GST profiteering case: Subway franchisee directed to repay GST benefit
In a recent ruling, the GST Appellate Tribunal (GSTAT) ordered a Subway franchisee to deposit over ₹41 lakh for profiteering — that is, for not passing on the benefit of a GST rate cut to customers. This order reinforces the anti-profiteering provisions under Section 171 of the CGST Act, a critical compliance requirement for all GST-registered businesses.
The case sets a strong precedent, especially for businesses in franchise and food service models, where pricing transparency and tax adjustments are closely watched by authorities.
What is GST profiteering?
Under Section 171 of the CGST Act, 2017:
- Any reduction in the GST rate or
- Benefit of input tax credit (ITC)
Case summary: Subway Franchisee vs. DGAP & NAA
| Particulars | Details |
|---|---|
| Entity | Krrish Foodworks Pvt. Ltd. (Subway outlet) |
| Location | Ghaziabad, Uttar Pradesh |
| Investigation period | 15.11.2017 to 30.09.2020 |
| GST rate change involved | 18% to 5% (with ITC disallowed) from 15.11.2017 |
| Allegation | Didn’t reduce prices post rate cut |
| Authority | DGAP → NAA → GSTAT |
| Final GSTAT ruling | ₹41.85 lakh to be deposited in CWF |
| Timeline | Order dated 24 July 2024 |
Key GSTAT findings
- Rate cut impact not passed: The Subway franchise continued to charge the earlier price despite a GST rate reduction from 18% to 5%, effective 15 Nov 2017, applicable to restaurant services (without ITC).
Legal backing: Anti-profiteering provisions
- Section 171, CGST Act: Mandates passing of rate cut or ITC benefit.
- Rule 127, CGST Rules: Empowers the National Anti-Profiteering Authority (NAA) to act on complaints.
- Section 112(1A), CGST Act (post-GSTAT): Provides appellate remedy to GSTAT against NAA orders.
Expert insight: How to stay compliant
Failing to adjust prices post-rate reduction or keeping ITC benefit without price revision can trigger scrutiny. To avoid this:
- Regularly review price lists after GST notifications
- Maintain transparent cost sheets and margin workings
- Document reasons for price changes or non-changes
- Implement automated POS adjustments in restaurants
Tip: Franchisees should coordinate centrally with their brand head office on pricing decisions post-GST changes — especially in food services where rates are commonly updated by CBIC.
What happens to profiteered money?
As per the law, the amount is deposited in the Consumer Welfare Fund (CWF) — a government-managed account used to promote consumer rights and education.
What this means for small businesses
This GSTAT ruling is a reminder that even relatively smaller franchisees can face heavy penalties if they ignore GST rate notifications or fail to update pricing structures.
If your GST rate goes down, your selling price must too — unless backed by cost increase or loss of ITC, and even then, you must be able to justify it with proper documentation.
Internal link:
Read our guide on anti-profiteering compliance for restaurants and service providers.
External link:
Refer to CBIC Notification No. 46/2017-Central Tax (Rate) for GST rate changes on restaurant services.
Summary
GSTAT has directed a Subway franchisee to deposit ₹41.85 lakh for not passing GST rate cut benefits to customers, violating Section 171 of CGST Act. A key reminder on anti-profiteering compliance for restaurants and franchise models.
FAQs on GST Profiteering
Q1. Is GST profiteering illegal in India?
Yes. Under Section 171 of the CGST Act, businesses must reduce prices when tax rates are reduced or input credit is gained.
Q2. Who investigates profiteering?
The Director General of Anti-Profiteering (DGAP) investigates, and NAA issues orders. Appeals now go to GSTAT.
Q3. Can the customer claim refund of profiteered amount?
No. The amount goes to the Consumer Welfare Fund, not to individual consumers.
Conclusion
This ruling marks one of the first GSTAT confirmations of anti-profiteering orders, and more such cases are expected as NAA transitions into sunset. Businesses in FMCG, hospitality, and services must keep compliance airtight.