2020 (3) TMI 185 - NAPA - GST

Profiteering - supply of construction service related to the purchase of a house under the Pradhan Mantri Aawas Yojna (PMAY) in the Respondent s project Mayur Residency Extension - benefit of input Tax Credit (ITC) to him by way of commensurate reduction in the price of the house after implementation of the GST w.e.f. 01.07.2017, is not passed on - contravention of Section 171 of the CGST Act, 2017 - penalty - HELD THAT - It is clear from the plain reading of Section 171 (1) that it pertains to the passing on the benefit of reduction in the rate of tax and that of benefit of ITC. On the issue of reduction in the rate of tax, it is apparent from the DGAP s Report that there has been no reduction in the rate of tax in the post GST period; hence the only issue to be determined is as to whether there was any additional benefit of ITC with the introduction of GST which has accrued to the Respondent which he was required to pass on to his buyers. It has also been revealed from the DGAP s Report that the ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period from April-2016 to June-2017 was NIL and during the post-GST period from July-2017 to March-2019, it was 11.97%. This confirms that, post-GST, the Respondent has been benefited from additional ITC to the tune of 11.97% (11.97%-0%) of his turnover and the same was required to be passed on by him to the Applicant No. 1 and the other recipients. The amount of the benefit of ITC to be passed by the Respondent to his buyers or the profiteered amount, during the period from 01.07.2017 to 31.03.2019, is determined as ₹ 35,98,596/- which includes 18% GST on the base profiteered amount of ₹ 30,49,658/- as has been detailed in Annexure-12 of the DGAP s Report dated 30.08.2019, as per Rule 133 (1) of the CGST Rules, 2017. The profiteered amount in respect of the Applicant No. 1 is determined as ₹ 19,953/- which also includes GST @18%. 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 customers/buyers commensurate with the benefit of ITC received by him as has been detailed above. The above amount of ₹ 35,98,596/- which includes 18% GST on the base profiteered amount of ₹ 30,49,658/- has been profiteered by the Respondent from the Applicant No. 1 and the other recipients/buyers which is required to be refunded to the Applicant No. 1 and the other recipients/buyers as per the Annexure-12 of the DGAP s Report dated 30.08.2019 alongwith interest @18% from the date from when the above amount was collected by him from them till the date of payment as per the provisions of Rule 133 (3) (b) of the above Rules. The present investigation is only up to 31.03.2019 therefore, any additional benefit of ITC which shall accrue subsequently shall also be passed on to the recipients/buyers by the Respondent. Penalties - HELD THAT -It is evident from the narration of facts that the Respondent has denied benefit of ITC to the buyers of the flats being constructed by him in his Project Mayur Residency Extension in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus apparently committed an offence under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty under the provisions of the above Section - Accordingly, a notice be issued to him directing him to explain as to 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. Whether the Respondent availed benefit of additional ITC which he was liable to pass on to his buyers.
2. Whether any violation of the provisions of Section 171 of the CGST Act, 2017 has been committed by the Respondent.
3. The quantum of profiteering, if any.

Issue-wise Detailed Analysis:

1. Whether the Respondent availed benefit of additional ITC which he was liable to pass on to his buyers:
The DGAP's Report indicated that the Respondent availed additional ITC post-GST implementation, which was 11.97% of his turnover. The pre-GST period showed no ITC benefit, confirming that the Respondent benefited from additional ITC post-GST. The Respondent was required to pass this benefit to the buyers but failed to do so adequately. The Respondent claimed to have reduced the construction rate from ?17,521 per sq. mt. to ?16,820 per sq. mt., passing on a 4% ITC benefit. However, the DGAP found no evidence supporting that this reduction was due to ITC benefits. The Respondent's claim of passing on benefits through rate reductions and refunds was inconsistent and lacked reliable evidence.

2. Whether any violation of the provisions of Section 171 of the CGST Act, 2017 has been committed by the Respondent:
Section 171(1) of the CGST Act mandates passing on the benefit of reduced tax rates or ITC to the recipients by way of commensurate reduction in prices. The DGAP's investigation revealed that the Respondent did not pass on the additional ITC benefits to the buyers, thus violating Section 171(1). The Respondent's inconsistent claims and lack of evidence further substantiated the violation. The Respondent's failure to pass on the ITC benefit resulted in profiteering, contravening the CGST Act's provisions.

3. The quantum of profiteering, if any:
The DGAP calculated the profiteered amount as ?35,98,596, including 18% GST on the base profiteered amount of ?30,49,658. This amount was derived from the additional ITC benefit accrued post-GST, which was not passed on to the buyers. The Respondent's claims of having passed on benefits through rate reductions and refunds were not substantiated with reliable evidence. The DGAP's calculation of the profiteered amount was based on the turnover and ITC details provided by the Respondent, which were found to be accurate and reliable. The Respondent was ordered to refund the profiteered amount along with 18% interest to the buyers, including the Applicant No. 1, as per the DGAP's detailed break-up in Annexure-12.

Conclusion:
The Respondent was found to have availed additional ITC benefits post-GST but failed to pass them on to the buyers, violating Section 171(1) of the CGST Act. The quantum of profiteering was determined to be ?35,98,596, which the Respondent was ordered to refund with interest. The jurisdictional Commissioner of CGST/SGST Uttar Pradesh was directed to ensure compliance and report back within four months. Additionally, the DGAP was directed to investigate the Respondent's other projects for similar violations.