Construction company must refund Rs. 50 lakh for not passing GST input credit benefits to home buyers under Section 171

NAPA held that a construction company contravened Section 171 of CGST Act, 2017 by not passing on ITC benefits to home buyers. The authority found profiteering of Rs. 50,09,158 during July 2017 to October 2019, based on ITC percentage increase from 3.36% (pre-GST) to 4.27% (post-GST) period. The respondent was directed to refund the profiteered amount with 18% interest and faced penalty under Section 171(3A) for denying tax reduction benefits to customers.

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Issues Involved:
1. Allegation of profiteering in the supply of construction services.
2. Determination of the benefit of reduction in tax rate or ITC and its passing on to recipients.
3. Time-barred objections under Rule 133(1) of the CGST Rules, 2017.
4. Methodology for calculating profiteering.
5. Correlation between ITC and the amount realized from customers.
6. Compliance and enforcement of the order.

Detailed Analysis:

1. Allegation of Profiteering:
The Director-General of Anti-Profiteering (DGAP) conducted an investigation into the allegation of profiteering by the Respondent in respect of construction services. The investigation was initiated based on the National Anti-Profiteering Authority's (NAA) Interim Order No. 12/2019 dated 15.10.2019. The DGAP's report dated 27.11.2020 formed the basis of the current proceedings.

2. Determination of Benefit and Passing it On:
The DGAP's report identified that the Respondent had three residential projects under the same GST registration. The investigation focused on whether the benefit of ITC was passed on to the recipients. The DGAP concluded that the ITC as a percentage of turnover increased from 3.36% in the pre-GST period to 4.27% in the post-GST period, resulting in an additional benefit of 0.91%.

3. Time-Barred Objections:
The Respondent raised an objection that the proceedings were time-barred as per Rule 133(1) of the CGST Rules, 2017. The DGAP forwarded this objection to the NAA, which directed the DGAP to proceed with the investigation, stating that such submissions would be addressed in the final order. The NAA found that the time limits prescribed under Rule 129(6) and 133(1) are directory and not mandatory, citing the Delhi High Court's order in the case of M/s Nestle India Ltd. and the Supreme Court's judgment in Mahadev Govind Charge v. Special Land Acquisition Officer.

4. Methodology for Calculating Profiteering:
The Respondent argued that the methodology adopted by the DGAP was flawed, biased, and unscientific. The DGAP, however, maintained that the methodology was correct and in line with Section 171 of the CGST Act, 2017. The DGAP's approach involved comparing the ITC available in the pre-GST and post-GST periods and calculating the benefit of additional ITC that should have been passed on to the recipients. The NAA upheld this methodology, noting that it had been consistently applied in similar cases.

5. Correlation Between ITC and Amount Realized:
The Respondent contended that there was no correlation between ITC and the amount realized from customers. The DGAP and NAA disagreed, stating that the ITC was directly related to the turnover and the GST output liability discharged by the Respondent. The benefit of additional ITC should be proportionate to the payments made by the buyers.

6. Compliance and Enforcement:
The NAA ordered the Respondent to refund the profiteered amount of Rs. 50,09,158/- along with interest @18% from the date of profiteering till the date of payment. The Respondent was also directed to reduce the prices commensurate with the benefit of ITC received. The jurisdictional CGST/SGST Commissioner was tasked with ensuring compliance and submitting a report within four months. An advertisement was to be published to inform the affected buyers.

Conclusion:
The NAA concluded that the Respondent had profiteered by Rs. 50,09,158/- by not passing on the benefit of additional ITC to the buyers. The Respondent was directed to refund this amount with interest and adjust future prices accordingly. The compliance of this order was to be monitored by the jurisdictional CGST/SGST Commissioner, and the affected buyers were to be informed through advertisements.

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