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2022 (7) TMI 698 - NAPA - GSTProfiteering - purchase of flats - it is alleged that the Respondent had not passed on the commensurate benefit of ITC to him by way of commensurate reduction in price against payments due to him - contravention of section 171 of CGST Act - interest - penalty - HELD THAT - The Authority finds no reason to differ from the above detailed computation of profiteering in the DGAP's Report or the methodology adopted. Hence, the Authority holds 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 1.27% and during the post-GST period (July-2017 to September-2019), it was 6.67%, This confirms that, post-GST, the Respondent has been benefited from additional ITC to the tune of 5.40% (6.67%-1.27%) of his turnover and the same was required to be passed on to the Applicant No. 1 and the other homebuyers/shop buyers/customers. The Authority determines the amount profiteered by the Respondent for the Project Arihant Anchal Phase I, during the period 1.07.2017 to 30.09.2019 as Rs. 1,78,32,984/-. Therefore, the amount of ITC benefit to be passed on by the Respondent to all the homebuyers/shop buyers/customers is Rs. 1,78,32,984/-. This amount is inclusive of Rs. 34,137/- (including GST on the base amount of Rs. 31,104/-) which is the benefit of ITC required to be passed on with respect to Flat no. 4-301 in Tower Benicia which has been agitated by the Applicant No. 1 - the amount of Rs. 1,78,32,984/- (including 12% GST) that has been profiteered by the Respondent from his homebuyers/shop buyers/customers, including Applicant No. 1, shall be refunded by him, along with interest @18% thereon, from the date when the above amount was profiteered by him till the date of such payment, in accordance with the provisions of Rule 133 (3) (b) of the CGST Rules 2017. Interest - HELD THAT - The Respondent is also liable to pay interest as applicable on the entire amount profiteered, i.e. Rs.1,78,32,984/-. Hence the Respondent is directed to also pass on interest @18% to the homebuyers/shop buyers/customers, including Applicant No. 1 on the entire amount profiteered, starting from the date from which the above amount was profiteered till the date of passing on/ payment. as per provisions of Rule 133 (3) (b) of the CGST Rules 2017. Penalty - HELD THAT - The Respondent has denied the benefit of tax reduction to his 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 above Act and therefore, he is liable for imposition of penalty under the provisions of the above 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 34.09.2019, hence the penalty prescribed under the above Section cannot be imposed on Respondent retrospectively for the impugned period.
Issues Involved:
1. Whether there was a benefit of reduction in the rate of tax or ITC on the supply of construction services by the Respondent post-GST implementation. 2. Whether such benefit was passed on by the Respondent to the recipients in terms of Section 171 of the CGST Act, 2017. Issue-wise Analysis: 1. Benefit of Reduction in Rate of Tax or ITC: The DGAP investigated whether the Respondent benefited from a reduction in the tax rate or ITC on the supply of construction services after the implementation of GST. The investigation covered the period from 01.07.2017 to 30.09.2019. It was found that the ITC as a percentage of the turnover available to the Respondent during the pre-GST period (April 2016 to June 2017) was 1.27%, while during the post-GST period (July 2017 to September 2019), it was 6.67%. This indicated that the Respondent benefited from an additional ITC of 5.40% of the turnover post-GST. 2. Passing on the Benefit to Recipients: The DGAP reported that the Respondent did not pass on the benefit of the additional ITC to the recipients by way of commensurate reduction in prices, as required under Section 171 of the CGST Act, 2017. The total amount of profiteering was calculated to be Rs. 1,78,32,984/-, which included Rs. 34,137/- related to the specific flat of Applicant No. 1. The Respondent claimed to have passed on the benefit to some customers through credit notes and invoices, but discrepancies were found in the verification process, and many claims could not be substantiated. Respondent's Contentions and Authority's Findings: - Constitutionality and Natural Justice: The Respondent argued that Section 171 of the CGST Act was ultra vires the Constitution and that the absence of a judicial member in the Authority compromised its independence. The Authority rejected these contentions, stating that the Authority was constituted under Section 171(2) of the CGST Act, 2017, and that ample opportunities were provided to the Respondent to present their case, thus adhering to the principles of natural justice. - Methodology for Determination: The Respondent contended that no specific methodology was prescribed for determining whether the benefit of ITC was passed on. The Authority clarified that the methodology was enshrined in Section 171(1) of the CGST Act, which required passing on the benefit of ITC by way of commensurate reduction in prices. The DGAP's approach of comparing the ITC to turnover ratios in pre- and post-GST periods was found to be rational and appropriate. - Increase in Cost of Inputs: The Respondent argued that the increase in the cost of inputs should be considered while determining profiteering. The Authority found this contention misplaced, as the increase in input costs was independent of the output GST rate and was a business risk factored in at the time of entering into agreements. - Passing on the Benefit: The Respondent claimed to have passed on the benefit of ITC to customers, but the DGAP found discrepancies and unverifiable claims. The Authority directed the Respondent to refund the profiteered amount of Rs. 1,78,32,984/- along with interest at 18% to the homebuyers/shop buyers/customers, including Applicant No. 1. Conclusion: The Authority upheld the DGAP's findings and ordered the Respondent to refund the profiteered amount along with interest. The Respondent was also directed to reduce the prices commensurate with the benefit of ITC and ensure compliance with the order. The jurisdictional CGST/SGST Commissioner was directed to monitor the compliance and submit a report to the Authority. The DGAP was also directed to investigate profiteering in other projects undertaken by the Respondent. The order was passed within the extended period of limitation due to the COVID-19 pandemic.
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