2022 (6) TMI 1165 - NAPA - GST

Developer must refund Rs. 1.42 crore ITC benefits wrongly retained from flat buyers under Section 171 CGST Act

Shri Bhanja Kishore Pradhan, Director General of Anti-Profiteering, Central Board of Indirect Taxes & Customs, Versus M/s HCBS Promoters & Developers Pvt. Ltd.,

Shri Bhanja Kishore Pradhan, Director General of Anti-Profiteering, Central Board of Indirect Taxes & Customs, Versus M/s HCBS Promoters & Developers Pvt. ... ISSUES PRESENTED and CONSIDEREDThe core issue considered in this judgment was whether the Respondent, a real estate developer, had failed to pass on the benefit of increased Input Tax Credit (ITC) to buyers of flats in the 'Sports Ville' project, as required under Section 171 of the Central Goods and Services Tax (CGST) Act, 2017. The investigation was conducted to determine if there was profiteering by the Respondent due to the additional ITC benefit post-GST implementation.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and Precedents: The legal framework under consideration was Section 171 of the CGST Act, 2017, which mandates the passing on of any benefit of tax rate reduction or ITC to the recipient by way of commensurate reduction in prices. The investigation and proceedings were conducted under the CGST Rules, 2017, specifically Rule 129 and Rule 133.Court's Interpretation and Reasoning: The Court focused on whether the Respondent had indeed passed on the benefit of additional ITC that became available post-GST implementation. The DGAP's investigation revealed that the ITC as a percentage of turnover increased from 2.34% pre-GST to 5.65% post-GST, indicating an additional benefit of 3.31% that should have been passed on to the buyers.Key Evidence and Findings: The DGAP's report included detailed calculations of the ITC benefit and the amount that should have been passed on to the buyers. The report highlighted discrepancies in the Respondent's claims of having passed on the ITC benefits. The verification process involved contacting a sample of home buyers to confirm receipt of the ITC benefit, but responses were limited, and many buyers claimed not to have received any benefit.Application of Law to Facts: The Court applied Section 171 of the CGST Act, 2017, to ascertain whether the Respondent had complied with the requirement to pass on the ITC benefit. The DGAP's findings indicated that the Respondent had not fully passed on the benefit, leading to a determination of profiteering.Treatment of Competing Arguments: The Respondent argued that they had passed on the ITC benefit to the buyers and provided acknowledgments from some buyers. However, the Court found these claims insufficient due to the lack of conclusive proof such as credit notes or bank statements. The Respondent's request to verify the benefit passed on through a random sample was considered, but the verification process revealed inconsistencies.Conclusions: The Court concluded that the Respondent had not adequately passed on the ITC benefit to the buyers, resulting in profiteering to the tune of Rs. 1,42,45,741 for the project 'Sports Ville.' The Respondent was directed to refund the profiteered amount along with interest to the affected buyers.SIGNIFICANT HOLDINGSCore Principles Established: The judgment reinforced the principle that any benefit arising from increased ITC post-GST must be passed on to consumers. It emphasized the importance of conclusive evidence in verifying the passing on of benefits, such as credit notes or bank statements.Final Determinations on Each Issue: The Court determined that the Respondent was liable for profiteering and ordered the return of the profiteered amount along with interest to the buyers. The Respondent was also directed to reduce prices commensurate with the ITC benefit received and to ensure compliance with the order through the jurisdictional CGST/SGST Commissioner.The judgment underscores the legal obligation of businesses to pass on tax benefits to consumers and the necessity for transparent and verifiable documentation to support claims of compliance with such obligations.