Jubilant Food Works Limited Vs. The Union of India

Notice has been served, and Mr. Farman Ali, Advocate, has accepted notice on behalf of Respondent No.1/UOI, while Mr. Amit Bansal, Advocate, has accepted notice on behalf of Respondent Nos. 2 and 3. Notice to Respondent No.4 will be served via e-mail. The petitioners are challenging not only an order dated 31st January 2019 passed by the National Anti-Profiteering Authority (NAPA), which is Respondent No.2, but also the statutory provisions under which NAPA is exercising its powers, specifically Section 171 of the Central Goods and Services Tax Act, 2017 (CGST Act) and Chapter XV of the CGST Rules, including Rules 126, 127, and 133. The petitioners argue that these provisions are violative of Articles 14 and 19 of the Constitution of India. Additionally, they are challenging an impugned notice dated 4th February 2019 issued to Petitioner No.1 by the Director General of Anti-Profiteering, Respondent No.3, which proposes penal action against the petitioners following the 31st January 2019 order by NAPA.

During the hearing, submissions were made by Mr. Mukul Rohatgi, learned Senior Counsel for the Petitioners, Mr. Farman Ali, learned counsel for Respondent No.1, and Mr. Amit Bansal, Sr. Standing Counsel for Respondent Nos. 2 and 3. The Court has been informed that there are other petitions currently pending that raise similar challenges to the constitutional validity of the above provisions, in addition to challenging the orders of NAPA. One such petition is WP(C) 378 of 2019, filed by Hindustan Unilever Ltd. against the Union of India, in which a Division Bench of this Court passed an order on 16th January 2019, including an interim direction regarding the deposit of part of the amount required to be paid under the orders of NAPA.

The present petition, therefore, sits within a broader context of ongoing litigation that questions the very foundations of the CGST Act’s anti-profiteering measures. The petitioners contend that Section 171 of the CGST Act, which aims to ensure that the benefits of tax rate reductions and input tax credits are passed on to consumers, and the corresponding rules, namely Rules 126, 127, and 133, are arbitrary and unconstitutional. They argue that these provisions infringe upon their rights to equality and freedom of trade as enshrined in Articles 14 and 19 of the Constitution of India. The petitioners assert that the orders issued by NAPA under these provisions lack a clear and transparent methodology for determining profiteering and impose disproportionate penalties.

Furthermore, the notice dated 4th February 2019 from the Director General of Anti-Profiteering adds to their grievance by proposing penal actions based on the allegedly flawed order of NAPA. The petitioners argue that such enforcement actions, without a fair and justifiable basis, further exacerbate the violation of their constitutional rights.

In light of these submissions, the Court must navigate the intricate balance between regulatory oversight and constitutional freedoms. The cases pending, including the current petition, highlight a critical need for judicial scrutiny of the anti-profiteering framework within the GST regime. The Court’s eventual decisions will have far-reaching implications not only for the petitioners but also for the broader business community and the integrity of the GST system in India.

Given the significant constitutional questions involved and the potential impact on numerous businesses, the Court’s deliberations will be closely watched. The integration of these cases suggests a coordinated judicial approach to address the complex issues at hand, aiming to ensure that the legislative intent behind the GST Act aligns with constitutional mandates and principles of fairness and justice.

In summary, the ongoing litigation presents a pivotal moment for evaluating the balance between regulatory mechanisms and constitutional rights, with the Court’s decisions poised to shape the future landscape of tax compliance and enforcement in India.

As far as the present case is concerned, Petitioner No.1, operating restaurants under the name and style of “Dominos Pizza,” has been held by the National Anti-Profiteering Authority (NAPA) by the impugned order dated 31st January 2019 to have resorted to profiteering by charging more than what could have been charged by issuing incorrect tax invoices. One of the principal grounds of challenge concerns the constitution of the NAPA itself. Under Rule 122(a) of the CGST Rules, the NAPA consists of a Chairman who holds or has held a post equivalent in rank to the Secretary of the Government of India. Under Rule 122(b), the four technical members are those who are or have been Commissioners of State Tax or Central Tax for at least one year or have held an equivalent post under the existing law. The Chairman and Members of the NAPA are to be nominated by the GST Council, implying that there is no judicial member in the NAPA. Furthermore, it is pointed out that under the CGST Rules, there is no provision for the constitution of an appellate authority to review the orders passed by the NAPA. Another feature of the functioning of the NAPA is that under Rule 126, it is the NAPA that determines the methodology and procedure for assessing whether the reduction in the rate of tax on the supply of goods and services or the benefit of Input Tax Credit (ITC) has been passed on by the registered person to the recipient by way of a commensurate reduction in prices. In other words, it is the NAPA that defines what constitutes profiteering in a given situation. It is further pointed out that it is the NAPA that issues notices to the suspected profiteer and adjudicates the said notice without any provisions for an appeal. This is contended to be contrary to the settled legal position regarding the constitution and functioning of quasi-judicial authorities and tribunals, as explained by the Supreme Court in Union of India v. Madras Bar Association 2010 (11) SCC 1. This lack of a judicial member and absence of an appellate mechanism are argued to be significant procedural and constitutional flaws that undermine the fairness and legality of the NAPA’s decisions, raising fundamental concerns about due process and the rights of the entities being adjudicated by this body.

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