2019 (11) TMI 466 - NAPA - GST

Profiteering - purchase of Flat No in his project One Park Avenue , Patlipada Junction, Ghodbundar Road, Thane, Maharashtra-400607 - benefit of Input Tax Credit (ITC) availed by him by way of commensurate reduction in the price of the above flat - contravention of provisions of section 171 of CGST Act - HELD THAT - The Applicant is not entitled to the benefit of additional ITC as his allotment has been cancelled by the Respondent on his own request. Therefore, the relationship of recipient and supplier stands terminated between the Applicant and the Respondent w.e.f. 24.11.2018 and therefore, he is not entitled to the benefit of additional ITC as per the provisions of Section 171 of the CGST Act, 2017 - He has further not paid the amount which he was required to pay in the pre and post GST period as per the terms of his allotment to become eligible for passing on of the benefit of ITC and therefore also he is not entitled to the above benefit. This Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondent shall reduce the prices to be realized from the buyers of the flats commensurate with the benefit of ITC received by him - Since the present investigation is only up to 30.09.2018 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by the Respondent. Penalty - HELD THAT - It is also evident from the above narration of the facts that the Respondent has denied benefit of ITC to the buyers of the flats being constructed by him in his One Park Avenue project in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST Act, 2017 and therefore, he is apparently liable for imposition of penalty under the provisions - a SCN be issued to him directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him.

Issues Involved:
1. Alleged profiteering by the Respondent.
2. Investigation and findings of the DGAP.
3. Respondent's defense and submissions.
4. Applicant's objections and contentions.
5. Calculation and methodology of profiteering.
6. Compliance with Section 171 of the CGST Act, 2017.
7. Penalty and further actions.

Issue-wise Detailed Analysis:

1. Alleged Profiteering by the Respondent:
The Applicant alleged that the Respondent increased the price of a flat after the introduction of GST and did not pass on the benefit of Input Tax Credit (ITC) by way of a commensurate reduction in the price of the flat. This allegation was forwarded by the Maharashtra State Screening Committee to the Standing Committee on Anti-profiteering, which then referred it to the Director General of Anti-Profiteering (DGAP) for detailed investigation.

2. Investigation and Findings of the DGAP:
The DGAP conducted an investigation and found that the ITC as a percentage of the total turnover available to the Respondent during the pre-GST period was 2.11%, and during the post-GST period, it was 8.10%. This indicated that the Respondent benefited from an additional ITC of 5.99% of the turnover post-GST. The DGAP concluded that the Respondent did not reduce the basic prices of the flats by 5.99% and continued to charge GST at the increased rate of 12% on the pre-GST basic price, thus contravening the provisions of Section 171 of the CGST Act, 2017. The profiteered amount was calculated to be ?1,27,84,694, which included 12% GST on the base profiteered amount of ?1,14,14,905.

3. Respondent's Defense and Submissions:
The Respondent claimed that he had passed on the GST benefit by offering a discount of 2-3% to the home buyers and submitted various documents to support this claim. He also argued that the increase in the price of the flats was due to the increase in the carpet area as per the Real Estate (Regulation & Development) Act, 2016 (RERA) and not due to GST. The Respondent further contended that the Applicant was not an "interested party" as his booking was canceled, and thus he had no locus standi to file the complaint.

4. Applicant's Objections and Contentions:
The Applicant objected to the DGAP's report, stating that the Respondent deposited only ?16,072 in cash against the total output GST liability of ?2,25,17,438 during the investigation period, indicating profiteering of 11.99% of the turnover. The Applicant also contended that the increase in the carpet area and the base price of the flat was arbitrary and that the Respondent did not pass on the ITC benefit. The Applicant further argued that the methodology used by the DGAP to calculate the profiteered amount was inconsistent with the provisions of Section 17 (2) and (3) and Rule 42 & 43 of the CGST Rules, 2017.

5. Calculation and Methodology of Profiteering:
The DGAP calculated the profiteered amount by comparing the applicable tax and the ITC available to the Respondent during the pre-GST and post-GST periods. The DGAP found that the additional ITC of 5.99% of the taxable turnover should have resulted in a commensurate reduction in the base prices as well as cum-tax prices of the houses. The Respondent's claim of offering a discount of 2-3% was not found to be commensurate with the increase in the benefit of ITC.

6. Compliance with Section 171 of the CGST Act, 2017:
The Authority concluded that the Respondent had contravened the provisions of Section 171 of the CGST Act, 2017, by not passing on the benefit of additional ITC to the home buyers. The Respondent was directed to pass on the profiteered amount of ?1,27,84,694 along with interest @18% per annum to the eligible flat buyers within three months from the date of the order. The Respondent was also directed to reduce the prices to be realized from the buyers of the flats commensurate with the benefit of ITC received by him.

7. Penalty and Further Actions:
The Authority found that the Respondent had committed an offense under Section 171 (3A) of the CGST Act, 2017, and was liable for imposition of penalty. A Show Cause Notice was issued to the Respondent to explain why the penalty prescribed under Section 171 (3A) should not be imposed on him. The Commissioners of CGST/SGST Maharashtra were directed to monitor the compliance of the order under the supervision of the DGAP and submit a report within four months.

Conclusion:
The Authority concluded that the Respondent had profiteered by not passing on the benefit of additional ITC to the home buyers and directed him to refund the profiteered amount along with interest. The Respondent was also found liable for imposition of penalty under Section 171 (3A) of the CGST Act, 2017.

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