TMI Blog2023 (12) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... payable @ 18% to be calculated from the dates on which the above amount was realized by the Respondent from his recipients till the date of its deposit. The above amount of Rs. 6,58,523/- shall be deposited, as specified above, within a period of 3 months from the date of passing of this order failing which it shall be recovered by the concerned CGST/SGST Commissioner. Penalty - HELD THAT:- The Respondent has denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus committed an offense under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty under the provisions of the above Section. However, since the provisions of Section 171 (3A) have come into force w.e.f. 01.01.2020 whereas the period during which the violation occurred is w.e.f. 01.07.2017 to 30.06.2019, hence the penalty prescribed under the above Section cannot be imposed on Respondent No. 1 retrospectively. Accordingly, Show Cause Notice directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stigating the matter on the above lines, all other contentions made by Respondent before this Authority during the course of the hearings might also be considered and also directed to reinvestigate the matter and submitted the Report keeping in view the aforesaid issues . 2. The brief facts of the case had been mentioned in the NAA's I.O. No. 23/2020 dated 13.10.2020 and the same are reproduced below: (a) A reference was received from Standing Committee on Anti-profiteering, under Rule 128 of the CGST Rules, 2017, on 01.07.2019 to conduct a detailed investigation alleging that the Respondent had not passed on the benefit of reduction in the GST rate from 18% to 5% w.e.f 15.11.2017 vide Notification dated 46/2017-Central Tax (Rate) dated 14.11.2017 by way of commensurate reduction in price, in terms of Section 171 of the CGST Act, 2017. (b) The DGAP had examined the above reference from the Standing Committee on Anti-profiteering on 01.07.2019 and a Notice under Rule 129(3) of the CGST Rules, 2017, was issued by the DGAP to the Respondent on 09.07.2019 to reply whether he admitted that the benefit of reduction in GST rate w.e.f. 15.11.2017, had not been passed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the pre-GST reduction period of 1st November, 2017 to 14 November, 2017 and then profiteering had been calculated for post GST rate reduction invoice no. 1/A-9907 dated 15.11.2017 as tabulated below in Table B : - Table- B (Amount in Rs.) Name of the Product (A) 6 Paneer Tikka Total Quantity sold from 01.11.2017 to 14.11.2017 (B) 74 Sum of Taxable Value during 01.11.2017 to 14.11.2017 9086* Average base price from 01.11.2017 to 14.011.2017 D=C/B 122.79 Base price with denial of ITC @ 6.03% (E=D+D*6.03%) 130.19 GST @ 5% (F=E*5%) 6.51 Total price to be charged (G=E+F) 136.70 Selling price per unit as per invoice no. 1/A-9907 dated 15.11.2017 (H) 165 Total Profiteering (I=H-G) 28.30 165-136.70) (*This table has been taken from DGAP Report dated 28.01.2020 However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) That the DGAP has erred by computing the average pre rate reduction prices based on the total sales, by including the discounted as well as normal sales, during the period 01.11.2017 to 14.11.2017; that if the discounted prices of the World Sandwich Day had been excluded the profiteered amount would stand reduced by Rs. 88,270/-. (d) That DGAP ought to have taken the pre-tax rate reduction average prices (without considering discounted sales) and compared the same with the post-tax rate reduction average prices so that the basis of comparison was the same; further that for a few items which had not been supplied by him in the period from 01.11.2017 to 14.11.2017, the DGAP has inexplicably relied on the prices of supplies effected during the months of September 2017 October 2017, which was improper; that the DGAP ought to have taken a uniform pre-tax rate reduction period for all items supplied by him. (e) That the quantum of profiteering should have been calculated by the DGAP only up to the date of the next price revision affected by him (the Respondent) as any such price revision was on account of business reasons only; that while the tax rate has been reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by him in the profiteered amount because the GST has been paid to the government was based on the base price charged to the customers. Since, according to the DGAP's report, the base price should have been reduced and accordingly, the GST amount payable should also be less than as compared to the actual GST amount collected from the customers. However, the collection of the GST amount on the increased base price from the customers has been already deposited with the Government of India along with monthly tax liability. Therefore, the addition of a 5% GST amount needed to be removed, and the profiteered amount should be recovered from the Governments, and therefore, the calculated profiteered amount should be reduced further by Rs. 30,923/-. (h) That the increase in royalty expenses paid to M/s Subway India Private Limited @1.769% should be considered in the calculation of base prices after rate reduction; that as per franchise agreement, the Respondent was under a legal obligation to pay 8% on net sales towards royalty and 4.5% towards advertisement charges to M/s Subway Systems India Private Limited; that the invoices relating to royalty and tax had been issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s registered on the portal. The aggregators were collecting a fixed margin of the order amount received by the restaurant from the customer as service charge and in turn, handled the actual delivery of food itself; that he had started working with aggregators like Swiggy, Zomato, Uber Eats, etc. from April 2018 onwards, which charge 12-15% service fee for delivery of products; that his online sales amounted to around 45% of his total sales and that he accordingly paid them Rs. 9,18,627/- on account of the delivery fee, inclusive of GST amounting to Rs. 1,40,129.59/-, which was not considered by the DGAP. (I) That the DGAP, while calculating the profiteering, had only considered those products/ SKUs where the base prices had increased and had ignored those products/ SKUs where more than commensurate benefit had been passed on; that the said method of calculation was against the stand taken by the Government of India at the World Trade Organisation (WTO) against a similar methodology of calculation of dumping under the Anti-dumping laws; that the argument taken by India in that forum was that while determining the dumping margin, all SKUs should be taken into consideration rathe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (6,774.62) (6,774,62) (30,894.85) Apr'18 - (19,916.16) (19,916.16) Feb 19 - (4,233.88) (4,233.88) (24,150.04) May'18 - (24,415.28) (24,415.28) Mar'19 - (2,427.42) (2,427.42) (26,842.70) June'18 - (15,442.96) (15,442.96) Apr'19 - (3,597.65) (3,597.65) (19,040.61) July'18 - (15,358.48) (15,358.48) May'19 - (4,213.05) (4,213.05) (19,571.53) Aug'18 - (26,450.92) (26,450.92) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n his case, considering the nature of his business, the period for the calculation of profiteering should be limited to 4 months i.e. up to the period of March 2018 from the date of tax rate reduction, i.e. 15.11.2017; that in the absence of a computation methodology and a prescribed period of anti-profiteering investigation in the statute, the 20 month long period of investigation adopted by the DGAP, i.e. from 15.11.2017 to 30.06.2019 was arbitrary and improper and needed to be curtailed only up to 31.03.2018. (o) That a considerate approach should be adopted in his case and the current proceedings ought to be dropped since he was in deep loss ever since he started his restaurant service as a franchisee in 2017; that in the year ending March 2018, he had incurred losses @36.27% and in the year ending March 2019, his losses had increased to 43.89%; that as a result of the losses, he had received instructions from his franchisor, M/s Subway India, either to relocate his store or to close down; that the profiteered amount should be calculated at the entity level based on his Profit Loss (P L) account and not item (SKU) wise; that accordingly, he has placed on record a chart o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017; that in some of these writ petitions, the computation method/procedures adopted by this Authority for calculating profiteering amount has also been challenged; that these writ petitions included WP (C) 378 of 2019 (Hindustan Unilever Ltd. v. Union of India), WP (C) 2347 of 2019 (Jubilant Food works Ltd. v. Union of India) and WP (C) 4213/2019 (Abbott Healthcare v. Union of India); that the proceeding in his case should be deferred till the above issues relating to the constitutional validity and the computation methodology are settled by the courts. (s) That he was an extremely small taxpayer having a turnover less than Rs. 50 Lakh and had been merely following the market trend and industry practices while making his pricing decisions; that he had no control over the market and hence he followed the pricing decisions taken by the bigger market players in this business. 4. The Respondent submitted additional submissions vide his e-mail dated 17.05.2020 whereby he reiterated his earlier submissions and also contended that the subject proceedings were without jurisdiction and barred by limitation. He substantiated his above claim stating that as per Rule 128 (2) of CG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Interim Order No. 23/2020 dated 13.10.2020, referred the matter back to the DGAP to reinvestigate this case and recomputed the quantum of profiteering by duly incorporating the sales data of the World Sandwich Day as on 03.11.2017 in the calculation of the pre-tax rate reduction prices. It was also directed while reinvestigating the matter on the above lines, all other contentions made by the Respondent before the NAA during the course of the hearings might also be considered. 6. Accordingly, the DGAP had carried out necessary re-investigation and on conclusion of the same, a report dated 29.01.2021 (received in the DGAP on 01.02.2021) was sent to the Authority under Rule 133 (4) of the CGST Rules, 2017 which inter-alia stated: - i. That after receiving reference from the Authority, the case was re-investigated as directed vide Interim Order No. 23/2020 dated 13.10.2020. ii. For the contention raised by the Respondent regarding sales data of World Sandwich Day had been excluded from the profiteering calculation. The same might be included for calculation of profiteering as had been done in other cases Reported by DGAP, the DGAP had clarified that on re-verification of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tober, 2017 and if not available in October, then in September, 2017 and accordingly, till the month of July, 2017. For the products sold for the rest of the period, the profiteering was Rs. 6,50,688/- The total profiteering comes to Rs. 6,58,523/- (Rs. 6,50,688 (+) Rs. 7,835). iii. In the matter of all other contentions made by the Respondent before the Authority during the course of hearings might also be considered, the DGAP replied that the detailed reply on the Respondent's submissions had already been submitted vide the DGAP letters dated 18.03.2020 and 24.06.2020. However, point-wise reply with respect to submissions made by the Respondent, before the Authority, was as under: A. That for the contentions raised by the Respondent on Discounted Average Base Rate be taken in DGAP Report, it would appropriate to mention that transaction price had been considered, both for determination of base price and calculation of profiteering. DGAP in his Investigation Report had considered transaction price (as per Section 15 of the CGST Act, 2017) and this had already factored in all discounts in both the period (pre-rate reduction post rate-reduction). B. Regarding un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cases and had been upheld by the NM. E. The Respondent had collected profiteered amount in the form of excess price and GST on it. As the 5% additional GST amount was a part of profiteered amount, it could not be removed. Therefore, the contention of the Respondent that the profiteered amount should not be increased additionally by 5% on account of GST, was incorrect. F. That for the contention raised by the Respondent that increases in royalty expense paid to Subway India Private Limited @1.769% should be considered in calculation of base price after rate reduction. In this regard, it would be appropriate to mention that methodology of DGAP had been consistent uniform in all his reports involving allegation of profiteering in similar cases. During the course of investigation if it was noted that, the increase in base price was more than what was required to offset the impact of denial of input tax credit, such additional quantum along with applicable GST was recommended as profiteering in his report. This had been accepted and settled before Authority in all such cases of profiteering in case of supply of Restaurant Service. The DGAP had compared the transaction valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n period. Thus, this claim of the Respondent had no significance at this point of the time. J. That for the contention raised by the Respondent calculation of profiteered amount should be up to March 31st 2018, the DGAP replied that DGAP follows the practice of investigation period upto previous month of the issuance of Notice of Investigation. K. That for the contention raised by the Respondent considered approach should be adopted and request to drop the proceedings, the DGAP explained that the jurisdiction of adjudication lies with NAA. L. That for the contention raised by the Respondent proceedings were without jurisdiction and barred by Limitation, it would be appropriate to mention that a reference was received from the Standing Committee on Anti-profiteering on 01.07.2019 to conduct a detailed investigation in respect of the Respondent alleging profiteering despite reduction in the rate of GST from 18% to 5% w.e.f. 15.11.2017. It had been alleged that the Respondent increased the base prices of his products and had not pass on the benefit of reduction in the GST rate from 18% to 5% w.e.f. 15.11.2017, vide Notification No. 46/2017-Central Tax (Rate) dated 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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-Central Tax (Rate) dated 14.11.2017 without the benefit of ITC. Therefore, Respondent 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 30.06.2019. 10. It is also evident that Respondent has been supplying different items during the period from 15.11.2017 to 31.06.2019 to his customers. It has been found by DGAP that the GST rate of 5% has been charged by Respondent w.e.f. 15.11.2017, however, the base prices of some of the products have been increased more than their commensurate prices w.e.f. 15.11.2017 which established that because of the increase in the base prices the cum-tax price paid by the consumers was not reduced commensurately, in spite of the reduction in the GST rate. 11. It is further revealed from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P follows the practice of taking the period of investigation from the date of rate reduction till the previous month of the date on which notice of investigation is issued. Section 171 (1) of the CGST Act, 2017 was very clear which states that any reduction in the rate of tax or the benefit of ITC had to be passed on to the recipient by way of commensurate reduction in price. Therefore, Section 171 of the CGST Act, 2017, was neither violative of Article 19 (1) (g) of the Constitution of India nor does it interfere with the right to trade, as Section 171 of the CGST Act, 2017 nowhere seeks to fix the prices at which the goods and services ought to have been supplied. The said Section 171 only requires the supplier to pass on the benefit of reduction in rate of tax or the benefit of ITC to the recipients by reducing the price commensurately and does not require the supplier to seek any approval to conduct trade or fix prices of the products supplied by him. Therefore, there was no violation of the right of the Respondent enshrined under Article 19 (1) (g) of the Constitution of India. 14. The Respondent has also contended that 5% additional GST amount added on profiteered amount s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not corroborated. Moreover, this aspect of cost for determination of profiteered amount is outside the purview of Section 171 of the CGST Act, 2017. 17. The Respondent has also contended that impact on the profiteered amount due to reduction in base prices of the products post GST rate should be considered. In this regard, the Commission finds that benefit passed on by the Respondent on some products where the prices charged were lower than the price arrived at after incorporating the impact of denial of ITC cannot be considered as the lower prices were charged to different set of consumers. The amount of such additional benefit passed on to one set of customers can't be offset against the increased prices charged from other set of customers as each customer is eligible to get full benefit of tax reduction on the supplies received by him. Therefore, the above claim of the Respondent is incorrect. 18. In the matter of contention raised by the Respondent that MRP based product where denial of ITC is much higher in comparison with average ITC the Commission finds that the ITC accrues on the basis of the material purchased for preparing a product and is not dependent on it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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