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2022 (5) TMI 841 - NAPA - GSTProfiteering - construction service - Respondent had not passed on the benefit of Input Tax Credit (ITC) to him by way of commensurate reduction in the prices - contravention of section 171 of CGST Act - penalty - HELD THAT - It is clear from the plain reading of Section 171 (1) that, it deals with two situations - one relating to the passing on the benefit of reduction in the rate of tax and the second pertaining to the passing on the benefit of the ITC. On the issue of reduction in the tax rate, 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 examined is as to whether there was any net benefit of ITC with the introduction of GST, The Authority finds that, the ITC, as a percentage of the turnover, that was available to the Respondent during the pre-GST period (April-2016 to June-2017) was 1.02%, whereas, during the post-GST period (July-2017 to April, 2020). it was 1.84%. This confirms that in the post-GST period, the Respondent has been benefited from additional ITC to the tune of 0.82% (1.84%-1.02%) of his turnover and the same is required to be passed on by him to the recipients of supply, including the Applicant No. 1. The Authority finds that the computation of the amount of ITC benefit to be passed on by the Respondent to the eligible recipients works out to Rs.3,87,94,4931/-. The Authority finds that the Respondent has profiteered by an amount of Rs.3,87,94.493/- during the period of investigation i.e. 01.07.2017 to 30.04.2020 and determined the said amount under Rule 133 (1) of the CGST Rules, 2017, the benefit of which has not been passed on to the recipients - 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. This Order having been passed today falls within the limitation prescribed under Rule 133 (1) of the CGST Rules, 2017.
Issues Involved:
1. Allegation of profiteering by not passing on the benefit of Input Tax Credit (ITC) post-GST implementation. 2. Whether the investigation should continue after the complainant withdrew the complaint. 3. Calculation and determination of the profiteered amount. 4. Clubbing of different project phases for the purpose of calculating profiteering. 5. Passing on the benefit of ITC on a provisional basis. 6. Compliance with Section 171 of the CGST Act, 2017. Detailed Analysis: 1. Allegation of Profiteering: The Applicant No. 1 alleged that the Respondent did not pass on the benefit of ITC by way of a commensurate reduction in prices for the construction service supplied. The Karnataka State Screening Committee and the Standing Committee on Anti-profiteering found prima facie evidence of profiteering and forwarded the complaint for a detailed investigation. 2. Continuation of Investigation Post Withdrawal of Complaint: The Respondent argued that the investigation should have been dropped after the Applicant No. 1 withdrew the complaint. However, the Authority held that there is no provision under the CGST Act, 2017, or the Rules to drop the investigation once initiated based on the recommendations of the State Screening Committee and the Standing Committee. Therefore, the investigation continued irrespective of the withdrawal. 3. Calculation and Determination of Profiteered Amount: The DGAP's investigation covered the period from 01.07.2017 to 30.04.2020. It was found that the ITC as a percentage of turnover increased from 1.02% pre-GST to 1.84% post-GST, confirming an additional benefit of 0.82% of turnover. The total profiteered amount was calculated as Rs. 3,87,94,493/-, including GST on the base profiteered amount of Rs. 3,46,37,940/-. This amount was to be refunded to the homebuyers, including the Applicant No. 1, along with interest at 18%. 4. Clubbing of Different Project Phases: The Respondent claimed separate phases (Phase I and Phase II) should not be clubbed for profiteering calculation. However, the Authority found that the project "Pursuit of a Radical Rhapsody" was approved as a single project by the Competent Authority before GST implementation, and amounts were received for units in Towers 5 to 7 (Phase II) before 01.07.2017. Therefore, the Authority held that for the purposes of Section 171 of the CGST Act, 2017, all phases should be considered together. 5. Passing on the Benefit of ITC on Provisional Basis: The Respondent contended that the exact ITC benefit could only be determined after project completion. The Authority rejected this argument, stating that the Respondent could have passed on the benefit on a provisional basis, which he failed to do. The ITC accrued on purchase of materials and GST was payable on an accrual basis, necessitating the maintenance of project-wise Cenvat/Input tax accounts. 6. Compliance with Section 171 of the CGST Act, 2017: The Authority emphasized that Section 171 (1) of the CGST Act, 2017 mandates that any benefit of ITC must be passed on to the recipient by way of a commensurate reduction in prices. The Respondent's failure to do so constituted profiteering. The Authority ordered the Respondent to reduce the prices commensurate with the benefit of ITC received and refund the profiteered amount along with interest at 18%. Conclusion: The Authority upheld the DGAP's findings and directed the Respondent to refund the profiteered amount of Rs. 3,87,94,493/- along with 18% interest to the homebuyers within three months. The concerned jurisdictional CGST/SGST Commissioner was directed to ensure compliance and submit a report within four months.
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