2019 (12) TMI 923 - NAPA - GST

Profiteering - purchase of flat in the Respondent s project Nirala Greenshire - Respondent had not passed on the commensurate benefit of input tax credit - contravention of section 171 of CGST Act - penalty - HELD THAT - The provisions of Section 171 of the CGST Act, 2017 are aimed at ensuring that the recipient gets the commensurate benefit, in the form of reduction of price, in case of any tax rate reduction and/or incremental benefit of ITC (i.e. a sacrifice made by the Govt. from its tax kitty) and the method of interpretation of this provision has been given in the text of Section 171 of the CGST Act, 2017 itself. We observe that the said provision clearly links profiteering to be a function of each supply of goods or services or both and hence, profiteering needs to be computed at the level of each invoice and not at the entity level or any consolidated level. From a complete reading of Section 171 of the Act ibid, it is amply clear that the total quantum of profiteering by an entity/registrant is the sum total of all the benefits that stood denied to each of the recipients/consumers individually. The intent of the words commensurate reduction is also clearly explained by the words by reduction in price . The Authority hereby determines the profiteered amount as ₹ 2,88,43,422/- as per the provisions of Rule 133 (1) of the above Rules. The above amount shall be paid by the Respondent to the eligible buyers as per the details given in Annexure-21 of the DGAP s above Report within a period of 3 months from the date of passing of this order along with interest @18% per annum from the date from which the above amount was collected by him from the buyers till the payment is made failing which it shall be recovered by the concerned Commissioner CGST/SGST and paid to the concerned eligible buyers - 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. Penalty - HELD THAT - It is also evident from the above narration of facts that the Respondent has denied benefit of ITC to the buyers of the flats being constructed by him in his present project 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 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.

Summary

Issues Involved:
1. Alleged non-passing of Input Tax Credit (ITC) benefit post-GST implementation.
2. Calculation of profiteered amount.
3. Methodology for determining ITC benefit.
4. Respondent's claims of having passed on the ITC benefit.
5. Penalty imposition for contravention of Section 171 of the CGST Act, 2017.

Issue-Wise Detailed Analysis:

1. Alleged Non-Passing of ITC Benefit Post-GST Implementation:
The Applicants alleged that the Respondent did not pass on the benefit of ITC post-GST implementation, which resulted in increased prices of flats. The DGAP's investigation confirmed that the Respondent had benefited from additional ITC and failed to reduce the basic prices of the flats accordingly, thus contravening Section 171 of the CGST Act, 2017.

2. Calculation of Profiteered Amount:
The DGAP calculated the profiteered amount as ?2,88,43,422, including GST, based on the additional ITC benefit of 5.42% of the total turnover. This calculation was derived from comparing the ITC to turnover ratio pre-GST (1.47%) and post-GST (6.89%).

3. Methodology for Determining ITC Benefit:
The Respondent contested the methodology used by the DGAP, suggesting alternative calculations that resulted in different ITC benefit ratios (2.64%, 4.25%, and -0.05%). However, the DGAP's methodology was upheld, as it was based on actual data provided by the Respondent and aligned with the period considered for both pre-GST and post-GST comparisons.

4. Respondent's Claims of Having Passed on the ITC Benefit:
The Respondent claimed to have passed on a minimum of 3% ITC benefit to customers and provided sample invoices as evidence. However, the DGAP found discrepancies between the claimed benefits and the actual amounts passed on. The Respondent's claims were not substantiated with verifiable evidence, and the DGAP's calculations were deemed more accurate.

5. Penalty Imposition for Contravention of Section 171 of the CGST Act, 2017:
The Respondent was found to have denied the ITC benefit to buyers, violating Section 171(1) of the CGST Act, 2017. Consequently, the Respondent is liable for a penalty under Section 171(3A) of the CGST Act, 2017. A Show Cause Notice will be issued to the Respondent to explain why the penalty should not be imposed.

Conclusion:
The Authority ordered the Respondent to reduce the prices commensurate with the ITC benefit and pass on the profiteered amount of ?2,88,43,422 to the eligible buyers within three months, along with interest. The Commissioners of CGST/SGST Uttar Pradesh are directed to monitor compliance and submit a report within four months.