McDonald’s: Fast Food, Fast Profits (Part-2)
By: – Dr. Sanjiv Agarwal
Goods and Services Tax – GST
Dated:- 14-12-2018
Company's Stand
The company challenged the complaint on facts as well as legal grounds that the provisions of section 171 itself were illegal and unconstitutional which inter alia include,
* DGAP has conceded in his Report that the company had charged GST @ 5% to his consumers and therefore, commensurate benefit had been passed on to them.
* The DGAP had admitted that there was no incremental ITC available and therefore, no benefit was to be passed on by the company.
* Despite admission that section 171 nowhere aimed at price regulation and its purpose was only to ensure that benefit of reduction in the rate of tax or ITC was passed on to the recipients by way commensurate reduction in the prices, the DGAP had gone in to the computation of base price by invoking the marginal note, i.e. 'Anti-Profiteering Measure' which was illegal.
* As pe
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er WPI, prices of food articles had risen by 6.32% and that of fuel & power by 4.69% during the same period, however, only the impact of ITC was considered.
* Increased input prices were to be considered as a mitigating factor (as also considered by NAA in KRBL case).
* While determining cost of a product, tax was just one component and the other factors had been ignored.
* DGAP had concluded that the turnover had increased by 24,81 ,33,857/- solely due to the increase in the base prices by 10.45%, which could not be taken as profit accruing to the company as there was increase in:
(a) Royalty, as the company was paying royalty to McDonald's India Pvt. Ltd. which was 3.99% of the restaurant turnover and amounted to incremental royalty of 99,00,540/- on the incremental turnover attributed solely to the price increase during the year 2017-18
(b) Variable rent, which was 3.29% of the restaurant turnover, whereby he had paid an incremental rent of 81,63,604/- on the incremental
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x unaccounted for therefore the correct tax cost analysis due to ITC denial could be made only on the basis of the audited financials which have been taken in to account by the Respondent for the year 2016-17 to forecast incremental tax cost.
* The calculation of the profiteered amount of ₹ 7.49 crores was not correct as the DGAP has ignored the reduction in the price made by him which had led to reduction in the profiteered amount and also due to the reason that the DGAP had calculated the profiteered amount @ 105%, i.e. base price + 5% GST when the 5% GST had already been deposited in the Government account and not retained by it and hence, no profiteering could be alleged.
* 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.
* Rule 126 of the CGST Rules authorised NAA to determine the methodology and procedure to deci
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spect of common goods or services which would be procured and used across the business e.g. fuel, security and audit services, such costs would be apportioned to the various segments of the business.
Inferences from the Order
Based on the order, the following assertion / inferences can be drawn :
* Complaints before NAA can be filed jointly by two or more complainants on mail or otherwise.
* Section 171 is attracted as soon as there is reduction in the rate of tax or the benefit of ITC is available and it is not dependent on whether the contract for supply is entered in to before tax reduction or availability of input tax credit had come into force and therefore, section 64A of Sale of Goods Act, 1930 is not applicable.
* Section 171 of CGST Act, 2017, nowhere provides for control on prices and its mandate is limited to ensuring that benefit of tax reduction and input tax credit is passed on to consumers by way of commensurate reduction in the prices.
* It is clear even from
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egard are farfetched and untenable in view of the specific provisions of section 171.
* Profit is the advantage or gain derived in a legal business transaction but the same cannot be considered as profit if it is illegally derived by appropriating the benefits which are granted by the Government from the public funds to the consumers.
* The benefit of reduction in the rate of tax as well as the benefit of ITC have been given by the Central as well as the State Government by sacrificing their own revenue in favour of the general public and the business entity has no right to appropriate them.
* The provisions of section 171 and the above Rules are very clear and unambiguous under which a comprehensive machinery comprising of the State specific Screening Committees, Standing Committee, Directorate General of Anti-Profiteering and Commissioners of Central GST and State Tax have been constituted/established under the above provisions to take cognizance of the complaints made on profi
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em on the basis of his own convenience.
* Anti-profiteering amount would also include the extra GST which the entity force the customers to pay due to wrong increase in its base price, otherwise the price to be paid by them should have been further reduced by the amount of GST illegally charged from them.
* Depositing of such extra GST in the Government account can not absolve the company of the allegation that it had compelled the customers to pay more price than what they should have paid had the entity charged correctly and as such, it amounts to denial of benefit u/s 171 and not as per law.
* NAA can direct Central and State GST authorities to ensure that amount due is deposited with interest and in case it is not so deposited, they should take appropriate steps for recovery under the supervision of DGAP.
* DGAP may be asked to submit a report of compliance within time as stipulated.
* NAA can direct the authorities to issue a show cause notice for levy of penalty.
* NA
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