NAA | Dominos Pizza India operator found guilty of not passing GST benefit to customers – issued incorrect invoices and illegally earned Rs 41.42 crores

National Anti-Profiteering Authority (NAA): The coram chaired by B.N. Sharma (Chairman) and comprising J.C. Chauhan, R. Bhagyadevi and Amand Shah as technical members found the operator of Domino’s pizza chain in India guilty of offence under Section 122 of the Central Goods and Services Tax Act, 2017 (CGST Act) by illegally earning Rs 41.42 crores.

Central Government vide Notification No. 46/2017- Central Tax (Rate) had reduced GST rate for air-conditioned restaurants – except the ones located within hotels with room tariffs of Rs 7,500 and above – from 18 percent to 5 percent, without any input tax credit (ITC).

Applicant, a customer of Domino’s Pizza, filed an e-mail complaint against the respondent stating that Domino’s had not reduced the prices of its ‘Stuffed Garlic Bread’ and ‘Medium Veg Pizza’ despite GST rate cut. The complaint alleged that after GST reduction, respondent had increased the base price of its product and was effectively charging the same amount as it used to before the tax cut. Hence, customers were denied the benefit of tax reduction.

The Authority, at the outset, noted that post the GST rate cut, 398 products supplied by respondent were affected with tax reduction and as such it was obliged to pass on the benefit thereof to its customers by a commensurate reduction in prices as per Section 171 of the CGST Act.

Respondent’s arguments as to there being no methodology for determination and calculation of profiteering, as well as cited cases were dismissed by the Authority. Contention of revision in price of base products as a normal business decision due to factors such as the rise in prices of raw materials was opined as not having been established through the data submitted. Claims of losses suffered by respondent due to denial of ITC were also held to be unsupported by financial statements. It was observed that the “benefit of tax reduction is granted by the Central and State Governments to public out of their own revenue and therefore respondent cannot pocket it on one or the other pretext.”

It was held that Section 171 explicitly states that the recipient has to be given the benefit of tax reduction and any denial thereof violates Article 14 of the Constitution of India. On the basis of material on record, respondent was found guilty of pocketing Rs 41.42 crores (approx.) illegally. Accordingly, it was directed to reduce its prices as per the reduction in GST.

It was further directed to refund Rs 5.65 along with interest at the rate of 18 percent from the date of charging till the date of refund to applicant/complainant. The balance amount was directed to be deposited in 50-50 ratio in the Central and State consumer welfare fund. Lastly, a show cause notice was issued to respondent to explain why penalty under Section 122(1)(i) of CGST Act, not be imposed on it. [Kiran Chimirala v. Jubilant Food Work Ltd., 2019 SCC OnLine NAA 2, Order dated 31-01-2019]

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