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2019 (5) TMI 785 - NAPA - GSTProfiteering - purchase of flat - benefit of Input Tax Credit (ITC) not passed - GST was being charged from him @12% - violation of provisions of Section 171 of the CGST Act, 2017 - HELD THAT - The Respondent in his submissions has repeatedly stated that the Applicant No. 1 had withdrawn the complaint in which it was alleged that the Respondent had not passed on the benefit of ITC to him, on being satisfied with the clarification given by him on the issue of benefit of additional ITC and hence the investigation conducted against him should have been dropped. However, this contention of the Respondent is not acceptable as there is no provision in the above Act or the Rules framed under it to withdraw the complaint once it has been made by following the prescribed procedure and despite withdrawal the offence of profiteering remains and therefore, the DGAP has rightly persued the investigation. Once violation of the provisions of Section 171 (1) of the above Act had come to the notice of the DGAP he was legally bound to ascertain the truth of the allegation after conducting detailed investigation as per the provisions of Rule 129 (1) of the CGST Rules, 2017 as it not only adversely affects the interests of the common buyers but also amounts to wrongful appropration of the concession which has been granted by the Central as well as the State Government by sacrificing their own revenue and hence no illegality has been committed by him by launching the present investigation against the Respondent. The Respondent has also stressed that the computation of the benefit/ loss could not be done before completion of the project. It is apparent from the record that the above project was launched by the Respondent in the year 2013 and was likely to be completed by March, 2019 after a lapse of a period of about 6 years whereas he had been regularly availing the benefit of additional ITC w.e.f. 01.07.2017 to pay his output tax liability by appropriating the benefit of ITC which he was required to pay to the flat buyers. The Respondent can not be allowed to enrich himself at the cost of the buyers and keep them waiting till the project was completed and hence he is legally bound to pass on the benefit periodically to them by computing the same on the basis of the ITC availed as well the instalments paid by them. Any reversal of ITC due to unsold flats could have been factored by him during the course of calculation of the benefit and had any of the buyers surrendered his allotment after availing the benefit of ITC the same could also have been taken in to consideration while selling the flat to the subsequent buyer. Since the Respondent is a person duly registered under the above Act he is legally liable to pass on the benefit and he cannot deny the same on the ground that he had not received the benefit from his suppliers. The Respondent can always claim the benefit from his suppliers if he thinks that it is due to him by following the legal options but he cannot contend that he would not pass on the benefit to his recipients on this ground and hence his claim is ultra vires of the above Section. Penalty - HELD THAT - It is apparent from the record that the Respondent had not released the benefit for a period of about one year and tried to avoid its release on various grounds viz. that it would not be possible to compute the same before the completion of the project and that he would be required to reverse the ITC on the unsold flats. He has passed the benefit only after the present proceedings were initiated against him which shows that he was not willing to comply with the provisions of Section 171 (1) of the above Act and therefore this act of the Respondent falls foul of the provisions of the above Section which makes him liable for penalty as per the provisions of the CGST Act, 2017 and the Rules framed under it. The proposed imposition of penalty under the above Sections and cancellation of his registration is not sustainable unless specific allegations how he had violated the provisions of the above Sections are levelled against him. Therefore, the notice is ordered to be withdrawn to the extent that it proposes to impose penalty on him as per the provisions of the above Sections and the Rule. However, rest of the contents of the above show cause notice will continue to operate. The provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent as he has profiteered an amount of ₹ 1,01,06,773/- inclusive of CST @12% or 18% on the base profiteered amount of ₹ 89,68,979/-. The Respondent has also realized an additional amount to the tune of ₹ 49,169/- from the Applicant No. 1 which includes both the profiteered amount @1.79% of the taxable amount (base price) and GST on the said profiteered amount - this Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondent shall reduce the prices to be realized from the buyers of the flats commensurate with the benefit of ITC received by him as has been detailed above. Since the present investigation is only up to 30.06.2018 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by the Respondent. It is also evident from the facts that the Respondent has denied benefit of ITC to the buyers of the flats being constructed by him in his Anand Vilas Project in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus realized more price from them than what he was entitled to collect and has also compelled them to pay more GST on the additional realisation than what 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 under the provisions of the above Section. Application disposed off.
Issues Involved:
1. Whether the Respondent had passed on the benefit of Input Tax Credit (ITC) to the Applicant and other buyers. 2. Calculation and determination of the profiteered amount. 3. Legal validity of the Respondent's claims and defenses. 4. Imposition of penalty on the Respondent. Issue-Wise Detailed Analysis: 1. Whether the Respondent had passed on the benefit of Input Tax Credit (ITC) to the Applicant and other buyers: The Applicant No. 1 alleged that the Respondent did not pass on the benefit of ITC after the introduction of GST, despite charging GST at 12%. The DGAP's investigation revealed that the Respondent had benefited from additional ITC post-GST, which was not passed on to the buyers. The Respondent claimed that the benefit would be calculated and passed on at the time of project completion. However, the DGAP found that the benefit needed to be passed on periodically, not just at project completion. 2. Calculation and determination of the profiteered amount: The DGAP's initial report calculated the profiteered amount as ?3,42,31,077/-, including GST on the basic profiteered amount. After re-examination, the DGAP revised the profiteered amount to ?1,01,06,773/-, considering the ITC availed and the taxable turnover pre and post-GST. The revised report found that the ITC as a percentage of turnover increased from 2.21% pre-GST to 4.00% post-GST, resulting in an additional benefit of 1.79% which was not passed on to the buyers. 3. Legal validity of the Respondent's claims and defenses: The Respondent argued that the computation of benefit could only be done upon project completion and that no additional ITC benefit had accrued post-GST. The Respondent also contended that the benefit should be passed on to all buyers, including those who had not paid post-GST. The DGAP and the Authority rejected these claims, stating that the benefit must be passed on periodically based on the ITC availed and the amounts received from buyers. The Respondent's claim that the benefit of ITC was not passed on by suppliers was also dismissed as irrelevant to the Respondent's obligation under Section 171 of the CGST Act. 4. Imposition of penalty on the Respondent: The Authority found that the Respondent had not voluntarily passed on the benefit of ITC and had only done so after the investigation began. The Respondent's actions were deemed a violation of Section 171 of the CGST Act, making him liable for penalties. However, the Show Cause Notice issued for imposing penalties under Sections 122-127 was found to be vague and was ordered to be withdrawn, but the rest of the notice remained operative. The Authority directed the issuance of a new Show Cause Notice specifically under Section 122(1)(i) for issuing incorrect tax invoices. Conclusion: The Respondent was found to have violated Section 171 of the CGST Act by not passing on the benefit of additional ITC to the buyers. The profiteered amount was determined to be ?1,01,06,773/-, including GST, which the Respondent was directed to return to the buyers along with interest. The Authority also ordered the DGAP to investigate the Respondent's other projects to ensure compliance with the anti-profiteering provisions.
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