2019 (3) TMI 1470 - NAPA - GST

Profiteering - purchase of Flat No. A701, constructed by the Respondent in his Vrindavan Yojna Project , Rae Bareli Road, Lucknow - increase in the price of the flat after implementation of the Goods & Service Tax (GST) w.e.f. 01.07.2017 - benefit of Input Tax Credit (ITC) by way of commensurate reduction in the price of the flat purchased by them not passed on - contravention of the provisions of Section 171 of the CGST Act, 2017. Held that - 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 hence, this issue is not relevant in this case. On the issue of passing on the benefit of ITC in the post-GST era, it has been revealed by the DGAP s Report that the benefit of additional ITC of 3.04% of the taxable turnover during the period w.e.f. 01.07.2017 to 31.08.2018 and the amount outstanding as on 31.08.2018, has accrued to the Respondent and the same was required to be passed on to the Applicants and the other flat buyers. The DGAP has calculated the amount of ITC as ₹ 37,24,923/- which was availed by the Respondent vide Table-D supra on the basis of the information supplied by the Respondent and hence the calculation done by him can be relied upon. The DGAP has also computed the amount of profiteering as ₹ 38,29,753/- vide Table-F on the basis of the details supplied by the Respondent himself which he has not challenged and hence the amount of profiteering assessed by the DGAP can be deemed to be correct. The DGAP has also computed the details of the benefit of ITC which is required to be passed on by the Respondent to each flat buyer as per Annexure-14 which has been accepted by the Respondent. The Respondent at no stage has objected to the calculation of the additional ITC availed by him or the profiteered amount made by the DGAP and has rather admitted the computation of both as correct and agreed to pay the above benefit as per the details prepared by the DGAP vide Annexure-14. The amount of profiteering in terms of Rule 133 (1) of the CGST Rules, 2017 is determined as ₹ 38,29,753/- including the GST @12% on the base profiteered amount of ₹ 34,19,422/- as per the details furnished by the DGAP. Accordingly, under Rule 133 (3) (a) of the CGST Rules, 2017 it is ordered that the Respondent shall reduce the price to be realized from the buyers of the flats commensurate with the benefit of ITC availed by him. Penalty - Held that - Although notice for imposition of penalty has already been issued to the Respondent on 06.12.2018 however, no formal oral or written submissions have been filed by the Respondent on the quantum of penalty. Therefore, keeping in view the principles of natural justice it would be appropriate to issue fresh notice asking him to explain why penalty should not be imposed on him for the above offence.

Summary

Issues Involved:
1. Violation of Section 171 (1) of the CGST Act, 2017.
2. Quantum of profiteering.

Detailed Analysis:

1. Violation of Section 171 (1) of the CGST Act, 2017:
The judgment examines whether the Respondent violated Section 171 (1) of the CGST Act, 2017, which mandates that any reduction in the rate of tax or the benefit of input tax credit (ITC) must be passed on to the recipient by way of commensurate reduction in prices. The Applicants alleged that the Respondent had increased the price of a flat after the implementation of GST and had not passed on the benefit of ITC by reducing the price. The DGAP found that the Respondent had increased the flat price by ?4,48,030 by charging GST at 12% and had not passed on the ITC benefit. The DGAP issued a notice to the Respondent to explain the allegations and determine the quantum of profiteering. The Respondent admitted that there was a benefit of ITC available and had passed on a part of it to the flat buyers. However, the DGAP's investigation revealed that the Respondent had not passed on the full benefit of ITC as required under Section 171 (1).

2. Quantum of Profiteering:
The DGAP's report calculated the ITC benefit that the Respondent should have passed on to the flat buyers. The DGAP found that the Respondent had availed additional ITC of 3.04% post-GST implementation, which should have resulted in a commensurate reduction in the base price and cum-tax price. The DGAP computed the profiteering amount as ?38,29,753, including 12% GST on the base profiteered amount of ?34,19,422. The Respondent had already refunded ?30,73,671 to the buyers and ?1,60,020 to the Applicants. The Respondent was directed to refund the balance amount of ?7,56,082 to the flat buyers. The judgment also directed the Respondent to pay interest at 18% on the profiteered amount from the date it was profiteered until the payment date. The Respondent was also found liable for penalty under Section 122 (1) (i) of the CGST Act, 2017, for issuing incorrect tax invoices and realizing more price and GST than entitled.

Conclusion:
The judgment concluded that the Respondent had violated Section 171 (1) of the CGST Act, 2017, by not passing on the full benefit of ITC to the flat buyers. The quantum of profiteering was determined to be ?38,29,753, and the Respondent was directed to refund the balance amount along with interest. The Respondent was also found liable for penalty for issuing incorrect tax invoices and realizing more price and GST than entitled. A fresh notice was issued to the Respondent to explain why penalty should not be imposed for the offense.