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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.
Issues Involved:
1. Violation of Section 171(1) of the CGST Act, 2017. 2. Determination of the additional benefit to be passed on to the recipients. Detailed Analysis: 1. Violation of Section 171(1) of the CGST Act, 2017: The case revolves around the allegation that the Respondent did not pass on the benefit of Input Tax Credit (ITC) to the homebuyers after the implementation of GST. The DGAP's investigation revealed that the Respondent had benefited from additional ITC post-GST, which was not passed on to the customers, thus violating Section 171(1) of the CGST Act, 2017. This section mandates that any reduction in the rate of tax or benefit of ITC should be passed on to the recipient by way of commensurate reduction in prices. 2. Determination of the Additional Benefit to be Passed on to the Recipients: The DGAP calculated that the Respondent had profiteered an amount of Rs. 1,85,70,263/- by not passing on the ITC benefit to the homebuyers. The Respondent's contention that the methodology adopted by the DGAP was incorrect was dismissed. The DGAP's method involved comparing the ITC availed during the pre-GST period with that availed during the post-GST period, which was found to be appropriate and within the scope of Section 171. Key Findings: a. ITC Comparison: The DGAP's report highlighted that the ITC as a percentage of turnover during the pre-GST period was 0%, whereas, during the post-GST period, it was 11.76%. This indicated that the Respondent had benefited from additional ITC post-GST, which was not passed on to the customers. b. Methodology for Calculation: The Respondent's argument that the DGAP should consider ITC "available" rather than "availed" was rejected. The methodology adopted by the DGAP, which involved comparing the ratio of ITC to turnover in the pre and post-GST periods, was deemed correct. c. Escalation Charges: The Respondent's claim that they had not charged escalation costs post-2013 was found to be incorrect. The DGAP's report and the Applicant's submission confirmed that the Respondent had charged escalation costs, which contradicted the Respondent's claim. d. Constitutional Validity: The Respondent's argument that the anti-profiteering provisions violated Article 19(1)(g) of the Constitution was dismissed. The Authority clarified that the provisions of Section 171 and the related rules were constitutional and did not infringe on the Respondent's right to carry on business. e. Interest on Profiteered Amount: The Respondent was also directed to pay interest at 18% on the profiteered amount from the date it was collected from the homebuyers until the date of refund. f. Compliance and Penalty: The Respondent was ordered to refund the profiteered amount along with interest within three months. The jurisdictional CGST/SGST Commissioner was directed to ensure compliance and report back to the Authority. Conclusion: The Authority concluded that the Respondent had indeed profiteered by not passing on the benefit of additional ITC to the homebuyers, thereby violating Section 171(1) of the CGST Act, 2017. The total profiteered amount was determined to be Rs. 1,85,70,263/-, which the Respondent was ordered to refund along with interest at 18%. Additionally, the Respondent was found liable for a penalty under Section 171(3A) for the profiteered amount from 01.01.2020 onwards.
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