2020 (5) TMI 583 - NAPA - GST

Profiteering - purchase of Flat No. EFP 24-0501 in Emerald Floors Premier project - allegation is that the Respondent had not passed on the benefit of Input Tax Credit (ITC) by way of commensurate reduction in the price of the flat - contravention of provisions of section 171 of CGST Act - application forwarded to the DGAP to conduct detailed investigation in to the complaint according to Rule 129 (1) of the CGST Rules, 2017 - HELD THAT - It is clear from the perusal of Sub-Section 171 (1) that both the benefits of tax reduction and ITC are required to be passed on by the suppliers to the buyers by commensurate reduction in the prices as they are the concessions which have been granted to them from the public exchequer in the interest of the consumers. Sub-Section 171 (2) provides that the Central Government may on the recommendations of the GST Council constitute an Authority to examine whether the input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the prices of the goods or services or both supplied by him. Therefore, this Authority has jurisdiction to examine all such cases in which the above benefits are required to be passed on suo moto or to get them investigated through the DGAP and its power to do so is not circumscribed by any restriction to the effect that it cannot examine those cases in respect of which no complaint has been made - It is also apparent from the provisions of Rule 129 (1) that the DGAP shall investigate and collect necessary evidence in all such cases in which rate of tax has been reduced or the benefit of ITC has been granted which is required to be passed on to the buyers and submit his Report to this Authority under Rule 129 (6) and hence he is bound to investigate all those cases where benefit of ITC or tax rate is required to be passed on. This Authority has not replaced or substituted any function which the Courts were performing hitherto. Though it performs quasi-judicial functions but it cannot be equated with a judicial tribunal. Also, it performs its functions in a fair and reasonable manner in accordance with the Act but does not have the trappings of a Court and therefore, absence of a Judicial Member does not render the constitution of this Authority unconstitutional or legally invalid - the Chairman and the Technical Members of the Authority are being appointed by the competent authority (Appointments Committee of the Cabinet) of the Union Cabinet keeping the requirements of the above mandate of the GST law in perspective. Moreover, the orders passed by this Authority are further subject to the judicial review and therefore, the Respondent should not have any grievance on this account. The Respondent has benefited from the additional ITC to the extent of 11.90% of the turnover during the period from July, 2017 to March, 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 and thus he has profiteered an amount of ₹ 13,35,79,636/- inclusive of GST @ 12% on the base profiteered amount of ₹ 11,92,67,532/-. Further, the Respondent has realized an additional amount of ₹ 1,04,734/- which includes both the profiteered amount @ 11.90% 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 of the above Project 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. 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 he 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. Validity of the investigation period and methodology used by the Director General of Anti-Profiteering (DGAP).
3. Inclusion of VAT and WCT (VAT) credits in pre-GST ITC calculations.
4. Constitutionality of the National Anti-Profiteering Authority (NAA) without a Judicial Member.
5. Inclusion of GST in the profiteered amount.

Issue-wise Detailed Analysis:

1. Alleged profiteering by not passing on the benefit of ITC post-GST:
The Applicant alleged that the Respondent did not pass on the benefit of ITC for a flat purchased in the "Emerald Floors Premier" project. The DGAP investigated and found that the ITC as a percentage of total turnover increased from 9.08% pre-GST to 20.98% post-GST, resulting in an additional benefit of 11.90%. The Respondent was found to have not reduced the basic prices of flats accordingly and charged GST on pre-GST prices, leading to profiteering of ?13,35,79,636/-, including ?1,04,734/- from the Applicant No. 1.

2. Validity of the investigation period and methodology used by DGAP:
The Respondent contended that the Standing Committee on Anti-Profiteering did not examine the complaint within the prescribed two-month period. However, the Standing Committee was not legally constituted between 22.01.2019 to 20.02.2019 due to the transfer or promotion of its members. The reconstituted Committee examined the complaint within 20 days of its formation, making the investigation valid. The DGAP's methodology of comparing the ratio of ITC to turnover pre and post-GST was deemed appropriate, as it accurately reflects the benefit of additional ITC.

3. Inclusion of VAT and WCT (VAT) credits in pre-GST ITC calculations:
The Respondent argued that VAT and WCT (VAT) credits should be included in pre-GST ITC calculations. However, the DGAP found that the Respondent did not claim VAT credits in his VAT Returns and did not provide evidence for WCT (VAT) credits. Therefore, these credits were rightly excluded from the pre-GST ITC calculations.

4. Constitutionality of the NAA without a Judicial Member:
The Respondent argued that the NAA's constitution was invalid without a Judicial Member, citing various Supreme Court judgments. However, the NAA's functions are highly specialized and technical, requiring knowledge of various tax laws, which can be performed by Technical Members. The NAA does not replace or substitute any judicial functions of the High Courts, making its constitution valid.

5. Inclusion of GST in the profiteered amount:
The Respondent contended that GST should not be included in the profiteered amount. The DGAP included GST in the profiteered amount as the Respondent charged additional GST on the inflated prices, which the buyers were not legally bound to pay. The inclusion of GST ensures that the buyers receive the full benefit of ITC.

Conclusion:
The NAA ordered the Respondent to reduce prices commensurate with the benefit of ITC and refund the profiteered amount of ?13,35,79,636/- along with interest to the flat buyers. The Respondent was also directed to pass on any future ITC benefits. A Show Cause Notice was issued for imposition of penalty under Section 171 (3A) of the CGST Act, 2017. The Commissioners of CGST/SGST Haryana were directed to monitor compliance and submit a report within four months. The order was delayed due to the COVID-19 pandemic and was passed under the force majeure clause.