2020 (3) TMI 288 - NAPA - GST

Profiteering - purchase of a 3BHK Flat No. 806, H-Block, 8th Floor in Aparna Serene Park - benefit of Input Tax Credit (ITC) availed by him, 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 the facts that the Respondent has benefited from the additional ITC to the extent of 4.04% of the turnover during the period from 01.07.2017 to 31.03.2019 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 by commensurate reduction in the prices of the flats. Accordingly, the profiteered amount is determined as ₹ 22,59,91,979/- inclusive of GST @ 12% on the base profiteered amount of ₹ 20,17,78,553/- in terms of Rule 133 (1) of the CGST Rules, 2017. Further, the Respondent has realized an additional amount of ₹ 4,74,865/- which includes both the profiteered amount @ 4.04% of the taxable amount (base price) and 12% GST on the said profiteered amount from the Applicant No. 1. 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 31.03.2019 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 Telangana 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 SCN 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. Application disposed off.

Summary

Issues Involved:
1. Alleged profiteering by not passing on the benefit of Input Tax Credit (ITC) under GST.
2. Methodology for calculating the profiteered amount.
3. Respondent’s compliance with anti-profiteering provisions.
4. Penalty for contravention of Section 171 of the CGST Act, 2017.

Issue-Wise Detailed Analysis:

1. Alleged profiteering by not passing on the benefit of Input Tax Credit (ITC) under GST:
The applicant alleged that the respondent did not pass on the benefit of ITC availed under GST by reducing the price of a 3BHK flat. The Director General of Anti-Profiteering (DGAP) conducted an investigation and found that the respondent was availing ITC but had not reduced the prices of the flats accordingly. The DGAP's investigation covered the period from 01.07.2017 to 31.03.2019 and concluded that the respondent benefited from additional ITC to the extent of 4.04% of the turnover, which should have resulted in a commensurate reduction in the base price and cum-tax price of the flats.

2. Methodology for calculating the profiteered amount:
The DGAP calculated the profiteered amount by comparing the ITC available during the pre-GST period (April 2016 to June 2017) with the post-GST period (July 2017 to March 2019). The ITC as a percentage of turnover was 0.38% pre-GST and 4.42% post-GST, resulting in an additional benefit of 4.04%. The DGAP determined that the respondent had not passed on this benefit, leading to a total profiteered amount of ?22,59,91,979, including GST @ 12%. The methodology involved recalibrating the base price based on the additional ITC benefit and calculating the excess amount collected by the respondent.

3. Respondent’s compliance with anti-profiteering provisions:
The respondent argued that the methodology for computing the profiteered amount was not defined in the CGST Act, 2017, and claimed that the benefit of ITC could only be accurately determined at the end of the project. However, the authority held that the benefit of ITC should be passed on as and when it is availed, and the respondent could not delay passing on the benefit until the project's completion. The respondent's claim that he had started passing on a 7% benefit post 01.04.2019 was found to be unverified and not relevant to the period under investigation.

4. Penalty for contravention of Section 171 of the CGST Act, 2017:
The authority concluded that the respondent had contravened Section 171 of the CGST Act, 2017, by not passing on the additional ITC benefit to the buyers. Consequently, the respondent was directed to pass on the profiteered amount of ?22,59,91,979 to the eligible buyers along with interest @ 18% per annum from the date of collection until the payment is made. Additionally, a show cause notice was issued to the respondent to explain why a penalty under Section 171 (3A) of the CGST Act, 2017, should not be imposed.

Conclusion:
The authority ordered the respondent to reduce the prices of the flats commensurate with the benefit of ITC received and to pass on the profiteered amount to the buyers within three months. The concerned Commissioner CGST/SGST was directed to monitor compliance and submit a report within four months. The respondent was also issued a show cause notice for the imposition of a penalty for profiteering.