Real estate developer must refund Rs. 49 lakh for not passing GST input credit benefits to flat buyers under Section 171

NAPA found that respondent real estate developer contravened Section 171 of CGST Act, 2017 by failing to pass on input tax credit benefits of 0.46% to flat buyers during July 2017 to December 2018. Authority determined total profiteering of Rs. 49,26,054 including GST. Respondent ordered to refund profiteered amount with 18% annual interest within three months and reduce future prices commensurate with ITC benefits until completion certificate issuance. No penalty imposed as specific penalty provisions under Section 171(3A) were not in force during investigation period, only becoming effective from January 2020.

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Issues Involved:

1. Whether the Respondent has passed on the benefit of ITC to his buyers as claimed through documentary evidence furnished during the proceedings.
2. If the Respondent has passed on the ITC benefit, what is the amount of the benefit passed onRs.
3. What is the amount of ITC benefit required to be passed on by the Respondent to his recipients after correctly considering the figures of Cenvat creditRs.
4. What is the amount of turnover to be taken into account during the period from 01.07.2017 to 31.12.2018Rs.
5. What is the profiteered amount and entitlement of benefit of ITC to be passed on to each eligible home-buyer including the Applicant No. 1Rs.

Detailed Analysis:

Issue 1: Whether the Respondent has passed on the benefit of ITC to his buyers as claimed through documentary evidence furnished during the proceedings.

The DGAP re-examined the documents and submissions provided by the Respondent. The Respondent claimed that for units booked post-01.07.2017, discounts up to 5.8% on the original agreement value were passed at the time of sale, with GST charged on the reduced value. The DGAP verified this by reviewing cost sheets signed by flat-buyers and confirmed that the Respondent had indeed passed on GST benefits as upfront discounts. However, the DGAP also noted that the exact quantum of ITC benefit could only be ascertained at the end of the construction, leading to fluctuations in the ITC ratio.

Issue 2: If the Respondent has passed on the ITC benefit, what is the amount of the benefit passed onRs.

The DGAP reported that the Respondent passed on benefits totaling Rs. 9,39,81,108 for the Affordable Category and Rs. 15,76,14,471 for the Other than Affordable Category. On a pro-rata basis, the corresponding figures were Rs. 6,36,09,860 and Rs. 9,83,57,243, respectively, totaling Rs. 16,19,67,103, exclusive of applicable GST.

Issue 3: What is the amount of ITC benefit required to be passed on by the Respondent to his recipients after correctly considering the figures of Cenvat creditRs.

The DGAP determined that the input tax credit as a percentage of turnover was 1.23% during the pre-GST period and 1.69% during the post-GST period, indicating an additional benefit of 0.46% of the turnover. The DGAP calculated that the Respondent had benefited from additional ITC to the tune of Rs. 49,26,045, which needed to be passed on to the eligible home-buyers.

Issue 4: What is the amount of turnover to be taken into account during the period from 01.07.2017 to 31.12.2018Rs.

The total turnover for the period from 01.07.2017 to 31.12.2018 was Rs. 387,58,27,122, of which Rs. 16,19,67,103 was given as upfront discounts to 338 home-buyers. Hence, the total benefit accrued to the Respondent was Rs. 3,71,38,60,019.

Issue 5: What is the profiteered amount and entitlement of benefit of ITC to be passed on to each eligible home-buyer including the Applicant No. 1Rs.

The DGAP determined that the Respondent had profiteered an amount of Rs. 49,26,045, including GST, from 395 home-buyers (308 who booked units pre-GST and 87 who booked post-GST but received no upfront discount). The Applicant No. 1 was overcharged by Rs. 3,763, which included both the profiteered amount and GST. The Respondent was directed to pass on the benefit of ITC along with 18% interest per annum from the date the amount was collected until payment is made.

Conclusion:

The Authority concluded that the Respondent had not passed on the benefit of ITC to all eligible home-buyers, contravening Section 171 of the CGST Act, 2017. The Respondent was ordered to reduce prices commensurate with the benefit of ITC and to pass on the benefit along with interest to all eligible buyers. The compliance of this order was to be monitored by the Commissioners of CGST/SGST, Maharashtra, under the supervision of the DGAP. The penalty provisions under Section 171 (3A) could not be imposed as they were not in existence during the period of investigation.

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