Failure to Pass on Input Tax Credit Benefit: Violation of CGST Act Section 171

The Respondent in the case availed additional Input Tax Credit (ITC) post-GST implementation, resulting in a benefit of 3.84% of turnover. The Respondent failed to pass on this benefit to buyers, violating Section 171 of the CGST Act. The profiteered amount was determined at Rs. 2,72,21,532/-, with a balance of Rs. 73,61,290/- to be refunded to buyers. The Respondent was ordered to reduce prices accordingly, pay interest at 18%, and face a penalty for non-compliance. Compliance monitoring was assigned to jurisdictional CGST Commissioners.

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Issues Involved:

1. Whether the Respondent has availed the benefit of additional ITC during the period between 01.07.2017 to 31.12.2018 which he was liable to pass on to his buyersRs.
2. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 committed by the RespondentRs.
3. If yes, then what was the quantum of profiteering and whether the benefit, if any, has been passed on to the customers/recipients/flat buyers by the Respondent along with interest as applicable.

Detailed Analysis:

1. Availment of Additional ITC:

The DGAP's report revealed that the ITC as a percentage of turnover available to the Respondent during the pre-GST period (April 2016 to June 2017) was 1.33%, and during the post-GST period (July 2017 to December 2018), it was 5.17%. This confirmed that post-GST, the Respondent benefited from additional ITC to the tune of 3.84% of his turnover. The DGAP calculated the amount of ITC benefit to be passed on to all flat buyers as Rs. 2,72,21,532/-.

2. Violation of Section 171 of the CGST Act, 2017:

The DGAP found that the Respondent had not passed on the benefit of additional ITC to the recipients by way of commensurate reduction in prices, thus violating the provisions of Section 171 of the CGST Act, 2017. The Respondent admitted that he had not passed on the ITC benefit and agreed to comply with the DGAP's findings.

3. Quantum of Profiteering and Passing on the Benefit:

The DGAP's report detailed that the total profiteered amount was Rs. 2,72,21,532/- for the period from 01.07.2017 to 31.03.2019. Out of this, Rs. 2,04,77,678/- was claimed to have been passed on by the Respondent to the home buyers by reducing the demand raised. This claim was verified and found correct by the DGAP. Therefore, the balance profiteered amount of Rs. 73,61,290/- was still required to be passed on by the Respondent.

Order:

The Authority ordered the Respondent to reduce the prices commensurate with the benefit of ITC received. The balance amount of Rs. 73,61,288/- was to be passed on to the customers/flat buyers/recipients, including Applicant No. 1. Additionally, the Respondent was directed to pay interest at 18% on the entire profiteered amount starting from the date it was profiteered until the date of payment. The Respondent was given three months to comply, failing which the amount would be recovered by the concerned jurisdictional CGST Commissioner under the supervision of the DGAP.

The Authority also noted that the Respondent had committed an offence under Section 171 (3A) of the CGST Act, 2017, and was liable for a penalty. A notice was to be issued to the Respondent to explain why the penalty should not be imposed.

Conclusion:

The judgment concluded that the Respondent had indeed availed the benefit of additional ITC, violated Section 171 of the CGST Act by not passing on the benefit, and quantified the profiteering amount. The Respondent was ordered to pass on the remaining benefit along with interest and was liable for a penalty. The jurisdictional CGST Commissioners were directed to monitor the compliance of this order.

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