2022 (9) TMI 1508 - NAPA - GST

Profiteering - reduction in rate of tax or additional benefit of ITC availed by the Respondent after implementation of GST - Respondent had not passed on commensurate benefit of ITC by way of reduction in the price - contravention of Section 171 of the CGST Act, 2017 - 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. It is observed from the DGAP's 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 5.07%, whereas, during the post-GST period (July-2017 to September, 2020), it was 5.60% for the project 'Victoria Vista'. The profiteering amount determined by the DGAP during the period 1-7-2017 to 30-9-2020 is in respect of the units in respect of units which belong to Sh. Narendra Kumar Bardia (unit no. 8B) Rs. 11,872/- (including GST), Sh. Swapan Ghosh (unit no. 9B) Rs. 1,60,626/- (including GST), Sh. Harish Agarwal (unit no. 18B) Rs. 2,01,339/- (including GST) and Sh. Firoz Bei (unit no. 19B) Rs. 6,530/- (including GST). Further, it also appears from the report of the DGAP that the commensurate proportion of benefit of ITC is to be calculated as discussed supra and needs to be passed on to the eligible recipients proportionate to their share at the time of supply (sale of their share of flats) as envisaged in the Notification No. 4/2018-(Central Tax). The Authority finds that this case needs to be reinvestigated by the DGAP based on the above findings in the para 11 to 13 supra of this Authority. Thus the Authority directs the DGAP to reinvestigate the matter as per the provisions of Rule 133(4) of the CGST Rules 2017 for the period 1-7-2017 to 18-5-2022 i.e. till the date of Completion Certificate of the Project.

Issues Involved:
1. Reduction in Rate of Tax or Additional Benefit of ITC
2. Passing on of ITC Benefit to Recipients
3. Scope of Investigation and Eligibility of Application
4. Methodology for Calculation of Profiteering
5. Timing of Calculation of Profiteered Amount
6. Penalty and Eligibility of Application

Detailed Analysis:

1. Reduction in Rate of Tax or Additional Benefit of ITC:
The main issues for determination were whether there was a reduction in the rate of tax or additional benefit of ITC availed by the Respondent after the implementation of GST w.e.f. 1-7-2017, and whether the Respondent passed on such benefit to the recipients, in terms of Section 171 of the CGST Act, 2017. The DGAP's investigation revealed that the Respondent had availed additional ITC under the GST regime, which had to be passed on to the recipients.

2. Passing on of ITC Benefit to Recipients:
The DGAP found that the ITC as a percentage of turnover available to the Respondent during the pre-GST period was 5.07%, and during the post-GST period, it was 5.60%. This indicated an additional ITC benefit of 0.53% post-GST, which was not passed on to the recipients. The DGAP calculated the profiteered amount as Rs. 3,80,367/-, which included GST, for the units sold by the Respondent during the investigation period.

3. Scope of Investigation and Eligibility of Application:
The Respondent argued that the application dated 30-1-2020 was initially rejected by the Standing Committee due to a lack of prima facie evidence. However, the DGAP issued a notice based on the same application, which the Respondent contended was not tenable. The DGAP clarified that the Standing Committee, in its meeting held on 19-8-2020, decided to forward the case for further investigation, indicating that prima facie evidence was found.

4. Methodology for Calculation of Profiteering:
The Respondent disputed the methodology used by the DGAP, arguing that the comparison between ITC available in the GST regime and CENVAT credit available in the Service Tax regime was flawed. The DGAP, however, maintained that the standard procedure of comparing the ITC to turnover ratio in pre- and post-GST periods was rational and appropriate. The DGAP's methodology was upheld by the Authority in similar cases.

5. Timing of Calculation of Profiteered Amount:
The Respondent argued that the calculation of the profiteered amount should be done at the completion of the project, not mid-way. The DGAP countered that the Respondent had been availing ITC monthly and should pass on the benefit periodically. The DGAP's practice of calculating the profiteered amount up to the month preceding the complaint was standard and upheld by the Authority.

6. Penalty and Eligibility of Application:
The Respondent contended that no penalty should be imposed as there was no profiteering. The DGAP, however, found that the Respondent had contravened Section 171 of the CGST Act by not passing on the additional ITC benefit. The Authority directed the DGAP to reinvestigate the matter up to the date of the Completion Certificate to ensure the commensurate benefit of ITC is calculated and passed on to all eligible recipients.

Conclusion:
The Authority found that the Respondent had not passed on the additional ITC benefit to the recipients as required under Section 171 of the CGST Act. The case was directed for reinvestigation by the DGAP for the period from 1-7-2017 to 18-5-2022 (till the date of Completion Certificate) to ensure the commensurate benefit of ITC is passed on to all eligible recipients. The decision was based on the findings that the Respondent had availed additional ITC post-GST, which was not passed on to the recipients, thereby contravening the provisions of Section 171 of the CGST Act.

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