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2019 (12) TMI 1265 - NAPA - GSTProfiteering - purchase of flat - allegation that Respondent had not passed on the benefit of input tax credit to him by way of commensurate reduction in price - withdrawal of complaint - contravention of Section 171 of the Central Goods and Services Tax Act, 2017 - penalty - HELD THAT - The Respondent had approached the above Applicant and won him over not to pursue the complaint as it would have made him liable for profiteering under Section 171 (1) of the above Act. It is also clear that the above Applicant had not mentioned in his above letter that he has received the benefit of ITC which was his main allegation against the Respondent. Therefore, the above withdrawal cannot be taken to be bonafide and genuine There is also no provisions in the CGST Act or the Rules for withdrawal of the complaint as there is possibility of coercion or undue influence on the complainants by the unscrupulous builders. The DGAP is also bound to launch investigation on a complaint once he has received recommendation from the Standing Committee on Anti-Profiteering under Rule 129 (1) and he cannot stop such investigation on the withdrawal of the complaint once it discloses commission of an offence under Section 171 of the above Act. Since, the benefit of ITC has been given by the Central and the State Government out of the public exchequer in favour of the buyers it is also incumbent on the DGAP to find out whether the above benefit has been passed on by the Respondent or it has been misappropriated by him. Therefore, the above contention of the Respondent is frivolous and hence, the same cannot be accepted The benefits of tax rate reduction and ITC have been given by the State and the Central Govt. from their own tax revenue to provide accommodation to the vulnerable sections of society under the Affordable Housing Schemes. The method of interpretation of this provision has been given in the text of Section 171 of the CGST Act 2017 itself. We also observe that the above provision clearly links profiteering with each supply of goods or services or both and hence, profiteering has to be computed at the level of both. Therefore, the Respondent is under legal obligation to pass on the benefit of ITC to his buyers and he cannot be allowed to appropriate the same - it is clear 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 4.76% and during the post-GST period from July, 2017 to December, 2018, it was 7.27% 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 2.51% 7.27% (-) 4.76% of the turnover. Since, the above computations shown in Table B have been made on the basis of the VAT, Service Tax and GST Returns filed by the Respondent as well as the information supplied by him therefore, the same can be taken to be correct and relied upon. It is also clear from the record that the Central Government, on the recommendation of the GST Council, had levied 18% GST with effective rate of 12% in view of 1/3rd 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%. Accordingly, the DGAP has calculated the profiteered amount or the benefit to be passed on for the period from 01.07.2017 to 24.01.2018, as ₹ 1,16,75,749/- for the residential flats and commercial shops, which includes 12% GST on the base profiteered amount of ₹ 1,04,24,775/- - The total benefit of ITC which is required to be passed on during the period from 01.07.2017 to 31.12.2018, comes to ₹ 3,58,90,871/- which includes GST @ 12% or 8% on the base profiteered amount of ₹ 3,28,12,811/- as per Table C of the above Report. The home buyer and Unit No. wise break-up of this amount has been given by the DGAP vide Annexure-22 of his Report. This amount is inclusive of ₹ 40,606/- including GST on the base amount of ₹ 37,598/- which is the benefit of ITC which is required to be passed on to the Applicant No. 1, mentioned at Serial No. 187 of Annexure-22. Since, Table C has 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 in the above Table are taken to be correct and accordingly the profiteered amount is determined as ₹ 3,58,90,871/- as per the details mentioned in Annexure-22 above in terms 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 in the preceding paras of this Order. As per the provisions of Rule 133 (3) (b) of the CGST Rules, 2017 it is further ordered that the Respondent shall refund the above profiteered amount to the buyers as per the details given by the DGAP in Annexure-22. The benefit of ₹ 40,606/- including GST on the base amount of ₹ 37,598/- will be required to be passed on to the Applicant No. 1 - Since, the DGAP has carried out the present investigation till 31.12.2018 only any further benefit of additional ITC which might accrue to the Respondent shall also be passed on by him to the eligible buyers. The concerned Commissioner CGST/SGST shall ensure that the above benefit is passed on by the Respondent to his recipients as per the provisions of Section 171 of the CGST Act, 2017. 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 Grand IV A 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 apparently 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.
Issues Involved:
1. Whether there was any benefit of reduction in the rate of tax or input tax credit (ITC) on the supply of construction services by the Respondent after the implementation of GST. 2. Whether such benefit was passed on to the Applicant No. 1 in terms of Section 171 of the CGST Act, 2017. 3. Whether the Respondent has contravened the provisions of Section 171 of the CGST Act, 2017 by not passing on the benefit of ITC to the buyers. 4. Whether the proceedings could be discontinued based on the Applicant No. 1's withdrawal of the complaint. 5. The methodology and procedure for determining profiteering under Section 171 of the CGST Act, 2017. 6. The timing of passing on the benefit of ITC to the buyers. 7. The computation of the profiteered amount and the requirement for the Respondent to refund the same. Detailed Analysis: Issue 1: Benefit of Reduction in Rate of Tax or ITC The DGAP's investigation revealed that the input tax credit (ITC) as a percentage of turnover available to the Respondent during the pre-GST period (April 2016 to June 2017) was 4.76%, whereas during the post-GST period (July 2017 to December 2018), it was 7.27%. This confirmed that post-GST, the Respondent benefited from additional ITC to the tune of 2.51% of the turnover. Issue 2: Passing on the Benefit to Applicant No. 1 The Respondent did not pass on the benefit of ITC to the Applicant No. 1 by way of commensurate reduction in prices. The DGAP's report indicated that the Respondent had collected an additional amount of ?40,606/- from the Applicant No. 1, which included both the profiteered amount and GST on the profiteered amount. Issue 3: Contravention of Section 171 of the CGST Act, 2017 The Respondent contravened the provisions of Section 171 of the CGST Act, 2017 by not reducing the pre-GST base price by 2.51% on account of the additional benefit of ITC and charging GST at the increased rate on the pre-GST base price. The total profiteered amount during the period from 01.07.2017 to 31.12.2018 was ?3,58,90,871/-, including GST. Issue 4: Withdrawal of the Complaint by Applicant No. 1 The Respondent claimed that the Applicant No. 1 had withdrawn his complaint, and hence no investigation could have been done against him. However, it was observed that there is no provision in the CGST Act or Rules for withdrawal of the complaint, and the DGAP is bound to investigate once the Standing Committee on Anti-Profiteering recommends it. The withdrawal of the complaint was not taken to be bonafide and genuine. Issue 5: Methodology and Procedure for Determining Profiteering The Respondent contended that the methodology and procedure for determining profiteering were not provided. However, it was clarified that the basis and reasons for computing profiteering are mentioned in Section 171 (1) of the CGST Act, which requires passing on the benefit of reduction in tax rate or ITC by way of commensurate reduction in prices. Issue 6: Timing of Passing on the Benefit of ITC The Respondent argued that the benefit of ITC should be passed on at the end of the project. However, it was held that the benefit must be passed on as soon as the Respondent avails the ITC for discharging his output tax liability. The Respondent cannot use the ITC every month and delay passing on the benefit to the buyers until the project's completion. Issue 7: Computation of the Profiteered Amount and Refund Requirement The DGAP computed the profiteered amount as ?3,58,90,871/- based on the information reflected in the Returns filed by the Respondent and the details submitted by him. The Respondent was ordered to refund the profiteered amount to the buyers, including ?40,606/- to the Applicant No. 1, along with interest @18% PA from the date of excess collection until the date of payment. Conclusion: The Respondent was found to have contravened the provisions of Section 171 of the CGST Act, 2017 by not passing on the benefit of ITC to the buyers. The total profiteered amount was determined as ?3,58,90,871/-, and the Respondent was ordered to refund this amount to the buyers along with applicable interest. The Respondent was also directed to reduce the prices to be realized from the buyers commensurate with the benefit of ITC received. A Show Cause Notice was to be issued to the Respondent for imposing a penalty under Section 171 (3A) of the CGST Act, 2017.
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