In a recent case, the Competition Commission of India (CCI) upheld the Penalty for Anti Profiteering as Denial of Input Tax Credit (ITC) to Customers which was in contravention of provisions of section 171 (1) of Central Goods and Service Tax (CGST), 2017.
The case revolves around the franchisee, M/s. Smookey Kitchen Foods OPC Pvt. Ltd., supplies various food products as part of the Subway brand. The investigation found a reduction in the tax rate from 18% to 5% was implemented on restaurant services without Input Tax Credit (ITC) benefits. The Respondent increased the base prices of certain products more than necessary, despite the reduction in the GST rate. The denial of ITC post-GST rate reduction prompted the franchisee to offset the impact by raising base prices, resulting in a failure to pass on the commensurate benefit to consumers.
The methodology employed by DGAP in computing the profiteered amount was deemed correct by the CCI, justifying the comparison of discounted average base prices before and after-tax rate reduction. The Respondent’s contention on the exclusion of discretionary discounts was rejected, as transaction price under Section 15 of CGST Act, 2017 was considered for both base price determination and profiteering calculation.
The Respondent’s request to calculate the profiteered amount up to the next price revision post-GST rate reduction was dismissed by the CCI, emphasizing the absence of a prescribed investigation period under the CGST Act, 2017.
It was evident that 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 offence 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.
The CCI concluded that the franchisee violated Section 171(1) of the CGST Act, 2017, by denying customers the benefit of tax reduction. The CCI further instructed monitoring authorities to ensure compliance and directed the concerned Commissioners to submit a report within four months.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
