Developer violated GST rules by not passing Input Tax Credit benefits to flat buyers, profiteered Rs. 35,114

CCI held that the respondent developer contravened Section 171 of CGST Act by not passing on ITC benefits to flat buyers. The respondent's ITC increased from 4.19% to 4.26% of turnover post-GST implementation, creating a 0.07% net benefit. Out of 85 units sold, 52 units required ITC benefit pass-through totaling Rs. 6,43,756. The profiteered amount was determined as Rs. 35,114 for the period July 2017 to December 2019. However, penalty under Section 171(3A) could not be imposed retrospectively as the provision came into force from January 2020, while the violation occurred during 2017-2019.

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Issues Involved:

1. Whether there was the benefit of reduction in the rate of tax or additional benefit of ITC on the supply of Construction Services by the Respondent on implementation of GST.
2. Whether such benefit was passed on by the Respondent to the recipients, in terms of Section 171 of the CGST Act, 2017.

Summary:

Issue 1: Benefit of Reduction in Tax Rate or Additional ITC

The DGAP's investigation revealed that post-GST, the Respondent could avail ITC of GST paid on all inputs and input services, unlike the pre-GST period where no credit was available for Central Excise Duty and VAT paid on inputs. The ITC as a percentage of turnover increased from 4.19% pre-GST to 4.26% post-GST, confirming an additional ITC benefit of 0.07%.

Issue 2: Passing on the Benefit to Recipients

The Respondent was required to pass on the additional ITC benefit to the recipients. The DGAP's report indicated that the Respondent had passed on an excess benefit of Rs. 94,83,735 to 48 homebuyers but had not passed on Rs. 35,114 to four homebuyers. The Respondent provided evidence of payments made to these four homebuyers, which was confirmed by the bank.

Findings and Order:

- The Commission found that the Respondent had contravened Section 171 (1) of the CGST Act, 2017, by not passing on the benefit of ITC to all eligible recipients.
- The Respondent was directed to pay interest at 18% on the profiteered amount from the date of profiteering till the date of payment.
- The DGAP was instructed to ensure compliance with the payment of interest, and the concerned jurisdictional CGST/SGST Commissioner was to submit a compliance report within four months.

The Commission concluded that although the Respondent had passed on the ITC benefit to the majority of recipients, the interest on the shortfall amount was still due. No penalty was imposed as the relevant provision came into force after the period of violation.

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