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2022 (7) TMI 1441 - NAPA - GSTProfiteering - purchase of Flat - benefit of reduction in the rate of tax or ITC on the supply of construction service by the Respondent No. 1 2, on implementation of GST w.e.f.01.07.2017 - such benefit was passed on by the Respondent No. 1 2 to the recipients or not - contravention of section 171 of CGST Act - HELD THAT - It is established from the perusal of the facts that the Respondent No. 1 has realized an additional amount of Rs. 7,94,569/- from Applicant no. 1, Rs. 29,45,27,905/- from 850 home buyers other than Applicant No. 1 and Rs. 1,23,35,442/- from the Respondent No. 2 during period from 01.07.2017 to 30.09.2019. The details of eligible homebuyers/recipients to whom supply has been made by Respondent no. 1 in the impugned Project and from whom additional amount on account of benefit of ITC had been realized by the Respondent no. 1 during period from 01.07.2017 to 30.09.2019 along with details of such additional amount is given in Annexure- A to this Order. All the home buyers/recipients are identifiable as per the documents placed on record and therefore, the Respondent No. 1 is directed to pass on/return/refund the profiteered amount along with the interest @ 18% per annum (from the dates from which the said profiteered amount was collected by him from each of them till the date such amount is passed on/returned/refunded is made), if not already passed on/returned/refunded, within a period of 3 months from the date of passing of this Order as per the details mentioned in Annexure- A . It is also found that the Respondent No. 2 was also required to pass on the benefit of ITC @ 10.51 % of the turnover, which is calculated to the tune of Rs. 1,23,35,442/- to 30 flat buyers other than the Applicant No.1 as he had received consideration only from 30 flat buyers/recipients out of 62. The details of eligible homebuyers/recipients to whom supply has been made by Respondent no. 2 in the impugned Project and from whom additional amount on account of benefit of ITC had been realized by the Respondent no. 2 during period from 01.07.2017 to 30.09.2019 along with details of such additional amount is given in Annexure- B to this Order. Thus, this Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondents shall reduce the prices to be realized from the buyers v of the flats/recipients of the above Project commensurate with the benefit of ITC received by him. The Authority has a reason to believe that since the Respondents have been found to have contravened the provisions of Section 171 of the CGST Act 2017 in respect of the subject project Crescent Bay and hence there is every possibility that similar contravention may has taken place with his other projects. This Authority in terms of Rule 133 (5)(a) of the CGST Rules 2017 also directs the DGAP to investigate profiteering in relation to other Projects executed by the Respondent No. 1 and 2, if any, under the provision of section 171 of the CGST Act 2017. In view of the prevailing Covid 19 pandemic and the Hon'ble Supreme Court Order in IN RE COGNIZANCE FOR EXTENSION OF LIMITATION 2021 (3) TMI 497 - SC ORDER , IN RE COGNIZANCE FOR EXTENSION OF LIMITATION 2020 (5) TMI 418 - SC ORDER and IN RE COGNIZANCE FOR EXTENSION OF LIMITATION 2021 (5) TMI 564 - SC ORDER , this Order having been passed today falls within the limitation prescribed under Rule 133(1) of the CGST Rules, 2017. Application disposed off.
Issues Involved:
1. Benefit of reduction in the rate of tax or ITC on the supply of construction service. 2. Passing on such benefit to the recipients in terms of Section 171 of the CGST Act, 2017. 3. Methodology for determining profiteering. 4. Alleged violation of principles of natural justice. 5. Time limitations for proceedings under Rule 133 of the CGST Rules, 2017. 6. Constitutionality of Section 171 of the CGST Act and related Rules. 7. Scope of investigation beyond the initial application. 8. Reversal of credit. 9. Exclusion of the value of land. 10. Renegotiation of agreements post-GST implementation. Issue-wise Detailed Analysis: 1. Benefit of Reduction in Rate of Tax or ITC: The DGAP conducted an investigation to determine whether there was a benefit of ITC on the supply of construction services post-GST implementation. The investigation revealed that the Respondent No. 1 availed ITC at 12.00% of the turnover in the post-GST period compared to 1.49% in the pre-GST period. This indicated an additional benefit of 10.51% ITC, which was required to be passed on to the homebuyers. 2. Passing on Benefit to Recipients: The DGAP found that the Respondent No. 1 did not reduce the basic prices of flats by 10.51% and continued to charge GST at 12% on pre-GST basic prices. Consequently, the Respondent No. 1 contravened Section 171 of the CGST Act, 2017, by not passing on the benefit of ITC to the flat buyers. 3. Methodology for Determining Profiteering: The methodology adopted by the DGAP involved comparing the ratio of CENVAT to turnover in the pre-GST period with the ratio of ITC to turnover in the post-GST period. This approach was based on the data provided by the Respondents and verified from their tax returns. The Authority concurred with this methodology, stating it was rational and logical. 4. Alleged Violation of Principles of Natural Justice: The Respondents argued that the proceedings violated principles of natural justice as no show cause notices were issued. However, the Authority found that ample opportunities were provided to the Respondents to present their case, and their submissions were duly considered. The Authority concluded that there was no violation of natural justice. 5. Time Limitations for Proceedings: The Respondents contended that the proceedings were time-barred under Rule 133 of the CGST Rules, 2017. The Authority held that the time limit specified under Rule 133 is directory and not mandatory. The Authority also noted that the Hon'ble Supreme Court had excluded the period from 15.03.2020 to 28.02.2022 for the purposes of limitation due to the Covid-19 pandemic. 6. Constitutionality of Section 171 of the CGST Act and Related Rules: The Respondents argued that Section 171 and related rules were unconstitutional. The Authority rejected this contention, stating that the provisions aim to protect consumers by ensuring the benefits of tax reduction and ITC are passed on. The Authority emphasized that these provisions do not infringe on the fundamental rights of the Respondents. 7. Scope of Investigation Beyond Initial Application: The Respondents claimed that the investigation should not extend beyond the initial application. The Authority clarified that Section 171(1) mandates that benefits of tax reduction or ITC should result in a commensurate reduction in prices for all supplies. Therefore, the DGAP was justified in investigating all supplies made by the Respondent No. 1. 8. Reversal of Credit: The Respondents argued that the DGAP did not consider the amount of credit reversed for unsold flats. The Authority found that the DGAP had computed the benefit of ITC based on the area sold and turnover received, excluding the unsold area. Therefore, the credit reversal for unsold units was outside the scope of the investigation. 9. Exclusion of Value of Land: The Respondents contended that the value of land should be excluded from the turnover before calculating profiteering. The Authority rejected this argument, noting that the value of land is excluded only when separate bills are raised for land and construction services. In this case, there was no such bifurcation. 10. Renegotiation of Agreements Post-GST Implementation: The Respondents claimed that agreements renegotiated post-GST should be excluded from the investigation. The Authority found that the renegotiation did not transparently pass on the ITC benefit to homebuyers. Therefore, the contention was rejected. Conclusion: The Authority ordered the Respondents to pass on the profiteered amount of Rs. 30,76,57,916/- to the eligible homebuyers along with interest. The Commissioners of CGST/SGST were directed to ensure compliance and submit a report within four months. The DGAP was also directed to investigate profiteering in other projects executed by the Respondents.
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