2020 (6) TMI 674 - NAPA - GST

Respondent found guilty of not passing on tax benefits, ordered to refund buyers and face penalty

Sh. Puneet Bansal, Ms. Vanita Bansal, Director General of Anti-Profiteering, Central Board of Indirect Taxes & Customs, Versus M/s. Emaar MGF Land Ltd.,

Sh. Puneet Bansal, Ms. Vanita Bansal, Director General of Anti-Profiteering, Central Board of Indirect Taxes & Customs, Versus M/s. Emaar MGF Land Ltd., - ... Issues Involved:1. Alleged profiteering by the Respondent by not passing on the benefit of Input Tax Credit (ITC) to flat buyers.2. Investigation scope and methodology employed by the Director General of Anti-Profiteering (DGAP).3. Calculation of profiteered amount and inclusion of GST in the profiteered amount.4. Constitutionality of the National Anti-Profiteering Authority (NAA) without a Judicial Member.5. Respondent's claims regarding the benefit of ITC passed on to customers and the calculation of ITC.Detailed Analysis:1. Alleged Profiteering by the Respondent:The Applicants alleged that the Respondent did not pass on the benefit of ITC to them for the purchase of flats in the 'Emerald Floors Select-A' project. The DGAP's investigation revealed that the Respondent had not reduced the basic prices of the flats by 8.73% due to the additional benefit of ITC received post-GST implementation. Consequently, the Respondent was found to have profiteered an amount of Rs. 19,23,01,682/- inclusive of GST, with specific amounts profiteered from Applicant No. 1 and Applicant No. 2 being Rs. 4,06,859/- and Rs. 2,85,572/-, respectively.2. Investigation Scope and Methodology:The Respondent argued that the investigation should be limited to the Applicants' claims and not extend to other customers. However, the NAA clarified that Section 171 (1) and (2) of the CGST Act, 2017 mandates the passing on of both tax reduction and ITC benefits to all buyers. The DGAP's investigation is not restricted to specific complaints but encompasses all instances where benefits are to be passed on. The DGAP's role includes investigating and collecting evidence to determine if benefits have been passed on, as per the Office Order No. 05/Ad.IV/2018.3. Calculation of Profiteered Amount:The DGAP used the ratio of ITC to turnover for the pre-GST and post-GST periods to calculate the profiteered amount. The Respondent's contention that there was no correlation between turnover and the cost of construction was rejected. The NAA upheld the DGAP's methodology, stating that the benefit of ITC is to be passed on each product or unit of construction or service to every buyer. The inclusion of GST in the profiteered amount was also deemed correct as the Respondent charged additional GST on the illegally increased prices.4. Constitutionality of NAA Without a Judicial Member:The Respondent challenged the constitutionality of the NAA on the grounds that it lacked a Judicial Member. The NAA clarified that it performs highly specialized fact-finding functions and does not replace or substitute any judicial functions of the High Courts. The NAA's constitution is in line with the statutory mandate under Section 171 of the CGST Act, 2017, and the absence of a Judicial Member does not render it unconstitutional.5. Respondent's Claims on ITC Benefit:The Respondent claimed to have passed on a 5.68% benefit of ITC to customers and argued for the inclusion of VAT and WCT (VAT) credits in the pre-GST ITC calculation. The NAA found that the Respondent did not furnish adequate evidence to support these claims. The DGAP's report did not consider VAT and WCT (VAT) credits as the Respondent had not reflected them in his VAT Returns. The Respondent's methodology for calculating the ITC ratio was also rejected as it lacked substantiation.Conclusion:The NAA concluded that the Respondent had contravened the provisions of Section 171 of the CGST Act, 2017, by not passing on the benefit of additional ITC to the buyers, resulting in profiteering. The Respondent was directed to refund the profiteered amount along with interest to the affected buyers within three months. A Show Cause Notice was issued for imposing a penalty under Section 171 (3A) of the CGST Act, 2017. The DGAP was also directed to investigate the benefit of additional ITC in respect of 24 other projects executed by the Respondent. The Commissioners of CGST/SGST Haryana were tasked with ensuring compliance with the order.