2020 (2) TMI 957 - NAPA - GST

Respondent Violated CGST Act by Profiteering; Ordered to Refund Rs. 35,28,744 to Recipients

The National Anti-Profiteering Authority found that the Respondent violated Section 171(1) of the CGST Act by not passing on the benefit of additional ... Profiteering - purchase of Flat in the Respondent’s project - allegation that the Respondent had not passed on the benefit of Input Tax Credit (ITC) to him by way of commensurate reduction in the price - contravention of provisions of Section 171 of the CGST Act, 2017 - imposition of penalty - HELD THAT:- It is clear from the plain reading of Section 171 (1) of CGST Act, that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second pertaining to the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the DGAP’s Report that there has been no reduction in the rate of tax in the post GST period; hence the only issue to be examined is as to whether there was any net benefit of ITC with the introduction of GST. The Respondent has profiteered by an amount of ₹ 35,28,744/-(Annex-17) during the period of investigation i.e. 01.07.2017 to 31.12.2018. The above amount of ₹ 35,28,744/- (including 12% GST) that has been profiteered by the Respondent from his home buyers, including Applicant No. 1, shall be refunded by him, along with interest @18% thereon. from the date when the above amount was profiteered by him till the date of such payment, in line with the provisions of Rule 133 (3) (b) of the CGST Rules 2017. This Authority orders that the Respondent shall reduce the price per unit/ flat to be realized from the other home buyers by an amount commensurate with the benefit of ITC, as provided under Rule 133 (3) (a) of the CGST Rules, 2017. Imposition of penalty - HELD THAT:- Since the Respondent has denied benefit of ITC to his homebuyers in his Project ‘Edge Towers’ in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus committed an offence under Section 171 (3A) of the above Act, he is liable to be penalized under the provisions of the above Section. Accordingly. a 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. It is clear to us that the Respondent has profiteered in the project ‘Edge Tower’. Therefore, as per the provisions of Section 171 (2) of the CGST Act, 2017, this Authority has reasons to believe that there is a need to verify all the Input Tax Credits of the Respondent so as to arrive at the aggregate profiteering of the Respondent, since profiteering on the part of the Respondent has already been established in the case of “Edge Towers” project of the Respondent as also the fact that supplies from various projects of the Respondent are being made through a single GST registration and the same ITC Pool/Electronic Credit Ledger is being used for all the supplies being made from that registration. Therefore, the Authority, in line with the provisions of Section 171 (2) of the CGST Act, 2017 and as per the amended Rule 133 (5) (a) of the CGST Rules 2017 directs the DGAP to further examine all the other projects of the said Respondent for possible violations of the provisions of Section 171 of the CGST Act 2017 and to submit his Report as per the provisions of Rule 133 (5) (b) of the CGST Rules, 2017. Issues Involved:1. Violation of Section 171 (1) of the CGST Act, 2017.2. Calculation and passing on of additional benefit of Input Tax Credit (ITC) to recipients.3. Compliance with procedural requirements by Screening and Standing Committees.4. Methodology for determining profiteering.5. Jurisdiction and authority of the National Anti-Profiteering Authority (NAA).Issue-Wise Detailed Analysis:1. Violation of Section 171 (1) of the CGST Act, 2017:The core issue was whether the Respondent violated Section 171 (1) of the CGST Act, 2017, which mandates that any reduction in the tax rate or benefit of ITC should be passed on to the recipient by way of commensurate reduction in prices. The DGAP's report confirmed that the Respondent had benefitted from additional ITC post-GST implementation and had not passed this benefit to the recipients, thereby contravening the provisions of Section 171.2. Calculation and Passing on of Additional Benefit of ITC to Recipients:The DGAP's investigation revealed that the ITC as a percentage of turnover increased from 1.72% pre-GST to 2.64% post-GST, resulting in an additional ITC benefit of 0.92%. The total profiteered amount was calculated to be Rs. 35,28,744, including 12% GST. The Respondent admitted to this amount and agreed to refund it to the 397 flat owners along with interest. The NAA directed the DGAP to verify the passing on of the ITC benefit and submit a report within three months.3. Compliance with Procedural Requirements by Screening and Standing Committees:The Respondent contended that the State Screening Committee and the Standing Committee did not record any satisfaction or reasons for the alleged contravention of Section 171. However, the NAA found that these committees only had to prima facie examine the allegations, which were then investigated in detail by the DGAP. The committees had found sufficient evidence to refer the matter for detailed investigation.4. Methodology for Determining Profiteering:The Respondent argued that there was no prescribed methodology for determining profiteering and that the DGAP's calculation on an average basis was arbitrary. The NAA clarified that the computation of commensurate reduction in prices is a mathematical exercise based on the tax reduction and existing base price of the product. The NAA emphasized that the benefit of tax reduction and ITC must be passed on at the level of each supply to each buyer, and no fixed mathematical formula could be set due to the varying facts of each case.5. Jurisdiction and Authority of the National Anti-Profiteering Authority (NAA):The Respondent challenged the jurisdiction of the NAA and the procedural aspects of the investigation. The Delhi High Court directed the NAA to pass a reasoned order on the aspect of jurisdiction. The NAA confirmed its jurisdiction, stating that the provisions of Section 171 (1) of the CGST Act, 2017, were clear and that the methodology and procedure for determining profiteering were within its purview. The NAA also addressed the Respondent's contention regarding the lack of a specific methodology, stating that the legislative intent was clear and that the methodology employed was appropriate given the facts of the case.Conclusion:The NAA concluded that the Respondent had profiteered by Rs. 35,28,744 and directed the Respondent to refund this amount along with interest to the affected home buyers. The NAA also ordered further investigation into the Respondent's other projects to ensure compliance with Section 171 of the CGST Act, 2017. The jurisdictional Commissioners of CGST/SGST Haryana were directed to monitor the compliance of this order.