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 Respondent was directed to pass on the balance ITC benefit to buyers, totaling a specified amount, and reduce prices accordingly. Additionally, the Respondent faced the imposition of a penalty under Section 171 (3A) of the CGST Act, 2017. The authorities were tasked with monitoring compliance and ensuring interest payments to eligible buyers, with the order delayed due to the COVID-19 pandemic.

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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.

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