Subway Franchisee Hiked Base Prices To Neutralise ITC Loss, Amounted To Profiteering; 18% Interest Can't Apply Retrospectively: GSTAT

The Goods and Services Appellate Tribunal (GSTAT), Anti Profiteering Division at Delhi has held that Franchisee of Subway Systems profiteered in respect of restaurant services by increasing base price of the products to offset loss of Input Tax Credit (ITC). In an order dated December 02, 2025 the Single Bench of Justice (Retd.) Dr. Sanjaya Kumar Mishra (President) has accepted the second report submitted by the Directorate General of Anti-Profiteering (DGAP) in respect of profiteering allegation to the tune of Rs. 4,57,683 against Respondent, a franchisee of M/s Subway Systems India. However, for the interest component the GSTAT observed that Rule 133 (3) (c) stipulating 18% interest on profiteered amount enforceable from April 01, 2020 was inapplicable. While so, GSTAT clarified that interest as well as penalty provision, also inserted in 2020 were 'much after the last date of the alleged profiteering' and therefore, period of investigation fell out of the ambit of interest and penalty. On recommendation of the 23rd GST Council Meeting held at Guwahati, major relief in GST rates on certain goods and services were deliberated upon including reduction of GST rate on All stand-alone restaurants irrespective of air conditioned or otherwise, to 5% (from 18%) without ITC. Despite GST rate reduction on restaurant services from 18% to 5% (w.e.f. November 15 2017), the DGAP found that Respondent allegedly did not pass on benefit to customers. DGAP in its report investigated the Respondent for the period November 15, 2017 to June 30, 2019 wherein it was found to have profiteered Rs.28,74,577/- including GST on base profiteered amount. Respondent claimed inability to furnish complete sales data since as a Franchisee pricing was controlled by the Franchisor, Subway India. However, inspite of repeated summons both Franchisee and Franchisor failed to provide invoice-wise/product-wise, itemized data. It was also submitted that Franchisor had informed that ITC loss was its own to bear and for that reason Respondent revised its product pricing upwards to offset the loss on account of non-availability of ITC. In absence of data, DGAP by adopted highest 'profiteering to turnover ratio' i.e. 16.09% of the benefit received to turnover among all similar cases of profiteering pertaining to another franchisee. Thereafter, erstwhile NAA comprising Dr. B.N. Sharma (Chairman), Mr. J.C. Chauhan & Mr. Amand Shah (Technical Members) vide an order in August 2022, remanded the matter back to the DGAP for further investigation because the initial information provided by the enterprise was incomplete. Case Detail: DGAP vs. Dange Enterprise Case No.: NAPA/16/PB/2025 For Respondent: Mr. Varun Sharma Click here to read the GSTAT Order. Click here to read the NAA Order.

Subway Franchisee Hiked Base Prices To Neutralise ITC Loss, Amounted To Profiteering; 18% Interest Can't Apply Retrospectively: GSTAT

Parul Bose

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