Construction service provider ordered to reduce flat prices after profiteering Rs.3.87 crore under Section 171 CGST Act

NAPA held that respondent construction service provider contravened Section 171 of CGST Act by failing to pass on ITC benefits to buyers. Authority found ITC percentage increased from 1.02% (pre-GST) to 1.84% (post-GST), creating additional benefit of 0.82% of turnover. Respondent profiteered Rs.3,87,94,493 during July 2017-April 2020 investigation period. NAPA ordered respondent to reduce flat prices commensurate with ITC benefit received under Rule 133(3)(a) of CGST Rules 2017.

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Issues Involved:
1. Allegation of profiteering by not passing on the benefit of Input Tax Credit (ITC) post-GST implementation.
2. Whether the investigation should continue after the complainant withdrew the complaint.
3. Calculation and determination of the profiteered amount.
4. Clubbing of different project phases for the purpose of calculating profiteering.
5. Passing on the benefit of ITC on a provisional basis.
6. Compliance with Section 171 of the CGST Act, 2017.

Detailed Analysis:

1. Allegation of Profiteering:
The Applicant No. 1 alleged that the Respondent did not pass on the benefit of ITC by way of a commensurate reduction in prices for the construction service supplied. The Karnataka State Screening Committee and the Standing Committee on Anti-profiteering found prima facie evidence of profiteering and forwarded the complaint for a detailed investigation.

2. Continuation of Investigation Post Withdrawal of Complaint:
The Respondent argued that the investigation should have been dropped after the Applicant No. 1 withdrew the complaint. However, the Authority held that there is no provision under the CGST Act, 2017, or the Rules to drop the investigation once initiated based on the recommendations of the State Screening Committee and the Standing Committee. Therefore, the investigation continued irrespective of the withdrawal.

3. Calculation and Determination of Profiteered Amount:
The DGAP's investigation covered the period from 01.07.2017 to 30.04.2020. It was found that the ITC as a percentage of turnover increased from 1.02% pre-GST to 1.84% post-GST, confirming an additional benefit of 0.82% of turnover. The total profiteered amount was calculated as Rs. 3,87,94,493/-, including GST on the base profiteered amount of Rs. 3,46,37,940/-. This amount was to be refunded to the homebuyers, including the Applicant No. 1, along with interest at 18%.

4. Clubbing of Different Project Phases:
The Respondent claimed separate phases (Phase I and Phase II) should not be clubbed for profiteering calculation. However, the Authority found that the project "Pursuit of a Radical Rhapsody" was approved as a single project by the Competent Authority before GST implementation, and amounts were received for units in Towers 5 to 7 (Phase II) before 01.07.2017. Therefore, the Authority held that for the purposes of Section 171 of the CGST Act, 2017, all phases should be considered together.

5. Passing on the Benefit of ITC on Provisional Basis:
The Respondent contended that the exact ITC benefit could only be determined after project completion. The Authority rejected this argument, stating that the Respondent could have passed on the benefit on a provisional basis, which he failed to do. The ITC accrued on purchase of materials and GST was payable on an accrual basis, necessitating the maintenance of project-wise Cenvat/Input tax accounts.

6. Compliance with Section 171 of the CGST Act, 2017:
The Authority emphasized that Section 171 (1) of the CGST Act, 2017 mandates that any benefit of ITC must be passed on to the recipient by way of a commensurate reduction in prices. The Respondent's failure to do so constituted profiteering. The Authority ordered the Respondent to reduce the prices commensurate with the benefit of ITC received and refund the profiteered amount along with interest at 18%.

Conclusion:
The Authority upheld the DGAP's findings and directed the Respondent to refund the profiteered amount of Rs. 3,87,94,493/- along with 18% interest to the homebuyers within three months. The concerned jurisdictional CGST/SGST Commissioner was directed to ensure compliance and submit a report within four months.

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