2023 (12) TMI 1404 - CCI - GST

Profiteering - Construction Service supplied by the Respondent - it is alleged that the Respondent had not passed on the benefit of ITC to her by way of commensurate reduction in the price of the flat purchased from the Respondent - contravention of Section 171 of the CGST Act 2017 - HELD THAT - The Commission finds that the matter needs to be sent back to DGAP under Rule 133(4) of the CGST Rules 2017 for re-investigation on the following issues i. Whether Smt. Sudha has received the benefit of ITC due to the settlement made by her with the Respondent as a consequence of which she has withdrawn her complaint? ii. Whether some of the flats constructed by the Respondent fell under the Affordable Housing Scheme and whether GST was to be charged on those flats @ 8%? iii. To consider the claim of the Respondent regarding cancellation of flats/units in the project and calculate the profiteering accordingly. iv. Verification of the passing on of ITC benefit to homebuyers/customers be carried out afresh. Conclusion - The DGAP is directed to submit a fresh investigation report under Rule 133(4) of the CGST Rules 2017 on all the issues mentioned.

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following core legal issues:

Whether the Respondent failed to pass on the benefit of Input Tax Credit (ITC) to the homebuyers, as mandated by Section 171 of the Central Goods and Services Tax (CGST) Act, 2017?
Whether the computation methodology adopted by the Director-General of Anti-Profiteering (DGAP) to determine profiteering was appropriate and legally valid?
Whether the anti-profiteering provisions apply to homebuyers who booked flats post-GST implementation?
Whether the settlement between the Respondent and Applicant No. 1 nullifies the requirement to pass on ITC benefits?
Whether the Respondent's claims regarding the cancellation of flats and the applicable GST rates for affordable housing were valid?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Failure to Pass on ITC Benefits

Legal Framework: Section 171 of the CGST Act mandates that any reduction in tax rates or benefit of ITC must be passed on to the recipients by way of commensurate price reduction.
Court's Interpretation: The DGAP's report highlighted that the Respondent benefited from additional ITC post-GST, which was not passed on to the buyers, contravening Section 171.
Evidence and Findings: The DGAP calculated an additional ITC benefit of 5.43% of turnover, amounting to Rs. 12,65,48,780, which was not passed on to the buyers.
Application of Law: The DGAP's findings indicated a violation of Section 171, as the Respondent did not reduce prices commensurately.
Competing Arguments: The Respondent argued that the methodology was arbitrary and unconstitutional.
Conclusion: The Commission found merit in the DGAP's findings and directed further investigation on specific issues.

Issue 2: Methodology for Determining Profiteering

Legal Framework: Rule 126 of CGST Rules prescribes the methodology for computing profiteering.
Court's Interpretation: The DGAP's consistent methodology was deemed appropriate.
Evidence and Findings: The DGAP used a uniform approach across cases, focusing on the ratio of ITC to turnover.
Application of Law: The Commission upheld the methodology but acknowledged the need for further investigation on specific claims.
Competing Arguments: The Respondent claimed the methodology was unconstitutional and ignored external factors.
Conclusion: The methodology was upheld, but further investigation was ordered to address specific concerns.

Issue 3: Application of Anti-Profiteering Provisions Post-GST

Legal Framework: Section 171 applies to all transactions post-GST.
Court's Interpretation: The DGAP asserted that ITC benefits apply to all units, regardless of booking date.
Evidence and Findings: The DGAP found that the additional ITC benefit pertained to the entire project.
Application of Law: The Commission supported the DGAP's view that benefits must be passed on to all buyers.
Competing Arguments: The Respondent argued that buyers post-GST were aware of prices and GST implications.
Conclusion: The Commission directed further investigation but upheld the applicability of Section 171 to all buyers.

Issue 4: Settlement with Applicant No. 1

Legal Framework: Section 171 requires benefits to be passed on, irrespective of settlements.
Court's Interpretation: The DGAP did not consider the settlement as it was not presented during the investigation.
Evidence and Findings: The Respondent claimed a settlement with Applicant No. 1, but no evidence was provided during the investigation.
Application of Law: The Commission ordered re-investigation to verify the settlement's impact on ITC benefits.
Competing Arguments: The Respondent argued that the settlement nullified the need to pass on benefits.
Conclusion: Further investigation was ordered to verify the settlement's impact.

Issue 5: GST Rates and Cancellations

Legal Framework: GST rates and benefits are determined by specific notifications and rules.
Court's Interpretation: The DGAP did not initially consider claims of affordable housing rates and cancellations.
Evidence and Findings: The Respondent claimed certain flats were under the affordable scheme, attracting a lower GST rate.
Application of Law: The Commission ordered re-investigation to address these claims.
Competing Arguments: The Respondent argued for reduced profiteering amounts based on cancellations and lower GST rates.
Conclusion: Further investigation was directed to verify these claims.

3. SIGNIFICANT HOLDINGS

Core Principles: The judgment reaffirms the principle that benefits of ITC must be passed on to consumers under Section 171 of the CGST Act.
Final Determinations: The Commission directed the DGAP to conduct a re-investigation on specific issues, including the settlement with Applicant No. 1, applicability of affordable housing GST rates, and verification of ITC benefits passed on to homebuyers.
Verbatim Quotes: "The benefit of such additional ITC was required to be passed on by the Respondent to the respective recipients."

The judgment highlights the complexities involved in applying anti-profiteering provisions and underscores the need for thorough investigation and adherence to procedural fairness in determining compliance with Section 171 of the CGST Act.

← Previous Next →