2019 (2) TMI 1757 - NAPA - GST

Profiteering - purchase of flat - allegation that Respondent had not passed on the benefit of Input Tax Credit (ITC) to him by way of commensurate reduction in the price - contravention of Section 171 of the CGST Act, 2017 - penalty - HELD THAT - It is clear from the plain reading of Section 171 (1) that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second pertaining to the passing on the benefit of the ITC - On the issue of reduction in the tax rate, it is apparent from the DGAP s Report that there has been no reduction in the rate of tax in the post GST period, hence the only issue to be examined is as to whether there was any net benefit of ITC with the introduction of GST. On this issue, we observe from the DGAP Report that the ITC, as a percentage of the turnover, that was available to the Respondent during the pre-GST period (April-2016 to June-2017) was 5.57%, whereas, during the post-GST period (July-2017 to December-2018), it was 7.08%. This confirms that in the post-GST period, the Respondent has been benefited from additional ITC to the tune of 1.51% (7.08%-5.57%) of his turnover and the same is required to be passed on by him to the eligible flat buyers, including the Applicant No. 1. We observe that the computation of the amount of ITC benefit to be passed on by the Respondent to the eligible flat buyers works out to ₹ 1,25,33,555/-. The said computation of the amount of profiteering worked out by the DGAP is based on the data and information supplied by the Respondent himself. We also take note of the fact that the Respondent has not challenged the said mathematical computation and has agreed to pass on the ITC benefit to the recipients - Hence we observe that the amount of profiteering computed by the DGAP is correct and therefore, we take the view that the provisions of Section 171 (1) of the CGST Act, 2017 have been contravened in the present case as the Respondent had been benefited from additional ITC in the post-GST regime. The Respondent has profiteered an amount of ₹ 1,25,33,555/- for the period of investigation. Therefore, in view of the above facts, this Authority, under Rule 133 (3) (a) of the CGST Rules, 2017, orders that the Respondent shall reduce the price to be realized from the buyers of the flats commensurate with the benefit of ITC received by him Penalty - HELD THAT - The Respondent has denied benefit of ITC to the buyers of the flats being constructed by him in his Oyster Grande project in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering. Hence, he has committed an offence under section 171 (3A) of the CGST Act, 2017 and therefore, he is apparently liable for imposition of penalty under the provisions of the above Section - Accordingly, a notice be issued to him directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him.

Summary

Issues Involved:
1. Alleged profiteering by not passing on the benefit of Input Tax Credit (ITC) post-GST implementation.
2. Determination of the quantum of profiteering.
3. Compliance with Section 171 of the CGST Act, 2017.
4. Imposition of penalty under Section 171(3A) of the CGST Act, 2017.

Detailed Analysis:

1. Alleged Profiteering by Not Passing on ITC Benefit:
The complaint was filed alleging that the Respondent did not pass on the benefit of ITC by reducing the price of Flat No. B-501 in the "Oyster Grande" project. The Haryana State Screening Committee observed that the Respondent's tax burden had been reduced due to the availability of ITC on input materials, which needed to be passed on to customers as per Section 171 of the CGST Act, 2017. The Standing Committee on Anti-profiteering forwarded the complaint to the Director General of Anti-Profiteering (DGAP) for detailed investigation.

2. Determination of the Quantum of Profiteering:
The DGAP's investigation covered the period from 01.07.2017 to 31.12.2018. The Respondent submitted various documents, including GSTR-1, GSTR-3B returns, and details of the payment plan agreed upon with the Applicant. The DGAP found that the ITC as a percentage of turnover was 5.57% during the pre-GST period and 7.08% during the post-GST period, indicating an additional benefit of 1.51% post-GST. The DGAP calculated the profiteered amount to be ?1,25,33,555, which included GST on the base profiteered amount of ?1,11,90,675. This amount included ?1,46,656 profiteered from the Applicant No. 1.

3. Compliance with Section 171 of the CGST Act, 2017:
The Authority noted that Section 171(1) mandates the passing on of any reduction in tax rate or benefit of ITC to the recipient by way of commensurate reduction in prices. The DGAP's report confirmed that the Respondent had not passed on the additional ITC benefit of 1.51% to the buyers, thereby contravening Section 171. The Respondent agreed to the computation of profiteering made by the DGAP and undertook to pass on the ITC benefit.

4. Imposition of Penalty under Section 171(3A) of the CGST Act, 2017:
The Authority ordered the Respondent to reduce the price commensurate with the benefit of ITC and refund the profiteered amount along with interest at 18% from the date of profiteering till the date of payment. The Respondent was directed to pass on the benefit to the eligible home buyers within three months, failing which the amount would be recovered by the concerned Commissioner CGST/SGST. The Authority also issued a notice to the Respondent to explain why a penalty under Section 171(3A) should not be imposed for denying the ITC benefit.

Conclusion:
The Respondent was found to have contravened the provisions of Section 171 of the CGST Act, 2017, by not passing on the ITC benefit to the buyers. The total profiteered amount of ?1,25,33,555, including GST, was ordered to be refunded to the buyers along with interest. The Respondent was also liable for a penalty under Section 171(3A) for profiteering. The DGAP was directed to carry out a comprehensive investigation at the time of the issue of the occupancy certificate to determine any additional ITC benefit.