PROFITEERING CONFIRMED BUT PENALTY STILL NOT IMPOSABLE - ELDECO INFRASTRUCTURE CASE

[Dr. Sanjiv Agarwal]

All along, National Anti-profiteering Authority (NAA) has been imposing penalty and issuing notices for levy of penalty for violation of Section 171. However, in a recent order dated 14.08.2020 in SH. VARUN GOEL, DIRECTOR GENERAL OF ANTI-PROFITEERING, INDIRECT TAXES & CUSTOMS, VERSUS M/S. ELDECO INFRASTRUCTURE & PROPERTIES LTD. [2020 (8) TMI 369 - NATIONAL ANTI-PROFITEERING AUTHORITY],  NAA has interpreted that even though the supplier was found guilty of contravention of provisions of section 171 of CGST Act, 2017, for denying the benefit of input tax credit to flat buyer, penalty could not be imposed as there were no penalty provisions in the law when ITC was denied by the supplier. Once the profiteering was confirmed, a show cause notice was issued seeking to invoke penal action under section 122 read with rule 133(3)(d) of the CGST Rules, 2017.

It was observed and concluded that the supplier had not passed on the benefit of additional ITC to the buyers of his flats/plots with effect from July 01, 2017, to August 31, 2018, which he was required to pass on every month as it was availing the benefit of ITC every month to discharge it GST liability.  However, the supplier has passed on the benefit of ITC in the month of February, 2019 after the Authority had initiated proceedings against the Respondent vide its notice dated December 07, 2018.

No penalty had been prescribed for violation of the provisions of Section 171 (1) of the CGST Act, and as such, the supplier respondent was issued show cause notice to state why penalty should not be imposed on him for violation of the above provisions as per Section 122 (1) (i) of the CGST Act as it had apparently issued incorrect or false invoice while charging excess consideration and GST from the buyers. Section 122 (1) (i) states as under:-

“122 (1) Where a taxable person who

(i) supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply;

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he shall be liable to pay a penalty of ten thousand rupees or an amount equal to the tax evaded or the tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government or input tax availed or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher.”

The NAA noted that the perusal of Section 122 (1) (i) reveals that the violation of the provisions of Section 171 (1) is not covered under it as it does not provide penalty for not passing on the benefits of tax reduction and ITC. It only provides for imposition of penalty for not issuing an invoice or for issuing an incorrect or false invoice in respect of any supply of goods or services or both. Perusal of proviso attached to this Section also shows that it provides for imposition of penalty of ten thousand rupees or equal to the tax evaded or the tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government or input tax availed or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher. Since, the profiteered amount is not a tax imposed under the CGST Act, 2017, the above penalty cannot be imposed for violation of the anti-profiteering provisions made under Section 171 of the CGST Act.

It was further observed that vide Section 112 of the Finance Act, 2019 specific penalty provisions have been added for violation of the provisions of Section 171 (1) which have come in to force w.e.f. 01.01.2020, by inserting Section 171 (3A) which provides as under:-

“(3A) Where the Authority referred to in sub-section (2) after holding examination as required under the said sub-section comes to the conclusion that any registered person has profiteered under sub-section (1), such person shall be liable to pay penalty equivalent to ten per cent. of the amount so profiteered:

PROVIDED that no penalty shall be leviable if the profiteered amount is deposited within thirty days of the date of passing of the order by the Authority.

Explanation:- For the purpose of this section, the expression “profiteered” shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services of both.”

It was held that since, no penalty provisions were in existence between the period w.e.f. 01.07.2017 to 31.08.2018 when the Respondent had violated the provisions of Section 171 (1), the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively. Accordingly, the notice dated 27.05.2019 issued to the supplier / Respondent for imposition of penalty under Section 122 (1) (i) is hereby withdrawn and the present penalty proceedings launched against it were accordingly dropped.

In view of the above, therefore, the Authority while withdrawing the notice of penalty under Section 122 (1) (i) held that no penalty provisions were in existence between the period with effect from July 01, 2017 to August 31, 2018 when the supplier had violated the provisions of Section 171 (1), the penalty prescribed under Section 171 (3A) can not be imposed on the Respondent retrospectively.