NAA instructs not to fix prices but pass the benefit of tax reduction on products to customers (Per Sec 171 of CGST).
Forum: National Anti-Profiteering Authority
The Respondent has 35 operational outlets at Mumbai International Airport, Terminal 2 and out of these 35 outlets, 2 of these outlets were franchisees of M/s Subway Systems India Pvt. Ltd, where the Respondent allegedly carried out profiteering activities.
The issues to be considered were:
Whether the Respondent had passed on the commensurate benefit of reduction in the rate of tax to customers?
Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017?
The NAA observed that the ITC which was available to the Respondent during the period July 2017 to October 2017 was 11.16%. However, with effect from 15.11.2017. when the GST rate on restaurant service was reduced from 18% to 5%, the ITC was not available to the Respondent.
The Respondent had increased the base price of the item i.e. HARA BHARA PATTY 6″ supplied by him 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 item sold during the period 15.11.2017 to 30 04.2019 were compared and it is established that the Respondent had increased the base prices by more than 11.16% i.e.. by more than what was required to offset the impact of denial of ITC in respect of the product. Similar methodology had been adopted while computing the profiteered amount in respect of the other impacted proudcts and it is established that in respect of the items sold by the Respondent post-rate reduction, the commensurate benefit of reduction in rate of tax from 18% to 5% has not been passed on.
The provisions of Section 171 (1) and (2) of the CGST Act, 2017 require the Respondent 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 was free to fix. If there was an increase in costs the Respondent should have increased his prices before 15.11.2017 however, it cannot be accepted that his costs had increased exactly 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 exactly equal to the reduction in the rate of such tax. Such an uncanny coincidence is unheard off and hence there is no doubt that the Respondent has increased his prices for appropriating the benefit of tax reduction to deny the above benefit to the consumers.
The DGAP report held the profiteered amount as Rs 61 67,097/-. Accordingly, the Respondent was directed to reduce his prices commensurately in terms of Rule 133 (3) (a) of the CGST Rules, 2017.
The NAA directed the DGAP to further investigate all the other operational outlets of the Respondent at Mumbai International Airport, Terminal 2 for violation of the provisions of Section 171 of the CGST Act 2017 and to submit his Report as per the provisions of Rule 133 (5) (b) of the CGST Rules, 2017.
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