Construction service provider ordered to refund Rs 24.78 lakh for not passing ITC benefits under Section 171 CGST Act

NAPA determined that a construction service provider contravened Section 171 of CGST Act by not passing on ITC benefits to shop buyers. The respondent received additional ITC of 1.74% of turnover post-GST implementation but failed to reduce prices accordingly. NAPA ordered refund of Rs. 24,78,383 profiteered amount to 178 customers with 18% interest from profiteering date until payment. The respondent must also reduce future prices commensurate with ITC benefits received. No penalty was imposed as the investigation period preceded the penalty provision's effective date of January 1, 2020.

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Issues Involved:
1. Blocking of Input Tax Credit (ITC) by State GST authorities.
2. Inclusion of blocked ITC in computing profiteered amount.
3. Passing on ITC benefits to shop buyers.
4. Specific ITC benefit passed on to the Applicant No. 1.

Issue-wise Detailed Analysis:

1. Blocking of ITC by State GST Authorities:
The DGAP reported that ITC amounting to Rs. 1,77,50,478/- was blocked by State GST authorities on 28.03.2019. The blocking was due to non-compliance by the Respondent, and the ITC was unblocked on 08.10.2020. The Respondent argued that blocked ITC should not be included in the profiteering calculation as it was not available for use during the investigation period. However, the DGAP and the Authority concluded that since the ITC was blocked only for three days during the investigation period (01.07.2017 to 31.03.2019), it should be considered in the profiteering calculation.

2. Inclusion of Blocked ITC in Computing Profiteered Amount:
The DGAP included the blocked ITC in the profiteering calculation, asserting that the ITC was legally available to the Respondent and could be utilized once unblocked. The Authority agreed, stating that the ITC was available in the Electronic Credit Ledger and could be used towards tax liability, thus justifying its inclusion in the calculation.

3. Passing on ITC Benefits to Shop Buyers:
The DGAP reported that the Respondent claimed to have passed on ITC benefits amounting to Rs. 9,61,130/- to shop buyers, including the Applicant No. 1. However, upon verification, it was found that only a portion of the shop buyers confirmed receipt of the benefits. The DGAP concluded that the total benefit of Rs. 24,14,761/- (including GST) was not verified and needed to be passed on to the shop buyers. The Authority directed the Respondent to refund the profiteered amount of Rs. 24,78,383/- (including 12% GST) to the eligible recipients along with interest @18%.

4. Specific ITC Benefit Passed on to the Applicant No. 1:
The DGAP reported that the Applicant No. 1 received an ITC benefit of Rs. 37,107/-. The Authority confirmed this amount and included it in the total profiteered amount to be refunded by the Respondent.

Additional Findings:
- The Respondent's contention that the DGAP exceeded its jurisdiction by calculating profiteering for customers other than Applicant No. 1 was dismissed. The Authority clarified that Section 171(1) of the CGST Act mandates passing on ITC benefits to all recipients.
- The Respondent's argument that fresh negotiations/bookings post-GST should be excluded from profiteering calculations was rejected. The Authority found no evidence of price reduction commensurate with additional ITC availability post-GST.
- The Authority upheld the DGAP's methodology and calculation of profiteering, determining that the Respondent had benefited from additional ITC and failed to pass it on to the buyers.

Orders and Directions:
- The Respondent is ordered to refund the profiteered amount of Rs. 24,78,383/- along with 18% interest to the shop buyers within three months.
- The Respondent must reduce prices commensurate with the ITC benefit received.
- The jurisdictional CGST/SGST Commissioner is directed to ensure compliance and publish details in local newspapers.
- The DGAP is instructed to investigate other projects of the Respondent under the same GST registration for potential profiteering.

Conclusion:
The Authority concluded that the Respondent had profiteered by Rs. 24,78,383/- by not passing on the ITC benefits to the shop buyers, including Applicant No. 1, and directed the Respondent to refund the amount with interest and reduce prices accordingly.

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