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2019 (12) TMI 156

..... flat - contravention of section 171 of CGST Act - Penalty - HELD THAT:- It is established from the perusal of the 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. 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. Th .....

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..... ound that the Respondent had not passed on the benefit of ITC to the above Applicant as the same should have been computed against the instalments paid by the Applicant No. 1 against the price of the flat. The above Screening Committee had forwarded the said application with its recommendation to the Standing Committee on Anti-profiteering for further action, in terms of Rule 128 (2) of the above Rules. The aforesaid reference was considered by the Standing Committee on Anti-profiteering, in its meetings held on 07th & 08th August, 2018, wherein it was decided to forward the same to the DGAP to conduct detailed investigation in to the complaint according to Rule 129 (1) of the CGST Rules, 2017. 2. The Applicant had furnished the following documents along with his application:- 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 .....

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..... admissible under the GST, the benefit of which was to be calculated and passed on to the customers at the time of handing over the possession of the flats after the completion of the project. c) That the agreements for sale of flats entered into between the buyers and the Respondent had specified the milestones for recovery of the amount. The invoice could be raised only on achieving the milestone when the credit had been accruing on incurring the expenditure on construction. Therefore, there was no synchronization between the accrual of credit and the receipt of consideration for service during any period. In Amalfi project, Slab 35 had been cast in November, 2017 and the demand was raised in December, 2017. After Slab 35, as per the schedule of payment, the demand could be 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 ava .....

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..... p; ST-3 Returns for the period from April, 2016 to June, 2017. (d) Electronic Credit ledger for the period from July, 2017 to August, 2018. (e) Copies of all demand letters, receipts and sale agreement/ in the name of the Applicant Sh. Kavi Mahajan. (f) Details of applicable Tax rates- pre-GST and post-GST. (g) Balance Sheet for the FY 2016-17. (h) Copy of project report submitted to RERA. (i) Details of taxable turnover and input tax credit for the project AMALFI . (j) List of home buyers in the project AMALFI . 7. The DGAP has also stated that all the documents placed on record were carefully examined by him and he had found that the main issues for determination were whether there was reduction in the rate of tax or benefit of ITC on the supply of construction service by the 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 .....

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..... - 18.971 177,066 177,066 31. Billing TN VAT 6/23/2017 7/31/2017 - 197,000 - 197,000 197,000 9. The DGAP has further stated that para 5 of Schedule-III of the Central Goods and Services Tax Act, 2017, defining 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 para 5 of Schedule II of the Central Goods and Services Tax 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 . 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 Cent .....

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..... nd his taxable turnover for the project AMALFI during the pre-GST (April, 2016 to June, 2017) and post-GST (July, 2017 to August, 2018) periods the ratio of CENVAT/ITC to turnover was furnished by the DGAP as per the Table-C given below:- Table- C (Amount in Rs.) S.No. Particulars April, 2016 to March, 2017 April, 2017 to June, 2017 Total Pre-GST July, 2017 to August, 2018 (post-GST) (1) (2) (3) (4) (5)=(3)+(4) (6) 1. CENVAT of Service Tax Paid on Input Services (A) 12,671,905 4,041,472 16,713,377 - 2. Input Tax Credit of GST Availed (B) - 49,808,556 3. Total Turnover as per Home buyers list (C) 647,128,251 317,525,945 4. Total Saleable Area (sq. ft ) (D) 354,025 354,025 5. Area Sold relevant to turnover (E) 265,540 284,335 6. Relevant CENVAT/Input Tax Credit (F)= [(A)*(E)/(D)] 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 clear .....

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..... nt of benefit of ITC not passed on or in other words, the profiteered amount has been quantified by the DGAP as ₹ 3,79,10,058/- which included GST @ 12%, on the base profited amount of ₹ 3,38,48,266/-. The home buyer and Unit No. wise break-up of this amount has been given in Annexure-22 of the DGAP s Report. This amount was inclusive of ₹ 1,69,878/- (including GST @ 12% on the base amount of ₹ 151,676/-) which was the profiteered amount in respect of the Applicant No. 1, mentioned at Serial No. 93 of Annesure-22 of the Report. It was also observed that the Respondent had supplied the construction services in the State of Tamil Nadu only. 15. The DGAP has further stated that the Respondent has sold 139 flats out of which 137 home buyers have made payments 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 I .....

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..... he above Report of the DGAP should not be accepted and his liability for violating the provisions of Section 171 of the CGST Act, 2017 should not be fixed along with imposition of penalty as per Section 29, 122-127 of the above Act read with Rule 21 & 133 of the CGST Rules, 2017 and his registration under the above Act should also not be cancelled. During the course of the hearings no one appeared for the Applicant No. 1, the DGAP was represented by Smt. Gayatri, Deputy Commissioner and Sh. Sachin Kodnani, Superintendent and the Respondent was represented by Sh. S. S. Gupta, Consultant, Sh. T. Somasundaram, GM (Accounts) and Sh. Abhishek A. Rastogi, Advocate. The Respondent has filed his written submissions on 13.03.2019, 16.04.2019, 10.05.2019 and 20.05.2019. The main issues 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 .....

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..... f taxable service during any period. He has further submitted that due to this reason, the percentage of utilization of credit during the period would also vary which would be evident from bifurcation of the post-GST period into 2 parts, i.e., July, 2017 to March, 2018 and April, 2018 to August, 2018. The bifurcated Table-C pertaining to post-GST period of the Report of DGAP has been furnished by the Respondent as follows:- Sr. No. Particulars July 2017 to March 2018 Apr 18 to Aug 18 Total (Post-GST) 1. Input tax credit of GST availed (A) 4,0346,285 94,92,271 4,98,08,556 2. Total Taxable Turnover (B) 29,11,32,716 2,63,93,229 31,75,25,945 3. Total saleable area (C) 3,54,025 3,54,025 3,54,025 4. Area sold relevant to turnover (D) 2,74,930 2,84,335 2,84,335 5. Relevant Credit - (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 .....

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..... and hence, the same could not be considered as profiteered amount to be passed on to the customers. 22. It was further submitted by the Respondent that the credit figures for the post-GST period in Table-C may again be reduced after receiving the CC of the project as per Schedule-III read with clause (b) of para 5 of Schedule-II and Section 17 (3) of the CGST Act, 2017. Thus, the Respondent would be liable to reverse the proportionate ITC to the extent of flats sold after receipt of CC. Hence, the credit which had been availed during the period from July, 2017 to August, 2018 would also proportionately be reversed by the Respondent, which could not be computed at the time of submissions. 23. The Respondent has also pleaded that the GST Council in its 33rd meeting had recommended 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 bene .....

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..... ct, 2006 provided for the levy of tax on transfer of goods involved in the works contract. The said Section also provided that the VAT needed to be levied on the transfer of goods involved in the works contract by determining the taxable value which may be calculated in such manner as may be prescribed. Further, the tax needed to be paid at the rates as specified in the First Schedule. The explanation to the above Section further provided that where any works contract involved more than one item of work, the rate of tax should be determined separately for each such item of work. The Rules provided that the taxable turnover needed to be arrived by deducting the following amounts from the total amount:- • All amounts involved in goods in respect of export or import or in course 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 s .....

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..... to such customers. The agreements entered into with these customers had fixed value towards sale of flats excluding the GST. The Respondent has duly charged them 12% GST as per the agreed terms. Hence, there was no benefit of pre-GST regime which would accrued to such customers. However, the Respondent has passed on the benefit of 2.28% even to those customers who have booked flats in the post-GST regime. 33. The submissions of the Respondent dated 13.03.2019, 16.04.2019, 10.05.2019 and 20.05.2019 were forwarded to the DGAP for his Report. The DGAP vide his supplementary Reports dated 15.04.2019 and 30.05.2019 has replied on the issue of incorrect method adopted to quantify the profiteered amount as the credit and the taxable values did not synchronize in the same month or the 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 .....

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..... iods which have been duly verified by the DGAP. Therefore, the Respondent cannot contend that the above Table is incorrect. The computations made in Table-D are also based on the figures mentioned in Table-C and the information supplied by the Respondent in respect of the turnover and the area sold by him and hence, he cannot find fault with the above Table. It is also clear from the above Tables that the additional benefit of ITC can only be calculated by comparing the credit of CENVAT availed by the Respondent during the pre-GST period with the ITC availed by him during the post-GST period to calculate the benefit which should be passed on to the buyers as per the provisions of Section 171 (1) of the above Act. The mathematical methodology applied by the DGAP while computing 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 appropri .....

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..... d of ₹ 3,31,12,094/- must be reduced in Table-C and therefore, the ration of CENVAT/ITC to turnover for the pre and post-GST period would be 1.94% and 4.22% as per the Table supra instead of 1.94% and 12.60%. In this connection it would be pertinent to mention that it is clear from the perusal of Table-C above that the amount of ITC of ₹ 3,31,12,094/- has been included while calculating the post-GST ratio in the Table-C whereas the above ratio has been computed by the Respondent by excluding the above amount of ITC on the ground that there was no corresponding turnover. However, the claim made by the Respondent on the above ground is not correct as the Respondent has availed the above ITC while discharging his output tax liability and has not waited till the turnover 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 ben .....

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..... no force in the argument advanced by the Respondent. 42. The Respondent has further submitted that he would be entitled to the ITC only if the four conditions mentioned in Section 16 of the CGST Act, 2017 are complied with one of which requires that his suppliers should have deposited the GST which they had charged from him on the supplies made to him and in case they have not deposited the GST his ITC would be disallowed. The above contention of the Respondent is hypothetical as the suppliers are required to deposit the GST charged by them regularly and in case they default they are liable for penalty and interest. The Respondent is also required to reconcile his supplies regularly with his suppliers. Therefore, the above contention of the Respondent is untenable. 43. The Respondent 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 hi .....

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..... e claim of the Respondent cannot be accepted. 46. The Respondent has also contended that he was not required to pass on the benefit of ITC to the buyers who had purchased the flats after coming in to force of the GST. However, it is made clear that the Respondent is required to recalibrate the prices of the flats which he would sell post-GST keeping in view the availability of ITC. 47. The Respondent has also given details of the above project stating that the total number of flats was 175 having total area of 3,54,025 sq. ft. out of which 128 flats having area of 2,65,540 sq. ft. had been sold during the pre-GST period. 15 flats having area 30,525 sq. ft. have been sold after implementation of GST. Further, 32 flats having area of 57,960 sq. ft. had remained unsold. 48. It is 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/- .....

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..... e project 264 245 5 No. of Flats sold prior to GST 193 28 6 No of Flats sold post GST 38 40 7 If Yes, date of OC or if No date completion mentioned in RERA Jun 2020 Sep 2023 8 Whether OC received? (Y/N) N N Keeping in view the self-admission of the Respondent in which he has stated that he is liable to pass on the benefit of additional ITC as per the provisions of Section 171 of the above Act, there is reasonable ground to believe that the Respondent is required to pass on the benefit of additional ITC to the eligible house buyers in respect of the above projects. Accordingly, the DGAP is directed to investigate the issue of passing on the benefit of additional ITC in respect of the above two projects and submit his Report in terms of Rule 133 (5) of the CGST Rules, 2017 which 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 r .....

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