NAA finds Subway Franchisee Guilty for Profiteering for Non-Passing of GST Rate Reduction Benefit and Hiking Food Price [Read Order]

The National Anti-profiteering Authority (NAA) found a Subway Franchisee guilty for not passing the GST rate reduction benefit to the consumers.

The complaint against the respondent-restaurant, N Rai Delights LLP, was that after the GST rate reduction in November 2017 where the rates were decreased to 5% from 18%, they did not pass the benefit to the consumers. Also, they had increased the base prices of different items by more than 6.32% i.e. by more than what was required to offset the impact of denial of ITC, supplied as a part of restaurant services to make up for the denial of ITC post-GST rate reduction and on comparison of pre and post GST rate reduction prices of the items sold in respect of items sold.

The three-member bench of the Authority headed by Chairman B.N Sharma observed that the Authority is responsible to ensure that the benefits are passed on to consumers in line with the provisions of Section 171 read with Rule 127 and 133 of the CGST Rules, 2017.

“It is clear from the plain reading of Section 171(1) mentioned above that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second about the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the DGAP‘s Report that there has been a reduction in the rate of tax from 18% to 5% w.e.f. 15.11.2017, vide Notification No. 46/2017-Central Tax (Rate) dated 14.11.2017 in the post GST period.”

Confirming the penalty on the restaurant, the NAA held that “It has been revealed from the DGAP‘s Report that the ITC which was available to the Respondent during the period July 2017 to October 2017 is 6.32% of the net taxable turnover of restaurant services supplied during the same period. 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. It has been found that the Respondent had increased the base prices of different items by more than 6.32% i.e. by more than what was required to offset the impact of denial of ITC, supplied as a part of restaurant services to make up for the denial of ITC post-GST rate reduction and on comparison of pre and post GST rate reduction prices of the items sold in respect of items sold.”