2019 (12) TMI 777 - NAPA - GST

Profiteering - purchase of flats - it is alleged that the Respondent had not passed on the benefit of input tax credit by way of commensurate reduction in price - contravention of Section 171 of the Central Goods and Services Tax Act, 2017 - penalty - HELD THAT - The ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period from April, 2016 to June, 2017 was 3.17% and during the post-GST period from July, 2017 to December, 2018, it was 5.89% as per Table B supra and hence it is established that the Respondent has benefited from the benefit of additional ITC to the extent of 2.72% 5.89% (-) 3.17% of the turnover. Since, the above computations made have been done on the basis of the Returns filed by the Respondent as well as the information supplied by him therefore, the same can be relied upon. It is also clear from the record that the Central Government, on the recommendation of the GST Council, had levied 18% GST effective rate of 12% in view of 113rd abatement on value on the construction service, vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 which was reduced in the case of affordable housing from 12% to 8%, vide Notification No. 1/2018-Central Tax (Rate) dated 25.01.2018. Accordingly, the DGAP has computed the profiteered amount by comparing the applicable tax rate and ITC available in the pre-GST period when only VAT@ 4.50% was payable with (1) the post-GST period from 01.07.2017 to 24.01.2018, when the effective GST rate was 12% and (2) with the GST period from 25.01.2018 to 31.12.2018, when the effective GST rate was 8% - Since, the calculations have been prepared on the basis of the information reflected in the Returns filed by the above Respondent and the details submitted by him hence, the computations made are taken to be correct and accordingly the profiteered amount is determined as ₹ 2,58,80,927/- as per the details mentioned above in terms of the provisions of Rule 133 (1) of the CGST Rules, 2017. 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 as has been mentioned in detail if the preceding paras of this Order. As per the provisions of Rule 133 (1) (b) of the CGST Rules, 2017, it is further ordered that the Respondent shall refund the above profiteered amount to the flat buyers as per the details given by the DGAP in Annexure-12 without taking in to account the benefit which he has claimed to have passed on. However, no benefit is to be passed on to the Applicant No. 1 as he had not bought any flat or commercial shop in the Respondent s present project. Penalty - HELD THAT - Respondent has denied benefit of ITC to the buyers of the flats and the shops being constructed by him in his Project Orchard Avenue 93 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 under the provisions of the above Section - 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. Application disposed off.

Summary

Issues Involved:
1. Allegation of not passing on the benefit of input tax credit (ITC) under Section 171 of the CGST Act, 2017.
2. Determination of profiteering by the Respondent.
3. Legitimacy of the Applicant No. 1’s complaint.
4. Calculation methodology for determining the benefit of ITC and profiteering.
5. Compliance with the anti-profiteering provisions and the requirement to pass on the benefit to buyers.
6. Imposition of penalty under Section 171 (3A) of the CGST Act, 2017.

Detailed Analysis:

1. Allegation of Not Passing on the Benefit of ITC:
The Applicant No. 1 alleged that the Respondent did not pass on the benefit of ITC by way of commensurate reduction in price as required under Section 171 of the CGST Act, 2017. The complaint was forwarded to the Director General of Anti-Profiteering (DGAP) for detailed investigation.

2. Determination of Profiteering:
The DGAP conducted an investigation and submitted that the Respondent had benefited from additional ITC post-GST implementation but did not pass this benefit to the buyers. The investigation covered the period from 01.07.2017 to 31.12.2018. The DGAP calculated that the Respondent had profiteered an amount of ?2,58,80,927, which included GST on the base profiteered amount. This amount was required to be refunded to the buyers along with interest.

3. Legitimacy of the Applicant No. 1’s Complaint:
The Respondent contended that Applicant No. 1 was not a buyer in the project and hence had no locus standi. However, the authority clarified that under Rule 128 (1) of the CGST Rules, 2017, any person could file a complaint alleging profiteering, regardless of whether they were a recipient of the service.

4. Calculation Methodology for Determining the Benefit of ITC and Profiteering:
The DGAP calculated the benefit of additional ITC by comparing the pre-GST and post-GST periods. The ITC as a percentage of turnover was 3.17% in the pre-GST period and 5.89% in the post-GST period, indicating an additional benefit of 2.72%. The Respondent’s claim that the DGAP used an average method was refuted, as the calculations were based on actual figures from the Respondent’s returns.

5. Compliance with Anti-Profiteering Provisions:
The authority ordered the Respondent to reduce the prices commensurate with the benefit of ITC received and refund the profiteered amount to the buyers along with 18% interest from the date of excess collection till the date of payment. The Respondent was also directed to pass on any future benefits of additional ITC.

6. Imposition of Penalty:
The authority found that the Respondent had committed an offense under Section 171 (3A) of the CGST Act, 2017, by not passing on the benefit of ITC to the buyers. A show-cause notice was issued to the Respondent to explain why a penalty should not be imposed.

Conclusion:
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 buyers. The Respondent was ordered to refund the profiteered amount with interest and was subject to a penalty under Section 171 (3A). The Commissioners of CGST/SGST Haryana were directed to monitor the compliance of this order.