Authority rejects plaint against not passing on GST rate cut gains : 29-09-2018

The National Anti-Profiteering Authority (NAA) has dismissed a complaint against a Subway franchisee that the fast food restaurant raised product prices but did not pass on to customers the benefits of rate cuts under goods and services tax (GST). Under Section 171 of the CGST Act, 2017, the benefits accruing due to GST have to be passed on to customers.

In November last year, GST was lowered to 5% from 18% for all restaurants, except those located within hotels with room tariffs of Rs 7,500 and more. Also, in February this year, the government withdrew input tax credit where 5% GST was applicable.

In an order posted on the NAA website, a bench said that the price increase by the restaurant was commensurate with the loss it was incurring after withdrawal of input tax credit.

Several restaurants across the country had raised prices after enactment of the GST law, but did not reduce prices even after the government lowered the GST rate.

In the plea, the complainant had said that after the reduction in GST, the restaurant had increased prices and that customers were being denied benefits of tax rate reduction.

“This ruling comes as quite a welcome measure for the restaurant industry in specific, which had offset the increased costs on account of disallowance of input tax credit with the reduced tax rate,” said Abhishek Jain, partner, EY.

The Subway franchisee, Gujarat based M/s NP FOODS, said a 12.14 % price increase was to make good for the loss which had occurred due to denial of input tax credit post GST rate reduction (approximately 11.8%). Executives of Subway Systems India, the owner of the Subway brand, were also present during the hearings.

The Subway franchisee, Gujarat based M/s NP FOODS, said a 12.14 % price increase was to make good for the loss which had occurred due to denial of input tax credit post GST rate reduction (approximately 11.8%). Executives of Subway Systems India, the owner of the Subway brand, were also present during the hearings.

Experts said many such cases will be filed in the future due to lack of a proper formula to calculate a fair price reduction. “The whole dispute in the days ahead would circumvent the phrase ‘commensurate reduction of prices’ and, hence, it is imperative that the procedural mechanism to arithmetically calculate the price reduction is provided,” said Abhishek A Rastogi, partner at Khaitan & Co, a law firm.

Bench said that price increase was in line with the loss Subway franchisee was incurring after ITCNSE 1.52 % was rolled back.

Source : Economic Times

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