TMI Blog2019 (12) TMI 777X X X X Extracts X X X X X X X X Extracts X X X X ..... 2% in view of 113rd abatement on value on the construction service, vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 which was reduced in the case of affordable housing from 12% to 8%, vide Notification No. 1/2018-Central Tax (Rate) dated 25.01.2018. Accordingly, the DGAP has computed the profiteered amount by comparing the applicable tax rate and ITC available in the pre-GST period when only VAT@ 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 to 31.12.2018, when the effective GST rate was 8% - Since, the calculations have been prepared on the basis of the information reflected in the Returns filed by the above Respondent and the details submitted by him hence, the computations made are taken to be correct and accordingly the profiteered amount is determined as ₹ 2,58,80,927/- as per the details mentioned above in terms of the provisions of Rule 133 (1) of the CGST Rules, 2017. 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was forwarded to the DGAP for detailed investigation. 3. The DGAP on receipt of the application issued notice dated 16.01.2019 to the Respondent to reply as to whether he admitted that the benefit of ITC had not been passed on to the Applicant No. 1 by way of commensurate reduction in price and if so, to suo-moto determine the quantum thereof and indicate the same in his reply to the notice as well as furnish all the supporting documents. Further, the DGAP vide his letter dated 16.01.2019, had given an opportunity to the Respondent to inspect the non-confidential evidences/information submitted by the above Applicant. However, the Respondent did not avail of the said opportunity. The DGAP, vide e-mail dated 14.01.2019 had requested the Applicant No. 1 to provide copies of demand letters and any other relevant documents along with his contact details. However, neither the Applicant responded nor did he submit the desired documents to the DGAP. The DGAP, vide email dated 31.05.2019, had also given the Applicant No. 1 an opportunity to inspect the non-confidential evidences/information submitted by the above Respondent. However, the Applicant No. 1 did not avail of the said oppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the execution of works contract were part of the cost of the project. Now, under the GST regime, the benefit of erstwhile Central Excise duty/Service Tax was available to the Respondent and the same was required to be passed on to the recipients. He also stated that he was negotiating with the sub-contractor for getting the benefit of ITC and the same would be passed on to the home buyers on or before the completion of the project. 5. The Respondent further submitted that Section 171 of the CGST Act, 2017 provided that it was mandatory to pass on any benefit due to reduction in rate of tax or input tax credit, to the consumer, by way of commensurate reduction in prices and the applicability of this statute would have arisen in the following two situations: a) If there was reduction of rate of tax on the supply of goods or services b) If additional benefit of input tax credit was available. He then submitted that on perusal of the facts of the present case, it could be summarised that in the GST regime, there was no reduction in the rate of tax on supply of goods and services as compared to the pre-GST regime, instead, there was an increase in the rate of GST by ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (l) Copies of sample ledger showing benefit of ITC passed on. The Respondent had also requested to treat all the data/information furnished by him as confidential, in terms of Rule 130 of the CGST Rules, 2017. 9. Based on the above mentioned documents filed by the Respondent, the DGAP submitted that the main issues for determination were whether there was any benefit of reduction in rate of tax or input tax credit on the supply of construction service by the Respondent after implementation of GST w.e.f. 01.07.2017 and if so, whether such benefit was passed on to the Applicant No. 1, in terms of Section 171 of the CGST Act, 2017. 10. The DGAP further submitted that the Respondent, vide his letter dated 06.02.2019, submitted a copy of an application dated 17.08.2016, demand letters and payment recipients for the sale of flat No. A-801 to one of the recipients Shri Nephe Singh, measuring 543.539 square feet, at the basic sale price of ₹ 4,000/- per square feet and 85.94 square feet balcony area at the basic sale price of ₹ 500/- per square feet. The details of payment schedule were furnished in Table-IA below:- Table- A (Amount in Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings; and b. recipients of goods or services under the proceedings; c. any other person alleging, under sub-rule (1) of rule 128, that a registered person has not passed on the benefit of reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices. Besides, in terms of Rule 128 of the CGST Rules, 2017, an application alleging profiteering might be filed by an interested party or a commissioner or any other person. Therefore, though the Applicant No. 1 was not a recipient of service provided by the Respondent, he could still file an application under Rule 128 of the CGST Rules, 2017 alleging profiteering by a registered person. 13. The DGAP also submitted that para 5 of Schedule-III of the CGST Act, 2017 (Activities or Transactions which shall be treated neither as a supply of goods nor a supply of services) reads as:- Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building . Further, clause (b) of Paragraph 5 of Schedule II of the Central Goods and Services Tax Act, 2017 reads as:- (b) construction of a complex, buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit of Central Excise Duty was not available) for the commercial shops sold by him. The DGAP further submitted that the Respondent was also eligible to avail ITC of VAT paid on the inputs and could claim deduction from the taxable turnover under VAT (WCT), of the payments made to the registered contractors or sub-contractors for the execution of the project. Further, post-GST, the Respondent could avail ITC of GST paid on inputs and input services including the sub-contracts. From the information submitted by the Respondent for the period April, 2016 to December, 2018, the DGAP furnished the details of the input tax credit availed by him, his turnover from the present project and the ratio of ITC to turnover, during the pre-GST (April, 2016 to June, 2017) and post-GST (July, 2017 to December, 2018) periods 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%) Tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 20,439 (Commercial) 4,18,127 10. Total Sold Carpet Area (Excluding Balcony Area) (in SQF) relevant to turnover (J) 2,63,021 (Residential) 4,414 (Commercial) 2,67,435 3,89,022 (Residential) 13,046 (Commercial) 4,02,068 11. Relevant ITC [(K) = (D)* (J) /(I) or [(K)=(E)*(J)/(I)] 67,27,569 5,13,08,890 Ratio of Input Tax Credit to Turnover [(L)=(K)/(H)*100] 3.17% 5.89% 16. Thus, from the above Table, the DGAP has claimed that it was clear that the ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 3.17% and during the post-GST period (July, 2017 to December, 2018), it was 5.89% which confirmed that post-GST, the Respondent had benefited from additional input tax credit to the tune of 2.72% [5.89% (-) 3.71%] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Analysis of Increase in input tax credit: 6. Base Price raised during July, 2017 to December, 2018 (Rs.) E 21,89,59,064 5,36,11,866 59,83,56,680 87,09,27,610 7. GST raised over Base Price @12% or 8% (Rs.) F=E*B 2,62,75,088 64,33,424 4,78,68,534 8,05,77,046 8. Total Demand raised G=E+F 24,52,34,152 6,00,45,290 64,62,25,214 95,15,04,656 9. Recalibrated Base Price H=E*(1-D) or 97.28% of E 21,30,03,377 5,21,53,623 58,20,81,378 84,72,38,379 10. GST@12% or 8% I=H*B 2,55,60,405 62,58,43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent had submitted that he had passed on benefit of ₹ 1,41,57,700/- to the home buyers and the summary of category-wise ITC benefit required to be passed on and the benefit claimed to have been passed on, was furnished in table- D below:- Table- D (Amount in Rs.) S.No. Category of Customers No. of units Area (In Sq.Ft) Amount Received Post-GST Benefit to be passed on as per Annex-12 Benefit claimed to have been Passed on by the Respondent Difference (profiteering) Remark A B C D E F G H=F-G I 1. Applicant (Residential) - - - - - - No unit sold to the Applicant 2. Others Buyers (Residential) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Respondent was not required to pass on any benefit of ITC to him. Further, the benefit claimed to have been passed on by the Respondent to the recipients was less than what they ought to have passed on in case of 712 residential flats by an amount of ₹ 1,05,85,366/- and by ₹ 11,37,861, in case of 53 commercial shops. 23. The DGAP thus concluded that the benefit of additional input tax credit to the tune of 2.72% of the turnover had accrued to the Respondent post-GST and the same was required to be passed on by the Respondent to the recipients. Thus, the Respondent had contravened the provisions of Section 171 of the CGST Act, 2017, in as much as the additional benefit of input tax credit @2.72% of the base price received by the Respondent during the period 01.07.2017 to 31.12.2018, had not been passed on by the Respondent to 765 recipients (712 buyers of residential flats plus 53 buyers of commercial shops). The DGAP also mentioned that these recipients were identifiable as per the documents provided by the Respondent, giving the names and addresses along with unit No. allotted to such recipients. Therefore, this additional amount of ₹ 1,17,23,227/- was requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income Tax V. B. C. Srinivasa Setty (1981) 128 ITR 294 (SC) = 1981 (2) TMI 1 - SUPREME COURT , Palal Central Bank Ltd. (1984) 150 ITR 539 (SC) = 1984 (10) TMI 41 - SUPREME COURT , National Mineral Development Corporation (2004) 65 SCC 281 = 2004 (5) TMI 575 - SUPREME COURT . He 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 affirmed by the Hon ble Supreme Court in Voltas Ltd., (2007) 7 VST 317 (SC) = 2007 (5) TMI 18 - SUPREME COURT , that in absence of all exclusions which were to be prescribed for computation of tax, no tax was payable. He further submitted that the recent judgement given in the case of Larsen Toubro, 2015 SCC Online SC 738 = 2015 (8) TMI 749 - SUPREME COURT , supra , had also quoted with approval the decisions of the Patna, Madras and Orissa High Courts relating to machinery provisions in following terms:- We find that the Patna, Madras and Orissa High Courts have, in fact, either struck down machinery provisions or held machinery provisions to bring indivisible works contracts into the service tax net, as ina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profiteering. ii. Even while adopting average basis for alleging profiteering, the DGAP had erred in not doing a like comparison adopting similar set of circumstances in the pre and post GST period. Profiteering could be freely determined in the case of a tangible product while comparing the pricing and tax input benefit in the pre and post GST regime and thus, adopting an ad hoc average basis for determining profiteering on a product which was yet to be completed was both arbitrary and premature and was biased against him. 31. The Respondent also claimed that the DGAP in his Report dated 12.06.2019 had stated that the total benefit claimed to have been passed on by the Respondent was ₹ 2,33,47,091/- (Residential flat buyers). However, as per Column G of Table D, the DGAP had noted that the total benefit claimed to have been passed on by the Respondent aggregated to ₹ 1,27,61 ,725/- (Residential flat buyers) and the details had been computed as per Annexure 13 14 of the Report. Thus, during the interim period, he had passed on excess benefit under the provisions of section 171 of the CGST Act, 2017 of ₹ 1,27,61,725/-(Residential flat buyers). He furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten application made against the Respondent. (iv) Was the arbitrary finding of profiteering of 2.72% of claims raised during the GST period and ignoring the Respondent s submissions that the construction was yet to be completed by 31.03.2020 maintainable. (v) Rule 129(6) only provided a time frame of 3 months for the DGAP to conclude the enquiry and submit his Report along with records. Rule 129 (6) did not provide that it was compulsory for profiteering to be determined at any point during the process of any product / service which was under completion. If so, profiteering would have to be determined in respect of all work in progress. Such an interpretation of Rule 129(6) was erroneous. (vi) Absence of mechanism for computing profiteering in the case of real estate sector in the Act, Rules or in the Procedure Methodology formulated by this Authority in terms of Rule 126 of the CGST Rules. (vii) The Respondent was not given any opportunity to object to the adoption of the average basis while computing alleged profiteering. (viii) Notwithstanding the above objections, there were errors in computing profiteering under the Anti-Profiteering provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in his Report dated 12.06.2019, increase in the ITC as a percentage of the turnover, availed by the Respondent post-GST, had been quantified. The input or input service-wise availability or non-availability of ITC prior to and post-CST, had not been examined. Further, there should be no impact of the increase in tax rate on the Respondent s input compared to pre-GST tax rate as the supplier of inputs and inputs servicer were now enjoying ITC on. all the purchases made by them which they would have passed on to the Respondent. The DGAP further contended that the Respondent had realized an additional amount of ₹ 1,17,23,227/- from 765 recipients (712 home buyers and 53 shop buyers) who were not Applicants in the present proceedings. Therefore, contravention of the Section 171 of the CGST Act, 2017 was in respect of those 765 recipients. He also submitted that all other facts/ queries raised by the Respondent had been explained in his report dated 12.06.2019. 37. We have carefully considered all the Reports filed by the DGAP, submissions of the Respondent and other material placed on record and it is revealed that the Respondent is executing his Orchard Avenue - 93 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2018 is based on the details supplied by the Respondent himself. The Respondent had also supplied the details of the total saleable carpet area and the total sold area relevant to the turnover for both the above periods. Moreover, both the above ratios are based on the actual mathematical computations and not on averages as has been claimed by the Respondent and hence, the above claim of the Respondent is incorrect. 40. He has further claimed that he had not been given opportunity by the DGAP to either controvert or respond to the DGAP s adoption of the average basis for determining the alleged profiteering. In this connection it would be appropriate to mention that as per the provisions of Rule 129 (1) of the CGST Rules, 2017 the DGAP has been entrusted with the responsibility of carrying out detailed investigation in the allegations of profiteering and collect necessary evidence and therefore, he is not required to afford opportunity of hearing to the Respondent being an investigating agency. As per the provisions of Rule 129 (3) the DGAP is required to issue notice to the Respondent which he has issued on 16.01.2019 and hence he has complied with the above provision. Proper o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. It would be further relevant to mention that the power under Rule 126 has been granted to this Authority by the Central Govt., as per the provisions of Section 164 of the above Act which has approval of the Parliament. Rule 126 has further been framed on the recommendation of the GST Council which is a constitutional body created under the Constitution (One Hundred and First Amendment) Act, 2016. Therefore, the above power has both- legislative sanction as well as incorporation in the CGST Act, 2017 and the CGST Rules, 2017. The delegation provided to this Authority under the above Rule is clear, precise, unambiguous and necessary and is well within the provisions of the Constitution and therefore, it has been rightly conferred on this Authority. Hence, the objections raised by the Respondent in this regard are frivolous and without legal force. 42. 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 Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t similar to the facts of the above cases hence, they do not further the cause of the Respondent. The Respondent has also cited the case of Commissioner Central Excise Customs Kerala others. v. Larsen Toubro 2015 SCC Online SC 738, supra = 2015 (8) TMI 749 - SUPREME COURT , which deals with the issue of the levy of Service Tax on the undivisible works contracts, however, the same is not the issue in the present case and hence the above case is not relevant in the facts of the present case. 44. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 1,27,61,725/- and an amount of ₹ 13,95,975/- (Total of ₹ 1,41,57,700/-) 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. 47. The Respondent has also contended that he had passed on the benefit of ITC on adhoc basis @ ₹ 32.80 per sq. ft. to the Residential flat buyers and @ ₹ 107 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 above claims of the Respondent cannot be accepted. 48. The Respondent has also contended that Rule 129(6) of the CGST Rules, 2017 only provided a time frame of 3 months for concluding an enquiry and it did not provide for profiteering to be determined at any point. In this connection it would be pertinent to mention that profiteering has to be determined as soon as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of any tax rate reduction and/or incremental benefit of ITC which has become available to them due to sacrifice made by the State and the Central Govt. from their own tax kitty to provide accommodation to the vulnerable section of society under the Affordable Housing Scheme. The method of interpretation of this provision has been given in the text of Section 171 of the CGST Act, 2017 itself. We also observe that the said provision clearly links profiteering to be a function of each supply of goods or services or both and hence, profiteering needs to be computed at the level of each tax invoice. From a plain reading of Section 171 of the Act ibid, it is amply clear that the total quantum of profiteering by a registered person is the sum total of all the benefits that stood denied to each of the recipients/consumers individually. Therefore, the Respondent is under legal obligation to pass on the benefit of ITC to his buyers and he cannot be allowed to appropriate the same. 51. Based on the above facts it is 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 3.17% and during the post ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulations have been prepared on the basis of the information reflected in the Returns filed by the above Respondent and the details submitted by him hence, the computations made are taken to be correct and accordingly the profiteered amount is determined as ₹ 2,58,80,927/- as per the details mentioned above in terms of the provisions of Rule 133 (1) of the CGST Rules, 2017. 53. 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 as has been mentioned in detail if the preceding paras of this Order. As per the provisions of Rule 133 (1) (b) of the CGST Rules, 2017, it is further ordered that the Respondent shall refund the above profiteered amount to the flat buyers as per the details given by the DGAP in Annexure-12 without taking in to account the benefit which he has claimed to have passed on. However, no benefit is to be passed on to the Applicant No. 1 as he had not bought any flat or commercial shop in the Respondent s present project. The above amount shall be passed on by the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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