Builder must refund Rs 12.78 crore to flat buyers for not passing GST input tax credit benefits under Section 171

NAPA held that the respondent builder contravened Section 171 of CGST Act 2017 by not passing input tax credit benefits to flat buyers in a housing project. The Authority determined the respondent profiteered Rs. 12,78,61,818 from 535 buyers during July 2017 to September 2020. The respondent was directed to refund the profiteered amount with 18% annual interest within three months. Penalty was imposed for violations from January 2020 onwards when the penalty provision became effective. NAPA ordered future price reductions commensurate with ITC benefits and directed investigation into the respondent's other projects for similar contraventions.

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Issues Involved:
1. Whether there was a benefit of reduction in the rate of tax or input tax credit (ITC) on the supply of construction services by the Respondent on implementation of GST w.e.f. 01.07.2017.
2. Whether such benefit was passed on by the Respondent to the recipients, in terms of Section 171 of the CGST Act, 2017.

Detailed Analysis:

1. Benefit of Reduction in Tax or ITC:
The investigation focused on whether the Respondent gained a benefit from the reduction in the rate of tax or ITC upon the implementation of GST from 01.07.2017. The DGAP's report established that the Respondent benefited from additional ITC to the tune of 5.69% of the turnover during the period from 01.07.2017 to 30.09.2020. This was concluded by comparing the ratios of ITC to turnover in the pre-GST period (0.12%) and post-GST period (5.81%).

2. Passing on the Benefit to Recipients:
The DGAP concluded that the Respondent did not pass on the benefit of the additional ITC by reducing the base prices of the flats by 5.69%. The Respondent was required to pass on this benefit to the buyers of Phase-I of the project "ATS Picturesque Reprieves" but failed to do so. The DGAP calculated that the Respondent needed to pass on a total benefit of Rs. 12,78,61,818/- to 535 buyers for the period from 01.07.2017 to 30.09.2020.

Respondent's Contentions and DGAP's Clarifications:
- The Respondent argued that the DGAP's calculations were flawed and that the benefit of ITC should only pertain to goods, not services. They also claimed to have passed on the ITC benefit to all buyers.
- The DGAP clarified that the methodology adopted was consistent with previous cases and based on the information provided by the Respondent. The DGAP verified the benefit passed on to buyers through replies from 90 out of 207 home buyers, confirming partial benefit passed on in some cases.

Authority's Findings:
- The Authority agreed with the DGAP's methodology and found that the Respondent had indeed benefited from the additional ITC and was required to pass on this benefit to the buyers.
- The Authority determined that the Respondent had realized an additional amount of Rs. 12,78,61,818/- from the buyers and directed the Respondent to pass on this amount along with interest @ 18% per annum to the buyers within three months.
- The Authority also noted that the Respondent had committed an offence by violating Section 171 (1) of the CGST Act, 2017, and is liable for a penalty for the amount profiteered from 01.01.2020 onwards.

Conclusion:
The Authority concluded that the Respondent had contravened the provisions of Section 171 of the CGST Act, 2017, by not passing on the benefit of ITC to the buyers. The Respondent was directed to pass on the profiteered amount along with interest to the eligible buyers and reduce the prices commensurate with the benefit of ITC received. The Authority also directed the DGAP to investigate profiteering in relation to other projects executed by the Respondent.

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