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2019 (10) TMI 197 - NAPA - GSTProfiteering - Lodha Eternis project launched by the Respondents - benefit of Input Tax Credit (ITC) not passed - violation of provisions of Section 171 of the CGST Act, 2017 - imposition of penalty - HELD THAT - The provisions of Section 171 of CGST Act, 2017 have been contravened by the respondents as they have profiteered an amount of ₹ 1,90,04,456/- inclusive of GST @ 12% on the base profiteered amount of ₹ 1,69,68,264/-. The respondents have also realised an additional amount to the tune of ₹ 37,065/- form the applicant no. 1 which includes both profiteered amount @ 2.62% of the taxable amount (base price) and the GST on the said profiteered amount. Accordingly the above amounts shall be paid to the above applicant and the other eligible house buyers by the respondents alongwith interest @ 18% from the date from which these amounts were realised from them till they are paid as per the provisions of Rule 133(3)(b) of CGST Rules, 2017. It is also evident that respondents have denied benefit of ITC to the buyers of the flats being constructed by them in their Lodha Eternis Project in contravention of the provisions of section 171(1) of CGST Act, 2017 and thus resorted to profiteering. Hence they have committed an offence u/s 171(3A) of CGST Act, 2017 and therefore they are apparently liable for imposition of penalty under the provisions of the above section - a SCN be issued to them directing them to explain why the penalty should not be imposed on them. A copy each of this order be supplied to both the Applicants, the Respondents, Commissioners CGST/SGST as well as the Principal Secretary (Town Planning), Government of Maharashtra for necessary action.
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. Methodology for calculating the benefit of ITC. 4. The validity of the discounts given as ITC benefits. 5. Compliance with Section 171 of the CGST Act, 2017. Issue-Wise Detailed Analysis: 1. Alleged Profiteering by Not Passing on ITC Benefit: The Applicant No. 1 alleged that the Respondents did not pass on the ITC benefit after charging GST at 12% from 01.07.2017. The Maharashtra State Screening Committee found a prima facie case of violation of Section 171 of the CGST Act, 2017 and referred it to the Standing Committee on Anti-profiteering, which then referred it to the DGAP for detailed investigation. 2. Determination of the Quantum of Profiteering: The DGAP's investigation revealed that the ITC as a percentage of the total turnover available to the Respondents during the Pre-GST period was 1.57%, and during the Post-GST period, it was 7.32%. This indicated an additional ITC benefit of 5.75% post-GST. Initially, the DGAP calculated the profiteered amount as ?4,17,18,502/-. However, after considering revised details, the profiteered amount was recalculated to ?1,90,04,456/-. The DGAP also found that the Respondents had passed on the benefit of ?1,90,316/- to Applicant No. 1, which was more than the required ?37,065/-. 3. Methodology for Calculating the Benefit of ITC: The DGAP used the ratio of ITC to turnover for both Pre-GST and Post-GST periods to determine the additional benefit. The methodology was challenged by the Respondents, who argued that the DGAP's calculation was incorrect due to the mismatch in credit accrual and demand raised periods. The DGAP's revised report corrected some figures based on the Respondents' submissions, but the fundamental methodology of comparing ITC ratios remained the same. 4. Validity of the Discounts Given as ITC Benefits: The Respondents claimed that they had passed on ITC benefits through discounts and credit notes. The DGAP found that these discounts were not related to ITC benefits but were given from the Respondents' profit margins. Therefore, the discounts could not be considered as passing on the ITC benefit. The Authority agreed with the DGAP, stating that discounts given out of profit margins cannot be adjusted against the ITC benefit. 5. Compliance with Section 171 of the CGST Act, 2017: The Authority found that the Respondents had contravened Section 171 by not passing on the ITC benefit to the buyers. The Respondents were ordered to reduce prices commensurate with the ITC benefit and to pass on the profiteered amount of ?1,90,04,456/- to the eligible buyers along with interest. The Authority also directed the DGAP to investigate the Respondents' other projects where they claimed to have passed on ITC benefits. Conclusion: The Authority concluded that the Respondents had profiteered by not passing on the additional ITC benefit to the buyers, violating Section 171 of the CGST Act, 2017. The Respondents were ordered to refund the profiteered amount with interest and reduce future prices accordingly. The DGAP was directed to monitor compliance and investigate other projects of the Respondents. A Show Cause Notice for penalty imposition was also ordered against the Respondents.
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