2019 (3) TMI 369 - NAPA - GST

Respondent Ordered to Pass on Tax Benefit Savings to Buyers

The Respondent was found to have not passed on the full benefit of additional Input Tax Credit (ITC) to buyers, violating Section 171 of the CGST Act, ... Benefit of input tax credit - commensurate reduction in prices - profiteering - violation of Section 171 of the CGST Act, 2017 (failure to pass on ITC) - imposition of penalty under Section 122 of the CGST Act, 2017 - return of amount not passed on with interest at 18%Reduction in tax rate for construction services (effective 12% and subsequently 8%) - There was a reduction in the effective rate of tax on the construction service: 12% (effective) from 01.07.2017 and reduction to 8% effective from 25.01.2018. - HELD THAT: - The Authority noted the Central Government notifications which fixed the effective GST on construction service at 12% from 01.07.2017 (accounting for the 1/3rd abatement) and the subsequent reduction to an effective rate of 8% for affordable housing with effect from 25.01.2018. The profiteering calculations were therefore separated into two periods-01.07.2017 to 24.01.2018 (12% rate) and 25.01.2018 to 31.08.2018 (8% rate)-for correct computation of the benefit to be passed on to recipients. The Authority accepted the DGAP's treatment and calculations applying these effective rates. [Paras 22]Reduction in the effective tax rate was recognised as 12% (from 01.07.2017) and 8% (from 25.01.2018) and the profiteering calculation was framed in two parts accordingly.Net additional benefit of input tax credit - ratio of input tax credit to taxable turnover - The Respondent obtained a net additional benefit of input tax credit post-GST amounting to 2.84% of taxable turnover (increase from 3.65% pre-GST to 6.49% post-GST). - HELD THAT: - On the basis of the Respondent's pre-GST and post-GST returns and supporting documents, the DGAP computed the ratio of CENVAT/ITC to taxable turnover as 3.65% for April 2016-June 2017 (pre-GST) and 6.49% for 01.07.2017-31.08.2018 (post-GST). The Authority found these computations to be correctly derived from the submitted data and accepted the DGAP's conclusion that the Respondent enjoyed an incremental ITC benefit of 2.84% of taxable turnover which ought to have been passed on to recipients by way of commensurate price reduction. [Paras 21, 22]Net additional ITC benefit of 2.84% of taxable turnover was held to have accrued to the Respondent and required passing on to buyers.Violation of Section 171 of the CGST Act, 2017 (failure to pass on ITC) - return of amount not passed on with interest at 18% - imposition of penalty under Section 122 of the CGST Act, 2017 - The Respondent contravened Section 171 by not fully passing on the ITC benefit; the Authority computed the total profiteered amount for 01.07.2017 to 31.08.2018 and ordered refund/adjustment with interest and initiation of penalty proceedings. - HELD THAT: - The DGAP calculated the total profiteered amount for the period 01.07.2017-31.08.2018 as arising from the 2.84% incremental ITC and the applicable GST rates in the two sub-periods. The Authority accepted the DGAP's computations and verification of payments already made by the Respondent, concluding that: (a) for 651 residential units and 13 commercial units identified the profiteered amount aggregated to the figures computed by DGAP; (b) portions already paid by the Respondent were recorded and the balance (identified and quantified by the DGAP and accepted by the Respondent) remained payable to identifiable recipients; and (c) the Respondent issued incorrect tax invoices and realised higher amounts than entitled to collect. Accordingly, under Rule 133(3)(a) the Respondent was directed to reduce prices/return the balance amounts to identified buyers with interest at 18% from the date of collection, and a show-cause notice was ordered for imposition of penalty under Section 122 read with the Rules. [Paras 23, 24, 25, 26]The Authority held that Section 171 was contravened; directed refund/adjustment of the identified balance profiteered amount to the buyers with interest @18% and ordered issuance of a show-cause notice for penalty; Commissioners of CGST/SGST Haryana to monitor compliance.Final Conclusion: The Authority found that (i) effective GST on the construction service was 12% from 01.07.2017 and reduced to 8% from 25.01.2018; (ii) the Respondent obtained a net additional ITC benefit of 2.84% of taxable turnover post-GST which was not fully passed on; and (iii) the Respondent had profiteered during 01.07.2017-31.08.2018 as computed by the DGAP. The Authority ordered return/adjustment of the identified balance profiteered amounts to the eligible buyers with interest at 18%, directed initiation of penalty proceedings by issuing a show-cause notice under Section 122, and entrusted Commissioners CGST/SGST Haryana (under DGAP supervision) to monitor and report compliance. Issues Involved:1. Whether there was a reduction in the rate of tax on the service in question w.e.f. 01.07.2017 and w.e.f. 25.01.2019Rs.2. Whether there was any net additional benefit of Input Tax Credit (ITC)Rs.3. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017, by not passing on the benefits by the RespondentRs.Issue-wise Detailed Analysis:I. Reduction in the Rate of Tax:The DGAP's report and the Authority's examination confirmed that the Central Government levied an 18% GST on construction services, with an effective rate of 12% considering a 1/3rd abatement on the land value. This rate was subsequently reduced to 8% for affordable and low-cost housing, effective from 25.01.2018. Thus, the tax rate on the service in question was indeed reduced from 12% to 8% as of 25.01.2018.II. Net Additional Benefit of ITC:The DGAP's investigation revealed that the Respondent benefited from an additional ITC post-GST implementation. The ITC as a percentage of the total turnover available to the Respondent during the pre-GST period (April 2016 to June 2017) was 3.65%, and during the post-GST period (July 2017 to August 2018), it was 6.49%. This indicated an additional ITC benefit of 2.84% post-GST. The Respondent admitted to this benefit and had passed on some of it to the buyers, though not entirely.III. Violation of Section 171 of the CGST Act, 2017:The DGAP's report established that the Respondent had not passed on the full benefit of the additional ITC to the recipients, thereby violating Section 171 of the CGST Act, 2017. The DGAP calculated the total profiteered amount to be Rs. 1,48,60,874, which included GST on the base profiteered amount. The Respondent had passed on Rs. 1,11,33,581 but was still required to pass on an additional Rs. 37,27,293 to the buyers.Conclusion and Orders:The Authority ordered the Respondent to reduce the price to be realized from the buyers commensurate with the benefit of ITC received. The Respondent was directed to pass on the balance amount of Rs. 57,76,610 to the identified buyers, along with interest at 18% from the date of receipt of the amount until the date it is refunded/adjusted. The Respondent was found to have committed an offence under Section 122 (1) (i) of the CGST Act, 2017, and a Show Cause Notice was issued for the imposition of a penalty.The Commissioners of CGST/SGST Haryana were directed to monitor the compliance of this order under the supervision of the DGAP and submit a compliance report within three months. Copies of the order were supplied to all relevant parties for necessary action.