GSTAT Rules, Subway Franchisee Hiked Base Prices To Neutralise ITC Loss, Amounted To Profiteering; 18% Interest Can't Apply Retrospectively
Sangeetha Prathap
The Goods and Services Tax Appellate Tribunal (GSTAT), Anti-Profiteering Division at Delhi, has upheld that a franchisee of Subway Systems engaged in profiteering by raising the base prices of food items to offset the loss of Input Tax Credit (ITC), but held that the 18% interest provision inserted later cannot be applied retrospectively to the period under investigation. In an order dated December 2, 2025, the Single Bench of Justice (Retd.) Dr. Sanjaya Kumar Mishra (President) accepted the Directorate General of Anti-Profiteering’s (DGAP) second report and directed the respondent, Dange Enterprises (a Subway franchisee), to deposit the quantified profiteered amount into the Consumer Welfare Fund.
The controversy arose after the GST Council’s November 2017 decision to reduce the GST rate on stand-alone restaurants from 18% to 5% (w.e.f. November 15, 2017) without allowance for ITC. The DGAP’s probe, covering the period from November 15, 2017 to June 30, 2019, concluded that the franchisee had not passed on the benefit of the rate reduction to customers and had instead increased base prices, resulting in alleged profiteering. The DGAP’s initial computation put the profiteered amount at approximately ₹28.74 lakh (including GST); however, following remand and further exercise, the DGAP’s later report reduced the quantified profiteering to ₹4,57,683 for the period under review.
A central difficulty in the investigation was the non-availability of complete, invoice-wise, product-wise sales data from the franchisee and the franchisor, M/s Subway Systems India Pvt. Ltd. (SSIPL). The respondent repeatedly sought to rely on the franchise agreement and submissions that pricing was controlled by the franchisor and that any upward revision was intended to offset ITC loss borne by the franchisee. In the absence of requisite data from the respondent and SSIPL, DGAP adopted a standard methodology used in prior franchisee cases and applied the highest “profiteering to turnover” ratio observed among comparable Subway franchise investigations — 16.09% — as the basis for quantification. The DGAP then applied that percentage to the respondent’s taxable turnover for the period to arrive at the profiteered quantum. The DGAP’s use of the highest comparable ratio and its resulting computations are recorded in detail in the investigation record.
The respondent accepted the profiteered amount but contested liability to pay interest and penalty. The Tribunal identified the single legal issue requiring interpretation as: “Is the Respondent liable to pay an interest @ 18% on profiteered amount?” and examined the amending notifications that inserted interest and penalty provisions into Rule 133 of the CGST Rules. While the Fourth Amendment Rules (Notification No. 31/2019) sought to introduce an interest component in clause (c) of sub-rule (3) of Rule 133, the GSTAT analysed the effective date provisions and the later notification appointing April 1, 2020 as the date from which the amended rule would come into force. On statutory interpretation principles and by reference to authority on prospectivity, the Tribunal held that the interest and penalty provisions, having been made effective well after the end of the investigation period, could not be read back to cover the earlier period of alleged profiteering. The bench therefore declined to impose the 18% interest or penalty for the conduct that occurred prior to the effective date of those provisions.
Having considered the DGAP report, the respondent’s submissions and the precedents, GSTAT accepted the DGAP’s revised quantification to the extent of ₹4,57,683 and directed deposit of that amount into the Consumer Welfare Fund created by the Centre and the States equally. The Tribunal also recorded procedural observations about DGAP’s investigative powers and the respondent’s lack of cooperation, and directed compliance measures and further reporting as required under the CGST Rules. The Tribunal made clear that the question of interest/penalty was governed by the date of operation of the amending rule and, since the relevant amendments came into force after the investigation period, those additional monetary obligations did not apply.
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GSTAT accepted the DGAP’s second report on quantification and found that Dange Enterprises had profiteered to the tune of ₹4,57,683 by increasing base prices to neutralise ITC loss. The respondent was directed to deposit the profiteered sum into the Consumer Welfare Fund. However, the Tribunal held that Rule 133(3)(c)’s 18% interest (and the later penalty provision) could not be applied retrospectively to the investigation period and therefore was not leviable in the present case.
Cause Title: DGAP vs. Dange Enterprise
Case No: NAPA/16/PB/2025
Coram: Justice (Retd.) Dr. Sanjaya Kumar Mishra (President)
