R. Suryamurthy
The Goods and Services Tax Appellate Tribunal (GSTAT) has upheld findings that a Pune-based Subway franchisee profiteered by not passing on the benefit of a GST rate cut on restaurant services, directing it to return ₹5,45,005 along with 18% interest to the Consumer Welfare Funds of the Centre and Maharashtra within three months.
The case against Urban Essence, a franchisee of Subway Systems India, arose from a 2019 complaint alleging it failed to reduce menu prices after the GST rate for restaurant services was slashed from 18% to 5% on November 15, 2017. The Director General of Anti-Profiteering (DGAP) found that while the tax rate dropped, the outlet increased its base prices, effectively nullifying the benefit to consumers.
The investigation, covering November 2017 to October 2019, calculated the excess amount collected at ₹5,47,005. The DGAP said the franchisee also charged additional GST on inflated base prices, contravening Section 171 of the CGST Act.
Urban Essence argued that higher costs—such as salaries, rent, and utilities—justified price hikes and that the calculation ignored input tax credit (ITC) it could have claimed later. It also claimed the probe should have been limited to one menu item named in the complaint. The tribunal rejected these defences, citing the absence of documentary proof and confirming the DGAP’s authority to examine all products.
Tribunal president Dr. Sanjaya Kumar Mishra noted that the law creates a rebuttable presumption that tax cuts must lead to proportionate price reductions, unless the seller proves legitimate cost pressures. “In this case, the respondent has not produced any documents or evidence to rebut such a presumption,” the order said.
While finding a violation, the tribunal declined to impose penalties because the relevant penalty provision took effect in 2020, after the profiteering period. The concerned CGST/SGST commissioners must report compliance within four months, with recovery proceedings to follow if the ordered sum is not deposited.
According to Rajat Mohan, Senior Partner at AMRG & Associates, the DGAP vs. Urban Essence decision marks the first final order from the GSTAT’s Anti-Profiteering Division, signalling that the division is now fully operational, with the President himself conducting hearings and delivering orders. “This sets the tone for a more structured and authoritative approach to anti-profiteering enforcement under Section 171,” Mohan said. “The Tribunal’s stance—upholding DGAP’s findings across all products and rejecting cost-based justifications—reinforces that GST rate cut benefits must be directly passed on to consumers, backed by strong documentation, or face decisive action.”