2019 (12) TMI 156 - NAPA - GST

Profiteering - purchase of Flat - it is alleged that Respondent had not passed on the benefit of Input Tax Credit (ITC) availed by him by way of commensurate reduction in the price of the above flat - contravention of section 171 of CGST Act - Penalty - HELD THAT - It is established from the perusal of the facts that the Respondent has benefited from the additional ITC to the extent of 10.66% of the turnover during the period from July, 2017 to August, 2918 and hence the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent as he has not passed on the above benefit to his customers and has profiteered an amount of ₹ 3,79,10,058/- inclusive of GST @ 12% on the base profiteered amount of ₹ 3,38,48,266/-. Further, the Respondent has realized an additional amount of ₹ 1,69,878/- which includes both the profiteered amount @ 10.66% of the taxable amount (base price) and 12% GST on the said profiteered amount from the Applicant No. 1. In view of the above facts 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. Since the present investigation is only up to 31.08.2018 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by the Respondent. The concerned Commissioner CGST/SGST shall ensure that the above benefit is passed on to the eligible flat buyers - In case the above benefit is not passed on by the Respondent the Applicant No. 1 or any other buyer shall be at liberty to approach the Tamil Nadu State Screening Committee to initiate fresh proceedings against the Respondent as per the provisions of Section 171 of the CGST Act, 2017. Penalty - HELD THAT - The Respondent has denied benefit of ITC to the buyers of the flats being constructed by him in his above project in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST Act, 2017 and therefore, he is apparently liable for imposition of penalty under the provisions of the above Section - Accordingly, a Show Cause Notice be issued to him directing him to explain why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him.

Summary

Issues Involved:
1. Alleged profiteering by not passing on the benefit of Input Tax Credit (ITC) post-GST.
2. Method of calculation of profiteering amount.
3. Synchronization of ITC accrual and demand on customers.
4. Whether the Respondent passed on the benefit of ITC to post-GST buyers.
5. Compliance with Section 171 of the CGST Act, 2017.

Detailed Analysis:

Issue 1: Alleged Profiteering by Not Passing on the Benefit of ITC Post-GST
The Applicant No. 1 alleged that the Respondent did not pass on the benefit of ITC availed by him, which should have resulted in a commensurate reduction in the price of the flat. The DGAP's investigation confirmed that the Respondent benefited from additional ITC post-GST, which was not passed on to the buyers, thereby contravening Section 171 of the CGST Act, 2017.

Issue 2: Method of Calculation of Profiteering Amount
The DGAP calculated the profiteering amount by comparing the ITC to turnover ratios pre-GST and post-GST. The pre-GST ratio was 1.94%, and the post-GST ratio was 12.60%, resulting in an additional benefit of 10.66% post-GST. The DGAP concluded that the Respondent failed to reduce the base prices accordingly and charged GST at the increased rate of 12% on the pre-GST base price, leading to profiteering of ?3,79,10,058/-.

Issue 3: Synchronization of ITC Accrual and Demand on Customers
The Respondent argued that the method adopted by the DGAP did not account for the lack of synchronization between ITC accrual and demand on customers due to the nature of the construction industry. However, the Authority found that the benefit of ITC must be passed on as soon as it is availed to discharge GST output liability, irrespective of the synchronization issue. The Respondent's claim of waiting until project completion to pass on the benefit was rejected.

Issue 4: Whether the Respondent Passed on the Benefit of ITC to Post-GST Buyers
The Respondent contended that he had passed on a 2.28% benefit to the eligible customers, totaling ?81,08,343/-. However, the Authority found this computation incorrect as it excluded ?3,31,12,094/- of ITC on the ground of no corresponding turnover. The Authority directed the Respondent to pass on the full benefit of additional ITC to all buyers, including post-GST buyers, by recalibrating the prices.

Issue 5: Compliance with Section 171 of the CGST Act, 2017
The Authority concluded that the Respondent contravened Section 171 by not passing on the benefit of additional ITC to the buyers. The Respondent was directed to pass on the profiteered amount of ?3,79,10,058/- to the buyers along with interest at 18% per annum. The Authority also ordered the DGAP to investigate the Respondent's other ongoing projects to ensure compliance with Section 171.

Conclusion:
The Respondent was found guilty of profiteering by not passing on the benefit of additional ITC post-GST. The Authority directed the Respondent to refund the profiteered amount to the buyers with interest and to ensure future compliance with Section 171 of the CGST Act, 2017. The DGAP was also instructed to investigate the Respondent's other projects to ascertain compliance.