Starbucks in trouble for overcharging customers

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India’s profiteering watchdog has found Tata Starbucks guilty of not passing on the benefit of reduced goods and services tax (GST) rates to consumers to the tune of ₹1.04 crore, and escaping penalty. The national anti-profiteering authority (NAA) has ordered the coffee chain to deposit the profiteered amount in the consumer welfare fund, along with 18% interest within 3 months. Tata Starbucks which is a 50:50 joint venture between the Tatas and the global coffee chain, had hiked the base price of a specific coffee product after the GST Council cut tax rates on restaurant services from 18% to 5% with effect from 15th November 2017. This kept the retail sale price of the product (pre- and post-GST rate reduction) the same.

The GST Council had decided on reducing the rate to 5% without the benefit of input tax credit.It is established that the respondent (Tata Starbucks) has profiteered to the tune of ₹1.04 crore during the period from 15th November 2017 to 30th June 2018, which it is required to pass on to the buyers by commensurately fixing prices of products after taking into account the impact of denial of the input tax credit, which it has not done.

 According to the anti-profiteering rules under GST, “Benefits of the input tax credit should have been passed on to the recipient by way of commensurate reduction in prices.”

Since consumers cannot be identified, the profiteering amount has to be deposited in the consumer welfare fund of the Centre and states.As a responsible business, Tata Starbucks will comply with the ruling. Tata Starbucks intends to explore legal options on the basis of the belief that it has followed the law in accordance with the revision of the GST structure.

Since the penal provisions under the anti-profiteering law came into effect in January, Tata Starbucks cannot be imposed a penalty since the case pertains to an earlier time.The NAA rejected Tata Starbucks’ arguments stating it was a part of a regular bi-annual price increase in October, but did so in November 2017 as it was upgrading its information technology system due to GST implementation. It argued that it followed a policy of revising prices twice a year by 7% to 8% depending on the prices of the products and adopted a practice of differential pricing, depending on the area of operation.

 

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