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2019 (12) TMI 703 - NAPA - GSTProfiteering - purchase of a flat in the Respondent s project Fusion Homes situated at off GH-05A, Greater Noida (West), Uttar Pradesh - it is alleged that Respondent had increased the price of the flat after introduction of GST w.e.f. 01.07.2017 and had not passed on the benefit of input tax credit by way of commensurate reduction in the price - contravention of section 171 of CGST Act - penalty. HELD THAT - The provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent as he has profiteered an amount of ₹ 4,79,04,342/- which includes GST on the base profiteering amount of ₹ 4,27,71,733/- from all the flat buyers. This amount is inclusive of ₹ 2,36,428/- (including GST on the base amount of ₹ 2,11,096/-) which is the profiteered amount in respect of the Applicant No. 1. All these buyers are identifiable as per the documents placed on record and therefore, the Respondent is directed to pass on this amount of ₹ 4,79,04,342/- along with interest @18% per annum to these flat buyers from the dates from which the above amount was collected by him from these buyers till the payment is made, within a period of 3 months from the date of passing of this order. Thus, 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 - The Respondent has denied benefit of ITC to the buyers of the flats and the shops being constructed by him in his Project Fusion Homes in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty - Accordingly, a SCN be issued to him directing him to explain as to 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. Benefit of Input Tax Credit (ITC) not passed on to buyers. 2. Jurisdiction of DGAP in calculating profiteering for all customers. 3. Consideration of VAT credit in pre-GST era. 4. Inclusion of Tran-1 credit in post-GST period. 5. Methodology for computation of profiteering. 6. Applicability of Section 171 of CGST Act, 2017 to fresh contracts post-GST. 7. Discounts offered by the Respondent. Detailed Analysis: 1. Benefit of Input Tax Credit (ITC) not passed on to buyers: The primary issue was whether the Respondent had failed to pass on the benefit of ITC to the Applicant No. 1 and other buyers by reducing the price of flats post-GST. The DGAP found that the Respondent benefited from an additional ITC of 5.04% of the turnover post-GST, which should have resulted in a commensurate reduction in the basic price of flats. By not reducing the pre-GST basic price by 5.04%, the Respondent contravened Section 171 of the CGST Act, 2017, leading to profiteering of ?4,79,04,342/- including GST. 2. Jurisdiction of DGAP in calculating profiteering for all customers: The Respondent claimed that the DGAP exceeded his jurisdiction by calculating profiteering for all customers, not just Applicant No. 1. The Authority held that since ITC was collected over the entire project, the benefit should be passed to all eligible buyers. Therefore, the DGAP was correct in computing the ITC benefit for the entire project. 3. Consideration of VAT credit in pre-GST era: The Respondent argued that the DGAP did not consider the credit of VAT paid on inputs in the pre-GST period. The DGAP clarified that the Respondent did not discharge any output VAT liability and did not charge VAT from home-buyers in the pre-GST period. Therefore, neither the credit of VAT paid on inputs nor the output VAT liability was considered in determining profiteering, which was found to be correct by the Authority. 4. Inclusion of Tran-1 credit in post-GST period: The Respondent contended that the DGAP included Tran-1 credit in the post-GST period, which was incorrect as it pertained to the pre-GST period. The DGAP clarified that Tran-1 credit was not considered in the post-GST computations. The Authority found this contention of the Respondent to be unfounded as the DGAP did not include Tran-1 credit in the calculations. 5. Methodology for computation of profiteering: The Respondent questioned the methodology of computing profiteering by taking the ratio of ITC over revenue booked, arguing it should show a similar trend across the industry. The Authority held that the computation of ITC benefit is case-specific and depends on various factors such as project completion stages, payment schedules, and total area sold. Therefore, the methodology applied was appropriate for this case. 6. Applicability of Section 171 of CGST Act, 2017 to fresh contracts post-GST: The Respondent claimed that Section 171 of the CGST Act, 2017, did not apply to fresh contracts entered after 01.07.2017. The Authority rejected this claim, stating that Section 171 applies to any reduction in tax rate or benefit of ITC, irrespective of when the contract was entered. The Applicant had booked the flat on 26.06.2017, and the project continued post-GST, making the provisions of Section 171 applicable. 7. Discounts offered by the Respondent: The Respondent argued that he had offered more than a 10% discount in basic prices to customers post-GST, which should be considered as passing on the ITC benefit. The Authority held that discounts offered by the Respondent were a business decision and could not be considered as passing on the ITC benefit. The discount was given to set off increased prices and not as a benefit of ITC. Conclusion: The Authority found that the Respondent contravened Section 171 of the CGST Act, 2017, by profiteering an amount of ?4,79,04,342/- from all flat buyers, including ?2,36,428/- from Applicant No. 1. The Respondent was directed to pass on this amount along with interest @18% per annum to the buyers within 3 months. A Show Cause Notice was also ordered to be issued for imposing a penalty under Section 171 (3A) of the CGST Act, 2017. The Commissioners of CGST/SGST Uttar Pradesh were directed to monitor compliance with this order.
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