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2022 (8) TMI 270 - NAPA - GSTProfiteering - supply of construction service - it is alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) to him by way of commensurate reduction in the price - Contravention of of Section 171 of the CGST Act, 2017 - interest - penalty - HELD THAT - It is clear from the plain reading of Section 171 (1), that it 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 1.43% and during the post-GST period (July, 2017 to September, 2019), it was 5.69% in Project Silver Oak . This clearly confirms that post-GST, the Respondent has benefited from additional input tax credit to the tune of 4.26% 5.69% (-) 1.43% of the turnover and the same was required to be passed on to the customers/flat buyers/recipients. The DGAP has calculated the amount of ITC benefit to be passed on to all the flat buyers as Rs. 3,45,28,279/- for the project 'Silver Oak' which was availed by the Respondent. Interest - HELD THAT - The Respondent is liable to pay interest as applicable on the entire amount profiteered, i.e. Rs. 3,45,28,279/- for the project 'Silver Oak'. Hence the Respondent is directed to also pass on interest @18% to the customers/ flat buyers/ recipients 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 benefit of IT to the buyers of the flats being constructed by him in his project 'Silver Oak' in contravention of the provisions of Section 171 1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act, However, perusal or the provisions of Section 171 (3A) under which penalty has been prescribed for the above violation shows that it has been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019 and it was not in operation during the period from 01.07.2017 to 30.09.2019 when the Respondent had committed the above violation and hence, the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively. This Order having been passed today falls within the limitation prescribed under Rule 133 (1) of the CGST Rules, 2017.
Issues Involved:
1. Whether there was a benefit of reduction in rate of tax or Input Tax Credit (ITC) on the supply of construction service by the Respondent after the implementation of GST w.e.f. 01.07.2017. 2. Whether the Respondent passed on such benefit to the recipients by way of commensurate reduction in price, in terms of Section 171 of the CGST Act, 2017. Issue-Wise Detailed Analysis: 1. Benefit of Reduction in Rate of Tax or ITC Post-GST Implementation: The DGAP investigated whether the Respondent benefited from a reduction in the rate of tax or additional ITC post-GST implementation. The investigation revealed that prior to GST, the Respondent could avail of credit for Service Tax on input services but not for VAT on inputs due to the Composition Scheme. Post-GST, the Respondent could avail of ITC on both inputs and input services. The DGAP found that the ITC as a percentage of turnover increased from 1.43% pre-GST to 5.69% post-GST, confirming an additional ITC benefit of 4.26% post-GST. 2. Passing on the Benefit to Recipients: The DGAP's analysis showed that the Respondent did not pass on the benefit of the additional ITC to the recipients through a commensurate reduction in prices. The DGAP calculated that the Respondent should have reduced the base price and cum-tax price by the additional ITC benefit of 4.26%. The total amount of benefit that should have been passed on to the buyers was Rs. 3,45,28,279/-, including Rs. 2,31,580/- for Applicant No. 1. Respondent's Contentions and DGAP's Clarifications: Incomplete Data Submission: The Respondent claimed that the DGAP's report was based on incomplete data due to COVID-19 restrictions. However, the DGAP clarified that multiple opportunities were given to the Respondent to submit complete data, which he failed to do. Methodology Suitability: The Respondent argued that the DGAP's methodology was unsuitable for the real estate industry and cited a stay by the Delhi High Court. The DGAP clarified that the methodology was prescribed under Rule 126 of the CGST Rules, 2017, and was based on the specific facts of each case. The methodology was deemed appropriate for calculating the profiteered amount. Constitutional Validity: The Respondent contended that Section 171 of the CGST Act was ultra vires the Constitution. The DGAP and the Authority clarified that the section aimed to protect consumer interests by ensuring that tax benefits were passed on to the end consumers. The section did not infringe upon the Respondent's right to trade. Incremental Credit and Blocked Credit: The Respondent argued that the DGAP considered incremental credit instead of blocked credit. The DGAP clarified that the additional ITC benefit post-GST should be passed on to the recipients, as the Respondent was not eligible for ITC of VAT pre-GST due to the Composition Scheme. Consideration of ITC on Goods: The Respondent claimed that only ITC on goods should be considered. The DGAP clarified that post-GST, ITC on both goods and services was available, resulting in an additional benefit that should be passed on to the recipients. Errors in Computation: The Respondent alleged errors in the DGAP's computation, including the inclusion of additional tax of 12% on the GST benefit. The DGAP clarified that the excess GST collected due to not passing on the ITC benefit was rightly included in the profiteered amount. ITC Reversal Post-Completion Certificate: The Respondent argued that ITC reversal on sales post-Completion Certificate (CC) should be considered. The DGAP clarified that the investigation period was up to 30.09.2019, and ITC reversal would be considered post-CC issuance. Suo Moto Passing of ITC Benefit: The Respondent claimed that he had suo moto passed on the ITC benefit to customers. The DGAP clarified that no documentary evidence was provided to support this claim. Conclusion: The Authority determined that the Respondent had not passed on the additional ITC benefit of 4.26% to the recipients as required under Section 171 of the CGST Act, 2017. The profiteered amount was calculated as Rs. 3,45,28,279/-, and the Respondent was directed to reduce prices commensurate with the ITC benefit and pay interest @18% on the profiteered amount. The Respondent was also directed to comply with the order within three months, failing which the amount would be recovered as per the CGST Act, 2017. The penalty under Section 171 (3A) was not imposed as it was not in operation during the period of violation.
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