Real estate developers must refund Rs 6.62 crore to flat buyers for not passing ITC benefits under section 171 CGST Act

NAPA held that respondents contravened section 171 of CGST Act by failing to pass on ITC benefits to flat buyers. Analysis revealed post-GST ITC increased from 1.16% to 6.85% of turnover, creating 5.69% additional benefit. First respondent must refund Rs. 4,11,40,502 and second respondent Rs. 2,50,94,164 to respective buyers. Authority ordered 18% interest on profiteered amounts from violation date until payment. Penalty provisions under section 171(3A) could not be applied retrospectively as they became effective from 01.01.2020 while violations occurred during 01.07.2017 to 30.09.2019.

---

---

Issues Involved
1. Allegation of profiteering by not passing on the benefit of Input Tax Credit (ITC) post-GST.
2. Determination of whether the benefit of reduction in tax rate or ITC was passed on to recipients.
3. Inclusion of land value in the calculation of profiteering.
4. Jurisdiction and scope of investigation by the Director-General of Anti-Profiteering (DGAP).
5. Methodology for calculating profiteering.
6. Liability of different parties (landowner and developer) in passing on ITC benefits.
7. Compliance with Section 171 of the CGST Act, 2017.

Detailed Analysis
1. Allegation of Profiteering by Not Passing on ITC Benefit
The Applicant No. 1 alleged that Respondent No. 1 did not pass on the benefit of ITC by reducing prices and charged GST at 12% on payments. The DGAP conducted an investigation covering the period from 01.07.2017 to 30.09.2019 and found that both Respondent No. 1 and Respondent No. 2 benefited from additional ITC post-GST but did not pass on the benefit to recipients.

2. Determination of ITC Benefit Passed to Recipients
The DGAP's report concluded that the ITC as a percentage of turnover increased from 1.16% pre-GST to 6.85% post-GST, indicating an additional ITC benefit of 5.69%. The total profiteered amount was calculated as Rs. 6,62,34,666/-, with Respondent No. 1 liable for Rs. 4,11,40,502/- and Respondent No. 2 for Rs. 2,50,94,164/-. The Respondents were required to pass on these amounts to the respective recipients, including the Applicant No. 1.

3. Inclusion of Land Value in Calculation of Profiteering
Respondent No. 2 contended that the value of land should be excluded from the profiteering calculation. The Authority found that in the present case, there was no separate billing for land and construction services. The DGAP had already considered GST at 12% after abatement for land, and the value of land was inherently excluded from the turnover used in the calculation.

4. Jurisdiction and Scope of DGAP Investigation
Respondent No. 2 argued that the investigation should not extend beyond the application filed by Applicant No. 1. The Authority held that Section 171 (1) of the CGST Act mandates passing on the benefit of ITC or tax reduction on "any supply" of goods or services, thus justifying the DGAP's examination of all supplies made by the Respondents.

5. Methodology for Calculating Profiteering
Respondent No. 2 argued that the methodology adopted by the DGAP was incorrect and arbitrary. The Authority upheld the DGAP's methodology, stating that the computation of profiteering is a mathematical exercise based on the ratio of ITC to turnover in pre- and post-GST periods. The Authority noted that no fixed formula could be prescribed due to varying project specifics.

6. Liability of Different Parties in Passing on ITC Benefits
Respondent No. 1 claimed no liability as a landowner, asserting that Respondent No. 2, the developer, bore all construction costs and availed ITC. The Authority found that since Respondent No. 2 availed the ITC for the entire project, it must pass on the benefit to Respondent No. 1, who in turn must pass it on to the recipients.

7. Compliance with Section 171 of the CGST Act, 2017
The Authority determined that both Respondents had contravened Section 171 (1) by not passing on the ITC benefits. They were ordered to refund the profiteered amounts to the recipients along with interest at 18% from the date of profiteering until the date of refund.

Conclusion
The Authority ordered Respondent No. 1 to refund Rs. 4,11,40,502/- and Respondent No. 2 to refund Rs. 2,50,94,164/-, including interest, to the respective recipients. The Respondents were directed to comply within three months, and the jurisdictional CGST/SGST Commissioners were tasked with ensuring compliance and reporting back to the Authority.

---