TMI Blog2019 (11) TMI 818X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CGST Act, 2017, in case the benefit of additional ITC is not passed on to them. Penalty - HELD THAT:- The Respondent has denied benefit of ITC to the buyers of the flats being constructed by him in his Runwal My City Project in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus profiteered an amount of ₹ 3,20,49,507/- from his customers, hence he has committed an offence under section 171 (3A) of the CGST Act, 2017 and therefore, he is liable for imposition of penalty under the provisions of the above Section - Accordingly, a SCN be issued to him directing him to explain why the penalty prescribed under the above Section read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him. Application disposed off. - Case No. 56/2019 - - - Dated:- 15-11-2019 - SH. B.N. SHARMA, CHAIRMAN, SH. J. C. CHAUHAN, TECHNICAL MEMBER, MS. R. BHAGYADEVI, TECHNICAL MEMBER Present:- 1. None for the Applicant No. 1. 2. Sh. Rana Ashok Rajnish., Assistant Commissioner for the Applicant No. 2. 3. Sh. Vidyasagar V., Director (Finance), Sh. A. V. Rajan, Chief Finance Officer, Sh. Rohit Jain, Sh. Gaurav Sogani, Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) of the CGST Rules, 2017 on 26.07.2018 calling upon the Respondent to reply as to whether he admitted that the benefit of ITC had not been passed on to the above Applicant by way of commensurate reduction in the price of the flat and if so, to suo-moto determine the quantum thereof and indicate the same in his reply to the Notice as well as furnish all the supporting documents. Through the above Notice the Respondent was also given an opportunity to inspect between 01.08.2018 to 03.08.2018 the non-confidential evidences/information submitted by the Applicant No. 1, however, the Respondent had not availed this opportunity. The Applicant No. 1 was also given an opportunity between 01.10.2018 to 03.10.2018, vide e-mail dated 27.09.2018, to examine the non-confidential evidences/reply submitted by the Respondent, which was not availed by the Applicant No. 1. 5. The DGAP has stated that the time limit to complete the investigation was extended upto 09.12.2018 by this Authority in terms of Rule 129 (6) of the above Rules, vide its order dated 09.10.2018. Further, the period covered by the DGAP for the investigation of this case was from 01.07.2017 to 30.06.2018. 6. The DGAP has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total amount charged for supply of construction service also included the amount towards transfer of property in land or undivided share of land. iv. That attention was also drawn to Section 171 of the Central Goods and Services Tax Act, 2017, which is reproduced below:- 171(1) Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. Thus, it was submitted that the supplier of taxable service was required to pass on the benefit accruing to him on the following two accounts: (i) Reduction in rate of tax (ii) Availability of input tax credit However, in the instant case, the effective rate of tax on supply of construction service to the customers had increased from 5.50% [4.50% (Service Tax) + 1% (VAT)] to 12% (GST). Therefore, no benefit was required to be passed on to the buyers of flats on account of reduction in the rate of tax. v. That the Respondent was not allowed to avail ITC of Maharashtra Value Added Tax (MVAT) paid on inward supplies consumed for construction of flats as well as CENVAT credit of duties paid on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 79,29,722 Yes, to the extent of MVAT paid on the applicant's unit 29,436 Total input tax credit in Tran-01 2,76,79,086 35,078 [A] vii. That in the pre-GST regime, the Respondent was not allowed to avail CENVAT Credit of Central Excise Duties paid on the inputs used for providing construction service to his customers and ITC MVAT paid on the inward supplies. Therefore, such non-creditable duties and taxes paid on inward supplies were embedded in the budgeted cost to be incurred for the construction of the entire project. However, pursuant to introduction of GST law, GST paid on all the inward supplies was available as ITC to the Respondent. Therefore, the benefit accruing to the Respondent on account of such non-creditable taxes, now being eligible for credit, would be required to be passed on to the customers. viii. That based on the budgeted project cost to be incurred, as on 30th June, 2017, for Tower B2, the total non-creditable taxes embedded in the project cost amounted to ₹ 90,43,321/-, out of which the non-credita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on to all the existing and new customers. Therefore, the Respondent had communicated to his existing customers that the potential benefit would be passed on to them at the time of raising tax invoices towards final instalment as per the scheduled milestone and payment plan, i.e., at the time of handing over the possession of such flats. It had always been communicated to the customers that the Respondent had been mandated under the GST law to pass on such GST benefits and he would certainly compute and determine the benefits and pass them on by way of commensurate reduction in value of construction service / instalment value. xiii. That as far as the methodology and manner of computation of the benefits was concerned, neither the GST Act nor the Rules or any Notifications or Circulars provided any such methodology or manner. Therefore, in the absence of any methodology or manner for determining such benefits, the nature of business or the industry in which the registered person was a part of, who was obligated and mandated to pass on the benefit, was required to be considered for computing the relevant benefits, in terms of Section 171 of the CGST Act, 2017. No single metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case were different. 7. Vide the above letters/e-mails, the Respondent had submitted the following documents/information to the DGAP:- 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 Return. d) Copies of VAT ST-3 Returns for April, 2016 to June, 2017. e) Copies of all demand letters and sale agreement/contract issued in the name of Applicant Shri Diwakar Bansal. f) Tax rates- pre-GST and post-GST g) Copy of Balance Sheet for FY 2016-17. h) Copy of Electronic Credit Ledger for 01.07.2017 to 31.08.2018. i) CENVAT/Input Tax Credit register for April, 2016 to June, 2018. j) Copies of documents submitted to Maharashtra RERA. k) Details of taxable turnover and input tax credit for the project Runwal My City . I) Details of benefits passed on to the Applicant No. 1. m) List of home buyers in the project Runwal My City . 8. The Respondent had submitted before the DGAP that except the following, all data/information was to be treated as confidential, in terms of Rule 130 of the CGST Rules, 2017:- a) Details of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On Commencement of 3rd 4th slab 10-10-2016 3.44% 1,66,874 7,509 - - 1,74,383 6. On Commencement of 5th 6th slab 09-05-2017 3.44% 1,66,874 7,509 - - 1,74,383 7. On Commencement of 7th 8th slab 10-07-2017 3.44% 1,66,874 - - 20,025 1,86,899 8. On Commencement of 9th 10th slab 30-08-2017 3.44% 1,66,874 (6,064) - - 19,297 1,80,107 9. On Commencement of 11th 12th slab 14-09-2017 3.44% 1,66,874 (6,064 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,94,040 (6,064) - - 15,038 2,03,014 19. INTERNAL PLASTER 09-04-2018 4,00% 1,94,040 (6,064) - - 15,038 2,03,014 20. EXTERNAL PLASTER 08-05-2018 4.00% 1,94,040 (6,064) - - 15,038 2,03,014 21. FLOORING 14-06-2018 3.00% 1,45,530 (6,064) - - 11,157 1,50,623 22. DOORS WINDOWS To be Demanded 3.00% 1,45,530 - - - 11,643 1,57,173 23. ON POSSESSION ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted by the DGAP that in the above case, all the units were sold at the time of launch of the project before the issuance of completion certificate, whereas in the present case the Respondent had not sold all the units till the period of the investigation. It was further submitted by him that other facts like cap on per sq. ft. rate to be charged from the customers, manner of raising demands/invoices and eligibility of credit of the VAT amount paid on the purchases of inputs consequent to opting of State VAT scheme were different in the present case as compared to the Pyramid s case and hence both the cases were clearly distinguishable on facts. 1 4. The DGAP has also noted 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 . Further, clause (b) of Paragraph 5 of Schedule II of the above Act 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of the amount of benefit so passed on by the Respondent had to be determined in terms of Rule 129 (6) of the above Rules. Therefore, the ITC available to the Respondent and the taxable amount received by him from the Applicant No. 1 and other recipients post implementation of GST had to be taken into account for determining the benefit of ITC required to be passed on, the DGAP has claimed. 16. Further, the DGAP has also found that prior to 01.07.2017, i.e., before the GST was introduced, the Respondent was eligible to avail CENVAT credit of Service Tax paid on input services only. However, the credit of the MVAT paid on the purchase of inputs and CENVAT credit of the Central Excise Duty paid on inputs was not admissible as per the CENVAT Rules, however, post-GST, the Respondent could avail the ITC of GST paid on all the inputs and input services including the sub-contracts. From the information submitted by the Respondent for the period from April, 2016 to June, 2017 and from July, 2017 to June, 2018, the details of the CENVAT/ITC availed by him and his taxable turnovers for the project Runwal My City Phase-I Part-1 during the above periods the DGAP has computed the ratio o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent had benefited from additional input tax credit to the tune of 3.51% [5.27% (-) 1.76%] of the taxable turnover. 18. The DGAP has also observed that the Central Government, on the recommendation of the GST Council, had levied 18% GST (effective rate was 12% in view of 113rd abatement on value) on construction service vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. The effective GST rate on construction service in respect of affordable and low-cost houses up to a carpet area of 60 square metres per house was further reduced from 12% to 8%, vide Notification No. 1/2018-Central Tax (Rate) dated 25.01.2018. He has further observed that in view of the change in the GST rate after 01.07.2017, the issue of profiteering had been examined by him in two parts, i.e., by comparing the applicable tax rate and the ITC available for the pre-GST period (April, 2016 to June, 2017) when Service Tax @ 4.50% and VAT@ 1% were payable (total tax rate of 5.50%) with (1) the post-GST period from July, 2017 to 24.01.2018 when the effective GST rate was 12% and (2) with the GST period from 25.01.2018 to 30.06.2018 when the effective GST rate was 8%. Accordingly, on the basis of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49,77,36,713 3,60,39,811 37,93,14,857 91,30,91,381 9. Recalibrated Basic Price I=F*(1-E) or 96.49% of F 42,88,09,067 3,10,48,941 33,88,89,727 79,87,47,735 10. GST@12% J=I*12% or 8% 5,14,57,088 37,25,873 2,71,11,178 8,22,94,139 11. Commensurate demand price K=I+J 48,02,66,155 3,47,74,814 36,60,00,905 88,10,41,874 12. Excess Collection of Demand or Profiteered Amount L= H K 1,74,70,559 12,64,997 1,33,13,951 3,20,49,507 19. The DGAP has also noted from the above Table that the additional ITC of 3.51% of the taxable turnov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer, Sh. Rohit Jain, Sh. Gaurav Sogani, Sh. Pratik Shah, Advocates and Sh. Mayur Chartered Account. 22. The Respondent vide his submissions dated 31.01.2019 has submitted that he was engaged in the business of construction and, sale of residential units and the present project was a residential project which was being constructed as My City Phase I - Part 1 (Betawade-1) comprising of Towers A3, A4, B2, C3 and C4 which was registered with Maharashtra Real Estate Regulatory Authority (MRERA) vide Registration No. P51700000528. He has also submitted that in the pre-GST period he was not eligible to avail credit of Central Excise Duty and MVAT paid on the goods used for construction service being provided by him and hence these duties and taxes were embedded in the cost of the project. He has further submitted that post introduction of GST, he was eligible to avail the credit of taxes paid on inputs, therefore, the benefit of ITC was being availed by him which he had started to pass on to his customers as per the provisions of Section 171 of the above Act. He has also stated that the present proceedings had been launched on the application filed by the Applicant No. 1 who had pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ague and arbitrary as it was settled law that important legislative functions could not be delegated. 26. The Respondent has further pleaded that if the Report of the DGAP was accepted then the provisions of Section 171 of the above Act would itself be unconstitutional as they sought to regulate prices as under the pretext of a tax enactment, the legislature could not act as a price regulator. He has also averred that the prices were governed by market forces and price regulation would violate the fundamental right of trade and commerce. He has also cited the judgement passed in the case of Indraprastha Gas Ltd. v. Petroleum and Natural Gas Regulatory Board and others 2015 (9) SCC 209 = 2015 (7) TMI 1130 - SUPREME COURT in his support. 27. The Respondent has further averred that the entire concept of passing on the benefit of tax to the customers was not envisaged through a tax law as the levy of tax under the GST was on the supplier and it was for him to choose the method of passing it on to the customers or bear the burden himself. He has also quoted the law settled in the case of British India Corporation Ltd. v. CCE 1978 (2) ELT J307 (SC) = 1962 (8) TMI 2 - SUPRE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aws and prices etc. and therefore the actual cost incurred on the project was known only after the completion of the project and therefore, the actual savings on account of credit would also be available once the project was completed. He has also stated that this fact had been accepted by the DGAP vide Para No. 14 of his Notice. He has further stated that the sale of flats after receiving of the Occupancy Certificate (0C), cost of the project, rate rationalization and changes in the GST law etc. were some key reasons which might lead to variation in the credit availability which was required to be passed on. The Respondent has also claimed that the above reasons clearly established that in a real estate project, the actual benefit was known only after the project was completed and hence, the exact working of the amount of benefit could be arrived at only at the time of its completion. 30. The Respondent has further claimed that Section 171 of the CGST Act, 2017 provided that any reduction in the rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in prices and Section 171 (2) provided that thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the erstwhile regime the outward tax liability was 5.5% only and later on the rate of GST was reduced to 8% in the case of specified Affordable Housing Projects, therefore, there has been no reduction in the rate of tax and on the contrary the tax liability of the Respondent had increased. 32. The Respondent has further argued that in the case of the real estate projects, the developer was providing construction service by way of composite supply of works contract services and transfer of property in goods for which he might either award a composite contract to a works contractor or directly procure the material for the purpose of construction. The Respondent has also stated that while opting for the abatement scheme under the Service Tax and Composition Scheme under the MVAT he was not eligible to avail the credit of both due to which he was suffering increased tax burden which had increased his costs which were to be borne by the customers. However, under the GST regime, the above taxes and duties did not amount to costs in and hence, the above benefit was required to be passed on the customers. The Respondent has claimed that he had appropriately computed such non-creditab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board of Indirect Taxes Customs (CBIC) had further substantiated the basic fundamentals laid down in Section 171 of the CGST Act, 2017 and he had followed similar methodology to identify such costs and had already passed on the above benefit to his customers. 33. The Respondent has also pleaded that it was an established principle of law that the intention of the legislature was deemed to be a corner stone in the interpretation of the statues. He has also cited the law settled in the case of United Bank of India Calcutta v. Abhijit Tea Co. Pvt. Ltd. and others decided on 05.09.2000 = 2000 (9) TMI 928 - SUPREME COURT in which it was held that:- In regard to purposive interpretation, Justice Frankfurter observed as follows: Legislation has an aim, it seeks to obviate some mischief, to supply an inadequacy, to effect a change of policy, to formulate a plan of government. That aim, that policy is not drawn, like nitrogen, out of the air; it is evidenced in the language of the statute, as read in the light of other external manifestations of purpose ( Some Reflections on the Reading of Statutes) (1947) 47 CLR 527. On the basis of the above observation, the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion service was continuous, the cost of which was spread over a long period and therefore, the amount of expenditure and the selling time and value of each unit needed to be considered and hence, the ratio adopted by the DGAP would invariably differ from project to project and within the project from period to period. 35. The Respondent has further urged that the benefit computed by the DGAP in Table D in Para 21 of the of his Report was not correct as the DGAP had considered the taxable value reflected in the returns as the base value on which he had made the calculation of the GST paid and further recalibrated the basic value to arrive at the additional benefit. He has also contended that the basic value on which the DGAP had worked out the saving computations was actually the net adjustment figure after deducting the discount which had already been passed on to the customers meaning there by that the values reflected in the returns already had the amount of reduction in prices included in terms of Section 171 of the CGST Act and therefore, the computation made by the DGAP was incorrect since it completely disregarded the discounts already adjusted in the taxable value (basic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions on 22.02.2019 in which the following additional objections have been raised by him:- a) That in a Real Estate Project, the credit availed in a particular period was not co-related to the turnover achieved during the same period. Unlike any other manufacturing business or typically one-time service contract, the project life-cycle of a Real Estate Project spreads over a period of 3-4 years during which the developer continues to construct the building and consequently, avails the credit of the taxes paid in respect of the cost incurred towards the construction. Whereas, generally the developer is not able to sell all the units at the start of the project and therefore the sales happen anytime during the construction of the project or even after the completion of the project and accordingly, the turnover is reflected in the periodic returns. The Respondent, with an intention to boost sales, had also sold units under subvention scheme where the major payments would be received and reflected in the returns nearer to the completion of the Project. In such a scenario, the methodology adopted by the DGAP to arrive at the profiteering ratio would be more distorted since credit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0% abatement Post-GST Regime - Under the GST regime, the turnover on which the Respondent is liable to pay tax in respect of an under-construction unit would be the 2/3rd of the total value of such supply i.e. gross demand less 1/3 rd deduction towards transfer of property in land or undivided share of land. d) That any change in applicable rate of tax on the supply of goods and services could not be perceived as reason for profiteering. As a basic principle of CENVAT Credit, the Respondent was first required to pay tax and then avail the credit. This rule remained applicable under both the regime i.e. pre-GST and post-GST e.g. under the GST regime, the rate of tax on supply of services had increased from 15% to 18%. This incremental tax was available as credit to Respondent after payment of tax to the supplier of services who in turn paid this tax to the Government and therefore, to that extent there could not be any profiteering by the Respondent. e) That the term Anti-Profiteering in Section 171 of the CGST Act connotes that no registered person should make additional profits in respect of the taxes not available as credit under the erstwhile regime and he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iteering and period of profiteering: The DGAP has submitted that, in his Report dated 10.12.2018, the increase in the ITC availed by the Respondent as a percentage of the Respondent s total turnover in the post GST period had been quantified. The input or input service wise availability or non-availability of ITC, prior to and post implementation of GST, had not been examined. Further, there should be no extra liability on the Respondent on account of GST charged by the suppliers as the said suppliers were also enjoying ITC on the purchases made by them resulting in reduction in prices of the materials purchased by them which they should have passed on to the Respondent. The DGAP had computed the benefit of ITC for the period from July, 2017 to June, 2018 for which comparison was made with the ITC available in the pre-GST period from 01.04.2016 to 30.06.2017. Therefore, the period considered by him in his Report was reasonable and comparable. f. On the issue of post GST turnover: The DGAP has submitted that this was a new fact which was not submitted to him during the course of investigation. Revised figures of turnover have been submitted by the DGAP in the subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Turnover (before adjusting benefit of Input tax credit passed on by the Respondent (C) 10,41,83,200 9,17,49,459 19,59,32,659 82,78,03,642 4 Total Saleable Area of flats in the project (Square Ft.) (D) 3,26,638 3,26,638 5 Area Sold relevant to Taxable turnover as per Home buyers List (E) 2,11,100 2,51,342 6 Relevant CENVAT/lnput Tax Credit (F)= [(A)*(E)/(D)] or [(B)*(E)/(D)] 34,56,462 4,36,53,263 7 Ratio of CENVAT/ Input Tax Credit to Taxable Turnover [(I)=(H)/(E)] 1.76% 5.27% 43. The DGAP has stated from the above Table that the ITC as a percentage of the total turnover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 1.76% and during the post-GST period (July, 2017 to June, 2018), was 5.11%. This showed that post-GST, the Respondent had bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46,02,61,414 3,21,78,403 36,26,24,463 85,50,64,280 8. GST over Basic Price H=G*12% or 8% 5,52,31,370 38,61,408 2,90,09,957 8,81,02,735 9. Total Demand raised (before adjusting ITC benefit passed on) I=G+H 51,54,92,784 3,60,39,811 39,16,34,420 94,31,67,015 10. Recalibrated Basic Price J=G*(1-D) or 96.65% of G 44,48,42,657 3,11,00,426 35,04,76,543 82,64,19,627 11. GST @12% or 8% K- J*12% or 8% 5,33,81,119 37,32,051 2,80,38,123 8,51,51,293 12. Commensurate demand price L= J+K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormed that the construction service had been supplied in the State of Maharashtra only. 48. The Respondent has also claimed that he had passed on the benefit of ₹ 3,00,75,576/- to the home buyers who had booked their flats upto 30.06.2018. A summary of category-wise profiteering and the ITC benefit passed on, was furnished by the DGAP as has been given below:- S.No. Category of Customers No. of Units Area (in Sq.ft.) Amount Received Post GST Profiteered Amt. as per Annex-27 Benefit claimed to have been Passed on by the Respondent Difference Remarks A B C D E F G H=F-G I 1 Applicant 1 541.45 26,69,195 98,808 93,875 4,933 Further Benefit to be passed on as per Annex-28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,933/- [₹ 98,808/- (-) ₹ 93,875/-] from him. The DGAP has also claimed that the investigation appeared to indicate that the Respondent had also realized an additional amount of ₹ 60,81,718/-(Annexure-28) which included both the profiteered amount @ 3.35% of the basic price and GST on the said profiteered amount from 332 other recipients who were not Applicants in the present proceedings. He has further claimed that these recipients were identifiable as the Respondent had provided their names and addresses along with the unit no. allotted to them, therefore, this additional amount of ₹ 60,81.718/- was required to be returned to such eligible recipients. The DGAP has also intimated that the Respondent had profiteered an amount of ₹ 1,22,79,124/- from the rest 162 flat buyers and claimed to have passed on benefit of ₹ 1,68,45,255/- to them (Annexure-29) which was in excess of the benefit which he was required to pass on, however, the DGAP has claimed that the same could not be set off against the additional benefit to be passed on to the above recipients. 50. The DGAP has also stated that the present investigation covered the period from 01.07. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difficult to do so in the real estate sector and hence it needed to be decided on case to case basis. He has further stated that once it was proved that the registered person had correctly computed the benefit and had not retained but passed on the same to the customers, he had complied with the provision of the Section 171 of the CGST Act although some customers might have benefitted more than the others. He has accordingly, contended that the additional amount required to be passed on to the customers was only ₹ 15,20,519 (3,15,96,095 - 3,00,75,576) and not ₹ 60,81,718. 55. The Respondent has also argued that ₹ 34,44,408/- had already been passed on by way of credit notes in the month of March, 2019 as per the details given vide Annexure-2 of his submissions and the balance amount of ₹ 26,42,243/- had been passed on to the customers who had purchased flats after coming in to force of the GST. The Respondent has further submitted that the computations given in Table C read with Annexure-28 referred in the revised DGAP Report had completely ignored the fact that the benefit of ITC attributable to such units had already been passed while deciding the pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the other material placed on record and find that the Applicant No. 1 had purchased Flat No. 2204 in Tower-B2 in My City Phase I-Part 1 (Betawade-1) project floated by the Respondent comprising of Towers A3, A4, B2, 03 and C4 which was registered with MRERA vide Registration No. P51700000528. The above project formed part of his Runwal My City project located in Dombivili, Thane, Maharashtra and the Applicant No. 1 had purchased the above flat for total consideration of ₹ 48,51,000/-(Excluding Taxes) as per the details furnished by the DGAP vide Table B of his Report dated 10.12.2018. It is also revealed from the record that the above Applicant vide his complaint dated 31.05.2018 had alleged that the Respondent was not passing on the commensurate benefit of ITC to him in spite of the fact that he was availing ITC on the purchase of the inputs at higher rates of GST which had resulted in benefit of additional ITC to him and was also charging GST from him @ 12%. The above complaint was examined by the Maharashtra State Screening Committee in its meeting held on 15.06.2018 and was forwarded to the Standing Committee on Anti-Profiteering for further action. The Standing C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have no impact on the eligibility of the Respondent to avail benefit of ITC and pass on the same to his customers pertaining to the period of the current investigation w.e.f. 01.07.2017 to 30.06.2018 and therefore, there is no ground to keep the present proceedings in abeyance. 60. The Respondent has also claimed that under the GST laws no mechanism or methodology has been provided for implementing anti-profiteering measures in the absence of which the investigation carried out by the DGAP was without sanction of law. In this connection it would be pertinent to mention that Section 171 (1) of the CGST Act, 2017 clearly states that Any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices . Therefore, the intention of the legislature is amply clear from the above provision which requires that the benefit of tax reduction or ITC is required to be passed on to the customers by commensurate reduction in prices and the same cannot be retained by the suppliers. This Authority has been duly constituted under Section 171 (2) of the above Act and in exercise of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it was well settled that in the absence of machinery for assessment of tax, the levy itself was illegal. However, perusal of Section 171 (2) of the above Act and the Rules framed under it shows that the Central Govt. has been empowered to constitute an Authority to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of goods or services or both supplied by him. In exercise of the above power the Central Govt. has constituted this Authority vide Office Order No. 343/2017 dated 28th November, 2017 to ensure that both the above benefits are passed on to the customers. Vide Rule 123 of the above Rules it has also been provided to constitute the Standing Committee and the State level Screening Committees to prima facie establish the veracity of the complaints made against non-passing of the above benefits. Under Rule 129 a full-fledged investigating machinery has been provided by creating the office of DGAP to enquire in to the complaints made under the anti-profiteering measures. Under Rule 136 of the above Rules this Authority has been empowered to get its orders impleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aximum retail price of the gas on which it could be sold, however in the present case no such direction has been sought to be passed by the DGAP through his present Reports and hence the argument advanced by the Respondent on the basis of the above judgement cannot be accepted. 65. The Respondent has also relied on the case of British India Corporation Ltd. v. CCE 1978 (2) ELT J307 (SC) = 1962 (8) TMI 2 - SUPREME COURT and stated that the entire concept of passing on the benefit of tax to the customers was not envisaged through a tax law as the levy of tax under the GST was on the supplier and it was for him to choose the method of passing it on to the customers or to bear the burden himself. In this connection it would be appropriate to mention that no tax has been levied on the Respondent to pass on the benefit of ITC rather he is required to pass on the amount which he has received as ITC on the tax which he has paid on his inward supplies of goods and services, from the public exchequer. As per the provisions of Section 171 he has no choice but to pass on the same by commensurate reduction in his prices. Neither he is required nor he can pay it from his own account as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de redundant. 68. The Respondent has also submitted that in the case of Union of India v. Adani Exports Limited 2001 (134) ELT 596 (SC) = 2001 (10) TMI 321 - SUPREME COURT it was held that the adjudicating authority was required to pass an order deciding the preliminary objections raised by the assessee and hence the objections raised by him were required to be decided at the outset. Perusal of the facts of the above case shows that the issue raised in this case pertained to the territorial jurisdiction of the Hon ble High Court of Gujarat to entertain the appeals filed by the above Respondent. However, in the present case the Respondent has raised no preliminary objection against the territorial jurisdiction of this Authority and therefore, it is respectfully submitted that the above judgement is not being followed. 69. The Respondent has vehemently argued that unlike any other manufacturing business the project life-cycle in the Real Estate -Sector was spread over a period of 3-4 years and therefore, the actual ITC benefit could be computed only at the finalization of the project. This contention of the Respondent is completely frivolous as the Respondent has all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. all the claims made by the Respondent on the above grounds are not tenable. 70. The Respondent has also contended that under the GST regime the rate of tax had been increased to 12% and then reduced to 8% for affordable housing whereas in the erstwhile regime the outward tax liability was 5.5% and therefore, there has been no reduction in the rate of tax and on the contrary the tax liability of the Respondent had increased. In this connection it is mentioned that as per the provisions of Section 171 (1) of the above Act both the benefits of tax reduction and additional ITC are required to be passed on. It is apparent from Table D supra that the increase in the rate of tax post-GST was 6.50% for general housing and 2.50% in respect of affordable housing and therefore, no benefit on account of tax reduction is required to be passed on in the present case. However, there has been increase in the benefit on account of additional ITC of 3.51% of the turnover which is required to be passed on by the Respondent. This benefit would not be reduced to 2.64% as has been claimed by the Respondent vide Annexure-7 of his submissions. Accordingly, he is required to pass on the above benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts which cannot be done unless comparison of the pre-GST CENVAT/ITC availed on the taxes paid is made with the benefit of ITC availed post-GST. Further, the above computation does not take into account the benefit of CENVAT available on the services which was being availed by, the Respondent during the pre-GST period as is apparent from the perusal of Table C supra but it takes into account the difference between the above two ITCs. It is also clear that the above benefit has been calculated on the basis of the net difference in the ITC pre-GST and post-GST which does not get affected due to increase in the rate of the Service Tax. Hence, the computation of benefit made by the DGAP is correct and the argument advanced in this behalf by the Respondent is not correct. 74. The Respondent has also claimed that the DGAP has wrongly compared the percentage of ITC availed to taxable turnover to arrive at the additional ITC. He has further claimed that due to the long period taken for completion of the project the ratio calculated by the DGAP would invariably differ from project to project and within the project. The above claim made by the Respondent is incorrect as the ratio of the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount has been calculated by computing the ratio of the CENVAT/ITC to the turnover keeping in view the area sold relevant to the turnover as per the list of home buyers supplied by the Respondent as well as the relevant CENVAT/ITC availed during the pre and post-GST period as is clear from Table C of the Report of the DGAP dated 10.12.2018. The DGAP has computed the ratio of ITC to the turnover for the period from 01.07.2017 2017 to 30.06.2018 and compared it with the ratio of ITC to the CENVAT/ITC availed in the pre-GST period from 01.04.2016 to 30.06.2017 therefore, the period considered by him in his Report is reasonable and comparable. Hence, there is no question of computation of distorted amount of profiteering. It is also clear from the above Table that the above ratio has been calculated w.e.f. 01.07.2017 to 30.06.2019 only and final computation of the profiteered amount shall be done by the Respondent after issue of the OC and hence in case any under or over payment of the ITC benefit has been made the same can be adjusted by the Respondent. 77. The Respondent has also stated that the methodology used by the DGAP in Table C supra to compute the additional benefit neede ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/-(₹ 8,21,511+4558) However, the Respondent has repeatedly claimed in his submissions that this amount has been passed as a discount and any amount passed as a discount cannot be considered to be the passing on of the benefit of ITC as the discount is passed from the profit margins. Similarly he has also claimed that the above amount has been passed on by way of price negotiations and hence the same cannot be treated to have been passed as a benefit of ITC. The above amount except the amount which has been passed on to the Applicant No. 1 has also not been verified by the DGAP. Due to the above reasons the above amount cannot be taken to have been passed on account of the ITC benefit. 80. Perusal of Annexure-G of the submissions dated 11.02.2019 filed by the Respondent shows that it contains the details of the ITC benefit of ₹ 3,23,60,080/- and ₹ 3,00,75,576/- which the Respondent has claimed to have passed on 31.01.2019 and 30.06.2018 respectively, however, both the above amounts have not been verified by the DGAP in his original or the revised Report and also have been claimed to have been passed as discount of due to price negotiations and hence the above a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has computed the ratio of CENVAT/ITC to the turnover as per Table A supra of his revised Report. Perusal of Table A shows that it contains the same figures which have been taken by the DGAP while calculating the above ratio in Table C of his first Report dated 10.12.2018 except for the figure of the total turnover for the post-GST period. In Table A this turnover has been taken as ₹ 85,50,64,279/- whereas in Table C it was taken as ₹ 82,78,03,642/- thereby showing an increase of ₹ 2,72,60,637/- due to inclusion of the amount of benefit of ITC which the Respondent has claimed to have passed on post implementation of GST, as has been mentioned against Serial No. 6 of the Table B of the revised Report. However. Table C of the revised Report dated 11.03.2019 shows the amount of benefit of ITC passed on as ₹ 3,00,75,576/-. The amount of turnover mentioned against Serial No. 3 of Table C of the Report dated 10.12.2019 has been taken by the DGAP from the GSTR-3B Returns as ₹ 82,78,03,642/- whereas the same amount has been taken as ₹ 85,50,64,279/- as has been mentioned against Serial No. 3 of Table A of his revised Report, as per the information supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above profiteered amount of ₹ 3,15,96,095/- can not be held to be correct and accordingly, the details of the above amount mentioned in revised Annexure-27 can also not be taken in to account to pass on the benefit of ITC. 84. The DGAP has also submitted that the computation of the profiteered amount was with respect to the 495 home buyers, whereas the Respondent had booked 537 flats till 30.06.2018. Out of these 537 flats, 42 customers had not paid any consideration during the period from 01.07.2017 to 30.06.2018 therefore, if the ITC in respect of these 42 units was taken into account to calculate the profiteered amount in respect of the 495 units where payments had been received post GST, the ITC as a percentage of taxable turnover would be erroneous. Therefore, the profiteering in respect of these 42 units should be calculated when the consideration would be received in the post-GST period, by taking into account the proportionate ITC in respect of such units. The above contention of the DGAP is justified and hence the same can be taken to be correct. 85. The DGAP has also stated that the Respondent has claimed that he has passed on the benefit of ₹ 3,00, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above Table that the benefit claimed to had been passed on by the Respondent was less than what he should have passed on in respect of 333 cases including the Applicant No. 1 (Sr. 1 and 2 of the above table), amounting to ₹ 60,86,651/-(Annexure-28 of the revised Report). He has further submitted that the Respondent had realized an additional amount of ₹ 98,808/- from the above Applicant which included both the profiteered amount @ 3.35% of the basic price and GST on the said profiteered amount, however, the Respondent had claimed to have suo-moto passed on ₹ 93,875/- to the Applicant No. 1 which has been claimed to have been duly verified by the DGAP from the demand letters issued by the Respondent to the above Applicant, therefore, the Respondent as per Annexure-28 had profiteered an amount of ₹ 4,933/-[₹ 98,808/- (-) ₹ 93,875/-] from him. The DGAP has further claimed that the investigation appeared to indicate that the Respondent had also realized an additional amount of ₹ 60,81,718/-(Annexure-28) which included both the profiteered amount @ 3.35% of the basic price and GST on the said profiteered amount from 332 other recipients who wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the home buyers. There is also no question of reversal of the ITC except when it pertains to the unsold flats on which he has not been asked to pay ITC benefit. There is also no issue of excess payment of ITC benefit as he can always adjust the same in the future instalments. 89. Based on the above facts the excess collection or the profiteered amount is determined as ₹ 3,20,49,507/- which includes GST 12/8% on the base profiteered amount of ₹ 2,90,55,908/-, as per the provisions of Rule 133 (1) of the above Rules as has been computed vide Table D of the Report dated 10.12.2018 @ 3.51% of the taxable turnover which is required to be passed on by the Respondent to the flat buyers. The profiteered amount in respect of the Applicant No. 1 is held to be ₹ 1,00,232/- including the GST on the base profiteered amount of ₹ 90,709/-. The DGAP has contended in para 18 and 24 of his Report dated 10.12.2018 that he has verified that the Respondent has suo-moto passed an amount of ₹ 84,896/-, accordingly, the profiteered amount in respect of the above Applicant is held to be ₹ 15.336/-. It would be pertinent to mention here that the DGAP vide his revis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the flats being constructed by him in his Runwal My City Project in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus profiteered an amount of ₹ 3,20,49,507/- from his customers, hence he has committed an offence under section 171 (3A) of the CGST Act, 2017 and therefore, he is liable for imposition of penalty under the provisions of the above Section. Accordingly, a Show Cause Notice be issued to him directing him to explain why the penalty prescribed under the above Section read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him. Accordingly, the notice dated 12.12.2018 issued to the Respondent vide which it was proposed to impose penalty under Section 29 and 122-127 of the above Act is hereby withdrawn to that extent. 92. The Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioners of CGST/SGST Maharashtra to monitor this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by the Authority is passed on to all the eligible buyers. A report in compliance of this order shall be submitted to this Authority by the Commissioners CGST /SGST ..... X X X X Extracts X X X X X X X X Extracts X X X X
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