Property developer ordered to refund Rs. 42 lakh for not passing GST benefits to buyers under Section 171

NAPA ruled on anti-profiteering allegations against a property developer regarding two projects. For "The Serenas" project, the Authority found no profiteering as the project was entirely launched post-GST implementation with no pre-GST price history for comparison. However, for "Signum 36" project, NAPA determined the developer profiteered Rs. 42,21,321 by not passing ITC benefits to shop buyers. The developer was ordered to refund this amount with 18% interest and reduce future prices commensurate with ITC benefits. While penalty provisions under Section 171(3A) CGST Act applied, no penalty was imposed as the violation period preceded the provision's effective date.

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Issues Involved:
1. Applicability of Anti-Profiteering Provisions to Residential Project "The Serenas."
2. Incorporation of Security Deposit/Application Money in Pre-GST Turnover.
3. Computation of Profiteering in Commercial Project "Signum-36."
4. Compliance with Section 171 of the CGST Act, 2017.

Issue-Wise Detailed Analysis:

1. Applicability of Anti-Profiteering Provisions to Residential Project "The Serenas":
The Authority found that the Anti-profiteering provisions do not apply to the project "The Serenas" since all relevant activities such as the draw for the selection of allottees, allotments, Builder-Buyer agreements, and construction activities were executed in the GST period only. The Residential project "The Serenas" was launched post-GST regime, and there was no price history of residential units sold in the pre-GST regime, making it impossible to compare with the Post-GST base price to establish profiteering.

2. Incorporation of Security Deposit/Application Money in Pre-GST Turnover:
The DGAP and the Authority concluded that the security deposit/application money received by the Respondent cannot be treated as consideration for supply as there was no direct link between the payment and supply. The security deposit was an application money for participation in the draw of lots, which was held post-GST. It was determined that such deposits cannot be incorporated into the turnover for the purpose of Service Tax or GST until an agreement is signed, and the deposit is appropriated as consideration for the supply.

3. Computation of Profiteering in Commercial Project "Signum-36":
The DGAP reported that the Respondent had both CENVAT Credit and turnover in the pre-GST period, which could be compared with the post-GST period. The ITC as a percentage of turnover available to the Respondent during the pre-GST period was 2.26%, and during the post-GST period, it was 5.26%. This indicated an additional ITC benefit of 3% post-GST, which was required to be passed on to the recipients. The DGAP calculated the profiteered amount as Rs. 42,21,321/- for the project "Signum-36."

4. Compliance with Section 171 of the CGST Act, 2017:
The Authority found that the Respondent had contravened the provisions of Section 171 (1) of the CGST Act, 2017 by not passing on the benefit of additional ITC to the recipients. The Respondent was ordered to refund the profiteered amount of Rs. 42,21,321/- along with interest @18% from the date of profiteering till the date of payment. The Respondent was also directed to reduce the prices commensurate with the benefit of ITC received.

Conclusion:
The Authority determined that the Respondent had profiteered by Rs. 42,21,321/- in the commercial project "Signum-36" and ordered the refund of this amount along with interest. The Anti-profiteering provisions were found not applicable to the residential project "The Serenas" due to the lack of pre-GST price history. The security deposit/application money was not considered part of the turnover for Service Tax or GST purposes until appropriated as consideration. The Respondent was directed to ensure compliance with the order and pass on the ITC benefit to the recipients.

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