2020 (11) TMI 782 - NAPA - GST

Respondent found guilty of CGST Act violation for not passing on input tax credit benefits to buyers.

The respondent was found to have violated Section 171 of the CGST Act by not passing on additional input tax credit benefits to buyers in the 'Logix ... Profiteering - purchase of flat - allegation that the Respondent had not passed on the benefit of the input tax credit by way of commensurate reduction in price to the Applicant - contravention of section 171 of CGST Act - period from 01.07.2017 to 30.09.2018 - Penalty - HELD THAT:- The Applicant No. 1 & 2 have stated that they had booked their flats with the builder on 31.10.2013 and as per the builder buyer agreement, the flats were to be delivered by 31.10.2015. The Respondent raised the final invoices on 19.01.2020 after receipt of the Completion Certificate from NOIDA in January 2017 but one year after receiving the Completion Certificate and by that time GST had been implemented thus resulting in extra financial burden to them which was ₹ 3, 00, 000/- approx. In this regard, it is pertinent to mention that as per the provisions of Section 171 of the CGST Act, 2017 read with Rule 127 and 133 of the CGST Rules, 2017, this Authority has only been mandated to ensure that both the benefits of tax rate reduction and ITC are passed on to the customers. Therefore, this Authority has no mandate to look into the matter whether the Respondent has wrongly charged GST from the Applicants. In respect of the ‘Blossom County' project the CENVAT credit/ITC as a percentage of the total turnover which was available to the Respondent during the pre-GST period was 0.71% and during the post-GST period this ratio was 0.85% as per the Table-C mentioned above. Therefore, the Respondent has benefited from the additional ITC to the tune of 10.25% (10.25% - 0%) of the total turnover in respect of the above Phase which he was required to pass on to the flat buyers of the above Phase. It has also found that the Respondent has not reduced the basic price of his flats by 0.14% in case of the above Project due to additional benefit of ITC resulting in contravention of the provisions of Section 171 of the CGST Act, 2017. It is also evident that the amount of benefit of ITC which has not been passed on by the Respondent or the profiteered amount came to ₹ 13, 32, 278/- which included 12% GST on the basic profiteered amount. This amount also included the profiteered amount of ₹ 3, 880/- and ₹ 3, 929/- including 12% GST in respect of the Applicant No. 1 and 2. It is also revealed from the submissions of the Respondent that he has not passed on interest @18% to his recipients/flat buyers on the profiteered amount, which shall be paid by the Respondent to his recipients/flat buyers from the date of receipt of the additional price till the amount is paid to each buyer, 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 CGST Rules, 2017 - this Authority under Rule 133 (3) (a) of the CGST Rules, 2017 read with Sub-Section 171 (1) further orders that the Respondent shall reduce the prices to be realized from the buyers of the flats commensurate with the benefit of ITC received by him Penalty - HELD THAT:- The Respondent has denied the benefit of ITC to the buyers of the flats being constructed by him in his present project in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty under the provisions of the above Section. However, since the provisions of Section 171 (3A) have come in to force w.e.f. 01.01.2020 whereas the period during which violation has occurred is w.e.f. 01.07.2017 to 31.12.2018, hence the penalty prescribed under the above Section cannot be imposed on the Respondent retrospectively - A Show Cause Notice 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 is not required to be issued. Issues Involved:1. Allegation of not passing on the benefit of input tax credit (ITC) under GST.2. Calculation and verification of the profiteered amount.3. Delay in raising the final demand and its financial impact on buyers.4. Compliance with Section 171 of the CGST Act, 2017.5. Imposition of interest on the profiteered amount.6. Future investigations for remaining units and additional ITC benefits.Detailed Analysis:1. Allegation of not passing on the benefit of input tax credit (ITC) under GST:The applicants alleged that the respondent did not pass on the benefit of ITC by reducing prices post-GST implementation for the purchase of flats in the 'Logix Blossom County' project. The Uttar Pradesh State Screening Committee, after prima facie satisfaction, forwarded the application to the Standing Committee on Anti-profiteering, which then referred it to the Director-General of Anti-Profiteering (DGAP) for detailed investigation.2. Calculation and verification of the profiteered amount:The DGAP's investigation revealed that the respondent had not passed on the benefit of additional ITC, which was 0.14% of the turnover, to the buyers. The profiteered amount was calculated as Rs. 13,32,278/-, including GST. The DGAP's report detailed the turnover and ITC ratios pre and post-GST, confirming the respondent benefited from additional ITC post-GST implementation. The respondent accepted the liability and claimed to have passed on the benefit via credit notes, which the DGAP verified.3. Delay in raising the final demand and its financial impact on buyers:Applicants argued that the delay in raising the final demand after obtaining the completion certificate resulted in an extra financial burden due to higher GST rates. However, the authority clarified that it is only mandated to ensure the passing of ITC benefits and not to adjudicate on the delay in raising demands or charging GST.4. Compliance with Section 171 of the CGST Act, 2017:The authority confirmed that the respondent contravened Section 171 by not reducing the base price of flats commensurate with the additional ITC benefit. The profiteered amount of Rs. 13,32,278/- was to be passed on to the buyers, with specific amounts identified for Applicants No. 1 and 2.5. Imposition of interest on the profiteered amount:The respondent was directed to pay interest at 18% on the profiteered amount from the date of receipt of the additional price until the amount is refunded to the buyers. The DGAP was tasked with ensuring the payment of interest and reporting compliance.6. Future investigations for remaining units and additional ITC benefits:The authority ordered further investigation into the remaining 7 towers of the project to ensure compliance with Section 171. The DGAP was directed to conduct a comprehensive investigation at the time of the occupancy certificate issuance to determine any additional ITC benefits that must be passed on to the buyers.Conclusion:The respondent was found to have violated the provisions of Section 171 by not passing on the additional ITC benefits to the buyers. The profiteered amount was determined and verified, with directions issued for the payment of interest. Further investigations were ordered to ensure compliance for the remaining units and future ITC benefits.