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2022 (6) TMI 1126 - NAPA - GSTProfiteering - purchase of Flat - it is alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) to him by way of commensurate reduction in prices - contravention of section 171 of CGST Act - Interest and Penalty - HELD THAT - It is clear from a 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 about 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 whether there was any benefit of ITC with the introduction of GST. On this issue it has been revealed from the DGAP s Report 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 0% and during the post-GST period (July 2017 to September-2020) it was 11.76% for the Project Jeevan Ananda . This confirms that post-GST the Respondent has benefited from additional ITC to the tune of 11.76% (11.76% - 0%) of his turnover and the same was required to be passed on to the customers/flat buyers/recipients. The DGAP has calculated the amount of ITC benefit availed by the Respondent which needs to be passed on to all the recipients of supply including the Applicant No. 1 as Rs. 1, 85, 70, 263/-. The Authority finds that the Respondent has profiteered by an amount of Rs. 1, 85, 70, 263/- during the period of investigation i.e. 01.07.2017 to 30.09.2020. This amount of Rs. 1, 85, 70, 263/- includes the amount relating to the Applicant No. 1 amounting to Rs. 1, 27, 892/-. The above amount that has been profiteered by the Respondent from the recipients of supply in the Project shall be refunded by him along with interest @18% thereon from the date when the above amount was profiteered by him till the date of such refund payment and per the provisions of Rule 133 (3) (b) of the CGST Rules 2017. The Authority finds no reason to differ from the above-detailed computation of profiteering in the DGAP s Report or the methodology adopted and hence the Authority determines the profiteered amount for the period from 01.07.2017 to 30.09.2020 in the instant case as Rs. 1, 85, 70, 263/-. 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. Interest - HELD THAT - The Respondent is also liable to pay interest as applicable on the entire amount profiteered i.e. Rs. 1, 85, 70, 263/-. Hence the Respondent is directed to also pass on interest @18% to the customers/ flat buyers/ recipients on the entire amount profiteered starting from the date from which the above amount was profiteered till the date of passing on by way of refund payment as per provisions of Rule 133 (3) (b) of the CGST Rules 2017. Penalty - HELD THAT - The Respondent has denied the benefit of ITC to his home buyers in contravention of the provisions of Section 171 (1) of the CGST Act 2017 and has committed an offence under Section 171 (3A) of above Act. That Section 171 (3A) of the CGST Act 2017 has been inserted in the CGST Act 2017 vide Section 112 of the Finance Act 2019 and the same became operational w.e.f. 01.01.2020. As the period of investigation was 01.07.2017 to 30.09.2020 therefore the Respondent is liable for imposition of penalty under the provisions of the above Section for the amount profiteered from 01.01.2020 onwards. Application disposed off.
1. ISSUES PRESENTED and CONSIDERED
The primary issues considered in this judgment were: (i) Whether there was a benefit of reduction in the rate of tax or Input Tax Credit (ITC) on the supply of construction service by the Respondent upon the implementation of GST from July 1, 2017, and if so, (ii) Whether such benefit was passed on by the Respondent to the recipients, in terms of Section 171 of the Central Goods and Services Tax (CGST) Act, 2017. 2. ISSUE-WISE DETAILED ANALYSIS (i) Benefit of Reduction in Tax Rate or ITC - Relevant Legal Framework and Precedents: Section 171 of the CGST Act, 2017 mandates that any reduction in the rate of tax or benefit of ITC must be passed on to the recipient by way of commensurate reduction in prices. - Court's Interpretation and Reasoning: The Tribunal noted that several taxes and duties levied under the State Acts were subsumed in GST, allowing the Respondent to avail ITC on Central Excise Duty, Sales Tax, and Entry Tax, which was not available in the pre-GST regime. This additional benefit of ITC was required to be passed on to the recipients. - Key Evidence and Findings: The DGAP's report indicated that the Respondent had availed ITC during the post-GST period, which was not available during the pre-GST period. This amounted to an additional ITC benefit of 11.76% of the turnover. - Application of Law to Facts: The Tribunal applied Section 171 and concluded that the Respondent had benefited from additional ITC post-GST and was required to pass this benefit to the recipients. - Treatment of Competing Arguments: The Respondent argued that the methodology used by the DGAP was incorrect, asserting that only incremental ITC should be considered. However, the Tribunal rejected this argument, stating that the benefit of ITC must be passed on as per the CGST Act, without bifurcation between goods and services. - Conclusions: The Tribunal concluded that the Respondent had not passed on the benefit of ITC to the recipients, thus contravening Section 171 of the CGST Act. (ii) Passing on the Benefit to Recipients - Relevant Legal Framework and Precedents: Section 171 of the CGST Act, 2017. - Court's Interpretation and Reasoning: The Tribunal emphasized that the benefit of ITC must be passed on to each recipient by way of a commensurate reduction in prices. - Key Evidence and Findings: The DGAP's report calculated that the Respondent had profiteered an amount of Rs. 1,85,70,263/- by not passing on the ITC benefit to the buyers. - Application of Law to Facts: The Tribunal applied the provisions of Section 171 to determine that the Respondent had indeed profiteered by not reducing the prices commensurate with the ITC benefit received. - Treatment of Competing Arguments: The Respondent contended that the absence of a prescribed methodology for calculating profiteering rendered the proceedings arbitrary. The Tribunal dismissed this argument, stating that the methodology was outlined in Section 171 itself. - Conclusions: The Tribunal concluded that the Respondent was liable to refund the profiteered amount along with interest to the recipients. 3. SIGNIFICANT HOLDINGS - Preserve Verbatim Quotes of Crucial Legal Reasoning: "The benefit of additional ITC would depend on the comparison of the ITC/CENVAT which was available to a builder in the pre-GST period with the ITC available to him in the post-GST period w.e.f. 01.07.2017." - Core Principles Established: The Tribunal established that the benefit of ITC must be passed on to the recipients by way of a commensurate reduction in prices, as mandated by Section 171 of the CGST Act. - Final Determinations on Each Issue: The Tribunal determined that the Respondent had profiteered by Rs. 1,85,70,263/- and ordered the Respondent to refund this amount along with interest to the recipients within three months. Additionally, the Respondent was found liable for penalty under Section 171 (3A) of the CGST Act for the period from January 1, 2020, onwards.
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