2019 (12) TMI 834 - NAPA - GST

Profiteering - purchase of flats - it is alleged that the Respondent had not passed on the benefit of input tax credit (ITC) to them by way of commensurate reduction in prices - net additional benefit of ITC accrued to the Respondent - contravention of section 171 of CGST Act - Penalty - HELD THAT - It is established from the perusal of the above facts of the case that the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondents as he has profiteered an amount of ₹ 1,40,41,916/-which includes both the profiteered amount @1.65% of the base price and GST on the said profiteered amount from the above Applicants and the other recipients as well who are not Applicants in the present proceedings. Accordingly, the above amounts shall be paid to the Applicant No. 1 to 4 and the other eligible house buyers by the Respondents along with interest @18% PA 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 the CGST Rules, 2017, failing which they shall be recovered by the concerned Commissioner CGST / SGST and paid to the eligible house buyers From the above discussion it is clear that the Respondent has profiteered by an amount of ₹ 1,40,41,916/- during the period of investigation. Therefore, this Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondent shall reduce/refund the price to be realized from the buyers commensurate with the benefit of ITC received by him as has been detailed above. The present investigation is only up to 31.12.2018 therefore, any additional benefit of ITC which shall accrue subsequently shall also be passed on to the buyers by the Respondent. In case this additional benefit is not passed on to the Applicant No. 1 to 4 or any Other buyer they shall be at liberty to approach the State Screening Committee Haryana for initiating fresh proceedings under Section 171 Of the above Act against the Respondents. The concerned CGST or SGST Commissioner shall take necessary action to ensure that the benefit of additional ITC is passed on to the eligible house buyers in future. Penalty - HELD THAT - Respondent has denied the benefit of ITC to the buyers of the flats/shops being constructed by him and has profiteered in contravention of the provisions of Section 171(1) of the CGST Act, 2017. Therefore he is liable for imposition of penalty under Section 171(3A) of the CGST Act, 2017 - Therefore, 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.

Summary

Issues Involved:
1. Alleged profiteering by the Respondent by not passing on the benefit of input tax credit (ITC) to buyers.
2. Whether the Respondent had passed on the benefit of ITC as required under Section 171 of the CGST Act, 2017.
3. Calculation of the amount of benefit to be passed on.
4. Compliance with the procedural requirements under the CGST Act and Rules.

Issue-wise Detailed Analysis:

1. Alleged Profiteering by the Respondent:
The Applicants alleged that the Respondent did not pass on the benefit of ITC to them by way of commensurate reduction in prices for the flats they purchased. The Haryana State Screening Committee observed that there was a lesser burden of tax in the GST regime due to the availability of ITC, which should have been passed on to the customers. The DGAP was tasked with investigating these allegations and found that the Respondent had indeed benefited from additional ITC post-GST, which was not passed on to the buyers.

2. Whether the Respondent Passed on the Benefit of ITC:
The Respondent claimed to have passed on the benefit of ITC to the buyers. However, the DGAP's investigation revealed discrepancies in this claim. The Respondent submitted several documents, including GSTR-1, GSTR-3B, and VAT returns, but the DGAP found that the benefit of additional ITC of 1.65% of turnover was not fully passed on. The DGAP's report indicated that the Respondent had profiteered by an amount of ?1,40,41,916/- by not passing on the full benefit of ITC to the buyers.

3. Calculation of the Amount of Benefit to be Passed On:
The DGAP calculated the ratio of ITC to turnover for both pre-GST and post-GST periods. The ratio of ITC to turnover in the pre-GST period was 5.65%, while in the post-GST period, it was 7.30%. This indicated an additional benefit of 1.65% of the turnover in the post-GST period. The DGAP's report provided a detailed calculation of the benefit to be passed on, resulting in a total profiteered amount of ?1,40,41,916/-. The DGAP's methodology was based on actual mathematical computations and not averages, as claimed by the Respondent.

4. Compliance with Procedural Requirements:
The Respondent raised several objections regarding the procedural aspects of the investigation, including the lack of a speaking order by the DGAP and the methodology used for calculating the profiteered amount. However, the Authority found that the DGAP had complied with the due process by serving notice to the Respondent and providing an opportunity for the Respondent to submit his objections. The Authority also noted that the methodology for calculating profiteering was prescribed under Section 171 of the CGST Act, which required passing on the benefit of ITC by way of commensurate reduction in prices.

Conclusion:
The Authority concluded that the Respondent had contravened the provisions of Section 171 of the CGST Act by not passing on the benefit of ITC to the buyers. The total profiteered amount was determined to be ?1,40,41,916/-, which the Respondent was ordered to refund to the eligible buyers along with interest. The Authority also directed the issuance of a Show Cause Notice to the Respondent for imposition of penalty under Section 171(3A) of the CGST Act. The Commissioners of CGST/SGST Haryana were instructed to monitor the compliance of this order under the supervision of the DGAP.