Respondent found guilty of not passing on Input Tax Credit benefit to buyers, ordered to refund Rs. 3,58,90,871/

Shri Dharmendra Gaud, Director General of Anti-Profiteering, Central Board of Indirect Taxes and Customs Versus M/s. JMK Holdings Pvt. Ltd.

Shri Dharmendra Gaud, Director General of Anti-Profiteering, Central Board of Indirect Taxes and Customs Versus M/s. JMK Holdings Pvt. Ltd. - TMI Issues Involved:
1. Whether there was any benefit of reduction in the rate of tax or input tax credit (ITC) on the supply of construction services by the Respondent after the implementation of GST.
2. Whether such benefit was passed on to the Applicant No. 1 in terms of Section 171 of the CGST Act, 2017.
3. Whether the Respondent has contravened the provisions of Section 171 of the CGST Act, 2017 by not passing on the benefit of ITC to the buyers.
4. Whether the proceedings could be discontinued based on the Applicant No. 1's withdrawal of the complaint.
5. The methodology and procedure for determining profiteering under Section 171 of the CGST Act, 2017.
6. The timing of passing on the benefit of ITC to the buyers.
7. The computation of the profiteered amount and the requirement for the Respondent to refund the same.

Detailed Analysis:

Issue 1: Benefit of Reduction in Rate of Tax or ITC
The DGAP's investigation revealed that the input tax credit (ITC) as a percentage of turnover available to the Respondent during the pre-GST period (April 2016 to June 2017) was 4.76%, whereas during the post-GST period (July 2017 to December 2018), it was 7.27%. This confirmed that post-GST, the Respondent benefited from additional ITC to the tune of 2.51% of the turnover.

Issue 2: Passing on the Benefit to Applicant No. 1
The Respondent did not pass on the benefit of ITC to the Applicant No. 1 by way of commensurate reduction in prices. The DGAP's report indicated that the Respondent had collected an additional amount of Rs. 40,606/- from the Applicant No. 1, which included both the profiteered amount and GST on the profiteered amount.

Issue 3: Contravention of Section 171 of the CGST Act, 2017
The Respondent contravened the provisions of Section 171 of the CGST Act, 2017 by not reducing the pre-GST base price by 2.51% on account of the additional benefit of ITC and charging GST at the increased rate on the pre-GST base price. The total profiteered amount during the period from 01.07.2017 to 31.12.2018 was Rs. 3,58,90,871/-, including GST.

Issue 4: Withdrawal of the Complaint by Applicant No. 1
The Respondent claimed that the Applicant No. 1 had withdrawn his complaint, and hence no investigation could have been done against him. However, it was observed that there is no provision in the CGST Act or Rules for withdrawal of the complaint, and the DGAP is bound to investigate once the Standing Committee on Anti-Profiteering recommends it. The withdrawal of the complaint was not taken to be bonafide and genuine.

Issue 5: Methodology and Procedure for Determining Profiteering
The Respondent contended that the methodology and procedure for determining profiteering were not provided. However, it was clarified that the basis and reasons for computing profiteering are mentioned in Section 171 (1) of the CGST Act, which requires passing on the benefit of reduction in tax rate or ITC by way of commensurate reduction in prices.

Issue 6: Timing of Passing on the Benefit of ITC
The Respondent argued that the benefit of ITC should be passed on at the end of the project. However, it was held that the benefit must be passed on as soon as the Respondent avails the ITC for discharging his output tax liability. The Respondent cannot use the ITC every month and delay passing on the benefit to the buyers until the project's completion.

Issue 7: Computation of the Profiteered Amount and Refund Requirement
The DGAP computed the profiteered amount as Rs. 3,58,90,871/- based on the information reflected in the Returns filed by the Respondent and the details submitted by him. The Respondent was ordered to refund the profiteered amount to the buyers, including Rs. 40,606/- to the Applicant No. 1, along with interest @18% PA from the date of excess collection until the date of payment.

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 ITC to the buyers. The total profiteered amount was determined as Rs. 3,58,90,871/-, and the Respondent was ordered to refund this amount to the buyers along with applicable interest. The Respondent was also directed to reduce the prices to be realized from the buyers commensurate with the benefit of ITC received. A Show Cause Notice was to be issued to the Respondent for imposing a penalty under Section 171 (3A) of the CGST Act, 2017.