2020 (12) TMI 1342 - NAPA - GST

Court Orders Fresh Investigation to Ensure Input Tax Credit Benefit Passed to Buyers

The court directed the DGAP to conduct a fresh investigation to ensure the Respondent passed on the benefit of Input Tax Credit by reducing prices for ... Profiteering - purchase of flat in Celebrity Garden Block-K - 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 the price - contravention of provisions of Section 171 of the CGST Act, 2017 - Penalty - HELD THAT:- It is observed that the Respondent is in the real-estate business and has been developing his project 'Celebrity Garden-Block K' in Lucknow. It is on record that Applicant No. 1 had filed a complaint alleging that the Respondent has not passed on the benefit of ITC to him by way of a commensurate reduction in the price of the flat purchased by him (Applicant No. 1) from the Respondent - It is found that the DGAP, after a detailed investigation, has found that the Respondent has not passed on ITC benefit amounting to Rs. 1,54,269/- (inclusive of GST) to his recipients/homebuyers as required under the provisions of Section 171 of the CGST Act, 2017. It is observed that the provision of the RERA Act, 2016 makes it mandatory for a real estate developer/promoter to maintain separate bank accounts for each of his projects registered separately under the RERA Act, 2016. In the case of the Respondent, the above provision implies that he was required to maintain four separate escrow/bank accounts in respect of the four towers/blocks of the project 'Celebrity Gardens', however the DGAP's Report has no mention of this aspect. It has a bearing on the instant proceedings since the DGAP's Report dated 23.03.2020 only covers one of the four blocks i.e. Block 'K'. As the Respondent had obtained four separate RERA registrations for his four blocks/towers, he should have maintained separate escrow/bank accounts - the compliance of the Respondent with the provisions of the RERA Act, 2016, becomes paramount and need to be examined. In view of this, there arises the need to revisit the investigation to ascertain if the Respondent has passed on the benefit of ITC to the homebuyers of the other 3 towers/blocks of the impugned project by a commensurate reduction in the prices of the residential units supplied by him in terms of Section 171 of the CGST Act, 2017. In terms of the provisions of Section 171 (2) of the CGST Act and for the reasons detailed in this Order, the DGAP is directed to further investigate the present case under Rule 133 (4) of the CGST Rules, 2017 to ensure the Respondent has passed on the benefit of ITC by way of a commensurate reduction in the prices in respect of the residential units supplied by him. Hence, without dwelling upon any other aspect of the case and without going into any contentions of the Respondent and the Applicants, this Authority, under the powers conferred on it vide Rule 133(4) of the CGST Rules read with Section 171 of the CGST Act 2017, directs the DGAP to reinvestigate this case and recompute the quantum of profiteering. The DGAP is directed to submit a fresh Report after a detailed investigation as per Rule 129 (6) of the above Rules, 2017. The Respondent is directed to extend all necessary assistance to the DGAP and furnish him with necessary documents or information as required during the course of the investigation - matter on remand. Issues Involved:1. Whether the benefit of reduction in the rate of tax or Input Tax Credit (ITC) on the supply of construction service after the implementation of GST w.e.f. 01.07.2017 was passed on by the Respondent to his recipients by way of commensurate reduction in prices.2. Whether the Respondent complied with the provisions of the Real Estate (Regulation and Development) Act, 2016 (RERA Act, 2016) in maintaining separate bank accounts for each project block/tower.3. Whether there were discrepancies in the figures of ITC and turnover adopted by the DGAP in his report vis-a-vis the figures mentioned in the statutory tax returns filed by the Respondent.Issue-wise Detailed Analysis:1. Passing on the Benefit of ITC:The DGAP conducted a detailed investigation and reported that the Respondent did not pass on the benefit of ITC to Applicant No. 1 and other recipients by way of a commensurate reduction in prices, as required under Section 171 of the CGST Act, 2017. The investigation covered the period from 01.07.2017 to 30.09.2019, and it was found that the Respondent had benefited from additional ITC to the tune of 0.17% of the turnover. This additional ITC should have resulted in a commensurate reduction in the base prices and cum-tax prices. The DGAP calculated that the total benefit that needed to be passed on amounted to Rs. 1,54,269/-, which included 12% GST on the base amount of Rs. 1,37,740/-. The Respondent had realized an additional amount of Rs. 8,799/- (including GST) from Applicant No. 1 and Rs. 1,45,470/- from 42 other recipients. The Respondent later contended that he had paid the profiteered amount along with interest to the buyers and submitted documentary evidence, which was verified by the DGAP.2. Compliance with RERA Act, 2016:The judgment highlighted the requirement under Section 4 (2) (l) (D) of the RERA Act, 2016, which mandates that seventy percent of the amounts realized from allottees must be deposited in a separate account to cover the cost of construction and land cost. The Respondent was required to maintain separate escrow/bank accounts for each of the four towers/blocks of the project 'Celebrity Gardens'. The DGAP's report did not mention compliance with this provision, which is essential for ensuring that the benefit of ITC was passed on correctly. The judgment noted that if the Respondent had not complied with this provision, the entire project should be considered as a single project for the computation of profiteering.3. Discrepancies in Figures of ITC and Turnover:The judgment identified significant variations in the figures of ITC and turnover adopted by the DGAP in his report compared to the figures mentioned in the statutory tax returns filed by the Respondent. This discrepancy necessitated further investigation to ensure that the Respondent had passed on the benefit of ITC correctly. The judgment directed the DGAP to reinvestigate this aspect and recompute the quantum of profiteering based on accurate figures.Conclusion:The judgment directed the DGAP to conduct a fresh and detailed investigation to ensure that the Respondent had passed on the benefit of ITC by way of a commensurate reduction in prices for the residential units supplied. The DGAP was instructed to submit a new report after this investigation, and the Respondent was directed to provide all necessary assistance and furnish required documents or information during the investigation. The case file was to be consigned after completion.