2020 (11) TMI 385 - NAPA - GST

Respondent directed to pass on Input Tax Credit benefit to homebuyers, faces penalty

The Respondent in the case was found to have profiteered by not passing on the benefit of Input Tax Credit (ITC) to homebuyers in the sale of flats. The ... Profiteering - purchase of Flats - allegation that the Respondent had not passed on the benefit of Input Tax Credit (ITC) availed by him by way of commensurate reduction in the price of the fiats - contravention of section 171 of CGST Act - penalty - HELD THAT:- It is established from the perusal of the facts that the Respondent has benefited from the additional ITC to the extent of 2.67% of the turnover during the period from July 2017 to December 2018 and hence the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent as he has not passed on the benefit of ITC to his customers. Thus the profiteered amount is determined as ₹ 1, 95, 86, 429/- inclusive of GST @ 12% or 8% in terms of Rule 133 (1) of the CGST Rules, 2017. Further, it is also determined that the Respondent has realized an additional amount of ₹ 25, 282/- from each of the Applicant No. 1 and Applicant No. 2 which includes both the profiteered amount @ 2.67% of the taxable amount (base price) and 12% GST on the said profiteered amount. The Respondent has passed on the benefit of ₹ 2, 06, 88, 394/- to his buyers on account of ITC which has been duly confirmed by the DGAP. Therefore, the Respondent is directed to pass on the balance benefit of ITC of ₹ 19, 40, 731/- to the remaining 148 residential flat buyers and ₹ 5, 67, 310 to the remaining 9 commercial shop buyers, mentioned at Sr. 2 & 4 of Table-E, as per Annexure-3 and Annexure-5 of the DGAP’s Report dated 28.02.2020. The details of the profiteered amount and the buyers have been mentioned by the DGAP in the above Annexures. These buyers are identifiable as per the documents placed on record and therefore, the Respondent is directed to pass on an aggregate amount of ₹ 25, 08, 041/- to the above mentioned 157 buyers along with the interest @ 18% per annum from the dates from which the above amount was collected by him from them till the payment is made, within a period of 3 months from the date of passing of this order as per the details mentioned in Annexure-3 and Annexure-5 attached with the Report dated 28.02.2020 in terms of Rule 133 (3) (b) of the above Rules. The Respondent shall not adjust any excess ITC benefit which he has passed on as per Annexure-2, Annexure-4, and Annexure-6 against the benefit which is due to the beneficiaries as per Annexure-3 and Annexure-5. In case the above amount is not refunded by the Respondent during the above period it shall be recovered by the concerned Commissioner CGST/CGST and paid to the eligible buyers. It is also apparent from the record that the Respondent has passed on ITC benefit of ₹ 2, 06, 88, 394/- during the month of March, 2019 and August, 2019. Therefore, he is also liable to pass on interest @18% on profiteered amount to the flat buyers from the dates from which he has received the additional amount of consideration from them till the passing on of the ITC benefit, as he has used this amount in his business, as per the provisions of Section 171 (1) of the CGST Act, 2017 read with Rule 133 (3) (b) of the above Rules. Accordingly, the DGAP is directed to ensure that the interest is paid to be eligible house buyers and submit report confirming payment of the interest. In case the interest is not paid the same shall be recovered by the concerned CGST/SGST Commissioner and paid to the eligible buyers. Penalty - HELD THAT:- The Respondent has denied the benefit of ITC to the buyers of the flats being constructed by him in his above project in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST Act, 2017, and therefore, he is liable for imposition of penalty under the provisions of the above Section. Accordingly, a Show Cause Notice be issued to him directing him to explain 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 in respect of the purchase of flats.2. Non-passing of the benefit of Input Tax Credit (ITC) to homebuyers.3. Calculation and verification of the profiteered amount.4. Compliance with Section 171 of the CGST Act, 2017.5. Imposition of penalty under Section 171 (3A) of the CGST Act, 2017.Detailed Analysis:1. Alleged Profiteering:The Applicants alleged that the Respondent did not pass on the benefit of ITC availed by him, leading to profiteering in the sale of flats in the 'Paradise' project, Sector-62, Gurgaon. The Standing Committee on Anti-profiteering forwarded the complaints to the Director-General of Anti-Profiteering (DGAP) for investigation.2. Non-passing of ITC Benefit:The DGAP investigated the period from 01.07.2017 to 31.12.2018 and found that the Respondent had availed ITC but did not pass on the benefit to the homebuyers. The Respondent claimed to have passed on the benefit of Rs. 81,82,783/- to homebuyers, but the DGAP's investigation revealed that the Respondent had not reduced the base prices commensurately.3. Calculation and Verification of Profiteered Amount:The DGAP calculated that the ITC as a percentage of the total turnover available to the Respondent during the pre-GST period was 0.43%, and during the post-GST period, it was 3.10%. Thus, the Respondent benefited from additional ITC to the tune of 2.67% of the turnover. The total amount of profiteering was quantified as Rs. 1,95,86,429/-, including GST. The Respondent admitted to the DGAP's computation and agreed to pass on the benefit to the homebuyers.4. Compliance with Section 171 of the CGST Act, 2017:The Respondent's actions were found to be in contravention of Section 171 of the CGST Act, 2017, which mandates the passing on of the benefit of ITC to the recipients by way of commensurate reduction in prices. The Respondent was directed to pass on the balance ITC benefit of Rs. 19,40,731/- to 148 residential flat buyers and Rs. 5,67,310 to 9 commercial shop buyers, along with interest @ 18% per annum.5. Imposition of Penalty:The Respondent was found to have resorted to profiteering, thus committing an offense under Section 171 (3A) of the CGST Act, 2017. A Show Cause Notice was issued to the Respondent to explain why the penalty prescribed under Section 171 (3A) should not be imposed.Conclusion:The Respondent was ordered to pass on the balance ITC benefit to the remaining buyers within three months and reduce the prices commensurately. The Commissioners of CGST/SGST Haryana were directed to monitor compliance and submit a report within four months. The DGAP was also directed to ensure that the interest is paid to the eligible house buyers. The order was delayed due to the COVID-19 pandemic and was passed in terms of the Notification No. 65/2020-Central Tax dated 01.09.2020.