GST Rate Cut Neutralised by Same-Day Base Price Increase: GSTAT holds ‘Subway’ franchise Liable for Profiteering u/s 171 [Read Order]

The GST Appellate Tribunal ( GSTAT ), Principal Bench, has held that a Subway franchisee in Pune is liable for profiteering by increasing base prices on the very same day the GST rate on restaurant services was reduced from 18% to 5%.

An investigation report dated 14.10.2022 submitted by the Director General of Anti-Profiteering (DGAP) against M/s A J Enterprises, which operated a Subway outlet at Amanora Mall, Pune.

The GST rate on restaurant services (without ITC) was reduced from 18% to 5% with effect from 15.11.2017 through Notification No. 46/2017-Central Tax (Rate).

The DGAP found that instead of passing on the benefit of rate reduction to consumers by way of commensurate price reduction, the Respondent increased the base prices of its products on the very same date.

The Tribunal noted the product-wise price data (as reflected in the tabulation on page 6 of the order).

It was noted that the base price of a 6” Hara Bhara Kabab was ₹120 until 14.11.2017 and that of a 6” Aloo Patty was ₹135. However, effective 15.11.2017, the very date the reduced 5% GST rate came into force the base prices were increased to ₹133.30 and ₹152.40 respectively.

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The Tribunal observed that the timing of the increase was important. The price revision coincided precisely with the rate reduction notification, which showed the intention of the franchise to maintain the same final consumer price (MRP), denying customers the tax benefit.

The Tribunal, rejecting the defence of the respondent stating its expenses on advertisement, royalty charges, held that while the presumption that tax reduction must be passed on is rebuttable.

The burden lies on the supplier to produce cogent, clear and unequivocal evidence to justify any offsetting increase in base prices. Mere assertions of cost escalation are insufficient, said the bench.

Accordingly, the bench of Justice Mayank Kumar Jain upheld DGAP’s findings and directed the Respondent to deposit ₹13,32,322/- as profiteered amount and also to pay interest @18% from 28.06.2019 to 30.09.2019.

It also directed that the deposit 50% of the amount with interest into the Central Consumer Welfare Fund and the remaining 50% into the Maharashtra Consumer Welfare Fund.

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