Real estate developer ordered to pass ITC benefits to flat buyers under section 171 CGST Act with 18% interest

NAPA held that a real estate developer contravened section 171 of CGST Act by not passing ITC benefits to flat buyers. The developer received additional ITC of 1.85% of turnover in post-GST period compared to 0.00% in pre-GST period. NAPA ordered the developer to pass on the profiteered amount to buyers with 18% interest and reduce future prices commensurate with ITC benefits received. No penalty was imposed as penal provisions under section 171(3A) were not applicable retrospectively, being operational only from 01.01.2020 while profiteering occurred during 2017-2019.

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Issues Involved:

1. Alleged profiteering by not passing on the benefit of Input Tax Credit (ITC) to customers.
2. Determination of whether there was a benefit of reduction in tax rate or ITC post-GST implementation.
3. Calculation and verification of the profiteered amount.
4. Compliance with Section 171 of the CGST Act, 2017.
5. Applicability of penal provisions under Section 171 (3A) of the CGST Act, 2017.

Issue-wise Detailed Analysis:

1. Alleged Profiteering by Not Passing on ITC Benefit:
The Applicant No. 1 filed a complaint under Rule 128 (1) of the CGST Rules, 2017, alleging that the Respondent did not pass on the benefit of ITC by way of commensurate reduction in prices for a flat purchased in the "Venice Bungalows" project. The Director General of Anti-Profiteering (DGAP) conducted a detailed investigation as per Rule 129 (6) of the CGST Rules, 2017, and submitted a report on 25.03.2021.

2. Determination of Benefit of Reduction in Tax Rate or ITC Post-GST:
The DGAP's investigation focused on whether there was a benefit of reduction in tax rate or ITC on the supply of construction services after the implementation of GST from 01.07.2017. It was found that the Respondent was eligible to avail ITC of GST paid on inputs and input services post-GST. The investigation period covered from 01.07.2017 to 30.09.2020, but the computation of profiteering was limited to the period up to 31.03.2019, as the Respondent opted for a new scheme with a 5% GST rate without ITC from 01.04.2019.

3. Calculation and Verification of the Profiteered Amount:
The DGAP's report revealed that the Respondent benefited from additional ITC to the tune of 1.85% of the turnover post-GST. The Respondent had not passed on this benefit to the recipients, resulting in a profiteering amount of Rs. 4,31,473/-. The calculation was based on the comparison of ITC ratios pre-GST (0.00%) and post-GST (1.85%) and the turnover figures provided by the Respondent. The Respondent agreed to the computation and confirmed the payment of the profiteered amount along with 18% interest to the affected homebuyers.

4. Compliance with Section 171 of the CGST Act, 2017:
Section 171 (1) of the CGST Act, 2017 mandates that any reduction in the tax rate or benefit of ITC must be passed on to the recipient by way of commensurate reduction in prices. The DGAP's report and the Authority's order confirmed that the Respondent contravened this provision by not passing on the ITC benefit. The Respondent was directed to reduce prices commensurate with the ITC benefit and pass on the profiteered amount along with interest to the eligible buyers.

5. Applicability of Penal Provisions Under Section 171 (3A) of the CGST Act, 2017:
The penal provisions under Section 171 (3A) of the CGST Act, 2017, which became operational from 01.01.2020, were not applicable in this case as the profiteering occurred before this date. Therefore, no penalty was imposed on the Respondent.

Conclusion:
The Authority accepted the DGAP's computation of the profiteered amount and directed the Respondent to pass on the benefit of Rs. 4,31,473/- along with 18% interest to the affected homebuyers. The Respondent complied with this order and submitted documentary evidence of the payments made. The concerned GST Commissioner was directed to verify the compliance and submit a report within four months. The order was issued within the extended limitation period due to the Covid-19 pandemic.

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