2018 (9) TMI 1107 - NAPA - GST

Anti-profiteering action - Failure to pass on the benefit of Input tax credit - Construction service - migration to GST Scheme - non-compliance of the provisions of Section 171 - Held that - It is absolutely clear that the excess ITC was available to the Respondent the benefit of which he was required to pass on to the Applicants. The Respondent cannot appropriate this benefit as this is a concession given by the Government from it s own tax revenue to reduce the prices being charged by the builders from the vulnerable section of society which cannot afford high value apartments. The Respondent is not being asked to extend this benefit out of his own account and he is only liable to pass on the benefit of ITC to which he has become entitled by virtue of the grant of ITC on the Construction Service by the Government. Profiteering - calculation based on turnover - the Applicants had disputed these calculations and submitted that the actual benefit that the Respondent has to pass on to all of them was to the extent of 6.1% for both the periods when the tax was levied @ 12% as well as when the tax was levied at @ 8% - Held that - The 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 in commensurate with the benefit of ITC received by him as has been detailed above. Since the present investigation is only up to 28.02.2018 any benefit of ITC which shall accrue subsequently shall also be passed on to the buyers by the Respondent. He shall not only pass on the benefit as has been mentioned above to the 109 Applicants who are before us but to all the 2476 buyers as they are identifiable. Respondent is further directed to refund or reduce the amount, to the extent calculated above to each and every buyer at the time of collecting the last installment along with the interest @ 18% per annum to be calculated from the date of the receipt of the excess amount from each buyer, within a period of 3 months from the date of receipt of this order. It is evident from the above that the Respondent has denied benefit of ITC to the buyers of the flats being constructed by him under the above Policy in contravention of the provisions of Section 171(1) of the CGST Act, 2017 and has thus realized more price from them than he was entitled to collect and has also compelled them to pay more GST than that they were required to pay by issuing incorrect tax invoices and hence he has committed an offence under section 122 (1) (i) of the CGST Act, 2017 and therefore, he is liable for imposition of penalty. The Authority, as per Rule 136 of the CGST Rules 2017 directs the Commissioner of State Tax Haryana to monitor this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by the Authority is passed on to the all the buyers. A report in compliance of this order shall be submitted to this Authority by the Commissioner within a period of 4 months from the date of receipt of this order. Application disposed off.

Summary

Issues Involved:
1. Violation of Section 171 of the CGST Act, 2017.
2. Quantum of profiteering.

Detailed Analysis:

Issue 1: Violation of Section 171 of the CGST Act, 2017

The case revolves around allegations that the Respondent did not pass on the benefit of Input Tax Credit (ITC) to the Applicants in respect of the construction service supplied. The Applicants booked flats under the Haryana Affordable Housing Policy 2013 and alleged that the Respondent charged 12% and 8% GST post-CGST implementation without passing the ITC benefits, contravening Section 171 of the CGST Act, 2017. The Haryana State Screening Committee forwarded these applications to the Standing Committee on Anti-profiteering, which then referred them to the Director General of Anti-profiteering (DGAP) for investigation.

The DGAP's report confirmed that ITC was not available pre-GST but became available post-GST. The Respondent admitted the availability of ITC post-GST but argued that the provisions of Section 171 were not applicable as there was no reduction in tax rates and that the fixed price under the Haryana Affordable Housing Policy did not allow for price reduction.

The DGAP, however, maintained that Section 171 was applicable as it deals with both reduction in tax rates and the benefit of ITC. The DGAP's investigation revealed that the ITC to taxable turnover ratio increased from 1.10% pre-GST to 7.20% post-GST, indicating an additional benefit of 6.10% that should have been passed on to the Applicants.

The Authority concluded that the Respondent violated Section 171 by not passing on the ITC benefits to the Applicants. The Respondent's arguments regarding fixed pricing under the policy, increased input costs, and tax liability on sub-contractors were dismissed as they did not negate the obligation to pass on ITC benefits.

Issue 2: Quantum of Profiteering

The DGAP initially reported nil profiteering for the period from July 2017 to January 2018 and 3.35% for the period from January 25, 2018, to February 2018. However, the Applicants argued that the profiteering was 6.10% for both periods. The DGAP's revised calculations, based on the principle of 6.1% profiteering, determined the total profiteered amount as ?8,22,80,998/- for all 2476 flats.

The Authority agreed with the DGAP's revised calculations and held that the Respondent had profiteered ?8,22,80,998/- from the flat owners. The Respondent was ordered to reduce the price commensurate with the ITC benefits and refund or reduce the amount to each buyer along with 18% interest per annum within three months.

The Authority also directed the Commissioner of State Tax Haryana to monitor the compliance of this order under the supervision of the DGAP and submit a compliance report within four months. Additionally, a Show Cause Notice was issued to the Respondent for imposition of penalty under Section 122 of the CGST Act, 2017.

Conclusion:

The judgment concluded that the Respondent violated Section 171 of the CGST Act by not passing on the ITC benefits to the Applicants, resulting in profiteering. The Respondent was ordered to refund the profiteered amount with interest and faced potential penalties under Section 122 of the CGST Act. The Commissioner of State Tax Haryana was tasked with ensuring compliance with the order.