The National Anti-Profiteering Authority (NAA) on November 16, 2018, in the case of Sh. Ravi Charaya & Others v. M/S Hardcastle Restaurants Pvt. Ltd
., has found Hardcastle Restaurants, a franchisee of McDonald’s, guilty of making an illegal profit to the tune of Rs. 7,49,27,786 by not passing the GST and Input Tax Credit (ITC) benefits to its customers starting from November 15, 2017, till January 31, 2018.
The quorum consisting of Chairman B.N. Sharma and technical members J.C. Chauhan, R. Bhagyadevi and Amand Shah was considering a case filed by Director General of Anti-Profiteering (DGAP) under Rule 129(6)
of the Central Goods and Services Tax (CGST) Rules, 2017
. It was alleged that though the GST on restaurant services had been reduced from 18% to 5%, w.e.f. November 15, 2017, Hardcastle Restaurants increased the base price of 1774 out of its total 1844 products with immediate effect to maintain the prices same as before the reduction of GST, thus not giving the tax benefit to customers and making illegal profit in contravention of the provisions of Section 171
of the CGST Act, 2017.
Moreover, the franchisee also did not pass on to its customers Input Tax Credit (ITC) benefit of Rs.9.33 crores which was availed by it till November 2017. The respondent denying all the allegations stated that it had to increase the prices of its products due to the increase in the product cost. It contended that ITC was denied from November 2017 due to which the cost of its products had gone up. It said the net effect of denial of ITC was 10.27% - 12.24% whereas the net incremental revenue was only 9.43%, thus there was no profiteering. However, the arguments placed by the respondent were rejected by the NAA, observing that the franchisee failed to pass both the GST and ITC benefits to its customers. The NAA directed the franchisee to reduce the prices commensurate to the tax reduction and ITC benefit. Further direction was also given to deposit the illegal amassed profit of Rs.7.49 crores as per Rule 133(3)(c)
of the CGST Rules, 2017, in 50:50 proportion with the Centre and 10 states in Western and Southern India where the franchisee was running its outlets, with the interest @ 18 %, within three months. An offence under Section 122(1)(i)
of the CGST Act, 2017, was also made out against the franchisee for deliberately enhancing the prices to deny benefit to customers and hence a show cause notice was issued for imposing a penalty under the provision.