2020 (12) TMI 785 - NAPA - GST

Profiteering - supply of purchase of Flat - allegation that the Respondent had not passed on the benefit of ITC to him by way of commensurate reduction in the price of his residential unit and that GST had been charged on the amounts due to him against payments to be made by him to the Respondent - violation of the provisions of Section 171 (1) of the CGST Act 2017 or not - HELD THAT - The Respondent had got Affordable Housing The Millenia 37D project approved under the Haryana Affordable Housing Policy and allotted flats to the successful buyers on 27.10.2017 through draw of lots He invited applications for allotment of houses via advertisement in newspapers. The Applicant No. 1 had applied for allotment of a flat and the draw of lots for allotment of houses was conducted on 27.10.2017 in the presence of the committee constituted under the above Policy. It is also revealed that first builder buyer agreement was executed on 08.11.2017 vide which the terms and conditions for allotment of Flat were settled. It is also apparent from the record that the Respondent had received the Environment Clearance from the State Environment Impact Assessment Authority Haryana on 21.08.2017 also the work order for construction to contractor was given on 22.09.2017 before which he could not have started the execution of the project. On the basis of the sequence of the above events it could be safely concluded that the above project had been started after coming in to force of the GST w.e.f. 01.07.2017. It is also clear that the draw of lots for allotment was held on 27.10.2017. The first agreement between the buyer and the Respondent was executed on 08.11.2017. Therefore it was apparent that the Applicant No. 1 had applied for allotment and was allotted the above flat after coming in to force of the GST w.e.f. 01.07.2017. Since the above project was not under execution in the pre-GST period i.e. before 01.07.2017 therefore no comparison could be made between the ITC which was unavailable to the Respondent before 01.07.2017 and after 01.07.2017 to determine whether the Respondent had benefitted from additional availability of ITC or not. Thus it is established that there had been no additional benefit of ITC to the Respondent and hence he was not required to pass on its benefit to the above Applicant No.1 by reducing the price of the flat. The Applicant No. 1 could have availed the above benefit only if the above project was under execution before coming in to force of the GST as the Respondent would have been eligible to avail ITC on the purchase of goods and services after 01.07.2017 on which he was not entitled to do so before the above date. Since there is no basis for comparison of ITC available before and after 01.07.2017 the Respondent was not required to recalibrate the price of the flat due to additional benefit of ITC. Hence the allegations of the Applicant No.1 made in this behalf are incorrect and therefore the same cannot be accepted. It is clear from the Section 171 (1) of the CGST Act 2017 that there should either be reduction in the rate of tax or the benefit of ITC which are required to be passed on to the recipients by commensurate reduction in the price. Since there had been no reduction in the rate of tax or benefit of additional ITC to the Respondent the provisions of the above Section are not attracted in the present case and the allegation of profiteering are not established against the Respondent. The Respondent had not contravened the provisions of Section 171 (1) of the CGST Act 2017 - Application dismissed.

Summary

Issues Involved:
1. Whether there is a reduction in the rate of tax on the construction services as alleged by Applicant No. 1.
2. Whether there is a benefit of additional ITC available to the Respondent which is not passed on to Applicant No. 1.
3. Whether there is any violation of the provisions of Section 171 (1) of the CGST Act, 2017 by the Respondent.

Detailed Analysis:

Issue I: Reduction in the Rate of Tax on Construction Services
The DGAP reported that the Respondent correctly charged GST at 12% before 24.01.2018 and at the reduced rate of 8% from 25.01.2018, as per Notification No. 01/2018 Central Tax-Rate dated 25.01.2018. This indicated that the benefit of the reduction in the rate of tax was appropriately passed on to Applicant No. 1. Therefore, the allegation of profiteering due to not passing on the tax reduction does not hold ground.

Issue II: Benefit of Additional ITC
The DGAP's investigation revealed that the project "The Millenia" was launched post-GST regime, with all relevant activities and agreements occurring after 01.07.2017. Consequently, there was no pre-GST price history to compare with post-GST prices for determining profiteering. The DGAP concluded that no additional ITC benefit was available to the Respondent that needed to be passed on to Applicant No. 1. The Respondent's project did not exist before GST implementation, hence no ITC comparison could be made.

Issue III: Violation of Section 171 (1) of the CGST Act, 2017
Section 171 (1) mandates that any reduction in the rate of tax or benefit of ITC must be passed on to the recipient by way of commensurate reduction in prices. Since there was no additional ITC benefit and the tax reduction was already passed on, the provisions of Section 171 (1) were not violated by the Respondent. The DGAP's findings were supported by the timeline of events and the nature of the project, which was initiated post-GST.

Conclusion:
The Respondent did not contravene the provisions of Section 171 (1) of the CGST Act, 2017. The application filed by Applicant No. 1 alleging profiteering was dismissed. The DGAP's investigation and subsequent reports clarified that the project commenced post-GST, and all tax benefits were appropriately passed on. The allegations of profiteering were found to be incorrect, and the Respondent was not required to recalibrate the price of the flat due to additional ITC benefits.