2022 (8) TMI 272 - NAPA - GST

Profiteering - construction service - Respondent had not passed on the benefit of ITC to him by way of commensurate reduction in the price - contravention of Section 171 of the CGST Act 2017 - penalty - HELD THAT - The Authority finds that the Respondent has gained the benefit of ITC on the supply of Construction Services after the implementation of GST w.e.f. 01.07.2017 and the Respondent was required to pass on such benefit of ITC to the homebuyers/customers by way of commensurate reduction in prices in terms of Section 171 of the CGST Act 2017. However it is observed that the benefit was not commensurately passed on by the Respondent to his recipients taking into account the aforesaid Input Tax Credit availability post GST and the details of the amount collected from the home buyers during the period 01.07.2017 to 30.11.2019. the amount of benefit of ITC not passed on to the recipients or in other words the profiteered amount comes to Rs 74, 80, 399/- which includes GST (including Rs 74.713/- of the Applicant No. 1). The Respondent has claimed that he had already passed on a substantial amount of GST ITC per the requirements of Section 171 of the CGST Act. 2017 to the homebuyers. The Respondent had submitted that he had passed on the benefit of Rs. 87, 75, 787/- to 114 homebuyers/customers The Respondent has also claimed that he has passed on excess ITC benefit of Rs. 17, 25, 108/- to 83 buyers/customers. The DGAP has responded to such claims as tabulated at Table D above and found that Respondent has not passed commensurate benefit to all homebuyers/customers. The Authority determines that the Respondent has profiteered an amount of Rs. 74, 60, 399/-. Therefore given the above facts the Authority under Rule 133(3)(a) of the CGST Rules orders that the Respondent shall reduce the prices to be realized from the buyers of the flats/customers commensurate with the benefit of ITC received by him. The details of the recipients and benefit which is required to be passed on to each recipient/homebuyer (including Applicant No. 1) along with the details of the unit are contained in the Annexure A to this order The Authority directs that the profiteered amount as determined shall be passed on/returned by the Respondent to the recipients of supply along with interest @18%. as prescribed under Rule 133(3)(b) of the CGST Rules 2017 from the date such amount was profiteered by the Respondent up till the date such amount is passed on/returned to the respective recipient of supply (if not already passed on) within a period of three months from the date at this order. Penalty - HELD THAT - The Authority hold that the Respondent has committed an offence by violating the provisions of Section 171 (1) during the period from 01.07, 2017 to 30.11.2019 and therefore he is liable for imposition of penalty under the provisions of Section 171 (3A) of the above Ad However perusal of the provisions of the said Section 171 (3A) 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 30.11.2019 when the Respondent had committed the above violation. Hence the said penalty under Section 171 (3A) cannot be imposed on the Respondent retrospectively. This Order having been passed today fails within the limitation prescribed under Rule 133(1) of the CGST Rules 2017.

Summary

Issues Involved:
1. Whether there was a benefit of reduction in the rate of tax or ITC on the supply of construction service by the Respondent after the implementation of GST.
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:

Issue 1: Benefit of Reduction in Rate of Tax or ITC
- Investigation and Findings: The DGAP conducted a detailed investigation covering the period from 01.07.2017 to 30.11.2019. The investigation revealed that post-GST, the Respondent could avail ITC of GST paid on all inputs and input services, unlike the pre-GST period where only Service Tax credit was available. The ratio of ITC to turnover increased from 3.28% in the pre-GST period to 4.44% in the post-GST period for the project "ESCALA". This indicated an additional benefit of 1.16% of the turnover due to ITC.

Issue 2: Passing on the Benefit to Recipients
- Respondent's Submissions: The Respondent argued that the benefit of ITC was dependent on various factors like stage of construction and negotiation with vendors. They claimed to have passed on the benefit based on the area to eligible customers.
- DGAP's Findings: The DGAP found that the Respondent had not passed on the benefit commensurately to all recipients. The benefit of additional ITC should have resulted in a reduction in the base price and cum-tax price. The profiteered amount was calculated to be Rs. 74,60,399/-.
- Verification and Confirmation: The Respondent claimed to have passed on Rs. 87,75,787/- to 110 homebuyers. Upon verification, it was found that the Respondent had passed on less than the required benefit to 31 flat owners and the Applicant No. 1 by an amount of Rs. 4,09,720/-. The excess benefit passed to some buyers could not offset the shortfall to others.

Additional Contentions and Clarifications:
- Comparison of ITC to Turnover: The Respondent contended that comparing ITC to turnover was not the correct mechanism. However, the DGAP clarified that this methodology was appropriate as it directly related to the output tax liability.
- Scope of Investigation: The Respondent argued that the investigation should be limited to the application submitted by Applicant No. 1. The DGAP and the Authority clarified that Section 171(2) of the CGST Act empowered the Authority to examine all supplies made by a registered person to ensure benefits were passed on to all recipients.

Authority's Decision:
- Profiteering Amount: The Authority determined that the Respondent had profiteered an amount of Rs. 74,60,399/-. The Respondent was ordered to reduce prices commensurate with the benefit of ITC received and return the profiteered amount to the recipients along with interest @18%.
- Penalty: Although the Respondent violated Section 171(1) of the CGST Act, 2017, no penalty under Section 171(3A) was imposed as it was not in operation during the period of violation.
- Compliance and Advertisement: The concerned jurisdictional CGST/SGST Commissioner was directed to ensure compliance, including publishing an advertisement to inform homebuyers about the order and the benefit due to them.

Conclusion:
The judgment emphasized the importance of passing on the benefits of ITC to recipients as mandated by Section 171 of the CGST Act, 2017. The Authority's decision ensured that the Respondent complied with the legal requirements and provided relief to the affected homebuyers.