2019 (7) TMI 138 - NAPA - GST

Analysis of Benefit Passing in Construction Services Post-GST Implementation Under Section 171

Shri Ramesh Kumar Yadav, Sh. K.S. Dhingra, Director General of Anti-Profiteering, Indirect Taxes and Customs Versus M/s. Vatika Ltd.,

The case involved an analysis of whether there was a violation of Section 171 of the CGST Act, 2017 regarding passing on the benefit of tax rate reduction ... Profiteering - supply of construction services related to purchase of an apartment in the project “Independent Floor Phase-II” - benefit of Input Tax Credit (ITC) by way of commensurate reduction in the price of the apartment purchased by him, on implementation of GST not passed on - contravention of provision of Section 171 of the CGST Act, 2017 - penalty - HELD THAT:- It is clear from the plain reading of Section 171 (1) mentioned above that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second pertaining to the passing on the benefit of the 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 no ITC has been availed by the Respondent in the post-GST period and therefore, there was no additional benefit of ITC which had accrued to the Respondent post-GST as compared to pre-GST period. In view of the fact that there was no reduction in the rate of tax nor there was increased additional benefit on account of ITC, the provisions of Section 171 of CGST Act, 2017 could not be invoked in this case. The allegation of not passing on the benefit of ITC is not established. Even the charging of GST @18% in post-GST regime is not within the scope of Section 171 of CGST Act, 2017 - The DGAP in his investigation Report has clearly stated that in the post-GST regime the Respondent had not availed ITC and there was no ITC available with the Respondent, the benefit of which could have been passed on to the recipients. The provisions of Section 171 of the CGST Act, 2017 are not attracted in the present case and therefore, the contentions of the Applicant No. 2 also do not fall under the scope of Section 171 of the CGST Act, 2017. Further, it has been revealed from the records that Respondent had completed the project “Independent Floor Phase-Il” prior to implementation of the GST and he had neither availed ITC on any of the inputs procured in the GST Regime, nor had he availed/carried forward the pre-GST credit pertaining to the stock held in hand as on 30.06.2017. Therefore, he is not liable to pass on the benefit of ITC to the above Applicants - the provisions of Section 171 (1) of the CGST Act, 2017 which state that “a reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices”, have not been contravened in the present case, as the same are not even applicable. The allegation that the Respondent has not passed on the benefit of ITC is not sustainable - the application filed by the Applicant requesting action against the Respondent for alleged violation of the provisions of the Section 171 of the CGST Act is not maintainable and hence the same is dismissed. Issues Involved:1. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017.2. If yes, then what was the quantum of profiteeringRs.Issue-wise Detailed Analysis:1. Violation of Section 171 of the CGST Act, 2017:The main issue to be determined was whether there was any benefit of reduction in the rate of tax or the Input Tax Credit (ITC) on the supply of construction services by the Respondent after the implementation of GST w.e.f. 01.07.2017, and if so, whether such benefit was passed on to the recipients, in terms of Section 171 of the CGST Act, 2017.The Director General of Anti-Profiteering (DGAP) carried out an investigation for the period from 01.07.2017 to 31.08.2018. The DGAP's report stated that the Respondent had not availed any ITC post-GST implementation and hence, there was no ITC available with the Respondent that should have been passed on to the recipients. Therefore, the provisions of Section 171 of the CGST Act, 2017 were not attracted in the present case.The DGAP's report further clarified that there had been no reduction in the rate of tax in the post-GST period. Consequently, the only issue to be examined was whether there was any net benefit of ITC with the introduction of GST. Since no ITC was availed by the Respondent in the post-GST period, there was no additional benefit of ITC that had accrued to the Respondent post-GST as compared to the pre-GST period.The Authority concluded that the Respondent had not availed any ITC in the post-GST regime, and therefore, the allegation of not passing on the benefit of ITC was not established. The charging of GST @18% in the post-GST regime was also not within the scope of Section 171 of the CGST Act, 2017.2. Quantum of Profiteering:Since it was established that there was no violation of Section 171 of the CGST Act, 2017, the question of determining the quantum of profiteering did not arise.Conclusion:The Authority carefully examined the DGAP's report, the written submissions of the Applicants, and the Respondent. It was revealed that the Respondent had completed the project 'Independent Floor Phase-II' prior to the implementation of GST and had neither availed ITC on any of the inputs procured in the GST regime nor carried forward the pre-GST credit pertaining to the stock held in hand as on 30.06.2017. Therefore, the Respondent was not liable to pass on the benefit of ITC to the Applicants.The provisions of Section 171 (1) of the CGST Act, 2017, which state that 'any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices,' were not contravened in the present case, as the same were not even applicable.Order:The application filed by the Applicant requesting action against the Respondent for the alleged violation of the provisions of Section 171 of the CGST Act was not maintainable and was dismissed. A copy of the order was sent to both the Applicants and the Respondent free of cost.