Denial of Benefit of ITC to Buyers would Amount to Profiteering: NAA [Read Order]

In this case, the National Anti-Profiteering Authority (NAA) held that Respondent had not passed on the benefit of ITC to him by way of commensurate reduction in price under section 171 of Central Goods and Service Tax Act, 2017 and has committed an offence under Section 171(3A) of the Act and liable for penalty.

Facts of the case are the applicant filed before the standing committee on Anti-Profiteering, under Rule 128 of the Central Goods and Service Tax Rules, 2017 and submitted that he had purchased a flat in the Respondents project “Synera” situated at Haryana and alleged that the Respondent had not passed on the benefit of ITC to him by way of commensurate reduction in price under section 171 of Central Goods and Service Tax Act, 2017 and had charged on the pre-GST base price.

The DGAP has stated that the Respondent had not passed on the benefit of ITC to him by way of commensurate reduction in price under section 171 of Central Goods and Service Tax Act, 2017 and the correctness of the amount of benefit so passed on the Respondent had to be determined in terms of Rule 129(6) of the CGST Rules 2017, thus the ITC available to the Respondent and the taxable amount received by him from the applicant and other recipients post-implementation of GST had to be taken into account for determining the benefit of ITC that was required to be passed by the Respondent to his recipients. The comparative figure of the ratio of ITC availed to the turnover in the pre-GST and the post GST periods as well as the turnover the recalibrated base price and the excess realization during the post GST period have been tabulated. The DGAP has contended that the excess benefit claimed to have been passed on to some recipients could not be set off against the additional benefit required to be passed on to the other recipients and it could only be adjusted against any future benefit accrue to such recipients. DGAP also stated that the ratio of CENVAT and VAT has been calculated on the basis of the figures reflected by the Respondent in his Service Tax and the VAT returns filed and the computation of ratio of ITC to turnover is based on his post-GST returns. The ratio is based on the details supplied by the respondent and the claim of the respondent is incorrect.

The Respondent submitted in the light of judgments in BC Srinivasa selly (1981) 128 ITR 2014 (SC), palai Central Bank Ltd (1984) 150 ITR 539 (SC) and National Mineral Development Corporation (2004)65.SCC 281 and Larsen and Toubro Vs state of that it was settled that in the taxing statutes, mechanism for computation of value should be provided on which tax was to be paid and it had been held by  several courts, including the Apex Court that in the absence of any computational machinery the charging provisions would be construed to have never included the transaction within its fold and no tax could be levied on such transactions. He also stated that as it was an Adhoc calculation it was done across the board irrespective of the amount received from the flat owners in the pre and post GST period and consequently applicant had received on excess benefit. Respondent also stated that in order to comply with the provisions of section 171 of the CGST Act 2017, the Respondent had himself calculated the additional benefit of ITC provisionally and the same had already been credited to the buyers and also submitted that the DGAP’S report had made incorrect finding that he had benefited from additional ITC of the turnover and the above finding was based on the average Method applied by the DGAP on his own accord.  He also stated that he had not been given an opportunity to respond to the DGAP is the adoption of the average basis for determining the alleged profiteering.

The authority held that the respondent has denied benefit of ITC to the buyers of the flats and the shops being constructed By him in his project “Synera” in contravention Of the provision of section 17(1) of CGST Act, 2017 and has committed an offence under Section 171(3A) of the Act and liable for penalty And the Authority as per Rule 136 of CGST Rules 2017 directs the commissioners of CGST/SGST to monitor this order for ensuring that the amount profiteered by the respondent is passed on to all the eligible buyers.