Real estate developer ordered to refund Rs. 1.45 crore for not passing ITC benefits to flat buyers under Section 171

NAPA determined that respondent real estate developer failed to pass on ITC benefits to flat purchasers under Section 171 of CGST Act, 2017. Authority found respondent's ITC increased from 0.92% to 4.26% of turnover post-GST implementation, creating additional benefit of 3.34%. NAPA ordered respondent to refund profiteered amount of Rs. 1,45,87,404 including Rs. 86,215 to applicant, with 18% interest from profiteering date until payment. Authority also directed respondent to reduce future prices commensurate with ITC benefits received.

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Issues Involved:
1. Whether there was the benefit of reduction in the rate of tax or ITC on the supply of construction service by the Respondent after implementation of GST w.e.f. 1-7-2017.
2. Whether the Respondent passed on such benefit to the recipients by way of commensurate reduction in price, in terms of section 171 of the Central Goods and Services Tax Act, 2017.

Detailed Analysis:

Issue 1: Benefit of Reduction in Rate of Tax or ITC Post-GST
- The DGAP conducted an investigation to determine if the benefit of ITC had been passed on by the Respondent to Applicant No. 1 concerning the construction service supplied.
- The investigation period was from 1-7-2017 to 31-12-2019.
- The Respondent was eligible to avail credit of Service Tax paid on input services before GST and could avail ITC of GST paid on all inputs and input services post-GST.
- The DGAP's report indicated that the ITC as a percentage of turnover available to the Respondent during the pre-GST period was 0.92%, and during the post-GST period, it was 4.26%, confirming an additional benefit of ITC to the tune of 3.34% post-GST.

Issue 2: Passing on the Benefit to Recipients
- Section 171 of the CGST Act mandates that any reduction in tax rate or benefit of ITC must be passed on to the recipient by way of commensurate reduction in prices.
- The DGAP's report calculated that the Respondent derived an additional benefit of ITC amounting to Rs. 1,45,87,404/- (inclusive of GST) for the project "Ruparel Orion."
- The Respondent contended that there were mistakes in the DGAP's report and recalculated the profiteered amount to be Rs. 8,43,443/-. However, the DGAP's figures were based on the facts and data submitted by the Respondent himself.
- The Authority found that the Respondent had not passed on the additional ITC benefit of 3.34% to the recipients, including Applicant No. 1, and upheld the DGAP's calculation of Rs. 1,45,87,404/- as the amount to be refunded or adjusted.

Judgment and Orders:
- The Respondent is ordered to refund/return/pass on the profiteered amount of Rs. 1,45,87,404/- along with interest @18% from the date of profiteering till the date of payment.
- The Respondent must reduce the prices to be realized from homebuyers/customers/recipients commensurate with the benefit of ITC received.
- The DGAP is directed to investigate all other projects of the Respondent under the same GST registration to ensure compliance with Section 171 of the CGST Act, 2017.
- The concerned jurisdictional CGST/SGST Commissioner is directed to ensure compliance with this order and submit a compliance report within four months.
- The Respondent is liable to pass on the benefit of ITC till the date of issue of the Completion Certificate (CC).

Additional Directives:
- An advertisement must be published in local newspapers to inform homebuyers/customers about the profiteering amount and their eligibility to claim the benefit of ITC.
- The Hon'ble Supreme Court's orders extending the period of limitation due to the Covid-19 pandemic were acknowledged, ensuring that the judgment falls within the prescribed limitation period.

Conclusion:
The Authority concluded that the Respondent had profiteered by not passing on the benefit of additional ITC to the recipients post-GST implementation. The Respondent is required to refund the profiteered amount and adjust future prices to reflect the benefit of ITC.

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