Bombay HC Sets Aside Anti-Profiteering Authority's Order Against McDonald's Franchise [Read Judgment]

The Bombay High Court granted relief to Hardcastle Restaurants Private Ltd, which operates several franchises of McDonald's in Western and Southern India and set aside an order of National Anti-Profiteering Authority alleging profiteering on behalf of the company for not passing on the benefits of reduction in tax on restaurant services, from 18% to 5%, to the consumers. A division bench of Justice MS Sanklecha and Justice Nitin Jamdar set aside the order on the finding that sufficient quorum for Authority was not present at the time of deicision. Therefore, the Court restored the proceedings before National Anti-Profiteering Authority and asled the petitioner company to remain present before the authority on November 25. What is profiteering? In terms of Section 171 of the CGST Act, 2017, the suppliers of goods and services should pass on the benefit of any reduction in the rate of tax or the benefit of input tax credit to the recipients by way of commensurate reduction in prices. The wilful action of not passing on the above benefits to the recipients in the manner prescribed is known as "profiteering". Case Background The said authority took up complaints filed by consumers of McDonald's contending that though the rate of GST on restaurant services was reduced from 18% to 5% with effect from November 15, 2017, petitioner company increased the prices of product sold, which was an act of illegal profiteering. The Standing Committee on Anti Profiteering examined the complaints and then referred the same to Director-General of Safeguards. The Director General asked petitioner company to submit a reply to the allegations levelled in the complaints and also to suo-motu determine the quantum of benefit the petitioner had not passed on to the consumers between November 15, 2017 to January 31, 2018. The complainants were given the opportunity to inspect the evidence and reply furnished by the petitioner. Thereafter, petitioner company filed a reply on January 5, 2018 and denied the allegations. The Director-General noted that the petitioner was selling 1844 types of products and after comparing the price list published before and after November 15, 2017, opined that the petitioner had increased the base price of 1774 products, which constituted 96.20% of its total products. Though the Petitioner had charged GST at 5% on or after November 15, due to the increase in the base price, the customers had to pay the same price charged before November 15. Thus, the Director-General, after setting out the reasons, concluded that the profiteering amount was of Rs.7.49 crores. The Anti-Profiteering Authority considered the report of the Director-General in its sitting held on July 5, 2018. It was held that the Section 171 of the Central GST Act was applicable since there was a reduction in the rate of tax from 5% to 18%. Thereafter, the Authority directed the petitioners to reduce the prices of its products and to deposit an amount of Rs.7.49 crores to the Consumer Welfare Fund along with 18% interest. The Authority passed the order on November 16, 2018. Amand Shah, Technical Member, who had joined on September 7, 2018, after the hearings, also signed the order along with three others who had heard the parties. Judgement Advocate Roshan Shah appeared for the petitioner company and Advocate Zoheb Hossain for the respondent authorities. Adv Rohan contended that since the hearing was only by three members and the impugned order is by four members, it is in breach of principles of natural justice. The petitioner was not afforded an opportunity to present its case before Amand Shah, the fourth signatory, Adv Rohan submitted. It was also submitted that since the complaints were filed regarding one product, a type of coffee, and the order could not have been extended all the goods and services of the petitioners. Further, no methodology is framed for determining profiteering and absence of any statutory guideline, the exercise carried out is entirely arbitrary. Thus, the order suffers from arbitrariness, perversity and contradictions, Shah said. Whereas, Adv Hossain told the bench that this is a clear case of profiteering and there is no arbitrariness in the impugned order as all procedures and rules under CGST have been followed. He told the Court that no prejudice is caused to petitioners due to the fact that Amand Shah, who was not present during the hearings is a signatory to the final order. Composition and functioning of the Anti-Profiteering Authority is elaborated under Chapter XV of the Central Goods and Services Tax Rules, 2017. After examining the said rules, Court noted- "Three members constitute the quorum. If the members differ in their opinion on any point, the point is to be decided by voting and if equality of votes occurs, the Chairman would have a casting vote. Rule 134(2) clearly contemplate deliberations within the members before deciding." Thus, the bench...

Bombay HC Sets Aside Anti-Profiteering Authority's Order Against McDonald's Franchise [Read Judgment]

Nitish Kashyap

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