TMI Blog2019 (10) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... the 1061 recipients from the dates from which the above amount was collected by him from them till the payment is made, in terms of Rule 133 (3) (b) of the above Rules, within a period of 3 months from the date of this order. This Authority under Rule 133 (3) (a) of the CGST Rules, 2017 further orders that the Respondent shall reduce the prices to be realized from the buyers of the flats commensurate with the benefit of ITC received by him Penalty - HELD THAT:- The Respondent has denied benefit of ITC to his customers and resorted to profiteering in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus committed an offence under section 171 (3A) of the Act and therefore, he is liable for imposition of penalty under the above Section - Accordingly, a Show Cause Notice be issued to him directing him to explain as to why the penalty prescribed under Section 171(3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him. Application disposed off. - Case No. 49/2019 - - - Dated:- 14-10-2019 - SH. B.N. SHARMA, CHAIRMAN, SH. J.C. CHAUHAN, TECHNICAL MEMBER, MS. R. BHAGYADEVI, TECHNICAL MEMBER, SH. AMAND SH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purchase of the flat by the Respondent, the details of which are furnished in Table- A below:- Table- A Amount (Rs.) Particulars Basic Sale Price Others Charges Service Tax VAT GST Total Land Other than Land Agreement Value (A) 32,68,700 51,77,000 9,87,260 4,09,871 5,68,105 - 1,04,10,936 Paid in Pre-GST era (B) 29,56,450 - - - - - 29,56,450 Balance to be paid Post GST (C)=(A)-(B) 3,12,250 51,77,000 9,87,260 4,09,871 5,68,105 - 74,54,486 Demanded by the Respondent (D) 3,12,250 51,77,000 9,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage over the other customers who had purchased them later. The Respondent has further claimed that the cost of constructing a flat was irrelevant in the context of pricing of the flat and therefore, the provisions relating to anti-profiteering, specifically with regard to the availability of ITC, should not be applied to the developers. The Respondent has also submitted that major portion of the works contracts was executed through the registered sub-contractors and hence, the purchase of goods or services which were directly related to the construction, would be done by the sub-contractors. He has also claimed that he had purchased a very small portion of the goods and services as compared to the subcontractors and therefore, the benefit of ITC had accrued to the subcontractors and not to him. An approximate break-up of the estimated cost of the project at the stage of project planning, has been furnished in Table- B below by the Respondent:- Table- B (Rs. in crores) Particulars Amount % Pre-GST Post GST Overall project Cost 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Tax (VAT) and Service Tax laws, the following taxes were payable by him on the construction value (excluding land value), as has been shown in Table- C below:- Table- C S.No. Type of Levy Rate of Tax Abatement Effective rate of tax 1 Service Tax 14% 5.60% 2 Central Surcharges Cesses 1% 60% 0.40% 3 State VAT 14.5% 30% 10.15% The Respondent has also stated that he had collected 5% VAT from his customers which was lower by 5.15% as compared to his actual tax liability. The collection of VAT at a rate lower than the actual tax rate amounted to passing on the benefit to the customers though not directly related to the GST credits or the anti-profiteering provisions. He has further stated that under the GST the abatement allowed for the value of land was 33.33%, whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.07.2017, the price agreed upon with the customers was all inclusive after considering the market conditions, escalations and GST concession etc., which was mutually negotiated and agreed upon. 12. The Respondent has also submitted copies of the GSTR-1 returns for the period from July, 2017 to August, 2018, copies of GSTR-3B returns for the period from July, 2017 to August, 2018, copies of Tran1 returns for the transitional credit, copies of VAT ST-3 returns for the period from April, 2016 to June, 2017, copies of all demand letters, Sale Agreement, Contract issued to the Applicant No. 1, tax rates in pre-GST and post-GST period, copies of Balance Sheets (including all annexures and profit loss account) for the FY 2016-17 FY 2017-18, copy of Electronic Credit Ledger for the period from 01.07.2017 to 31.08.2018, CENVAT/ITC register for the period from April, 2016 to June, 2017, details of turnover, output tax liability, GST payable and ITC availed and list of home buyers in the project Nikoo Homes-II . The Respondent has also intimated that except copies of the GSTR-I and GSTR-3B returns for the period from July, 2017 to August, 2018, copies of VAT ST-3 returns for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 4,22,250 - - - 76,005 4,98,255 7 On Completion of 9 th Floor Slab 25.04.2018 - 4,22,250 - - - 76,005 4,98,255 8 On Completion of 12 th Floor Slab 03.06.2018 - 4,22,250 - - - 76,005 4,98,255 9 On Completion of 15 th Floor Slab 12.07.2018 - 4,22,250 - - - 76,005 4,98,255 10 On Completion of 18 th Floor Slab 07.08.2018 - 4,22,250 - - - 76,005 4,98 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recipients post implementation of the GST, had to be taken into consideration to determine the benefit of ITC that was required to be passed on. 15. The DGAP has also intimated that para 5 of Schedule-III of the CGST Act, 2017 (Activities or Transactions which shall be treated neither as a supply of goods nor a Supply of services) reads as Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, Sale of building . He has further intimated that clause (b) of Paragraph 5 of Schedule II of the CGST Act, 2017 reads as (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier . Based on these provisions the DGAP has stated that the ITC pertaining to the residential units which were under construction but had not been sold was provisional which would be required to be reversed by the Respondent if such units remained unsold at the time of issue of the completion certificate, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from those of M/s. Pyramid Infratech Private Limited and therefore, the facts of the above case and those of the Respondent were clearly distinguishable. 18. The DGAP has also intimated that Section 171 of CGST Act, 2017 provides that in the event of the benefit of ITC or reduction in the rate of tax, there must be a commensurate reduction in prices of the goods or services and it simply did not provide a supplier any other means of passing on the benefit of ITC or reduction in the rate of tax to the consumers. Therefore, the contention of the Respondent that the collection of VAT and Service Tax at lower rate than their actual liability, was a benefit already passed on to the customers, was incorrect and could not be considered as compliance of Section 171 of the CGST Act, 2017. He has also contended that the claim of the Respondent that he had given the deemed benefit of ₹ 41,628/- to the Applicant No. 1, by way of tax on the differential value of land by not applying the deduction of 1/3rd value as the value of land, was also not correct. Therefore, the contention of the Respondent that the allegation of the Applicant No. 1 that no benefit had been passed on was incor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, 2017 to August, 2018 periods, has been computed and furnished in Table- G below:- Table- G (Amount in Rs.) S.No. Particulars April, 2016 to March, 2017 April, 2017 to June, 2017 Total July, 2017 to March, 2018 April, 2018 to August, 2018 Total (Pre-GST) (Post-GST) (1) (2) (3) (4) (5)=(3)+(4) (6) (7) (8)=(6)+(7) 1. CENVAT of Service Tax Paid on Input Services (A) 5,76,63,250 1,85,41,614 7,62,04,874 - - - 2. Credit of VAT Paid on Purchase of Inputs (B) 53,85,784 41,53,319 95,39,103 - - - 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the GST Council, had levied GST @18% on the construction service, vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 and accordingly, the profiteering had been examined by comparing the applicable tax rate and the ITC available to the Respondent during the pre-GST period when Service Tax @6% and VAT @10.15% was payable (total tax rate of 16.15% on the construction value) with the post-GST period when the GST rate was 18% on the construction value. On the basis of the figures contained in Table- G above the recalibrated base price and the excess collection (Profiteering) during the pre-GST and the post-GST periods, has been tabulated by the DGAP in Table- H below:- Table- H (Amount in Rs.) S.No. Particulars Pre-GST Post- GST 1. Period A April, 2016 to June, 2017 July, 2017 to August, 2018 2. Output tax rate on Construction Service (%) B 16.15 18.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted that any such benefit would have to be passed on to the recipients at the time of giving possession of the flats, however, the fact was that this had not been done so far by him. The payments received from the Applicant No. 1 and the other recipients did not show that the benefit had been passed on by the Respondent, which meant that the Respondent had retained the benefits on account of additional ITC and by not reducing the pre-GST base prices by 2.23% on account of the additional benefit of ITC and charging GST at the increased rate of 18% on the pre-GST base prices, the Respondent had contravened the provisions of Section 171 of the of the CGST Act, 2017. 23. The DGAP has also quantified the profiteered amount on the basis of the aforesaid CENVAT/ITC availability pre and post-GST and the details of the amounts collected by the Respondent from the Applicant No. 1 and the other home buyers towards the value of construction on which GST liability @ 18% had been discharged by the Respondent during the period from 01.07.2017 to 31.08.2018 and the amount of benefit of ITC not passed on to the recipients or in other words, the profiteered amount which came to ₹ 5,06,78,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod from 01.07.2017 to 31.08.2018 (period covered by investigation) and in case ITC in respect of these 243 units was taken into account to calculate the profiteering in respect of 1061 units where payments towards construction value had been received post-GST, the ITC as a percentage of turnover would be distorted and erroneous. Therefore, he has contended that the benefit of ITC in respect of these 243 units should be calculated when the consideration towards construction would be received from the concerned home buyers, by taking into account the proportionate ITC in respect of such units. 25. The DGAP has concluded that the benefit of additional ITC of 2.23% of the turnover has accrued to the Respondent which was required to be passed on to the Applicant No. 1 and other flat buyers who had entered into the agreements with the Respondent upto 30.06.2017. He has also argued that the Respondent had contravened the provisions of Section 171 of the CGST Act, 2017 in as much as the additional benefit of ITC had not been passed on by him to the Applicant No. 1 and the other recipients as the Respondent had realized an excess amount of ₹ 58,450/- from the Applicant No. 1 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he price of the goods or services supplied. He has further stated that the prices of the flats would be lower at the beginning of the project when compared to the prices when the project execution had begun and approached completion. He has also submitted that the cost incurred or the cost to be incurred on the project should be considered as the basis for computing the profiteered amount instead of the realisations from the customers. He has further submitted that the prices of the residential units per sq. ft. varied from time to time and were influenced by various external factors and variation in the selling prices would not have any impact on the input credits and therefore, input credit of taxes which was the basis for anti-profiteering calculations was based on purchases/inward supplies and was not linked to the outward supplies/sales. 28. The Respondent has also claimed that the tax paid on services was not a real benefit when compared to the pre-GST regime since, as a works contractor, he was eligible to claim full credit of Service Tax @15% paid on all input services and he was also eligible to claim ITC on GST @18% paid on all input services effective from 01.07.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover and the output tax liability was a function of sale of new units out of the total inventory and on the contrary, the inward supplies and the input taxes was a function of work completion and speed of project execution which did not have any correlation. 32. The Respondent has further contended that the comparison of the output tax and the input tax as a ratio to the turnover and within themselves would be an acceptable analysis for businesses which were season agnostic or where the sale and purchase commenced and was concluded within a very short duration e.g. consumer durables and food items etc., which could not be applied where the business was seasonal and hence, in all such cases, the ratios would be heavily skewed when applied for the season or off-season only. He has also argued that it was for this reason that under the Value Added Tax law and the CENVAT Credit Rules, 2004 a provision for true-up and true-down was introduced. He has further argued that under the VAT law in Karnataka it was called partial rebating scheme and under Rule 6 (3) the CENVAT Credit Rules, 2004 the same provision was made. It was provided under these provisions that the claimant of ITC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and would pass on the same to the eligible customers at the end of the project. 36. Supplementary Report was sought from the DGAP on the issues raised by the Respondent through his above submissions. The DGAP vide his Report dated 16.04.2019 has claimed that the Respondent has submitted that the cost incurred or the cost to be incurred on the project should be considered as the basis for computing the alleged profiteered amount instead of the realisations from the customers, however, it was clear that the Respondent was not eligible to avail the CENVAT/ITC of many taxes like the Central Excise Duty, Central Sales Tax, Karnataka Entry Tax, Countervailing Duty and Special Additional Duty of Customs etc. during the pre-GST regime and after introduction of the GST, the Respondent was eligible to avail the ITC paid on all the inputs and input services including the sub-contracts. He has further claimed that the additional ITC availed by the Respondent could only be utilized to discharge the GST liability on output supplies. He has also contended that the cost incurred or cost to be incurred approach suggested by the Respondent, was merely based on estimated/assumed figures. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to turnover came to 4.32% and the same ratio for the post-GST period was 6.55% and hence the Respondent has availed additional benefit of ITC after coming in to force of the GST w.e.f. 01.07.2017 of 2.23% (6.55%-4.32%) which he was required to pass on to his buyers as per the provisions of Section 171 (1) of the above Act. The DGAP as per Table H has further reported that the Respondent has not passed on the benefit of additional ITC of 2.23% and has in excess collected/profiteered an amount of ₹ 5,06,78,069/- from the house buyers which he was required to pass on to them. The DGAP has also intimated that the Respondent has profiteered an amount of ₹ 58,450/- from the Applicant No. 1 including the GST and an amount of ₹ 5,06,19,619/- (Total 5,06,78,069/-) from the rest of the house buyers which was required to be paid to both of them. The DGAP has further intimated that the Respondent has supplied the construction service in the State of Karnataka only. 40. The Respondent during his submissions has stated that computation of the profiteered amount should be based on the cost and not the sale realisations. However, a plain reading of Section 171 (1) of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrued to the Respondent post-GST is required to be considered, therefore, the credit of ITC is very much relevant while computing the profiteered amount and hence the arguments of the Respondent made in this behalf are irrelevant. 43. The Respondent has also contended that the comparison of the input credits with output taxes should be done covering the entire life span of the project and comparing of the output taxes with input credit for a part of a period would lead to incorrect assessment of profiteering. The contention of the Respondent made in this behalf may be correct as Section 175 (1) of the above Act mandates passing on of the benefit of additional ITC which has accrued to the Respondent during the entire life of the project before occupancy certificate is issued however, it has to be taken in to consideration that the housing projects have long gestation period whereas the ITC is being availed by the Respondent every month. The Respondent cannot enrich himself at the expense of the flat buyers by denying them the benefit of ITC till completion of the project while he uses the same in his business for discharging his output tax liability every month. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ITC and pay more price than what they should pay after commensurate reduction in the prices of the flats. In case the Respondent insists on passing on the benefit of ITC to the buyers after the completion of the project he should also claim the benefit of ITC after completion of the same. He cannot apply different yardsticks for availing and passing on of the benefit of the ITC. Therefore, the arguments of the Respondent made on this account are frivolous and hence they cannot be accepted. 47. The Respondent has further contended that the rate of GST on sale of residential units has been reduced from 12% to 5% without ITC which would increase the cost of the project. Perusal of the Notification No. 03/2019-Central Tax (Rate) dated 29.03.2019 issued by the Central and the State Govts. shows that the rate of GST on construction service has been reduced from 12% to 5% without benefit of ITC w.e.f. 01.04.2019. However, the same has no effect on the present investigation as the same has been carried out w.e.f. 01.07.2017 to 31.08.2018 during which the Respondent has duly availed the benefit of ITC which he is bound to pass on to the flat buyers as per the provisions of Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit. The DGAP has stated in his Report that the above contention of the Respondent had merit and therefore, the ITC pertaining to the above 409 units was not considered by him during the investigation. Since the above agreements have been executed by mutual consent of both the parties they are binding on both of them, however, it is clarified that the above claim of the Respondent shall be subject to well settled principles that no flat buyer can be forced to forfeit his right of claiming benefit of ITC and any agreement executed in violation of the provisions of Section 171 (1) of the above Act shall be void. 50. It is also revealed from the Report that out of the remaining 1304 flats [(1713) - (409)], 243 customers have booked the flats and also paid part consideration during the pre-GST period but they have not paid any instalment during the post-GST period and in case the ITC in respect of these 243 units was taken into consideration to calculate the profiteered amount, the ITC as a percentage of turnover would be erroneous and hence, the benefit of ITC in respect of these 243 units should be calculated when the consideration would be received from the concerned home buyer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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