Sh. Kiran Chimirala, Director General Anti-Profiteering, Central Board of Indirect Taxes and Customs Versus M/s. Jubilant Foods Works Ltd.
GST
2019 (2) TMI 295 – NATIONAL ANTI-PROFITEERING AUTHORITY – 2019 (24) G. S. T. L. J43 (NAPA)
NATIONAL ANTI-PROFITEERING AUTHORITY – NAPA
Dated:- 31-1-2019
Case No. 04/2019
GST
SH. B. N. SHARMA, CHAIRMAN, SH. J. C. CHAUHAN, TECHNICAL MEMBER, MS. R. BHAGYADEVI, TECHNICAL MEMBER, MR. AMAND SHAH, TECHNICAL MEMBER
Present:-
None for the Applicant No. 1
Ms. Gayatri Verma, Deputy Commissioner, Mr. Akshat Aggarwal, Assistant Commissioner and Mr. Bhupender Goel, Assistant Director (Costs) for the Applicant No. 2.
Mr. Prakash Bisht, EVP & CFO, Mr. J. Devarajan, vp, Mr. V. Lakshmikumaran, Advocate, Mr. Manish Gaur, Advocate, Mr. Dhruv Gupta, Advocate, Mr. Rachit Jain, Advocate, Mr. Gaurav Gogia, CA, Mr. Keshav Kumar Sharda, GM, Mr. Ashish Srivastava, Manager, Ms. Disha Jain, Advocate and Ms. Uma Kapoor, Manager (Taxation) for the Re
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harged the same base prices which he was charging before the rate of tax was reduced and had he maintained the same base prices which he was charging before the tax reduction the consumers would have been benefited but in this case it had not happened. He had therefore alleged that the Respondent had resorted to profiteering and accordingly action should be taken against him. He had also stated that large organisation like the Respondent should be investigated where the prices had been inflated with the reduction in the rate of tax.
2. The application was prima facie examined by the Standing Committee on Anti-profiteering in its meeting held on 20.12.2017 (Annexure-4 of the Report), wherein it was decided to forward the same to the Director General Anti-profiteering (DGAP) for further detailed investigation as it appeared to be pan India in nature. The DGAP after completing the investigation has submitted the present Report dated 16.07 2018 under Rule 129 (6) of the CGST Rules, 2017.
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n opportunity by the DGAP vide his e-mail dated 28.06.2018 (Annexure-6 of the Report), to inspect the non-confidential records/replies submitted by the Respondent but the above Applicant did not avail of this opportunity. The DGAP has informed that the present investigation was conducted for the period between 15.11.2017 to 31.05.2018.
4. As per the DGAP's Report the Respondent had made the following claims:-
(a) That the Respondent was engaged in the business of operating quick service restaurants under the brand name “Domino's Pizza” and had a pan-India presence with 1,128 outlets across 31 States and Union Territories in which they were registered under the GST and these outlets were maintaining consistency from taste to overall experience and the prices of all the products as shown in the menu were exclusive of all taxes/GST except in the State of Maharashtra prior to 01.07.2017.
(b) That the Respondent had denied the allegation of profiteering and stated that there was no profi
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tual Price to Consumer
Medium Veg Pizza
440
79
519
485
24
509
10%
(2%)
Garlic Bread
129
23
152
139
7
149
8%
(4%)
(e) That the Medium Veg Pizzas mentioned in both the above invoices were two distinct products/Stock Keeping Units (SKU) with separate price structures and hence they couldn't be compared, as the invoice dated 20.10.2017 pertained to the Medium Veg Extravaganza Pizza Normal Crust Hand Tossed (“Type A”) and the invoice dated 19.11.2017 referred to the Medium Veg Extravaganza Pizza Pan Crust (“Type B”); the prices of both of them before and after tax reduction were as follows:-
Base Price in Rs.
Increase in Base Price
Up to 14.11.2017
Post 14.11.2017
Type A
Type B
Type A
Type B
Type A (Rs.)
% increase in Type A
Type B (Rs.)
% increase in Type B
440
470
485
10
2.27%
15
3.19%
(f) The Respondent had also stated that w.e.f. 15.11.2017, the denial of ITC had resulted in the monthly average cost of input GST on account of direct and ind
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d also claimed that there were a number of factors involved in determining the prices of his products and the reasons for not passing on the entire burden on account of denial of ITC to the consumers had to be collectively analysed. He had also contended that due to competition and the price sensitivity of certain SKUs he had revised their base prices and absorbed the additional input costs. He had further contented that various factors like Competition pricing, Strategies for market penetration, Profit margins for sustaining in market, Life cycle of the product, Economic and political conditions, Credit period offered to vendors and Costs of procurement etc. had influenced pricing of his products.
(h) That as per general practice, he was increasing his base prices every year due to inflation and for Stuffed Garlic Bread the base price was increased by 17.3% over a period of 3 years which came to around 5.8% annually. He has also claimed that the annual increase in base prices ranged
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ce. He has further intimated that the outward taxable supplies would be in excess of 10 crore line items therefore the details of outward taxable supplies had been supplied on a product level basis after reconciliation with the GSTR-I returns.
5. The DGAP has also intimated that it was a matter of record that the Central Govt. on the recommendation of the GST Council, vide its Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 had reduced the rate of GST from 18% to 5% w.e.f. 15.11.2017 on the restaurant services with the condition that the benefit of ITC would not be available on the goods and services supplied during the course of these services from the above date.
6. The DGAP has also stated that as per the provisions of Section 171 of the CGST Act, 2017 the benefit of ITC and reduction in the rate of tax must result in commensurate reduction in the prices of the goods or services and such reduction has to be in absolute terms so that the final price payable by a consum
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03.2018 (Annexure-19 of the Report) it was clear that the Respondent's business activity fell within a single business segment, i.e. Food and Beverages. The DGAP has further contended that the Statement of Audited Financial Results for the current and previous periods submitted by the Respondent showed that post 15.11.2017, there was a distinct sharp increase in the profits made by him without a corresponding increase in the sale of his products and this increase was to the tune of 406.33% during March, 2018 quarter and 184.97% during the Financial Year (FY) 2017-18 as against the decline in the profits during the previous periods. The Report also stated that the increase in the sales was only of 27.26% during March, 2018 quarter and 17.06% during the FY 2017-18 and this negated the Respondent's claim that he had not factored in the loss of ITC in the increase which he had made in the prices and had also not taken in to account inflation in the cost of inputs while fixing the revised b
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acr; 35%
QE Dec. 2017
79,516.54
20.71%
10,092.29
242.40%
Sale ↑ 21%; Profit ↑ 242%
QE March 2015
54,200.99
4,530.23
QE March 2016
61,783.59
13.99%
4,389.54
-3.1 1%
Sale ↑ 14%; Profit ¯ 3%
QE March 2017
61 ,277.50
-0.82%
2,028.08
-53.80%
Sale ¯ 1%; Profit ¯ 54%
QE March 2018
77,982.08
27.26%
10,268.81
406.33%
Sale ↑ 27%; Profit ↑ 406%
8. The DGAP has also stated that the Respondent had been dealing with a total of 393 items while supplying restaurant services before and after 15.11.2017. He has further stated that after comparing the selling prices as per the invoices issued by the Respondent, the increase in base prices after the reduction in the rate of tax w.e.f. 15.11.2017 was quite apparent in the case of 314 items (79.90% of 393 items) supplied by him as could be ascertained from Annexure 21 attached with the Report. The DGAP has also submitted that the GST rate of 5% had been charged on th
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017, their ITC had been left out as no ITC could be claimed after the above date.
(b) The details of the invoice-wise outward taxable turnover for the month of November, 2017 were not supplied by the Respondent to calculate the taxable turnover for the period between 01.11.2017 to 14.11.2017.
(c) Random checks of the invoices on which the ITC was availed by the Respondent during the month of November, 2017 revealed that in a few cases credit was taken by the Respondent without fulfilling the prescribed conditions and a number of discrepancies were found in the ITC availed e.g. the Respondent had availed ITC of Rs. 44.90 Lakh on 14.11.2017 on invoice No. 6145505874 dated 18.10.2017 issued by M/S Nilkamal Limited and of Rs. 4.20 Lakh on 14.11.2017 on invoice No. CDP117000816 dated 13.11.2017 issued by M/s Contract Advertising (India) Ltd., however, the former invoice was received by the Respondent in the month of January, 2018 and the latter invoice in the month of December 2017, thus,
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ter. He has further intimated that while determining the net taxable turnover of the Respondent during the period from July, 2017 to October, 2017, the total taxable turnover (excluding inter-unit branch transfers) as per the GSTR-I returns filed for the period from July, 2017 to October, 2017 had been taken into consideration. He has also submitted that the ratio of ITC to the net taxable turnover had been taken for determining the impact of denial of ITC (which was available to the Respondent till 14.11.2017).
Accordingly, the DGAP has claimed that ITC amounting to Rs. 55.50 Crore was available to the Respondent during the period between July, 2017 to October, 2017 which was 5.59% of the net taxable turnover of the restaurant service supplied during the same period. The DGAP has also mentioned that w.e.f. 15.11.2017, when the GST rate on restaurant services was reduced from 18% to 5%, the ITC was not available to the Respondent. A summary of the computation of the ratio of input tax
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it to Net Outward Taxable Turnover (G): (C/F)
5.59%
11. The DGAP's Report also states that on the basis of the analysis of the details of the item-wise outward taxable supplies made during the period between 15.11.2017 to 31.05.2018, it was revealed that the Respondent had increased the base prices of a number of items supplied as a part of restaurant services to make up for the denial of ITC post GST rate reduction. He has also stated that the pre and post GST rate reduction prices of the items sold by the Respondent as a part of restaurant services during the period between 15.11.2017 to 31.05.2018 were compared and it was found that the Respondent had increased the base prices by more than 5.59% i.e. by more than what was required to offset the impact of denial of ITC in respect of 170 items out of total 393 items sold during the same period and therefore, in respect of these items the commensurate benefit of reduction in the rate of tax from 18% to 5% had not been passed on to th
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Respondent. On 13.08.2018 none appeared for the Applicant No. 1, Applicant No. 2 was represented by Ms. Gayatri Verma, Deputy Commissioner, Mr. Akshat Aggarwal, Assistant Commissioner and Mr. Bhupender Goel, Assistant Director, (Costs). The Respondent was represented by Mr. Prakash Bisht, EVP & CFO, Mr. J. Devarajan, VP, Mr. V. Lakshmikumaran, Advocate, Mr. Manish Gaur, Advocate, Mr. Dhruv Gupta, Advocate, Mr. Rachit Jain, Advocate, Mr. Gaurav Gogia, CA, Mr. Keshav Kumar Sharda, GM, Mr. Ashish Srivastava, Manager, Ms. Disha Jain, Advocate and Ms. Uma Kapoor, Manager (Taxation). On the specific request of the Respondent, 3 further hearings were held on 21.08.2018, 11.09.2018 and on 22.10.2018.
14. The Respondent has filed detailed written submissions on 13.08.2018, 21.08.2018, 11.09.2018, 17.09.2018, 05.10.2018 and on 22.10.2018. In his initial submissions dated 13.08.2018, the Respondent has stated that the Standing Committee had erred in referring the matter to the DGAP for further i
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-01-NAA = 2018 (4) TMI 1377 – THE NATIONAL ANTI-PROFITEERING AUTHORITY and Rishi Gupta v. M/S Flipkart Internet Pvt. Ltd. 2018-VlL-04-NAA = 2018 (7) TMI 1490 – NATIONAL ANTI-PROFITEERING AUTHORITY and contended that in both these case this Authority had limited its findings only to the products in respect of which the complaints were made and had not taken cognizance of the other products which the Respondents were supplying. He has further contended that in his case the complaint was made only in respect of two products, viz. 'Medium Veg Extravaganza Pizza' and 'Garlic Bread' and the recommendation received from the Standing Committee was only with regard to 'pizza', however, the DGAP had suo- moto assumed jurisdiction with regard to all the SKUs sold by the Respondent and had thus gone beyond his jurisdiction and therefore his investigation should have been restricted only in respect of the above products.
15. The Respondent also stated that the CGST Act, 2017 and the Rules made und
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the rate of tax and whether such computation had to be done invoice-wise, product-wise, business vertical-wise or entity-wise etc. He has therefore contended that due to lack of transparency the results could vary from case to case resulting in arbitrariness and violation of Article 14 of the Constitution of India.
16. The Respondent has also stated that in order to control rise in inflation on account of implementation of GST, the Malaysian Government had promulgated the 'Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit) (Net Profit Margin) Regulations, 2014, which provided for the mechanism to calculate the profiteered amount on account of GST. He has further stated that the anti-profiteering measures in Australia were based on the 'Net Dollar Margin Rule' on which profiteering was calculated. Relying on the cases mentioned below he has claimed that unless the methodology was in place no action could be initiated:-
(1) Commissioner of Income Tax
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ermination of profiteering was arbitrary and illegal.
18. The Respondent has also submitted that while calculating the alleged profiteered amount, the DGAP had wrongly added notional 5% in this amount without explaining the reasons. The Respondent has further submitted that this amount appeared to have been added due to GST which had been charged on the profiteered amount which had been duly collected and deposited with the Government, therefore, addition of this notional 5% amount was illegal and hence the above profiteered amount was required to be reduced by Rs. 1.97 Crore.
19. The Respondent has also claimed that a customer would usually order more than one item (SKU) and therefore, for the purpose of computation of the profiteered amount, he should be considered as an entity supplying restaurant services, and once his operations were assessed on the basis of his status of 'being a restaurant', a holistic approach should be applied by the authorities for computation of the profit
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arate entities as per the GST law. He has further alleged that the DGAP had taken into account the total price charged from the customers all over India for arriving at the alleged profiteered amount which was incorrect. The Respondent has also objected to the methodology adopted by the DGAP in not 'netting off' the increase and decrease from the optimum price as he should have considered the positive and negative price variations in respect of all the SKUs which were above and below the optimal price to arrive at the profiteered amount.
Accordingly he has claimed that it was necessary to define the term 'commensurate' appearing in Section 171 and Rule 127. He has further stated that the Legislature had qualified the word 'reduction' by using the word 'commensurate' and therefore the word 'commensurate' in this context would mean 'appropriate', 'adequate' or 'proportionate'. He has also cited the following dictionary definitions of the word 'commensurate' to support his claim:-
(i) R
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treating the Supplier as an 'entity' and the 'recipient' as a group and hence the entire supply made by him must be considered and then on comparison of reduction of tax rate and additional ITC, it was to be determined whether profiteering had been done by such a Supplier as an entity. He has further claimed that the customers buy a variety of food and beverages from his outlets and they had not suffered the price increase above 5.59%. He has also submitted that in the present case the DGAP had made item-wise/SKU-wise analysis and concluded that the Respondent had increased base prices by more than 5.59% in respect of 170 items however the DGAP had not taken into account the prices of 223 items on which the Respondent had reduced the prices. He has further submitted that he was one entity and the entire data of his supply was required to be considered as such entity and then compared with the erstwhile figures as the rate of tax on all the supplies made by the Respondent was same.
21.
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e SKUs should be taken into consideration. He has also cited the Report No. WT/DS141/AB/R dated 01.03.2001 of the Appellate Body of WTO in his support and claimed that the plea of the GOI was accepted by the Appellate Body and both positive and the negative margins were ordered to be taken in to account to determine the dumping margins and the same methodology of 'netting off' should be applied in his case also to determine the profiteered amount as the methodology applied by the DGAP in the present case was opposite of the stand taken by the GOI. The Respondent has also claimed that the profiteered amount should be calculated at the entity level and not on SKU level and should also take in to account the price reductions as well as the price increases. He has further claimed that his unit had incurred a loss of more than Rs. 19 Crore after adjusting the positive and negative prices of all the SKUs.
22. The Respondent has further submitted that the Government had not prescribed any me
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d that the differential price revision for the year 2017 was made w.e.f. from 15.11.2017 as a business decision and it did not in any way prove that that he had any intention to profiteer due to reduction in the rate of tax and he normally used to increase the prices 2-3 times in a year generally in July-Sept to account for the normal inflation however, during the year 2017-18, he had decided to postpone the increase in sale prices from July, in view of the implementation of the GST and after its coming in to force had assessed the normal inflation and raised the sale prices of his products. He has also stated that the price charged by the Respondent was exclusive of tax and w.e.f. 15.11.2017 he had been charging 5% GST and even after the revision of prices, the total amount charged from the recipients was less than the total amount received for such services from the recipients prior to the reduction in the tax rate. The Respondent has also cited the case of Kumar Gandharv v. KRBL Ltd
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n the profits made by the Respondent without corresponding increase in the sale of his products was wrong as during the Quarter Ending (QE) March 2018 as compared to the QE March 2017 profits had increased by 406% while the sales had increased only by 27% and the profits during the FY 2017-18 had increased by 185% whereas the sales had shown increase of 17% as compared to the previous year. In respect of this claim of the DGAP the Respondent has submitted that major reason for increase in the profits was the substantial increase in the sales as it was settled principle of accounting that after reaching the break-even point when the contribution, i.e. sales minus variable cost was enough to cover the fixed cost the incremental contribution generated by incremental sales added directly to the profits as fixed cost did not increase in the same proportion. The Respondent has further claimed that the sales had increased by 17% during the FY 2017-18 as compared to the FY 2016-17, whereas the
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.11.2017 to 14.11.2017. The Respondent has contested the claim made by the DGAP for not considering the above ITC by stating that reversal of ITC of Rs. 7.73 Crore on the closing stock of the inputs and the capital goods had been duly mentioned in the GSTR-3B return. He has also submitted that the DGAP had allowed him to provide SKU wise details of the sales instead of invoice wise details due to large number of invoices. He has further stated that the discrepancies pointed out by the DGAP in respect of the invoices issued by M/s. Neel Kamal and M/S Contract Advertising (India) Pvt. Ltd. were incorrect as the invoices were received by him before 15.11.2017, the date from which the Respondent was not eligible to claim ITC, even otherwise also ITC could not be denied as the invoices pertained to the period when he was eligible to claim ITC. He has also stated that the TRAN-1 credit of Rs. 1.84 Crore was claimed in the month of November, 2017 only once and not twice which could be verifie
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realization for calculating the profiteered amount instead of the menu prices as these prices had been formalised throughout the country and he was selling majority of his products on the menu price. He has further submitted that he was offering a number of discounts like Operational Discounts, Total Satisfaction Guarantee, Employee Discounts and Promotional Discounts which varied from 5.8% to 11.7% and from 0.5% to 4.3% from month to month and had the DGAP taken in to account these discounts the prices charged by him would be very close to the menu prices. The Respondent has also claimed that some discounts offered by him varied from 5.8% to 11 .7% and some from 0.5% to 4.3%. The Respondent has further claimed that on the basis of the nature and kinds of discounts which significantly varied from customer to customer and from month to month, the DGAP had not taken them in to cognizance while calculating the profiteered amount. The Respondent has also stated that the DGAP had compared t
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red from case to case and such menu prices pre and post rate reduction should have been compared. The Respondent has further argued that he had changed his discount policy w.e.f. 01.11 2017 as he proposed to do away with many type of discounts which showed that this had nothing to do with the GST rate reduction which came into effect from 15.11. 2017. The Respondent has also submitted that if the menu prices were considered instead of net sale realization the profiteered amount would be reduced by Rs. 15.72 Crore and if the incorrect menu prices for some SKUs were corrected the above amount would be further reduced by Rs. 4.64 Crore.
27. The Respondent vide his submissions dated 21.08.2018 has claimed that at the time of investigation he could not provide invoice wise details to the DGAP as the number of the invoices for the period between 15.11.2017 to 31.5.2018 was more than 4 Crore which he wanted to submit now to demonstrate that there was no profiteering by him to the extent the
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and reduced to Rs. 28,75,05,808/-. He has also contended that if the input credit loss was taken to be @ 7% (as claimed by the Respondent) instead of 5.59% (as computed by DGAP), then the profiteered amount would be reduced to approx. Rs. under the invoice wise methodology. He has further contended that if the ITC loss was taken to be @ 7% along with inflation impact then the profiteered amount would further reduce to approx. Rs. 11,97,93,309/under the methodology suggested by him. The Respondent has also mentioned that the total sales during the investigation for the period between 15.11.2017 to 31.05.2018 amounted to Rs. 17,38,58,14,330/- and as per the invoice wise analysis done by him the amount had come to Rs. 17,37,79,81,881/-, as he could not complete the invoice wise analysis of the sales value of Rs. 78,32,449/- due to paucity of time. He has also stated that this data should be treated as final.
28. Vide his further detailed submissions dated 17.09.2018 the Respondent has st
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also contended that he had increased the prices of some of the SKUs due to the denial of the ITC and on account of other commercial grounds which this Authority could not examine as such issues were not covered under the provisions of Section 171. He has further contended that the present proceedings had been launched as reduction in tax rate and denial of ITC had occurred simultaneously and in case the rate of tax would have remained the same and the ITC would have been denied, then these proceedings would not have been started. He has also claimed that reduction in the tax rate and denial of ITC should be taken as separate and unrelated events and in case it was done his case would not fall under the ambit of Section 171. He has further claimed that when the increase in prices made by a supplier, due to reasons other than mentioned in Section 171 is investigated and disallowed by this Authority or the DGAP they become price regulating bodies which is beyond the scope of Section 171.
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ase his prices so as not to invite anti-profiteering provisions and hence it could be said that these provisions would restrict his right to do business indefinitely.
29. The Respondent has also submitted that present proceedings had been launched in violation of the principles of natural justice as no show cause notice had been issued to him intimating what action was contemplated against him. He has further submitted that under Rule 133 of the CGST Rules, 2017 this Authority was competent to pass any order mentioned in the above Rule against the offenders who violate Section 171. He has also stated that the order passed under Section 171 would determine the rights and liabilities of the registered person which will entail civil and penal consequences, however, Rule 133 did not stipulate issuance of a show cause notice to the violators of Section 171 before passing of an order under the above Rule and hence it was violative of the principle of audi alteram partem as the person agains
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5 (329) ELT 619 = 2015 (11) TMI 249 – CESTAT NEW DELHI in his support.
30. The Respondent has also claimed that the rate of tax was reduced from 18% to 5% without benefit of ITC as per the Notification No. 46/2017-CT (Rate) dated 14.11.2017 for restaurant services and on 14.11.2017 he had reversed an amount of Rs. 7.73 Crore which was available on the closing stock and Rs. 37 Lakh on account of the common credit related to exempted supplies. He has further claimed that he used to increase prices of all SKUs 2-3 times in a year between 5% to 7% due to commercial reasons, which was not same for all the SKUs. He has also contended that he used to increase his prices between July-November every year which he had deferred due to implementation of the GST. The Respondent has further contended that he had suffered a loss of Rs. 60.57 Crore by not uniformly increasing prices of all the SKUs during the relevant period. He has also submitted that the DGAP in Annexure-23 of his Report had admitt
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8 has pleaded that the findings given in the case of Jijrushu N. Bhattacharya v. M/s. NP Foods by this Authority on 27.09.2018 = 2018 (10) TMI 1338 – NATIONAL ANTI-PROFITEERING AUTHORITY were squarely applicable in the present case, hence the Respondent has requested for dropping the current proceedings, by stating that the increase in the basic prices was commensurate with the loss of ITC. The claim made by the Respondent is tabulated as below:-
S.No.
Particulars
NP Foods Order
Paragraph of NP Foods Order
Present case of Respondent
1.
Service
Restaurant Service
Para-1
Restaurant Service
2.
Business Model
Franchisee of Subway Systems India Pvt Ltd.
Para-5
Franchisee of Dominos Pizza Overseas Franchising B.V.
3.
Consideration for Franchisee
Royalty on Net Turnover
Para-5
Royalty on Net Turnover
4.
Fixation of Price
By Franchisee
Para-5
By Franchisee
5.
Procurement of Raw material
By Franchisee
Para-5
By Franchisee
6.
No. of Outlets
Approx. 600
Para-6
A
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loss of ITC (S.No.13-S.No 12)
0.34%
Derived
(-) 1.10%
32. The DGAP in his supplementary Reports dated 17.08.2018, 06.09.2018, 01.10.2018 and 31.10.2018 filed in response to the submissions made by the Respondent has stated that the claim of the Respondent that Applicant No. 1 had filed complaint for Medium Veg Pizza only and there was error in referring the matter by the Standing Committee on Anti-profiteering to the DGAP by comparing two different types of Medium Veg Pizzas was not sustainable as the above applicant had filed application w.r.t. restaurant service in which certain products (here Medium Veg Pizza, Garlic Bread & Coke) were bought by him post reduction in the GST rate.
33. The DGAP has also stated that Section 171 (1) which reads 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.” (Emphasis supplied) required that in the event of benef
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tion in the rate of tax by way of commensurate reduction in the price of each and every supply of goods or services and by following the same rule, he had requested the Respondent to provide invoice-wise details of outward taxable supplies vide his letters dated 15.03.2018 and 27.03.2018, whereas the Respondent, vide his letter dated 20.03.2018 had expressed his inability to provide the same due to its voluminous nature and had requested to provide it in summarized manner on product-wise and state-wise basis or under any methodology as was deemed fit by the DGAP.
35. The DGAP has also submitted that the Respondent vide his letter dated 04.04.2018 had submitted Product/SKU wise sales for the period w.e.f. 15.11.2017 to 28.02.2018 which were considered by him after accepting request of the Respondent and accordingly he had asked the Respondent to submit the product/SKU-wise sales for the period w.e.f. 01.10.2017 to 14.11.2017 vide his letter dated 11.04.2018 and the details for the peri
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ring law did not offer a supplier of goods and services, flexibility to pass on the benefit of ITC or reduction in the rate of tax on one product, say 'X' by reducing the prices of any other product, say 'Y'. The DGAP has also intimated that the Respondent vide his letter dated 07.02.2018 had submitted that he was engaged in the business of operating quick service restaurants under the brand name “Domino's Pizza” and had a pan-India presence with 1,128 outlets across 31 States and the Union Territories in which they were registered under the GST and he was maintaining consistency across all the outlets in everything right from the taste to overall experience and the prices of all the products as displayed in the menus, were exclusive of all taxes/GST (except in Maharashtra prior to 01.07.2017), therefore, the product-wise prices of the Respondent were same across the country. He has further intimated that although he had asked for the details of invoice-wise outward taxable supplies fo
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te of tax to the recipients.
The DGAP has also contended that the increase in the cost of inputs and input services was a factor for determination of prices but this factor was independent of the output GST rate and it couldn't be asserted that the elements of cost unrelated to GST were affected by the change in the output GST rates, therefore in terms of Section 171 of the CGST Act, 2017, the claim of increase in cost of inputs and input services had not been considered.
38. The DGAP has further replied that there seemed to be contradiction in the claim made by the Respondent of inflation of 1.99% with his profitability statement, as per the Table given below:-
(in Lakhs)
Particulars
FY 2016-17
% to Sales
FY 2017-18
% to Sales
Income from Operation
A
2,54,607
2,98,044
Cost of Material Consumed
B
61 ,597
24.19%
75,143
25.21%
Total Variable Expenses
C
66,115
25.97%
69,855
23.44%
Total Variable Cost (Material + Vari. Exp.)
D=(B+C)
1,27,71
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Employee Benefit Exp. In FY 2016-17
B
29,797
Actual Variable Employee Benefit Exp. In FY 2016-17
C
28,657
Ratio of Variable Employee Benefit Exp.
D=(C/A)
11.26%
Total Actual Employee Benefit Exp. In FY 2016-17
E=B+C
58,454
Income from Operation in FY 2017-18
F
Variable Employee Benefit Exp. Considering Same ratio of FY 2016-17
G=F*D
33,546
Fixed Employee Benefit Exp. Considering Same as of FY 2016-17
H=B
29,797
Total Employee Benefit Exp. Without considering any inflation
I=G+H
63,343
Actual Employee Benefit Exp.
J
– Variable
K
29,616
– Fixed
L
30,795
Total Actual Employee Benefit Exp. In FY 2017-18
M=K+L
60,411
Net Benefit in 2017-18 even without considering any inflation
N=I-M
2,932
39. The DGAP has also submitted that the figures reported in Para 12 of the Investigation Report dated 16.07.2018 had been obtained from the financial statements published by the Respondent, therefore there was no dispute over them and they also didn
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,267
1.50%
(12,779)
52,09,489
2.07%
8-Nov-17
76,99,658
2.22%
–
76,99,658
3.06%
9-Nov-17
121,75,526
3.50%
(41,659)
121,33,867
4.82%
10-Nov-17
75,83,972
2.18%
(32,495)
75,51,477
3.00%
11-Nov-17
74,03,363
2.13%
(18,37,604)
55,65,759
2.21%
12-Nov-17
119,66,406
3.44%
(2,15,162)
117,51,244
4.67%
13-Nov-17
439,67,943
12.66%
(1,08,330)
438,59,614
17,43%
14-Nov-17
2253,35,459
64.86%
(931,32,430)
1322,03,029
52.54%
Grand Total
3474,09,825
100%
(957,96,986)
2516,12,839
100%
Therefore he has argued that the ITC of Rs. 22.53 Crore (64.86% of ITC availed in November, 2017) was availed on a single date i.e. on 14.11.2017 which may not be possible to avail on a single date and the actual date of availment couldn't be ascertained in the absence of specific details. He has further argued that as per the ITC Register, net ITC of Rs. 25,16,12,839 was availed whereas as per the GSTR-3B return, the net ITC availed was Rs. 26,05,88,014, thus, the Responden
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8
CGST Receivable
Uttar Pradesh
21800021
14-Nov-17
Maharashtra
100629884
14-Nov-17
26,56,105
SGST/UTGST Receivable
Maharashtra
21800026
14-Nov-17
Delhi
100630214
14-Nov-17
22,56,681
SGST/UTGST Receivable (C.G)
Uttar Pradesh
21800026
14-Nov-17
Tamil Nadu
100630221
14-Nov-17
86,131
SGST/UTGST Receivable (C.G)
Uttar Pradesh
21800026
14-Nov-17
Uttar Pradesh
100630224
14-Nov-17
4,62,043
SGST/UTGST Receivable (C.G)
Uttar Pradesh
Total
184,23,658
41. The DGAP has further mentioned that as the Respondent had already availed ITC on the original purchase of inputs, the same has been considered in the computation of denial of ITC to net turnover and the output tax liability on inter-unit branch transfer had been excluded from ITC on one hand and inter-unit branch transfer turnover has been excluded from the outward taxable turnover on the other hand which neutralised the impact of Branch transfer transactions fr
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rofiteering menu price or MRP couldn't be considered whereas actual transaction value was the correct amount which had been considered for such computation, as the menu price was the maximum price at which an item might be sold but it was not the actual sale price. The DGAP has also argued that the SKU wise net realization from 01.10.2017 to 14.11.2017 (45 days) period was compared with post rate reduction sale from 15.11.2017 to 31.05.2018 to consider the magnitude of the various discounts offered by the Respondent both prior to the GST rate reduction and post GST rate reduction. He has further argued that vide e-mail dated 11.07.2018 the Respondent had informed that the net sales considered for computing the average sale price were arrived at after factoring in the discount given to the customers at the time of sales which were of multiple kinds and could range up to 50% and the most common discount scheme i.e. Everyday Value Offers (EDVs), which typically involved offering a lower p
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engaged in the business of operating quick service restaurants under the name and style of Domino's Pizza' and has a pan India presence with 1,128 outlets across 31 States and Union Territories in which the Respondent is duly registered under the GST and all his outlets were maintaining consistency from taste to overall experience and the prices of all his products as shown in the menu were similar throughout his restaurants exclusive of the GST. It has also been admitted by the Respondent that the Central Govt. vide its Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 had reduced the rate of GST from 18% to 5% on restaurant services with the stipulation that no ITC would be available on the goods and service supplied under the above services, accordingly, 398 items which were being supplied by the Respondent were impacted with the reduction in the rate of tax, the benefit of which was required to be passed on by the Respondent to his customers by commensurate reduction in
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comparable products and hence he could not be held accountable for profiteering as their prices could not be compared. However, it is revealed from the record that the Respondent had himself admitted before the DGAP, as has been mentioned in Para 4 (e) supra that the price of Type A Pizza was Rs. 440/- per unit and that of Type B was Rs. 470/- per unit respectively up to 14.11.2017, before the rate of tax was reduced and was Rs. 450/- and Rs. 485/- per unit respectively post 14.11.2017 after the rate of tax was reduced. Hence there was increase in the base price by Rs. 10/- in respect of Type A Pizza and Rs. 15/- in respect of the Type B Pizza. Perusal of Annexure23 attached by the DGAP with his Report also shows that the base prices of both these products were in fact increased by the amount shown above by the Respondent. Therefore, even if it is admitted that both the items of Pizza ordered by the above Applicant were distinct there is hardly any doubt that the Respondent had increas
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s investigation as the Respondent happened to be one of such large organisation which had obligation to pass on the benefit of tax reduction. Further, while investigating when it came to the knowledge of the DGAP that apart from the product mentioned in the complaint, the Respondent had supplied other products also on which the benefit of reduction in the rate of tax was required to be passed on but the Respondent had not passed it, the DGAP was legally bound to take its cognizance as no infringement of Section 171 can be allowed on the ground that no complaint had been made in respect of a particular product(s). The facts of the cases of M/s. Dinesh Mohan Bhardwaj Proprietor U. P. Sales & Services v. M/s. Vrandavaneshwree Automotive Private Limited 2018-VIL-01-NAA = 2018 (4) TMI 1377 – THE NATIONAL ANTI-PROFITEERING AUTHORITY and Rishi Gupta v. M/S Flipkart Internet Pvt. Ltd. 2018-VlL-04-NAA = 2018 (7) TMI 1490 – NATIONAL ANTI-PROFITEERING AUTHORITY quoted by the Respondent in his sup
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ly for all the above items therefore the benefit of reduction had not been passed on by the Respondent in contravention of the provisions of Section 171 of the Act.
45. It has also been found from the perusal of the record that while computing the ITC as a percentage of the total taxable turnover of the Respondent, the ITC for the period w.e.f. July, 2017 to October, 2017, as mentioned in the GSTR-3B return, had been adjusted by excluding the amount of ITC of tax paid on inter-unit branch transfers as per the sale register and while determining the net taxable turnover of the Respondent during the period from July, 2017 to October, 2017, the total taxable turnover excluding the inter-unit branch transfers as per the GSTR-1 returns filed for the period from July, 2017 to October, 2017 had been taken into consideration. It has further been found that the ratio of ITC to the net taxable turnover had been taken for determining the impact of denial of ITC which was available to the Respond
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se in the base prices of the services, despite reduction in the GST rate from 18% to 5%, with denial of ITC or in other words, the profiteered amount was Rs. 41,42,97,635/- as per the very detailed, exhaustive and meticulous calculations made vide Annexure-23 of the Report by the DGAP. This amount was inclusive of Rs. 5.65/- which had been profiteered by the Respondent from the Applicant No. 1
47. The Respondent has alleged that no methodology has been prescribed for determination and calculation of profiteering. In this connection it would be relevant to point out that this Authority has already notified the Procedure and the Methodology' vide its Notification dated 28.03.2018 under the provisions of Rule 126 of the CGST Rules, 2017 which is available on its website. As far as the method of calculation of profiteered amount is concerned no fixed method can be prescribed as the various parameters which are required to be taken in to account while making such computation vary from indu
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t which state that the recipient has to be given the benefits of tax reduction and the ITC on every supply commensurate with such reduction or the ITC. Hence, it was duty of the Respondent to ascertain on which of his products the rate of tax had been reduced and after taking in to account the impact of denial of ITC to what extent the prices should have been increased. The whole exercise needed no directions from this Authority as it involves simple mathematical calculation which the Respondent has been carrying on repeatedly at the time of fixing his prices. Hence, the contention of the Respondent made on this ground is unreasonable and hence it cannot be considered.
48. The contention of the Respondent that he had revised the prices of all the SKUs as a normal business decision due to the various factors, like rise in the prices of the raw material due to inflation and increase in the cost due to non-availability of the ITC which was available earlier, is also not borne out from th
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no evidence to prove his contention. There was no reason for him not to increase his price between July-September as implementation of the GST had no connection with the price rise on the basis of inflation. The Respondent was well aware of the inflation which he had encountered during the FY 2016-17 and therefore, he should have increased his prices anytime from April to October 2017 and had no reason to increase them from the midnight of 14/15th November, 2017 coinciding with the reduction in the rate of tax which shows that his action was malafide and illegal. Therefore, there is no doubt that he had raised the prices w.e.f. 15.11.2017 only with the intention of appropriating the benefit of tax reduction by denying the same to his customers. Mere charging of tax @ 5% after the tax reduction cannot be taken to mean that he had passed on the benefit of such reduction when he had increased the base prices to negate the impact of tax reduction. The Respondent has also cited the case of
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he Financial Results certified by the Respondent himself and hence it can be safely concluded that this abnormal increase in the profits had occurred due to increase in the base prices and not due to increase in the sales. The theory of breakeven floated by the Respondent is completely false and wrong as there is no correlation between the figures of sales and the profits which have been supplied by the Respondent and by no stretch of imagination increase in sales by 17% during the FY 2017-18 can result in increase in profits by 185%. Therefore, the claims made by the Respondent vide Exhibit-8 of his submissions are wrong and hence cannot be relied upon.
All claims of having suffered losses, made by the Respondent due to denial of ITC, are also not supported by financial statements and hence they are completely unworthy of reliance.
50. The Respondent has further claimed that the DGAP had wrongly computed the amount of permissible increase due to non-availability of ITC as 5.59% whic
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es not appear to be correct as has been shown in Para 39 supra. The DGAP has considered the ITC on the basis of the record submitted by the Respondent himself and hence there appears to be no mistake in calculating the same. Therefore, the claim made by the Respondent that he was entitled to increase his prices by 7% instead of 5.59% due to denial of ITC is completely exaggerated and hence it cannot be accepted. The Respondent has also claimed that he had calculated the above ratio of 7% on the basis of P & L method adopted by the Malaysian Govt. but he has not explained the factors which he had taken in to account while applying the above method and hence the calculation made by him cannot be taken cognizance of. There was also no occasion for the DGAP to stop investigating the profiteering done by the Respondent on the ground that he had referred the issues of ITC to the jurisdictional authorities as this had no impact on such computation as the issue being investigated by the DGAP w
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as per the above provisions of Section 15 of the above Act, the value of the supply made by the Respondent can be calculated only on the basis of the actual price paid and not on the menu prices as generally products are not sold on the menu prices and it is the price up to which products can be sold. There is also no reason to add the discounts offered by the Respondent for calculating the total turnover as per the above provision and hence the claims made by the Respondent in this regard are frivolous and against the specific provisions of the CGST Act, 2017 and hence they cannot be acceded to. The DGAP has also rightly compared the SKU wise net realization from 01.10.2017-14.11.2017, prior to the rate reduction, with the average net realization from 15.11.2017 to 31.5.2018, subsequent to the rate reduction to consider the impact of the various discounts which were claimed to affect the calculation of net realization by the Respondent and hence there was no ground to make such compa
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e benefit on a particular product in place of another product which he may not buy. Each and every customer is entitled to receive both the above benefits without discrimination. Therefore, the provisions of antiprofiteering have to be applied at each and every Product/SKU level and the Respondent has no unfettered discretion to allow them selectively or as per his own whims and fancies. The Respondent must remember that the benefit of tax reduction and ITC has been granted by the Central and the State Governments to the public out of their own revenue and he is not required to pay it from his own account and therefore, he cannot pocket it on one or the other pretext. The Respondent also appears to be quite ignorant of the fact that on the one hand he is claiming that the antiprofiteering provisions made under Section 171 amount to price regulation and on the other hand he is supporting the 'Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit) (Net Prof
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x. The Hon'ble Supreme Court had held that Section 45 of the Income Tax Act had defined capital gains under which the goodwill generated in a newly commenced business as an asset was not part of the definition. However, in the present case the law is clear and unambiguous. The reduction in the rate of tax comes into effect from the date of the Notification and this reduction in tax has to be passed on to the recipients as per the provisions of Section 171 of the Act. Therefore the above case does not help the Respondent. The case of Eternit Everest Ltd. v. Union Of India 1997 (89) ELT 28 (Mad.) = 1996 (6) TMI 90 – MADRAS HIGH COURT pertained to Section 11 (D) of the Central Excise and Salt Act, 1944 in which the Hon'ble Supreme Court had held that 'We find and notice a conspicuous omission in Section 11 (D) of the Act of any provision whatsoever to initiate any proceedings or entertain and adjudicate upon any dispute with reference to the liability to pay any amount set to have been co
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has been denied to the recipients by the Respondent by charging more prices than what he could have charged and on which additional GST has also been collected. Thus the Respondent had not only forced the recipients to pay more price over the permissible limit but has also compelled them to pay additional GST on this amount and had he not done so the recipients would have paid less price. As they have paid additional GST which they were not required to pay, it amounts to denial of passing on of the benefit to them. The Respondent must remember that Section 171 requires passing of the benefit of tax reduction to the recipients or the customers and does not authorise the Respondent to collect additional GST illegally thus negating the benefit which has been given by the Government from its own revenue to the customers. Therefore, the DGAP has rightly concluded that any excess amount of GST collected from the recipients amounts to profiteering which must be returned to the recipients, and
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eny benefit to one customer on the ground that he has as an entity passed on the benefits to entire group of customers. Similarly benefit due to a customer cannot be denied to him on the claim that the same has been passed on to another customer on another product. There is no justification in the claim of the Respondent that the DGAP should also have taken in to account those SKUs in the case of which the price increase was within the permissible limit of 5.59%, since there was no profiteering in their case they were not required to be considered. Even if each restaurant owned by the Respondent was assessed separately for profiteering the conclusion would have been the same as the Respondent was charging the same prices in each of his outlets and was also centrally fixing the prices and hence he has been rightly assessed for profiteering collectively. There is also no justification for 'netting off' the increases and the decreases in the prices of the various products as the benefit i
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DGAP for calculating the profiteered amount was contrary to the stand which was taken by the GOI against anti-dumping margins as had been reported in the Report No. WT/DS141/AB/R dated 01.03.2001 of the Appellate Body of WTO vide which both the positive and the negative dumping margins were ordered to be taken in to account to determine their impact and the same methodology of 'netting off' should also be applied in his case. In this connection it would be pertinent to mention that the argument advanced by the Respondent is farfetched as the provisions of Section 171 are nowhere comparable with the issues of anti-dumping margins and hence the same are fallacious and irrelevant to the facts of the present case. By applying the principle of netting off the computation of profiteering will have to be made by considering the positive and negative price rises which would result in denial of benefit to the recipients individually and on each product.
57. The Respondent vide his submissions
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ondent that the products mentioned in an invoice generally included both type of products on which rate had been increased and reduced and the benefit has been passed as the reduction is more than the increase is completely farfetched and has no basis whatsoever and the hence the same is rejected as no such 'netting off' can result in passing of the above benefits.
58 The Respondent has also stated that the provisions of Section 171 of the above Act could not be invoked in his case however, the contention of the Respondent is not tenable as mere charging of 5% GST after the rate reduction does not amount to compliance of the above Section as he was required not to increase the prices more than the quantum of denial of ITC whereas he had exceed the above limit. The case of Pawan Sharma v. M/s. Sharma Trading Company, Case No. 6/2018 = 2018 (9) TMI 625 – THE NATIONAL ANTI-PROFITEERING AUTHORITY also does not help him as there was no finding to the effect in that case that mere charging
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nor given him any direction to fix his prices in a particular manner and their role has been limited to the extent whether the Respondent has passed on the benefit of tax reduction or not as per the provisions of Section 171. The Respondent is free to fix his prices and profit margin depending upon the factors which he finds fit to be considered. Any scrutiny of price increase made by the Respondent which is not commensurate with the denial of ITC certainly falls in the ambit of profiteering and it cannot be termed as price control or price regulation and hence it does not violate the provisions of Article 19 (1) (g) of the Constitution. There is no restriction on the Respondent to fix his prices keeping in view the various factors but such an exercise should not violate the provisions of Section 171
59. The Respondent has also claimed that present proceedings had been launched in violation of the principles of natural justice as no show cause notice had been issued to him. The claim
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lso issued to him by the DGAP on 25.01.2018 asking him whether he admitted that he had passed on the benefit of tax reduction or not. Therefore, it is apparent that the Respondent was fully aware of the allegations which had been levelled against him as well as the findings of the DGAP in which he had been alleged to have resorted to profiteering. The Respondent had also filed detailed submissions to the Report on 13.08.2018, 21.08.2018 and 1 1.09.2018 and at no stage he had raised the issue of non-issuance of the show cause notice which shows that the present objection which has been raised by him on 17.09.2018 is as an afterthought to evade the consequences of his illegal act. The Respondent being a very large organisation could also not have been ignorant of the fact that he was liable to civil and penal liabilities under Rule 133 of the CGST Rules, 2017 if he was found guilty of violation of the provisions of Section 171. The Respondent has been duly put to notice and full opportun
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1437 – MADRAS HIGH COURT, Dharampal Satyapal Ltd. v. Deputy Commissioner of Central Excise 2015 (320) ELT 3 = 2015 (5) TMI 500 – SUPREME COURT, Anrak Aluminium Ltd. v. Commissioner 2017 (4) GSTL 248 = 2017 (5) TMI 1200 – CESTAT HYDERABAD and Goyal Tobbaco v. Commissioner 2015 (329) ELT 619 = 2015 (11) TMI 249 – CESTAT NEW DELHI cited by the Respondent in his support ,are not being relied upon.
60. The Respondent has repeatedly quoted the order dated 27.09.2018 passed by this Authority in the case of Jijrushu N. Bhattacharya v. NP Foods = 2018 (10) TMI 1338 – NATIONAL ANTI-PROFITEERING AUTHORITY on the ground that the facts of that case were exactly similar to the case of the Respondent and hence the present proceedings should be dropped. However, comparison of both the cases shows that in the case of NP Foods the prices were increased by 12.14% due to denial of ITC of 11.80% i.e. by 0.34% which was commensurate with the denial of ITC whereas in the case of the Respondent the prices we
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reased by the Respondent from 5.75% to 84.55%. The DGAP has therefore, considered only those products on which there has been increase of more than 5.59%, accordingly 170 products have been impacted and the profiteered amount on these products has been rightly computed as Rs. 41,42,97,635/-.
61. In view of the above discussion it is held that the Respondent has not passed on the benefit of reduction in the rate of tax to his recipients, commensurate to the denial of ITC, during the period between 15.11.2017 to 31.05.2018 and accordingly, the quantum of denial of such benefit or the profiteered amount illegally earned by the Respondent is determined as Rs. 41,42,97,635/- as per the provisions of Rule 133 (1) of the CGST Rules, 2017. Accordingly, the Respondent is directed to reduce his prices by way of commensurate reduction keeping in view the reduced rate of tax and the benefit of ITC denied. The Respondent is also directed to refund to the Applicant No. 1 an amount of Rs. 5.65 along
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1,07,651.50
8
Daman & Diu
1 51,819
9
Delhi
2,39,88,346
10
Goa
21,14,117
11
12
Gujarat
1,04,94,079
Haryana
1,23,35,538
13
Himachal Pradesh
13,58,342.50
14
Jammu & Kashmir
12,93,382
15
Jharkhand
15,80,017
16
Karnataka
2,53,24,454.675
17
Kerala
22 97 540.50
18
Madhya Pradesh
49,34 225
19
Maharashtra
3,95,74,886.50
20
Meghalaya
2,64,126
21
Nagaland
1,41,545.50
22
Odisha
15 68,858
23
Pondicherry
3,40,605
24
Punjab
93,13,692
25
Rajasthan
47,19,641.50
26
Sikkim
3,34,289.50
27
Tamil Nadu
1,31,97,302.50
28
Telangana
86,71,955
29
Uttar Pradesh
1,97,09,500.50
30
Uttarakhand
29,17 668.50
31
West Bengal
83,09,797
Total
20,71,48,814.67
62. The concerned Central and State GST Commissioners are directed to ensure that the amount due is got deposited from the Respondent along with interest and in case the same is not deposited necessary steps shall be taken by them to get it recovered from the Respondent as per the provisions of
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