2022 (10) TMI 369 - NAPA - GST

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 ... Profiteering - construction service - blocking of ITC - it is alleged that Respondent had not passed on the benefit of Input Tax Credit (ITC) to him by way of commensurate reduction in price of the shop - contravention of Section 171 of CGST Act - Interest - penalty - HELD THAT:- It is clear from the plain reading of Section 171 (1) that it deals with two situations:- one relating to the passing on the benefit of reduction in the rate of tax and the second pertaining to the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the DGAP’s Report that there has been no reduction in the rate of tax in the post-GST period; hence the only issue to be examined is whether there was any net benefit of ITC with the introduction of GST. It is observed from the report that the ITC, as a percentage of the turnover, that was available to the Respondent during the pre-GST period (April 2016 to June 2017) was 0.84%, whereas, during the post-GST period (July 2017 to March, 2019), it was 2.58% for the project ‘U-FARIA’. This confirms that post-GST, the Respondent has benefited from additional ITC to the tune of 1.74% (2.58% - 0.84%) of his turnover for the project ‘U-FARIA’ and the same was required to be passed on to the customers/shop buyers/recipients. The DGAP had calculated the total profiteering amount as Rs. 24,78,383/- in respect of 90 shop buyers including the Applicant No. 1. The Authority finds no reason to differ from the computation of profiteering in the DGAP’s Report dated 24.09.2019 and 29.10.2020 or the methodology adopted. The Authority finds that the Respondent has profiteered by Rs. 24,78,383/- during the period of investigation i.e. 01.07.2017 to 31.03.2019. The Authority determines an amount of Rs. 24,78,383/- (including 12% GST) under section 133(1) as the profiteered amount by the Respondent from his 178 /shop buyers/customers (as per Annexure A to this Order), including Applicant No. 1, which shall be refunded by him along with interest @18% thereon, from the date when the above amount was profiteered by him till the date of such payment as per the provisions of Rule 133 (3) (b) of the CGST Rules 2017. The amount profiteered is Rs. 37,107/- (including GST) in respect of Applicant No. 1 - this Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondent shall reduce the prices to be realized from the shop buyers/customers commensurate with the benefit of ITC received by him. Interest - HELD THAT:- The Respondent is also liable to pay interest as applicable on the entire amount profiteered, i.e. Rs. 24,78,383/-, for the project ‘U- FARIA’. Hence the Respondent is directed to also pass on interest @18% to the customers/ Shop buyers/ recipients on the entire amount profiteered, starting from the date from which the above amount was profiteered till the date of passing on/ payment, as per provisions of Rule 133 (3) (b) of the CGST Rules, 2017. Penalty - HELD THAT:- It is also evident from the above narration of facts that the Respondent has denied the benefit of ITC to the customers/flat buyers/recipients in his Project ‘U-Faria’ in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act. Section 171 (3A) of the CGST Act, 2017 has been inserted in the CGST Act, 2017 vide Section 112 of the Finance Act, 2019, and the same became operational w.e.f. 01.01.2020. As the period of investigation was 01.07.2017 to 31.03.2019, therefore, penalty cannot be imposed on the Respondent retrospectively, i.e. for the period of investigation. This Order having been passed today falls within the limitation prescribed under Rule 133(1) of the CGST Rules 2017 - Application disposed off. 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.