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2022 (10) TMI 243 - NAPA - GSTProfiteering - Construction Services - benefit of ITC has not been passed on by way of commensurate reduction in the price - contravention of Section 171 of the Central Goods and Service Tax Act 2017 - Penalty - HELD THAT - Upon perusal of Para 17 of the Report of the DGAP and the documents placed on record it is apparent that the computation of profiteering was with respect to 85 home buyers front whom construction value had been received by the Respondent during the period 01.07.2017 to 31.10.2019 (excluding the flats sold post 01.07.2017). This was on account of the fact that. the Respondent had booked 121 flats till 31.10.2019 but the Respondent had claimed that he had sold 36 flats after 01.07.2017 at the rates agreed by the customers as all inclusive price after considering the market condition escalations demand - supply balance GST benefit/ concession development in the locality location of the land proximity to education institutions/hospitals/airport etc. It is clear from the plain reading of Section 171 (1) mentioned above 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 UST 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 3.36% and during the post-GST period (July-2017 to October-2019) it was 4.27%. The Authority finds that the Respondent has profiteered by an amount of Rs. 50, 09, 158/- during the period of investigation i.e. 01.07.2017 to 31.10.2019. The above amount of Rs. 50, 09, 158/-(including 18% GST) that has been profiteered by the Respondent from his home buyers/shop buyers/recipients of supply 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 GCST Rules 2017. Penalty - HELD THAT - Respondent has denied the benefit of tax reduction to the customers 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 - Show Cause Notice directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules. 2017 should not be imposed on him is not required to be issued.
Issues Involved:
1. Allegation of profiteering in the supply of construction services. 2. Determination of the benefit of reduction in tax rate or ITC and its passing on to recipients. 3. Time-barred objections under Rule 133(1) of the CGST Rules, 2017. 4. Methodology for calculating profiteering. 5. Correlation between ITC and the amount realized from customers. 6. Compliance and enforcement of the order. Detailed Analysis: 1. Allegation of Profiteering: The Director-General of Anti-Profiteering (DGAP) conducted an investigation into the allegation of profiteering by the Respondent in respect of construction services. The investigation was initiated based on the National Anti-Profiteering Authority's (NAA) Interim Order No. 12/2019 dated 15.10.2019. The DGAP's report dated 27.11.2020 formed the basis of the current proceedings. 2. Determination of Benefit and Passing it On: The DGAP's report identified that the Respondent had three residential projects under the same GST registration. The investigation focused on whether the benefit of ITC was passed on to the recipients. The DGAP concluded that the ITC as a percentage of turnover increased from 3.36% in the pre-GST period to 4.27% in the post-GST period, resulting in an additional benefit of 0.91%. 3. Time-Barred Objections: The Respondent raised an objection that the proceedings were time-barred as per Rule 133(1) of the CGST Rules, 2017. The DGAP forwarded this objection to the NAA, which directed the DGAP to proceed with the investigation, stating that such submissions would be addressed in the final order. The NAA found that the time limits prescribed under Rule 129(6) and 133(1) are directory and not mandatory, citing the Delhi High Court's order in the case of M/s Nestle India Ltd. and the Supreme Court's judgment in Mahadev Govind Charge v. Special Land Acquisition Officer. 4. Methodology for Calculating Profiteering: The Respondent argued that the methodology adopted by the DGAP was flawed, biased, and unscientific. The DGAP, however, maintained that the methodology was correct and in line with Section 171 of the CGST Act, 2017. The DGAP's approach involved comparing the ITC available in the pre-GST and post-GST periods and calculating the benefit of additional ITC that should have been passed on to the recipients. The NAA upheld this methodology, noting that it had been consistently applied in similar cases. 5. Correlation Between ITC and Amount Realized: The Respondent contended that there was no correlation between ITC and the amount realized from customers. The DGAP and NAA disagreed, stating that the ITC was directly related to the turnover and the GST output liability discharged by the Respondent. The benefit of additional ITC should be proportionate to the payments made by the buyers. 6. Compliance and Enforcement: The NAA ordered the Respondent to refund the profiteered amount of Rs. 50,09,158/- along with interest @18% from the date of profiteering till the date of payment. The Respondent was also directed to reduce the prices commensurate with the benefit of ITC received. The jurisdictional CGST/SGST Commissioner was tasked with ensuring compliance and submitting a report within four months. An advertisement was to be published to inform the affected buyers. Conclusion: The NAA concluded that the Respondent had profiteered by Rs. 50,09,158/- by not passing on the benefit of additional ITC to the buyers. The Respondent was directed to refund this amount with interest and adjust future prices accordingly. The compliance of this order was to be monitored by the jurisdictional CGST/SGST Commissioner, and the affected buyers were to be informed through advertisements.
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