Starbucks under scanner for GST ‘profiteering

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Coffee chain Starbucks is under the scanner of the anti-profiteering body for not passing on the benefit of the Goods and Services Tax (GST) rate cuts to its customers, sources said. The Director General of Anti-Profiteering (DGAP) is investigating the case and is likely to submit its report to the National Anti-Profiteering Authority (NAA) by the end of this month.

Tata group operates Starbucks outlets in the country across several cities such as Delhi, Mumbai, Bengaluru, Pune, Chennai and Hyderabad through Tata Starbucks Pvt Ltd, its joint venture with Starbucks Corporation.

“The complaint filed by a customer alleges that the coffee chain did not reduce the price of its product despite a reduction in the GST rate from 18% to 5%,” said a source. The GST Council had reduced the tax rate on restaurants on 15 November, 2017. Starbucks did not respond to the e-mail query sent by DNA Money.

Under the GST regime, businesses have the obligation to compute and pass on the benefit of tax rate cuts to consumers when the government slashes the taxes on the goods and services. According to rule 171 of the Central GST (CGST), 2017, any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit (ITC) shall be passed on to the recipient by way of commensurate reduction in prices.

The NAA will start hearing the case from next month after the probe report is submitted to the apex anti-profiteering authority, sources said. If it finds Starbucks guilty of profiteering, it can ask the company to reduce prices from retrospective effect, return the due amount to the customer, impose penalty or in extreme cases may even cancel the firm’s registration. In the event the customers cannot be identified, the NAA can also ask the erring company to deposit the amount to the Consumer Welfare Fund (CWF) of the government.

The NAA is the apex anti-profiteering body set up to protect consumer interest, with DGAP as investigation arm and complaints mechanism via several state-level screening committees and a national standing committee. Recently, McDonald’s franchisee Hard castle Restaurants was found guilty of not passing on GST rate cut benefits to its customers. The fast-food chain was found to have profiteered Rs 7.49 crore worth benefit despite a cut in the GST rate from 18% to 5% with effect from November 15, 2017. The NAA in its order had said that the restaurants forced the customers to pay due to wrong increase in basic prices, otherwise the prices to be paid should have further got reduced by the amount of the GST illegally charged.

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