provisions of Section 171 of the above Act was liable to the consequences prescribed under Rule 133 of the above Rules. 44. The Respondent had also claimed that after 15.11.2017 the input tax paid by him had become a cost which needed to be factored in the price. This contention of the Respondent was frivolous as it appeared that he had no details of the input tax available to him on 15.11.2017 when he had increased the prices more than the denial of benefit of ITC. The Respondent had been duly given the benefit of transitional credit and therefore, he should not have any grievance on this account. 45. The claim of the Respondent that the calculation of profiteering had been done on aggregate or consolidated data and not on the absolute terms was wrong as such calculation had been done through a very comprehensive exercise carried out by the DGAP as had been shown in Annexures-32 to 37, the veracity of which could not be challenged. The amount of profiteering had been meticulously assessed on each and every product by the DGAP and therefore, the same could be fully relied upon. The calculation of ratio of denial of ITC had been worked o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion should not be imposed on him. 48. The Respondent had filed Writ Petition No. 3492/2018 before the Hon'ble High Court of Bombay against the order dated 16.11.2018, passed by this Authority in the present proceedings, which vide its Judgement dated 01.10.2019 had remanded the case back to this Authority and directed the Respondent to appear before this Authority on 25.11.2019. However, the Respondent immediately thereafter had filed another Writ Petition No. 3536/2019 before the Hon'ble High Court of Bombay challenging the vires of Rule 126 of the CGST Rules, 2017 in which the Hon'ble High Court vide its order dated 18.12.2019 had directed that "if the Petitioner makes a request for an adjournment, the Respondents-Authority will grant a suitable date in the pending proceedings beyond the next date." Vide its order dated 30.01.2020 this Authority was again directed by the Hon'ble High Court to adjourn the proceedings beyond the next date. This Authority had filed Transfer Applications No. 290-292/2020 before the Hon'ble Supreme Court for transfer of the above Writ Petition to the Hon'ble High Court of Delhi as a number of similar Writ Petitions were pending before it. The Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Authority, its constitution was prescribed under Rule 122 of the CGST Rules. This Authority comprised of the Chairman and Technical Members but there was no Judicial Member. The constitution of this Authority was having all trappings of a Tribunal which was vitiated as per the judgments passed in the cases of L. Chandra Kumar v. Union of India 1997 (92) ELT 318 (SC), Union of India v. R. Gandhi 2010 (261) ELT 3 (SC), Madras Bar Association v. Union of India 2014 (308) ELT 209 (SC), S. P. Sampath Kumar & Ors. v. Union of India 1987 (27) ELT 1 (SC), S. Manoharan v. The Deputy Registrar and Ors. 2015-2-LW-343 and the Order dated 20.09. 2019 passed by the Hon'ble High Court of Madras in W. P. 21147/2018. V. That this Authority was competent to examine vires of the subsidiary legislations as has been held in Paragraph 91 in the case pf L. Chandra Kumar supra. Consequently, as the constitution of this Authority was prescribed under Rule 122 of the CGST Rules, it was competent to examine vires thereof and therefore, the same should be examined by this Authority and held to be illegal in light of the above decisions. VI. That comparison of this Authority with other authorities was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was 9.43% as per his own assessment and hence he has profiteered by 0.32% which demolishes his entire defence of having not profiteered". Attention of this Authority was invited to the Table at Para 16, wherein the figure 9.43% was taken from the Table. The Respondent had submitted that his effective margin was 9.43% after considering his incremental revenue and incremental cost. If the ITC loss computed by the DGAP @ 9.11% was taken as sacrosanct, then the gain would be meagre 0.32%. However, this ITC loss @ 9.11% computed by the DGAP was disputed in Para 27 where the Respondent has claimed historical ITC loss @10.27%. Attention of this Authority was also invited to the Table at Para 20 of the order where the Respondent has projected net loss in the range of 0.67% to 2.81% of the turnover. Thus, observation of this Authority at Para 36 was factually wrong. X. That in Para 37 of the order dated 16.11.2018, this Authority has observed that "It is also apparent from the record that the DGAP has calculated the ratio of ITC to the total taxable turnover pertaining to the period between July 2017 to October 2017 as 9.11% on the basis of GSTR-3B returns filed by the Respondent. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Authority was required to determine the 'methodology' and 'procedure for determination of the commensurate effect on the prices due to reduction in the tax rate or increase in the benefit of input tax credits availed by the Respondent. Methodology referred to the objective criteria and standards which would be applied to the case. In an order dated 09.09.2019 passed by the Hon'ble High Court of Bombay in Vanashakti Public Trust v. State of Maharashtra (W. P. No. 118/2015), the Hon'ble High Court has held that objective criteria proposed to be adopted has to be made known to the parties. The Hon'ble Court has further observed that unless the process by which a decision was proposed to be taken was made known, the person whose views were solicited would be clueless. XIV. That this Authority has notified procedure, but the Respondent was unaware about framing of methodology which might have been prescribed or determined. He has not been provided any computation methodology till date. He has merely furnished the information sought by the DGAP from time to time without knowing as to how the information was being used, interpreted and applied. XV. That the actual loss of the ITC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h only after he has been provided with the adequate response on the issues raised in the above submissions including the following:- (i) Whether this Authority would take cognisance of unsubstantiated complaints not referred by the Standing Committee on Anti-profiteering? Out of four complainants, only one pertaining to 'McCafé Reg Latte' was referred by the Standing Committee and even that complaint was not in the prescribed format. (ii) What was 'supply under investigation' i.e. 'McCafé Reg Latte' or 'Restaurant service'? (iii) If the 'supply under investigation' was 'Restaurant service', would profiteering be decided for each 'food item or 'invoice' or 'customer' or 'store' or 'state' or at 'entity' level? (iv) What was the period of profiteering under investigation? (v) Whether the determination of profiteering would be limited to only the store where the product complained off was sold or would be extended to all the stores of the Respondent? (vi) Whether authority would consider the actual loss of ITC and actual incremental revenue during the period of profiteering under investigation? (vii) Whether authority will consider the incremental cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpreted to include costs including tax/ ITC, failing which it will be a violation of Article 19(1)(g) of the Constitution of India: i. That the Constitution of India under Article 19 (1) (g) guaranteed fundamental right to carry business and trade to the shareholders and promoters of the Respondent. The Hon'ble Supreme Court of India has held time and again held that the word "business" occurring in Article 19 (1) (g) of the Constitution was to protect all activities done for profit and not for pleasure or charity. Reliance in this regard has been placed on the judgment of Sodan Singh & Ors. V. New Delhi Municipal Committee & Ors. (1989) 4 SCC 155. ii. That any person conducted business for realizing profit. Profit was nothing but a financial gain, being the difference between the amount earned and the amount spent in buying, operating or producing something or in simpler terms, the surplus over costs. Any law which ignored cost or failed to protect profit violated the fundamental right of the citizens enshrined under Article 19 (1) (g). iii. That the fundamental right enshrined in Article 19 (1) (g) could be reasonably restricted in terms of the prescription provided i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 171. In various matters, this Authority has specifically refused to consider any increase in cost. This approach was also adopted in the order dated 16.11. 2018, which was set aside by the Hon'ble High Court of Bombay which has resulted in the present remand proceedings. As explained supra, costs other than tax were also to be accounted for, which has admittedly not been done in the present case, rendering the present matter plainly unconstitutional. b. Constitution of this Authority under delegated legislation is bad in law: i. That constitution of this Authority under Rule 122 of the CGST Rules suffered from the vice of excessive delegation. Section 171 (2) provided that the Central Government may, on recommendation of the GST 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 prices of the goods or services or both supplied by him. This Authority was not only vested with the power to investigate cases but also with ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Report and was also provided an opportunity of hearing by this Authority. Rule 133 of the CGST Rules further provided for return of the amount to the recipient. Therefore, this Authority was discharging adjudicatory and quasi-judicial functions with grave consequences as also possibly a civil death as it decided a legal issue of profiteering under Section 171 of the Act with a scientific examination of evidence, facts and provisions of law with appropriate consequences. Seen in this context, this Authority was deciding a case or a dispute between two or more persons and hence, it was a Tribunal in the eyes of law. As a matter of fact, the conduct of this Authority has been to give a cause title to each matter styled as "DGAP vs. XXX'. Hence, this Authority is nothing but a Tribunal in the eyes of law. Reliance in this regard has been placed on the case of Jaswant Sugar Mills Ltd. v. Lakshmichand & Ors. AIR 1963 SC 677 and Columbia Sportswear Company v. Director of Income Tax Bangalore (2012) 11 SCC 22. ii. Being a Tribunal with the trappings of a court, this Authority should act in an impartial manner and justice should not only be dispensed but also appear to have been dispen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n". That a provision which granted excessive powers to the delegate sans any prescriptions in the statute was unconstitutional and bad in law, Reliance has been placed in this regard on the case of K. T. Moopil Nair v. State of Kerala (1961) 3 SCR 77; Devi Das Gopal Krishnan and Ors. v. State of Punjab and Ors. (1967) 3 SCR 557; Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving Mills, Delhi and Anr. (1968) 3 SCR 251; and K. T. Plantation Pvt. Ltd. and Anr. v. State of Karnataka (2011) 9 SCC 1. In the present case, no guidelines for exercise of power have been laid down in the statute i.e. the CGST Act. Therefore, the delegate, i.e. this Authority has uncontrolled power which was manifestly arbitrary. iii. That on the issue of prescribing a methodology, a useful recourse could be made to analogous anti-profiteering provisions in Malaysia and Australia, which indicated that the methodology should be statutorily prescribed. Under the methodology prescribed in Malaysia and Australia, for the determination of the price, several commercial and other economic factors were taken into account which included changes in the cost of inputs and utilities etc. There was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Standing Committee must examine the "accuracy" and "adequacy" of the evidence provided in the application (complaint) and determine whether there was prima facie evidence to support the claim of the applicant (complainant). In the present case, it was apparent that no evidence has been provided by the complainants in their applications other than the two identical invoices. Therefore, there was no evidence in the present case which would enable the Standing Committee satisfaction of the requirement of Rule 128 and 129 and therefore entire proceedings were unsustainable in law. F. INVESTIGATION REPORT GOES BEYOND THE REFERENCE MADE BY THE STANDING COMMITTEE AND THEREFORE UNSUSTAINABLE: i. That in terms of Rule 129, upon receiving reference of the matter from the Standing Committee, the DGAP was empowered to conduct investigation and collect evidence. As the power to conduct investigation and collect evidence flowed from the matter referred by the Standing Committee, such investigation could not go beyond the matter referred by the Standing Committee. The description of the goods or services in respect of which the proceedings were initiated by DGAP was therefore, restricted un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... food and/or drink for human consumption was one single supply of "restaurant service". The Investigation Report dealt with 1800 products, whereas scope of investigation as per initiation notification dated 29 December 2017 was supply of "restaurant service" and therefore, even Investigation Report itself was contrary to the scope of investigation determined by the DGAP. vi. That this Authority itself in its order dated 29 October 2018 in the Case No. 11/2018 (Yum Restaurants India Private Limited & Ors.) has held that in the absence of credible evidence re a particular product, the investigation would not be meaningful and consequently, dismissed the proceedings therein. As a corollary therefore, where the DGAP was not presented with evidence then any expansion thereto would be ex-facie illegal. Hence, for this reason also, the suo moto expansion of the investigation in the present case was illegal. vii. Reference has also been made to the order dated 26 September 2019 passed by this Authority in Case No. 47/2019, wherein although the ITC was consolidated for all real estate projects, the determination of profiteering was done for the project in question in which the Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hodology for determining/quantifying profiteering have not been addressed in it. Failure to discharge statutory duties under Rule 126 of the CGST Rules to determine a methodology was bad in law and manifestly arbitrary. This Authority has in certain instances claimed that no methodology could be prescribed by it. The failure to formulate and communicate the method has resulted in the breach of natural justice and tainted the proceedings as lacking in fairness and transparency as has been held by the Hon'ble High Court of Bombay in the order dated 01 October 2019. Sans a methodology, the proceedings before this Authority have denied a full and effective opportunity to defend himself to the Respondent. Therefore, the proceedings were ultra vires of Articles 14, 19 (1) (g) and 265 of the Constitution. ii. That the absence of methodology has also resulted in this Authority taking an arbitrary and contradictory stance on identical issues from matter to matter as could be evidenced from order dated 05 September 2018 (N. P. Foods) and order dated 31 January 2019 (Dominos). The arbitrary and contradictory basis adopted by this Authority was contrary to the provisions of Articles 14 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. v. That the period of investigation for determination of ITC has been decided by the DGAP from 01 July 2017-31 October 2017. The period from 01 November 2017-14 November 2017 has been ignored by the DGAP, although the rate change was with effect from 15 November 2017. Hence, there being absolutely no legal reason to deny the period from 01 November 2017-14 November 2017, this Authority should include this in the period of investigation. The reasons given at Paragraph 15 of the investigation Report were factually incorrect since (a) the Respondent could not be prejudiced as the GST system did not allow for half-month returns and (b) date-wise turnover was provided to the DGAP. As a matter of fact, the Respondent has provided the ITC Register till 30 November 2017 on 19 January 2018 as also stock-statement on 05 March 2018. Further, the DGAP at Paragraph 7: Table-A of the investigation Report has admitted that the stock statement has been provided. This Authority should accordingly clarify the period of investigation. Illustrative invoices were provided in the earlier proceedings and if need be, entire output invoices could be presented. Therefore, the period of investigation s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... @ 12%, while French Fries have oil as a significant input, which was liable to GST @ 5%. Hence it was logical and correct to have a comparison of product-wise ITC cost against product-wise turnover or in the alternative entity-wide ITC cost against entity-wide average increase in prices. In not doing so, the DGAP has engaged in a comparison of apples and oranges. ix. That the definition of 'profiteering' as occurring in the statute was the expression "profiteered" shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both. ' Therefore, the statutory definition itself required that there should be a determination of the ITC relevant to the goods/ service and a calculation of the commensurate price of that goods/ service. Therefore, the law envisaged that there be a one-to-one correlation. Further, in the order dated 05.09.2018 passed by this Authority in Case No. 9/2018 (N. P. Foods), the comparison of the cost of ITC and output price was done at an entity level. Being the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that without computation provisions, the statutory provision was rendered nugatory and ineffective. H. TIME BARRED PROCEEDINGS: I. That in terms of Rule 133 (1) of the CGST Rules, this Authority was required to pass an order within a period of three months from the date of receipt of the investigation Report of the DGAP issued in terms of Rule 129 (6). Vide Notification No. 31/2019-Central Tax dated 28 June 2019, the time period of three months was increased to six months. In the present case, the investigation Report was received by this Authority on 18 June 2018, as was evidenced from the acknowledgment on the first page thereof. Therefore, the order should have been passed on or before 18 September 2018 as provided under Rule 13 of the NAA Rules. For ease of reference, Rule 13 of the NAA Rules was extracted below:- "(13) The report received from the Director-General of Anti- profiteering under Para 10 supra and rule 129 (6) of the Central Goods & Services Tax Rules, 2017 shall be registered by endorsing on it the date of its receipt and shall also be caused to be entered in a register to be kept by the Secretary of this Authority as defined under Rule 125." Thus, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per the statutory scheme, any time taken for reference under Rule 133 (2) of the CGST Rules was not excluded in the time period stipulated under Rule 133 (1). In this regard, attention was invited to Rule 17 of the NAA Rules which empowered this Authority to summon any additional record as it deemed fit from any person, interested party, authority of the Central or the State Government, however, nowhere the NAA Rules provided that time taken under Rule 17 was to be excluded. Therefore, the provisions, were unambiguous and clear and the time period under Rule 133(1) would start from the "date of the receipt from the Director Genera/ of Anti-profiteering". In the instant case, the DGAP's Report was received on 18 June 2018 and hence, proceedings were time-barred. 52. Further, the Respondent has also submitted the following contentions in respect of the DGAP's Investigation Report:- A. Preference of any particular methodology for computation of ITC without prescription under law is unsustainable: i. That in the absence of any specific guidance under the CGST Act or the rules framed thereunder, the suppliers needed to devise their own methodology to comply with the requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital procurement which usually took place in the beginning of the financial year and therefore, it was estimated that actual ITC would be higher than 10%. Without analyzing the aforesaid computation, the DGAP has devised his own erroneous method for computation of the ITC as (i) Period of ITC was considered from July 2017 to October 2017 ignoring the ITC availed during the period from 1 November 2017 to 14 November 2017 (ii) ITC has been restricted to the amount availed till 14 November 2017 even though the Respondent was eligible and has availed ITC for the supplies received during July 2017 to October 2017 till 31 March 2018 (iii) ITC availed in the month of July 2017 to October 2017 pertaining to the pre-GST period has been excluded although as per the CGST Act, the time of supply was from July 2017 to October 2017 and the Respondent was eligible and has availed the ITC. In case the DGAP has followed the accrual system, then he ought to have considered the ITC pertaining to July 2017 to 14 November 2017 which was to be billed in subsequent months e.g. the variable rent was billed on yearly basis and telephone company bills for the month in the subsequent month. iii. That t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,98,733 11,09,864 5,07,776 47,26,668 Less: Inter unit branch transfer included in B2B Sale as per Sale Register (G) 1,18,553 1,29,610 1,18,508 1,26,016 77,505 5,70,191 Net outward Taxable Turnover for the period July, 2017 to October, 2017 (H) = (F-G) 9,17,308 9,44,824 8,80,225 9,83,849 4,30,271 41,56,477 Ratio of Denial (in % terms) of Input Tax Credit to Net Outward Taxable Turnover (I) = (E/H) 5.17 7.95 11.16 14.72 14.21 10.27 IV. That as on 14 November 2017, the Respondent was dependent on the above two analytical tools to asses loss of ITC. Subsequently, he has also computed actual loss of ITC in the month of December 2017 and January 2018 to validate his computation. Based on the information available in GSTR-2A Returns for inward supply and GSTR-3B Returns for outward supply (as per Annexure-37 of the Investigation Report), the Respondent has computed the actual loss as below:- MONTH ITC AS PER GSTR-2A ADD: ITC REFLECTING IN SUBSQUENT MONTHS NET ITC (AFTER REDUCTION ON ACCOUNT OF CREDIT NOTES) RESTAURANT TURNOVER ITC AS % OF TURNOVER Dec -2017 11,13,76,672 1,78,649 11,14,23,937 1,01,95,94,798 10.93% Jan -2018 8,87,60,727 58,97,046 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcept following 90.28 99.39 102.52 100.28 102.55 100.87 Impact % Expenses Rate GST Turnover Cost Rs. Rs. Rs. Rs. Rs. Rs. Royalty 3.99% 0.72% 4.71% 5.22% 4.71% 5.19 5.35 5.23 5.35 5.26 Rent 3.29% 0.59% 3.88% 4.30% 3.88 4.27 4.41 4.31 4.41 4.34 Other expenses 0.96% 0.17% 1.13% 1.25% 1.13 1.24 1.28 1.26 1.28 1.26 Sale Price (Without tax) 100 110.09 113.56 111.08 113.59 111.73 % of increase required to maintain same profitability 10.09 13.56 11.08 11.38 11.73 That in view of the above the Respondent was required to increase the prices between 10.09% to 13.56% depending upon the manner in which ITC loss was computed, to maintain the same margin. It was grossly unjust to ignore above additional costs which were forced on the Respondent solely on account of price increase due to denial of ITC. It could also be analyzed from another angle if the Respondent was allowed to increase his prices by 9.11%, he would be able to recover additional cost in the form of ITC + variable expenses only to the extent of 8.22%, thus resulting in net loss of 0.89% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,206 9.11% 0.32%# Per HRPL 3,39,608 44,365 3,83,974 37,26,206 4,30,271 41,56,477 9.24% 0.20%# Methodology adopted by DGAP As per financials for 2016-17 12.24% -2.81% As per ITC eligibility/availment 3,65,569 61,147 4,26,716 37,26,206 4,30,271 41,56,477 10.27% -0.83% On the basis of October 2017 1,10,897 11,09,864 10% -0.57% Actual loss of ITC Dec-17 Jan-18 Dec-17 Jan-18 Actual loss of ITC 1,11,424 94,305 2,05,728 10,19,595 9,22,962 19,42,566 10.59% -1.16% # the difference is within the de-minimis thresholds as held in the order of N. P. Foods iii. That in as much as supply of "Mccafe Reg Latte" was concerned, the alleged profit/loss would be as follows:- PARTICULARS RATE OLD INVOICE NEW INVOICE DIFFERENCE Invoice date 07-Nov-17 15-Nov-17 Price 120.34 135.24 14.89 (A) Central GST @18% 1083 @5% 3.38 State GST @18% 10.83 @5% 3.38 Total Value 142 142 Variable cost 11.7 13.15 1.45 (B) Roya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opean Commission accepted the decision and revised dumping margins not only for Bed Linen cases but also for all other cases against India. v. That the DGAP has calculated the profiteering amount @ 105% i.e. base price + 5% GST. The Respondent has already deposited the 5% GST with the Government and not retained it. Hence, it cannot be termed as "profiteering." In as far the 5% GST was concerned, the Respondent could not be legally said to make profits and thereby indulge in profiteering. Therefore, the amount of alleged profiteering stood reduced to Rs. 3, 17,03,988/-. Detailed workings in this regard have already been provided in the submissions dated 23 July 2018. D. ARBITRARINESS AND LACK OF CONSISTENCY IN THE DGAP INVESTIGATION: i. That the order dated 05.09.2018 passed by this Authority in Case No. 09/2018 (N. P. Foods) dealt with identical factual matrix as was in the present case. Therein, the product under consideration was a food item supplied at a restaurant. Further, the same notification has led to the anti-profiteering investigation against N. P. Foods as was in the present case. Therein, for the period from 01 July 2017 to 14 November 2017, the ratio of ITC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the same are mentioned as under:- i. That in as much as the methodology was concerned, this Authority has merely notified the NAA Procedure vide NAA Rules on 28 March 2018 but not methodology even though Rule 126 of the CGST Rules provided for determination of methodology. In an order dated 09 September 2019 passed by the Hon'ble High Court of Bombay in Vanashakti Public Trust v. State of Maharashtra (W. P. No. 118/2015), it has been held that objective criteria proposed to be adopted has to be made known to the parties. The Hon'ble Court has further observed that unless the process by which a decision was proposed to be taken was made known, the person whose views were solicited would be clueless. There were multiple instances where the Government has sought to control prices to prevent profiteering or ensure availability of essential goods at fair prices. In each such case, the relevant law has prescribed detailed methodology. A Few instances were given below by the Respondent:- LEGISLATION EXTRACT Maharashtra Unaided Private Professional Educational Institutions (Regulation of Admission and Fees) Act, 2015 Section. 15 Factors for determination of fee structure. - The F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a dealer. the consideration exceeds the amount represented by the addition allowed by the normal trade practice in force on the 31st day of August, 1939, to- (i) the landed cost of the article, in the case of an article imported from outside India or, where the article is delivered to the consignee elsewhere than at a port, that cost increased by any charges incurred for freight and octroi or other duties before delivery, or (ii) the price at which producer sold the article in the case of article produced in [India excluding the Jammu and Kashmir State] increased by any charges incurred for freight, customs, octroi or other duties before delivery, or (iii) the price at which the producer sold the article, in the case of an article which is not imported; where the sale is by a producer, the consideration exceeds the amount represented by the addition allowed by the normal trade practice in force on the 1st day of August, 1939, to the cost of production [of the article, such cost of production being deemed to be exclusive of the amount, if any, by which the price paid by the producer for any component part of the article exceeded- (i) the maximum price fixed for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of the article at such amount as he thinks equitable. (4.) Where a dealer or a producer disposes of an article by having it sold by auction on his behalf, the auctioneer as well as the dealer or producer shall be liable to the penalty provided by sub-section (1) of section 13, if in any such sale, there is a contravention of sub-section (1). (5.) Where any article is sold, offered for sale, or otherwise disposed of in contravention of sub-section (1), by a dealer or producer through any person employed by him or acting on his behalf, such person and also, unless they prove that they exercised due diligence to prevent such contravention, the dealer or producer, as the case may be, and any person having the charge on behalf of the dealer or producer of the place where such contravention occurred, shall be liable to punishment provided by sub-section (1) of section 13, whether or not they were present when the contravention occurred. Section 3-C of Essential Commodities Act, 1955 in respect of Sugar price control There shall be paid to that producer an amount therefor which shall be calculated with reference to such price of sugar as the Central Government may, by order, dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial used in the packing of concerned formulation, including process loss, and shall be fixed as a norm every year by, notification in the Official Gazette in this behalf; "P.C." means packing charges worked out in accordance with established procedures of costing and shall be fixed as a norm every year by notification in the Official Gazette in this behalf; "MAPE" (Maximum Allowable Post-manufacturing Expenses) means all costs incurred by a manufacturer from Che stage of ex- factory cost to retailing and includes trade margin and margin for the manufacturer and it shall not exceed one hundred per cent for indigenously manufactured Scheduled formulations; "E.D. " means excise duty: Drug (Price Control) Order, 2013 issued under Section 3 of the Essential Commodities Act, 1955 Para 4 - Calculation of ceiling price of a scheduled formulation. Para 5 - Calculation of retail price of a new drug for existing manufacturers of scheduled formulations Para 6 - Ceiling price of a scheduled formulation in case of no reduction in price due to absence of competition Para 8 - Maximum retail rice Thus, it could be seen that the public was put to notice by the Government before a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the object should not be to make a profit, inasmuch as education is essentially charitable in nature. There can, however, be a reasonable revenue surplus, which may be generated by the educational institution for the purpose of development of education and expansion of the institution. Thus, even in case where setting up an educational institution is "charitable" in nature, it is permitted to have reasonable revenue surplus and such surplus does not amount to profiteering. In Para 20 of the judgment, Hon'ble Supreme Court observed that Article 19(1)(g) uses the four expressions so as to cover all activities of a citizen in respect of which income or profit is generated. Thus compelling HRPL to incur loss by not allowing adjustment towards direct and indirect increase in the cost of supply would be infringing right to carry on business under Article 19 (1)(g) which is done for profit. Ranjit Ice and General Mills Vs. State of Punjab [MANU/PH/0470/1990] Punjab Ice Price Control Act, 1968 empowered the District Magistrate to fix the maximum wholesale and retail price which may be charged by a dealer. The statement of objects and reasons of the Act reads as follows :-- "Some u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave effect either on maintaining or increasing supply of commodity or securing equitable distribution and availability at fair prices. The controlled price has to retain this equilibrium in the supply and demand of the commodity. The cost of production, a reasonable return to the producer of the commodity are to be taken into account. The producer must have an incentive to produce. The fair price must be fair not only from the point of view of the consumer but also from the point of view of the producer. It is submitted that in even under the price control orders issued under Section 3 of the Essential Commodities Act to secure availability at essential commodity at fair prices, the courts have ensured recovery of the cost of production and a reasonable return to the producer. Therefore, in the present case where provisions of Section 171 of the GST Act are not intended to control price, there is no reason to deny recovery of the cost of production and a reasonable return to the supplier. III. That the provision of Section 171 must yield to Article 19 (1) (g) of the Constitution of India. If this Authority did not take into consideration the costs other than the input tax credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reted to include costs including tax/ ITC, failing which it will be a violation of Article 19(1)(g) of the Constitution of India: Section 171(1) of the Act, envisaged that any reduction in the rate of tax or the benefit of input tax credit has to be passed on to the recipient by way of commensurate reduction in price. In other words, every recipient of goods or services has to get the benefit from the supplier. The supplier was absolutely free to exercise his right to practise any profession or to carry on any occupation, trade or business, as Article 19 (1) (g) of the Constitution protected it. The supplier could fix any price/margin he wanted but in the event of invocation of Section 171, this Authority has only been mandated to ensure that the benefit which was a sacrifice of precious revenue from the kitty of the Central and State Governments, was passed on to the recipients. The soul of this provision was the welfare of the consumers who were voiceless, unorganized and scattered. The trade was bound to pass on the rate reduction benefit which became available to it due to revenue sacrificed by the welfare Government of a Socialistic economy. This Authority/ DGAP have neithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reover, the orders passed by this Authority are in full consonance of the "Principles of Natural Justice" and are subject to judicial review and hence, no prejudice has been caused to the Respondent by the absence of a Judicial Member in this Authority. D. Section 171 of the CGST Act suffers from the vice of excessive delegation: The Parliament has delegated the task of framing of the Rules under the CGST Act, 2017 on the Central Government as per the provisions of Section 164 of the above Act. Accordingly, the Central Government in terms of Section 171 (3) of the CGST Act, 2017 read with Section 2 (87) of the Act, has prescribed the powers and functions of this Authority, on the recommendation of the GST Council, which was a Constitutional federal body created under the 101st Amendment of the Constitution, as per Rule 127 and 133 of the CGST Rules, 2017. Further, the power to determine its own Methodology & Procedure has been delegated to this Authority under Rule 126 of the above Rules as per the provisions of Section 164 of the above Act as such power is generally and widely available to all the judicial, quasi-judicial and statutory authorities to carry out their function ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icted to the alleged product then the recipients/customers of the other impacted products who have not made any complaint against the Respondent, would never get the commensurate benefit from the Respondent. Further, there is no stipulation in the law to restrict the investigation only to the alleged product or to the complainant/applicant. Rule 133 (5) of the CGST Rules, 2017, further clarifies the scope of expanded investigation in order to remove any doubt. The above Rule was just a re-iteration of the provisions of Section 171 (2) which was in the statute since the inception of the CGST Act, 2017. Further, the GST Tariff Heading 996331 covered "Services provided by Restaurants, Cafes and similar eating facilities including takeaway services, Room services and door delivery of food." Thus, the services provided by the Respondent also included eating facilities, including takeaway services, Room services and door delivery of food. Therefore, the DGAP's investigation Report dealt with the Restaurant Service as a whole (including eateries). G. Lack of methodoloay.t parameters and standards are bad in law: The GST Council, constituted under Article 279A of the Indian Consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B2C outward taxable supplies during this period. Therefore, net taxable turnover could not be computed on the basis of summary sales. Further, random checks of the invoices for the ITC availed in November, 2017 revealed that in some cases, credit was taken by the Respondent without being in possession of the invoices on the date of availing of ITC, in contravention of the provisions of Section 16 (2) (a) of the CGST Act, 2017. Therefore, the ITC pertaining to the invoices issued on or after 01.11.2017 and availed during 1-14th November 2017 has been left out. Further, as the net taxable turnover for the same period has also been excluded from the total pre rate reduction turnover, this has no bearing on the computation of the impact of denial of input tax credit on the basis of the ratio of input tax credit to net taxable turnover during the period from 01.07.2017 to 31.10.2017. Reference was also made to points A, B & C on pages 3 to 7 of DGAP's Office letter No. 22011/API/5/2017/2594 dated 08.08.2020. 2. ITC pertaining to pre-GST period has been expunged: The DGAP has not considered the ITC pertaining to pre-GST period while computing ratio of denial of ITC to net turnover a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduction in rate of tax or benefit of input tax credit was passed on to the recipient and not retained by the supplier. Therefore, Section 171 of the CGST Act, 2017 required the supplier of goods or services to pass on the benefit of reduction in tax rate or input tax credit to the recipients by way of commensurate reduction in prices. If such benefit was not passed on by way of reduction in price and the benefit was appropriated by the supplier, it amounted to profiteering. Also, the mandate of Section 171 of the CGST Act, 2017 was very clear which required that every recipient of goods or services has to get the due benefit from the supplier. Therefore, in the cases where the prices of the products were reduced more than what was required to, in those cases though there would be no profiteering but this extra reduction of price could not be adjusted against the other products where the reduction was less or not at par with the commensurate reduction. Every recipient was eligible for his due benefit from the supplier. The benefit of one recipient could not be adjusted with the other recipient. Further, the legal requirement of Section 171 was that in the event of a benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h case were different for different sectors as well as in the same sector also. Hence, no fixed mechanism could have been provided for in the Act or the Rules. Thus, the methodology adopted was the best suited in the instant case based on the facts and circumstances of the case. 2. Refusal in increase in cost: The legislative intent behind Section 171 of the CGST Act, 2017 was to pass on the benefit of tax rate reduction by way of commensurate reduction in price. In other words, every recipient of goods or services has to get the due benefit from the supplier. Every supplier in the supply chain was legally required to pass on the benefit of tax rate reduction by maintaining the base price and charging GST at the reduced rate on such base price. Every supplier of goods and services was free to increase the price of his supply depending upon the various components affecting the cost of production/supply. But under the provisions of Section 171, no supplier could increase the base prices of the products overnight in such a manner that even with reduction in the rate of tax, the cum-tax selling price would remain unchanged. In the present case, the Respondent has increased the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no interference in the price fixation, which is the sole right of the supplier of goods/ services. Further, the DGAP has claimed that the present proceedings are legal in as much as overnight increase in prices coinciding with the reduction in the rate of tax such that total price would be the same is within the four corners of Section 171 of the CGST Act. Submission of the DGAP is fallacious and inherently contradictory. Article 19(1)(g) of the Constitution of India guarantees a person to carry on business for profit. Profit is nothing but surplus of revenue over cost. In a situation, where any authority restrains any person to recover cost and thereby compel the said person to incur loss is nothing but a violation of his fundamental right to carry on business as guaranteed under Article19(I)(g) of the Constitution. [Ranjit Ice and General Mills vs State of Punjab, MANU/PH/0470/1990). In the present case, the DGAP has only considered impact of input tax credit ("ITC") to arrive at the factum of commensurate price and consequently, profiteering. As has been shown time and again by the Respondent, there was increase in cost of other inputs (for e.g., rent, royalty, aggre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber of judgments of the Supreme Court and High courts, however DGAP has failed to offer any comments thereon. It is submitted that judgments of the Court are binding on all subjects and therefore, DGAP as well as this Authority is bound to follow the same without the sanction of law and hence, all proceedings must necessarily abate. It is submitted that DGAP has failed to distinguish judgments relied by the Respondent and therefore, this Authority is bound to follow the same to maintain judicial discipline. II.B The composition of the National Anti- Profiteering Authority ("Authority") It in Rule 122 of the CGST Rules is correct in law per Sections 2(87) read with 164 of the CGST Act. Hence, there is no excessive delegation and the composition of this Authority is left just and proper and consequently, binding on the Respondent. This submission of the DGAP is denied in toto. It appears that the DGAP has failed to understand the purport of this averment. Section 171 of the CGST Act neither provides for the composition of the Authority nor prescribes qualifications etc. These have been left to the determination by the Government of India, under Rule 122 of the CGST Rules. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scarriage of justice. Ordinarily appellate Tribunal becomes final fact-finding authority but in the present case, this Authority itself is the final fact-finding authority as there is no provision of appeal in the CGST Act. In as much as Authority for Advance Rulings is concerned, no one s compelled to approach them. Choice of forum is voluntary. Therefore, an independent scrutiny mechanism being absent, it is mandatory for a judicial member to be in the composition of the Authority. For this reason alone, the present proceedings must necessarily abate. II.D There is no excessive delegation re the absence of the methodology as the same has been done by the Authority in terms of Section 164 of the CGST Act. Further, the Authority has formulated a methodology in exercise of power under Rule 126 of the CGST Rules. The DGAP has also contended that no fixed methodology can be prescribed as facts vary from case to case. This averment of the DGAP is denied in toto. At the outset, it is submitted that no reference can be made to Section 164 of the CGST Act, since the exercise of powers by the Authority has to be in terms of rules notified under Section 171(3) of the CGST Act. Further, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is there compliance with the requirements including that of self-attestation. The only piece of information available is that of two invoices being circulated on social media with no authenticity thereof. In addition to supra, the Standing Committee has not conducted any examination of either adequacy or accuracy. The minutes dated 29 November 2017 itself show the comments that "only tax invoice attached." No further examination was carried out and a reference was made to DGAP. Hence, the very reference was without this Authority of law and entire proceedings must abate on this count itself. II.F The DGAP has contended that there is no illegality in investigating all products offered by the Respondent as (i) the investigation was qua restaurant services (ii) in terms of Section 171(2) of the CGST Act read with Rule 133(5) of the CGST Rules allows for an expanded investigation (iii) Section 171 requires that each and every supplier reduce prices commensurately such that benefit is passed on to each and every recipient. Denied in toto. The reliance placed on Rule 133(5) of the CGST Rules is ex-facie illegal since that is the power available with the Authority to direct a further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y It is reiterated that the Authority does not have jurisdiction to continue the proceedings since there is a patent violation of Rule 133(1) of the CGST Rules, as it stood on the date of receipt of the report dated 15 June 2018 of the DGAP. Hence, for this reason alone, the proceedings must be quashed forthwith. II.A.(i) to (iii) The DGAP has contended that no fixed methodology can be considered as facts differ from case to case. Further, on the point of methodologies available to the Respondent, cost of ITC has been considered. Denied in toto. It is submitted that the DGAP has misunderstood the averment. Sans a prescribed methodology, the Respondent averred that there cannot be preference towards a particular methodology as adopted by the DGAP since there were multiple methodologies available to the case of the Respondent itself and not for other sectors. This is not a case where the Respondent is asking for methodology for say, real estate being applied to the present facts. On the contrary, the Respondent has submitted that for their own case only, multiple methods of perspective were available with each being equal and hence, manner as followed by DGAP is not sacred. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in as far as entitlement to input tax credit is concerned. Further, the CGST Act requires that the recipient be in possession of the invoice (which the Respondent undoubtedly was) at the time of taking ITC and that the date of invoice be prior to 15 November 2017, as till such date all supplies were eligible to credit as provision of goods/ service was over as per time of supply provisions. As a matter of fact, the Respondent was in receipt of the goods/ services well before 15 November 2017. Hence, as both conditions, viz., (a) possession of the invoice at the time of taking ITC and (b) date of invoice as also time of supply being prior to 15 November 2017 are fulfilled and therefore, the Respondent is undoubtedly entitled to input tax credit and the DGAP cannot brush this claim aside. Detailed comments in this regard are made in the table at Annexure "A" In addition and specifically with reference to Sr. No. 6 of the table prepared by the DGAP in their submissions dated 08 August 2018, it is submitted that in any case, the Respondent provided full extract of the ITC register (submissions to DGAP dated 17 January 2018, 09 March 2018) and therefore, any ITC as deemed ineligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et turnover has been considered. Denied in toto. The Respondent has raised the question of additional ITC impact arising due valuation rule of 110% of the cost of production under the CGST Rules. The 10% additional element and GST thereon is not included in the net ITC or net taxable turnover and therefore, non-consideration greatly prejudices the assessee. IIIA.(v) to (vii) The DGAP has merely stated that the report has been issued on the facts and therefore, contention of the Respondent is untenable. amount of ITC should necessarily be taken into consideration failing which, great prejudice will be caused to the Respondent. It is reiterated that the duty of the DGAP is to arrive at the cost of ITC for which, entitlement should be seen and not actual availment. The CGST Act contains a provision in Section 36 that ITC need not be taken in a month of the invoice itself, but can be taken up to September of the next financial year. Hence, when the CGST Act itself recognizes ITC as a fungible vested right, the DGAP in denying any ITC is ex-facie illegal. Considering this, the ratio of ITC to taxable turnover is 10.27% as provided by the Respondent in their reply dated 13 July 2020. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... food/ drink for valuable consideration. Without prejudice, if the scope of supply is restaurant service, then individual product prices and increase/ decrease thereof is irrelevant and a comparison must be done on average of increased cost (direct & indirect) against average increase price of the restaurant service. On the Other hand if price are required to compared product then investigation must be limited to the compIained product alone. It is submitted that as per the Respondent's computation under different methods, the actual surplus revenue works out to between (-2.81%) to 0.32% and hence, cannot be construed as profiteering (applying de-minimis thresholds of N. P. Foods order dated 05 September 2018). The DGAP has not refuted this aspect and hence, connotes acceptance. Therefore, on this ground alone, the impugned proceedings deserve to be quashed forthwith. It is further submitted that profiteering if any, represents the amount of ill-gotten gain of the Respondent. As the Respondent has deposited the GST amount with the exchequer, it cannot represent a monies or assets of the Respondent and hence, inclusion of the same is ex-facie illegal. III.D The DGAP has cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . II.3 The DGAP has refused to take into account elements of cost other than tax as that is the mandate of Section 171. Denied in toto. Section 171 of the CGST Act requires a commensurate reduction in 'price' and not 'tax'. Hence, when the DGAP is analyzing the aspect of correctness of 'price', all factors which affect the same should be duly considered. Judicial precedents clearly amplify the averment that a law considering all costs and ensuring a reasonable return is in compliance with the tenets of Article 19(1)(g) of the Constitution of India. The Authority in earlier orders has considered costs other than tax [order dated 04 May 2018 in case No. 03/2018 in KRBL Limited] Hence, it is imperative that other costs be factored in prior to arriving in a determination of profiteering. It is further submitted that the Respondent has a fundamental right to trade and business vide Article 19(1)(g) of the Constitution of India and therefore, price fixation coinciding with the day of change in rate of tax has no bearing whatsoever for fixing a charge of profiteering on the Respondent and is infact, completely irrelevant. II.4 and II.5 The DGAP has contended that Section 171 does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (being 13.80%) as of 14 November 2017 has no bearing on the present facts. Denied in toto. The ratio of ITC to cost of closing turnover of inventory being 13.80% shows that the approximate cost of ITC should be in the same range. The reason why the DGAP has computed the ratio at 9.11% is because of inclusion of the months of July and August 2017, during which period the Respondent was carrying forward pre-GST inventory and hence, artificially reduces the cost of ITC over the period July 2017 October 2017. Being akin to a statistical exercise, it is trite that outlier months of July 2017 and August 2017 be excluded from the present investigation. 56. A copy of the rejoinder of the Respondent was supplied to the DGAP for filing clarifications under Rule 133 (2A) of the CGST Rules, 2017. Accordingly, the DGAP has filed his clarifications on 16.10.2020 which are mentioned as under:- Para III A (iv) Point No. 1 & 2: That the product wise turnover would not suffice as in cases of rejections, the same would have to be deducted which was possible only in case of invoice wise details. Further, random checks of the invoices for the ITC availed in November, 2017 revealed that in some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the period from July, 2017 to October, 2017, as furnished in the GSTR-3B Returns filed by the Respondent, has been considered by adding the amount of input tax credit pertaining to the period from July, 2017 to October, 2017, as furnished in the GSTR-3B Returns filed by the Respondent, but availed in the month of November, 2017 as per GSTR-3B Return and excluding the amount of tax paid on inter unit branch transfers as per Sales Register and the ITC pertaining to the period before July, 2017 which was availed during July, 2017 to October, 2017 as per GSTR- 3B Returns. Therefore, this contention of the Respondent was untenable. 57. The above clarifications of the DGAP were supplied to the Respondent for filing final re-joinder vide order dated 21.10.2020. Accordingly the Respondent has filed re-joinder dated 28.10.2020. The submissions of the Respondent are mentioned as follows:- Paragraph reference in DGAP submissions dated 15 October 2020 Allegation of DGAP Submission of Respondent Para IIIA(iv) Point No. 1 & 2 Period 01 November 2017 - 14 November 2017 cannot be included for the following reasons: Denied in toto. At the outset, it is submitted that the DGAP has not rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017 as this represents a vested right of the Respondent to take ITC per Section 16(4) of the CGST Act. DGAP has not provided any comment whatsoever with respect to Section 16(4) of the CGST Act. Further, mere exclusion of both ITC and turnover for November 2017 being neutral is illogical and devoid of common sense. It is submitted that by same logic, if turnover and ITC for the month of July 2017 is excluded of the computation of the DGAP, there is vast change in the ITC percentage as shown below. Hence, this reason of the DGAP is erroneous and devoid of common sense. Para II.6 Adjustment towards ITC on closing stock on 14 November 2017 is not to be taken since exclusion of ITC and turnover for the month of November 2017 results in no change of the cost of ITC for the period July 2017 -October 2017. Denied in toto. It is submitted that detailed submissions have been made in the rejoinder dated 21 September 2020 and the same may be treated as part and parcel of the present submission. Further, it is reiterated that exclusion of both ITC (including reversal and transitional credits) an over for November 2017 cannot and will not result in the same ratio as has been demonstr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnexure -2. However, there would not be any profiteering if profiteering was computed for supply of restaurant service per initiation notification dated 29 December 2017. 58. The Respondent has also filed additional submissions dated 21.11.2020 wherein it has been submitted that the alleged complaint was against a supply made from an outlet of the Respondent having GSTIN 27AAAFH1333H1ZT, located in the State of Maharashtra and therefore, alleged profiteering investigation under Section 171 (2) has to remain confined to the supplies made vide the said GSTIN. However, the investigation Report has covered supplies made by other GSTIN also and therefore, investigation in respect of the following GSTlNs was ultra vires of Section 171 (2) of the CGST Act:- S.No. GSTIN State 1. 24AAAFH1333H1ZZ Gujarat 2. 30AAAFH1333H1Z6 Goa 3. 22AAAFH1333H1Z3 Chhattisgarh 4. 23AAAFH1333H1Z1 Madhya Pradesh 5. 32AAAFH1333H1Z2 Kerala 6. 33AAAFH1333H1ZO Tamil Nadu 7. 29AAAFH1333H1ZP Karnataka 8. 36AAAFH1333H1ZU Telangana 9. 37AAAFH1333H1ZS Andhra Pradesh 59. We have carefully considered the complaints made by the Applicant No. 1 to 4, the Reports and the clarification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation:- For the purpose of this section, the expression "profiteered" shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both." 60. Keeping in view the above provisions of Section 171 the following issues need to be determined in the present proceedings:- (iv) Whether the Respondent has passed on the benefit of tax reduction to his customers w.e.f. 15.11.2017 as per the provisions of Section 171 (1) or not? (v) If not then what is the quantum of the profiteered amount as per the provisions of Section 171 (1) read with the Explanation attached to Section 171? (vi) Whether he is liable to the penalty prescribed under Section 171 (3A)? 61. It is also revealed that the Applicants No. 1 to 4 had lodged complaints on 15.11.2017, 17.11.2017 and 23.11.2017, alleging that the Respondent had charged price of Rs. 142/- vide invoice No. 210 dated 07.11.2017 on the product 'Mccafe Reg Latte' before the tax reduction and had again charged the same price of Rs. 142/- on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover of the Respondent had taken into account the ITC for the period from July, 2017 to October, 2017, as was shown in the GSTR-3B Returns, which had been adjusted by adding the amount of ITC which was availed in the month of November, 2017 as per GSTR-3B Return (Annexure-34) and by excluding the amount of tax which was paid on inter unit branch transfers as per the Sales Register (Annexure-33) and the input tax credit pertaining to the period before July 2017 which was availed during the period between July, 2017 to October, 2017 as per the GSTR-3B Returns (Annexure-35). 64. On the basis of the analysis of the details of the product-wise outward taxable supplies made during the period between 15.11.2017 to31.01.2018, the DGAP had found that the Respondent had increased the base prices of the items supplied by him to neutralise the effect of ITC of 9.11% which was not available to him after the rate reduction w.e.f. 15.11.2017. The DGAP had compared the pre and post GST rate reduction average prices of the items sold during the period between 15.11.2017 to 31.01.2018 and after taking into account the entire quantity of the products sold during the above period, he had found th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following issues vide his submissions mentioned above, which have been discussed in the subsequent paras. 67. The Respondent has stated that as per Rule 133 (1) the last date for passing of the order in this case was on or before 17.09.2018 as the order was required to be passed within a period of three (3) months from the date of receipt of the Report from the DGAP on 18.06. 2018, however, the order was passed on 16.11.2018, therefore, the proceedings have abated and could not be revived under the remand proceedings. In this connection perusal of the record shows that the Report of the DGAP was received by this Authority on 18.06.2018 and was considered by this Authority in its meeting held on 05.07.2018 and the Respondent was directed vide notice dated 05.07.2018 to appear on 24.07.2018. The Respondent had filed his written submissions on 24.07.2018 which were sent to the DGAP on 24.07.2018 for filing Report on the reply filed by the Respondent. The DGAP had filed his Report on 07/08.08.2018. The Respondent had again filed additional submissions on 09.08.2018 which were sent to the DGAP on 14.08.2018 for filing further Report. The Respondent had further filed additional submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t abated and therefore, the above claim of the Respondent is not tenable. 68. In this connection it would also be relevant to mention that the time limit prescribed under Rule 133 (1) is only directory and is not mandatory as no consequences have been provided in the above Rule or the CGST Act, 2017 in case the limit of 3 months is not observed. The Hon'ble High Court of Delhi while considering the time limit specifically prescribed under Rule 133 (1) vide its order dated 27.01.2020 passed in W.P. (C) 969/2020 in the case of M/s. Nestle India Ltd. & another. v. Union of India & others has ruled as under:- "We also observe that prima facie, it appears to us that the limitation of period of six months provided in Rule 133 of the CGST Rules, 2017 within which the Authority should make its order from the date of receipt of the report of the Directorate General of Anti Profiteering, appears to be directory in as much as no consequence of non adherence of the staid period of six months is prescribed either in the CGST Act or the rules framed there under." 69. Reliance in this regard is also placed on the judgment of the Hon'ble Supreme Court in the case of Mahadev Govind Gharge v. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied. Hence all the claims made by the Respondents on the ground of not observing the time limit prescribed by the above Rule or its being mandatory are wrong. 71. The Respondent has also stated that the order dated 16.11.2018 was passed in a cursory manner as was evident from Para 35 and 16 of the order. Vide Para 35 it was recorded that "The respondent has wrongly claimed that the DGAP had assessed that the respondent had made a profit of due to the average increase in the base price by 10.45%. The claim made by the Respondent is incorrect as the DGAP has taken the above amount as additional sales realisation made by the Respondent on account of the increase in the prices and not the profiteered amount as this amount has been assessed to be Rs. 7,49,27,786 only as per Annexure-37 of the report submitted by the DGAP." However, vide Para 16 of the same order this Authority has recorded that "the respondent has also pleaded that the DGAP has concluded that the turnover has increased by Rs. 24,81,33,857 solely due to the increase in the base price by 10.45%." The above claim of the Respondent is absolutely wrong as both these paras are not contradictory. In para 16 it has been clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Respondent has also claimed that the findings recorded in Para 37 of the order dated 16.11.2018 were not correct as he had given reasons in Para 18 of the above order for computing the ratio of ITC to turnover on the basis of the ITC availed during the month of October or September and October 2018. In this connection it would be pertinent to mention that computation of the above ratio on the basis of the ITC availed by the Respondent during the month of September or September and October had no reason except that the ratio if calculated on the basis of the ITC availed in these months would have been more than the ratio of 9.11% computed by the DGAP. The Respondent had failed to explain why the above ratio should not be calculated from the month of July to October 2018 or why it should not be computed on the basis of the ITC availed during the month of August 2018. The most appropriate, reasonable and justifiable method would have been by computing the above ratio on the basis of the ITC availed during the months from July to October 2018 which the DGAP has adopted. The above claim of the Respondent was further not reliable due to the reason that he had neither given any evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent is incorrect. 75. The Respondent has also contended that in Para 40, this Authority has wrongly observed that the Respondent has failed to provide his methodology which has been duly recorded at Para 16, 20 and 27 of the order. In this regard it would be relevant to mention that the Respondent had allegedly floated three methodologies viz. (i) on the basis of the incremental cost on royalty, rent and other expenses (ii) on the basis of the audited financial statements and (iii) on the basis of the ratio of ITC to turnover from 01.07.2017 to 14.11.2017. Perusal of the above methodologies shows that all of them were based on different parameters and they basically computed the loss and profit of the Respondent and not the amount of benefit to be passed on. Even if the Respondent had computed the denial of ITC more than 9.11% it was incumbent upon him to prove to what extent the price increase made by him has resulted in passing on the benefit of tax reduction. He had also not given the details of the prices which he had commensurately fixed in respect of each product after the rate reduction to justify his methodology. By no stretch of imagination the Respondent can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount has been outlined in Section 171 (1) of the CGST Act, 2017 itself which provides that "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." It is clear from the plain reading of the above provision that it mentions "reduction in the rate of tax or benefit of ITC" which means that if any reduction in the rate of tax is ordered by the Central and the State Governments or a registered supplier avails benefit of additional ITC post GST implementation, the same have to be passed on by him to his recipients since both the above benefits are being given by the above Governments out of their scarce and precious tax revenue. It also provides that the above benefits are to be passed on any supply i.e. on each product or unit of construction or service to every buyer and in case they are not passed on, the quantum of denial of these benefits or the profiteered amount has to be computed for which investigation has to be conducted in respect of all such products/units/services by the DGAP. What would be the 'profiteered amount' has been clearly defined in the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity has been authorised to determine the Procedure and Methodology' which has been done by it vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017. However, no fixed mathematical formula, in respect of all the Sectors or the products or the services, can be set for passing on the above benefits or for computation of the profiteered amount, as the facts of each case are different. In the case of one real estate project, date of start and completion of the project, price of the flat/shop, mode of ayment of price or instalments, stage of completion of the project, rates of taxes pre and post GST implementation, amount of CENVAT credit and ITC available, total saleable area, area sold and the taxable turnover received before and after the GST implementation would always be different from the other project and hence the amount of benefit of additional ITC to be passed on in respect of one project would not be similar to the other project. Therefore, no set procedure or mathematical methodology can be framed for determining the benefit of additional ITC which has to be passed on to the buyers of the units. Moreover, this Authority under Rule 126 has been empowere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GST of Rs. 0.20 on the above additional price and hence he had denied the benefit of tax reduction or he had profiteered to the extent of Rs. 4.14 by increasing his prices by 12.38% instead of 9.11% on the above item. Had the Respondent not increased the price of the above product the same would have been supplied at the price of Rs. 137.36 only. It is abundantly clear from the above narration of the facts and the law that no elaborate mathematical calculations are required to be prescribed separately for passing on the benefit of tax reduction and computation of the profiteered amount. This Authority was under no obligation to provide the same to the Respondent. The Respondent cannot deny the benefit of tax reduction to his customers on the above ground and enrich himself at the expense of his buyers as Section 171 provides clear cut methodology and procedure to compute the benefit of tax reduction and the profiteered amount. Therefore, the above plea of the Respondent is wrong and hence, it cannot be accepted. 77. In this connection the Respondent has also cited the order dated 09.09.2019 passed by the Hon'ble High Court of Bombay in Vanashakti Public Trust v. State of Maharasht ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net incremental revenue has been shown as Rs. 17,68,33,401/-. No reasons for adjustment have been explained by the Respondent. The variable expenses have been computed as per the convenience of the Respondent as they were not required to be computed separately as they were already built in the price increase made w.e.f. 15.11 2017 and hence all the computations shown in these Tables are wrong and hence they cannot be relied upon. 79. The Respondent has also pleaded that the 8 issues mentioned in Para 12 of his submissions dated 23.10.2019 including the 12 issues raised in Para 16 of his submissions dated 04.12.2019 should be appropriately responded and the matter should be proceeded with only after he has been provided with the adequate response on them. Perusal of the issues mentioned by the Respondent in his above submissions shows that all these issues are required to be decided by this Authority on the basis of the pleadings of the Respondent as well as that of the DGAP and hence no findings can be recorded on them unless both the parties have filed their pleadings and have been heard. The Respondent appears to be trying to pre-empt these issues without disclosing his stand wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also averred that the fundamental right enshrined in Article 19 (1) (g) could be reasonably restricted, however, if the price did not secure a reasonable return on the capital employed, such a fixation of price would be violation of the above Article. Thus, while determining profiteering direct or indirect increase in the cost must also be considered. In this regard it would be appropriate to mention that the Respondent is only required to pass on the benefit of tax reduction under Section 171 (1) and it nowhere places restriction on the right of the Respondent to fix his prices and profit margins. Neither this Authority or the DGAP has mandate to fix prices under Section 171 (1) nor they are acting as price controllers or regulators. There is also no mention in Section 171 that while passing on the benefit increase in the cost will also be considered. Even when there is no provision of considering the cost in the above Section many suppliers including the present Respondent are not willing to pass on the above benefit on the standard excuse of increase in the cost immediately after the rate reduction. In case such increase in the cost is also considered then no supplier is go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit. Therefore, the above contention of the Respondent is not maintainable. 83. The Respondent has also contended that this Authority has stated in its various orders that only tax reduction and ITC impact were to be considered while fixing the prices under Section 171 and the cost was not to be considered. This approach was also adopted in the order dated 16.11. 2018 which was set aside by the Hon'ble High Court of Bombay. In this connection it would be appropriate to mention that the Hon'ble High Court has not considered the issue of cost in its judgement dated 01.10.2019 at all and it has set aside the above order by observing in Para 29 that:- "We conclude that when the three members of the Authority had heard the Petitioner and participated in the entire hearing, the collectively signed decision, when fourth member joined only for signing the order has resulted in violation of natural justice and fairness, and is liable to be set aside." The Hon'ble Court has further mentioned in Para 33 of its judgement that "We keep all the contentions of the parties on merits, jurisdiction and validity of the Authority, open." Therefore, the above contention of the Respondent that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not tenable. 85. The Respondent has vehemently argued that this Authority was a Tribunal as it was discharging adjudicatory and quasi-judicial functions with grave consequences and hence fair and impartial justice could be dispensed only if there were Judicial Member(s) in this Authority and in majority. Reliance in this regard has been placed on the cases of L. Chandra Kumar v. Union of India, Union of India v. R. Gandhi, Madras Bar Association v. Union of India, S. Manoharan v. The Deputy Registrar and Ors., Order dated 20 September 2019 of the Hon'ble High Court of Madras in Revenue Bar Association v. Union of India and Order dated 13.11.2019 of the Hon'ble Supreme Court in Roger Mathew v. South Indian Bank Limited. 86. In this regard it would be pertinent to mention that the Hon'ble Supreme Court has applied the principle laid down in the case of S. P. Sampath Kumar v. Union of India & others 1987 SCC Sppl. 734, including in the relatively recent cases of Union of India v. R. Gandhi, Madras Bar Association v. Union of India supra and more recently in Rojer Mathews v. South Indian Bank & Ors. Supra, in which it was held that that the Tribunals which were required to discha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coordinate courts/Tribunals. The answer is, that such transfer is permissible. But whenever there is such transfer, all conventions/customs/practices of the court sought to be replaced have to be incorporated in the court/Tribunal created. The newly created court/Tribunal would have to be established in consonance with the salient characteristics and standards of the court which is sought to be substituted." (Emphasis supplied) In the case of Rojer Mathew supra, the Hon'ble Court was inter alia considering provisions of the Finance Act, 2017 which led to merger of several Tribunals as well as the rules therein, where one of the issue was absence of a Judicial Member. With regard to this question, the relevant findings of the Hon'ble Court are reproduced herein below:- "163. We concur with the above which reiterates the consistent view taken by this Court in a number of cases. It is also a well-established principle followed throughout in various other jurisdictions as well, that wherever Parliament decides to divest the traditional Courts of their jurisdiction and transfer the lis to some other analogous Court/Tribunal, the qualification and acumen of the members in such Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while to note that having a qualification in law is not equivalent to having experience in law and vice versa. "Experience in law", thus, is an expression of composite content and would take within its ambit both the requisite qualification in law as well as experience in the field of law...." Some findings of the Hon'ble Supreme Court in the case of Namit Sharma supra, reproduced herein above, have been reversed by the Hon'ble Court in the Review Petition filed by the Union of India. The Judgment in the review Petition has been reported as Union of India v. Namit Sharma (2013) 10 SCC 359. The relevant findings from the said judgment are reproduced herein below:- "29. Once the Court is clear that the Information Commissions do not exercise judicial powers and actually discharge administrative functions, the Court cannot rely on the constitutional principles of separation of powers and independence of judiciary to direct that the Information Commissions must be manned by persons with judicial training, experience and acumen or former Judges of the High Court or the Supreme Court. The principles of separation of powers and independence of judiciary embodied in our Constitution no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commensurate reduction in prices; (ii) to identify the registered person who has not passed on the benefit of reduction in the rate of tax on supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices; (iii) to order, (a) reduction in prices; (b) return to the recipient, an amount equivalent to the amount not passed on by way of commensurate reduction in prices along with interest at the rate of eighteen percent. from the date of collection of the higher amount tiff the date of the return of such amount or recovery of the amount not returned, as the case may be, in case the eligible person does not claim return of the amount or is not identifiable, and depositing the same in the Fund referred to in section 57; (c) imposition of penalty as specified in the Act; and (d) cancellation of registration under the Act. (iv) to furnish a performance report to the Council by the tenth day of the close of each quarter." The aforementioned duties clearly do not involve settling of any question of law and these are the expert functions being discharged by the domain experts who have experience in the field of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs which have far reaching consequences affecting the rights of Chartered Accountants but even its composition does not require a Judicial Member's presence. Its composition is provided in Section 9(2) of the above Act and the same does not include a mandatory Judicial Member. Similarly, the Assessing Officers, Commissioners of Appeal under the Income Tax Act, 1961 and the CGST Act, 2017, the Authorities on Advance Rulings under both the above Acts and the Dispute Resolution Panel under the Income Tax Act, 1961 all perform quasi- judicial functions but there is no requirement that such persons who must be possessing either a law degree or have had judicial experience. Such a requirement is not only impractical but would also render several statutory authorities unworkable, which could never have been the intention of the Hon'ble Supreme Court while laying down the legal principles discussed above. Therefore, in light of the above, it can be concluded that this Authority has not having replaced any Courts, cannot be equated to a Court or a Tribunal and hence the mandate of having a Judicial Member cannot be said to apply to this Authority. It is also submitted that this Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a Judicial Member. Similarly, the Telecom Disputes Settlement and Appellate Tribunal also has a Judicial Chairperson. In this regard it would be relevant to mention that both the above Tribunals cannot be compared with this Authority as they are appellate bodies whereas this Authority is not an appellate body or a Tribunal. The above Tribunals are also not fact finding authorities as has been claimed by the Respondent. Hence, the above contention of the Respondent is not correct. 90. The Respondent has further argued that vide Section 171 (3) read with Rule 126 it was mandated that this Authority must prescribe a methodology to determine profiteering. In the formulation of such methodology, suitable guidance should have been provided to guide the exercise of powers by this Authority and failure to provide such guidance amounted to "excessive delegation", which was bad in law. As discussed above the procedure and methodology to pass on the benefits of tax reduction and ITC and computation of profiteering has already been prescribed in Section 171 (1) itself and hence, no separate methodology/guidelines are required to be provided to guide the exercise of power by this Authority. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate guidelines are required to be framed in this regard. Accordingly, the above claim of the Respondent cannot be accepted. 93. The Respondent has also alleged that in terms of Rule 128 the Standing and the Screening Committees were empowered to receive written complaints in the prescribed form APAF-I only with supporting documents and prima facie examine accuracy and adequacy of the evidence to initiate investigation. In the present case, all the complainants have submitted copies of the same invoices without any self-attested identity documents, hence the complaints were neither accurate nor had adequate evidence. On this account it would be appropriate to note that there was accurate and adequate evidence before the Standing Committee to recommend investigation against the Respondent as both the invoices dated 07.11.2017 and 15.11.2017 issued by the Respondent clearly showed that he had charged the same price of Rs. 142/- on the item Mccafe Reg Latte before and after the tax reduction whereas he was required to reduce it w.e.f. 15.11.2017 keeping in view the denial of ITC and the reduction in the rate of tax. There could be no better accurate and adequate evidence except the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." (Emphasis supplied) It is clear from the perusal of the above Sub-Sections that the benefits of tax reduction and ITC are to be passed on by each registered person by commensurate reduction in prices on each supply to every recipient and this Authority is empowered to examine whether these benefits have been passed on or not. To assist this Authority while making such examination an investigating agency designated as the DGAP has been created under Rule 129 of the CGST Rules, 2017 to conduct detailed investigation and submit Report to this Authority under Rule 129 (6) to determine whether the above benefits have been passed or not in terms of Section 171 (1) and Rule 133 (1) of the above Rules. Under Rule 129 (2) the DGAP has mandate to conduct investigation and collect necessary evidence to determine whether these benefits have been passed on. Further, the Government of India, Ministry of Finance, Department of Revenue, Central Board of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on each product to each buyer or not. Rule 133 (5) is a mere clarification of the provisions of Section 171 (2) and hence, the DGAP has rightly conducted investigation in respect of all the products in respect of which the rate of tax was reduced, with prior notice to the Respondent and hence, no order was required to be passed under Rule 133 (5) by this Authority. Moreover, the Applicant No. 2 in his email dated 23.11.2017 (Annexure-I of the Report) had intimated the DGAP as under:- "Since the implementation of GST from 1st July 2017 and subsequent changes carried out till 15th November it has been seen that many vendors especially MNC fast food chains are excessively profiteering and actually cheating buyers by overcharging. When GST was introduced they initially straight forward added GST amounts to Menu prices and charged to customer. Then when GST rates was changed to 5%, across the board without ITC the vendors increased Menu rates and applied 5% to either keep Customer payment same or even higher. Please see attached bills for same product purchase from same vendor after first GST Implementation and after 15h November. Please take strict action as per GST laws not onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Entry 6 (b) of the Schedule Il to the CGST Act, the restaurant service was a single supply and hence the DGAP could not have investigated 1800 products and therefore, the Investigation Report itself was contrary to the scope of investigation determined by the DGAP. In this connection it would be appropriate to mention that as per the provisions of Section 171 (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." Therefore, the benefit has to be passed on the goods and services and not on the restaurant service as only reduction in the rate of tax on this service is required to be taken in to account. It is completely illogical to fathom how price of the service can be reduced commensurately to pass on the benefit when no such price has been fixed. Therefore, only the goods and services being supplied by the Respondent under the restaurant services are required to be investigated, which have been rightly investigated by the DGAP. Hence, the above contention of the Respondent is untenable. 97. The Respondent has also cited the order dated 29 October 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investigating his other projects. Therefore, the above cases do not support the claim of the Respondent. 99. Reliance has also been placed on the order dated 30 June 2020 of the Hon'ble High Court of Gujarat in the case of Sapphire Foods India Private Limited v. Union of India wherein by way of ad-interim relief, it was directed that the proceedings would only continue to the extent of the complained product. Further reliance has also been placed on the order dated 19 July 2019 of the Hon'ble High Court of Delhi in the case of Reckitt Benckiser India Private Limited v. Union of India wherein the DGAP had sought information on 3500 products, which the Hon'ble Court had restricted to only one product. In pursuance to the order dated 19 July 2019, this Authority has passed an order dated 19 March 2020 in Case No. 20/2020 of Rahul Sharma & another v. M/s. Reckitt Benckiser India Pvt. Ltd, & another restricting findings only to the complained product. In this context it would be relevant to mention that the orders passed in the cases of Sapphire Foods and Reckitt Benckiser supra pertain to these cases only. No such order has been passed in the case of the Respondent and hence the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that failure to formulate and communicate the methodology has tainted the proceedings due to lack of fairness and transparency, as has been held by the Hon'ble High Court of Bombay in the judgement dated 01 October 2019. In this regard it would be relevant to state that as has been mentioned above the order dated 16.11.2017 has not been set aside due to non prescribing of the methodology under Rule 126. Such a claim amounts to contempt of the judgement of the Hon'ble High Court and hence the same cannot be accepted. 103. The Respondent has further contended that the absence of methodology has resulted in this Authority taking a contradictory stance on identical issues as could be evidenced from the order dated 05 September 2018 passed in the Case No. 09/2018 of Jijrushu N. Bhattcharya & another v. N. P. Foods and the order dated 31 January 2019 passed in the Case No. 04/2019 of Kiran Chimirala & another v. Jubillant Food Works Ltd. (Dominos). In this regard it would be pertinent to mention that in the case of N. P. Foods the Respondent had not denied the benefit of rate reduction as the increase made in the prices by the Respondent after reduction in the rate of tax reduction w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paying documents as may be prescribed. (ii) The Respondent has received the goods or services or both. (iii) The Respondent, subject to the provisions of section 41, has paid the tax charged in respect of such supply to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply : and (iv) The Respondent has furnished the return under Section 39. Further, with effect from 15.11.2017. the Respondent was not entitled to avail ITC In terms of Notification No. 46/2017- Central Tax (Rate) dated 14.11.2017. Therefore, the Respondent is not eligible to take benefit of ITC w.e.f. 15.11.2017 on the strength of the invoices received post 15.11.2017 when the aforesaid notification had debarred the Respondent from ITC availment. The DGAP has not considered the ITC of Rs. 85,27,917/- while computing the ratio of denial of ITC to net turnover as this credit pertained to the period prior to the implementation of the GST which has no bearing on the supplies made during the period from July 2017 to October 2017. As the Respondent has received the taxable invoices post 15.11.2017 he was again not eligible to avail ITC in terms of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 051 Inventory - Linen (DC) 66,03,722 119-051-AUTO Inventory - Linen (DC) - Auto - TOTAL 66,03,722 GRAND TOTAL 30,30,36,268 PROVISIONAL GST 4,18,08,194 From the Table given above, the correctness of the computation of ITC on stock as on 14.11.2017 could not be ascertained as the details were neither clear nor comprehensible and therefore they could not be relied upon. The Respondent has also submitted SKU wise summary sale for the period from 1-14 November 2017 but has not submitted invoice wise B2C outward taxable supplies during this period. Therefore, net taxable turnover could not be computed on the basis of summary sales. Random checks of the invoices of the ITC availed in November 2017 have revealed that in some cases, credit of ITC was taken by the Respondent without being in possession of the relevant invoices on the date of availing of ITC, in contravention of the provisions of Section 16 (2) (a) of the Act. Therefore, the ITC pertaining to the invoices issued on or after 1st November 2017 and availed during 1-14th November 2017 has been left out. Further, net turnover for the same period has also been left out and therefore, there would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot representative months. Therefore, computation of the ITC loss on the basis of the months of September and October 2017 cannot be considered. Hence, the ratio of 9.11% of the denial of benefit of ITC from July 2017 to October 2017 has been correctly computed by the DGAP which can be safely relied upon. 106. The Respondent has also alleged that the DGAP while computing the ITC, has selectively taken figures mentioned in the GSTR-3B Returns for the period from July 2017-0ctober 2017 and thereafter, made a few additions as deemed fit according to him in spite of the availability of all the data. In this regard it would be appropriate to mention that the method of accrual of ITC has been clearly mentioned in Section 16 and basis of considering it has been discussed in detail in para supra and hence the Respondent is entitled to claim only that ITC which is covered under the above Section and the Notification dated 14.11.2017 and not on the basis of the availment or entitlement as per his own perception. As the Respondent has already availed ITC on the original purchase of the inputs, it has been considered in the computation of denial of ITC to net turnover ratio. Since, both the GS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been applied to each product individually sold after 15 November 2017 and hence, the ratio of ITC to turnover should also have been computed for each product individually as the ITC cost of each product was different. The above claim of the Respondent is not only wrong but it is also illogical as the Respondent is claiming benefit of ITC on the gross turnover and is not claiming it product wise nor he is computing ITC on each product. The product wise ITC and turnover is also not being calculated and furnished by the Respondent in his returns nor it is being maintained for each product in the ITC Register. The Respondent has not even furnished the ITC, the turnover and the ratio of ITC to turnover on Coffee and French Fries both of which he has cited, which shows the hollowness of his claim. He has also stated that in the alternative, entity-wide ITC cost against entity-wide average increase in prices should have been computed which is also illogical as the Respondent is making supplies at the product level and not at the entity level. Moreover, as per the provisions of Section 171 (1) the benefit is required to be passed on each supply to each customer and in case it is compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the future and (iii) ITC loss on the basis of actuals, to compute the ratio of ITC to turnover. Therefore, this Authority should clarify which was the most appropriate computation methodology to be followed. In this connection it would be relevant to mention that the ITC has to be computed on the basis of the provision of Section 16 of the Act. Similarly, the turnover also has to be computed on the basis of the value of the supply as per the provisions of Section 15 of the Act and hence all the above methods cannot be taken in to account for computation of the above ratio unless they fulfil the conditions mentioned in Section 15 and 16 of the above Act. When there are specific conditions prescribed for claiming benefit of ITC and for determination of the value of supply the above ratio cannot be computed on the basis of the financial statements or extrapolation. The ratio can also not be computed correctly on actuals unless the claims of ITC are made in consonance with the provisions of Section 16 of the Act. 112. The Respondent has also directed this Authority to explain how it has observed that the DGAP has investigated the case correctly and in line with the general princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to pass on due to reduction in the rate of tax. He has only harped upon his costs to show that his costs were more than the denial of ITC and hence, the above methodology suggested by the Respondent is unreasonable, arbitrary, illogical and against the provisions of Section 171 (1). Even if the impact of cost is taken to be 12.24% (for the sake of academic discussion) as has been claimed by the Respondent, he has increased his prices more than the above percentage in respect of the 446 products as is evident from Annexure-32. Hence, the alleged methodology devised by the Respondent cannot be adopted to pass on the above benefit. 115. The Respondent has also contended that he has taken the ITC availed in the month of October 2017 as the test period to estimate the ITC impact on the future. He has taken the amount of ITC availed during the above month as Rs. 11,08,97,125/-, the total outward turnover as Rs. 1,10,98,64 117/- and ratio of ITC to turnover as 10% whereas the DGAP has taken the available ITC as Rs. 13,59,26,262/-, the turnover as Rs. 98,38,48,569/- and the ratio as 13.82%. In this connection it can be noted that the above figures have been taken by the DGAP from the GS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the amount of input tax credit pertaining to the period from July, 2017 to October, 2017, as furnished in the GSTR-3B Returns filed by the Respondent, but availed in the month of November, 2017 as per GSTR-3B Return and by excluding the amount of tax paid on inter unit branch transfers as per Sales Register and the ITC pertaining to the period before July, 2017 which was availed during July, 2017 to October, 2017 as per GSTR-3B Returns. The Respondent should have paid the variable rent every month to claim the benefit of ITC. He cannot blame the DGAP for not taking in to account the annual payments on account of rent as no ITC would be available on them as per the provisions of Section 16 as no tax had been paid on the rent till 14.11.2017. Detailed reasons for ignoring the ITC availed during the period from 1 November 2017 to 14 November 2017, restricting it to the amount availed till 31 October 2017 and excluding the ITC pertaining to the pre-GST period have been given in para supra and hence the Respondent cannot compel the DGAP to adopt his method to compute the ITC as per his whims and preferences which have no legal basis as he is bound to follow the provisions of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent has wrongly taken benefit of ITC for both the above months and hence the above figures cannot be taken to be correct. Accordingly, all the 3 methodologies suggested by the Respondent on the basis of audited Financial Statements or based on the month of October 2017 or on the test basis to forecast expected ITC loss in future are illogical, unreasonable, arbitrary and based on manipulated figures and hence, they cannot be accepted. 119. The Respondent has also argued that in view of the denial of ITC, his production cost has increased necessitating price revision. However, the price revision has also resulted in incremental increase in (i) Royalty which he was paying to M/s. Mcdonalds India Ltd. @ 3.99% of the turnover (ii) Variable rent which was being paid @ 3.29% of the turnover and the (iii) Other variable expenses which were being paid to the service providers and which amounted to 0.96% of the turnover. Moreover, GST was also being paid on all the above 3 services @ 18% which also formed part of his cost. On the basis of the above factors the Respondent has computed the commensurate increase in the prices as per the Table submitted by him. Perusal of the Table shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increase his prices suddenly nor Section 171 (1) provides for consideration of such costs. Hence, the above claim of the Respondent is not maintainable. 122. The Respondent has further stated that the DGAP has wrongly computed the amount of profiteering. The Respondent has computed the net incremental revenue as 9.43% on the Restaurant service by comparing the revenue at the pre rate change prices and the post rate change prices after reducing the incremental costs from it. In this regard it can be noted that in case the incremental revenue is taken to be 9.43% then it is more than the denial of ITC of 9.11% and hence the Respondent has profit margin of 0.32% as per his own admission which proves that he has profiteered to the extent of 0.32%. Therefore, the Respondent cannot claim that he was not required to pass on the benefit of tax reduction. 123. The Respondent has also computed the total amount of ITC, total amount of turnover, % of turnover and the actual profit/loss through the Table prepared by him. Vide another Table he has computed the actual profit/loss as 0.32% as per the methodology adopted by the DGAP, as 0.20% as per his own methodology, (-) 2.81% as per the finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not correct as no 'netting off' can be applied in the cases of profiteering as the benefit has to be passed on to each customer which has to be computed on each product. Netting off implies that the amount of benefit not passed on certain product will be subtracted from the amount of benefit passed on other product and the resultant amount shall be determined as the profiteered amount as has been claimed by the Respondent on the basis of Annexure-37 of the Report of DGAP. If this methodology is applied the Respondent would be entitled to subtract the amount of benefit which he has not passed on one product from the amount of benefit which he has claimed to have passed on the other product, which will result in complete denial of benefit to the customer who has purchased a particular product on which no benefit or less benefit has been passed on. Hence the methodology of 'netting off cannot be applied in the case of FMCGs and the methodology of 'Zeroing' has to be applied as the customers have to be considered as individual beneficiaries and they cannot be dumped and netted off against each other. This Authority has also clarified in its various orders that the benefit cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uary 2020 passed in I.O. No. 11/2020 of Dough Makers India Private Limited vide which this Authority has held that the computation of profiteering should be on the basis of the comparison of pre-rate reduction item-wise average base price with the actual transaction-wise/invoice-wise price charged post rate reduction. Similar stand has been taken by this Authority vide its order dated 25 June 2020 passed in the Case No. 33/2020 of Emaar MGF Land Limited, order dated 26 June 2020 passed in I.O. No. 20/2020 in the case of Mataji Paints and Hardware and the order dated 15 June 2020 passed in I.O. No. 19/2020 in the case of Himalaya Drug Company. Therefore, the principle of computation adopted by the DGAP was contrary to the principles of computation judicially developed by this Authority. In this connection it is to be noted that the Respondent himself had expressed his inability to provide the invoice wise item wise outward taxable supply data for B2C supplies due to extremely voluminous nature and had intimated that he would provide data in the summarized manner on product/ SKU basis, which has forced the DGAP to compare the average prices during the pre and post rate reduction peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een approved by the Parliament and the State Legislatures after detailed discussions at several levels and the CGST/SGST Acts have been duly brought to the notice of the public. The Government had also not felt that the provisions of Section 171 were inadequate in deciding both the above issues of tax reduction and profiteering. Power to frame methodology and procedure is generally and widely available to all the judicial, quasi-judicial and other statutory bodies and no favour has been shown to this Authority by granting it power to frame its own methodology and procedure under Rule 126. Such a power has been conferred on the GST Tribunal under Section 111 (1) of the CGST Act, 2017 and the Competition Commission under Section 36 of the Competition Act, 2002. This Authority has similarly framed its methodology and procedure under Rule 126 vide Notification dated 28.03.2018. The Respondent does not have the power of legislature to frame the methodology and procedure and hence any such methodology and procedure suggested by him cannot be accepted being illogical, arbitrary, inequitable and being ultra vires of Section 171 and Article 14 of the Constitution. The Respondent had wrongly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of denial of benefit of tax reduction which has been given to him from the public exchequer. Therefore, the above contention of the Respondent is not tenable. 131. The Respondent has further submitted that on 9 January 2018 he has revised the menu prices for 142 items and depending on the cost of inputs, market competition and other business exigency he was occasionally revising the menu prices which could not be taken as profiteering. In this connection it would be correct to point out that the Respondent has at no stage passed on the benefit of tax reduction but instead he has claimed to have increased his prices on 09.01.2018 which shows complete and wilful disregard of the provisions of section 171. The Respondent has no legal right to revise his prices unless hepasses on the benefit Hence, all such increases in prices made by the Respondent amount to profiteering. The Respondent cannot increase his prices in violation of the provisions of Section 171 under the pretext of protection granted under Article 19 (1) (g) as such a claim would be hit by Article 14 of the Constitution. 132. The Respondent has also submitted that the ITC for the period from 1 November 207-14 November ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The ITC on inventory as on 30.06.2017 has been duly dealt with by the DGAP as has been explained above. The SGST Act does not define the outlier data and hence the claim made by the Respondent on this ground is untenable. 135. The Respondent has also submitted that the DGAP has determined the ratio of ITC to taxable turnover as 9.11% for the period from July 2017-October 2017 whereas the applicable output rate of GST was 18%. As 9.11% was already available as ITC, the net output tax payment was 8.89% (18%-9.11%). With effect from 15 November 2017, rate of tax has been reduced to 5.45% (being 5% of 109.11) with a complete blockage of ITC and hence, the effective benefit of reduction in rate of tax was 3.44% (8.89% - 5.45%). In this connection it is to be noted that the benefit of tax has to be computed on each product by taking in to account its pre rate reduction base price, the denial of ITC @ 9.11%, on which the GST is to be charged @ 5% and then its commensurate price is to be fixed and charged to the customers. In case the commensurate price is not charged the actual price charged has to be taken in to account for computation of the profiteered amount. The benefit of tax ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed item-wise and not for restaurant service, as claimed by the Respondent, the revised computation of the alleged profiteering was computed in Annexure-2. However, there would not be any profiteering if profiteering was computed for supply of restaurant service per initiation notification dated 29 December 2017. In this regard it would be relevant to mention that the claim of the Respondent that the benefit of tax reduction would be 0.52% on all the products is absolutely wrong as commensurate price as per the provisions of Section 171 (1) is required to be computed on each product keeping in view its pre rate reduction base price including the denial of ITC and the rate of tax and then compared with the actual price charged by the Respondent including the tax during the post rate reduction period. Since, the Respondent has increased his prices from more than 9.11% to 100.09% as is evident from Annexure-32, the amount and percentage of benefit to be passed on can never be the same on each product. Perusal of Annexure-2 shows that the Respondent has applied 10.78% as the denial of ITC and then netted off the positive and negative values to claim that the net profiteered amount would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e base prices of the impacted products after comparing the average pre and post rate reduction prices of the products, despite the reduction in the GST rate from 18% to 5% or the profiteered amount is determined as Rs. 7,49.27,786/- as per the provisions of Section 171(1) & (2) of the CGST Act, 2017 read with Rule 133 (1) of the CGST Rules, 2017. The consolidated place of supply wise i.e. State wise breakup of the total profiteered amount of Rs. 7,49,27, 786/- is given in the Table below:- S. No. State (Place of Supply) Profiteering (In Rs.) 1. Andhra Pradesh 8,36,602 2. Chhattisgarh 3,99,904 3. Goa 8,29,314 4. Gujarat 88,48,919 5. Karnataka 1,18,30,563 6. Kerala 13,34,341 7. Madhya Pradesh 9,68,540 8. Maharashtra 3,96,68,520 9. Tamilnadu 43,19,803 10. Telangana 58,91,280 Total: 7,49,27,786 140.Accordingly, the Respondent is directed to reduce prices of all the impacted products commensurately in respect of which profiteering has been computed as per Annexure-37 of the DGAP's Report dated 15.06.2018 forthwith in terms of Rule 133 (3) (a) of the above Rules read with Section 171 (1) of the above Act. 141. The Respondent is also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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