2020 (1) TMI 302 - NAPA - GST

Profiteering - purchase of Flats in Respondent's project - allegation is that the Respondent had not passed on the benefit of Input Tax Credit availed by him by way of commensurate reduction in the price of the flats - contravention of section 171 of CGST Act - penalty - HELD THAT - The Respondent has benefited from the additional ITC to the extent of 4.52% of the turnover during the period from July, 2017 to December, 2018 and hence the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent as he has not passed on the above benefit to his customers and has profiteered an amount of ₹ 51,12,928/- inclusive of GST @ 12% on the base profiteered amount of ₹ 45,65,114/-. Further, the Respondent has realized an additional amount of ₹ 1,33,503/- from the Applicant No. 1 which includes both the profiteered amount @ 4.52% of the taxable amount (base price) and 12% GST on the said profiteered amount. He has further realized an additional amount of ₹ 49,79,425/- which includes both the profiteered amount @ 4.52% of the taxable amount (base price) and 12% GST on the said profiteered amount from the 99 other flat buyers other than the Applicant No. 1 as mentioned in Annexure14 of the Report dated 28.06.2019. his 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 detailed above. Since the present investigation is only up to 31.12.2018 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by the Respondent - As the Respondent has claimed that the OC has been received by him in June, 2019 therefore, the DGAP is directed to carry out further investigation as per the provisions of Rule 133 (4) of the above Rules and compute the final amount of benefit of ITC which is required to be passed on and submit his Report within a period of 3 months of this Order. 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 'Pyramid City 5' 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.

Summary

Issues Involved:
1. Alleged profiteering by the Respondent by not passing on the benefit of Input Tax Credit (ITC) to home buyers.
2. Methodology for determining the amount of profiteering.
3. Calculation of profiteering amount and the inclusion of GST in the profiteered amount.
4. Respondent's objections to the investigation and findings of the Director General of Anti-Profiteering (DGAP).

Issue-wise Detailed Analysis:

1. Alleged Profiteering by the Respondent:
The Applicant No. 1 alleged that the Respondent did not pass on the benefit of ITC availed by him through a commensurate reduction in the price of flats in the project "Pyramid City 5." The DGAP's investigation found that the ITC as a percentage of the total turnover available to the Respondent during the pre-GST period was 2.76%, and during the post-GST period, it was 7.28%. This indicated an additional benefit of 4.52% of the turnover post-GST, which the Respondent was required to pass on to the flat buyers.

2. Methodology for Determining the Amount of Profiteering:
The Respondent contended that the CGST law did not prescribe any methodology or procedure for determining the amount of profiteering. The DGAP clarified that the procedure and methodology for determination of profiteering were determined on a case-to-case basis, adopting the most appropriate method based on facts and circumstances. The DGAP's methodology involved comparing the ratio of ITC to turnover in the pre-GST and post-GST periods to ascertain the benefit of additional ITC available to the Respondent.

3. Calculation of Profiteering Amount and Inclusion of GST:
The DGAP calculated the profiteered amount as ?51,12,928/-, which included GST @12% on the base profiteered amount of ?45,65,114/-. The DGAP's calculation was based on the additional ITC benefit of 4.52% of the turnover, which should have resulted in a commensurate reduction in the base price. The Respondent's contention that the GST amount should not be included in the profiteered amount was rejected, as the additional GST collected on the profiteered amount was part of the excess realization from the buyers.

4. Respondent's Objections to the Investigation and Findings:
The Respondent raised several objections, including:
- The methodology adopted by the DGAP.
- The comparison of unequal periods for pre-GST and post-GST data.
- The inclusion of GST in the profiteered amount.
- The calculation of profiteering on the entire project instead of the specific transaction.
- The claim that the reduction in prices was due to commercial reasons and not ITC benefit.

The Authority found these objections to be without merit. The DGAP's methodology was deemed appropriate, and the comparison periods were considered almost similar. The inclusion of GST in the profiteered amount was justified as it was part of the excess realization. The investigation covered the entire project as required by law, and the reduction in prices was not correlated with the ITC benefit.

Conclusion:
The Respondent was found to have contravened Section 171 of the CGST Act, 2017, by not passing on the benefit of additional ITC to the buyers. The total profiteered amount was ?51,12,928/-, including ?1,33,503/- from the Applicant No. 1 and ?49,79,425/- from 99 other buyers. The Respondent was directed to pass on this amount to the buyers along with interest @18% per annum. Further investigation was ordered to compute the final amount of benefit of ITC to be passed on post-December 2018. A Show Cause Notice was issued to the Respondent for the imposition of penalty under Section 171 (3A) of the CGST Act, 2017.