2022 (8) TMI 1437 - NAPA - GST

Developer must reduce flat prices after failing to pass ITC benefits to buyers under section 171

NAPA held that the respondent developer violated section 171 of CGST Act by not passing on ITC benefits to flat buyers. Investigation revealed respondent ... Profiteering - purchase of flat in project Laxmi - allegation is that the Respondent had not passed on the benefit of Input Tax Credit (ITC) to him by way of commensurate reduction in the price of flat - contravention of section 171 of CGST Act - 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 rule of tax and the second pertaining to the passing on the benefit of 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. 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 1.61% and during the post-GST period (July-2017 to October-2020), it was 9.88% for the project 'Laxmi Apartment's'. This confirm that, post-GST the Respondent has been benefited from additional ITC to the tune of 8.27% [9.88% (-) 1.61%] of his turnover for the said project and the same was required to be passed on to the customer/flat buyers/recipients. The DGAP has calculated the amount of ITC benefit to be passed on to the customers/flat buyers/recipients as Rs. 6,33,70,091/- (which includes an amount of Rs. 57,557/- in relation to Applicant No 1) for the project 'Laxmi Apartment'. The Authority finds no reason to differ from the above detailed computation of profiteered amount by the DGAP or the methodology adopted by it. The Authority finds that the Respondent has profiteered an amount of Rs. 6,33,70,091/- (Rupees Six Crore Thirty Three Lacs Seventy Thousand Ninety One only) during the period under present investigation. This includes an amount of Rs. 57,577/- in relation to Applicant No 1. Therefore given the above facts, the Authority under Rule 133(3)(a) of the CGST Rules orders that the Respondent shall reduce the price to be realized from the customers/flat buyers/recipients commensurate with the benefit of additional ITC received by him. The Respondent has denied the benefit of ITC to the buyers of his flats in contravention of the provisions of section 171(1) of the CGST Act, 2017. We hold that the Respondent has committed an offence by violating the provisions of section 171(1) during the period from 1-7-2017 to 31-10-2020 and therefore, he is liable for imposition of penalty under the provisions of section 171(3A) of the above Act - there exists reason to investigate Respondent's other projects, if any, for the purpose of determination of profiteering Accordingly this Authority as per the provisions of section 171(2) of the CGST Act, 2017 read with rule 133(5) CGST Rules, 2017 directs the DGAP to conduct investigation in respect of Respondent's other projects if any under the same GSTIN: 06AAFCO088311Z8. Accordingly this Order having been passed today fails within the limitation prescribed under rule 133(1) of the CGST Rules, 2017. Issues Involved:1. Verification of Input Tax Credit (ITC) benefit passed on to buyers.2. Calculation of interest on profiteered amount.3. Reconciliation of turnover discrepancies.4. Eligibility of VAT credit claimed.5. Methodology for calculating profiteering.6. Segregation of pre-GST and post-GST periods.7. Applicability of anti-profiteering provisions to different parts of the project.Issue-wise Analysis:1. Verification of ITC Benefit Passed on to Buyers:The Respondent claimed to have passed on ITC benefits amounting to Rs. 1,55,06,800/- to buyers. The DGAP was directed to verify this by obtaining acknowledgments from 10% of the buyers. It was found that the Respondent had passed on Rs. 1,41,636/- to 7 homebuyers, including Rs. 19,680/- to the Applicant. However, the Respondent still needed to pass on Rs. 6,32,28,455/- to 820 homebuyers, including Rs. 37,877/- to the Applicant.2. Calculation of Interest on Profiteered Amount:The Respondent was directed to pass on interest at 18% on the profiteered amount from the date of receiving additional consideration until the ITC benefit was passed on. The DGAP was instructed to compute and ensure the payment of interest to eligible buyers.3. Reconciliation of Turnover Discrepancies:The Respondent's turnover for the periods April 2016 to June 2017 and July 2017 to June 2019 needed reconciliation. The Respondent provided figures for other projects and copies of GSTR-9, substantiating that the turnover in statutory returns included figures from multiple projects.4. Eligibility of VAT Credit Claimed:The Respondent claimed VAT credit of Rs. 1,07,07,174/- for the period April 2016 to June 2017. The DGAP verified the eligibility of this claim based on the Haryana VAT Act, 2003, and found that the Respondent was eligible for the claimed VAT credit.5. Methodology for Calculating Profiteering:The DGAP used the ratio of ITC to turnover for calculating the profiteered amount. The Respondent contested this methodology, arguing that it did not consider the actual benefit of ITC and used incorrect tax rates. The DGAP clarified that the methodology was consistent with legal principles and had been upheld in similar cases.6. Segregation of Pre-GST and Post-GST Periods:The DGAP compared the percentage of ITC to turnover in pre-GST (April 2016 to June 2017) and post-GST (July 2017 to October 2020) periods. The ITC as a percentage of turnover increased from 1.61% pre-GST to 9.88% post-GST, indicating an additional ITC benefit of 8.27%.7. Applicability of Anti-Profiteering Provisions to Different Parts of the Project:The Respondent argued that Tower 10 should be excluded from the investigation as it was launched in the post-GST regime. The DGAP and the Authority found that since the entire project had a single RERA registration, the investigation covered all parts of the project. The Respondent's claim was not tenable, and the investigation was correctly carried out for the entire project.Conclusion:The Authority found that the Respondent had profiteered an amount of Rs. 6,33,70,091/- and ordered the Respondent to pass on this amount to the buyers along with 18% interest. The Respondent was also directed to reduce the price commensurate with the ITC benefit. The jurisdictional CGST/SGST Commissioner was tasked with ensuring compliance and submitting a report within four months. The Authority also directed the DGAP to investigate the Respondent's other projects for potential profiteering.