2020 (1) TMI 136 - NAPA - GST

Profiteering case post-GST: DGAP finds Rs. 2.1M benefit not passed on to buyers. Compliance with CGST Act

Sh. Susheel Prasad Todi, Director General of Anti-Profiteering, Central Board of Indirect Taxes & Customs, Versus M/s. Acme Housing India Pvt Ltd., Building

The case involved allegations of profiteering by the Respondent post-GST implementation. The DGAP found that the Respondent had not passed on the benefit ... Profiteering - purchase of flat - allegation that benefit of Input Tax Credit (ITC) by way of commensurate reduction in price w.e.f. 01.07.2017 not passed on - contravention of Section 171 of the CGST Act, 2017 - penalty - HELD THAT:- Perusal of the ledgers proves that the Respondent has given them rebate/discount and not passed on the full benefit of ITC as there is no such entry in their account statements. Granting of rebates/discounts is the most prevalent practice followed in the construction industry to increase sales and hence the above rebate cannot be equated with the passing on of the benefit of ITC. The Respondent has also not produced any reliable or cogent evidence either before the DGAP or this Authority in support of his contention that he has passed on the benefit of ITC by submitting the details of the entries made in his books of account or cheques issued to the buyers or the copies of the tax invoices/demand letters or the acknowledgements made by his customers of having received the benefit of ITC due to implementation of the GST - the Respondent has only claimed to have passed on the discount/rebate on account of GST which cannot amount to passing on the benefit of ITC as per the provisions of Section 171 (1) of the CGST Act, 2017. Therefore, the above claim of the Respondent is frivolous and hence, the same cannot be accepted. Thus, no benefit of ITC has yet been passed on to him by the Respondent. Accordingly, the Applicant No. 1 is entitled to an amount of ₹ 1,91,662/- including the GST as benefit of ITC along with interest @18% from the date from which the above amount was realised by the Respondents from him and that any amount passed on by the Respondent as a discount can’t be treated as passing of the benefit of ITC. It is established that the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent as he has profiteered an amount of ₹ 2,10,57,462/- which includes 12% GST on the base profiteered amount of ₹ 1,88,01,305/-. The Respondent has also realized an additional amount to the tune of ₹ 1,91,662/- from the Applicant No. 1 which includes both the profiteered amount @2.61% of the taxable amount (base price) and the GST on the said profiteered amount. Accordingly, the above amounts shall be paid to the above Applicant and the other eligible house buyers by the Respondent along with interest @18% from the date from which these amounts were realised from them till they are paid as per the provisions of Rule 133 (3) (b) of the CGST Rules, 2017, within a period of 3 months from the date of passing of this order. 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 ‘Fusion Homes’ 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 SCN 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. Alleged profiteering by the Respondent.2. Calculation of the benefit of Input Tax Credit (ITC).3. Passing on the benefit of ITC to home buyers.4. Methodology adopted by the DGAP for calculating profiteering.5. Compliance with Section 171 of the CGST Act, 2017.6. Penalty imposition for contravention of Section 171 (1) of the CGST Act, 2017.Issue-Wise Detailed Analysis:1. Alleged profiteering by the Respondent:The Applicant No. 1 alleged that the Respondent did not pass on the benefit of ITC by way of commensurate reduction in price after the implementation of GST. The Maharashtra State Screening Committee found a prima facie case and referred it to the DGAP for a detailed investigation.2. Calculation of the benefit of Input Tax Credit (ITC):The DGAP's investigation revealed that the Respondent had benefited from additional ITC post-GST, which should have resulted in a reduction in the basic price of the flats. The DGAP concluded that the input tax credit as a percentage of the turnover available to the Respondent during the pre-GST period was 1.05%, and during the post-GST period, it was 3.66%, showing an additional benefit of 2.61%.3. Passing on the benefit of ITC to home buyers:The DGAP calculated that the Respondent had not passed on the benefit of Rs. 2,10,57,462/- to the home buyers, including Rs. 1,91,662/- to Applicant No. 1. The Respondent claimed to have passed on Rs. 3,11,726/- to the Applicant, which was considered as a rebate/discount rather than the benefit of ITC. The Authority held that the Applicant No. 1 is entitled to Rs. 1,91,662/- along with interest @18% from the date of realization.4. Methodology adopted by the DGAP for calculating profiteering:The Respondent contested the methodology used by the DGAP, arguing that the ITC benefit should be calculated at the completion of the project. The DGAP, however, maintained that the calculation was based on the statutory documents submitted by the Respondent and the ratio of credit to turnover. The Authority upheld the DGAP's methodology, stating that it was in accordance with the statutory provisions and specific to the facts of the case.5. Compliance with Section 171 of the CGST Act, 2017:The Authority found that the Respondent had contravened Section 171 by not passing on the benefit of additional ITC to the buyers. The Respondent was ordered to reduce the prices commensurate with the benefit of ITC received and to pass on the benefit to the buyers, including future benefits accruing post-December 2018.6. Penalty imposition for contravention of Section 171 (1) of the CGST Act, 2017:The Authority noted that the Respondent had committed an offense under Section 171 (3A) and was liable for penalty. A Show Cause Notice was issued to the Respondent to explain why the penalty should not be imposed.Separate Judgments:The Authority directed the DGAP to investigate other sub-projects under the 'Acme Ozone' project and any other projects undertaken by the Respondent to ensure compliance with Section 171. The Commissioners of CGST/SGST Maharashtra were instructed to monitor the order's implementation and submit a compliance report within four months.Conclusion:The judgment concluded that the Respondent had profiteered an amount of Rs. 2,10,57,462/- and was required to return this amount to the eligible buyers along with interest. The Authority emphasized the need for the Respondent to pass on the ITC benefits to the buyers and directed further investigations into other projects.