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, 2017. The profiteered amount was calculated at Rs. 1,48,60,874, with the Respondent required to pass on an additional Rs. 37,27,293 to buyers. The Authority ordered the Respondent to reduce prices for buyers, pass on the balance amount of Rs. 57,76,610 with interest, and issued a Show Cause Notice for a penalty under Section 122(1)(i) of the CGST Act, 2017. Monitoring of compliance was directed to the Commissioners of CGST/SGST Haryana.

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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.

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