Builder must refund Rs 1.07 crore profiteered amount with 18% interest for failing to pass ITC benefits under section 171

NAPA held that respondent builder contravened section 171 of CGST Act by failing to pass on ITC benefits to homebuyers in construction services. The consolidated invoicing of land and construction at 12% GST instead of separate invoicing (which would have attracted 18% GST) resulted in profiteering of Rs.1,07,67,330 for the period July 2017 to September 2019. Respondent directed to refund profiteered amount with 18% interest to all affected buyers. However, penalty under section 171(3A) could not be imposed as the provision was inserted retrospectively from January 2020, after the violation period.

---

---

Issues Involved:
1. Violation of Section 171(1) of the CGST Act, 2017.
2. Calculation of the additional benefit of ITC to be passed on to the recipients.
3. Constitutional validity of Section 171 and methodology adopted by the DGAP.
4. Inclusion of land cost in the value for profiteering calculation.

Detailed Analysis:

1. Violation of Section 171(1) of the CGST Act, 2017:
The DGAP conducted an investigation and found that the Respondent did not pass on the benefit of Input Tax Credit (ITC) to the recipients post-GST implementation, thereby violating Section 171(1) of the CGST Act, 2017. The ITC as a percentage of turnover increased from 3.71% in the pre-GST period to 8.76% in the post-GST period, resulting in an additional benefit of 5.05% that was not passed on to the recipients.

2. Calculation of the Additional Benefit of ITC:
The DGAP calculated the profiteered amount to be Rs. 1,07,67,330/-, which includes GST on the base profiteered amount of Rs. 96,13,687/-. This amount was determined by comparing the ITC to turnover ratios in the pre-GST and post-GST periods. The Respondent argued against the methodology, but the Authority found the DGAP's approach to be correct, reasonable, and in accordance with Section 171 of the CGST Act, 2017.

3. Constitutional Validity of Section 171 and Methodology Adopted by the DGAP:
The Respondent challenged the constitutional validity of Section 171, claiming it was ultra vires of the Constitution. However, the Authority held that Section 171 and the related rules have express approval from the Parliament, State Legislatures, Central and State Governments, and the GST Council. The Authority also clarified that it is not a price regulator but ensures that the benefits of tax reduction and ITC are passed on to consumers.

4. Inclusion of Land Cost in the Value for Profiteering Calculation:
The Respondent contended that the cost of land should be excluded from the profiteering calculation. The Authority found that the Respondent had raised consolidated invoices including both land and construction services. Since separate invoices for land were not issued, the value of land could not be excluded from the calculation. The Authority rejected the Respondent's contention, stating that the facts of the cases cited by the Respondent were different from the present case.

Conclusion:
The Authority determined that the Respondent had indeed profiteered by not passing on the additional ITC benefit of 5.05% to the recipients. The total profiteered amount was calculated to be Rs. 1,07,67,330/-, which includes GST on the base profiteered amount. The Respondent is ordered to reduce prices commensurate with the benefit of ITC and pay interest at 18% on the profiteered amount to the recipients. The DGAP is also directed to investigate other projects of the Respondent for similar violations. Compliance with this order is to be ensured by the concerned jurisdictional CGST/SGST Commissioner.

---