New Delhi: In what could be a big relief for restaurants, the anti-profiteering watchdog has ruled that a franchisee of Subway India has not profiteered when it raised the price of a food product by as much as the taxes were cut by the Goods and Services Tax (GST) Council last November. The National Anti-profiteering Authority (NAA) ruled so because the tax cut on restaurants from 18% to 5% was accompanied by a decision to disallow rebates for the taxes paid by them on purchase of various equipment, raw materials and services.
NAA said in an order uploaded on its website that NP Foods in Gujarat, a franchisee of Subway India, has increased the average base price of a food item by 12.14% after the tax reduction, which was aimed at neutralizing the effect of denial of input tax credit to it to the extent of 11.8%.
“Such increase (in base price) is commensurate with the increase in the cost of the product on account of the denial of input tax credit," said the NAA order. The authority also dismissed the application filed against the food joint, saying it has not indulged in profiteering.
Disallowing the benefit of input tax credit is a rare policy decision taken by the GST Council last November after a large number of restaurants were suspected not to have passed on the benefits of input tax credit to consumers after GST was introduced in July 2017. Restaurants charging 18% GST on the food bill without applying the rebates they were eligible for had led to public anger. The GST Council responded by slashing the tax rate and disallowing the input tax credits to restaurants.
“This ruling shall be a huge relief to the restaurant industry, amongst others. The NAA has taken into consideration the loss being suffered on account of denial of input tax credit to the restaurant while deciding on the allegation of profiteering," said Pratik Jain, partner and leader of indirect Tax at PwC India.