Hotel Babylon Guilty of Profiteering ₹31.28 Lakh by Increasing Base Room Rates Despite GST Rate Cut: GSTAT [Read Order]

In a recent ruling, the Principal Bench of the Goods and Services Tax Appellate Tribunal (GSTAT) at New Delhi held that Hotel Babylon Inn Pvt. Ltd. profiteered an amount of Rs. 31,28,631 by not passing on the benefit of Goods and Services Tax (GST) rate reduction to its customers.

The case arose under Section 171 of the Central Goods and Services Tax Act, 2017 (CGST), which deals with anti-profiteering. The GST rate on hotel accommodation was reduced by Notification No. 20/2019-Central Tax (Rate) dated 30 September 2019, effective from 1 October 2019.

Under the revised rates, rooms priced between Rs. 1,001 and Rs. 7,500 were taxable at 12 percent instead of 18 percent, and rooms above Rs. 7,500 were taxable at 18 percent instead of 28 percent.

The Directorate General of Anti-Profiteering (DGAP) investigated the matter based on a complaint filed by the Principal Commissioner, Raipur, and found that the hotel had increased its base room prices after the rate reduction and denied the benefit of lower tax to customers. The profiteering for the period from 1 October 2019 to 30 June 2020 was calculated at Rs. 31,28,631 across 1,890 invoices.

The respondent’s counsel argued that hotel room tariffs vary according to market conditions, tourist seasons, and demand, and that the increase in prices was due to such commercial factors.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The counsel further argued that GST was charged separately in invoices, so there was no need to reduce the base price to pass on the benefit. The respondent also argued that during the COVID-19 period, room rates increased due to additional costs for hygiene and sanitation.

Justice (Retd.) Dr. Sanjaya Kumar Mishra (President of GSTAT) observed that no evidence was produced by the respondent to show that the price increase was driven by market dynamics or additional expenses.

The tribunal observed that the plea regarding higher costs during the COVID-19 period was an afterthought and not supported by any record.

The tribunal explained that Section 171 of theCGST Act is a consumer welfare provision meant to ensure that any reduction in the tax rate or benefit of input tax credit is passed on to the final consumer.

The tribunal pointed out that there is a rebuttable presumption that when the tax rate is reduced, prices must fall correspondingly. The respondent failed to rebut this presumption with any cogent evidence.

The tribunal held that Hotel Babylon Inn had profiteered Rs. 31,28,631 and ordered it to deposit the amount along with 18%interest per annum from 1 October 2019 till realization in the Consumer Welfare Funds of the Centre and State in equal proportion. The concerned Commissioner was directed to submit a compliance report within four months.

Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates