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2020 (12) TMI 936 - NAPA - GSTProfiteering - purchase of Shop - allegation that the Respondent had not passed on the benefit of input tax credit to him by way of commensurate reduction in price - contravention of section 171 of CGST Act - penalty - HELD THAT - The Applicant No. 1 had alleged that the Respondent was not passing on the benefit of ITC to him on the Shop No. GF-0131-A, which he had purchased in the Mercado Project being executed by the Respondent in Sector-42, Gurugram, in spite of the fact that he was availing ITC on the purchase of the inputs at the higher rates of GST which had resulted in benefit of additional ITC to him and was also charging GST from him @12%. This complaint was examined by the Standing Committee on Anti-Profiteering and was forwarded to the DGAP for investigation who vide his Report dated 23.03.2020 has found that the ITC as a percentage of the total turnover which was available to the Respondent during the pre-GST period was 2.66% and during the post-GST period this ratio was 8.57% as per the Table-B mentioned above and therefore, the Respondent has benefited from the additional ITC to the tune of 5.91% (8.57% - 2.66%) of the total turnover which he was required to pass on to the buyers of this Project. The DGAP has also found that the Respondent has not reduced the base prices of his shops by 5.91% due to additional benefit of ITC and by charging GST at the increased rate of 12% on the pre-GST basic prices, he has contravened the provisions of Section 171 of the CGST Act, 2017. Respondent has contended that the incremental tax paid on the services should not form part of the profiteered amount - HELD THAT - The benefit of additional ITC has to be computed by comparing the amount of ITC which has become available to the Respondent in the post GST period with the amount of CENVAT and VAT credit which he has availed during the pre GST period and accordingly, the amount of additional ITC has to be passed on by the Respondent to his buyers. Therefore, the ITC amounting to Rs, 1,08,55,599 claimed to have been paid by the Respondent as incremental tax on the procurement of input services cannot be excluded from the total amount of profiteering as it has not been paid by the Respondent from his own account. Accordingly, the above claim of the Respondent cannot be accepted. Respondent has also contended that the profiteered amount should have been restricted to the ITC availed in respect of goods only - HELD THAT - The amount of ITC cannot be taken to be ₹ 2,52,00,202/- claimed to be relating to the purchase of the goods for computation of the profiteered amount, as has been asserted by the Respondent. Accordingly, all the above contentions of the Respondent are fallacious and hence they are not tenable. Respondent has further contended that due to slump in the real estate sector he has incurred additional expenses on marketing and payment of commissions which has resulted in overall increase in the project cost which should have been considered while calculating the profiteered amount - HELD THAT - It would be appropriate to mention that every builder launches marketing campaigns and pays commission for selling his flats/houses/shops in the normal course of his business which is already built in the cost of every project and hence, the Respondent cannot claim any concession on this ground. Moreover, there is no provision under Section 171 (1) to consider the costs incurred by the Respondent while calculating the profiteered amount. Hence, the above claim of the Respondent cannot be accepted. Thus, It is established from the perusal of the above facts that the Respondent has benefited from the additional ITC to the extent of 5.91% of the turnover during the period from July, 2017 to June, 2019 as is evident from Table-B supra. It is also apparent from the above that the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent as he has not passed on the benefit of ITC to his buyers. Accordingly, the profiteered amount is determined as ₹ 2,44,80,835/- inclusive of GST @ 12% as has been mentioned in Table-C supra, in terms of Section 171 (1) read with Rule 133 (1). The Respondent has realized an additional amount of ₹ 66,463/- which includes both the profiteered amount @ 5.91% of the taxable amount (base price) and 12% GST on the said profiteered amount from the Applicant No. 1. He has also realized an additional amount of ₹ 2,44,14,372/- which includes both the profiteered amount @ 5.91% of the taxable amount (base price) and 12% GST on the said profiteered amount from the 228 shop buyers other than the Applicant No, 1. The details of the profiteered amount and the buyers have been mentioned by the DGAP in Annexure-14 of his Report dated 23.03.2020. These buyers are identifiable as per the documents placed on record. Therefore, as per the provisions of Section 171 (1) read with Rule 133 (3) (b) the Respondent is directed to pass on an amount of ₹ 2,44,80,835/- and an amount of ₹ 66,463/- to the other flat buyers and the Applicant No. 1 respectively along with the interest @ 18% per annum from the dates from which the above amount was collected by him from them till the payment is made, within a period of 3 months from the date of passing of this order as per the details mentioned in Annexure-14, attached with the Report dated 23.03.2020. Penalty - HELD THAT - Perusal of the provisions of Section 171 (3A) under which penalty has been prescribed for the above violation shows that it has been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019 and it was not in operation during the period from 01.07.2017 to 30.06.2019 when the Respondent had committed the above violation and hence, the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively. Accordingly, notice for imposition of penalty is not required to be issued to the Respondent. This Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioners of CGST/SGST Haryana to monitor this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by this Authority is passed on to all the eligible buyers. A report in compliance of this order shall be submitted to this Authority by the Commissioners CGST /SGST through the DGAP within a period of 4 months from the date of receipt of this order.
Issues Involved:
1. Whether there was a benefit of reduction in the rate of tax or input tax credit on the supply of construction service by the Respondent after the implementation of GST. 2. Whether such benefit was passed on by the Respondent to the recipients in terms of Section 171 of the Central Goods and Services Tax Act, 2017. Detailed Analysis: Issue 1: Benefit of Reduction in Tax Rate or Input Tax Credit Post-GST Implementation The DGAP's investigation revealed that the Respondent had indeed benefited from an additional input tax credit (ITC) post-GST implementation. The ITC available to the Respondent during the pre-GST period was 2.66% of the turnover, whereas, during the post-GST period, it was 8.57%. This indicated an additional benefit of 5.91% of the turnover post-GST. The DGAP compared the applicable tax rates and ITC available in the pre-GST and post-GST periods, concluding that the Respondent had benefited from the additional ITC to the tune of 5.91%. Issue 2: Passing on the Benefit to Recipients The DGAP's report found that the Respondent had not passed on the benefit of the additional ITC to the recipients. The Respondent continued to charge GST at the increased rate of 12% on the pre-GST basic prices without reducing the base prices by 5.91%. This contravened Section 171 of the CGST Act, 2017. The total profiteered amount was determined to be ?2,44,80,835, which included 12% GST. This amount also included ?66,463 (including 12% GST) in respect of Applicant No. 1 and ?2,44,14,372 (including 12% GST) in respect of 228 other shop buyers. Respondent's Contentions and DGAP's Clarifications: 1. Incremental Tax on Services: - Respondent's Argument: The incremental tax paid on services should not form part of profiteering since the rate of Service Tax increased from 15% to 18% post-GST. - DGAP's Clarification: The benefit of ITC must be passed on to the recipients by way of commensurate reduction in prices, as per Section 171 of the CGST Act, 2017. The incremental ITC of 3% on services cannot be excluded from the total amount of profiteering as it has not been paid by the Respondent from his own account. 2. Profiteering Amount Restriction: - Respondent's Argument: The profiteered amount should be restricted to the ITC availed in respect of goods only. - DGAP's Clarification: The entire amount of ITC, including that from services, must be considered. The ITC of ?77,93,422 on VAT during the pre-GST period was duly considered by the DGAP. The contention that only the ITC on goods should be considered is incorrect. 3. Increased Project Costs: - Respondent's Argument: Increased costs due to marketing and commissions should be considered while calculating the profiteered amount. - DGAP's Clarification: Marketing and commission costs are part of the normal business expenses and are already built into the project cost. There is no provision under Section 171 (1) to consider these costs while calculating the profiteered amount. Authority's Decision: The Authority concluded that the Respondent had indeed benefited from the additional ITC to the extent of 5.91% of the turnover and had not passed on this benefit to the buyers, thus contravening Section 171 of the CGST Act, 2017. The profiteered amount was determined to be ?2,44,80,835, inclusive of GST @ 12%. The Respondent was ordered to pass on this amount to the buyers along with interest @ 18% per annum from the date of collection till the payment is made. Additional Directions: The Respondent was directed to reduce the prices commensurate with the benefit of ITC received. The Commissioner CGST/SGST Haryana was instructed to ensure compliance and submit a report within four months. Furthermore, the DGAP was directed to investigate another project by the Respondent, "Epic," to determine if similar profiteering had occurred. Penalty: Although the Respondent's actions constituted an offence under Section 171 (3A) of the CGST Act, 2017, the penalty could not be imposed retrospectively as the relevant provisions were not in force during the period of violation (01.07.2017 to 30.06.2019). Conclusion: The Respondent was found to have contravened Section 171 of the CGST Act, 2017, by not passing on the benefit of additional ITC to the buyers. The total profiteered amount of ?2,44,80,835 was to be returned to the buyers with interest. The DGAP was also directed to investigate the Respondent's other project, "Epic," for potential profiteering.
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