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2019 (12) TMI 156

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..... o. 1. In view of the above facts this Authority under Rule 133 (3) (a) of the CGST Rules, 2017 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. Since the present investigation is only up to 31.08.2018 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by the Respondent. The concerned Commissioner CGST/SGST shall ensure that the above benefit is passed on to the eligible flat buyers - In case the above benefit is not passed on by the Respondent the Applicant No. 1 or any other buyer shall be at liberty to approach the Tamil Nadu State Screening Committee to initiate fresh proceedings against the Respondent as per the provisions of Section 171 of the CGST Act, 2017. Penalty - HELD THAT:- The Respondent has denied benefit of ITC to the buyers of the flats being constructed by him in his above project in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST Act, 2017 and therefore, he is apparently liable for imposition of penalt .....

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..... ion:- i. Duly filled in Form APAF-1. ii. Copy of the Demand letters of both pre-GST & post-GST periods. 3. On receipt of the recommendation from the Standing Committee on Anti-profiteering, the DGAP had issued Notice dated 11.09.2018 under Rule 129 (3) of the above Rules, asking the Respondent to intimate 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 in case it was so, to suo moto compute the quantum of the same and mention it in his reply to the Notice along with the supporting documents. The Respondent was given opportunity to inspect the non-confidential evidence/information furnished by the above Applicant during the period between 18.09.2018 to 20.09.2018 in accordance with Rule 129 (5) of the above Rules and he availed of the said opportunity and inspected the documents on 24.09.2018. Vide e-mail dated 05.02.2019, the above Applicant was also given opportunity to inspect the non-confidential documents/reply submitted by the Respondent on 11.02.2019 or 12.02.2019. However, the Applicant did not avail of the said opportunity. 4. The DGAP has covered the period fro .....

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..... raised only after handing over the possession to the customers. The possession had not been given to the customers till the date of investigation and was most likely to be given in May, 2019. Thus, though the credit had accrued in December 2017, the corresponding income was yet to be received. Thus, the credit availed during the post-GST period should exclude ₹ 3,31,12,094/-, i.e., the value of credit availed during December, 2017 to August, 2018. d) That the Service Tax turnover was ₹ 54,98,31,779/-(2016-17) and ₹ 9,80,26,261/- (April-June, 2017). Therefore, the total Service Tax turnover was ₹ 64,78,58,040/-. The total area of the project was 3,54,025 sq. ft. whereas the turnover was only for 2,67,510 sq. ft. It was submitted that the total credit of ₹ 2,21,13,537/- must be re-computed based on the area relevant to the turnover. Therefore, the credit of ₹ 1,67,09,533/-(2,21,13,537 * 2,67,510 / 3,54,025) must be considered for determining the benefit derived by the Respondent. Similarly, in the post GST regime, the total turnover was ₹ 31,33,60,755/-and the area relevant to the turnover was 2,85,150 sq. ft. Thus, the total credit of ₹ .....

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..... he Respondent after implementation of the GST w.e.f. 01.07.2017 and in case it was so, whether the Respondent had passed on the above benefits to the home buyers as per the provisions of Section 171 of the CGST Act, 2017 or not. 8. The DGAP has further stated that the Respondent, vide his letter dated 17.10.2018 had submitted the copies of the demand letters, the agreement and the payment schedule for the flat booked by the Applicant, the details of which are mentioned in Table-A below:- Table- A (Amount in Rs.) S.No. Payment Stages Bill Date Due Date BSP Service Tax including SBC & KKC TN VAT GST Total Actual Payment 1. Billing Earnest 5/7/2016 07-05-2016 2,009,400 87,409 - 2,096,809 2,096,809 2. Billing Earnest 5/7/2016 07-05-2016 200,000 8,700 - 208,700 280,700 3. Billing Slab 10 5/31/2016 29-06-2016 158,095 6,877 - 167,972 164,972 4. Billing Due on or be 6/6/2016 06-08-2016 3,464,339 155,896 - 3,620,235 3,620,235 5. Billing Due on or be 6/6/2016 06-06-2016 158,095 7,114 - 165,209 165,209 6. Billing Slab 11 6/15/2016 14-07-2016 158,095 7,114 - 165,209 165,209 7. Billing Slab 12 7/11/2016 09-08-2016 158,095 7,114 - 165,209 165,209 8. Billing Slab 13 7/27/2016 25-08-2016 158,0 .....

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..... by the competent authority or after its first occupation, whichever is earlier . In the light of these provisions, the DGAP has contended that the ITC pertaining to the units which were under construction but not sold was provisional ITC that may be required to be reversed by the Respondent, if such units would remain unsold at the time of issue of CC, in terms of Section 17 (2) & Section 17 (3) of the Central Goods and Services Tax Act, 2017 which read as under:- 17 (2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. 17 (3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. T .....

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..... )] or [(B)*(E)/(D)] 12,536,036 40,003,717 7. Ratio of CENVAT/ Input Tax Credit to Turnover [(G)=(F)/(C)] 01.94% 12.60% 11. The DGAP has also submitted from the above Table- C 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 01.94% and during the post-GST period (July, 2017 to August, 2018), it was 12.60% which clearly confirmed that post-GST, the Respondent has been benefited from additional ITC to the tune of 10.66% [12.60% (-) 01.94%] of the turnover. 12. The DGAP has further submitted that the issue of profiteering has been examined by comparing the applicable tax rate and the available ITC for the pre-GST period (April, 2016 to June, 2017) when Service Tax @ 4.5% and one-time VAT on deemed value addition were payable with the post-GST period (July, 2017 to August, 2018) when the GST rate was 12%, fixed vide Notification No.11/2017-Central Tax (Rate), dated 28.06.2017. On the basis of the figures contained in Table-C above, the ITC availed/available during the pre-GST and the post-GST periods, the recalibrated base price on the basis of benefit of ITC post-GST and the excess collecti .....

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..... nts in the post-GST period till 31.08.2018. The above profiteering has been computed in respect of those 137 flats where payments have been received in the post-GST period. The profiteering in respect of the remaining 2 home buyers would be calculated when payments would be received from them, by taking into account the benefit of proportionate ITC. 16. The DGAP has also claimed that the benefit of additional ITC of 10.66% of the turnover has, in fact, accrued to the Respondent and the same was required to be passed on to the Applicant and other recipients. Thus, the Respondent has contravened the provisions of Section 171 of the Central Goods and Services Tax Act, 2017 inasmuch as the additional benefit of ITC @ 10.66% of the turnover (base price) received by the Respondent during the period from 01.07.2017 to 31.08.2018, has not been passed on to the above Applicant and the other recipients. On this account, the Respondent has realized an additional amount to the tune of ₹ 1,69,878/- from the Applicant No. 1 which included both the profiteered amount @ 10.66% of the turnover (base price) and 12% GST on the said profiteered amount. Further, the investigation has revealed tha .....

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..... sues raised by the Respondent in his above submissions are mentioned in the subsequent paras. 19. The Respondent has submitted that the method of calculation adopted by the DGAP while computing the profiteering amount in Table-D based on the computations made in Table-C was incorrect. He has also submitted that the DGAP in para 21 of the Report had stated that the Respondent was entitled to 1.94% CENVAT Credit as compared to the turnover during the pre-GST period and the ratio on the same basis was 12.60% during the post-GST period, hence the higher ratio has resulted in profiteering. He has further submitted that on the basis of this calculation, the DGAP has computed profiteering amount of Rs. 3.79 Crore which was not correct as the method adopted by the DGAP could not directly be applied to the construction industry since the manner of accrual of credit and raising of demand on the customers was different than the general industries. He has also stated that in the construction industry, the credit may accumulate in a particular period but the tax liability with respect to the same may arise in a different period as the construction activity went on gradually which resulted into .....

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..... (E) = A*D/C 3,13,08,965 76,23,713 4,00,03,717 6. Ratio of Input Tax Credit Post GST (F=E/B) 10.75% 28.89% 12.60% The Respondent has also claimed from above Table that the ratio of availment of ITC to the taxable turnover for the period from July, 2017 to March, 2018 was 10.75% and for the period from April, 2018 to August, 2018 was 28.89% whereas the average percentage of availment had been shown in Table-C as 12.60%. Thus, the variation in the utilization of credit between the two periods (both falling under GST regime) itself substantiated that there was no synchronization of accrual of credit with raising of demand of recovery amount from the customer. He has further claimed that in the present case, the slab No. 35 was cast in December, 2017 and the demand was also raised in December, 2017, however, after slab 35, as per the schedule of payment, the demand on the customer could be raised only on possession which has not been given to the customers as on the date of submissions. He has also stated that therefore, although the expenditure was incurred during December, 2017 to August, 2018 however, the demand could not be raised in August, 2018 as the milestone was not achieved. H .....

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..... nded that w.e.f. 1st April, 2019, in case of residential flats (other than affordable housing projects), GST would be payable at the rate of 5% without benefit of ITC but the notification regarding the same has not been issued yet. However, as per the press release uploaded on the website of CBIC on 24.02.2019 there would not be any ITC available to the Respondent post 1st April, 2019 and hence, the actual benefit available to the Respondent could be computed only after 1st April, 2019. 24. It has further been pleaded by the Respondent that if option was granted to avail ITC after 1st April, 2019 and pay tax at full rate, the benefit of credit arising to the Respondent could be computed only after the end of the project i.e. on receipt of CC and the same would be passed on to the customers at that point of time. 25. In his submissions dated 16.04.2019 the Respondent has reiterated the submissions which were made by him on 13.03.2019 and further added that the credit could be available to a recipient when the following four conditions of Section 16 of the above Act were complied with:- a) He is in a possession of tax invoice or debit note issued by the supplier. b) He has received t .....

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..... ourse of interstate trade or commerce. • All amounts involved in goods which were exempt from levy of VAT. • All amounts paid to the sub-contractors as consideration for execution of works contracts. • All amounts towards labour charges and other charges not involving any transfer of property in goods, actually incurred in connection with the execution of works contract. The Respondent has also stated that the valuation mechanism provided that the cost of the goods plus the profit of the assessee was the value on which the VAT was payable. In the present case, the profit margin of the Respondent was 25%. Thus, the Respondent had loaded 25% on the cost of goods and paid VAT by availing the credit. 28. The Respondent has also submitted the list of the finished projects executed by him along with their completion month as follows:- Project Month of Completion Seawood March 2012 Pinewood March 2012 Brentwood March 2012 Greenwood March 2013 Bridgewood March 2014 Birchwood March 2013 Oceanic March 2014 Edina September 2016 Bayview June 2017 Sinovia June 2017 29. The details of other projects which were on-going as on 1st July, 2017 were submitted by the Respondent as under .....

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..... he same period. The DGAP has stated that he has considered a period of 1 Year and 3 months in the pre-GST period and a period of 1 year and 2 months in the post-GST period to neutralize the effect of monthly variations in the ITC and taxable turnovers. 34. We have carefully considered all the submissions filed by the Applicants, the Respondent and the other material placed on record and find that the Applicant No. 1, vide his complaint dated 12.06.2018 had alleged that the Respondent was not passing on the benefit of ITC to him in spite of the fact that he was availing ITC on the purchase of the inputs at the 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 forwarded by the Tamil Nadu State Screening Committee to the Standing Committee on Anti-Profiteering for further action. This complaint was examined by the Standing Committee in its meetings held on 07 & 08.08.2018 and was forwarded to the DGAP for investigation who vide his Report dated 21.02.2019 has found that the ITC as a percentage of the total turnover which was available to the Respondent during the pre-GST period was 1.94% and .....

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..... g the above ratios and benefit as per the above Tables is correct and the same can be relied upon. 36. The Respondent has also claimed that the method adopted by the DGAP to compute the profiteered amount could not be applied to the construction industry since the manner of accrual of credit and raising of demand on the customers was different than the general industries. In this connection it would be appropriate to mention that the benefit of ITC is required to be passed on as soon as the Respondent uses the ITC to discharge his GST output liability which he is doing every month and accordingly, he is required to pass on the above benefit every month. The Respondent cannot claim that since there was no synchronization between the accrual of ITC and the instalments to be realised from the buyers he cannot pass on the benefit. The Respondent is under legal obligation to pass on the above benefit as per the provisions of Section 171 (1) of the above Act and therefore, he has to pass it. He cannot be allowed to wait till there is no mismatch between the above two parameters as they would match only at the time of completion of the project. In case the Respondent proposes to pass on t .....

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..... ver would be realized by the Respondent and hence the above amount cannot be reduced from the ITC availed post-GST. 39. The Respondent has also stated that he had deposited the excess GST collected by him with the Government and he had not retained the same and hence, the same could not be considered as profiteered amount. However, it would be relevant to state here that the Respondent has not passed on the benefit of additional ITC to his customers which he was legally bound to pass on by commensurate reduction in the prices of the flats and has charged more price than what he could have charged. The Respondent has not only charged more price but has also compelled his customers to pay more GST on the extra price charged illegally by him. Therefore, the above extra price as well as the additional GST charged by the Respondent amounts to the denial of benefit to be passed on. There was no legal obligation on the Respondent to realise the additional GST from the flat buyers and by doing so he has not only defeated the purpose of the concession given by the Central and the State Govt. from their own tax revenue but has also made the house buying less affordable to his customers. Ther .....

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..... espondent has also averred that he was discharging his VAT liability by adding 25% profit on the purchase value of the inputs as per the provisions of Section 5 of the Tamil Nadu Value Added Tax Act, 2006 and was claiming ITC. However, the DGAP in his Report dated 21.02.2019 has stated that the Respondent was collecting VAT only once at the time of handing over the possession of the flats and was discharging his VAT output liability by adding 25% in the purchase value of the inputs and hence, there was no direct connection between the turnover reported by the Respondent in his VAT Returns filed during the pre-GST period and the actual consideration received by him from his customers and therefore, the DGAP has not taken in to account the ITC available on the inputs and the VAT turnover for computation of the ratio of ITC to turnover in Table-C supra. The above claim of the DGAP is reasonable and justified as there is no relation between the ITC available to the Respondent on the deemed value of purchases and the turnover reflected in his pre-GST Returns and also that the Respondent was not charging VAT from his customers regularly and was charging it only once at the time of handin .....

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..... s established from the perusal of the above facts that the Respondent has benefited from the additional ITC to the extent of 10.66% of the turnover during the period from July, 2017 to August, 2918 and hence the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent as he has not passed on the above benefit to his customers and has profiteered an amount of ₹ 3,79,10,058/- inclusive of GST @ 12% on the base profiteered amount of ₹ 3,38,48,266/-. Further, the Respondent has realized an additional amount of ₹ 1,69,878/- which includes both the profiteered amount @ 10.66% of the taxable amount (base price) and 12% GST on the said profiteered amount from the Applicant No. 1. He has further realized an additional amount of ₹ 3,77,40,180/- which includes both the profiteered amount @ 10.66% of the taxable amount (base price) and 12% GST on the said profiteered amount from the flat buyers other than the Applicant No. 1 as mentioned in Annexure-22 of the Report dated 21.02.2019. These buyers are identifiable as per the documents placed on record and therefore, the Respondent is directed to pass on this amount of ₹ 3,77,40,180/- .....

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..... h reads as under:- (5) (a) Notwithstanding anything contained in sub-rule (4), where upon receipt of the report of the Director General of Anti-profiteering referred to in sub-rule (6) of rule 129, the Authority has reasons to believe that there has been contravention of the provisions of section 171 in respect of goods or services or both other than those covered in the said report, it may, for reasons to be recorded in writing, within the time limit specified in sub-rule (1), direct the Director General of Anti-profiteering to cause investigation or inquiry with regard to such other goods or services or both, in accordance with the provisions of the Act and these rules. (b) The investigation or enquiry under clause (a) shall be deemed to be a new investigation or enquiry and all the provisions of rule 129 shall mutatis mutandis apply to such investigation or enquiry. 51. It is also evident from the above narration of the facts that the Respondent has denied benefit of ITC to the buyers of the flats being constructed by him in his above project in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering. Hence, he has committed .....

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