2022 (8) TMI 531 - NAPA - GST

Real estate developer must pass Rs. 16.5 lakh Input Tax Credit benefits to flat buyers under Section 171 CGST Act

NAPA found that the respondent real estate developer violated Section 171 of CGST Act by not passing on Input Tax Credit benefits to flat buyers in The ... Profiteering - purchase of Flat - allegation is that the Respondent had not passed on the full benefit of ITC to them by way of commensurate reduction in prices - contravention of provisions of section 171 of CGST Act - interest - penalty - HELD THAT:- The Applicant No. 1 and 2 had filed complaint against Respondent alleging that the Respondent had not passed on the benefit of ITC to them by way of commensurate reduction in prices on the purchase of Flat No.s 1002 & 1003 respectively in his “The Elegance” Project which was being executed by the Respondent at Partap Nagar in Jaipur. The said complaint was examined by the Standing Committee on Anti-Profiteering and forwarded to the DGAP for detailed investigation, who vide his investigation Report dated 30.12.2020 furnished to this Authority, had stated that the “The Elegance”, Project of the Respondent, was constructed under Joint Development Agreement (JDA) with M/s Jaipur Constructions & M/s GPM Infrastructure Pvt. Ltd. under revenue sharing basis at 50:50 ratio. Construction of project was to carried out by the Respondent on his own account and own expenses. Since the entire cost of all purchases of inputs, capital goods and input services for construction of all units of the impugned project was incurred by the Respondent hence he had availed Input Tax Credit on tax paid on said inputs, capital goods and input services during pre and post GST periods. The DGAP had also found that since the Respondent has not reduced the basic prices of his flats/units by 4.80% due to the additional benefit of ITC and had charged GST at the increased rate of 12% on the pre-GST basic prices hence he has contravened the provisions of Section 171 of the CGST Act, 2017 and Rules made thereunder. The DGAP had observed that as mentioned above, the benefit of Rs. 16,49,897/- was required to be passed on to 39 flat buyers/customers/recipients including Applicants by the Respondent for the period from 01.07.2017 to 31.03.2019 if not already passed on. Since, the ratios calculated by the DGAP are based on the factual record submitted by the Respondent, hence the computation made by the DGAP can be relied upon while computing the profiteered amount. The above methodology has been approved by this Authority in all the cases where the benefit of ITC was required to be passed on to the flat buyers / customers / recipients. The above methodology is appropriate, logical, reasonable, and in consonance with the provisions of Section 171 of the CGST Act, 2017. Interest - HELD THAT:- Since the home buyers/customers/recipients are identifiable as per the documents placed on record, the Respondent is directed to pass on an amount of Rs. 16,49,897/- to 39 home buyers/customers/recipients, out of which the amount required to be passed on to the Applicant No. 1 and 2 is Rs. 1,08,480/- and 1,55,904/- respectively if already not passed on. Such amount shall be passed on/ returned along with the interest @ 18% per annum from the dates from which the above amount was collected by him from them till the payment is made, as prescribed under Rule 133 of the CGST Rules, 2017 within a period of 3 months from the date of passing of this order as per the details mentioned in Annexure-21 & 22 attached with the Report dated 31.12.2020. The details of the homebuyers/customers/ recipients along with profiteered amount due to each of them is attached as Annexure A to this Order. Penalty - HELD THAT:- The Authority finds that, vide Section 112 of the Finance Act, 2019 specific penalty provisions have been added for violation of the provisions of Section 171 (1) which have come in to force w.e.f. 01.01.2020, by inserting Section 171 (3A). Since, no penalty provisions were in existence between the period from 01.07.2017 to the period of investigation and to which this Order is passed, when the Respondent had violated the provisions of Section 171 (1), the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively for such period. 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. Alleged profiteering by not passing on the benefit of Input Tax Credit (ITC) to buyers.2. Determination of whether the benefit of ITC was passed on by the Respondent.3. Calculation of the amount of profiteering.4. Compliance with Section 171 of the CGST Act, 2017.5. Penalty applicability under Section 171(3A) of the CGST Act, 2017.6. Directions for future compliance and monitoring.Issue-Wise Detailed Analysis:1. Alleged Profiteering by Not Passing on the Benefit of ITC:The Applicants alleged that the Respondent did not pass on the full benefit of ITC by way of commensurate reduction in prices for Flats 1002 and 1003 in the project 'The Elegance.' The Respondent charged GST at 12% on the amount due against payments.2. Determination of Whether the Benefit of ITC Was Passed On:The DGAP conducted a detailed investigation and found that the Respondent had not passed on the benefit of ITC to the recipients by way of commensurate reduction in prices. The Respondent was required to pass on the benefit of ITC to the flat buyers, but it was found that the Respondent had only partially passed on the benefit.3. Calculation of the Amount of Profiteering:The DGAP calculated the profiteering amount by comparing the applicable tax rate and ITC available in the pre-GST and post-GST periods. It was found that the Respondent benefited from additional ITC to the tune of 4.80% of the turnover during the post-GST period. The total profiteering amount was determined to be Rs. 16,49,897/-, which included Rs. 1,08,480/- for Applicant No. 1 and Rs. 1,55,904/- for Applicant No. 2.4. Compliance with Section 171 of the CGST Act, 2017:Section 171 of the CGST Act, 2017, mandates that any reduction in the rate of tax or benefit of ITC should be passed on to the recipients by way of commensurate reduction in prices. The Respondent failed to comply with this provision, as the benefit of ITC was not fully passed on to the buyers.5. Penalty Applicability under Section 171(3A) of the CGST Act, 2017:The Authority noted that specific penalty provisions under Section 171(3A) were added w.e.f. 01.01.2020. Since the period of investigation was from 01.07.2017 to 31.03.2019, the penalty provisions could not be applied retrospectively for this period.6. Directions for Future Compliance and Monitoring:The Authority directed the Respondent to pass on the amount of Rs. 16,49,897/- to 39 home buyers along with interest @ 18% per annum from the dates the amount was collected till the payment is made. The Commissioners of CGST/SGST Jaipur were instructed to monitor compliance under the supervision of the DGAP. An advertisement should be published to inform the flat buyers about the benefit of ITC.Conclusion:The Respondent was found to have contravened Section 171 of the CGST Act, 2017, by not passing on the benefit of ITC to the flat buyers. The Respondent was ordered to pass on the profiteered amount along with interest to the affected buyers. The Commissioners of CGST/SGST were directed to ensure compliance and report back to the Authority.