Builder fails to pass Rs. 9 crore input tax credit benefits to flat buyers, violates section 171 CGST Act

NAPA held that the respondent builder contravened section 171 of CGST Act by failing to pass on input tax credit benefits of Rs. 9,03,74,981/- to 395 flat buyers during 01.07.2017 to 31.05.2020. The authority rejected respondent's claim of transferring Rs. 15,48,92,888/- benefit due to lack of proper methodology. NAPA determined the respondent profiteered at 5.69% of taxable amount plus 12% GST and directed penalty notice issuance for violations from 01.01.2020 onwards under section 171(3A).

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Issues:
1. Whether there was a benefit of reduction in the rate of tax or ITC on the supply of construction service 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.
3. Whether the Respondent is liable to be penalized in terms of Section 171 (3A) of the CGST Act 2017.

Issue-wise Detailed Analysis:

Issue 1: Benefit of Reduction in Rate of Tax or ITC on Construction Service Post-GST Implementation
The DGAP investigated and found that the Respondent had benefited from an additional ITC of 6.56% of the turnover during the period from 01.07.2017 to 31.05.2020. This was determined by comparing the ratio of ITC to turnover in the pre-GST period (0.63%) and the post-GST period (7.19%). The investigation revealed that the Respondent was required to pass on this benefit to the buyers of the "ATS Rhapsody" project by reducing the base prices of the flats/shops.

Issue 2: Passing on the Benefit to Recipients
The DGAP's report concluded that the Respondent had not reduced the basic prices of his flats/shops by 6.56% due to the additional benefit of ITC, thereby contravening Section 171 of the CGST Act, 2017. The total benefit of Rs. 9,03,74,981/- (including GST @12%) was to be passed on to 395 buyers. However, the Respondent claimed to have passed on the benefit of Rs. 15,48,92,888/- to 380 buyers, which was verified by the DGAP. Despite this, the DGAP found that the benefit passed on was not commensurate for all buyers, leaving an additional amount of Rs. 57,64,875/- still to be passed on to 150 buyers.

Issue 3: Liability for Penalty
The Authority found that the Respondent had denied the benefit of ITC to the buyers in contravention of Section 171 (1) of the CGST Act, 2017. Consequently, the Respondent is liable for a penalty under Section 171 (3A) of the CGST Act, 2017, for the amount profiteered from 01.01.2020 onwards. The Authority directed the issuance of a notice to the Respondent for the imposition of such a penalty.

Conclusion:
The Authority agreed with the DGAP's methodology and findings, concluding that the Respondent had realized an additional amount of Rs. 9,03,74,981/- from 395 buyers, which was required to be passed on to them. The Respondent is directed to pass on this amount along with interest @ 18% per annum to the buyers within three months. The Authority also directed the jurisdictional Commissioner, CGST, Noida, and SGST, Lucknow, to monitor compliance and ensure the benefit is passed on to each buyer. Further, the Authority ordered an investigation into other projects executed by the Respondent to check for similar contraventions.

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