Case Law -Anti-Profiteering - SCN on McDonald's- Franchisee

SHRI RAVI CHARAYA vs. M/S. HARDCASTLE RESTAURANTS PVT. LTD.(McDonald's- Franchisee)

NATIONAL ANTI-PROFITEERING AUTHORITY | Case No. 14/2018 |  Nov 16, 2018

Legislation Referred to

Article 19(1)(g) of Constitution, 

Sections 12, 13, 16(2)(a), 17(5), 33, 122(1)(i) & 171 of CGST Act, 2017, 

Section 64A of Sale of Goods Act, 1930, 

Rules 122-137, 133(1), 133(3)(c), 126 & 129(1),(6) of Central Goods & Services Tax (CGST) Rules, 2017

Complaint:

GST on Restaurant Services had been reduced from 18% to 5% w.e.f. 15.11.2017.But  HARDCASTLE RESTAURANTS PVT. LTD (McDonald's- Franchisee) had increased the prices of the products which were being sold  and had maintained the same price which he was charging before the above reduction.

Director General of Anti-Profiteering (hereinafter referred to as the DGAP)  findings are the following:

1. On the scrutiny of the GSTR-1, GSTR- 3B returns and the ITC registers produced by the Respondent it was found that the ITC amounting to Rs. 33.96 Crores was available to the Respondent during the period between July, 2017 to October, 2017 which was approximately 9.11% of the taxable value of service of Rs. 372.62 Crores.

2.The DGAP had compared the pre and post GST rate reduction prices of the items sold during the period between 15.11.2017 to 31.01.2018 and after taking into account the entire quantity of the products sold during the above period, had found that the Respondent had increased the average output taxable value i.e. the base price by 10.45% to offset the denial of input tax credit of 9.11%

3. As per DGAP the profiteered amount came to Rs. 7.49 Crores as per the following Table and therefore, the Respondent has contravened the provisions of Section 171 of the above Act.

Order of National Anti- Profiteering Authority:

1. In view of the above the quantum of denial of benefit due to the reduction in the rate of tax and the benefit of ITC availed by the Respondent which was required to be passed on to the customers or the amount of profiteering done by the Respondent is determined as Rs. 7,49,27,786/- under the provisions of Rule 133(1) of the CGST Rules, 2017 as the Respondent has failed to pass on both the above benefits to his customers.

2.Accordingly, the Respondent is directed to reduce his prices by way of commensurate reduction keeping in view the reduced rate of tax and the benefit of ITC which has been availed by him as per Rule 133(3)(a). Since the complainants are not identifiable in this case the Respondent is further directed to deposit the above amount as per the provisions of Rule 133(3)(c) in the ratio of 50:50 in the Central or the State CWFs of all the 10 States mentioned in para 12 above, along with the interest @ 18% till the same is deposited, within a period of 3 months.

3.As per the above narration of the facts it is clear that the Respondent has resorted to profiteering by charging more price than that he could have charged by issuing incorrect tax invoices. He has further acted in conscious disregard of the obligation which was cast upon him by the law by issuing incorrect invoices in which the base prices were deliberately enhanced exactly equal to the amount of reduced tax and benefit of ITC and thus he had denied the benefit of ITC and reduction in the rate of tax granted vide Notification dated 14.11.2017 to his customers. Accordingly he has committed an offence under Section 122 (1) (i) of the CGST Act, 2017. Therefore, a show cause notice may be issued to the Respondent to explain why penalty under the provisions of the above Section should not be imposed on him.