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2019 (5) TMI 1607 - NAPA - GSTProfiteering - purchase of a flat in the Respondent's project East Crest - benefit of Input Tax Credit (ITC) and reduction in price of flat had not been passed on - contravention of section 171 of CGST Act, 2017 - HELD THAT - The Respondent has denied the benefit of the ITC to the buyer of the flats being constructed by him in contravention of the provisions of Section 171 (1) of the CGST Act, 2017, where he had not only collected more price than the entitled amount but also collected more GST on the increased amount. The Respondent though aware of the fact that the net benefit of ITC had to be passed on to his buyers had not passed on the entire benefit till the completion of the investigation by the DGAP. The above act of the Respondent appears to be deliberate and conscious violation of the provisions of the CGST Act, 2017, thus he has committed an offence under Section 122 (1) of the CGST Act, 2017 and therefore he is liable for imposition of penalty. Imposition of penalty - HELD THAT - Perusal of the notice dated 29.08.2018 issued to the Respondent shows that he has been intimated that it was proposed to impose penalty under Section 122-127 of the CGST Act, 2017 read with Rule 133 of the CGST Rules, 2017 and also to cancel his registration if the allegation of profiteering was proved against him, however, no specific instances of violation of the above Sections have been mentioned in the above Notice - Therefore, the proposed imposition of penalty under the above Sections and cancellation of his registration is not sustainable unless specific allegations how he had violated the provisions of the above Sections are levelled against him. Therefore, the above notice is ordered to be withdrawn to the extent that it proposes to impose penalty on him as per the provisions of the above Sections and the Rule. A fresh notice be issued to him as to why the penalty prescribed under Section 122 (1) of the CGST Act, 2017 read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him as he had issued incorrect tax invoices to the flat buyers by charging more amount than what he could have charged and further charged additional GST on this amount. The Respondent would have sufficient opportunity to state his defence on the above charge and he can also raise his other objections during the course of the hearing on the issue of imposition of penalty. A copy each of this order be supplied to the Applicants, the Respondent and Commissioners CGST/SGST of Karnataka state for necessary action. File be consigned after completion.
Issues Involved:
1. Allegation of profiteering by not passing on the benefit of Input Tax Credit (ITC) post-GST implementation. 2. Calculation and determination of the profiteered amount. 3. Compliance with Section 171 of the CGST Act, 2017. 4. Imposition of penalty and other legal consequences. Issue-wise Detailed Analysis: 1. Allegation of Profiteering: The Applicant No. 1 alleged that the Respondent charged 12% GST on the agreement value and additional charges, without passing on the benefit of ITC by reducing the price of the flat post-GST implementation. The complaint was examined by the Standing Committee on Anti-profiteering and forwarded to the Director General of Anti-Profiteering (DGAP) for a detailed investigation. 2. Calculation and Determination of the Profiteered Amount: The DGAP's investigation covered the period from 01.07.2017 to 30.06.2018. It was found that the Respondent's project "East Crest" attracted normal GST @ 12%. The Respondent admitted that he could not ascertain the exact impact of GST immediately and had to negotiate with contractors and vendors for price reduction due to ITC. The DGAP calculated the ITC ratio based on the taxable turnover, determining that the ITC as a percentage of the total turnover was 3.06% pre-GST and 4.51% post-GST, resulting in an additional ITC benefit of 1.45%. 3. Compliance with Section 171 of the CGST Act, 2017: Section 171 mandates that any reduction in tax rate or benefit of ITC must be passed on to the recipient by way of commensurate reduction in prices. The DGAP found that the Respondent had not passed on the additional ITC benefit of 1.45% to the home buyers. Consequently, the profiteered amount was calculated as ?19,69,991, including GST @12% on the base profiteered amount of ?17,58,921. 4. Imposition of Penalty and Other Legal Consequences: The Respondent argued that the DGAP's findings were premature and that the final figures of ITC benefit could only be determined upon project completion. However, the Authority concluded that the Respondent had contravened Section 171 by not passing on the ITC benefit and ordered the Respondent to refund the profiteered amount along with interest @18% to the affected home buyers. The Authority also directed the DGAP to investigate further for the remaining flats sold post-June 2018. The Respondent's plea for not imposing a penalty was considered, but the Authority found that the Respondent had consciously violated the provisions of the CGST Act, 2017. However, the notice for penalty was found to be vague and was ordered to be withdrawn, with a fresh notice to be issued specifying the exact allegations. Conclusion: The Respondent was found to have profiteered by not passing on the ITC benefit to the home buyers, violating Section 171 of the CGST Act, 2017. The Authority ordered the Respondent to refund the profiteered amount with interest and directed further investigation for additional flats sold. The imposition of penalty was deferred pending a fresh, specific notice.
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