Construction company ordered to refund Rs 4.75 crore for not passing GST input tax credit benefits to flat buyers under Section 171

NAPA held that the respondent construction company contravened Section 171 of CGST Act, 2017 by not passing on ITC benefits to flat buyers. The Authority found profiteering of Rs. 4,75,87,468 for Project SKA Green Arch during July 2017 to October 2020, as ITC percentage increased from 0.76% pre-GST to 9.13% post-GST. The respondent was ordered to reduce prices commensurate with ITC benefits and refund the profiteered amount with 18% interest. Penalty proceedings were initiated for the period from January 2020 onwards under Section 171(3A).

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Issues Involved:

1. Allegation of profiteering by not passing on the benefit of Input Tax Credit (ITC) under GST.
2. Inclusion of the second phase of the project in the profiteering calculation.
3. Methodology for calculating profiteering.
4. Procedure and mechanism for calculation of profiteering.
5. Scope of investigation beyond the initial applicant.
6. Inclusion of GST in the profiteered amount.
7. Consideration of VAT credit in the profiteering calculation.
8. Compliance and penalty for profiteering.

Issue-wise Detailed Analysis:

1. Allegation of Profiteering:
The primary issue was whether the Respondent passed on the benefit of ITC to the buyers as mandated by Section 171 of the CGST Act, 2017. The investigation revealed that the Respondent had not passed on the additional ITC benefit accrued post-GST implementation, resulting in a profiteered amount of Rs. 4,75,87,468/- for the project "SKA Green Arch."

2. Inclusion of the Second Phase:
The Respondent argued that the second phase of the project should not be included in the profiteering calculation as no activity was conducted pre-GST. However, the Authority found that the entire project, including both phases, had a single RERA registration and financial statements were submitted as a single unit. Thus, the second phase was rightly included in the investigation.

3. Methodology for Calculating Profiteering:
The Respondent contended that comparing the ratio of ITC to turnover pre and post-GST was incorrect. The Authority, however, upheld the DGAP's methodology, stating it was logical and in accordance with Section 171 of the CGST Act, 2017. The additional ITC benefit of 8.37% of the turnover was calculated based on this ratio.

4. Procedure and Mechanism for Calculation:
The Respondent argued the absence of a specified procedure for calculating profiteering made the proceedings arbitrary. The Authority clarified that the methodology and procedure for determining profiteering were outlined in Section 171 (1) and further detailed in Rule 126 of the CGST Rules, 2017. The calculation of profiteering is a mathematical exercise based on the comparison of pre and post-GST ITC ratios.

5. Scope of Investigation Beyond Initial Applicant:
The Respondent claimed the investigation should be limited to the initial applicant. The Authority rejected this, stating Section 171 (1) mandates that the benefit of ITC must be passed on to all recipients, not just the complainant. Hence, the investigation rightly covered all eligible beneficiaries.

6. Inclusion of GST in Profiteered Amount:
The Respondent argued that the profiteered amount was incorrectly inflated by adding GST. The Authority held that the Respondent had collected excess GST on the profiteered amount, which should not have been charged. This excess GST was rightly included in the profiteered amount.

7. Consideration of VAT Credit:
The Respondent contended that VAT credit was not considered in the profiteering calculation. The Authority found no documentary evidence supporting the claim that VAT credit was available. Hence, the DGAP's exclusion of VAT credit in the calculation was upheld.

8. Compliance and Penalty:
The Authority ordered the Respondent to refund the profiteered amount of Rs. 4,75,87,468/- along with 18% interest to the homebuyers within three months. Additionally, the Respondent was found liable for a penalty under Section 171 (3A) of the CGST Act, 2017 for profiteering from 01.01.2020 onwards. The concerned jurisdictional CGST/SGST Commissioner was directed to ensure compliance and submit a report within four months.

Conclusion:
The Authority upheld the DGAP's findings and methodology, directing the Respondent to refund the profiteered amount with interest and comply with the provisions of the CGST Act, 2017. The investigation covered all eligible beneficiaries, and the Respondent was held liable for profiteering and subject to penalties for non-compliance.

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