2026 (3) TMI 1237 - AT - GST

GST profiteering from additional input tax credit requires passing on the benefit, with 18% interest payable on delayed refund.

Additional input tax credit in the post-GST period can trigger profiteering liability where the supplier retains the resulting benefit instead of passing ... Anti-Profiteering - Failure to pass on benefit of input tax credit under Section 171 - post-GST period thereby engaging in profiteering - interest payable under Rule 133(3)(b) - penalty under Section 171(3A). Failure to pass on benefit of input tax credit under Section 171 - HELD THAT: - The Tribunal accepted the DGAP's computation comparing the ratio of input tax credit to purchase value in the pre GST and post GST periods, found an increase in the ratio post GST, and on uncontested verified audited figures concluded that the respondent retained the additional benefit instead of passing it to recipients. The respondent unambiguously accepted the DGAP report and furnished evidence of refunds; the Tribunal recorded that profiteering initially arose from the respondent's post GST pricing and identified the remaining amount to be refunded to eligible homebuyers. [Paras 3, 4, 5, 8] Profiteering was established for the period and the respondent is required to return the determined amount to eligible homebuyers. Penalty under Section 171(3A) - HELD THAT: - Although the respondent defaulted in passing the benefit and Section 171(3A) renders the respondent liable to penalty, the Tribunal observed that Section 171(3A) came into force from 01.01.2020 while the violation period was w.e.f. 1st July, 2017 to 31.12.2019. Further, since the respondent refunded the entire amount to eligible homebuyers and Section 171(3A) provides that no penalty shall be levied if the amount is deposited within thirty days of the order of determination, the Tribunal held that the penalty prescribed could not be imposed. [Paras 8] Penalty under Section 171(3A) is not imposed in the present case. Interest payable under Rule 133(3)(b) - HELD THAT: - The Tribunal held that Section 171 imposes a statutory obligation to pass on the benefit at the time of supply and that retained amounts constitute excess consideration. It relied upon Rule 133(3)(b), which mandates return of the amount not passed on along with interest at 18% per annum from the date of collection until refund, and directed payment of interest to each eligible homebuyer accordingly. The Tribunal rejected the contention that interest should run only from issuance of completion certificate. [Paras 8, 9] Interest at 18% per annum shall be paid on the profiteered amount from the respective dates of collection until the date of refund. Final Conclusion: The Tribunal accepted the DGAP report, held that profiteering occurred for the period w.e.f. 1st July, 2017 to 31.12.2019, directed refund of the determined amount to eligible homebuyers with interest at 18% per annum, and declined to impose penalty under Section 171(3A) in view of the respondent's refunds and the statutory proviso. Issues: (i) Whether the supplier derived and retained benefit of additional input tax credit in the post-GST period thereby engaging in profiteering under Section 171 of the Central Goods and Services Tax Act, 2017; (ii) Whether penalty and interest are exigible for such profiteering and, if so, the applicable quantification and temporal scope.Issue (i): Whether the supplier derived and retained benefit of additional input tax credit in the post-GST period thereby engaging in profiteering under Section 171 of the Central Goods and Services Tax Act, 2017.Analysis: Comparative computation of ratio of credit availed to purchase value for pre-GST and post-GST periods shows an increase of 4.41 percentage points. Applying that increase to the post-GST purchase value and prorating over the sold area produced a quantified excess realization. Documentary evidence and statutory auditor-certified computations supporting the figures were uncontroverted, and the supplier unqualifiedly accepted the quantified finding and produced evidence of refunds to buyers.Conclusion: The supplier engaged in profiteering by retaining the benefit of additional input tax credit; the profiteered amount pending to be passed on is quantified as Rs. 6,53,861 (inclusive of GST).Issue (ii): Whether penalty and interest are exigible for such profiteering and, if so, the applicable quantification and temporal scope.Analysis: Section 171(3A) prescribes penalty for failure to pass on benefit but contains a proviso exempting penalty where the amount is deposited within thirty days of the determination order; the relevant period of contravention is July 1, 2017 to December 31, 2019. Rule 133(3)(b) of the Central Goods and Services Tax Rules, 2017 prescribes return of the not-passed-on amount with interest at 18% per annum from date of collection until date of refund. The supplier has refunded the amount to eligible buyers; the computations of interest are guided by Rule 133(3)(b) as compensatory restitution for the time value of money.Conclusion: Penalty under Section 171(3A) is not imposable in view of compliance with the proviso (deposit/refund within the statutory period), but interest at 18% per annum is payable from the respective dates of collection until the date of refund in accordance with Rule 133(3)(b).Final Conclusion: The determination that profiteering occurred and the quantified restitutive obligation, together with the direction to refund the outstanding profiteered amount with interest at 18% per annum to eligible buyers, is confirmed; penalty is not imposed due to compliance with the statutory proviso.Ratio Decidendi: Where additional input tax credit results in a measurable increase in the credit-to-purchase-value ratio, the supplier must pass on the resultant benefit by commensurate reduction in price; failure to do so gives rise to a restitutive liability quantified by applying the differential credit ratio to the relevant base and, under Rule 133(3)(b) of the Central Goods and Services Tax Rules, 2017, attracts interest at 18% per annum from date of collection until refund, while penalty under Section 171(3A) is avoided if the amount is deposited within thirty days of the order of determination.