GST Rate Cut on Restaurant Services Ignored Since 2017: GSTAT Orders Subway Franchisee to Deposit ₹5.45 Lakh in CWF [Read Order]

The Principal Bench of the Goods and Services Tax Appellate Tribunal (GSTAT), New Delhi, has confirmed profiteering by Urban Essence, a Subway franchisee based in Pune, for failing to pass on the benefit of GST rate reduction on restaurant services from 18% to 5% with effect from 15 November 2017.

The matter arose from a complaint alleging that the respondent had not passed on the benefit of the GST rate cut by way of commensurate reduction in prices, as mandated under Section 171 of the CGST Act, 2017.

The Director General of Anti-Profiteering (DGAP), upon investigation, found that although the GST rate was reduced, the respondent had increased the base prices of products, thereby neutralising the intended benefit to consumers.

The DGAP’s analysis revealed that the respondent had profited to the tune of ₹5,47,005 during the investigation period from 15.11.2017 to 31.10.2019. The computation was based on a comparative analysis of pre- and post-rate reduction pricing, adjusted for the denial of input tax credit (ITC), which was estimated at 7.54% of the taxable turnover.

The DGAP illustrated the methodology using a sample product (“12” Aloo Patty Sub), showing that the respondent charged ₹295 per unit post-rate cut, whereas the commensurate price should have been ₹276.65, resulting in a per-unit profiteering of ₹18.35.

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In response, the respondent contended that the price increase was necessitated by rising operational costs and the loss of ITC. It was also argued that the DGAP’s methodology was flawed, as it failed to consider cost escalations and relied on a limited ITC window (July–October 2017), despite a CBIC press release extending the ITC claim period till 31 December 2018.

The respondent further claimed that invoices had been submitted to the Maharashtra State Tax Department and that the investigation should have been confined to a single product.

The bench of Dr Sanjaya Kumar Mishra (President) rejected these arguments. The tribunal held that Section 171 does not permit offsetting tax benefits against unrelated cost increases and that profiteering must be assessed across all supplies, not just one product.

The Bench noted that the respondent had failed to furnish adequate documentary evidence during the investigation and had not appeared for multiple hearings despite notices.

The case had earlier been remanded by the erstwhile National Anti-Profiteering Authority (NAA) in November 2020 for reinvestigation, allowing the respondent an opportunity to submit additional ITC-related documents. However, the reinvestigation reaffirmed the original findings, leading to the present final order.

The Tribunal concluded that the respondent had indeed profiteered by not passing on the benefit of the GST rate reduction and directed the deposit of the profiteered amount with interest into the Consumer Welfare Funds under Rule 133(3)(c) of the CGST Rules, 2017.

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