HRAWI Requests Government To Return Input Tax credit

Pizza chain Domino’s has got caught in the crosshairs of anti-profiteering authorities for not passing on a cut in goods and services tax to consumers. Anti-profiteering provisions make it compulsory for companies to pass on any benefits from a lower GST rate to consumers.

The Directorate General of Anti-Profiteering found that Domino’s had not reduced the prices of all its food products after the GST Council cut the tax rate on restaurants last November, and instead passed on the benefit selectively.

“An investigation report has been issued,” said a government official privy to the development. In India, Jubilant FoodWorks operates Domino’s restaurants under a franchise deal with American chain Domino's Pizza Inc.

AJubilant spokesperson said the company believes it passed on the benefits. “The company has received a copy of the investigation report submitted by the Director General Anti-Profiteering (DG) to the National Anti-Profiteering Authority (NAA). However, JFL believes it has passed on the benefit on account of reduction of GST rates to the customers and accordingly will represent its case before NAA,” the spokesperson said in an email response to ET’s questions.

The GST Council in its November 15, 2017 meeting slashed tax rate for restaurants to 5% from 18%. An investigation by the Directorate General of Anti-profiteering, previously called the Directorate General of Safeguards, found that the chain did not pass tax benefits to all consumers.

The government had created the anti-profiteering framework to shield consumers from any runaway price rise post rollout of GST from July 1 last year. Under the provisions, all complaints at the national level are examined by a standing committee and at the state level by state screening committees consisting of officials.

If a complaint is found to have merit, it is sent to the DG anti-profiteering for an investigation to be completed in three months. The DG then sends the report to National Anti-Profiteering Authority, which issues the order. The DG's investigation report is key to the decision by the authority and an adverse report would impact a company. However, there are no guidelines for businesses on anti-profiteering and it has been left to their wisdom to pass on tax benefit in the manner they deem right.

Rating agency ICRA welcomed the decision to levy 5 per cent GST on all restaurants, both air-conditioned and non-AC, saying the revision in rates is positive and will bring down the dining-out cost. Last week, the GST council lowered the tax rate of restaurants to a uniform 5 per cent from 12 per cent on non-AC restaurants and 18 per cent on air-conditioned ones.

ICRA Vice President and Sector Head Pavethra Ponniah said “This revision in GST rate for restaurants is positive, as it would bring down the dining-out cost, supporting footfalls and revenues at a time when most organized restaurants are struggling to grow demand. As most major inputs for restaurants like grains (not packaged), vegetables, poultry and seafood are exempt from GST, the input credit advantage available for restaurants was negligible. Restaurants were also not passing on any benefit of input tax credit to the consumers under GST.”

Currently, 12 per cent GST on food bill is levied in non-AC restaurants and 18 per cent in air-conditioned ones. All these got input tax credit, a facility to set off tax paid on inputs with final tax.

The council said the restaurants, however, did not pass on the input tax credit (ITC) to customers and so the ITC facility is being withdrawn and a uniform 5 per cent tax is levied on all restaurants without the distinction of AC or non-AC.

Restaurants in starred-hotels that charge Rs 7,500 or more per day room tariff will be levied 18 per cent GST but ITC is allowed for them. Those restaurants in hotels charging less than Rs 7,500 room tariff will charge 5 per cent GST but will not get ITC.

The GST Council has decided to cut tax rate for restaurants to 5 percent without Input Tax Credit. The new tax rate would be applicable to both AC and non-AC restaurants, except those in five-star hotels. Outdoor catering rate has been fixed at 18 per cent.

Hotels with Rs 7,500 room rent have been fixed at 18 per cent with input tax credit. Under the previous GST structure, it all boiled down to 12 per cent GST for non-AC restaurants and 18 per cent GST for AC restaurants. In case of five-star hotels, the charge was much more 28 per cent.

Under the previous rates if any part of a restaurant has an air conditioner, 18 per cent is charged as the GST. That also meant that takeaways from AC restaurants were levied with the same 18 per cent.

The GST Council also raised the threshold for the composition scheme. Under the composition scheme, traders are allowed to pay a fixed rate to avoid GST paperwork. Threshold for composition scheme was hiked to 1.5 crore.

West Bengal finance minister, Amit Mitra said “aggregate loss of revenue was around 60,000 crore for Centre and 30,000 crore for states in last 3 months”.

Panel of state finance ministers suggested fresh changes on Sunday to the Goods and Services Tax (GST), including a cut in the levy at restaurants and a flat 1% tax for small traders, manufacturers and eateries that opt for the less onerous composition scheme.

Panel of five state finance ministers has suggested a flat 12% GST for standalone restaurants, whether air conditioned or not, and an 18% levy at eating joints located inside hotels. While standalone restaurants will not enjoy the benefit of input tax credit, those with 18% tax will be entitled to take credit for taxes paid by their suppliers.

While the overall incidence was expected to be lower with the gains of input tax credit eaten up by the restaurants, the levy is seen to be detrimental for consumers. The respite on composition scheme will also lower the burden for smaller eateries, which currently attract 5% tax under composition scheme.

Scheme, which also applies to traders and manufacturers with annual turnover of Rs 20 lakh to Rs 1 crore, comes with a flat rate of tax and a much lower compliance burden where only the sales details have to be disclosed with no requirement to file detailed returns with invoices. In addition, the returns have to be filed on a quarterly basis.

Those who are willing to pay tax on their total turnover, which includes revenue from the sale of exempted goods. But those who take the pains to segregate income from the non-exempted products will have to pay 1% tax on the sale of these goods.

While a final decision will be taken by the GST Council, comprising union and state FMs, early next month, the move by the panel is seen to be another attempt to assuage small businesses which have been complaining bitterly about GST as many of them were out of the tax net till the new regime kicked in on July 1.