2018 (9) TMI 1107 - NAPA - GST

Construction company must refund excess GST amounts to 2,476 flat buyers with 18% interest under Section 171

The National Anti-Profiteering Authority (NAPA) found that a construction service provider failed to pass on Input Tax Credit (ITC) benefits to flat ... Passing on benefit of input tax credit - anti-profiteering under Section 171(1) - commensurate reduction in prices - calculation of profiteering based on ITC-to-taxable-turnover ratio - refund with interest - penalty under Section 122 - monitoring and implementation by State Tax CommissionerAnti-profiteering under Section 171(1) - passing on benefit of input tax credit - commensurate reduction in prices - Whether the respondent violated the obligation to pass on the benefit of Input Tax Credit to buyers under Section 171(1) of the CGST Act, 2017. - HELD THAT: - Section 171(1) requires that any benefit of input tax credit or reduction in tax rate be passed to recipients by way of commensurate reduction in prices. The Authority found that the respondent admitted availability of ITC after introduction of GST and did not dispute the additional ITC becoming available post-GST. The respondent's contentions that (a) the price could not be reduced because a maximum allotment rate existed under the Policy, (b) increased input costs (notably steel), and (c) tax paid by subcontractors justified retention of the benefit were examined and rejected. The Policy fixed only a maximum price; the respondent himself had offered the maximum rate and there was no contractual escalation clause preventing reduction. The Authority accepted the DGAP's method of comparing ITC as a percentage of taxable turnover pre- and post-GST (1.10% pre-GST; 7.20% post-GST) to establish an additional ITC benefit of 6.10%, and held that this excess ITC was required to be passed on. Consequently the respondent appropriated a concessionary benefit from government tax credit instead of passing it to buyers, contravening Section 171(1). [Paras 31, 32, 33, 34, 35]The respondent violated Section 171(1) by not passing on the benefit of ITC to the buyers.Calculation of profiteering based on ITC-to-taxable-turnover ratio - commensurate reduction in prices - Quantum of profiteering and the method of its calculation for the period up to 28.02.2018. - HELD THAT: - The Authority accepted the DGAP's comparative approach of computing ITC as a percentage of taxable turnover (pre-GST 1.10% versus post-GST 7.20%), resulting in an additional ITC benefit of 6.10%. Applying 6.1% as the rate of profiteering on base prices (Rs.4,000 per sq. ft. as the basic sale rate offered by the respondent) produced a recalibrated basic rate of Rs.3,756 per sq. ft.; applying the applicable GST rates to the recalibrated rate gave the amount that should have been charged. The difference between amounts actually charged and correctly recalibrated amounts yielded per sq. ft. profiteered sums (Rs.273.28 at 12% and Rs.263.52 at 8%). Using this method for all flats, the Authority determined total profiteering of Rs.8,22,80,998/- for 2,476 flats up to 28.02.2018. The Authority endorsed the DGAP's computations and applied the 6.1% principle consistently across buyer categories. [Paras 28, 36, 37, 38, 39]Profiteering amounted to Rs.8,22,80,998/- for all 2,476 flats (calculated at 6.1% of the base price and reconciled with applicable GST), covering the period up to 28.02.2018.Refund with interest - commensurate reduction in prices - Relief and remedial directions to buyers and manner of implementation. - HELD THAT: - Under Rule 133(3)(a) of the CGST Rules, the Authority directed the respondent to reduce prices or refund the excess amounts to all identifiable buyers (not restricted to complainants) commensurate with the ITC benefit found. The Authority ordered refund or reduction to each buyer as calculated, to be effected at the time of collecting the last installment, along with interest at 18% per annum calculated from the date of receipt of the excess amount by each buyer. The period of investigation was limited to 28.02.2018; any ITC benefit accruing thereafter must also be passed on. Compliance is to be completed within three months from receipt of the order. [Paras 37, 38, 39, 40]Respondent shall pass on the benefit to all buyers by refund or price reduction as calculated, with interest at 18% p.a., within three months; future ITC accruals must also be passed on.Penalty under Section 122 - show cause notice - Whether proceedings for imposition of penalty should be initiated against the respondent. - HELD THAT: - Having concluded that the respondent charged more than he was entitled to and issued incorrect tax invoices, the Authority held that the conduct constituted an offence under Section 122(1)(i) of the CGST Act, 2017. Accordingly, the Authority directed issuance of a show cause notice to the respondent to explain why penalty under Section 122 read with Rule 133(3)(d) of the CGST Rules, 2017 should not be imposed. [Paras 41]A show cause notice shall be issued to the respondent for imposition of penalty under Section 122 read with Rule 133(3)(d).Monitoring and implementation by State Tax Commissioner - Supervisory mechanism for ensuring compliance with the Authority's order. - HELD THAT: - The Authority, invoking Rule 136 of the CGST Rules, 2017, directed the Commissioner of State Tax, Haryana to monitor implementation of this order under DGAP supervision and to ensure that the ordered amount is passed on to all buyers. The Commissioner is required to submit a compliance report to the Authority within four months of receipt of the order. Copies of the order were directed to be supplied to relevant parties and the Principal Secretary (Town & Country Planning), Govt. of Haryana for necessary action. [Paras 42]Commissioner, State Tax Haryana to monitor compliance under DGAP supervision and file a report within four months.Final Conclusion: The Authority held that the respondent contravened Section 171(1) by not passing on the additional ITC benefit accruing after introduction of GST; applied the DGAP's ITC-to-taxable-turnover methodology to fix additional benefit at 6.10%; determined total profiteering of Rs.8,22,80,998/- for 2,476 flats up to 28.02.2018; directed refund/reduction to all buyers with 18% p.a. interest within three months; ordered initiation of penalty proceedings by issuing a show cause notice; and directed the State Tax Commissioner to monitor compliance and report within four months. Issues Involved:1. Violation of Section 171 of the CGST Act, 2017.2. Quantum of profiteering.Detailed Analysis:Issue 1: Violation of Section 171 of the CGST Act, 2017The case revolves around allegations that the Respondent did not pass on the benefit of Input Tax Credit (ITC) to the Applicants in respect of the construction service supplied. The Applicants booked flats under the Haryana Affordable Housing Policy 2013 and alleged that the Respondent charged 12% and 8% GST post-CGST implementation without passing the ITC benefits, contravening Section 171 of the CGST Act, 2017. The Haryana State Screening Committee forwarded these applications to the Standing Committee on Anti-profiteering, which then referred them to the Director General of Anti-profiteering (DGAP) for investigation.The DGAP's report confirmed that ITC was not available pre-GST but became available post-GST. The Respondent admitted the availability of ITC post-GST but argued that the provisions of Section 171 were not applicable as there was no reduction in tax rates and that the fixed price under the Haryana Affordable Housing Policy did not allow for price reduction.The DGAP, however, maintained that Section 171 was applicable as it deals with both reduction in tax rates and the benefit of ITC. The DGAP's investigation revealed that the ITC to taxable turnover ratio increased from 1.10% pre-GST to 7.20% post-GST, indicating an additional benefit of 6.10% that should have been passed on to the Applicants.The Authority concluded that the Respondent violated Section 171 by not passing on the ITC benefits to the Applicants. The Respondent's arguments regarding fixed pricing under the policy, increased input costs, and tax liability on sub-contractors were dismissed as they did not negate the obligation to pass on ITC benefits.Issue 2: Quantum of ProfiteeringThe DGAP initially reported nil profiteering for the period from July 2017 to January 2018 and 3.35% for the period from January 25, 2018, to February 2018. However, the Applicants argued that the profiteering was 6.10% for both periods. The DGAP's revised calculations, based on the principle of 6.1% profiteering, determined the total profiteered amount as Rs. 8,22,80,998/- for all 2476 flats.The Authority agreed with the DGAP's revised calculations and held that the Respondent had profiteered Rs. 8,22,80,998/- from the flat owners. The Respondent was ordered to reduce the price commensurate with the ITC benefits and refund or reduce the amount to each buyer along with 18% interest per annum within three months.The Authority also directed the Commissioner of State Tax Haryana to monitor the compliance of this order under the supervision of the DGAP and submit a compliance report within four months. Additionally, a Show Cause Notice was issued to the Respondent for imposition of penalty under Section 122 of the CGST Act, 2017.Conclusion:The judgment concluded that the Respondent violated Section 171 of the CGST Act by not passing on the ITC benefits to the Applicants, resulting in profiteering. The Respondent was ordered to refund the profiteered amount with interest and faced potential penalties under Section 122 of the CGST Act. The Commissioner of State Tax Haryana was tasked with ensuring compliance with the order.