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GST: How a builder escaped penalty despite being guilty of profiteering

GST: How a builder escaped penalty despite being guilty of profiteering

The Director General of Anti-profiteering (DGAP), the investigation arm of the NAA, found Eldeco Infrastructure & Properties to have indulged in profiteering by not passing on the benefits of input tax credit (ITC) of Rs 41.82 crore

Under CGST Act a business found guilty has to pay a 'penalty equivalent to 10% of the amount so profiteered' Under CGST Act a business found guilty has to pay a 'penalty equivalent to 10% of the amount so profiteered'

In a first of its kind order, the National Anti-profiteering Authority (NAA) has given a reprieve to a real estate company despite the company not passing on the benefits of input tax credit to homebuyers.

The Director General of Anti-profiteering (DGAP), the investigation arm of the NAA, found Eldeco Infrastructure & Properties to have indulged in profiteering by not passing on the benefits of input tax credit (ITC) of Rs 41.82 crore pertaining to the period between July 1, 2018 and August 31, 2018 to homebuyers.  

However, once the DGAP submitted its findings, the builder accepted its fault and paid Rs 59.57 crore (Rs 41.82 crore plus 18 per cent interest) to 125 homebuyers by February 5, 2019.

However, homebuyers had alleged that the builder had not only collected extra money for the flats/plot of land, but it also forced them to pay additional GST on the additional amount. It was also said that the builder agreed to pass on the ITC benefit only after DGAP investigation established its fault, and therefore, it should be liable to pay penalty prescribed under anti-profiteering laws of GST.

The builder, however, argued against the levying of penalty by saying that since there is no prescribed method to calculate the benefit, it measured the benefit as per its best assessment. It also said that the benefit calculated by it was only 1 per cent less than what NAA's methodology specified. The builder further argues that it immediately agreed to the authority's calculation and agreed to pass on the amount so calculated.

It also argued that the GST and anti-profiteering being new and complex laws, it made certain wrong assessments which led to this situation.

While the authority accepted the fact that the builder passed on the ITC benefit to buyers but it also considered the fact that it did so only after initiation of proceedings against it, and hence there was clear case of violation.  

But the anti-profiteering authority also realised that at the time of violation (1 July 2017-31 August 2018), there was no penalty prescribed under the law for such violations, and hence it withdrew the penalty proceeding against the builder.

"NAA in this case has accepted the contentions of the businesses that no penalty should be imposed on the businesses for any contravention of the profiteering provisions till December 31, 2019. This ruling ensures a fair interpretation of GST anti-profiteering laws and would offer a big relief to all the businesses whether held guilty of profiteering in the past or even those who are currently fighting profiteering cases," says Rajat Mohan, partner, AMRG & Associates.

Under Section 171 (3A) of the CGST Act, a business found profiteering is liable to pay a 'penalty equivalent to 10 per cent of the amount so profiteered'.

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Published on: Aug 19, 2020, 7:44 PM IST
Posted by: Mohammad Haarisbeg, Aug 19, 2020, 7:44 PM IST