2019 (12) TMI 585 - NAPA - GST

Failure to Pass on Benefits: CGST Violation

Sh. Pawan Kumar and 71 Others Versus M/s. S3 Buildwell LLP

The Authority found that the Respondent received a net additional benefit of Input Tax Credit (ITC) post-GST implementation. The Respondent was held to ... Profiteering - purchase of flats in the Respondent’s project “Floridaa” - benefit of input tax credit (ITC) not passed on by way of commensurate reduction in prices - contravention of section 171 of CGST Act - penalty - HELD THAT:- The Respondent has profiteered by an amount of ₹ 2,69,77,661/- during the period of investigation. Therefore, in view of the above facts, this Authority under Rule 133 (3) (a) of the CGST Rules, 2017, orders that the Respondent shall reduce/refund the price to be realized from the buyers of the flats commensurate with the benefit of ITC received by him as has been detailed above. As far as the final computation of the additional ITC that will be available to the Respondent is concerned, the same could not be determined at the time of investigation by the DGAP, as the construction of the project was yet to be completed. As the present investigation has been conducted only up to 31.12.2018, therefore, we order that any additional benefit of ITC, which may accrue to the Respondent subsequently, shall also be passed on by him to all the eligible buyers. In case this additional benefit is not passed on to the Applicants No. 1 to 71 or to other eligible buyers, they shall be at liberty to approach the Haryana State Level Screening Committee for initiating fresh proceedings under the provisions of Section 171 of the above Act against the Respondent. Penalty - HELD THAT:- The Respondent has denied benefit of ITC to the buyers of the flats being constructed by him 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 - Accordingly, 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. Application disposed off. Issues Involved:1. Whether there was any net additional benefit of ITC to the Respondent.2. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017, by not passing on the benefit of ITC by the Respondent.Detailed Analysis:1. Net Additional Benefit of ITC to the Respondent:The DGAP conducted a detailed investigation and concluded that the Respondent benefited from additional ITC post-GST implementation. The ITC ratio to turnover was calculated for both pre-GST and post-GST periods, revealing a significant increase from 2.60% to 7.37%, resulting in an additional benefit of 4.77%. The Respondent's claim that the DGAP's calculations were arbitrary was dismissed, as the DGAP's methodology was based on actual figures from the Respondent's returns and not averages. The DGAP's findings were supported by detailed tables (Table-B and Table-C) illustrating the ITC ratios and the recalibrated base prices.2. Violation of Provisions of Section 171 of the CGST Act, 2017:The DGAP's report indicated that the Respondent failed to pass on the benefit of the additional ITC to the buyers, thereby violating Section 171 of the CGST Act, 2017. The total profiteered amount was calculated to be Rs. 2,69,77,661/-. The Respondent's argument that the benefit should be passed on at the completion of the project was rejected. The Authority held that the benefit should be passed on monthly as the Respondent avails the ITC. The Respondent's claim of having passed on Rs. 2,22,85,626/- was not substantiated with documentary evidence, and thus, the DGAP's findings were upheld.Conclusion and Orders:The Authority ordered the Respondent to refund/reduce the price commensurate with the benefit of ITC received, along with interest at 18% from the date of realization till payment. The total amount to be refunded was Rs. 2,69,77,661/-. The Respondent was also found liable for penalty under Section 171 (3A) of the CGST Act, 2017, and a Show Cause Notice was issued. The Commissioners of CGST/SGST Haryana were directed to monitor the compliance of this order under the supervision of the DGAP, with a compliance report to be submitted within three months.