2022 (10) TMI 174 - NAPA - GST

Profiteering - construction service - it is alleged that Respondent had not passed on the benefit of ITC to him by way of commensurate reduction in the price - contravention of Section 171 of the CGST Act, 2017 - Interest - 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 on 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 net 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 0.76% and during the post-GST period (July-2017 to October-2020). it was 9.13% for the Project SKA Green Arch - the DGAP has calculated the amount of ITC benefit to be passed on to all the flat buyers as Rs. 4,75,87,468/- for the Project SKA Green Arch , the details of which are mentioned in Annexure-24 of the Report. 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 31.10 2020 in the instant case, as Rs. 4,75,87,468/- for the Project SKA Green Arch . 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 Authority finds that the Respondent has profiteered by Rs. 4,75,87,468/- for the Project SKA Green Arch during the period of investigation i.e. 01.07.2017 to 31.10.2020. The amount that has been profiteered by the Respondent from his home buyers/customers/recipients of supply in the above said 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 payment, under the provisions of Rule 133 (3) (b) of the CGST Rules, 2017. Penalty - HELD THAT - The Respondent has denied the benefit of ITC to the customers/flat buyers/recipients in his Project SKA Green Arch in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) - This Authority finds 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 31 10.2020. Therefore, the Authority finds that the Respondent is liable for imposition of penalty under the provisions of the above Section for the amount profiteered from 01.01.2020 onwards. Accordingly, notice be issued to him to explain why penalty should not be imposed on him.

Summary

Issues Involved:

1. Allegation of profiteering by not passing on the benefit of Input Tax Credit (ITC) under GST.
2. Inclusion of the second phase of the project in the profiteering calculation.
3. Methodology for calculating profiteering.
4. Procedure and mechanism for calculation of profiteering.
5. Scope of investigation beyond the initial applicant.
6. Inclusion of GST in the profiteered amount.
7. Consideration of VAT credit in the profiteering calculation.
8. Compliance and penalty for profiteering.

Issue-wise Detailed Analysis:

1. Allegation of Profiteering:
The primary issue was whether the Respondent passed on the benefit of ITC to the buyers as mandated by Section 171 of the CGST Act, 2017. The investigation revealed that the Respondent had not passed on the additional ITC benefit accrued post-GST implementation, resulting in a profiteered amount of Rs. 4,75,87,468/- for the project "SKA Green Arch."

2. Inclusion of the Second Phase:
The Respondent argued that the second phase of the project should not be included in the profiteering calculation as no activity was conducted pre-GST. However, the Authority found that the entire project, including both phases, had a single RERA registration and financial statements were submitted as a single unit. Thus, the second phase was rightly included in the investigation.

3. Methodology for Calculating Profiteering:
The Respondent contended that comparing the ratio of ITC to turnover pre and post-GST was incorrect. The Authority, however, upheld the DGAP's methodology, stating it was logical and in accordance with Section 171 of the CGST Act, 2017. The additional ITC benefit of 8.37% of the turnover was calculated based on this ratio.

4. Procedure and Mechanism for Calculation:
The Respondent argued the absence of a specified procedure for calculating profiteering made the proceedings arbitrary. The Authority clarified that the methodology and procedure for determining profiteering were outlined in Section 171 (1) and further detailed in Rule 126 of the CGST Rules, 2017. The calculation of profiteering is a mathematical exercise based on the comparison of pre and post-GST ITC ratios.

5. Scope of Investigation Beyond Initial Applicant:
The Respondent claimed the investigation should be limited to the initial applicant. The Authority rejected this, stating Section 171 (1) mandates that the benefit of ITC must be passed on to all recipients, not just the complainant. Hence, the investigation rightly covered all eligible beneficiaries.

6. Inclusion of GST in Profiteered Amount:
The Respondent argued that the profiteered amount was incorrectly inflated by adding GST. The Authority held that the Respondent had collected excess GST on the profiteered amount, which should not have been charged. This excess GST was rightly included in the profiteered amount.

7. Consideration of VAT Credit:
The Respondent contended that VAT credit was not considered in the profiteering calculation. The Authority found no documentary evidence supporting the claim that VAT credit was available. Hence, the DGAP's exclusion of VAT credit in the calculation was upheld.

8. Compliance and Penalty:
The Authority ordered the Respondent to refund the profiteered amount of Rs. 4,75,87,468/- along with 18% interest to the homebuyers within three months. Additionally, the Respondent was found liable for a penalty under Section 171 (3A) of the CGST Act, 2017 for profiteering from 01.01.2020 onwards. The concerned jurisdictional CGST/SGST Commissioner was directed to ensure compliance and submit a report within four months.

Conclusion:
The Authority upheld the DGAP's findings and methodology, directing the Respondent to refund the profiteered amount with interest and comply with the provisions of the CGST Act, 2017. The investigation covered all eligible beneficiaries, and the Respondent was held liable for profiteering and subject to penalties for non-compliance.