2019 (6) TMI 1170 - NAPA - GST

Profiteering - City Park Township - benefit of Input Tax Credit (ITC) not passed on - contravention of the provisions 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 hence this issue is not relevant in this case. Benefit of ITC in the post-GST era - HELD THAT - It has been revealed by the DGAP's report that the benefit of additional ITC of 9.68% of the taxable turnover during the period w.e.f. 01-07-2017 to 30-06-2018 the amount of ITC as on 30-06-2018, has accrued to the respondent and the same is required to be passed on the above applicant and the other flat buyers. The DGAP has calculated the amount of ITC as ₹ 74,36,865/- which was availed by the respondent vide Table-D on the basis of the information supplied by the respondent and hence the calculation done by him can be relied upon. The amount of profiteering in terms of Rule 133(1) of the CGST Rules, 2017 is determined as ₹ 81,67,546/- including GST @ 12% on the base profiteered amount - it is ordered that the respondent shall reduce price to be realized from the buyers of the flats commensurate with the benefit of ITC availed by him. Penalty - HELD THAT - The Respondent has denied benefit of ITC to the Applicants as well as the rest 36 purchasers of flats in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus realized more price from them than what he was entitled to charge and has also compelled them to pay more GST than what they were required to pay by issuing incorrect tax invoices and hence he has committed offence under section 122 (1) (i) of the CGST Act, 2017 and therefore, he is liable for imposition of penalty under the above Section read with Rule 133 (3) (d) of the CGST Rules, 2017 - keeping in view the principles of natural justice it would be appropriate to issue fresh notice asking him to explain why penalty should not be imposed on him for the above offence. Application disposed off.

Summary

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

Detailed Analysis:

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

The case revolves around the allegation that the Respondent did not pass on the benefit of Input Tax Credit (ITC) after the implementation of GST, which is a violation of Section 171 of the CGST Act, 2017. The Applicant No. 1 claimed that the Respondent increased the price of a villa after GST implementation and did not reduce the price commensurately to reflect the benefit of ITC. The DGAP's investigation revealed that the Respondent had indeed benefited from additional ITC post-GST, which was not passed on to the buyers. The investigation covered the period from 01.07.2017 to 30.06.2018, and it was found that the Respondent had availed ITC of GST on inputs and input services, which was not available pre-GST. The DGAP calculated that the ITC as a percentage of the total turnover increased from 0.15% pre-GST to 9.83% post-GST, confirming an additional benefit of 9.68%.

2. Quantum of Profiteering:

The DGAP's report determined the quantum of profiteering by comparing the ITC available pre and post-GST. The report found that the Respondent had not passed on the benefit of additional ITC of 9.68% to the buyers. The profiteered amount was calculated to be ?81,67,546/-, which included 12% GST on the base profiteered amount of ?72,92,452/-. The Respondent had issued cheques and credit notes amounting to ?81,67,545/- to 36 home buyers, and interest @18% p.a. amounting to ?3,00,126/- was paid to 17 home buyers who had made full payment. However, interest was not paid to Applicant No. 1 and other buyers who had not made full payment. The Respondent was directed to pay interest @18% from the date the amount was profiteered until the date of payment. The Respondent admitted to the calculations and agreed to pay the benefits as per the DGAP's report.

Judgment:

The Authority determined that the Respondent had violated Section 171 (1) of the CGST Act, 2017 by not passing on the benefit of additional ITC to the buyers. The Respondent was ordered to reduce the price commensurate with the benefit of ITC and refund the profiteered amount along with interest @18% to the buyers. The Respondent was also directed to pay interest to Applicant No. 1 and other buyers for part payments made. The Respondent was found liable for imposition of penalty under Section 122 (1) (i) of the CGST Act, 2017, and a fresh notice for penalty was to be issued. The order mandated the Respondent to comply within three months, and a detailed report on the implementation was to be submitted by the concerned Commissioner CGST/SGST.

Conclusion:

The judgment emphasized the importance of passing on the benefits of ITC to consumers and upheld the provisions of Section 171 of the CGST Act, 2017. The Respondent's failure to do so resulted in a significant financial penalty and a mandate to refund the profiteered amount with interest.