GSTAT Delhi: Subway Franchisee to Refund ₹5.45 Lakh for Profiteering After GST Rate Cut, No Penalty Imposed
Pranav B Prem
The Delhi Bench of the Goods and Services Tax Appellate Tribunal (GSTAT) has upheld the findings of the Director General of Anti-Profiteering (DGAP) against Pune-based Urban Essence, a Subway franchisee, for profiteering by failing to pass on the benefit of a GST rate reduction on restaurant services from 18% to 5% effective November 15, 2017.
The bench comprising Justice (Retd.) Dr. Sanjaya Kumar Mishra (President) and C.L. Mahar (Technical Member) directed Urban Essence to deposit ₹5,45,005, along with 18% interest from the date of collection, into the Consumer Welfare Funds of the Centre and the State of Maharashtra within three months. The Tribunal warned that failure to comply would result in recovery by the jurisdictional CGST/SGST Commissioner.
Background of the Dispute
The case originated from a complaint filed through the Standing Committee on Anti-profiteering, alleging that Urban Essence had not reduced the prices of its products after the GST Council slashed the tax rate on restaurant services from 18% to 5%, with denial of input tax credit (ITC). The DGAP initiated an investigation covering the period from November 15, 2017, to October 31, 2019.
The investigation examined 340 products sold by the outlet. Sample analysis revealed that even after the tax cut, the base prices of products were increased, thereby keeping the final price paid by customers the same or higher. For instance, the “12-inch Aloo Patty Sub” continued to be sold at a price that neutralised the tax benefit.
Findings of DGAP
The DGAP concluded that Urban Essence profiteered to the tune of ₹5,47,209 by increasing base prices and failing to pass on the benefit of the GST rate reduction. The profiteered amount comprised ₹2,72,193 for supplies to recipients not registered under GST and ₹2,72,812 for supplies to recipients registered under GST. Urban Essence argued that the price changes were due to increased operational costs, loss of ITC, and competitive market conditions, and that the original complaint related to only one product. It contended that the DGAP was wrong in expanding the scope of the investigation to cover all products sold.
GSTAT’s Observations
The Tribunal rejected these arguments, holding that Section 171 of the CGST Act imposes a statutory obligation to pass on any reduction in tax rate through commensurate price reduction. It noted that the scope of investigation is not restricted to the complained product but extends to all goods and services supplied by the registered person during the relevant period.
The bench also found that Urban Essence had failed to produce documentary evidence, such as invoices or cost sheets, to substantiate its claim that the price increases were justified. Despite multiple opportunities, the appellant did not file any reply to the DGAP’s notice, resulting in the proceedings being decided ex-parte. The Tribunal observed: “Price increases do not happen overnight without valid cause. In the absence of any credible evidence to rebut the DGAP’s findings, the statutory presumption that the benefit of GST rate reduction must be passed to consumers remains unrebutted.”
No Penalty Due to Timing of Provision
While Section 171(3A) of the CGST Act provides for penalties in cases of profiteering, the Tribunal held that this provision came into effect on January 1, 2020, and could not be applied retrospectively to the profiteering period in this case (November 15, 2017–October 31, 2019).
Upholding the National Anti-profiteering Authority’s order dated November 24, 2022, GSTAT directed the deposit of ₹5,45,005 into the Consumer Welfare Funds with interest. The jurisdictional CGST/SGST Commissioner must report compliance within four months, failing which recovery proceedings will be initiated.
Appearance
Counsel For Petitioner: Suneel Kumar
Counsel For Respondent: None
Cause Title: DGAP V. URBAN ESSENCE (SUBWAY FRANCHISEE)
Case No: NAPA/31/PB/2025
Coram: Justice (Retd.) Dr. Sanjaya Kumar Mishra [President], C.L. Mahar [Technical Member]
