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2022 (10) TMI 553 - NAPA - GSTProfiteering - purchase of flat - it is alleged that Respondent No. 1 had not passed on the benefit of ITC to him by way of commensurate reduction in prices - contravention of section 171 of CGST Act - 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 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. It is observed from the Report of the DGAP 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 1.16%, whereas, during the post-GST period (July-2017 to September-2019), it was 6.85% for the project Siddha Eden Lakeview'. This confirms that, post-GST, the Respondent No. 1 2 have been benefited from additional ITC to the tune of 5.69% (6.85% - 1.16%) of their turnover for the project Siddha Eden Lakeview' and the same was required to be passed on to the customers/flat buyers/recipients - The Respondent No. 1 is required to pass on Rs. 96,857/- as the additional benefit of ITC to the Applicant No. 1 and Rs. 4,10,43,645/- to other 264 recipients. Further, the Respondent No. 2 is required to pass on Rs. 2,50,94,164/- to 270 other flat buyers/recipients in the project 'Siddha Eden Lakeview' for the period from 1.07.2017 to 30.09.2019. The Authority finds no reason to differ from the above-detailed computation of profiteering in the DGAP's Report or the methodology adopted. The Authority finds that the Respondent No. 1 has profiteered by an amount of Rs. 4,11,40,502/- and the Respondent No. 2 has profiteered by an amount of Rs. 2,50,94,164/- during the period of investigation i.e. 01.07.2017 to 30.09.2019 - The amount profiteered is Rs. 96,857/-(including GST) in respect of the Applicant No.1. Since the Respondent No. 2 had availed the entire CENVAT/ITC for the project (including units pertaining to the Respondent No. 1), therefore the aforesaid profiteered amount of Rs. 4,11,40,502/-(inclusive of GST) has to be passed on/refunded/returned by the Respondent No. 2 to the Respondent No. 1, who in turn is required to pass on/return/refund the benefit to his recipients including the Applicant No. 1. Interest - HELD THAT - The Respondent No. 1 2 are also liable to pay interest as applicable on the entire amount profiteered, i.e. Rs. 4,11,40,502/-(in respect of the Respondent No. 1) and Rs. 2,50,94,164/- (in respect of the Respondent No. 2), for the project Siddha Eden Lakeview'. Hence the Respondent No. 1 2 are directed to also pass on interest @18% to the homebuyers/customers/recipients of supply on the entire amount profiteered, starting from the date from which the amount was profiteered till the date of passing on/ payment/return, as per provisions of Rule 133 (3) (b) of the CGST Rules, 2017. Penalty - HELD THAT - It is evident from the narration of facts that the Respondent No. 1 2 have denied the benefit of ITC to the customers/ home buyers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and have thus committed an offence under Section 171 (3A) of the above Act and therefore, they are liable for imposition of penalty under the provisions of the above Section. However, since the provisions of Section 171 (3A) have come into force w.e.f. 01.01.2020, whereas, the period during which violation has occurred is w.e.f. 01.07.2017 to 30.09.2019, hence the penalty prescribed under the above Section cannot be imposed on Respondent retrospectively.
Issues Involved
1. Allegation of profiteering by not passing on the benefit of Input Tax Credit (ITC) post-GST. 2. Determination of whether the benefit of reduction in tax rate or ITC was passed on to recipients. 3. Inclusion of land value in the calculation of profiteering. 4. Jurisdiction and scope of investigation by the Director-General of Anti-Profiteering (DGAP). 5. Methodology for calculating profiteering. 6. Liability of different parties (landowner and developer) in passing on ITC benefits. 7. Compliance with Section 171 of the CGST Act, 2017. Detailed Analysis 1. Allegation of Profiteering by Not Passing on ITC Benefit The Applicant No. 1 alleged that Respondent No. 1 did not pass on the benefit of ITC by reducing prices and charged GST at 12% on payments. The DGAP conducted an investigation covering the period from 01.07.2017 to 30.09.2019 and found that both Respondent No. 1 and Respondent No. 2 benefited from additional ITC post-GST but did not pass on the benefit to recipients. 2. Determination of ITC Benefit Passed to Recipients The DGAP's report concluded that the ITC as a percentage of turnover increased from 1.16% pre-GST to 6.85% post-GST, indicating an additional ITC benefit of 5.69%. The total profiteered amount was calculated as Rs. 6,62,34,666/-, with Respondent No. 1 liable for Rs. 4,11,40,502/- and Respondent No. 2 for Rs. 2,50,94,164/-. The Respondents were required to pass on these amounts to the respective recipients, including the Applicant No. 1. 3. Inclusion of Land Value in Calculation of Profiteering Respondent No. 2 contended that the value of land should be excluded from the profiteering calculation. The Authority found that in the present case, there was no separate billing for land and construction services. The DGAP had already considered GST at 12% after abatement for land, and the value of land was inherently excluded from the turnover used in the calculation. 4. Jurisdiction and Scope of DGAP Investigation Respondent No. 2 argued that the investigation should not extend beyond the application filed by Applicant No. 1. The Authority held that Section 171 (1) of the CGST Act mandates passing on the benefit of ITC or tax reduction on "any supply" of goods or services, thus justifying the DGAP's examination of all supplies made by the Respondents. 5. Methodology for Calculating Profiteering Respondent No. 2 argued that the methodology adopted by the DGAP was incorrect and arbitrary. The Authority upheld the DGAP's methodology, stating that the computation of profiteering is a mathematical exercise based on the ratio of ITC to turnover in pre- and post-GST periods. The Authority noted that no fixed formula could be prescribed due to varying project specifics. 6. Liability of Different Parties in Passing on ITC Benefits Respondent No. 1 claimed no liability as a landowner, asserting that Respondent No. 2, the developer, bore all construction costs and availed ITC. The Authority found that since Respondent No. 2 availed the ITC for the entire project, it must pass on the benefit to Respondent No. 1, who in turn must pass it on to the recipients. 7. Compliance with Section 171 of the CGST Act, 2017 The Authority determined that both Respondents had contravened Section 171 (1) by not passing on the ITC benefits. They were ordered to refund the profiteered amounts to the recipients along with interest at 18% from the date of profiteering until the date of refund. Conclusion The Authority ordered Respondent No. 1 to refund Rs. 4,11,40,502/- and Respondent No. 2 to refund Rs. 2,50,94,164/-, including interest, to the respective recipients. The Respondents were directed to comply within three months, and the jurisdictional CGST/SGST Commissioners were tasked with ensuring compliance and reporting back to the Authority.
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