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2020 (6) TMI 622 - NAPA - GSTProfiteering - purchase of a flat - allegation that the reduction in the rate of GST on the construction service, not passed on - contravention of section 171 of CGST Act - HELD 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 ₹ 21,113/- to the Applicant No. 1 and an amount of ₹ 1,21,256/- (₹ 1,42,369 - ₹ 21,113/-) to the other flat buyers who are not Applicants in the present proceedings as per the details given by the DGAP in Annexure-45. The above amounts shall be paid within a period of 3 months from the date of issue of this Order to the Applicant No. 1 and the other eligible house buyers by the Respondent along with interest @ 18% from the date from which these amounts were realized by the Respondent from them, till they are paid as per the provisions of Rule 133 (3) (b) of the CGST Rules, 2017, failing which the above amounts shall be recovered by the concerned Commissioner CGST / SGST and paid to the eligible house buyers. The Respondent has profiteered by an amount of ₹ 1,42,369/- during the period of investigation. Therefore, 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. 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. 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 should not be imposed on him.
Issues Involved:
1. Whether there was a reduction in the rate of tax on the construction service provided by the Respondent w.e.f. 01.07.2017? 2. Whether there was any net additional benefit of ITC which has accrued 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? Detailed Analysis: Issue 1: Reduction in the rate of tax on the construction service provided by the Respondent w.e.f. 01.07.2017 The DGAP Report dated 04.10.2018 concluded that the allegation related to excess charging of Service Tax and GST by the Respondent could not be redressed through Section 171 of the CGST Act, 2017. However, the Authority referred the matter back to the DGAP for further investigation. The DGAP found that the effective GST rate increased to 12% from the aggregate effective rate of tax in the pre-GST regime of 11.27%. The DGAP clarified that the Karnataka Screening Committee's computation of a tax reduction from 14.65% to 12% was incorrect. Issue 2: Net additional benefit of ITC The DGAP computed the ratio of ITC to turnover as 0.49% for the pre-GST period and 1.41% for the post-GST period, indicating an additional benefit of 0.92% in the post-GST period. The Respondent was required to pass this benefit to the buyers. The DGAP's investigation covered the period from 01.07.2017 to 31.10.2018 and found that the Respondent had benefited from additional ITC to the tune of 0.92% of the turnover which was not passed on to the buyers. The DGAP calculated the profiteered amount as ?1,42,369/- for 11 residential units, including ?21,113/- for Applicant No. 1. Issue 3: Violation of Section 171 of the CGST Act, 2017 The Authority determined that the Respondent contravened Section 171 of the CGST Act, 2017 by not passing on the benefit of additional ITC to his customers. The Respondent was directed to pass on ?21,113/- to Applicant No. 1 and ?1,21,256/- to other eligible house buyers within three months from the date of the order, along with interest @ 18% from the date of realization till payment. The Authority also ordered the Respondent to reduce the prices commensurate with the benefit of ITC and issued a Show Cause Notice for the imposition of penalty under Section 171 (3A). Conclusion: The Respondent was found to have profiteered by ?1,42,369/- during the investigation period. The Authority ordered the Respondent to pass on the benefit of additional ITC to the buyers and directed the Commissioners of CGST/SGST Karnataka to monitor compliance. A report on compliance was to be submitted within four months. The order was delayed due to the COVID-19 pandemic and was passed in terms of Notification No. 35/2020-Central Tax dated 03.04.2020.
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