2022 (8) TMI 529 - NAPA - GST

Construction service provider must return Rs. 54 lakh ITC benefit to homebuyers with 18% interest under Section 171

NAPA found construction service provider contravened Section 171 of CGST Act, 2017 by not passing on additional ITC benefit of 5.86% to homebuyers during ... Profiteering - construction service - allegation is that the Respondent had not passed on the benefit of ITC by way of commensurate reduction in the price - Contravention of Section 171 of the CGST Act, 2017 - interest - penalty - HELD THAT:- The Authority finds that the benefit of additional Input tax Credit of 5.86% of the turnover has accrued to the Respondent for the project “Sanghvi Solitaire”. This benefit was required to be passed on to the recipients. Thus. Section 171 of the CGST, 2017 has been contravened by the Respondent, inasmuch as the additional benefit of ITC @5.86% of the base price received by the Respondent during the period 01.07.2017 to 31.03.2019, was required to be passed on by the Respondent to 17 recipients including the Applicant no. These recipients are identifiable as per the documents provided by the Respondent, giving the names and addresses along with Unit no. allotted to such recipients - the Authority determines that the Respondent has profiteered an amount of Rs. 54,14,439/-. Interest - HELD THAT:- The Authority under Rule 133(3)(a) of the CGST Rules, 2017 orders that the Respondent shall reduce the prices to be realized from the buyers of the flats/customers commensurate with the benefit of ITC received by him. The details of the recipients and benefit which is required to be passed on to each recipient/ homebuyer (including Applicant No. 1) along with the details of the unit are contained in the Annexure ‘A’ to this Order. The Authority directs that the profiteered amount as determined shall be passed on/returned by the Respondent to the recipients of supply along with interest @18%., as prescribed under Rule 133(3)(b) of the CGST Rules, 2017, from the date such amount was profiteered by the Respondent up till the date such amount is passed on/retuned to the respective recipient of supply (if not already passed on) within a period of three Months from the date of this Order failing which it shall he recovered as per the provisions of the CGST Act, 2017. Penalty - HELD THAT:- The Authority holds that the Respondent has committed an offence by violating the provisions of Section 171 (1) during the period from 01.07.2017 to 31.03.2019, and therefore, he is liable for imposition of penalty under the provisions of Section 171 (3A) of the above Act. However, persual of the provisions or the said Section 171 (3A) shows that it has been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019 and it was not in operation during the period from 01.07.2017 to 31.03.2019 when the Respondent had committed the above violation. the said penalty under Section 171 (34) cannot he imposed on the Respondent retrospectively. This Order having been passed today falls within the limitation prescribed under Rule 133(1) of the CGST Rules, 2017. Application disposed off. Issues Involved:1. Whether there was benefit of reduction in rate of tax or ITC on the supply of construction service by the Respondent after implementation of GST.2. Whether the Respondent passed on such benefit to the recipients by way of commensurate reduction in price, in terms of Section 171 of the CGST Act, 2017.3. Calculation and determination of the profiteered amount.4. Compliance and enforcement of the order, including penalties and further investigations.Issue-wise Detailed Analysis:1. Benefit of Reduction in Rate of Tax or ITC:The investigation by the Director General of Anti-Profiteering (DGAP) revealed that the Respondent was eligible to avail ITC on GST paid on inputs and input services post-GST, which was not available in the pre-GST regime. The ITC as a percentage of turnover increased from 1.00% pre-GST to 6.86% post-GST. This additional benefit of ITC was 5.86% of the turnover, which the Respondent was required to pass on to the recipients.2. Passing on the Benefit to Recipients:The Respondent argued that the benefit of ITC was already considered in the price offered to the Applicant No. 1 and that the sale price was exclusive of all taxes, including GST. However, the DGAP found no evidence in the sale agreement or other documents to support this claim. The investigation concluded that the Respondent did not pass on the benefit of the additional ITC to the recipients by way of commensurate reduction in price, thereby contravening Section 171 of the CGST Act, 2017.3. Calculation and Determination of Profiteered Amount:The DGAP calculated the profiteered amount by comparing the ratio of ITC to turnover pre and post-GST. The additional ITC benefit of 5.86% of the turnover was not passed on to the recipients. The total profiteered amount was determined to be Rs. 54,14,439/-, which included 12% GST on the base profiteered amount of Rs. 48,34,321/-. The Respondent's contention that the DGAP's calculation was erroneous due to various factors like ITC reversals and additional costs was not accepted, as these reversals pertained to unsold units and were not part of the profiteering calculation.4. Compliance and Enforcement:The Authority ordered the Respondent to reduce the prices commensurate with the benefit of ITC received and to pass on the profiteered amount to the recipients along with interest @18%. The Respondent was also directed to comply with the order within three months, failing which the amount would be recovered as per CGST Act provisions. The jurisdictional CGST/SGST Commissioner was directed to ensure compliance and to publish an advertisement informing the homebuyers about the order. Further, the DGAP was directed to investigate other projects of the Respondent under the same GST registration to check for similar profiteering.Conclusion:The Authority found that the Respondent had contravened Section 171 of the CGST Act, 2017, by not passing on the benefit of additional ITC to the recipients. The Respondent was ordered to pass on the profiteered amount of Rs. 54,14,439/- to the recipients along with interest. The Authority also directed further investigations into other projects of the Respondent and compliance of the order by the jurisdictional CGST/SGST Commissioner.