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2019 (11) TMI 1083 - NAPA - GSTProfiteering - purchase of a flat in project Risington OMR, Karapakkam - benefit of Input Tax Credit (ITC) by way of commensurate reduction in the price not passed on - contravention of section 171 of CGST Act - penalty - HELD THAT - It is established from the perusal of facts of the case that the provisions of Section 171 of the CGST Act, 2017 have been contravened by the respondents as he has failed to pass on the benefit of additional ITC to his customers. Accordingly, he is directed to pass on an amount of Rs, 41,434/- to the above applicant and an amount of ₹ 1,01,09,156/- (₹ 1,01,50,590 - ₹ 41,434/-) to the other flat buyers who are not applicants in the present proceedings. It is clear that the respondent has profiteered by an amount of ₹ 1,01,50,590/- during the period of investigation from 01.07.2017 to 31.08.2018 - therefore, this authority u/r 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. The present investigation is only up to 31.08.2018 therefore, any additional benefit of ITC which shall accrue subsequently shall also be passed on to the buyers by the respondent as per provisions of sections 171 (1) of CGST Act, 2017. Penalty - HELD THAT - The Respondent has denied the benefit of ITC to the buyers of the flats being constructed by him in contravention of the provisions of Section 171(1) of the CGST Act, 2017 and has thus profiteered as per the explanation attached to Section 171 of the above Act. Therefore he is liable for imposition of penalty under Section 171 (3A) of the CGST Act, 2017 - Therefore, a Show Cause Notice be issued to him directing him to explain why the penalty prescribed under the above sub-section read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him.
Issues Involved:
1. Whether there was a reduction in the rate of tax on the service provided by the Respondent w.e.f. 01.07.2017? 2. Whether there was any net additional benefit of ITC to the Respondent which was required to be passed on by him to his recipients? 3. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 by not passing on the above benefits by the Respondent? Issue-wise Detailed Analysis: 1. Whether there was a reduction in the rate of tax on the service provided by the Respondent w.e.f. 01.07.2017? The judgment reveals that the Respondent was initially paying a tax rate of 6% which increased to 18% post-GST implementation. Therefore, there was no reduction in the tax rate for the services provided by the Respondent. The Respondent is not liable to pay the benefit of tax reduction to his customers as there was an increase in the tax rate from 6% to 18%. 2. Whether there was any net additional benefit of ITC to the Respondent which was required to be passed on by him to his recipients? The investigation found that the Respondent had benefited from additional ITC post-GST. The pre-GST period (April 2016 to June 2017) showed a CENVAT credit of ?4,42,61,283/- and an ITC of ?8,50,34,930/- in the post-GST period (July 2017 to August 2018). The ratio of ITC to turnover was 1.08% in the pre-GST period and 6.44% in the post-GST period, indicating an additional benefit of 5.36%. The Respondent was required to pass on this benefit to his customers, which he failed to do. 3. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 by not passing on the above benefits by the Respondent? The investigation concluded that the Respondent violated Section 171 of the CGST Act, 2017 by not passing on the additional ITC benefit to his customers. The profiteered amount was determined to be ?1,01,50,590/- for the period from 01.07.2017 to 31.08.2018. The Respondent was directed to pass on an amount of ?41,434/- to the Applicant No. 1 and ?1,01,09,156/- to other eligible house buyers within three months, along with interest @18% from the date these amounts were realized until they are paid. Additional Findings: - The Respondent argued that the complaint was withdrawn by the Applicant No. 1, making the proceedings invalid. However, the judgment clarified that there is no provision in the CGST Act, 2017 or the Rules allowing for the withdrawal of an application once filed. The DGAP is required to proceed with the investigation once recommended by the Standing Committee. - The Respondent contended that the proceedings were time-barred as per Rule 128 of the CGST Rules, 2017. The judgment clarified that the application was forwarded to the Standing Committee within the prescribed two-month period from the date of receipt by the Screening Committee, thus not violating the time limit. - The Respondent’s claim that the DGAP’s calculations were flawed due to an increase in construction material costs was dismissed. The judgment noted that the benefit of additional ITC was based on the ITC availed and turnover realized, and the Respondent had received the benefit of ITC on GST paid on construction material. - The judgment also addressed the Respondent's argument regarding the reversal of ITC upon obtaining the Completion Certificate (CC). It clarified that the computation of profiteered amount pertains to the period before the CC was obtained, and any future reversal of ITC would not affect the current findings. Conclusion: The Respondent was found to have profiteered by not passing on the additional ITC benefit to his customers, in violation of Section 171 of the CGST Act, 2017. The Respondent was ordered to reduce prices commensurate with the benefit of ITC received and to refund the profiteered amount to the eligible buyers with interest. The judgment also directed the issuance of a Show Cause Notice for the imposition of penalty under Section 171 (3A) of the CGST Act, 2017. The concerned CGST/SGST Commissioners were instructed to monitor compliance with the order.
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