2019 (11) TMI 1085 - NAPA - GST

Respondent ordered to refund profiteered amount under CGST Act for failure to pass on ITC benefits

The Respondent was found to have contravened Section 171 of the CGST Act, 2017 by not passing on the benefit of additional Input Tax Credit (ITC) to ... Profiteering - purchase of a flat in the Respondent's project “Synera”, situated at Sector-81, Gurugram, Haryana - benefit of Input Tax Credit (ITC) to him by way of commensurate reduction in price not passed on - contravention of Section 171 of the Central Goods and Services Tax Act, 2017 - penalty - HELD THAT:- It is clear that the ITC as a percentage of the turnover that was available to the respondent during the pre-GST period from April, 2016 to June, 2017 was 4% and during post-GST period from July, 2017 to December, 2018, it was 6.61% and hence it is established that the respondent had benefitted from the benefit of additional ITC to the extent of 2.61% (6.61% - 4%) of the turnover. It is also clear from the record that the Central Government, on the recommendation of the GST council, had levied 18% GST with effective rate of 12% in view of 1/3rd abatement on value on the construction service, vide N/N. 11/2017-Central Tax (rate) dated 28.06.2017 which was reduced in the case of affordable housing from 12% to 8%, vide N/N. 1/2018-Central Tax (rate) dated 25.01.2018. Penalty - HELD THAT:- The Respondent has denied benefit of ITC to the buyers of the flats and the shops being constructed by him in his Project ‘Synera’ in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty under the provisions of the above Section - a Show Cause Notice be issued to him directing him to explain as to why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him. Issues Involved:1. Whether there was any reduction in the rate of tax on the supply of goods and services involved in the execution of works contract in the current GST regime.2. Whether the benefit already credited/passed on to the buyers before the initiation of proceedings would be treated as compliance with the provisions of Section 171 of the CGST Act, 2017.3. Whether the Applicant No. 1 had misled the investigation by not providing complete facts about the receipt of benefit of ITC.4. Whether the Respondent had contravened the provisions of Section 171 of the CGST Act, 2017 by not passing on the benefit of ITC to the recipients.Detailed Analysis:1. Reduction in Tax Rate:The Respondent argued that there was no reduction in the rate of tax on the supply of goods and services in the GST regime compared to the pre-GST regime. Instead, there was an increase in the rate of GST by approximately 3.5%. The DGAP's investigation revealed that the ITC as a percentage of turnover available to the Respondent during the pre-GST period was 4.00%, and during the post-GST period, it was 6.61%, confirming that the Respondent benefited from additional ITC to the tune of 2.61% of the turnover. Thus, the Respondent had benefited from additional ITC post-GST, which should have been passed on to the recipients.2. Benefit Already Credited/Passed On:The Respondent claimed that he had already credited/passed on the benefit to the buyers before the initiation of proceedings. However, the DGAP found that the benefit passed on by the Respondent was not sufficient. The DGAP's report showed that while the Respondent claimed to have passed on benefits amounting to Rs. 1,47,68,865/-, the actual benefit that needed to be passed on was Rs. 1,42,06,267/-. The DGAP also observed that the Respondent had not provided sufficient evidence to verify the claimed benefit passed on to the buyers.3. Misleading Investigation:The Respondent contended that the Applicant No. 1 had misled the investigation by not disclosing the receipt of the benefit of ITC. However, the DGAP found that the application was filed on 29.09.2018, prior to the date of receipt of benefit from the Respondent on 01.11.2018. Therefore, the Applicant No. 1 could not have misled the investigation.4. Contravention of Section 171:The DGAP's investigation revealed that the Respondent had not passed on the benefit of additional ITC to the recipients, thus contravening the provisions of Section 171 of the CGST Act, 2017. The total benefit of ITC that needed to be passed on during the period from 01.07.2017 to 31.12.2018 was Rs. 1,42,06,267/-. The Respondent was ordered to reduce the prices commensurate with the benefit of ITC received and refund the profiteered amount to the flat buyers with interest @18% from the date of excess collection till the date of payment within three months from the date of the order.Conclusion:The Respondent was found to have contravened the provisions of Section 171 of the CGST Act, 2017 by not passing on the benefit of additional ITC to the recipients. The Respondent was ordered to refund the profiteered amount along with interest and reduce the prices commensurate with the benefit of ITC. A Show Cause Notice was issued to the Respondent to explain why the penalty prescribed under Section 171 (3A) should not be imposed. The Commissioners of CGST/SGST Haryana were directed to monitor the order and ensure compliance.