TMI Blog2019 (11) TMI 1085X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was reduced in the case of affordable housing from 12% to 8%, vide N/N. 1/2018-Central Tax (rate) dated 25.01.2018. Penalty - 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 provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty under the provisions of the above Section - 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. - Case No. 60/2019 - - - Dated:- 21-11-2019 - SH. B.N. SHARMA, CHAIRMAN, SH. J.C. CHAUHAN, TECHNICAL MEMBER, MS. R. BHAGYADEVI, TECHNICAL MEMBER SH. AMAND SHAH, TECHNICAL MEMBER Present:- None for the Applicant No. 1. None for the Applicant No. 2 None for the Respondent. ORDER 1. The present Report dated 21.05.2019 and the subsequent Report dated 12.07.2019 have been received from the Applicant No. 2 i.e. the Director General of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rugram under the Affordable Housing Scheme, under the Pradhan Mantri Awas Yojna. He has also submitted that he was not directly engaged in any construction activity and all the work related to the project was assigned to various sub-contractors, who procured all the required raw materials on their own except Steel, Cement and RMC which were supplied by the Respondent on free of charge basis. However, the project was executed under the supervision of the staff employed by the Respondent. He has further submitted that in the pre-GST regime, under-construction properties were covered by the definition of works contract and attracted Haryana VAT @ 4.5% (approximately) with full ITC of VAT paid on goods involved in the execution of works contract. Affordable housing was, however, exempt from Service Tax, vide Notification No. 9/2016-ST dated 01.03.2016. He further contended that in the GST regime, construction of low cost houses upto a carpet area of 60 square meters per house in a housing project approved by any State Government, was taxable @ 12% (effectively @ 8% after 113rd abatement for the value of land), vide Notification No. 01/2018-Central Tax (Rate) dated 25.01.2018 and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed three objections before the DGAP with the request to dispose of the same by passing a speaking order before proceeding under Section 171 of the Central Goods and Services Tax Act, 2017, in view of the methodology explained by the Supreme Court in the case of M/s. GKN Driveshafts (India) Ltd.[2002] 1 SCC 72 = 2002 (11) TMI 7 - SUPREME COURT . These objections are mentioned below: (i) Whether on the facts circumstances of the case, there was any reduction of rate of tax on the supply of goods and services involved in the execution of works contract in the current GST regime. (ii) Whether on the facts circumstances of the case, the benefit already credited/passed on to the buyers before initiation of proceeding, would have not been treated as compliance with the provisions of Section 171 of the CGST Act, 2017. (iii) Whether on the facts and circumstances of the case, the Applicant No. 1 had misled this investigation by not providing complete facts about the receipt of benefit of ITC, in terms of Section 171 of the CGST Act, 2017. 9. The DGAP in his Report has also stated that the Respondent has furnished the following documents:- (a) Copies o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Basic % BSP Service Tax VAT GST Total 1. At the time of Application 24.01.2015 5% 1,10,150 3,404 4,957 - 1,18,511 2. At the time of Allotment 11.05.2015 20% 4,40,600 13,615 19,827 - 4,74,042 3. Within 6 months from the date of Allotment 11.11.2015 12.50% 2,75,375 9,639 12,392 - 2,97,406 4. Within 12 months from the date of Allotment 11.05.2016 12.50% 2,75,375 - 12,392 - 2,87,767 5. Within 18 months from the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of getting benefit of the ITC, in terms of Section 171 of the CGST Act, 2017. The DGAP, upon examination has found that the Applicant No. 1 had filed the application on 29.09.2018 which was prior to the date of receipt of benefit from the Respondent on 01.11.2018. 14. The DGAP has also argued 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) read as Sale of land and, subject to clause (b) of paragraph 5 of Schedule 11, sale of building . Further, clause (b) of Paragraph 5 of Schedule II of the Central Goods and Services Tax Act, 2017 read 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 . Thus, he has pleaded that the ITC pertaining to the residential units which were under construction but not sold was provisional ITC which may be required to be reversed by the Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the information submitted by the Respondent for the period from April, 2016 to December, 2018, the DGAP has furnished the details of the ITC availed by the Respondent, his turnover from the present project and the ratio of ITC to turnover, during the pre-GST period from April, 2016 to June, 2017 and post-GST period from July, 2017 to December, 2018 in the Table given below:- Table-'B' (Amount in Rs.) S.No. Particulars April, 2016 to March, 2017 April, 2017 to June, 2017 Total (Pre-GST) 01.07.2017 to 24.01.2018 (GST @ 12%) 25.01.2018 to 31.12.2018 (GST @ 8%) Total (Post-GST) (1) (2) (3) (4) (5)=(3)+(4) (6) (7) (8)=(6)+(7) 1. Credit of Service Tax Paid on Input Services used for Commercial Shops (A) 18,21,303 51,282 18,72,585 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Relevant ITC [(K)= (D)*(J)/(I)] or (K)= (E)*(J)/(I)] 2,35,87,216 3,27,45,830 Ratio of Input Tax Credit to Turnover [(L)=(K)/(H)*100] 4.00% 6.61% 17. Thus, the DGAP has claimed that from the above Table, it was clear that the ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period from April, 2016 to June, 2017 was 4.00% and during the post-GST period from July, 2017 to December, 2018, it was 6.61% which confirmed that post-GST, the Respondent had benefited from additional ITC to the tune of 2.61% [6.61% (-) 4.00%] of the turnover. 18. The DGAP has further observed that the Central Government, on the recommendation of the GST Council, had levied 18% GST (effective rate was 12% in view of 1/3rd 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 upto a carpet area of 60 square metres per house ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GST raised over Base Price @ 12% or 8% (Rs.) F=E*B 2,45,69,350 35,99,622 2,08,43,780 4,90,12,752 8. Total Demand raised G=E+F 22,93,13,936 3,35,96,468 28,13,91,030 54,43,01,434 9. Recalibrated Base Price H=E*(1-D) or 97.39% of E 19,94,00,752 2,92,13,928 25,37,46,967 48,23,61,647 10. GST @12% or 8% I = H*B 2,39,28,090 35,05,671 2,02,99,757 4,77,33,519 11. Commensurate demand price J=H+I 22,33,28,843 3,27,19,600 27,40,46,724 53,00,95,166 12. Excess Collection of Demand or Profiteering Amount K=G-J 59,85,094 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. of Units Area (in Sq.ft.) Amount Received Post GST Benefit to be passed on as per Annex-13 Benefit claimed to have been passed on by the Respondent (Excess)/Shortage of Benefit profiteering) Remark A B C D E F G H=F-G I 1. Applicant (Residential) 1 539 5,50,750 15,812 19,500 (3,688) Excess Benefit Passed on as per Annex-14 2. Other Buyers (Residential) 784 3,76,394 38,53,69,750 1,10,63,966 1,36,17,935 (25,53,969) Excess Benefit Passed on List Attached as Annex-14 3. Other Buyers (Residential) 35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Respondent was higher than what he should have passed on, in respect of 785 residential flats including the Applicant No. 1 by an amount of ₹ 25,57,657/- and by ₹ 62,697/-, in case of 14 commercial shops. However, the DGAP has contended that this 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 that might accrue to such recipients. 24. The DGAP has also submitted that the benefit of additional ITC to the tune of 2.61% of the turnover has accrued to the Respondent post-GST and the same was required to be passed on by the Respondent to the Applicant No 1 and the other recipients. Thus, the Respondent has contravened the provisions of Section 171 of the CGST Act, 2017, in as much as the additional benefit of ITC @2.61% of the base price received by the Respondent during the period from 01.07.2017 to 31.12.2018, has not been passed on by the Respondent to 85 recipients (35 buyers of residential flats plus 50 buyers of commercial shops). The DGAP has also mentioned that although the Respondent ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n violation of the provisions of Section 171 of the CGST Act, 2016 under Rule 126 of the above Rules 28. He has also argued 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 has also cited the judgements recorded in the cases of B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) = 1981 (2) TMI 1 - SUPREME COURT , Palai Central Bank Ltd. (1984) 150 ITR 539 (SC) = 1984 (10) TMI 41 - SUPREME COURT and National Mineral Development Corporation (2004) 65 SCC 281 = 2004 (5) TMI 575 - SUPREME COURT in his support. He has also contended that the Hon'ble Patna High Court has held in the case of Larsen Toubro v. State of Bihar 2004 (134) STC 354 (Pat.) = 2003 (11) TMI 565 - PATNA HIGH COURT which was affirmed by the Hon'ble Supreme Court in the case of Voltas Ltd. (2007) 7 VST 317 (SC) = 2007 (5) TMI 18 - SUPREME COURT thot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under construction with expected date of completion being approximately one year later and hence calculation of profiteering in his project which was still under construction was biased. He has further claimed that the profiteering, if any, could only be determined once the project was nearing completion. 30. The Respondent has also contended that the average method adopted by the DGAP for computation of profiteering suffered from the following errors:- i. Certain inputs in construction including bricks, stones and dust stone aggregate etc. were exempted from VAT in the pre-GST period. In post GST period, such inputs suffer GST @ 5%. Therefore, while computing the input GST, the amount of GST on such tax free items had also been considered by the DGAP which was to the detriment of the Respondent and in fact, the GST on such items which earlier were tax free had to be eliminated while computing possible profiteering. ii. Even while adopting average basis for alleging profiteering, the DGAP had erred in not doing a likewise comparison adopting similar set of circumstances in pre and post GST period. Profiteering could be freely determined in the case of a tangible prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not mention circumstances for continuing with the proceeding on own motion once it had been observed that there had been no undue profiteering in the case of the Applicant No. 1. iv. Continuing with the proceedings in the absence of finding of profiteering causes grave injustice to the Respondent and defeats the intent under which the provisions of Section 171 and the applicable Rules have been framed. 33. The Respondent has also submitted that the excess payments made to the 799 flat owners aggregated to ₹ 26,20,354/- and hence, in case of only 85 flat owners, it could not be stated that ₹ 20,57,756/- had been short paid as per the arbitrary calculation made by the DGAP on average basis. He has further submitted that instead of directing him to recover the excess payments from 799 flat owners and pass it on to the 85 flat owners who were alleged to be short paid, the DGAP and the Authority had issued an aggressively worded notice threatening dire consequences. He has also stated that he proposed to initiate appropriate measures of raising debit and credit notes on the respective flat owners to ensure parity and passing on of the profiteering amount as det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constructing both the residential and commercial accommodation. It is also revealed that the Applicant No. 1 had complained to the Standing Committee on 29.09.2018 that the above Respondent was not passing on benefit of ITC to him on the flat which he has purchased from him and was also charging GST from him on the pre-GST base price of ₹ 4,0001- per sq. ft. The above complaint was examined by the Standing Committee in its meeting held on 13.12.2018 and was forwarded to the DGAP for detailed investigation as per the provisions of Rule 129 (1) of the CGST Rules, 2017. The DGAP has conducted investigation in the above allegations levelled by the Applicant and vide his Report dated 21.05.2019 has stated that the Respondent had violated the provisions of Section 171 of the above Act by resorting to profiteering of an amount of ₹ 1,42,06,267/-. 38. The Respondent in his written submissions filed on 01.07.2019 has claimed that the DGAP's Report dated 21.05.2019 had recorded incorrect finding by stating that he had benefited from additional ITC of 2.61% of the turnover, as this finding was based on the average method applied by the DGAP on his own accord. However, perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it under Rule 126 vide its Notification dated 28.03.2018 which is available on its website. The basis and reason for computing profiteering has been mentioned in Section 171 (1) of the above Act which requires that 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. Therefore, it is quite clear that both the above benefits are required to be passed on by reduction in the prices and in case they are not passed on profiteered amount has to be computed as per the provisions of Section 171 (3A) of the above Act. In view of the above facts this contention of the Respondent is not correct. 41. He has further contended that it was settled that in the taxing statutes mechanism for computation of value should be provided. However, this contention of the Respondent is fallacious as no tax has been imposed under Section 171 of the above Act. It would also be appropriate to mention here that under Section 171 (2) this Authority has been constituted to ensure that the provisions of Section 171 (1) are implanted. Rule 123 of the CGST Rules, 2017 provides constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bro 2015 SCC Online SC 738 = 2015 (8) TMI 749 - SUPREME COURT , supra, in which the issue pertained to the levy of Service Tax on the undivisible works contracts which is not the issue in the present case and hence the above case is not relevant in the facts of the present case. 43. The Respondent has also stated that the Anti-Profiteering provision under the CGST Act and the Procedure Methodology drafted under Rule 126 was silent on the timing of passing on of the benefit. However, there can be no doubt that the above benefit has to be passed on as soon as the Respondent avails the benefit for discharging his output tax liability by utilising the ITC. Since, the Respondent is utilising the benefit of ITC every month through his GSTR-3B Returns he should also pass on the benefit by commensurate reduction in the price every month. The Respondent cannot use two yardsticks while passing the above benefit by using the ITC every month and by claiming that his buyers would be entitled to get the same when the project would be near completion. The Respondent cannot enrich himself at the expense of vulnerable house buyers by denying them the benefit for more than 4 and half year and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the commercial shops. The Respondent has also not produced any evidence during the course of the proceedings despite clear directions from the Authority nor he has attended the personal hearings afforded to him on 13.06.2019, 01.07.2019 and 11.07.2019 to prove that he has passed on the above amount as benefit of additional ITC. Therefore, there is no ground to accept his above claims. Accordingly, the above amount of ₹ 1,47,49,365/- cannot be treated to have been passed on by the Respondent to his buyers and hence the same cannot be allowed to be adjusted against the ITC benefit. 46. The Respondent has also contended that he had passed on the benefit of ITC on adhoc basis @ ₹ 36.18 per sq. ft. to the Residential flat buyers and @ ₹ 37.52 per sq. ft. to the commercial shop buyers however, he has neither submitted the details of his above computation nor he has submitted the details of the credit notes or the tax invoices or cheques through which the above benefit has been passed on. His above claims have also not been verified by the DGAP in his Report. Therefore, there is no reliable and cogent evidence available on record due to lack of which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount computed by the DGAP. However, perusal of 38 ledger accounts of the buyers which have been submitted by the Respondent to the DGAP shows that there is no evidence to suggest that he had passed on the benefit of ₹ 1,47,68,865/- to the 820 home buyers and 80 commercial buyers on account of ITC as there is no such entry in the ledger accounts of these buyers. A typical entry of ₹ 20,550/- made in the ledger account on 01.11.2018 of one Mr. Ankit Jain, who has been allotted unit No. 2012 in the above project by the Respondent, reads as Receipt Ref. CR81/01187/18-19 (19,028.00+ Tax 1522.00) which shows that no where it has been mentioned that this amount has been transferred on account of ITC benefit. Perusal of the copies of the ledger accounts of the other house buyers to whom the Respondent has claimed to have passed on the benefit of ITC also shows that the same entry has been made in all such cases on 01.11.2018. By no stretch of imagination this entry can be construed to have been made on account of passing on the benefit of ITC, therefore, the above amount cannot be taken to have been passed on account of the ITC benefit, hence, the contention of the Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiteering by comparing the applicable tax rate and ITC available in the pre-GST period when only VAT c@ 4.50% was payable with (1) the post-GST period from 01.07.2017 to 24.01.2018, when the effective GST rate was 12% and (2) with the GST period from 25.01.2018 to31.12.2018, when the effective GST rate was 8%. Accordingly, the DGAP has calculated the profiteered amount or the benefit to passed on for the period from 01.07.2017 to 24.01.2018, as ₹ 59,85,094/- for the residential flats and commercial shops, which includes 12% GST on the base profiteered amount of ₹ 53,43,834/-. He has also computed the amount of benefit of ITC or the profiteered amount that needs to be passed on by the Respondent to his recipients during the period from 25.01.2018 to 31.12.2018 as ₹ 82,21,174/- which includes 12% GST on commercial shops and 8% GST on residential flats, on the base profiteered amount of ₹ 75,83,201/-. Therefore, the total benefit of ITC which is required to be passed on during the period from 01.07.2017 to 31.12.2018, comes to ₹ 1,42,06,267/- which includes GST 12% or 8% on the base profiteered amount of ₹ 1,29,27,035/- as per Table C of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above benefit is not passed in future the Applicant No. 1 or any other buyer shall be at liberty to approach the Haryana State Screening Committee to launch fresh proceedings against the Respondent as per Section 171 of the CGST Act, 2017. 56. It is also evident from the above narration of facts 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 provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act 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 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. Accordingly, the notice dated 28.05.2017 vide which it was proposed to impose penalty under Section 29, 122-127 of the above Act read with Rule 21 and 133 of the CGST Rules, 2017 is withdrawn to that extent. 57. The Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioner ..... 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