TMI Blog2019 (5) TMI 1607X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalty - HELD THAT:- Perusal of the notice dated 29.08.2018 issued to the Respondent shows that he has been intimated that it was proposed to impose penalty under Section 122-127 of the CGST Act, 2017 read with Rule 133 of the CGST Rules, 2017 and also to cancel his registration if the allegation of profiteering was proved against him, however, no specific instances of violation of the above Sections have been mentioned in the above Notice - Therefore, the proposed imposition of penalty under the above Sections and cancellation of his registration is not sustainable unless specific allegations how he had violated the provisions of the above Sections are levelled against him. Therefore, the above notice is ordered to be withdrawn to the extent that it proposes to impose penalty on him as per the provisions of the above Sections and the Rule. A fresh notice be issued to him as to why the penalty prescribed under Section 122 (1) of the CGST Act, 2017 read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him as he had issued incorrect tax invoices to the flat buyers by charging more amount than what he could have charged and further charged additional GST o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Construction Value Total Taxable Value Service Tax VAT (10% on Construction) GST@12% Total (1) (2) (3) (4)=(2)+(3) (5)=(3)*10% (6)=(4)*10% (7)=(4)+(5)+(6) Agreement Value (A) 26,38,840 33,95,900 60,34,740 3,39,590 - 63 74,330 Paid in Pre-GST era (B) 5,36,736 6, 79,179 12, 15,915 67,918 - 12,83,883 Balance to be paid Post GST (C) = A-B 21,02,104 27,16,721 48 18,825 2,71 ,672 - 50,90,497 Demanded by the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thrown open a lot of challenges and uncertainties in the indirect tax regime and hence the actual benefit on account of ITC could not have been ascertained immediately and he had to negotiate with the contractors, subcontractors and vendors for price reduction due to ITC that needed to be passed on. The Respondent has also claimed that various parameters such as prices of inputs and input services, increase or decrease in input tax credits after introduction of GST, negotiations with the vendors, eligibility to avail credit, restrictions and blocked credits in terms of Sections 16 and 17 of the CGST Act, relevant rules and other uncertainties due to interpretational nuances etc. needed to be considered before ascertaining the impact of GST. He has also claimed that the entire project would take a number of months to complete and hence, the impact of GST could be ascertained only upon completion or conclusion of the project and it would be premature to reach a conclusion on ITC benefit to be passed on based on assumptions and surmises. The Respondent contended that the provisions of Section 171 of the CGST Act, 2017 and the relevant rules could not be pressed into service as the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit (F) 2,74,234 Gross Benefit (G)=(B+D+F) 3,75,78,128 Benefit per Sq. Ft. (H)=(G)/(A) 43 Area Sold as on 30.06.2017(in sq. in) (I) 2,92,366 Total Benefit to be passed on to the customers (J)=(H)*(I) 1,26,11,003 8. The Report also stated that the Respondent had submitted the following documents:- (a) Copies of GSTR-1 returns for July, 2017 to June, 2018. (b) Copies of GSTR-3B returns for July, 2017 to June, 2018. (c) Copies of Tran-1 returns for transitional credit availed. (d) Copies of VAT ST-3 returns for April, 2016 to June, 2017. (e) Copies of all demand letters and sale agreement/contract construction agreement dated 30.11.2016 in the name of Sheebeer Valiyakath Abdul Majeed who is not an applicant in the present proceedings as the applicant had initially requested to ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - 36,208 3,37,945 7 On or before Completion of Possession Demand not raised till 30.06.2018 3,01,737 7,56,861 - - 1,48,204 12,06,802 Total 60,34,740 7,56,861 40,750 27,167 6,90,254 75,49,771 10. The Report further noted that the Respondent had accepted that there had been profiteering post GST and he was committed that the accurate quantum of ITC would be finally determined and the benefit passed on to the recipients at the time of giving possession. But the DGAP has submitted that the profiteering, if any, had to be established at a point of time in terms of Rule 129 (6) of the CGST Rules, 2017 and therefore, the ITC available to the Respondent and the taxable amount received by him from the Applicant No. 1 and other recipients ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking that at the end of the project, he would arrive at the ITC benefit to be passed on. The DGAP however has claimed that the profiteering if any, has to be established at a given point of time in terms of Rule 129(6) of the CGST Rules, 2017. Accordingly taking into consideration the benefit of ITC available in the pre-GST period in comparison to the post GST period the Report has arrived at the ITC ratio based on the taxable turnover. From the data submitted by the Respondent and on verification from the invoices issued during the pre-GST period (April, 2016 to June, 2017) and the post-GST period (July, 2017 to June, 2018), the details of the ITC and rebate of VAT (WCT) availed by the Respondent and the taxable turnover during the said period, the rate of ITC to the taxable turnover is detailed in the Table-D below:- Table- D (Amount in Rs.) S. No. Particulars April, 2016 to March, 2017 April, 2017 to June, 2017 Total (Pre-G ST) July, 2017 to March, 2018 April, 2018 to June, 2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period (April, 2016 to June, 2017) was 3.06% and during the post-GST period (July, 2017 to June, 2018), it was 4.51%, which confirmed that post-GST the Respondent had benefited from additional ITC to the tune of 1.45% [4.51% (-) 3.06%] of the taxable turnover. Accordingly, vide Annexure24 of the DGAP s Report, the profiteered amount has been computed by comparing the applicable tax rate and the ITC available for the pre-GST period when Service Tax @6% and VAT@4% was payable with the post-GST period when the effective GST rate was 12%. On the basis of the figures contained in Table- D above, the comparative figures of ITC availed during pre-GST period and post-GST period have been tabulated in the Table- E below:- Table- E S. No. Particulars Pre-GST Post- GST 1 Period A April, 2016 to June, 2017 July, 2017 to June, 2018 2 Output tax rate (%) B 10.00% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he base price. Therefore, in terms of Section 171 of the CGST Act, 2017, the benefit of the additional ITC that had accrued to the Respondent, was required to be passed on to the recipients. Though the Respondent has not contested that any such benefit would eventually have to be passed on to the recipients at the time of giving possession of the flats, it was a fact that this had not been done so far. Thus, the payments being received from the Applicant No. 1 and other recipients did not take into account the benefit available to the Respondent, which implied that he had retained the benefit accruing on account of the ITC. In other words, by not reducing the pre-GST base price by 1.45% on account of additional benefit of ITC and charging GST at the rate of 12% on the pre-GST base price, the Respondent had contravened the provisions of Section 171 of the CGST Act, 2017. 16. Based on the ITC available pre and post-GST and the details of the amount collected by the Respondent from the Applicant No. 1 and other home buyers during the period 01.07.2017 to 30.06.2018, the DGAP had arrived at an amount of ₹ 19,69,991/- the benefit of which has not been passed on by the Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so stated that the present investigation covered the period from 01.07.2017 to 30.06.2018 and for the period post June, 2018, as the exact quantum of ITC would be available only in the future as the construction of the project was yet to be completed. The Report also states that the Respondent had computed benefit of ₹ 43/- per sq. ft. for the entire post-GST life of the project (i.e. 01.07.2017 till completion of project), whereas his investigation had estimated the profiteered amount as ₹ 33.16 per sq. ft. in respect of 51 recipients covering the period from 01.07.2017 to 30.06.2018 as had been mentioned in the Table- E above and in respect of the remaining 212 home buyers the profiteered amount was required to be calculated only when the Respondent received payments from such home buyers in future during the post-GST period. 20. The Authority in its sitting held on 13.11.2018, after considering the DGAP s Report dated 06.11.2018, decided to accord hearing to the Respondent. Accordingly notice for hearing was issued to the Respondent and the Applicants for 29.11.2018, which was adjourned to 06.12.2018 on the request of the Respondent. The hearing on 06.12.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made for East Crest Project to all the 216 buyers providing details of installment paid prior to GST, post GST and balance installments to be paid. On 31.01.2019 the Respondent has filed further written submissions stating that with regard to the residential flats the sale price of the flat was determined based on the different parameters like surrounding developments, standard of life of that area, facilities such as hospitals, schools, public transport, accessibility, and pricing by competitors etc. and as a business practice in real estate industry the developer always aimed to achieve an overall betterment in prices of flats which were sold over a period of 4 to 5 years. He has further stated that the cost of constructing a flat or putting up the project was wholly irrelevant in the pricing mechanism, since cost had no role to play in pricing mechanism, hence, the provisions relating to profiteering on availability of benefit of ITC should not be considered. The Respondent has also submitted that major portion of the works was executed by him through the registered sub-contractors and the benefit of ITC on purchase of goods/services which were involved in the construction a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch transactions were liable to service tax and eligible for ITC even before implementation of GST. 24. The Respondent has further submitted that the ruling given by the Authority in the case of Pyramid Infratech Private Limited vide case no. 7/2018 decided on 18.09.2018 = 2018 (9) TMI 1107 - NATIONAL ANTI-PROFITEERING AUTHORITY was not applicable to the real estate business. He has also emphasised that the Hon ble High Court of Delhi has given an interim stay over the methodology adopted to compute the alleged profiteering in the above case. The Respondent has also submitted that there was no effective increase in the ITC that needed to be passed on and the definition of profiteering as well as methodology for its computation needed to be relooked and submitted that interpretation of Section 171 of the CGST Act, 2017 should also consider the increase in the raw material costs. The Respondent has also distinguished his case from the case of Pyramid Infratech Pvt. Ltd. supra by stating that the total turnover, taxable turnover and corresponding output tax was lower and not comparable to the input credits on year on year basis. He has also claimed that the sale of resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CGST Act, 2017 and since there was no such allegation made out against the Respondent in the Report or notice hence the said provision would not apply to the present case. v) He has also claimed that in the absence of mens rea or guilty mind Section 125 of the CGST Act, 2017 could not be invoked as this provision would not apply in the cases involving alleged profiteering. It was further submitted that even assuming without conceding that this provision was applicable there was a discretion to wave penalty, which was indicated by the words extend to twenty-five thousand rupees in the light of the facts and circumstances of the case and the Respondent would implore the Authority to refrain from invoking these provisions. vi) He has also stated that Section 126 of the CGST Act, 2017 laid down general disciplines related to penalty and that it should not be imposed in case of minor breaches as has been defined in the said provision. vii) It is also stated that Section 127 of the CGST Act, 2017, applied only when the proper officer was of the view that a person was liable to penalty and the same was not covered by any proceedings under Section 62, 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the flats were market driven and each and every project was spread over a period of 4 to 5 years. He has also claimed that he was registered under the composition scheme under the Karnataka VAT Act and under this scheme he was not eligible for any ITC but as far as Service Tax was concerned he had paid it on 40% of the construction value and had claimed the eligible credits. With the introduction of GST the only benefit he had got was CST @2% and the Central Excise Duty paid on the purchases from registered dealers. Thus overall there has been ITC benefit with the introduction of GST to him has not been denied. With regard to the present project his claim is that 50% of the work was completed prior to 01.07.2017 and only few activities were pending during the GST era which entitled him to ITC. As can be seen from the record it is noticed that the Respondent had constructed 667 flats of which 447 belong to him and rest 220 belong to the land owner. Out of the 447 flats 260 were sold by him and 42 by the land owner as on 30.01.2019. He has also admitted that on 19.09.2018 a letter was issued by him to the effect that ₹ 25 per sq. ft. on the super built area would be passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted by the Respondent himself. 30. In view of the above facts the amount of profiteering in terms of Rule 133 (1) of the CGST Rules, 2017 is determined as ₹ 19,69,991/- including the GST @12% on the base profiteered amount of ₹ 17,58,921/- as per details furnished by the DGAP and admitted by the Respondent. He has also profiteered an amount of ₹ 67,816/- from the Applicant No. 1 which includes both the profiteered amount @ 1.45% and GST on the said profiteered amount @ 12%. Accordingly under Rule 133 (3) (a) of the CGST Rules, 2017 the Respondent shall reduce the price to be realised from the buyers of the flats commensurate to the benefit of ITC availed by him as has been discussed above. The Respondent has already refunded an amount of ₹ 67,816/- (including 12% GST) to the Applicant No. 1 and ₹ 19,02,175/- to all other 50 buyers thus total amount of ₹ 19,69,991/has been paid to all the 51 home buyers on 30.06.2018. The Authority further directs the Respondent to pay interest @18% to all those 51 home buyers to whom the benefit of net ITC has already been paid. 31. Further during the hearing it was submitted that the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to his buyers had not passed on the entire benefit till the completion of the investigation by the DGAP. The above act of the Respondent appears to be deliberate and conscious violation of the provisions of the CGST Act, 2017, thus he has committed an offence under Section 122 (1) of the CGST Act, 2017 and therefore he is liable for imposition of penalty. The Respondent has also submitted that the Show Cause Notice issued to him on 29.08.2018 has merely mentioned the provisions of Section 122-127 of the CGST Act, 2017 and Rule 133 of the CGST Rules, 2017 without specifying the exact allegations against him and the above Sections were not attracted in his case except for Section 125 which was general in nature. Perusal of the notice dated 29.08.2018 issued to the Respondent shows that he has been intimated that it was proposed to impose penalty under Section 122-127 of the CGST Act, 2017 read with Rule 133 of the CGST Rules, 2017 and also to cancel his registration if the allegation of profiteering was proved against him, however, no specific instances of violation of the above Sections have been mentioned in the above Notice. Therefore, the proposed imposition of penalty under th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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