CGST Act Violation: Respondent Ordered to Pass on Benefits, Face Penalty

The Respondent was found to have profiteered by Rs. 1,42,369/- during the investigation period. The Authority determined that the Respondent violated Section 171 of the CGST Act, 2017 by not passing on the benefit of additional Input Tax Credit (ITC) to customers. The Respondent was ordered to pass on the benefit to buyers, including specific amounts to individual applicants, within three months from the order date. Additionally, the Respondent was directed to reduce prices accordingly, and a Show Cause Notice for penalty imposition was issued. Compliance monitoring was assigned to the Commissioners of CGST/SGST Karnataka.

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Issues Involved:
1. Whether there was a reduction in the rate of tax on the construction service provided by the Respondent w.e.f. 01.07.2017Rs.
2. Whether there was any net additional benefit of ITC which has accrued to the Respondent which was required to be passed on by him to his recipientsRs.
3. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017, by not passing on the above benefits by the RespondentRs.

Detailed Analysis:

Issue 1: Reduction in the rate of tax on the construction service provided by the Respondent w.e.f. 01.07.2017
The DGAP Report dated 04.10.2018 concluded that the allegation related to excess charging of Service Tax and GST by the Respondent could not be redressed through Section 171 of the CGST Act, 2017. However, the Authority referred the matter back to the DGAP for further investigation. The DGAP found that the effective GST rate increased to 12% from the aggregate effective rate of tax in the pre-GST regime of 11.27%. The DGAP clarified that the Karnataka Screening Committee's computation of a tax reduction from 14.65% to 12% was incorrect.

Issue 2: Net additional benefit of ITC
The DGAP computed the ratio of ITC to turnover as 0.49% for the pre-GST period and 1.41% for the post-GST period, indicating an additional benefit of 0.92% in the post-GST period. The Respondent was required to pass this benefit to the buyers. The DGAP's investigation covered the period from 01.07.2017 to 31.10.2018 and found that the Respondent had benefited from additional ITC to the tune of 0.92% of the turnover which was not passed on to the buyers. The DGAP calculated the profiteered amount as Rs. 1,42,369/- for 11 residential units, including Rs. 21,113/- for Applicant No. 1.

Issue 3: Violation of Section 171 of the CGST Act, 2017
The Authority determined that the Respondent contravened Section 171 of the CGST Act, 2017 by not passing on the benefit of additional ITC to his customers. The Respondent was directed to pass on Rs. 21,113/- to Applicant No. 1 and Rs. 1,21,256/- to other eligible house buyers within three months from the date of the order, along with interest @ 18% from the date of realization till payment. The Authority also ordered the Respondent to reduce the prices commensurate with the benefit of ITC and issued a Show Cause Notice for the imposition of penalty under Section 171 (3A).

Conclusion:
The Respondent was found to have profiteered by Rs. 1,42,369/- during the investigation period. The Authority ordered the Respondent to pass on the benefit of additional ITC to the buyers and directed the Commissioners of CGST/SGST Karnataka to monitor compliance. A report on compliance was to be submitted within four months. The order was delayed due to the COVID-19 pandemic and was passed in terms of Notification No. 35/2020-Central Tax dated 03.04.2020.

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