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2018 (12) TMI 707 - NAPA - GSTProfiteering - purchase of flats - benefit of Input Tax Credit (ITC) had not been passed - refund of appropriate amount alongwith Interest - Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 in this case? - quantum of profiteering. Held that - Section 171 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 - In the instant case though rationalization of tax had not resulted in the reduction in the tax rate, the benefit of ITC had been extended to all the goods and services which were utilized by any builder which was not available in the pre-GST era. This fact has not been denied by the Respondent - Since Section 171 not only deals with passing on the benefit of reduction in the rate of tax but also deals with passing on the benefit of ITC therefore the contention made by the Respondent is legally not correct to the extent that there had been increase in the rate of tax from 5.25% to 12% and then 8% and no benefit could be passed on by him to the Applicants as the Respondent had become entitled to claim ITC the benefit of which was required to be passed on by him to the Applicants as per the provisions of Section 171. It is also apparent from the returns that when compared to the pre- GST period where 86% of the tax liability was paid in cash after availing ITC, in the post GST period the entire amount of tax liability had been paid through ITC, which shows that the entire 12% GST liability was paid through ITC while 12% GST was being collected by him from the Applicants. Therefore this Authority is of the view that the ratio of the ITC to the taxable turnover calculated by the DGAP is correct and the Respondent has not placed any concrete facts or reasons on record to dispute the same. It is absolutely clear that the excess ITC was available to the Respondent the benefit of which he was required to pass on to the Applicants. The Respondent cannot appropriate this benefit as this is a concession given by the Government from it s own tax revenue to reduce the prices being charged by the builders from the vulnerable section of society which cannot afford high value apartments. The Respondent is not being asked to extend this benefit out of his own account and he is only liable to pass on the benefit of ITC to which he has become entitled by virtue of the grant of ITC on the Construction Service by the Government. Quantum of profiteering - Held that - The Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondent shall reduce the price to be realized from the buyers of the flats in commensurate with the benefit of ITC received by him as has been detailed above. Since the present investigation is only up to 28.02.2018 any benefit of ITC which shall accrue subsequently shall also be passed on to the buyers by the Respondent. He shall not only pass on the benefit as has been mentioned above to the 109 Applicants who are before us but to all the 2476 buyers as they are identifiable. Penalty - Held that - The Respondent has denied benefit of ITC to the buyers of the flats being constructed by him under the above Policy in contravention of the provisions of Section 171(1) of the CGST Act, 2017 and has thus realized more price from them than he was entitled to collect and has also compelled them to pay more GST than that they were required to pay by issuing incorrect tax invoices and hence he has committed an offence under section 122 (1) (i) of the CGST Act, 2017 and therefore, he is liable for imposition of penalty - Accordingly, a Show Cause Notice be issued to him directing him to explain why the penalty prescribed under Section 122 of the above Act read with rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him. Application disposed off.
Issues Involved:
1. Violation of Section 171 of the CGST Act, 2017. 2. Quantum of profiteering. Detailed Analysis: Violation of Section 171 of the CGST Act, 2017: The case revolves around 36 applications filed under Rule 128 of the CGST Rules, 2017, alleging that the benefit of Input Tax Credit (ITC) was not passed on to the applicants by the respondent in respect of the construction service supplied. The applicants had booked flats under the Haryana Affordable Housing Policy 2013 and alleged that post-GST implementation, the respondent did not pass on the benefit of ITC despite enjoying it, thus contravening Section 171 of the CGST Act, 2017. The Director General Anti-Profiteering (DGAP) investigated and found that the respondent admitted ITC was not available during 2016-17 but became available post-GST implementation from 01.07.2017. The DGAP's report indicated that the respondent failed to pass on the benefit of ITC, thus violating Section 171. The respondent argued that the provisions of Section 171 were not applicable as there was no reduction in the tax rate and that the maximum price of ?4000 per sq. ft. carpet area fixed under the policy did not allow for price reductions. However, the DGAP and the authority found that the respondent was obligated to pass on the benefit of ITC, which was a concession from the government to reduce prices. The authority concluded that the respondent violated Section 171 by not passing on the ITC benefits to the applicants. Quantum of Profiteering: The DGAP's report initially stated that there was no profiteering for the period from July 2017 to January 2018 and calculated a 3.35% profiteering for the period from 25.01.2018 to February 2018. However, the applicants disputed this, claiming the actual benefit should be 6.1% for both periods. Upon further investigation and recalculations, the DGAP revised the profiteering amount to ?8,13,40,831/-. The authority, agreeing with the DGAP's methodology, determined the total profiteering amount to be ?8,22,80,998/- for all 2476 flats. The calculations were based on the principle that the respondent should have passed on the benefit of ITC, which was 6.1% of the base price of ?4000 per sq. ft. The authority ordered the respondent to reduce the price to be realized from the buyers commensurate with the benefit of ITC received and to refund or reduce the amount to each buyer at the time of collecting the last installment, along with interest at 18% per annum from the date of receipt of the excess amount. Penalty and Compliance: The authority found that the respondent had denied the benefit of ITC to the buyers, compelling them to pay more GST and thus committing an offense under Section 122(1)(i) of the CGST Act, 2017. A Show Cause Notice was directed to be issued to the respondent to explain why a penalty should not be imposed under Section 122 of the CGST Act. The Commissioner of State Tax Haryana was directed to monitor the compliance of this order under the supervision of the DGAP and ensure that the profiteered amount is passed on to all buyers. A compliance report was to be submitted within four months. Conclusion: The judgment concluded that the respondent violated Section 171 of the CGST Act by not passing on the benefit of ITC to the applicants, resulting in a total profiteering amount of ?8,22,80,998/-. The respondent was ordered to refund the profiteered amount along with interest and was subject to a Show Cause Notice for penalty under Section 122 of the CGST Act.
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