Starbucks may be fined for not reducing prices of its products after the GST rate cut. Tax authorities had questioned Starbucks about its prices and had issued two sets of letters seeking data after GST reduction and had received a detailed reply for the same.
GST for restaurants was reduced to 5% in early 2018, although input tax credits could no longer be claimed. Starbucks argued that denial of input tax credits had neutralised the cut in GST and thus its operational costs were not impacted. However, the NAA might be slapping a fine on the company and an order against Starbucks is expected in the next few weeks.
Experts said assessing the impact of GST changes on restaurants is not easy, given the various operational models they adopt and the absence of a specific framework. According to Abhishek A Rastogi, a partner at law firm Khaitan & Co, it is difficult to calculate how much benefit an entity has gained from the tax rate cut.
NAA’s concern is whether prices were reduced after the GST rate cut and if the benefits of input tax credit were passed on to customers. Tax experts said the anti-profiteering section in the GST framework doesn’t deal with reduced input tax credits, which could pose problems for restaurants.
