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2022 (7) TMI 1441 - NAPA - GSTProfiteering - purchase of Flat - benefit of reduction in the rate of tax or ITC on the supply of construction service by the Respondent No. 1 2 on implementation of GST w.e.f.01.07.2017 - such benefit was passed on by the Respondent No. 1 2 to the recipients or not - contravention of section 171 of CGST Act - HELD THAT - It is established from the perusal of the facts that the Respondent No. 1 has realized an additional amount of Rs. 7, 94, 569/- from Applicant no. 1 Rs. 29, 45, 27, 905/- from 850 home buyers other than Applicant No. 1 and Rs. 1, 23, 35, 442/- from the Respondent No. 2 during period from 01.07.2017 to 30.09.2019. The details of eligible homebuyers/recipients to whom supply has been made by Respondent no. 1 in the impugned Project and from whom additional amount on account of benefit of ITC had been realized by the Respondent no. 1 during period from 01.07.2017 to 30.09.2019 along with details of such additional amount is given in Annexure- A to this Order. All the home buyers/recipients are identifiable as per the documents placed on record and therefore the Respondent No. 1 is directed to pass on/return/refund the profiteered amount along with the interest @ 18% per annum (from the dates from which the said profiteered amount was collected by him from each of them till the date such amount is passed on/returned/refunded is made) if not already passed on/returned/refunded within a period of 3 months from the date of passing of this Order as per the details mentioned in Annexure- A . It is also found that the Respondent No. 2 was also required to pass on the benefit of ITC @ 10.51 % of the turnover which is calculated to the tune of Rs. 1, 23, 35, 442/- to 30 flat buyers other than the Applicant No.1 as he had received consideration only from 30 flat buyers/recipients out of 62. The details of eligible homebuyers/recipients to whom supply has been made by Respondent no. 2 in the impugned Project and from whom additional amount on account of benefit of ITC had been realized by the Respondent no. 2 during period from 01.07.2017 to 30.09.2019 along with details of such additional amount is given in Annexure- B to this Order. Thus this Authority under Rule 133 (3) (a) of the CGST Rules 2017 orders that the Respondents shall reduce the prices to be realized from the buyers v of the flats/recipients of the above Project commensurate with the benefit of ITC received by him. The Authority has a reason to believe that since the Respondents have been found to have contravened the provisions of Section 171 of the CGST Act 2017 in respect of the subject project Crescent Bay and hence there is every possibility that similar contravention may has taken place with his other projects. This Authority in terms of Rule 133 (5)(a) of the CGST Rules 2017 also directs the DGAP to investigate profiteering in relation to other Projects executed by the Respondent No. 1 and 2 if any under the provision of section 171 of the CGST Act 2017. In view of the prevailing Covid 19 pandemic and the Hon ble Supreme Court Order in IN RE COGNIZANCE FOR EXTENSION OF LIMITATION 2021 (3) TMI 497 - SC ORDER IN RE COGNIZANCE FOR EXTENSION OF LIMITATION 2020 (5) TMI 418 - SC ORDER and IN RE COGNIZANCE FOR EXTENSION OF LIMITATION 2021 (5) TMI 564 - SC ORDER this Order having been passed today falls within the limitation prescribed under Rule 133(1) of the CGST Rules 2017. Application disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core issues considered in this judgment are: - Whether there was a benefit of reduction in the rate of tax or Input Tax Credit (ITC) on the supply of construction services by the Respondents on the implementation of GST from 01.07.2017. - Whether such a benefit was passed on by the Respondents to the recipients, in terms of Section 171 of the CGST Act, 2017. 2. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The legal framework revolves around Section 171 of the CGST Act, 2017, which mandates that any reduction in the tax rate or the benefit of ITC must be passed on to the recipient by way of commensurate reduction in prices. The methodology adopted by the DGAP is based on the calculation of ITC as a percentage of turnover during pre-GST and post-GST periods. Court's Interpretation and Reasoning The Court found that the Respondent No. 1 had benefited from additional ITC to the tune of 10.51% of the turnover during the period from 01.07.2017 to 30.09.2019, which was not passed on to the flat buyers and Respondent No. 2. The DGAP's methodology of comparing the ITC to turnover ratios in pre and post-GST periods was upheld as rational and logical. Key Evidence and Findings The DGAP's investigation revealed that the Respondent No. 1 availed ITC at 12.00% of the turnover in the post-GST period compared to 1.49% in the pre-GST period. The benefit of Rs. 30,76,57,916/- was not passed on to the consumers, which included Rs. 29,53,22,474/- to 851 home buyers and Rs. 1,23,35,442/- to Respondent No. 2. Application of Law to Facts Based on the evidence and the methodology adopted, the Court concluded that the Respondents had contravened the provisions of Section 171 of the CGST Act, 2017, by not passing on the benefit of ITC to the consumers. Treatment of Competing Arguments The Respondents raised several objections, including the absence of a prescribed methodology for calculating profiteering, violation of natural justice, and the constitutionality of Section 171. The Court rejected these arguments, stating that the methodology adopted was consistent with the law, and the proceedings were conducted in compliance with natural justice principles. The Court also clarified that the absence of a judicial member in the Authority did not invalidate its constitution. Conclusions The Court concluded that the Respondents had not passed on the benefit of ITC as required under Section 171 of the CGST Act, 2017. It directed the Respondents to pass on the profiteered amount along with interest to the eligible recipients within three months. 3. SIGNIFICANT HOLDINGS Core Principles Established The judgment reinforces the principle that the benefit of ITC must be passed on to consumers as mandated by Section 171 of the CGST Act, 2017. It also upholds the DGAP's methodology of calculating profiteering based on ITC to turnover ratios. Final Determinations on Each Issue The Court determined that the Respondents had contravened Section 171 by not passing on the ITC benefits and ordered them to refund the profiteered amount with interest. It also directed further investigation into other projects of the Respondents to ensure compliance with anti-profiteering provisions.
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