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2020 (6) TMI 674 - NAPA - GSTProfiteering - purchase of Flat - allegation that the Respondent had not passed on the benefit of Input Tax Credit (ITC) by way of commensurate reduction in the prices - contravention of section 171 of CGST Act - penalty - HELD THAT - The Respondent has benefited from the additional ITC to the extent of 8.73% of the turnover during the period from July, 2017 to March, 2019 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 thus he has profiteered an amount of ₹ 19,23,01,682/- inclusive of GST @ 12% on the base profiteered amount of ₹ 17,16,97,930/-. Further, the Respondent has realized an additional amount of ₹ 4,06,859/- and ₹ 2,85,572 which includes both the profiteered amount @ 8.73% of the taxable amount (base price) and 12% GST on the said profiteered amount from the Applicant No. 1 and Applicant No. 2 respectively. He has further realized an additional amount of ₹ 19,16,83,441/- which includes both the profiteered amount @ 8.73% of the taxable amount (base price) and 12% GST on the said profiteered amount from the 907 flat buyers other than the Applicant No. 1 and 2. The details of the profiteered amount and the buyers have been mentioned by the DGAP in Annexure-14 of his Report dated 28.10.2019. These buyers are identifiable as per the documents placed on record and therefore, the Respondent is directed to pass on the amounts of ₹ 19,16,83,441/-, ₹ 4,06,859/- and ₹ 2,85,572/- to the other flat buyers, the Applicant No. 1 and the Applicant No. 2 respectively along with the interest @ 18% per annum from the dates from which the above amounts were collected by him from them till the payment is made, within a period of 3 months from the date of passing of this order as per the details mentioned in Annexure-14 attached with the Report dated 28.10.2019. 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 of the above Project commensurate with the benefit of ITC received by him as has been detailed above. Since the present investigation is only up to 31.03.2019 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by the Respondent. The concerned Commissioner CGST/SGST shall ensure that the above benefit is passed on to the eligible flat buyers. In case the above benefit is not passed on by the Respondent the above Applicants or any other buyer shall be at liberty to approach the Haryana State Screening Committee to initiate fresh proceedings against the Respondent 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 being constructed by him in his above project in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST Act, 2017 and therefore, he is apparently liable for imposition of penalty under the provisions of the above Section. Accordingly, a Show Cause Notice be issued to him directing him to explain 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. Alleged profiteering by the Respondent by not passing on the benefit of Input Tax Credit (ITC) to flat buyers. 2. Investigation scope and methodology employed by the Director General of Anti-Profiteering (DGAP). 3. Calculation of profiteered amount and inclusion of GST in the profiteered amount. 4. Constitutionality of the National Anti-Profiteering Authority (NAA) without a Judicial Member. 5. Respondent's claims regarding the benefit of ITC passed on to customers and the calculation of ITC. Detailed Analysis: 1. Alleged Profiteering by the Respondent: The Applicants alleged that the Respondent did not pass on the benefit of ITC to them for the purchase of flats in the "Emerald Floors Select-A" project. The DGAP's investigation revealed that the Respondent had not reduced the basic prices of the flats by 8.73% due to the additional benefit of ITC received post-GST implementation. Consequently, the Respondent was found to have profiteered an amount of ?19,23,01,682/- inclusive of GST, with specific amounts profiteered from Applicant No. 1 and Applicant No. 2 being ?4,06,859/- and ?2,85,572/-, respectively. 2. Investigation Scope and Methodology: The Respondent argued that the investigation should be limited to the Applicants' claims and not extend to other customers. However, the NAA clarified that Section 171 (1) and (2) of the CGST Act, 2017 mandates the passing on of both tax reduction and ITC benefits to all buyers. The DGAP's investigation is not restricted to specific complaints but encompasses all instances where benefits are to be passed on. The DGAP's role includes investigating and collecting evidence to determine if benefits have been passed on, as per the Office Order No. 05/Ad.IV/2018. 3. Calculation of Profiteered Amount: The DGAP used the ratio of ITC to turnover for the pre-GST and post-GST periods to calculate the profiteered amount. The Respondent's contention that there was no correlation between turnover and the cost of construction was rejected. The NAA upheld the DGAP's methodology, stating that the benefit of ITC is to be passed on each product or unit of construction or service to every buyer. The inclusion of GST in the profiteered amount was also deemed correct as the Respondent charged additional GST on the illegally increased prices. 4. Constitutionality of NAA Without a Judicial Member: The Respondent challenged the constitutionality of the NAA on the grounds that it lacked a Judicial Member. The NAA clarified that it performs highly specialized fact-finding functions and does not replace or substitute any judicial functions of the High Courts. The NAA's constitution is in line with the statutory mandate under Section 171 of the CGST Act, 2017, and the absence of a Judicial Member does not render it unconstitutional. 5. Respondent's Claims on ITC Benefit: The Respondent claimed to have passed on a 5.68% benefit of ITC to customers and argued for the inclusion of VAT and WCT (VAT) credits in the pre-GST ITC calculation. The NAA found that the Respondent did not furnish adequate evidence to support these claims. The DGAP's report did not consider VAT and WCT (VAT) credits as the Respondent had not reflected them in his VAT Returns. The Respondent's methodology for calculating the ITC ratio was also rejected as it lacked substantiation. Conclusion: The NAA 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, resulting in profiteering. The Respondent was directed to refund the profiteered amount along with interest to the affected buyers within three months. A Show Cause Notice was issued for imposing a penalty under Section 171 (3A) of the CGST Act, 2017. The DGAP was also directed to investigate the benefit of additional ITC in respect of 24 other projects executed by the Respondent. The Commissioners of CGST/SGST Haryana were tasked with ensuring compliance with the order.
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