Builder must return Rs 2.7 crore profiteered amount to housing buyers for not passing ITC benefits under section 171

NAPA found that Respondent profiteered Rs 2,73,04,997 by not passing on reduced ITC benefits to buyers of affordable housing flats/shops, violating section 171 of CGST Act. Authority ordered Respondent to reduce prices commensurate with ITC benefits received and return profiteered amount to buyers with 18% interest from profiteering date. Penalty of 10% of profiteered amount imposed for violations after 01.01.2020, waived if amount deposited within thirty days of order.

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Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on VAT paid during 2016-17 to June-2017.
2. Availment of Composition Scheme under HVAT, 2003.
3. Eligibility to charge VAT under Haryana Affordable Housing Policy, 2013.
4. Collection of VAT from home buyers.
5. Compliance with Section 42 of the HVAT, 2003.
6. Allowance of ITC during the pre-GST period by the Assessing Authority.
7. Verification of ITC benefit passed to at least 20% of shop and home buyers.
8. Calculation of profiteering amount under Section 171 of the CGST Act, 2017.
9. Compliance and penalty under Section 171 (3A) of the CGST Act, 2017.

Detailed Analysis:

1. Eligibility of ITC on VAT Paid During 2016-17 to June-2017:
The DGAP confirmed that the Respondent was eligible to claim ITC on VAT paid during the period 2016-17 to June-2017 as per the provisions of HVAT Act, 2003. The VAT returns and VAT Assessment Orders indicated ITC on the purchase of inputs was allowed, thus making the Respondent eligible for ITC on VAT paid.

2. Availment of Composition Scheme under HVAT, 2003:
The DGAP noted that the Respondent was not availing the benefit of the Composition Scheme under HVAT, 2003. This was confirmed by the VAT returns and Assessment Orders submitted by the Respondent.

3. Eligibility to Charge VAT Under Haryana Affordable Housing Policy, 2013:
The DGAP stated that the service of construction of affordable housing was exempted from Service Tax but not from VAT under HVAT, 2003. Therefore, the Respondent was eligible to charge VAT from the flat and shop buyers under the Haryana Affordable Housing Policy, 2013.

4. Collection of VAT from Home Buyers:
The Respondent was assessed under the Normal Taxation Scheme and had collected VAT from customers accordingly. This was confirmed by the DGAP based on the Respondent's submissions.

5. Compliance with Section 42 of the HVAT, 2003:
The DGAP concluded that Section 42 of the HVAT, 2003 was not applicable as the Respondent did not provide evidence of appointing a sub-contractor, nor was it reflected in the Assessment Order.

6. Allowance of ITC During the Pre-GST Period by the Assessing Authority:
The ITC claimed by the Respondent during the pre-GST period was allowed by the appropriate Assessing Authority as specified in HVAT, 2003.

7. Verification of ITC Benefit Passed to at Least 20% of Shop and Home Buyers:
The Respondent did not provide details of shop owners, making it impossible to verify the benefit of passing CENVAT in their case. For residential units, emails were sent to 754 home buyers, with 164 responses. Out of these, 45 confirmed receipt of benefit, and 119 denied it.

8. Calculation of Profiteering Amount Under Section 171 of the CGST Act, 2017:
The DGAP calculated that the Respondent benefited from additional ITC of 3.06% of the turnover post-GST, which was not passed on to the recipients. The total profiteered amount was Rs. 2,73,04,997/-. The Respondent claimed to have passed on Rs. 1,29,17,507/- of this benefit and agreed to pass on the remaining amount after the order.

9. Compliance and Penalty Under Section 171 (3A) of the CGST Act, 2017:
The Respondent was found to have contravened Section 171 by not passing on the additional ITC benefit. A penalty equivalent to ten percent of the profiteered amount collected after 01.01.2020 was to be imposed, but no penalty would be levied if the amount was deposited within thirty days of the order.

Conclusion:
The Authority concluded that the Respondent had profiteered Rs. 2,73,04,997/- and directed the Respondent to pass on this amount to the recipients along with 18% interest. The jurisdictional CGST/SGST Commissioner was directed to ensure compliance and publish an advertisement for the same. The Respondent accepted the DGAP's report and agreed to pass on the remaining benefit post-order. Penalty provisions under Section 171 (3A) were invoked for amounts collected after 01.01.2020.

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