Subway Franchise Raised Base Prices On GST Cut Day, GSTAT Upholds ₹13.32 Lakh Profiteering Against Pune Outlet

Holding that the franchisee increased base prices on the very date the GST rate on restaurant services was reduced from 18 per cent to 5 per cent, the GST Appellate Tribunal at Delhi has upheld findings that a Pune-based Subway outlet at Amanora Mall profiteered ₹13,32,322 by neutralising the tax benefit meant for consumers.

“The Respondent's action of increasing the base price on the very same date on which the notification reducing rate of tax came into force indicates that Respondent has willfully increased the basic price of the aforesaid items to maintain the same MRP that existed till 14.11.2017. Resultantly, the benefit of reduced tax rate could not be passed on to consumer,” Judicial Member Justice Mayank Kumar Jain held on Friday.

The tribunal accepted the report dated 14 October 2022 submitted by the Director General of Anti-Profiteering and held that A J Enterprises had increased the base price of its 6-inch Hara Bhara Kabab from Rs 120 to Rs 133.30 and 6-inch Aloo Patty from Rs 135 to Rs 152.40 with effect from 15 November 2017, the day the reduced tax rate came into force.

It noted that prior to 15 November 2017, the base prices of both items had remained unchanged and that the increase coincided exactly with the GST rate reduction notification.

Rejecting the franchisee's defence that a higher royalty at 8 per cent, advertisement contribution at 4.5 percent, lease rent at 9 to 10 percent of revenue, fixed common area maintenance charges of Rs. 41,914 per month, and aggregator commissions averaging 22.7 percent necessitated the hike, the tribunal held that no cogent evidence was produced to justify either the quantum or the timing of the increase.

“If the argument advanced by Learned Counsel for the Respondent is accepted that the increase in base prices was on account of incremental royalty, advertisement contribution, lease rent, and commission payable to online aggregators, the Respondent has failed to substantiate such price increases with cogent evidence,” the tribunal observed.

It emphasised that under Section 171 of the CGST Act, any reduction in tax must be passed on by way of a commensurate reduction in prices and that the presumption in favour of consumers can be rebutted only by clear and unequivocal material.

The tribunal upheld the methodology adopted by the DGAP of comparing average base prices in the pre-rate reduction period with transaction-wise taxable values in the post-rate reduction period.

Directing the deposit of the profiteered amount, the tribunal ordered that 50 percent, along with interest at 18 percent from 28 June 2019, shall be deposited in the Central Consumer Welfare Fund and the remaining 50 percent in the Maharashtra Consumer Welfare Fund.

However, it held that the penalty under Section 171(3A) could not be imposed, as the provision came into force only from 1 January 2020, whereas the investigation period ended on 30 September 2019.

For Respondent: Advocates Nikhil Gupta, Rochit Abhishek