TMI Blog2021 (3) TMI 648X X X X Extracts X X X X X X X X Extracts X X X X ..... ntra Tax (Rate) dated 14.11.2017 without the benefit of ITC. Therefore, Respondent No. 1 is liable to pass on the benefit of tax reduction to his customers in terms of Section 171 (1) of the above Act. It is also apparent that the DGAP has carried out the present investigation w.e.f. 15.11.2017 to 31.03.2019. It is apparent that Respondent No. 1 has resorted to profiteering as the commensurate benefit of reduction in the rate of tax from 18% to 5% has not been passed on by him. However, there was no profiteering in respect of the remaining 09 items on which there was either no increase in the base prices or the increase in base prices was less or equal to the denial of ITC or these were new products launched post-GST rate reduction. The profiteered amount is determined as ₹ 78,41,754/- as has been computed in Annexure-17 of the DGAP Report dated 28.08.2019. Accordingly, we direct the Respondent No. 1 to reduce his prices commensurately in terms of Rule 133 (3) (a) of the above Rules. Further, since the recipients of the benefit, as determined above are not identifiable, Respondent No. I is directed to deposit an amount of ₹ 78,41,754/- in two equal parts of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed under Rule 128 of the CGST Rules 2017, alleging profiteering in respect of restaurant service supplied by the Respondent No. 1 (Franchisee of Respondent No. 2) despite the reduction in the rate of GST from 18% to 5% w.e.f. 15.11.2017. It was alleged that Respondent No. 1 has increased the base prices of his products and has not passed on the benefit of reduction in the GST rate from 18% to 5% w.e.f. 15.11.2017, affected vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 by way of commensurate reduction in prices, in terms of Section 171 of the CGST Act, 2017. The DGAP has reported that the summary sheet of the extent of profiteering was prepared by Applicant No. 1, which was also enclosed with the reference received from the Standing Committee on Anti-profiteering. The above issue was examined by the Maharashtra State Screening Committee and upon being prima facie satisfied that Respondent No. 1 had contravened the provisions of Section 171 of the CGST Act, 2017, it forwarded the said complaint with its recommendation to the Standing Committee on Anti-profiteering for further action vide its letter dated 21.02.2019. 2. The above complaint was examined by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Copies of sample sale invoices and purchase invoices. (f) Price lists of the products. (g) Monthly invoice-wise summary of item-wise sales for the period from October 2017 to March 2019. (h) Details of ITC availed, utilized, and reversed during the period from July 2017 to 14th November 2017. (i) Details of Closing Stock of inputs on 14th November 2017. 7. The DGAP, in his report, has mentioned that in terms of Rule 130 of the CGST Rules, 2017, Respondent No. 1 had been asked by the DGAP vide notice dated 09.04.2019 to indicate whether any information/ documents furnished were confidential. However, Respondent No. 1 did not classify any of the information/ documents furnished by him as confidential in terms of Rule 130 of the Rules, ibid. 8. The DGAP has reported that the reference from the Standing Committee on Anti-Profiteering, the various replies of Respondent No. 1, and the documents/evidence on record had been carefully examined. The main issues for determination were whether the rate of GST on the service supplied by Respondent No. 1 was reduced from 18% to 5% w.e.f. 15.11.2017 and if so, whether the benefit of such reduction in the rate of GST had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers was not reduced commensurately for all the items, despite the reduction in the GST rate. Therefore, the only remaining point for determination was whether the increase in base prices was solely on account of the denial of ITC. 12. The DGAP has also stated that the assessment of the impact of denial of ITC, which was an uncontested fact, required determination of the ITC in respect of restaurant service as a percentage of the taxable turnover from the outward supply of products during the pre-GST rate reduction period. The DGAP has further illustrated with an example that if the ITC in respect of restaurant service was 10% of the taxable turnover of the Respondent No. 1 till 14.11.2017 (which became unavailable w.e.f. 15.11.2017) and the increase in the pre-GST rate reduction base price w.e.f. 15.11.2017, was up to 10%, it could be concluded that there was no profiteering. However, if the increase in the pre-GST rate reduction base price w.e.f. 15.11.2017, was by 14%, the extent of profiteering would be 14% - 10% = 4% of the turnover. Therefore, this exercise to work out the ITC in respect of restaurant service as a percentage of the taxable turnover of the products suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urant service was reduced from 18% to 5%, the said ITC was not available to Respondent No. 1. A summary of the computation of the ratio of ITC to the taxable turnover in the case of Respondent No. 1 has been furnished by the DGAP as per Table-A below:- Table-A (Amount in Rs.) Particulars Jul-17 Aug-17 Sept.-2017 Oct.-2017 Total ITC Availed as per GSTR-3B(A)* 3,40,095 4,04,062 5,00,187 4,71, 909 17,16,253 Total Outward Taxable Turnover as per GSTR-3B (B) 50,52,696, 48,84,153 48,47,832 49,05,342 1,96,90,023 The ratio of ITC to Net Outward Taxable Turnover (C)= (A/B) 8.72% 8.72% *ITC availed as per GSTR-3B excludes ITC of Compensation cess amounting to ₹ 13,093/- as Respondent No. 1 did not have any output liability of compensation cess and the same was also reversed on 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The DGAP, in his report, has concluded that the allegation of profiteering by way of either increasing the base prices of the products while maintaining the same selling price or by way of not reducing the selling prices of the products commensurately, despite the reduction in GST rate from 18% to 5% w.e.f. 15.11.2017 stood confirmed against Respondent No. 1. On this account, Respondent No. 1 has realized an additional amount to the tune of ₹ 78,41,754/- from the recipients which included both the profiteered amount and GST on the said profiteered amount and hence, the provisions of Section 171(1) of the CGST Act, 2017 have been contravened by Respondent No. 1 in the present case. 18. The above Report was considered by this Authority in its sitting held on 30.08.2019 and it was decided to accord an opportunity of hearing to Respondent No. 1 on 17.09.2019. Notice was also issued to Respondent No. 1 directing him to explain why the Report dated 28.08.2019 furnished by the DGAP should not be accepted and his liability for violation of the provisions of Section 171 of the CGST Act, 2017 should not be fixed. However, Respondent No. 1 did not appear for the hearing and request ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was impleaded as a patty, and letters were issued to both the Respondents on 05.03.2020, calling upon them to submit the information/ documents required to re-investigate the matter. 22. The DGAP has further stated that this Authority, vide para-25 of aforesaid I.O. No. 11/2020 dated 27.02.2020, had directed to furnish the report within a period of three months of this order i.e. on or before 26.05.2020. The said time limit was extended up to 30.06.2020 by virtue of Notification No. 35/2020Central Tax dated 03.04.2020 issued by Central Government under Section 168A of the CGST Act, 2017 which stated that where, any time limit for completion/ furnishing of any report, has been specified in, or prescribed or notified under the CGST Act, 2017 which falls during the period from the 20th day of March 2020 to the 29th day of June 2020, and where completion or compliance of such action has not been made within such time, then, the time limit for completion or compliance of such action, would be extended up to the 30.06.2020. 23. The DGAP in his report has also reported that in response to notice dated 05.03.2020 and subsequent reminders, Respondent No. 1 submitted his reply vide let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llows:- a. Sales through his outlet at M/s. TCS, Pune in respect of which the price of each menu item was 10% lesser than the pricelist; b. 'Sub of the day' sales in respect of which the price of a particular menu item sold on a particular day of the week was lower than the price list; c. Sales through Swiggy, Zomato, Food panda, etc.; d. Promotional sales at discounts for sales promotion; and e. Other sales, which were as per the price list. iii. That he relied on this Authority's order dated 21.11.2019 in case of Principal Commissioner of CGST, Mumbai West and DGAP Vs. Johnson Johnson Ltd and others (case No. 59/2019) repotted as 2019-TIOL-59-NAA-GST (para 9 of the order), wherein this Authority has approved the DGAP's methodology of taking separate base price for each category of buyers for pre-rate reduction period when a supplier made supply of his goods through different channels to different categories of buyers at different prices. iv. That for re-computation of the profiteering amount, the above-mentioned order of this Authority ought to be followed; that, in other words, separate calculation of profiteering must be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2020 expressed his inability to submit the item-wise invoice wise details citing the following reasons:- i. That he had been filing GST returns in compliance with the GST Act and there was no stipulation to map each item supplied through the invoices while filing the returns; on the other hand, the data sought by DGAP in the tabulated form required him to map the items supplied from his outlets invoice-wise for the period from July 2017 to 31.03.2019; that his pos system did not record the details in the manner sought by the DGAP; that he only had the details of the total number of items sold from a particular outlet in a month and that he could not map the items supplied to his supply invoices. ii. That while one invoice issued by an outlet on a particular date could contain more than one item, the entry made in the system only depicted the total number of items sold and the total of invoices; that for cross-checking, the total invoice amount was tallied with the total number of items sold for a particular month and the total price thereof; that for this reason, the information in the prescribed format sought by the DGAP could not be generated from his POS system and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). Therefore, Respondent No. 2 was directed to submit the invoice-wise details of outward taxable supplies of Respondent No. 1 for the period October 2017 to March 2019 vide DGAP's further letters dated 18.03.2020 and 11.05.2020. However, Respondent No. 2 did not submit the required documents to the DGAP. 28. The DGAP has further reported that while a comprehensive investigation covering all the operational franchisees as on the date of the reduction in the rate of GST w.e.f. 15.11.2017 was initiated on 15.05.2020 against Respondent No. 2 as per the directions of this Authority under Rule 133 (4) of the CGST Rules, revised profiteering could not be computed due to limitations in the data furnished by Respondent No. 1 and the non-submission of documents by Respondent No. 2. Thus, the Report dated 28.08.2020, establishing the profiteering to the tune of ₹ 78,41,754/- (including GST on the base profiteered amount) may be considered as the final Report. The DGAP has also stated that a reference to the CGST Act, 2017 and CGST Rules, 2017 in the Report also included a reference to the corresponding provisions under the relevant SGST/UTGST/IGST Acts and Rules. 29. The ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons given by the DGAP for excluding the period from 01.11.2017 to 14.11.2017 for the calculation of the ITC availed to taxable turnover ratio were not correct for the reasons mentioned below:- i. That while he could not furnish invoice-wise details of outward taxable supplies for the month of November 2017, he had supplied details of bifurcation of sale details for the month of November 2017 into periods 01.11.2017 to 14.11.2017 and 15.11.2017 to 30.11.2017 to enable the calculation of turnover for the period from 01.11.2017 to 14.11.2017; that he had reversed the credit in respect of inputs and input services lying unutilized as on 14.11.2017 and hence he could not have utilized the credit that he had reversed. ii. That since there was no credit availed in respect of capital goods, there was no question of calculating the quantum of reversal in terms of Rule 43 of the CGST Rules. d. That he was required to pay the rent and license fee in advance and hence the credit taken based on invoices which had been received in the first week of the month ought to have been considered; that since the services covered by the invoices had been actually received by him, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d considered the item-wise average base prices for the period from 01.10.2017 to 14.11.2017 instead of considering the price list in the case of a large number of items; that the DGAP had incorrectly adopted lower item-wise base-prices for the pre-tax rate reduction period and compared the same with the maximum average base prices that existed during the post-tax rate reduction period, thus inflating the profiteered amount; that the average prices could not be equated with actual transaction prices since the prices at his restaurant located at TCS Pune were at 10% lower and since his SOTD sales were made at lower prices; that the average price of an item during any particular period was lower than the actual price of an item listed in the price list; that since the method of identification of the items in respect of which profiteering has been alleged is incorrect, the calculation of the profiteered amount in respect of such items was also incorrect. h. That in several cases, for calculating the commensurate base price, instead of taking the base price of an item as of 14.11.2017 as per the price list, the DGAP has incorrectly adopted the average base price of that item in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the normal price list price; that he relied on the Order of this Authority in the case of DGAP Vs M/s. Johnson Johnson Ltd, whereby this Authority has approved the methodology of taking separate base prices for each category of sales for the pre-rate reduction period when a supplier made the supply of his goods through different channels to different categories of buyers at different prices. m. That no standard computational methodology has been notified, either by the Central Government or by this Authority for determining whether a registered person has contravened the provisions of Section 171(1) of the CGST Act, 2017 and for computation of the profiteered amount. n. That in this case, an adverse conclusion has been drawn and profiteering amounting to ₹ 78,41,754/- has been determined because of his inability to furnish item-wise and invoice-wise information about the items supplied by him during the period from 15.11.2017 to 31.03.2019 due to limitations of his POS system and it was impossible to compile the same manually due to the enormity of data. o. That the way DGAP has concluded that he had profiteered and the way the profiteered amount has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiteering provisions to prevent price rise during the transition period; that in Australia, the Australian Competition Consumers Commission (ACCC) had been entrusted with the enforcement of Anti-profiteering provisions of the Australian GST law during the transition period; that the Anti-profiteering Provisions of the Australian Goods and Services Tax were contained in the Part VB from Section 75AT to Section 75AZ of the Trade Practices Act, 1974 of Australia pertaining to price exploitation in relation to the new tax system (equivalent to profiteering in the GST laws). Section 75 AU(2) gave a clear cut definition of what constituted price exploitation in relation to the new tax system changes and in terms of this sub-section, for determining whether a corporation was guilty of price exploitation, it was seen as to whether the price of the supply during the transition period as defined in the Act, was unreasonably high even after taking into account the supplier's cost, supply and demand condition, and any other relevant matter; that Section 75AV authorized the Commission to formulate detailed guidelines for determining whether a corporation has indulged in price exploita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Section 171, there had been a precise definition of the expression commensurate reduction in prices ; that without any such definition in the Act, delegating the authority to the Government to frame rules or guidelines in this regard was a case of delegation of legislative function without any policy guidelines, and, therefore, was a case of excessive delegation; that in this regard, reliance was placed on the Apex Court's judgement in the case of Hamdard Dawakhana and Anr Vs Union of India and Ors. AIR 1960 SC-554 (Paras 29 to 35 of the judgement). t. That the framing of Rules for determining whether a person has contravened the provisions of Section 171 (1 ) has been delegated to the Government but the CGST Rules 2017 nowhere prescribed any machinery provisions or computational methodology for determining whether a registered person has contravened the provisions of Section 171(1) and if so, how the profiteered amount would be calculated and for which period; that in this regard, Rule 126 of the Rules simply further delegated to this Authority the determination of the procedure methodology for determining as to whether the registered person has passed on the ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 5% without ITC benefit was that while the organized chains of restaurants were factoring the ITC and transferring its benefit to the consumers, the standalone restaurants were not transferring the benefit of ITC to the consumers and those restaurants were indulging in profiteering by pocketing the benefit of additional ITC to the tune of 7-8% which had become available. Respondent No. 1 belonged to an organized chain of restaurants in respect of which the GST Council itself had observed that they were factoring the ITC and transferring its benefit to the consumers. Therefore, the proceedings against Respondent No. 1 were unwarranted and misconceived and were in the nature of a roving inquiry. From the very beginning, Respondent No. 1 emphasized that he had not indulged in profiteering by pocketing the tax concession. If he had been indulging in profiteering, the same would have been reflected in his profits and loss a/c in form of abnormal profit, which was not the case. There was not even an allegation that Respondent No. I's profit during the period of investigation was abnormal. 30. A supplementary report was sought from the DGAP on the above submissions of Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of Respondent No. 1 and therefore, there was no violation of Article 19(1) (g) of the Constitution. f. That in terms of Section 171 of CGST Act, 2017 which governed the anti-profiteering provisions under GST read as 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. Thus, the legal requirement was that in the event of a benefit of ITC or reduction in the rate of tax, there must be a commensurate reduction in prices of the goods or services. Such reduction could obviously only be in absolute terms so that the final price payable by a consumer got reduced. This was the legally prescribed mechanism for passing on the benefit of ITC or reduction in the rate of tax under the GST regime to the consumers. Moreover, it was clear that the said Section 171 simply did not provide a supplier of the goods or services any other means of passing on the benefit of ITC or reduction in the rate of tax to the consumers. Thus, the legal position was unambiguous and could be summed up as follows:- i. A supplier of goods or services must pass on the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C benefit intact, there would have been no need for revision of the base prices and the Respondent No. 1 would not have revised the same. But the change in GST rate on Restaurant service w.e.f. 15.11.2017 is from 18% with ITC benefit to 5% without ITC benefit. Since the withdrawal of ITC benefit has the effect of increasing the base price, the upward revision of the base price became necessary. The dispute, in this case, was only on the point of whether the increase in the base price by Respondent No. 1 was only to that extent which was necessary to offset the effect of withdrawal of ITC benefit. In this regard, Respondent No. 1 decided to follow the recommendation of Respondent No. 2 given vide his email dated 14.11.2017, which was enclosed as Annexure A-I to the Written Submissions dated 30.10.2019, submitted by Respondent No. 1. Since as per Respondent No. 2's estimate, the average impact of the withdrawal of ITC benefit was 11% with 2% additional ITC loss if a franchisee opened new outlets, the above Respondent No. 2 vide e-mail dated 14.11.2017 recommended a 12.4% increase in the base price of menu items other than those sold on SOTD basis with rounding off to ₹ 5/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on base price of a menu item as adjusted for withdrawal of ITC benefit and the actual post-rate reduction base price of that menu item as per post-tax rate reduction pricelist as profiteering per unit; and (b) calculating the profiteering in respect of that item by multiplying the per unit profiteering by the total quantity of the menu item sold during the period of investigation. d. That the calculation in this manner should have been done separately for each category of the sale in the very beginning when the investigation against Respondent No. 1 was initiated. There was no need for invoice-wise and menu item-wise calculation of profiteering and for asking Respondent No. 1 to give the voluminous invoice-wise and item-wise sales data in a prescribed format. It was unfair to reject Respondent No. 1's request for separate calculation for each category of sale on the ground that he did not give invoice-wise and item-wise data in the prescribed format, which Respondent No. 1 could not furnish, as the invoice-wise and item-wise data prescribed format could not be generated from his system due to various technical reasons as mentioned in his letter dated 18.05.2020 and given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Screening Committee on Anti-profiteering along with a 'summary sheet of the extent of profiteering, prepared by the Deputy Commissioner of State Tax, Pune. j. That if the reduction in the rate of GST was without withdrawal of ITC benefit, an increase in base price during post- rate reduction period would require an inquiry for ascertaining whether it was due to bonafide commercial reasons or otherwise and in the latter case, would be treated as profiteering. But in this case, the reduction in the rate of GST was from 18% ad -valorem with ITC benefit to 5% ad-valorem without ITC benefit. Since the withdrawal of ITC benefit has the effect of increasing the input cost, revision of base price became necessary for offsetting the effect of withdrawal of ITC benefit. There was no notified standard formula for quantifying the impact of the withdrawal of ITC benefit. The DGAP quantified the impact of the withdrawal of ITC benefit based on ITC availment to taxable turnover ratio for the pre-rate reduction period and applied this ratio to the post-rate reduction period. But it was wrong to treat the ITC availment to taxable turnover ratio to be fixed and unchanging. As per Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Goods and Services Tax Act, 2017 reads as The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. Further, Section 15(3) (a) provides that the value of the supply shall not include any discount which is given before or at the time of the supply if such a discount has been duly recorded in the invoice issued in respect of such supply. Thus, GST was chargeable on actual transaction value after excluding any discount (conditional as well as unconditional) and therefore, for the purpose of computation of profiteering menu price or pricelist or MRP could not be considered whereas actual transaction value was the correct amount which had been considered for computation of profiteering amount. The pricelist was the maximum price at which an item might be sold but it was not the actual sale price. c. That the contention of Respondent No. 1 that maximum of the average base price during post-tax rate reduction period was not correct as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ITC shall be passed on to the recipient by way of commensurate reduction in prices. Thus, the legal requirement was that in the event of a benefit of ITC or reduction in the rate of tax, there must be a commensurate reduction in prices of the goods or services. Such reduction could obviously only be in absolute terms so that the final price payable by a consumer got reduced. This was the legally prescribed mechanism for passing on the benefit of ITC or reduction in the rate of tax under the GST regime to the consumers. Moreover, it was clear that the said Section 171 simply did not provide a supplier of the goods or services any other means of passing on the benefit of ITC or reduction in the rate of tax to the consumers. Thus, the legal position was unambiguous and could be summed up as follows:- i. A supplier of goods or services must pass on the benefit of ITC or reduction in the rate of tax to the recipients by commensurate reduction in prices. ii. The law does not offer a supplier of goods and services any flexibility to suo moto decide on any other modality to pass on the benefit of ITC or reduction in the rate of tax to the recipients. Therefore, computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Logistic Solutions Pvt. Ltd. Vs. Commr. of Customs and Ors. 2019-TIOL-2828-HC-MAD-CUS and the judgement of Hon'ble High Court of Delhi in the case of Impexnet Logistics vs CC 2016-TIOL-1069-HC-DEL-CUS. The ratio decidendi of these judgements, which were in respect of time limits specified in the Customs Brokers Licencing Regulations/ Customs House Agents Licensing Regulations, were ipso-facto applicable to the present case as the time limit has been prescribed in the CGST Rules, 2017 framed by the Central Government under the legislative authority delegated under Section 164 of the CGST Act, 2017 and in terms of Section 166, these Rules were deemed to have the approval of the Parliament. b. That this Authority in its Order No. 99/2020 dated 11.12.2020 passed in the case of Hussain Shoaib Kothalia, Chennai DGAP Vs. M/s. Subwest Restaurant LLP has upheld the methodology adopted by the DGAP for computation of profiteered amount by comparing the pre-rate reduction base price of the menu-item as per the price-list, as adjusted for withdrawal of ITC benefit w.e.f. 15.11.2017, with the post-rate reduction base price as per the post-tax rate reduction pricelist w.e.f. 15.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmensurate reduction in prices. (2). The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether Input Tax Credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him. 37. It is observed from the record that Respondent No. 1 is providing restaurant services as a franchisee of Respondent No. 2 and is supplying various food products to the customers. It is also revealed from the plain reading of Section 171 (1) of the CGST Act, 2017 that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second about the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the record that there has been a reduction in the rate of tax from 18% to 5% w.e.f. 15.11.2017, on the restaurant service being supplied by Respondent No. 1, vide Notification No. 46/2017-Centra Tax (Rate) dated 14.11.2017 without the benefit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Respondent No. 1. 40. It is further revealed from the analysis of the details of item-wise outward taxable supplies made during the period from 15.11.2017 to 31.03.2019 that Respondent No. 1 had increased the base prices of his products/items supplied as a part of restaurant service to make up for the denial of ITC post GST rate reduction. The pre and post GST rate reduction prices of the items sold during the period from 01.07.2017 to 14.11.2017 (Pre-GST rate reduction) and 15.11.2017 to 30.03.2019 (Post-GST rate reduction) have been compared and it has been found that Respondent No. 1 has increased the base prices by more than 8.72% i.e. by more than what was required to offset the impact of denial of ITC in respect of the products/items sold during the above period. Thus, it is apparent that Respondent No. 1 has resorted to profiteering as the commensurate benefit of reduction in the rate of tax from 18% to 5% has not been passed on by him. However, there was no profiteering in respect of the remaining 09 items on which there was either no increase in the base prices or the increase in base prices was less or equal to the denial of ITC or these were new products launched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is more than the commensurate base price would not get the benefit of tax reduction. Such a comparison would be against the provisions of Section 171 as well as Article 14 of the Constitution which requires that each customer has to be passed on the benefit of tax reduction on each purchase made by him. The above methodology employed by the DGAP for computing the profiteered amount appears to be correct, reasonable, justifiable and in consonance with the provisions of Section 171 of the CGST Act, 2017 and has been successively approved by this Authority in the cases of tax reduction and hence the same can be relied upon. 43. Respondent No. 1 has vehemently argued that the DGAP has submitted his report to this Authority on 29.08.2019 and this matter was required to be decided by 27.02.2020. This Authority vide its order dated 27.02.2020 had referred back the matter to the DGAP under Rule 133(4) of the CGST Act, 2017. The reference to the DGAP for further investigation under the above Rule was not to be treated as a new investigation. He has also placed reliance on the decision of Hon'ble Madras High Court in the case of KTR Logistic Solutions Pvt. Ltd. Vs. Commr. Of Custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rates. The profiteering amount has to be computed on each item by comparing the average base price which Respondent No. 1 was charging before tax reduction with the actual base price which he has charged post-tax rate reduction. Respondent No. 1 has increased his base prices by more than the denial of ITC of 8.72% or more as is evident from Para 2 (A. 1) of the supplementary report dated 02.11.2019 of the DGAP which states that:- As clearly detailed in Para 17 and 18 of the report dated 28.08.2019 that the Ratio of Input Tax Credit to Net Outward Taxable Turnover was 8.72% thus the Noticee could have increased the base price by 8.72% post GST rate reduction w.e.f. 15.11.2017 in order to negate the impact of ITC denial but as it is clear from Annexure 16 17 of the report dated 28.08.2019, the Noticee has increased the base prices on 241 items in the range of 15% to 102%.... . Therefore, it is quite clear that the profiteered amount is not to the extent of 4% of the GST. Hence, the above claim of Respondent No. 1 cannot be accepted. 45. The Respondent No. 1 has further averred that the DGAP has calculated the ratio of ITC to Turnover for the period from 01.07.2017 to 31.10.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f. 15.11.2017 and had taken no steps to pass on the resultant benefit of tax reduction at any point of time till 31.03.2019. In other words, the violation of the provisions of Section 171 of the CGST Act 2017 has continued unabated in this case and the offence continues to date. Respondent No. 1 has not produced any evidence to prove from which date the benefit was passed on by him. The fact that Respondent No. 1 has not complied with the law till 31.03.2019 requires that the profiteering is computed for the entire period and hence we do not see any reason to accept this contention of Respondent No. 1. We further observe that if Respondent No. 1 had passed on the benefit before 31.03.2019, he would have been investigated only till that date. Therefore, the period of investigation from 15.11.2017 to 31.03.2019 has been correctly taken by the DGAP for computation of the profiteered amount. 47. Respondent No. 1 has further contended that for identifying the items in respect of which increase in base prices during post-tax rate reduction period was made the base prices of the items as of 14.11.2017 should have been compared with the revised base prices of the items w.e.f. 15.11.2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent No. 1 has not supplied the supply channel-wise details of the outward supplies to the DGAP specifically on account of Sales from the restaurant located in TCS Pune and SOTD sales. The above methodology employed by the DGAP for computing the profiteered amount appears to be correct, reasonable, justifiable, and in consonance with the provisions of Section 171 of the CGST Act, 2017. 48. He has also contended that instead of taking the base prices for the pre-rate reduction period as per Respondent No. 1's price list, the average base price during the period from 01.10.2017 to 14.11.2017 had been adopted, which was lower than the base price, as per the price list and that the Average price couldn't be equated with the Actual Transaction Price, on account of Sales from the restaurant located in TCS Pune, which had 10% lower prices, SOTD sales, promotional sales at discount and sales through Swiggy, Zomato, Food Panda, etc. which were also at a lower price. This understanding had been adopted by this Authority in the case of Johnson Johnson Ltd. (case No. 59/2019), decided vide its Order dated 21.112019 . In this connection, it would be relevant to mention that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduction to his customers by charging excess GST. It is evident that If Respondent No. 1 had not charged the excess GST, the customers would have paid lesser prices while purchasing products from Respondent No. 1 and would have thus benefitted on account of the net reduction in the rate of tax. Hence the above amount has rightly been included in the profiteered amount as it denotes the amount of benefit denied by Respondent No. 1 to his customers/ recipients. The above amount can also not be recovered from the Government as it is required to be deposited in the CWFs of the Central and the State Government. Therefore, the above amount has been correctly included in the profiteered amount by the DGAP, and therefore, the above contention of Respondent No. 1 is untenable and hence it cannot be accepted. 50. Respondent No. 1 has further contended that while calculating the profiteered amount vide Annexure 17, the DGAP has not taken into account the fact that in the case of the items sold as 'Sub of the Day (SOTD) items', the price of which as on 14.11.2017 was ₹ 110/- plus GST which was revised to ₹ 125/- including 5% GST w.e.f. 15.11.2017, translating into an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue. It also provides that the above benefits are to be passed on any supply i.e. on each Stock Keeping Unit (SKU) of 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 benefit or the profiteered amount has to be computed for which investigation has to be conducted in respect of all such SKUs/units/services by the DGAP. What would be the 'profiteered amount' has been clearly defined in the explanation attached to Section 171. These benefits can also not be passed on at the entity/organization/branch/invoice/product/ business vertical level as they have to be passed on to each buyer at each SKU/unit/service level by treating them equally. The above provision also mentions any supply which connotes each taxable supply made to each recipient thereby making it evident that a supplier cannot claim that he has passed on more benefit to one customer on a particular product therefore he would pass less benefit or no benefit to another customer than what is actually due to that customer, on another product. Each customer is entitled to receive the benefit of tax reduction or ITC on each SKU or unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 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 empowered to 'determine' Methodology Procedure and not to 'prescribe' it. Similarly, the facts of the cases relating to the sectors of Fast Moving Consumer Goods (FMCG), restaurant service, construction service, and cinema service are completely different from each other and therefore, the mathematical methodology adopted in the case of one sector cannot be applied to the other sector. Moreover, both the above benefits are being given by the Central as well as the State Governments as a special concession out of their tax revenue in the public interest and hence the suppliers are not required to keep even a single penny in their pocket and therefore, are bound to pass on the above benefits as per the provisions of Section 171 (1) which are abundantly clear, unambiguous, mandatory and legally enf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he burden of the tax or not. The intent of this provision is the welfare of the consumers who are voiceless, unorganized, and vulnerable. This Authority has nowhere interfered with the pricing decisions of Respondent No. 1 and therefore, there is no violation of Article 19 (1) (g) of the Constitution. 53. Further, it has been contended by Respondent No. 1 that the DGAP while concluding that Respondent No. 1 was guilty of contravention of the provisions of Sec 171(1) of the CGST Act, 2017 has not considered that the base price of a product depended upon several other factors like cost of inputs, fixed cost, supply demand position, competition, etc. In this connection, it would be pertinent to mention that the provisions of Section 171 (1) and (2) of the above Act require that Respondent No. 1 has to pass on the benefit of tax reduction to the consumers only and have no mandate to look into fixing of prices of the products which the Respondent No. 1 is free to fix. However, it cannot be accepted that his costs had increased on the intervening night of 14.11.2017/ 15.11.2017 when the rate reduction had happened which had forced him to increase his prices more than the denial of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in respect of each SKU or unit or service based on the price and the rate of tax reduction or the additional ITC which has become available to a registered person. The legislature has deliberately not used the word 'equal' or 'equivalent' in this Section and used the word 'Commensurate' as it had no intention that it should be used to denote proportionality and adequacy. The benefit of tax reduction would depend upon the price and quantum of reduction in the rate of tax from the date of its notification. Computation of commensurate reduction in prices is purely a mathematical exercise which is based upon the above parameters and hence it would vary from SKU to SKU or unit to unit or service to service and hence no fixed mathematical methodology can be prescribed to determine the amount of benefit which a supplier is required to pass on to a buyer. Therefore, the above contention of Respondent No. 1 is not maintainable. 56. The Respondent No. 1 has also relied upon the judgements passed by Hon'ble Apex Court in the case of Commissioner of Income Tax Bangalore v. B. C. Srinivasa Setty (1981) 2 SCC 460 and claimed that in the absence of the machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tech Cement Ltd . In this context, it is mentioned that the Parliament as well as all the State Legislatures have delegated the task of framing 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 is 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 functions and duties. The above delegation has been granted to this Authority after careful consideration at several levels and therefore, there is no ground for claiming that the present delegation is excessive. Since the functions and powers to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hains of restaurants were factoring the ITC and transferring its benefit to the consumers while the standalone restaurants were not transferring the benefit of ITC to the consumers. The observation of the GST Council was general in nature and does amount to intend that Respondent No. 1 was passing on the benefit of tax reduction. The claim of Respondent No. 1 is also not established by the present investigation which shows that he has not passed on the benefit of tax reduction and hence, the contention of Respondent No. 1 is frivolous and cannot be accepted. Thus, he has contravened the provisions of Section 171 of the CGST Act, 2017. Therefore, he is liable to pass on the said benefit to his customers/recipients, which he has failed to do. 59. The Respondent No. 1 has also relied upon the case of Rishi Gupta V. M/s. Flipkart Internet Pvt. Ltd. 2018-TIOL-04-NAA-GST wherein this Authority has observed that discounts have to be ignored while calculating profiteering amount. On perusal of the above-cited case, it is observed that the issue in that case related to denial of discount of ₹ 500/-, which had been initially offered by the supplier to the buyer at the time of pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n considered by the Screening Committee on Anti-profiteering and the Standing Committee on Anti-profiteering and thus, upon being prima facie satisfied that the Respondent No. 1 has contravened the provisions of Section 171 of the above Act forwarded the same to the DGAP for a detailed investigation. It would also be relevant to mention that a complaint alleging non-passing on of the benefit of reduction in the rate of tax or additional ITC by any supplier/registered person can be made by any other person also as per the provisions of Rule 128(1). Therefore, the above claim of Respondent No. 1 is not correct and cannot be accepted. 62. The Respondent has also averred that there would have been no need to revise the base prices of items w.e.f. 15.11.2017 if the reduction in the rate of GST from 18% to 5% had been made without withdrawing the ITC. However, w.e.f. 15.11.2017, the rate of GST on restaurant services was reduced from 18% with ITC to 5% without ITC; therefore, the revision of base prices w.e.f. 15.11.2017 had become necessary as withdrawal of ITC had increased the cost of inputs. The above contention made by Respondent No. 1 is frivolous. In this regard, we find that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Respondent No. 1 to the DGAP. Hence, the computational methodology adopted in the case of M/s. Subwest Restaurant LLP cannot be applied in the present case. Therefore, the above contention made by Respondent No. 1 being frivolous cannot be accepted as the facts of the two cases are different. 64. It has also been claimed by Respondent No. 1 that Section 171 (3A) of the CGST Act, 2017 has been inserted in the CGST Act, 2017 vide Section 112 of the Finance Act, 2019, and the same became operational w.e.f. 01.01.2020. However, during the period of investigation i.e. 15.11.2017 to 31.03.2019, there was no penal provision in the CGST Act, 2017 for the contravention of the provisions of Section 171 of the Act. Therefore, no penalty could be imposable on Respondent No. 1 under Rule 133 (3) (c) of the CGST Rules, 2017. In this regard, it is observed that the provisions of Section 171 (3A) have come into force w.e.f. 01.01.2020 whereas the period during which violation has occurred is w.e.f. 15.11.2017 to 31.03.2019, hence the penalty prescribed under the above Section is not proposed to be imposed on Respondent No. 1 retrospectively. 65. Based on the above facts the profiteered am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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