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 July 2017-March 2019. Authority determined profiteering amount of Rs. 54,14,439 must be returned to 17 recipients with 18% interest within three months. While respondent violated provisions warranting penalty under Section 171(3A), no penalty imposed as provision was inserted retrospectively from January 2020, after violation period. Application disposed.

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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.

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