GSTAT Directs Deposit of Rs. 5.45 Lakh Profiteered Amount with Interest for Not Passing GST Rate Benefit

The case arose out of a reference by the Standing Committee on Anti-Profiteering, after complaints that the respondent, who conducted the business of restaurant services in a franchise model, had failed to pass on the benefit of the reduction of the GST rate from 18% to 5% effective from 15 November 2017 through Notification No. 46/2017. The DGAP undertook an investigation whereby it was observed that while the GST rate on restaurant services was cut down, the respondent at the same time raised the base prices of various products, which meant that the overall selling price to consumers was unchanged or even increased. The DGAP contrasted the input tax credit-to-turnover ratio for the pre-reduction period of July to October 2017, at 7.54%, with the corresponding post-reduction prices and discovered that the latter did not capture the customer benefit that ought to have been transferred. Several sample invoices were examined, such as certain menu items, where the price gap after reduction showed evident cases of profiteering.

The respondent failed to appear before the DGAP or file documentary evidence justifying its pricing mechanism despite several opportunities. It contended in correspondence that loss of input tax credit and operational cost increases justified price revision; however, no contemporaneous invoices, debit notes, or cost records were produced to support that contention. The DGAP’s final report concluded the amount profited to be Rs. 5,47,005, finding that the respondent was non-compliant with Section 171 of the CGST Act, 2017.

Main Issue: Whether, under Section 171 of the CGST Act, the respondent failed to pass on the benefit of GST rate reduction from 18% to 5% on restaurant services and whether any credible justification existed for maintaining higher base prices after 15 November 2017.

ITAT Held: The Tribunal held that the respondent had violated Section 171 of the CGST Act for failing to pass on the proportionate benefit of the rate reduction in tax to the consumers. It noted that on the occasion of a statutory tax rate reduction, the supplier is required compulsorily to see that corresponding price relief reaches the final consumer. The Tribunal observed that general assertions in terms of input tax credit loss or escalating costs cannot exonerate a supplier of this requirement in the absence of cogent documentary evidence. As neither the respondent had provided invoice-wise data for the pre- and post-rate cut periods nor had a quantifiable correlation been established between any claimed cost escalation and price rise, extension of the benefit of doubt could not be granted. The DGAP‘s profiteering finding was consequently reaffirmed, and the Tribunal agreed that the respondent’s pricing strategy effectively negated the purpose of the tax concession granted by the government.

The Tribunal also directed the respondent to deposit Rs. 5,45,005, along with interest at 18% from 15 November 2017, into the Consumer Welfare Fund kept under Section 57 of the CGST Act within a span of three months. It was also made clear that the provisions of penalty under Section 171(3A) could not be applied in this situation, since those provisions were effective only from 1 January 2020, but the contravention period involved was 2017-2019. The Tribunal emphasised the need for strict adherence to statutory obligations designed to protect consumer interests and directed the jurisdictional Commissioners of CGST and SGST to monitor compliance and report back within four months.

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