TMI Blog2019 (12) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Report Accordingly, the above amounts shall be paid to the above Applicants and the other eligible house buyers by the Respondent along with interest @18% from the date from which these amounts were realized from him till he was paid as per the provisions of Rule 133 (3) (b) of the CGST Rules, 2017, failing which shall be recovered by the concerned Commissioner CGST/SGST and paid to the eligible house buyers. It is clear that the Respondent has profiteered by an amount of ₹ 3,45,22,974/- during the period of investigation. Therefore, in view of the facts, the Authority under Rule 133 (3) (a) of the CGST Rules, 2017, orders that the Respondent shall reduce/refund the price to be realized from the buyers of the flats commensurate with the benefit of ITC received by him as has been detailed above. As far as the final computation of the additional ITC that will be available to the Respondent is concerned, the same cannot be determined at this stage, as the construction of the project is yet to be completed - any additional benefit of ITC, which may accrue to the Respondent subsequently, shall also be passed on by him to all eligible buyers. In case this additional benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khapatnam. The Applicants No. 1 to 9 had alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) to them by way of commensurate reduction in price after implementation of GST w.e.f. 01.07.2017 and had charged GST on the pre-GST full amount of instalments. The Applicant No. 2 had also submitted copies of demand letters issued by the Respondent during the post-GST period Along with the application. 2. The Andhra Pradesh State Screening Committee on Anti-profiteering had examined the said applications and based on the submissions made during the personal hearing granted to the Respondent, the above Screening Committee had opined that in all the nine cases, the calculations submitted by the builder were not in accordance with the provisions of law and lesser benefit of ITC was passed on to the above Applicants. The above State Screening Committee had forwarded the said 9 applications with its observations, to the Standing Committee on Anti-profiteering for further action, in terms of Rule 128 of the CGST Rules, 2017. The aforesaid reference was examined by the Standing Committee on Anti-profiteering in its meeting held on 08,10.2018, the minutes of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to his home buyers. To support his claim, the Respondent submitted all demand notes issued to the above Applicants wherein the discount had been passed on. The gross value reported in the home buyers list post-GST was inclusive of the 3% discount. (iii) The Respondent, vide e-mail dated 19.12.2018, had provided the trail of e-mail communications with his various home buyers to substantiate his claim that 3% benefit on account of ITC had been passed on by him. (iv) The Respondent submitted that as per Real Estate Regulatory Authority (RERA) specifications, the two phases of his project was identifiable as two distinct projects, for which all records was maintained separately. As the second phase was approved by Andhra Pradesh RERA on 08.12.2018, bookings were made in that phase after 08.12.2018. However, as the Respondent filed single GST return for both the phases, the gross figures in his GST returns included the demands raised in both the phases and any other outward supplies, such as, scrap sale, details of which were submitted. (v) The Respondent had further submitted that in his ST-3 returns for the pre-GST era, figures were for both the demands raised as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On completion of Foundation -15% 12.09.2016 7,49,849 33,181 7,83,030 5. On casting of 3rd floor slab -12.5% 15.04.2017 6,24,874 28,119 6,52,993 6. On casting of 7th floor slab -12.5% + 50000 towards amenities charges 14.08.2017 6,74,874 83,984 7,58,858 7. On casting of 11th floor slab -10% 05.12.2017 4,99,454 59,934 5,59,388 8. On casting of top floor slab -12.5% 23.08.2018 6,24,874 53,989 68,506 6,39,391 9. On Completion of plastering - 12.5% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Respondent, if such units remain unsold at the time of issue of the Completion Certificate, in terms of Section 17 (2) Section 17(3) of the CGST Act, 2017, which read as under: Section 17 (2) Where the goods or services or both was 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 supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as was attributable to the said taxable supplies including zero-rated supplies . Section 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 was 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 . Therefore. ITC pertaining to the unsold units might not fall within the ambit of this investigation and the Respondent was required to recalibrate the selling price of such units to be sold to the prospective buyers by considering the net benefit of addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Credit of VAT Paid on Purchase of Inputs (B) 0 - 4. Input Tax Credit of GST Availed (C) - 5,89,10,304 5. Total CENVAT/VAT/Input Tax Credit Available (D)=(A)+(B) or (C) 2,17,84,314 5,89,10,304 6. Total Turnover as per Rome Buyers List (Sold Units as on 31.10.2018) (E) 44,84,80,346 51,11,78,843 7. Total Saleable Area (in sq. ft.) (F) 2,65,592 2,65,592 8. Area Sold relevant to Turnover as per Home buyers List (Flats sold upto 31.10.2018) (G) 2,40,233 2,40,233 9. Relevant CENVAT/INPUT TAX CREDIT (H)=[(G)*(D)/(F)] 1,97,04,325 5,32,85,487 10. Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in Input tax credit: 6. Total Basic Demand during July, 2017 to October, 2018 E 51,11,78,843 7. GST charged F=E*12% 6,13,41,461 8. Total demand G=E+F 57,25,20,304 9. Recalibrated Base Price H=E*(1-D) or 93.97% of E 48,03,54,759 10. GST @12% I=H*12% 5,76,42,571 11. Commensurate demand price J=I+H 55,79,97,330 12. Excess Collection of Demand or Profiteered Amount K=G-J 3,45,22,974 12. The DGAP has further claimed from Table- C above that the additional ITC of 6.03% o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in respect of the Applicant No. 7, mentioned at serial no, 224 of Annexure-15; ₹ 1,11,160/- (including GST on the base amount of ₹ 99,2501-) which was the profiteered amount in respect of the Applicant No. 8, mentioned at serial no. 162 of Annexure-15 and ₹ 1,50,166/- (including GST on the base amount of ₹ 1,34,077/-) which was the profiteered amount in respect of the Applicant No. 9, mentioned at serial no. 42 of Annexure-15. The DGAP has also stated that the said service has been supplied by the Respondent only in the State of Andhra Pradesh only. 14. The DGAP has also reported that the above computation of profiteering was with respect to 243 home buyers till 31.10.2018, whereas the Respondent was constructing a total of 267 flats. Out of 267 flats under construction, 24 units was either unsold or booked pre-GST but cancelled post-GST implementation (during the period under investigation). So, if the ITC in respect of these 24 units was taken into account to calculate profiteering in respect of 243 units where payments had been received post GST, the ITC as a percentage of taxable turnover would be distorted and erroneous. Therefore, the profiteering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annex-15 6. Applicant 1 1625 14,38,468 97,148 43,154 53,994 Further Benefit to be passed on as per Annex-15 7. Applicant 1 1625 19,85,408 1,27,402 63,384 79,306 Further Benefit to be passed on as per Annex-15 8. Applicant 1 1625 22,23,499 1,50,166 66,705 83,641 Further Benefit to be passed on as per Annex-15 9. Applicant 1 1625 22,23,499 1,50,166 66,705 83,461 Further Benefit to be passed on as per Annex-15 10. Other Than Applicant 234 - 49,43,51,564 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding Applicants No. 1 to 9) came to ₹ 1,91,87,609/-. 17. The above report was considered by the Authority in its meeting held on 25.04.2019 and it was decided to hear the above Applicants and the Respondent on 15.05.2019. Accordingly, notice was issued to him asking him to explain why the above Report should not be accepted and their liability for violation of the provisions of Section 171 of the CGST Act. 2017 should not be fixed. He was also asked to submit why penalty under Section 29, 122-127 of the above Act read with Rule 21 and 133 of the CGST Rules, 2017 should not be imposed on them. During the course of these proceedings, the Applicant No. 1 was present on hearings dated 10.06.2019, 18.06.2019, 25.06.2019 and the Applicant No. 2 10 appeared on 10.06.2019 and the DGAP was represented by Sh. P.K. Tyagi and Sh. Shivendu Pandey, Superintendents while the Respondent appeared on hearings on 24.05.2019, 18.06.2019, 25.06.2019, 04.07.2019, 22.07.2019, 23.08.2019 and 30.09.2019. The Applicants No. 3 to 9 were not present during the hearings. The Respondent has filed his submissions dated 23.05.2019, 18,06.2019, 24.06.2019, 02.07.2019, 05.08.2019, 19.07.2019, 27.09.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost implementation of the GST. In this regard, the Respondent has also sent out communications to his customers intimating that interim relief of 3% has been passed to customers by way of reduction in prices. He has also submitted that such communication was sent prior to receipt of any complaint from the customers which clearly indicated the law-abiding character and good intent of the Respondent. He has also submitted a copy of e-mail communication and sample invoice for passing on ITC benefit by him to customers. The total benefit amounted to ₹ 1, 53, 35,365/-(i.e. 3% of ₹ 51, 11, 78,843/-) till 31 October 2018. He has further submitted that the methodology for computing the interim GST benefit by the Respondent by estimating taxes which were a cost to him in the pre-GST regime as under: S.No. Particulars Amount (In Rs. Crores) 1. Excise duty paid on procurement of goods 1.65 2. CST paid on inter-State procurement of goods 0.34 3. VAT paid on lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / Total area of the project Input tax savings to be passed - Rs. 3.2 Crores X 2, 40,235 Sq. feet = ₹ 2.19 Crores 3,50,808 Sq. feet Estimated input tax savings to be passed on were allocated to the total sale price of the existing customers to compute the percentage benefit to be passed: Input tax savings to be passed/ Sale value of portion sold under GST % benefit to be passed = ₹ 2.19 Crores./₹ 77.2 Crores = 2.85% The Respondent has also submitted that even though the amount allocable on the basis of above methodology was ranging between 2.69% to 2.85%, however, the final benefit arising on account of GST cannot be ascertained till completion of the project due to the following factors: a. Any sale of property after receipt of completion certificate did not attract GST and thus, to this extent, proportionate ITC used for construction activity was liable to be reversed. Due to this, the ITC availed or to be availed by the Respondent was provisional in nature and the same got finalized only at the time of completion of project. Thus, determination of overall profiteering for a Respondent before completion of a project was not correct, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15% to 18% and on goods from 22% to 28%. Secondly, the availability of blocked credits in post-GST period. 22. The Respondent has further stated that the rate of tax on services was 15% in pre-GST regime, which was subsequently increased to 18% in post-GST regime. The credit availability/eligibility was not changing as Service tax paid on execution of works contract was earlier available as CENVAT for utilization against the output tax liability; and the same continued to be available as credit under GST. The change on this account was the increase in tax rate from 15% to 18% for which additional working capital was applied. The Respondent has argued that the DGAP should take into consideration the said aspect as there was no change in the credit availability/eligibility and only an increase in tax rate was the reason for such incremental credit. The Respondent has also asserted that in pre-GST regime the credit of excise duty/ VAT on inputs was not available as it was explicitly restricted. With the implementation of the GST, the said restricted credits were available for being availed and utilized, which needed to be passed on to the customers. He has tabulated below by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITC 0 Balance Sheet Liability Amt. Asset Amt. ITC 18 23, The Respondent has claimed on the basis of the above Tables that that the credit of ₹ 10 which was earlier not available, was available post implementation of the GST. Further, due to the increase in tax rates, the amount of tax had increased from ₹ 10 to ₹ 18. Only the aforesaid two reasons were resulting into incremental credits in the GST regime, and the same should be looked into by the DGAP for computation of the benefits to be passed on to the customers. The Respondent has also argued that that the approach should be passing on of benefits of blocked credits of ₹ 10. The Respondent has worked out blocked credit pertaining to residential portion sold and estimated it ranging between ₹ 2.08 crores to ₹ 2.19 crores from July 01, 2017 till the completion of the project. Therefore, GST input credit benefit to be passed on was calculated less th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional GST of 12% on the amount of benefit that was required to be passed on in accordance with the method adopted by him. Even where the methodology adopted by the DGAP was considered, the quantum of benefit should have been computed by comparing taxable value (i.e. turnover excluding GST) charged from customer instead of value including GST. The Respondent has also stated that GST amount collected on the differential base price cannot be construed as profiteering made by the Respondent as the same was duly deposited with the Government and not pocketed by the Respondent. However, the said Report deviated from the basic principal of unjust enrichment (as such tax was duly deposited to the Government) and have applied GST of 12% on the GST benefit amount required to be passed on to the customers. 26. The Respondent has also averred that the basis adopted by the DGAP for allocation of ITC between sold and unsold portion was incorrect. In absence of any prescribed methodology, the DGAP has considered project area as a basis to allocate ITC pertaining to sold and unsold portion of the project. The DGAP has computed Relevant ITC by drawing proportion of sold area vis-a-vis sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to April 2016 for the relevant project and credit availed on the same had been used to pay output tax on demands raised. No logical explanation has been provided by the DGAP in his Report for consideration of only a portion (i.e. April 2016 to June 2017) out of total project period. He has also stated that cenvat credit amounting to ₹ 1.55 Crores and Turnover amounting to ₹ 19.49 crones pertaining to period prior to April 2016 should have been considered while calculating the Pre-GST ITC ratio which has resulted into incorrect comparison of the credit. 28. The Respondent has also argued that cost incurred has no direct link with turnover and has stated that cost incurred on construction has no direct link with the turnover in case of Real Estate Industry. Typically, there was a wide gap between turnover (i.e. collection from customers) and construction cost at the beginning of the project and over the construction lifetime it narrowed which resulted in lower ITC to turnover percentage in the initial period and a higher ITC to turnover percentage in the later period. Thus, computation of benefit on the basis of percentage of ITC to Sales in the respective regime was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,433,563,814 ITC relevant G=C*E/F 19,704,325 53,285,487 24,157,244 38,169,150 Ratio of ITC (Total Credit/Total Turnover) H=G/D 4.39% 10.42% 3.75% 7.47% Increase in ITC availed post GST I=Post GST H-Pre-GST H - 6.03% - 3.71% Ratio was liable to be revised considering errors highlighted above Total basic demand under GST J 511,178,843 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37,284,314 Cenvat credit considered only for April 16-June 17, Cenvat credit upto March 16 amounting to ₹ 1.55 Cr not considered ITC of GST Availed B 58,910,304 58,910,304 Total Cenvat/ITC C=A+B 21,784,314 58,910,304 37,284,314 58,910,304 Total Turnover D 448,480,346 511,178,843 643,380,346 511,178,843 Pre-GST Turnover Cenvat credit considered only for April 16-June 17. Turnover up to March 16 amounting to ₹ 19.49 Cr. not considered Saleable area E 265,592 265,592 350,808 350,808 Saleable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profiteering amount as per DGAP P=L-O 34,522,974 Benefit amount (Recalibrated base price less revised base price) Q=M*(1-H) 20,055,983 Profiteering should be computed in comparison with base price and not base price plus taxes Less: Interim benefit already passed to customer R 15,335,365 15,335,365 Benefit to be passed on S=Q-R 19,187,609 4,720,618 30. The Respondent has claimed that the computation of benefit on the basis of above methodology has already been stayed by the Hon ble Delhi High Court. The Respondent has also submitted that similar methodology adopted in the case of M/s Pyramid Infratech Pvt. Ltd. = 2019 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udes the right to determine prices, and such right cannot be taken away without any explicit authority under the law passed by the Parliament or State legislature under Entry 34 of the Concurrent List (List III) of the Seventh Schedule to the Constitution of India. Only in exceptional cases, and in respect of a few specified goods, the Government has enacted laws to control prices. He has also submitted that the provisions of Section 171 of the CGST Act were not akin to the price control regulations enacted in terms of Entry 34 of the Concurrent List. Consequently, any such effort would be nothing but violation of the freedom of trade guaranteed under the Constitution of India. Therefore, the price control exercised by the DGAP was ultra vires the fundamental rights guaranteed under Article 19(1) (g) of the Constitution of India. In this regard, he has relied upon a recent decision in the case of Abbott Healthcare Pvt. Ltd. vs Union of India others in W.P. (C) No. 4213/2019 = 2019 (5) TMI 563 - DELHI HIGH COURT wherein the issue was constitutional validity of the anti-profiteering provisions given in the GST law. He has also claimed that the Hon ble Delhi High Court has obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71 of the CGST Act, 2017 was interpreted in a uniform manner across all tax payers. Such methodology was the crux of Section 171 of the CGST Act, 2017 because the same would ensure equity, consistency and uniformity in defining the scope of Section 171 of the above Act. 34. The Respondent has also argued that no machinery provisions were available under the GST law and hence, charging provisions of anti-profiteering would fail in this case. Besides, this Authority had been constituted to curb unfair profit-making activities by the trading community so as to ensure that the traders did not profiteer on account of reduction in GST rate or enhanced GST credit under the GST regime. Further, the GST Flyer on Authority published by the Central Board of Indirect and Customs ( CBIC ) provided an overview of the anti-profiteering provisions stipulating that this Authority had been constituted to examine whether the supplier of goods and/or services have passed on the benefit of reduced GST rate or enhanced ITC by way of commensurate reduction in the price of goods and/or services so as to ensure that the consumer was protected from arbitrary price increase in the name of GST. The Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... = 1979 (9) TMI 189 - SUPREME COURT . The Respondent has further stated that the DGAP had initiated the anti-profiteering investigation with a pre-conceived notion that the Respondent had not passed on the benefit of the reduced GST rate to his customers. The DGAP s arbitrariness would render the entire investigation an otiose exercise resulting in grave injustice to the Respondent. In this regard, he has referred to the Apex Court decision in the case of Natural Resources Allocation (2012) 10 SCC 1 = 2012 (10) TMI 596 - SUPREME COURT wherein it was held as under: Therefore, a State action had to be tested for constitutional infirmities qua Article 14 of the Constitution. The action had to be fair, reasonable, non-discriminatory, transparent, non-capricious, unbiased, without favouritism or nepotism, in pursuit of promotion of healthy competition and equitable treatment. It should conform to the norms which were rational, informed with reasons and guided by public interest, etc. All these principles were inherent in the fundamental conception of Article 14. This was the mandate of Article 14 of the Constitution of India. 35. The Respondent has further argued tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no provision under the aforementioned sections which specifically contemplates levy of penalty in cases where the supplier had not passed on the benefit as required by Section 171 of the CGST Act, 2017. Thus, the aforementioned penal provisions were not applicable in the present case except to the extent of Section 125 of the CGST Act, 2017 which was general in nature. He has submitted that while Rule 133 of the CGST Rules, 2017 provides power to this Authority for imposing penalty, there was no corresponding provision in the said Act to impose penalty for contravention of Section 171 of the CGST Act, 2017. It was settled law that the Rules cannot prescribe penalty by travelling beyond the provision of the statue itself and exercise of such power amount to excessive delegation. In this regard, he has also referred to the judgement of Hon ble Sikkim High Court in the case of Shubh Enterprises vs Union of India = 2015 (10) TMI 2756 - SIKKIM HIGH COURT which was later affirmed by the Hon ble Supreme Court. Therefore, he has submitted that invocation of penal provisions in the present case was incorrect to this extent. 36. The Respondent in his submissions dated 18.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t benefits to be passed on to the customers. He has also submitted that there was mandatory requirement to pass on benefit of transitional credit claimed under TRAN-2 (i.e. situations where no invoice was available to substantiate amount of duty paid) to the customers. However, there was no such requirement to pass on aforementioned transitional credit claimed under TRAN-1 filed under Section 140 of the CGST Act, 2017. 37. The Respondent in his submissions dated 24,06.2019 in response to the revised submissions of the Applicants dated 15.06.2019 the DGAP s supplementary Report dated 07.06.2019 has stated that the Respondent has suo moto passed on the preliminary benefit of 3% on all demand letters issued by him post-GST. The Applicants have alleged that the Respondent had come forward to give benefit of GST after filing of complaints to the GST Commissioner of Visakhapatnam and the Screening Committee on Anti-profiteering, Andhra Pradesh, with first complaint being filed on 5 January 2018. The Respondent has also submitted that he had suo-moto computed and decided to pass on preliminary benefit of 3% on the demands post implementation of the GST. In this regard, the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices Tax Act; (d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or (e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act, but did not include the tax paid under the composition levy: In view of the above, he has made the following submissions: Section 171 of the above Act mandates passing on the benefit of ITC only and the definition of ITC given under the CGST Act covered CGST, SGST, UTGST or IGST. It did not specifically include any of the previous taxes applicable under the Erstwhile tax laws such as Chapter V of the Finance Act, 1994, Central Excise Act, 1944, etc. Further, ITC has been defined to mean specified taxes charged on supply of goods or services or both. Thus, transitional credit would not get covered under the ambit of ITC since it relates to sale, entry or manufacture of goods and not supply per se. On the basis of the above submissions, the Respondent has submitted that transitional credit cannot be said to be benefit of ITC under the above Act and thus, was not lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 019 and the revised submissions dated 25.06.2019 of the Applicants has further stated that unutilized CENVAT credit balance transitioned into GST credit has been appropriately considered as pre-GST credit (Amount involved - ₹ 72,59,3500. The Applicants have alleged that transitional credit of ₹ 72,59,350 should not be considered as pre-GST credit and accordingly, pre-GST credit should have been ₹ 3,00,24,964/- only (i.e, difference between Rs, 3,72,84,314/- less ₹ 72,59,3504 The Respondent has contended that the aforementioned transitional credit of ₹ 72,59,350/- related to Service tax balance which could not be utilized till 30 June 2017, However, the said amount was allowed to be carried forward as ITC on introduction of GST regime, He has also submitted that this was a mere procedural requirement and it did not result in any change in the underlying fact that such amount of ₹ 72,59,350/- was benefit available under pre-GST regime and accordingly, should be treated as pre-GST credit. 41. The Respondent has also argued that the Applicants have been continuously revising the figures of post-GST credit on the basis of assumptions which were arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely:- 43. In view of the above, the Respondent has made the following submissions on the issue of transitional credit- Section 171 mandates passing on the benefit of ITC only and the definition of ITC given under the CGST Act covers CGST, SGST, UTGST or IGST. It did not specifically include any of the previous taxes applicable under the Erstwhile tax laws such as Chapter V of the Finance Act, 1994, Central Excise Act, 1944, etc. Further, ITC has been defined to mean specified taxes charged on supply of goods or services or both. Thus, transitional credit would not get covered under the ambit of ITC since it relates to sale, entry or manufacture of goods and not supply per se. Rule 117 of the Central Goods Services Tax Rules, 2017 provides that credit of eligible duties and taxes : (as defined in Explanation 2 to Section 140 (3) of the CGST Act) transitioned under GST law should be construed as ITC . However, the provisions were silent with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e recovered under GST regime. However, while computing the benefit to be passed on to the customer, DGAP has erroneously not factored the same. Accordingly, the aforesaid savings in cost of output VAT of 1,25% to the end customer should be adjusted from the total benefit to be passed on to customers. 45. The Respondent in his submissions dated 19.07.2019 has also stated that the jurisdictional authorities during the verification of TRAN-1 have issued a Notice dated 05 November 2018 to him (the Respondent) seeking to reverse the ITC of ₹ 58,65,856/- availed in TRAN-1 on the ground that no input was lying in the stock or work-in-progress of the Respondent as on 30 June 2017 and the Respondent has decided, on a conservative basis, to reverse such credit. A copy of the Notice and GSTR-3B for the month of June 2019 was enclosed by him as evidence. In light of above facts, he assumed that the methodology adopted by the DGAP was correct, he has mentioned his remarks highlighting the above-mentioned errors alongside the computation made by the DGAP in Table given below:- Particulars Reference As per DGAP s Report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.89% Increase in ITC availed post GST I=Post GST H-Pre-GST H - 6.03% - 3.92% Ratio was liable to be revised considering errors highlighted above Total basic demand under GST J 51,11,78,843 51,11,78,843 GST Charged @ 12% K=J*1.12 6,13,41,461 6,13,41,461 Total demand under GST L=J+K 57,25,20,304 57,25,20,304 Recalibrated base price M=J*(1-H) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... q. ft, instead of 3,50,808 Sq. ft.). The DGAP has acknowledged that it was aware that the project comprised of residential and commercial development. The DGAP has clarified that the only reason because of which he has not considered the commercial area was because no commercial area has been sold till date. In this regard, the Respondent has submitted that the reasoning provided by DGAP was completely irrational and inconsistent since the D AP itself has considered unsold residential portion in his computation but failed to consider the unsold commercial portion. Further, since the development of residential units and commercial units was integrated therefore there was a single GST registration/ ITC pool. It was submitted that exclusion of commercial portion would result in passing of GST benefit accruing to buyers of commercial units to residential units, which was grossly incorrect. Even at the time of hearing, the Applicants have accepted that total saleable area should include commercial portion and at least to this extent the computation should be revised. 48. The Respondent has further contended that even if it was assumed that the methodology adopted by the DGAP was corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total basic demand under GST J 511,178,843 511,178,843 GST Charged @ 12% K=J*1.12 61,341,461 61,341,461 Total demand under GST L=J+K 572,520,304 572,520,304 Recalibrated base price M=J*(1-H) 480,352,387 489,111,808 Add: GST @ 12% N=M*1.12 57,642,286 58,694,377 Commensurate demand price O=M+N 537,994,674 547,814,185 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sold area F 240,233 240,233 240,233 240,233 ITC relevant G=C*E/F 19,704,325 53,285,487 14,917,878 40,341,723 Ratio of ITC (Total Credit/Total Turnover) H=G/D 4.39% 10.42% 3.33% 7.89% Increase in ITC availed post GST I=Post GST H-Pre-GST H - 6.03% - 4.57% Total basic demand under GST J 511,178,843 511,178,843 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,350/-). b. The Respondent has actually availed total GST Credit of ₹ 7,95,69.8261- against reported figure of ₹ 5,89,10,304/-inclusive of transitional Credit of ₹ 1,31,25,206/-. c. Based on above submissions the revised Table B was given as follows: S.No. Particulars Total Total (Pre-GST) (Post-GST) 1 2 3 4 1. CENVAT of Service Tax Paid on Input Services (A) 1,45,24,964 - 2. Credit of VAT Paid on Purchase of Inputs (B) - - 4. Input Tax Credit of GST Availed (C) - 7,95,69,826 5. Total CENVAT/VAT/Input Tax Credit Available (D)=(A)+(B) or (C) 1,45,24,964 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45,41,82,402 8. GST @ 12% (H)=(G)*12% - 5,45,01,888 9. Commensurate Demand Price (I)=G+H 0 50,86,84,290 10. Excess Collection of Demand or Profiteered Amount (J)=F-I 0 6,38,36,014 e. The Applicants have also clarified the figures in above Tables in revised submissions dated 10.06.2019 and stated that- i) Table B of the DGAPs Report Serial No, 1 - CENVAT of service tax paid on input services. As per the DGAP s Report- ₹ 2,17,84,314/- As per his submission- ₹ 1,4 ,24, 641- Difference - ₹ 72,89,3801- They have stated that the difference figure they have taken from Service Tax value in TRAN-1 Return and also contented that ₹ 72,59,3501- was the unutilised part of total figure taken by the D AP in Table B of his Report. Hence their submission figure of ₹ 1,45,24,964/- might be considered for calculation of Serial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said credit as per Section 140 of CGST Act, 2017 because the inputs were used for supplies post GST and on such supplies the Respondent had collected GST at applicable rate from the Applicants. e. Since the supply was made post-GST for which Transitional credit was availed as input under GST as Transitional credit of APVAT and CENVAT of Central Excise and the Applicants paid the GST on such supplies post GST, the said credit should also be included in ITC for purpose of calculation of benefit availed by the Respondent to be passed on to the Applicants. f. It was also submitted that if the supply was made prior to GST the same would be subjected to AP VAT @ 1.25% and the Respondent should not have availed any CENVAT credit benefit under APVAT Act, 2005 and Central Excise Provisions. Since the supply took place post-T, the Applicants had paid GST @12% (as demanded by the Respondent) and against the same the Respondent had claimed transitional credit. Collecting full tax on such supplies without passing on transitional credit should also be considered as profiteering by the Respondent. g. It was further submitted that the Respondent had claimed CENVAT Credit as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire information made available to Applicants and as per submissions made by the Respondent by his letter dated 24th May 2019, the correct credit availed by him was summarized as follows:- Total GST Regular credit availed as per electronic credit ledger-₹ 6,80,60 410/- Add: Transitional Credit availed by Form GST TRAN-1-₹ 1,31,25,2061- Less: Credit in relation Phase - If (as per explanation below)-₹ 23,97,940/- Total GST Credit availed by Respondent in relation to Phase - I ₹ 7,87,87,676/- d. It was also submitted that the Respondent has claimed credit in relation to Phase-II for ₹ 91,49,504/- in the information submitted to the DGAP as follows:- Between July 2017 to March 2018-₹ 43,53,624/- Between April 2018 to October 2018-₹ 47,95,8801- Total-₹ 91 49 504/-. e. The Applicant No. 1 has further stated that as per information available on AP RERA portal, the Phase II has commenced from 01.05.2018 and the Respondent has submitted that ITC in relation to phase II in period July 2017 to March 2018. He has argued that it was not possible for a unit to use ITC prior to commencement of the project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Saleable Area (in Sq. Fts) (F) 3,50,808 3,50,808 8. Area Sold relevant to Turnover as per home buyers List (G) 2,40,233 2,40,233 9. Relevant CENVAT / Input Tax Credit (H)=(G)*D/F 2,05,61,068 5,39,53,729 10. % of CENVAT / ITC to Turnover H/E*100 3.2 10.55 Table C' (Amount in Rs.) Sl.No. Particulars Total Total (Pre-GST) (Post-GST) 1. 2 3 4 1. Output Tax Rate (A) 4.50% 12.00% 2. Ration of CENVAT / ITC as per Table - B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atio remained at 11.5% as submitted in their submission dated 09.06,2019. 55. The DCAP in his supplementary Report dated 07.06.2019 has observed that the Respondent has calculated the profiteered amount by adopting his own methodology, by varying various parameters considered during the investigation by the DGAP. The period covered by the investigation of the DGAP for arriving at the ITC availability during the pre-GST period, was from 01.04.2016 to 30.06.2017, whereas the Respondent has considered the pre-GST period since the initiation of the project till 30,06.2017. Further, the Respondent has taken saleable value for apportioning the ITC and the amount of taxes has been excluded from the profiteered amount, contrary to the method adopted by the DGAP. 56. The DGAP in his supplementary Report dated 22.08.2019 and 04,09,2019 has stated that pre-GST period should have been taken from May, 2015 to June, 2017, whereas the DGAP has taken the period from April, 2016 to June, 2017, The DGAP has also contended that he has considered a uniform pre-GST period from April, 201 to June, 2017 across all the investigations relating to the Real Estate sector. The DGAP has also stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplementation of the GST of the additional ITC which amounted to ₹ 1,53, 35,365/- (i.e. 3% of ₹ 51, 11, 78,8431-) till 31 October 2018 received by him on the project to his customers vide his submissions dated 23.05.2019. While considering the various contentions made by the Respondent on the report of the DGAP, our findings was as under:- A. The Respondent has computed the interim GST benefit by estimating taxes which were a cost to him in the pre-GST regime. We find that it is a methodology based on estimated or assumed figures which is not accurate and we agree with the methodology adopted by the DGAP while determining profiteering. B. We find that the Respondent has contended that the Authority has not prescribed methodology for calculation of profiteering and consequently the DGAP has followed a methodology that was questionable and erroneous. In this regard, we observe that the profiteering has to be determined on cases to case basis. by adopting the most appropriate and accurate method based on the facts and circumstances of each case as well as the nature of the goods and services supplied. We reiterate that there cannot be any fixed mathematical formul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CGST Rules, 2017 as soon as it is availed by the supplier, F. The Respondent has also submitted that the tax on the input services has been increased from 15% to 18% and hence he has not got additional benefit of ITC which he was required to pass on. In this connection it would be pertinent to mention that the Respondent has got benefit of ITC on goods as well and it is only the additional benefit of ITC, from his own supplies in the value chain, which he has availed post-GST which he is required to pass on. It is established from the returns filed by the Respondent that he has availed relevant ITC of ₹ 1,97,04,325/- during the pre-GST period and ₹ 5,32,85,4871- during the post-GST period 4.32% and 10.42% of the turnover respectively during the above periods which has resulted in additional ITC benefit of 6.03% of the turnover to him which he is bound to pass on. G. The Respondent has also contended that he was not in agreement with the computation of the profiteered amount made by the DGAP as it included the GST which had been deposited by him in the Govt. account. The plea taken by the Respondent on this ground is fallacious as by forcing the flat buyers t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent is not entirely correct as the Hon ble High Court has only granted a conditional stay on recovery subject to the Respondent depositing an amount of ₹ 5,11,60,450/- which he had admitted before the Authority. J. The Respondent has also argued that Section 171 of the CGST Act, 2017 violates Article 19 (1) (g) of the Constitution which is Right to trade, as it tries to fix prices. He has also cited cases like Abbott Healthcare Pvt. Ltd. Hindustan Unilever Ltd. and Jubilant Food works Ltd. to support his argument. We find this argument of the Respondent incorrect as Section 171 was inserted in the Act to ensure that benefit of CST rate reduction or ITC benefit is passed on to the eligible customers on account of GST implementation. It has nowhere acted as price regulator but has worked in interest of consumers. Further, the cases cited by the Respondent in support are still under review in the High Court so his argument is untenable. K. The Respondent has further argued that no methodology or guidelines have been prescribed under GST laws to ascertain benefit to be passed. In the absence of the aforesaid methodology, the entire proceedings would be a futile exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the demand letters issued to the Applicants No. 1 to 9. Therefore, the Respondent had profiteered by an amount of ₹ 6,31,629/- [₹ 11,36,447/- (-) ₹ 5,04,818/-] in respect of the Applicants No. 1 to 9. The DGAP has also asserted that the Respondent had also realized an additional amount of Rs. (Sr. No. 10 of Table- 'D) which included both the profiteered amount @ 6.03% of the basic price and GST on the said profiteered amount, from 234 other recipients. Therefore, this additional amount of ₹ 1,85,55,980/- was required to be returned to such eligible recipients. Thus, the total profiteered amount (excluding the benefit already passed on) in respect of all 243 home-buyers (including Applicants No. 1 to 9) came to ₹ 1,91 However, this claim of the DGAP cannot be considered as the Respondent's claim of passing of the ITC benefit suo moto has to be verified from the Applicants and not from the demand letters which he had submitted to the DGAP during the time of investigation. Therefore, the DGAP is directed to verify the above claims of the Respondents with conclusive evidence like affidavit from the Applicants or credit notes issued to the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch may accrue to the Respondent subsequently, shall also be passed on by him to all eligible buyers. In case this additional benefit is not passed on to the Applicant No. 1 to 10 or other eligible buyers, they shall be at liberty to approach the Andhra Pradesh State Level Screening Committee for initiating fresh proceedings under the provisions of Section 171 of the above Act against the Respondent. The concerned jurisdictional CGST or SGST Commissioner shall take necessary action to ensure that the benefit of additional ITC was passed on to the eligible house buyers in future, 64. It is also evident from the above narration of facts that the Respondent has denied benefit of ITC to the buyers of the flats being constructed by him 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 im ..... X X X X Extracts X X X X X X X X Extracts X X X X
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