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2022 (6) TMI 1165 - NAPA - GSTProfiteering - purchase of Flats - it is alleged that Respondent had not passed on the benefit of Input Tax Credit (ITC) availed by way of commensurate reduction in the price of the flats - contravention of Section 171 of CGST Act - Interest - Penalty - HELD THAT - Section 171 (1) of the CGST Act 2017 deals with two situations - One relating to the passing on the benefit of reduction in the rate of tax and the second pertaining to the passing on the benefit of the ITC. On the issue of reduction in the tax rate it is apparent from the DGAP s Report that there has been no reduction in the rate of tax in the post GST period; hence the only issue to be examined is as to whether there was any net benefit of ITC with the introduction of GST. On this issue it has been revealed from the DGAP s Report that the ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period (April-2016 to June-2017) was 2.34% and during the post-GST period (July-2017 to December-2018) it was 5.65% for the project Sports Vile . This confirms that post-GST the Respondent has been benefited from additional ITC to the tune of 3.31% (5.65% - 2.34%) of his turnover for the project Sports Ville and the same was required to be passed on to the customers/ home/shop buyers. The DGAP has calculated the amount of ITC benefit to be passed on to all the flat buyers as Rs. 1, 42, 45, 741/- for the project Sports Ville which was availed by the Respondent. The Respondent has not disputed the findings of the DGAP regarding method of computation of profiteering and the amount worked out by him. As such the Authority finds no reason to differ from the above-detailed computation of profiteering in the DGAP s Report or the methodology adopted and hence the Authority determines the profiteered amount for the period from 01.07.2017 to 31.12.2018 in the instant case as Rs. 1, 42, 45, 741/- for the project Sports Ville . Interest - HELD THAT - The Authority directs the concerned jurisdictional CGST/SGST Commissioner to ensure that such amounts are returned/passed on/ refunded along with interest as prescribed under Rule 133 (3) (c) of the CGST Rules 2017 to each customers/ home/shop buyers by the Respondent if not already paid. As observed by the Authority the conclusive proof of passing benefits - Respondent is also liable to pay interest as applicable on the entire amount profiteered i.e. Rs. 1, 42, 45, 741/- for the project Sports Ville . Hence the Respondent is directed to also pass on interest @18% to the customers/ home/shop buyers on the entire amount profiteered starting from the date from which the above amount was profiteered till the date of passing on/ return/refund as prescribed under Rule 133 (3) (b) of the CGST Rules 2017 - the profiteering amount of Rs. 1, 42, 45, 741/- for the project Sports Ville along with the interest @ 18% from the date of receiving of advance from the customers/ home/shop buyers till the date of passing the benefit of ITC shall be paid/passed on by the Respondent within a period of 3 months from the date of this order failing which it shall be recovered as per the provisions of the CGST Act 2017. Penalty - HELD THAT - Respondent has denied the benefit of ITC to the customers/ home/shop buyers in contravention of the provisions of Section 171 (1) of the CGST Act 2017 and he has thus committed an offence under Section 171 (3A) of the Act and therefore he is liable for imposition of penalty under the provisions of the Section. However since the provisions of Section 171 (3A) have come into force w.e.f. 01.01.2020 whereas the period during which violation has occurred is w.e.f. 01.07.2017 to 31.12.2018 hence the penalty prescribed under the above Section cannot be imposed on Respondent retrospectively.
ISSUES PRESENTED and CONSIDERED
The core issue considered in this judgment was whether the Respondent, a real estate developer, had failed to pass on the benefit of increased Input Tax Credit (ITC) to buyers of flats in the "Sports Ville" project, as required under Section 171 of the Central Goods and Services Tax (CGST) Act, 2017. The investigation was conducted to determine if there was profiteering by the Respondent due to the additional ITC benefit post-GST implementation. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents: The legal framework under consideration was Section 171 of the CGST Act, 2017, which mandates the passing on of any benefit of tax rate reduction or ITC to the recipient by way of commensurate reduction in prices. The investigation and proceedings were conducted under the CGST Rules, 2017, specifically Rule 129 and Rule 133. Court's Interpretation and Reasoning: The Court focused on whether the Respondent had indeed passed on the benefit of additional ITC that became available post-GST implementation. The DGAP's investigation revealed that the ITC as a percentage of turnover increased from 2.34% pre-GST to 5.65% post-GST, indicating an additional benefit of 3.31% that should have been passed on to the buyers. Key Evidence and Findings: The DGAP's report included detailed calculations of the ITC benefit and the amount that should have been passed on to the buyers. The report highlighted discrepancies in the Respondent's claims of having passed on the ITC benefits. The verification process involved contacting a sample of home buyers to confirm receipt of the ITC benefit, but responses were limited, and many buyers claimed not to have received any benefit. Application of Law to Facts: The Court applied Section 171 of the CGST Act, 2017, to ascertain whether the Respondent had complied with the requirement to pass on the ITC benefit. The DGAP's findings indicated that the Respondent had not fully passed on the benefit, leading to a determination of profiteering. Treatment of Competing Arguments: The Respondent argued that they had passed on the ITC benefit to the buyers and provided acknowledgments from some buyers. However, the Court found these claims insufficient due to the lack of conclusive proof such as credit notes or bank statements. The Respondent's request to verify the benefit passed on through a random sample was considered, but the verification process revealed inconsistencies. Conclusions: The Court concluded that the Respondent had not adequately passed on the ITC benefit to the buyers, resulting in profiteering to the tune of Rs. 1,42,45,741 for the project "Sports Ville." The Respondent was directed to refund the profiteered amount along with interest to the affected buyers. SIGNIFICANT HOLDINGS Core Principles Established: The judgment reinforced the principle that any benefit arising from increased ITC post-GST must be passed on to consumers. It emphasized the importance of conclusive evidence in verifying the passing on of benefits, such as credit notes or bank statements. Final Determinations on Each Issue: The Court determined that the Respondent was liable for profiteering and ordered the return of the profiteered amount along with interest to the buyers. The Respondent was also directed to reduce prices commensurate with the ITC benefit received and to ensure compliance with the order through the jurisdictional CGST/SGST Commissioner. The judgment underscores the legal obligation of businesses to pass on tax benefits to consumers and the necessity for transparent and verifiable documentation to support claims of compliance with such obligations.
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