2020 (12) TMI 1205 - NAPA - GST

Profiteering - purchase of flat - allegation that the Respondent had not passed on the benefit of additional Input tax Credit (ITC) to the Applicants as well as other home buyers who had purchased Flats - violation of the provisions of Section 171 (1) of the Act - HELD THAT - It has been revealed that the Respondent has not passed on the benefit of additional Input tax Credit (ITC) to the above Applicants as well as other homebuyers who have purchased them in his Project Green Court for the period from 01.07.2017 to 31.08.2018 and hence, the Respondent has violated the provisions of Section 171 (1) of the CGST Act, 2017 - It is also revealed from the perusal of the CGST Act and the Rules framed under it that the Central Government vide Notification No. 01/2020-Central Tax dated 01.01.2020 has implemented the provisions of the Finance (No. 2) Act, 2019 from 01.01.2020 vide which sub-section 171 (3A) was added in Section 171 of the CGST Act, 2017 and penalty was proposed to be imposed in the case of violation of Section 171 (1) of the CGST Act, 2017. Since, no penalty provisions were in existence between the period w.e.f. 01.07.2017 to 31.12.2018 when the Respondent had violated the provisions of Section 171 (1), the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively. Accordingly, the notice dated 04.02.2020 issued to the Respondent for imposition of penalty under Section 171 (3A) is hereby withdrawn and the present penalty proceedings launched against him are accordingly dropped.

Summary

Issues:
1. Failure to pass on the benefit of additional Input Tax Credit (ITC) to home buyers.
2. Violation of the provisions of Section 171 (1) of the CGST Act, 2017.
3. Liability for imposition of penalty under Section 171 (3A) of the CGST Act, 2017.

Analysis:
Issue 1:
The case involved the Applicant No. 2, acting as the DGAP, who conducted an investigation based on complaints from Applicants No. 1 to 12 regarding the Respondent's failure to pass on the benefit of additional Input Tax Credit (ITC) to home buyers who had purchased flats in the project "Green Court." The DGAP's report highlighted that the Respondent had denied ITC benefits totaling ?5,30,34,074 from 01.07.2017 to 31.08.2018, constituting profiteering and a violation of Section 171 (1) of the CGST Act, 2017.

Issue 2:
After careful consideration of the DGAP's report, the Authority issued a show-cause notice to the Respondent, providing an opportunity to explain why the findings should not be accepted. Following a detailed hearing, the Authority determined the profiteered amount as ?5,30,34,074 and found the Respondent in violation of Section 171 (1) of the CGST Act, 2017. It was established that the Respondent had unlawfully denied ITC benefits to flat buyers, thereby committing an offense under Section 171 (3A) of the CGST Act, 2017, leading to liability for penalty imposition.

Issue 3:
Subsequently, the Respondent was issued a notice to justify why penalties under Section 171 (3A) of the CGST Act, 2017 should not be imposed. Despite multiple opportunities for a hearing and submission of written explanations, the Respondent failed to respond adequately. Upon review, it was noted that penalty provisions under Section 171 (3A) were introduced from 01.01.2020, and as the violations occurred prior to this date, the retrospective imposition of penalties was not feasible. Consequently, the penalty proceedings against the Respondent were withdrawn, and the notice for penalty imposition was revoked.

In conclusion, the judgment highlighted the Respondent's failure to pass on ITC benefits to home buyers, leading to a violation of Section 171 (1) of the CGST Act, 2017. While liability for penalty imposition was established, the retrospective application of penalty provisions prevented the imposition of penalties for violations predating the introduction of such provisions.