Starbucks fined for not passing on GST cut benefits

The National Anti-Profiteering Authority has fined Starbucks Rs 1.04 crore plus 18% interest for not passing on the benefit of a reduction in the goods and services tax rate from 18% to 5% to consumers between November 2017 and June 2018. Starbucks was also directed to reduce the prices of its products.

Tata Starbucks, a 50:50 joint venture between Tata Consumer Products and Starbucks Corporation that operates Starbucks Coffee outlets in India, indicated that it may challenge the ruling.

“It is evident from the narration of facts that the respondent denied benefit of rate reduction” to buyers in contravention of the Central GST Act and thus resorted to profiteering, NAA chairman BN Sharma said in an order dated October 28.

The NAA directed the coffee chain to deposit the amount profiteered within three months, although it did not impose any penalties, citing amendments to the Finance Act in January 2020 that barred the levy of penalty retrospectively.

“As a responsible business, Tata Starbucks will comply with the ruling. Tata Starbucks intends to explore our legal options on the basis of our belief that we have followed the law in accordance with the revision of the GST structure.” a Tata Starbucks spokesperson said in response to query from ET.

Experts said the NAA’s directive to Starbucks to reduce product prices could throw up a plethora of issues for small restaurants and cafes that got the tax cut in 2017.

“This decision is expected to open a Pandora’s box for all the small restaurants and cafes operating throughout the country as it is quite clear that even branded players in the market took undue advantage of the GST rate reduction without passing the benefit of the same to consumers,” said Rajat Mohan, a senior partner at AMRG Associates.

The NAA noted the findings of investigation by the Director General of Anti-Profiteering in its order that Starbucks had increased base prices of its products such as short cappuccino by more than 11.79%, which was the permissible limit, and then charged 5% GST.

This clearly established that no benefit of tax reduction was passed on by the company and that the effect of the rate reduction was effectively nullified.

“The claim of the respondent (that the reduced rate was passed on to customers) is unacceptable,” the NAA said in the order.


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