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TMI Blog2019 (12) TMI 834X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication Date S.No. in Standing Committees minutes 1. Shruti Garg V-1718, DLF Phase 3, Gurgaon [email protected] A2(1)-12A04 26.09.2018 4 2. Saurabh Gupta B-12, Moti Nagar, New Delhi-110015 [email protected] A2-305 06.10.2018 12 3. Anil Bhargava C-248, First Floor, Hari Nagar Clock Tower, New Delhi [email protected] A1 -404 28.08.2018 18 4. Narendra Prakash Varia Flat No.-701, Jasminium Apartment, Sector-45, Gurgeon [email protected] A3-1403 02.10.2018 7,10*& 53* * Name of the Applicant was wrongly mentioned as Sh. Vijender Jain at S. No. 10 & 53, as the applications filed by Shri Narendra Prakash Varia were received by the Standing Committee on Anti-profiteering from the e-mail account of Sh. Vijender Jain ([email protected]). 2. The above Applicants submitted that they had purchased flats (as shown in Table 'A') in the Respondent's project "Solera Affordable Group Housing" situated in Sec-107, Gurugram, Haryana and alleged that the Respondent had not passed on the benefit of input tax credit (ITC) to them by way of commensurate reduction in prices. 3. The Haryana State Screening Committee on Anti-profiteering had originally ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Affordable Housing Scheme, i.e., the Pradhan Mantri Awas Yojna. (b) The Respondent submitted that he was not directly engaged in any construction activity and all the work related to the project was assigned to various sub-contractors, who procured all the required raw materials on their own except steel, cement and RMC which were supplied by the Respondent on free of charge basis. However, the project was executed under the supervision of the staff employed by the Respondent. (c) The Respondent informed that in the pre-GST regime, "under-construction properties" were covered by the definition of works contract and attracted Haryana VAT @ 4.5% approximately with full input tax credit of VAT paid on goods involved in the execution of works contracts. Affordable housing was, however, exempted from Service Tax, vide Notification No. 9/2016-ST dated 01.03.2016. In the GST regime, construction of low cost houses upto a carpet area of 60 square meters per house in a housing project approved by any State Government, was taxable @ 12% (effectively @ 8% after 113m abatement for the value of land), vide Notification No. 01/2018-Central Tax (Rate) dated 25.01.2018 (earlier the GST rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers. (g) The Respondent had also raised three objections with the request to dispose off the same by passing a speaking order before proceeding under Section 171 of the Central Goods and Services Tax Act, 2017, in view of the methodology explained by the Supreme Court in M/s. GKN Drive shafts (India) Ltd. [2002] 1 SCC 72 = 2002 (11) TMI 7 - SUPREME COURT. These objections are as follows: (i) Whether on the facts & circumstances of the case, there was any reduction in rate of tax on the supply of goods & services involved in the execution of works contract in the current GST regime. (ii) Whether on the facts & circumstances of the case, the benefit already credited/passed on to the buyers before initiation of the present proceeding, should not be treated as compliance with the provisions of Section 171 of the Central Goods and Services Tax Act, 2017. (iii) Whether on the facts & circumstances of the case, the Co-applicants have misled this investigation by not providing complete facts about the receipt of benefit of input tax credit, in terms of Section 171 of the Central Goods and Services Tax Act, 2017. 7. Vide the aforementioned letters and e-mails, the Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,48,562 11,186 - 2,59,748 6. Within 24 months from the date of Allotment 01 04.2017 12.50% 2,48,562 11,186 - 2,59,748 7. Within 30 months from the date of Allotment 01.10.2017 12.50% 2,48,562 - 29,827 2,78,389 8. Within 36 months from the date of Allotment 06.04.2018 12.50% 2,48,562 - 19,885 2,68,447 9. Change in size 06.04.2018 - (8,088) - (647) (8,735) 10. GST input benefit 31.05.2018 - (12,143) (971) (13,114) Total 100.00% 19,68,266 67,116 48,094 20,83, 476 10. The DGAP observed in his Report that the Respondent had claimed that the benefit already credited/passed on to the buyers before initiation of proceedings, should be treated as compliance with the provisions of Section 171 of the CGST Act, 2017. He has also observed that It could be seen from the copy of the ledger furnished by the Respondent as a part of his letter dated 14.05.2019, that he had passed on benefit amounting to Rs. 52,459/- (including 8% GST on the base amount of Rs. 48,573/-) to the above Applicants on 31.05.2018 which worked out to Rs. 25/- per sq. ft. of the carpet area. However, the correctness of the amount of benefit so passed on by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is 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 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." Therefore, the DGAP has contended that the input tax credit pertaining to the unsold units may not fall within the ambit of this investigation and the Respondent would be required to recalibrate the selling price of such units to be sold to the prospective buyers by considering the proportionate benefit of additional input tax credit available to them post-GST. 12. Further, the DGAP observed that prior to 01.07.2017, i.e., before the GST was introduced, as the service of construction of affordable housing provided by the Respondent, was exempt from Service Tax, vide Notification No. 25/2012-ST dated 20.06.2012, as amended by Notification No. 9/2016-ST dated 01.03.2016, the Respondent was not eligible to avail CENVAT credit of Central Excise duty paid on inputs or Service Tax paid on the inpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cony Area) (in SQF) relevant to turnover (J) 4,02,726 (Residential) 12,566 (Commercial) 4,15,292 4,61,642 (Residential) 18,987 (Commercial) 4,80,629 11. Relevant ITC [(K)=(D)*(J)/(I)] or [(K)=(E)*(J)/(I)] 4,00,51,564 5,62,90,015 Ratio of Input Tax Credit to Turnover [(L)=(K)/(H)*100] 5.65% 7.30% 13. The DGAP has also submitted that as seen from the Table 'B' 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 5.65% and during the post-GST period (July, 2017 to December, 2018), it was 7.30%. This clearly confirmed that post-GST, the Respondent had benefited from additional ITC to the tune of 1.65% [7.30% (-) 5.65%] of the turnover. 14. The DGAP further observed that the Central Government, on the recommendation of the GST Council, had levied 18% GST (effective rate was 12% in view of 1/3rd abatement for land value) on construction service, fixed vide Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017. The effective GST rate on construction service in respect of affordable and low-cost houses upto a carpet area of 60 square metres per house ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit of such additional ITC was required to be passed on to the recipients. 16. The DGAP has also Submitted that on the basis of the aforesaid CENVAT/input tax credit availability in the pre and post-GST periods and the details of the amount collected by the Respondent from the Applicants and other home buyers during the period 01.07.2017 to 24.012018, the amount of benefit of ITC that needed to be passed on by the Respondent to the recipients, came to Rs. 70,71 ,9771- for residential flats and commercial shops, which included 12% GST on the base profiteered amount of Rs. 63,14,265/-. Further, the amount of benefit of ITC that needed to be passed on by the Respondent to the recipients during the period 25.01.2018 to 31.12.2018, came to Rs. 69,69,940/-which includes 12% GST on commercial shops and 8% GST on residential flats, on the base profiteered amount of Rs. 63,98,921/- Therefore, the total benefit of input tax credit to be passed on during the period 01.07.2017 to 31.12.2018, came to Rs. 1,40,41,917/- which includes GST 12% or 8%) on the base amount of Rs. 1,27,13,186/-. The home buyer and unit no. wise break-up of this amount was given in Annexure-14 of the Report. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven in Annexure- 16 & 17 of the DGAP's Report. Further, the Report stated that the benefit claimed to have been passed on by the Respondent was in excess in respect of 866 residential flats including the Applicants (Sr. 1 & 2 of table 'E') by an amount of Rs. 34, 10,084/- and by Rs. 55,110/-, in case of 10 commercial shops (Sr. 6 & 7 of table 'E') which was shown in Annexure-15 & 18 of DGAP's Report. But the DGAP has stated that this excess benefit claimed to have been passed on to some recipients, couldn't be set off against the additional benefit required to be passed on to some other recipients as per Annexure-16 & 17 and it could only be adjusted against any future benefit that might accrue to such recipients. 19. The DGAP conclusively submitted that the benefit of additional ITC to the tune of 1.65% of the turnover, which had accrued to the Respondent post-GST, was required to be passed on by the Respondent to the above Applicants and the other recipients. He has also claimed that the provisions of Section 171 of the CGST Act, 2017 appeared to have been contravened by the Respondent, in as much as the additional benefit of ITC of the base price received by the Respondent duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en provided any of the documents on which the DGAP's Report was based and he requested to provide the said documents to file his objections on the Report. II. He has also claimed that the calculation pertaining to "rebate of VAT (WCT) paid to sub-contractors" in Table: "C" at sr. no.3 of the Report was actually TDS and its calculations was completely incorrect. The above Applicant has also stated that when the Respondent has declared VAT output tax liability at the rate of 4.5% then the ITC calculated could not be 5.65% (Ratio of Input Tax Credit to Turnover as per Table C prepared by the DGAP). It meant that the ITC calculated has more than VAT output tax liability which itself showed that the entire calculation was deliberately made to give relief to The Respondent in terms of ITC which was incorrect. Higher ITC compared to VAT output tax liability meant that less material was transferred as compared to the material that was purchased which was also incorrect. III. He has further stated that as per DGAP's supplementary Report dated: 01.11.2019, he had reviewed Form LS-11 and Column 2B (9.1) of VAT-R1 of the Respondent which formed part of Annexure-8 and the following inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the total credit belonging to the Solera-l, residential project was required to be passed on by the Respondent. IX. He also submitted that although the Respondent has claimed that excess benefit has been passed on to him but he has not received any ITC Benefit so far. 22. The Respondent has further made submissions on 31.07.2019 which are as follows:- I. The four complaints made against him were false, mischievous and against the facts. The fact that these complaints were admitted for adjudication for determining the issue of alleged profiteering reflected the bias that the adjudicating authority has against him. II. The complaints were lodged with Screening Committee on 28.08.2018 by the above Applicants. These complaints were mischievous as he had already compensated the flat owners on his own accord as per his calculations on 31.05.2018, 03 months prior to the complaints being lodged. The DGAP despite having knowledge of the complaints being against the facts, had proceeded to investigate the same. III. While the complaint was against not passing on the benefit of tax reduction in the post GST period, the DGAP had proceeded to quantify the alleged profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SUPREME COURT in which it was that: "The activity of construction undertaken by the developer etc. would be work contract only from the stage he entered into a contract with the flat owner", He therefore contended that the contracts entered into by him with the new flat/commercial space buyers came in to force after July 2017 in the GST period and hence the provisions of Section 171 of the CGST Act did not get attracted." IX. While the details were with the DGAP, having been furnished vide Annexure 16 & 17 for the residential and commercial space buyers, the DGAP chose to ignore these details while computing the alleged profiteering on the arbitrary average basis. The excess amount so computed by the DGAP in his report was as follows:- i. Residential flat owners. 132: Rs. 43,60,031/- ii. Commercial shops 20 : Rs. 10,04,982/- After factoring the Applicants who had applied in the post GST period, he had paid Rs. 42,52,946/- in excess to the flat / shop owners as per the arbitrary calculation given in the DGAP's report (Table E). X. He had requested the DGAP to pass a speaking order before finalizing investigation proceedings, which has not been done, hence the Order wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued to have never included the transaction within its fold and no tax could be levied on such transactions. Reliance in this regard was placed on the cases of:- * B.C. Srinivasa Setty 1981 128 ITR 294 (SC) = 1981 (2) TMI 1 - SUPREME COURT * Palai Central Bank Ltd. 1984 150 ITR 539 (SC) = 1984 (10) TMI 41 - SUPREME COURT * National Mineral Development Corporation (2004) 65 SCC 281 = 2004 (5) TMI 575 - SUPREME COURT XIII. Further, in respect of works contracts, the Patna High Court has held in the case of Larsen & Toubro vs 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 the absence of all exclusions which were to be prescribed for computation of tax, no tax was payable. The recent Larsen & Toubro judgment, 2015 SCC Online SC 738, supra = 2015 (8) TMI 749 - SUPREME COURT, has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g given in the above Table, the issue of his not passing on the benefit did not exist when he had already passed benefit of Rs. 16,515/- to the Applicants. Once the allegation of the above Applicants of profiteering by the Respondent has been found to be incorrect, can the proceedings against him couldn't continue suo-moto. Paragraph 9 read with paragraph 12, 13 and 14 of the Procedure & Methodology did not mention circumstances for continuing with the proceedings on own motion once it has been observed that there has been no undue profiteering in the case of the above Applicants. XVI. He conclude by submitting that the DGAP has erred on several grounds in concluding in his report that there has been benefit of additional input tax credit of 1.65% of the GST turnover including the turnover from the buyers of the project who had made payments in the GST regime which would result in consequent reduction in the basic price as well as cum-tax price, the benefit of which should be passed by him to the recipients. 23. The Respondent has also submitted details of credit notes vide which he has claimed to have passed on the benefit of ITC in the ledger account of the flat buyers vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 14.06.2019. Further regarding the excess benefit claimed to have been passed on he submitted that the excess benefit to some recipients, couldn't be set off against the additional benefit that was required to be passed on to some other recipients. 25. We have carefully considered the Report of the DGAP, submissions made by the Respondent and based on the record it is revealed that the Respondent is in the Real Estate business and the DGAP's Report is with regard to construction of flats and shops by the Respondent. On examining the various submissions we find that the following issues need to be addressed:- a. Whether there was reduction in the rate of tax on the services in question supplied by the Respondent w.e.f. 01.07.2017? b. Whether there was any net additional benefit of ITC which has accrued to the Respondent? c. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017, by not passing on the benefits by the Respondent? 26. In the present case we find that the Respondent has started construction of the project 'Solera' for constructing 1000 Residential and 1 12 Commercial units. The Residential units are known as "Sclera-107" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve amount was taken by him from the Returns filed by the Respondent. It is also apparent from the Chart prepared by the Respondent that he has taken in account the amount claimed by the Respondent in respect of two projects viz. Sector-107 and 93 whereas the present case pertains to the project which is being executed in Sector-107. Therefore, there is bound to be mismatch in the figures taken by the DGAP and considered by the above Applicant. The above Applicant has also claimed that the ITC was not available on the value of 'and and the cost incurred on labour and services however, there is no evidence that the above items have been taken by the Respondent in to account while claiming ITC in the pre GST period. Therefore, the Chart submitted by the Respondent in this behalf cannot be relied upon. It is also apparent from Table C prepared by the DGAP that he has taken the amount of rebate of VAT (WCT) paid by the sub-contractors in the pre GST period as Rs. 2,89,80,761/- as per the Form LS-11 and column 2B (9.1) of Form VAT-R1 and hence the above contention of the Respondent is incorrect 30. The Applicant No. 3 has further contended that the transitional credit belonging to the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en passed on to some recipients, the same cannot be set off against the additional benefit that is required to be passed on to some other recipients. 33. He has further claimed that the DGAP has neither passed a speaking order before finalisation of the Report nor he has given opportunity either to controvert or respond to the DGAP's adoption of the average method 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 serve notice on the Respondent which he has done on 15.01.2019 and hence he has complied with the due process. Proper opportunity of being heard has been provided to the Respondent by this Authority in which the Respondent has controverted the computations of the DGAP through his written submissions and hence he should have no objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above judgement shows that it pertained to the valuation of goodwill for levying of income tax which is not the issue in the present proceedings. Hence, it is respectfully submitted that the above case is of no help to the Respondent. The Respondent has also cited the case of Commissioner of Income Tax v. The Official Liquidator Palai Central Bank Ltd. (1984) 150 ITR 539 (SC) in which the main issue related to the charging of super profit tax however, this issue is not relevant in the facts of the present case, hence the above case does not help the Respondent. The Respondent has also quoted the judgement passed in the case of National Mineral Development Corporation v. State of M. P. and another (2004) 65 SCC 281 = 2004 (5) TMI 575 - SUPREME COURT which pertained to the levy of royalty on 'slimes' hence, the above case is does not help the Respondent as no such issue is involved in these proceedings. He has also cited the case of Larsen & Toubro v. State of Bihar and others 2004 (134) STC 354 (Pat.) = 2003 (11) TMI 565 - PATNA HIGH COURT which was affirmed by the Hon'ble Supreme Court in the case of State of Jharkhand and others v. Voltas Ltd. (2007) 7 VST 317 (SC) = 2007 (5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als which were tax free in the pre-GST period. This argument of the Respondent is untenable since the DGAP has computed the benefit of additional ITC by comparing the ratios of ITC which was available to him in the pre and the post-GST period and it is clear from his computation that the Respondent has got additional benefit of 2.61% of the turnover. As discussed supra the DGAP has also not calculated the profiteered amount by using averages. Hence, the above arguments of the Respondent are incorrect 39. The Respondent has further argued that no mechanism for computing profiteering has been provided in the Act, Rules or in the Procedure & Methodology formulated by this Authority in terms of Rule 126 of the CGST Rules and hence his own calculation should be accepted as method of passing on the ITC benefit. But it is apparent from the record that the mathematical methodology is not required to be prescribed as it would vary from case to case. In the present case the DGAP has computed the ratio of ITC to turnover after taking into account the benefit of credit available during the pre GST period (April 2016 to June 2017) to the taxable turnover received during the said period and com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of his claim. However, perusal of the ledger accounts of the buyers shows that there is no evidence to suggest that he has passed on the benefit of Rs. 1,29,29,849/- to the 998 home and 91 commercial shop buyers on account of ITC as there is no such entry in the ledger accounts of these buyers. A typical entry of Rs. 13,115/- made in the ledger account on 31.05.2018 of one Ms. Ritika Chhabra, who has been allotted unit No. A-203 in the above project by the Respondent, reads as "Receipt Ref. CRS1/02174/18-19 (12, 143.00+ Tax 972.00)" which shows that no where it has been mentioned that this amount has been transferred on account of ITC benefit. Perusal of the copies of the ledger accounts of the other house buyers to whom the Respondent has claimed to have passed on the benefit of ITC also shows that the same entry has been made in all such cases on 31.05.2018. By no stretch of imagination this entry can be construed to have been made on account of passing on of the benefit of ITC, therefore, the above amount cannot be taken to have been passed on account of the ITC benefit. Moreover, the DGAP in his Report dated 14.06.2019 has not verified the above claim of the Respondent. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent has profiteered by an amount of Rs. 1,40,41,916/- during the period of investigation. Therefore, this 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 commensurate with the benefit of ITC received by him as has been detailed above. The present investigation is only up to 31.12.2018 therefore, any additional benefit of ITC which shall accrue subsequently shall also be passed on to the buyers by the Respondent. In case this additional benefit is not passed on to the Applicant No. 1 to 4 or any Other buyer they shall be at liberty to approach the State Screening Committee Haryana for initiating fresh proceedings under Section 171 Of the above Act against the Respondents. The concerned CGST or SGST Commissioner shall take necessary action to ensure that the benefit of additional ITC is passed on to the eligible house buyers in future. 47. It is evident from the above that the Respondent has denied the benefit of ITC to the buyers of the flats/shops being constructed by him and has profiteered in contravention of the provisions of Section 171(1) of the CGST Act, 2017. Therefore he is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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