Respondent ordered to refund over Rs. 5.3 crore profiteered amount to buyers for violating CGST Act

The Respondent in the case failed to pass on the benefit of additional Input Tax Credit (ITC) to buyers, violating Section 171 of the CGST Act, 2017. The profiteered amount was determined to be Rs. 5,30,34,074, and the Respondent was directed to refund/reduce prices for buyers accordingly. Additionally, the Respondent was ordered to pay the profiteered amount to eligible buyers with interest and faced penalties under Section 171 (3A) of the CGST Act, 2017. Monitoring and compliance enforcement were assigned 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 construction service rendered by the Respondent to the Applicants w.e.f. 01.07.2017Rs.
2. Whether there was any additional benefit of Input Tax Credit (ITC) to the Respondent which was required to be passed on by him to his buyersRs.
3. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 committed by the Respondent by not passing on the above benefitRs.

Detailed Analysis:

1. Reduction in the Rate of Tax:
- The Respondent admitted that he availed CENVAT Credit under the Service Tax law and ITC under the Haryana Value Added Tax Act, 2003. The Service Tax was exempted for Affordable Housing Schemes through Notification No. 09/2016-Service Tax dated 01.03.2016, and he was not charging Service Tax from his customers.
- The Respondent was availing ITC on VAT under the regular scheme to discharge his VAT liability.
- Post-GST, the Respondent became eligible to claim the benefit of ITC on Excise Duty, which was not available pre-GST. However, the Respondent’s contention to adjust ITC at the time of handing over possession was not accepted as per Section 171 of the CGST Act, 2017.

2. Additional Benefit of ITC:
- The DGAP reported that the ITC as a percentage of the total turnover available to the Respondent during the pre-GST period (April 2016 to June 2017) was 0.49%, and during the post-GST period (July 2017 to August 2018), it was 7.73%, confirming that the Respondent benefited from additional ITC to the tune of 7.24% of the turnover.
- The DGAP computed the profiteered amount based on the comparison of the ratio of CENVAT credit to turnover during the pre-GST period and the benefit of ITC to turnover during the post-GST period.
- The Respondent’s methodology for calculating the profiteered amount based on material cost was not accepted as it was not verified and did not apply the correct interpretation of Section 171.

3. Violation of Section 171 of the CGST Act, 2017:
- The DGAP confirmed that the Respondent did not pass on the benefit of additional ITC through commensurate reduction in the price of the flats.
- The total profiteered amount during the period from 01.07.2017 to 31.08.2018 was determined as Rs. 5,30,34,074/- which includes GST @12% or 8% on the base profiteered amount of Rs. 4,82,18,816/-.
- The Respondent was directed to refund/reduce the price to be realized from the buyers of the flats commensurate with the benefit of ITC received by him.
- The Respondent was also directed to pay the profiteered amount to the eligible house buyers along with interest @18% from the date these amounts were realized till they are paid, within three months from the date of the order.

Conclusion:
- The Respondent contravened the provisions of Section 171 of the CGST Act, 2017 by not passing on the benefit of additional ITC to the buyers.
- The Respondent is liable for imposition of penalty under Section 171 (3A) of the CGST Act, 2017.
- The Commissioners of CGST/SGST Haryana were directed to monitor the order and ensure compliance, with a report to be submitted to the Authority within four months.

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