TMI Blog2019 (12) TMI 1265X X X X Extracts X X X X X X X X Extracts X X X X ..... as received recommendation from the Standing Committee on Anti-Profiteering under Rule 129 (1) and he cannot stop such investigation on the withdrawal of the complaint once it discloses commission of an offence under Section 171 of the above Act. Since, the benefit of ITC has been given by the Central and the State Government out of the public exchequer in favour of the buyers it is also incumbent on the DGAP to find out whether the above benefit has been passed on by the Respondent or it has been misappropriated by him. Therefore, the above contention of the Respondent is frivolous and hence, the same cannot be accepted The benefits of tax rate reduction and ITC have been given by the State and the Central Govt. from their own tax revenue to provide accommodation to the vulnerable sections of society under the Affordable Housing Schemes. 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 above provision clearly links profiteering with each supply of goods or services or both and hence, profiteering has to be computed at the level of both. Therefore, the Respondent is under legal obligati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned at Serial No. 187 of Annexure-22. Since, Table C has 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 in the above Table are taken to be correct and accordingly the profiteered amount is determined as ₹ 3,58,90,871/- as per the details mentioned in Annexure-22 above in terms 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 with the benefit of ITC received by him as has been mentioned in detail in the preceding paras of this Order. As per the provisions of Rule 133 (3) (b) of the CGST Rules, 2017 it is further ordered that the Respondent shall refund the above profiteered amount to the buyers as per the details given by the DGAP in Annexure-22. The benefit of ₹ 40,606/- including GST on the base amount of ₹ 37,598/- will be required to be passed on to the Applicant No. 1 - Since, the DGAP has carried out the present investigation till 31.12.2018 only any further benefit of additional ITC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application with its recommendation to the Standing Committee on Anti-profiteering on 20.06.2018 for further action, in terms of Rule 128 (2) of the above Rules. 2. The above reference was examined by the Standing Committee on Anti-profiteering and vide minutes of its meetings dated 07.08.2018 and 08.08.2018, it had forwarded the same to the DGAP for detailed investigation under Rule 129 (1) of the above Rules. 3. The DGAP on receipt of the application issued two letters to the Standing Committee on Anti-profiteering on 12.09.2018 and 17.10.2018 and sought supporting documents along with details of the Applicant No. 1. The Standing Committee on Anti-profiteering, vide letter dated 04.10.2018 and e-mail dated 26.10.2018 provided the supporting documents and the details of the Applicant No. 1 to the DGAP. Therefore, the date of receipt of the application from the Standing Committee on Anti-profiteering, had been taken as 26.10.2018 by the DGAP. 4. The DGAP upon receiving the above mentioned details pertaining to the Applicant No. 1 issued Notice dated 29.10.2018 to the Respondent to reply as to whether he admitted that the benefit of ITC had not been passed on to the Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of tax benefit with the implementation of GST, would be duly passed on to them. He further submitted that his project was nearing completion and he was in the process of computing the final tax benefit which would be passed on to the customers in the next demand invoices to be raised in the month of May, 2019. The Applicant No. 1 had also been apprised of the above facts with the request for withdrawal of his complaint which had been made in haste. 9. He further stated 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. He also 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, exempt from Service Tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther raw materials used in construction were sub-contracted to the various contractors, who procured raw materials directly, after due payment of Central Excise Duty/GST. However, the Respondent was negotiating with the sub-contractors for seeking the benefits under the GST regime and would pass on the same to his buyers, on or before the completion of the project. 12. The DGAP in his Report has also stated that the Respondent had furnished the following documents:- (a) Copies of GSTR-I Returns for the period from July, 2017 to December, 2018. (b) Copies of GSTR-3B Returns for the period from July, 2017 to December, 2018. (c) Copy of Tran-1 return for transitional credit. (d) Copies of VAT ST-3 Returns for the period from April, 2016 to June, 2017. (e) Copies of all demand letters and sale agreement/contract issued in the name of the Applicant. (f) Details of applicable tax rates, pre-GST and post-GST. (g) Copies of Balance Sheets (including all annexures and profit loss account) for FY 2016-17 2017-18. (h) Copy of Electronic Credit Ledger for the period from 01.07.2017 to 31.12.2018. (i) CENVAT Credit/lnput Tax Credit reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Within 24 months of Allotment 31.05.2018 12.50% 213,990 17,119 2,31,109 7. Within 30 months of Allotment 25.11.2018 12.50% 213,990 17,119 2,31,109 8. Within 36 months of Allotment Not yet due 12.50% 213,990 17,119 2,31,109 Total 100% 17,11,920 1,36,953 18,48,873 15. The DGAP has also observed that the Respondent stated that he would compute the benefit of reduction in the cost on account of tax benefit in respect of the project, at the end of the project and pass on the benefit to his customers, might have merit but the profiteering, if any, had to be determined at a given point of time, in terms of Rule 129 (6) of the CGST Rules, 2017. Therefore, the additional ITC available to the Respondent and the amounts recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies . 17 (3) The value of exempt supply under sub-section (2) shall be such as may be prescribed and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building 18. Thus the DGAP has claimed that the ITC pertaining to the unsold units may not fall within the ambit of the current investigation and the Respondent would be required to recalibrate the selling prices of such units to be sold to the prospective buyers by considering the net benefit of additional input tax credit available to them post-GST. 19. The Respondent has also submitted that out of total 1,472 flats and 113 commercial shops, only 55 flats and 38 commercial shops were unsold as on 31.12.2018. 20. The DGAP has also claimed that prior to 01.07.2017 i.e. before the GST was introduced, the service of construction of affordable housing provided by the Respondent, was exempted fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Rebate of VAT(WCT) Paid to sub-contractors (C) 29,69,281 11,32,925 41,02,206 - - - 4. Total CENVAT/lnput Tax credit Available (A+B+C) 1,94,49,827 44,20,717 2,38,70,544 - - - 5. Input Tax Credit of GST Availed (net of reversal) (E) - - - 3,87,08,524 6,26,42,823 10,13,51,347 6. Service Tax Turnover from Commercial Shops (F) 3,54,79,559 55,40,971 4,10,20,530 - - - 7. Turnover from residential fiats as per VAT Returns (G) 31,23,51,664 5,82,33,550 37,05,85,214 - - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable in the pre-GST period (April, 2016 to June, 2017) 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% and accordingly, on the basis of the figures contained in Table- B above, the comparative figures of the ratio of input tax credit availed/available to the turnover in the pre-GST and post-GST periods as well as the turnover, the recalibrated base price and the excess realization (Profiteering) during the post-GST period, has been tabulated by the DGAP in the Table- C below:- Table- C (Amount in Rs.) S.No. Particulars Post-GST Period 1. Period A 01.07.2017 to 24.01.2018 (Flats Shops) 25.01.2018 to 31.12.2018 (Shops) 25.01.2018 to 31.12.2018 Total 2. Output GST rate (%) B 12 12 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, in terms of Section 171 of the Central Goods and Services Tax Act, 2017, the benefit of such additional input tax credit was required to be passed on to the recipients. Whereas the Respondent had not contested that any such benefit would eventually have to be passed on to the recipients at the time of giving possession of the flats, it was a fact that this had not been done so far. Thus, by not reducing the pre-GST base price by 2.51% on account of additional benefit of input tax credit and charging GST at the increased rate of 12% or 8% on the pre-GST base price, the Respondent had contravened the provisions of Section 171 of the of the CGST Act, 2017, the DGAP has alleged. 24. The DGAP has also submitted that on the basis of the aforesaid CENVAT/input tax credit availability in the pre and the post-GST periods and the details of the amount collected by the Respondent from the Applicant No. 1 and other home buyers during the period from 01.07 2017 to 24.01.2018, the amount of benefit of input tax credit that needed to be passed on by the Respondent to the recipients, came to ₹ 1,16,75,749/- for residential flats and commercial shops, which included 12% GST on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional amount of ₹ 3,58,50,265/- was required to be returned to such eligible recipients. 27. The DGAP has further stated that since the present investigation covered the period from 01.07.2017 to 31.12.2018, thus, profiteering, if any, for the period post December, 2018, had not been examined by him as the exact quantum of input tax credit that would be available to the Respondent in future could not be determined at the present stage, when the construction of the project was yet to be completed. 28. The above Report was considered by this Authority in its meeting held on 29 04 2019 and it was decided to hear the Applicants and the Respondent on 17.05.2019. A Notice was also issued to the Respondent on 01.05.2019 asking him to reply why the Report dated 25.04.2019 furnished by the DGAP should not be accepted and his liability for profiteering under Section 171 of the CGST Act, 2017 should not be fixed. He was also asked to explain why penal provisions should not be invoked against him under Section 29 and 122-127 of the CGST Act, 2017 read with Rule 21 and 133 of the CGST Rules, 2017. 29. Five personal hearings were accorded to the parties on 17.05 2019, 30.05 2019, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e understand that you want to know the benefits of homes purchased under the Pradhan Mantri Awas Yojana (PMAY) scheme. This is to inform you that the GST Council Meeting held on 18 th January, 2018 has decided to reduce the GST rate on under-construction houses under Pradhan Mantri Awas Yojana (P MAY) scheme to 8% (after deducting the value of land). During the GST Council Meeting, it was declared that all under construction houses that are being built as a part of Credit Linked Subsidy Scheme (CLSS) would be charged at 8% GST, contrary to its current rate of 12%. Note: Anyone who is not entitled to CLSS will continue to pay 12% GST on real estate. NOTE : Sale of building is an activity or consideration that is neither a supply of goods nor a supply of services (Refer to Para 5 of schedule III of the CGST Act, 2017). Therefore, it follows that the sale of ready to move or completed property does not attract GST. GST is payable only on under-construction property. For detailed information on recommendations made by the GST Council in its 25th Meeting held on 1811 January, 2018 at Delhi for the housing sector, please click the link:_______ If you require an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the correspondence made by the above Applicant with the Helpdesk was assumed to be a complaint. He has also submitted that the DGAP in his Report dated 25.04.2019, has stated that the Applicant No. 1 had informed him that his doubts with regard to the pricing matters in respect of the said project stood clarified by the Respondent and that he was fully convinced that no undue advantage had been taken by the Respondent. He has also stated that the above Applicant had become a successful allottee in the project only in the post-GST period on 27.01.2018, therefore by necessary implication he was not an allottee in the pre-GST period to be impacted by any change in the rate. The Respondent has further stated that since the flat was allotted on 27.01.2018, the reduction in GST rate from 12% to 8% (after abatement of 1/3rd towards cost of land) notified on the recommendation of the GST Council Meeting held on 18.01.2018 had already been done by him. 32. The Respondent has also submitted that the DGAP s Report dated 25.04.2019 had made incorrect finding that he had benefited from additional input tax credit of 2.51% of the turnover which was based on the average method on his own accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntracts into the service tax net, as inadequate. The said judgment was also quoted in the judgment of Hon ble Supreme Court passed in the case of State of Jharkhand v. Voltas Ltd. East Singhbhum, (2007) 9 SCC 266 = 2007 (5) TMI 18 - SUPREME COURT , the Respondent has contended. 35. The Respondent has also claimed that the anti-profiteering provisions under the CGST Act and the Procedure Methodology drafted under Rule 126 was silent on the timing of the accrual of the benefit on the agreement entered in the pre-GST regime and the transfer of property in goods/services executed in the GST regime and the passing on of the same to the buyer. He has also mentioned that in a conventional sale of goods/services, the property in goods/services got transferred as intended by the parties, and after transferring risk and reward of the goods/services, the recipient became the owner after paying due consideration along-with taxes thereon. In a conventional case, the provision of anti-profiteering would come into effect from the time, the recipient received the goods/services. He has further submitted that in the present case, he was engaged in the development of Affordable Group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring of 2.51% on the claims raised during the GST period and ignoring the Respondent s submissions that the construction was yet to be completed by 31.12.2019. The Respondent has also claimed that it was premature to compute profiteering till the project was nearing completion which had found acceptance by the DGAP in para 16 of his Report dated 25.04.2019. However, the DGAP had made an observation in the same para of being bound to make a report in terms of Rule 129 (6) of CGST Rules. This observation of the DGAP was misinterpretation of the Rule 129 (6) which only provided a time frame of 3 months for concluding an enquiry and submitting his Report along with records. It did not provide for profiteering to be determined at any point during the process of any product / service which was under completion and if so, profiteering will have to be determined in respect of all works in progress. (e) Absence of mechanism for computing profiteering in case of real estate project not being provided in the Act, Rules or in the Procedure Methodology formulated by this Authority in terms of Rule 126 of the CGST Rules, 2017. (f) The Respondent was not given any opportunity to obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd vide his Report dated 25.04.2019 has stated that the Respondent had violated the provisions of Section 171 of the above Act by resorting to profiteering of an amount of ₹ 3,58,90,871/- 41. The Respondent in his written submissions filed on 17.06.2019 has claimed that no complaint had been filed by the Applicant No. 1 against him for not passing on the benefit of ITC. He has further claimed that the above Applicant vide his e-mails dated 10.04.2018 and 28.04.2018 addressed to the Helpdesk established by the Central Board of Excise Customs (CBEC) had only raised queries regarding the proceedings of the 25th meeting of the GST Council held on 18.01.2018 which could not be construed as complaint against him and hence the present proceedings were not maintainable. However, perusal of Annexure-I attached with the Report of the DGAP dated 25.04.2019 shows that the above Applicant had made a specific complaint to the Anti-Profiteering authorities against the Respondent for not passing on the benefit of ITC. The e-mail dated 10.04.2018 sent by the above Applicant to the anti-profiteering@gov.in reads as under:- Subject :Fwd: GST charged by Builder on affordable housing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the flat booked under affordable housing. also confirm that the above statement is being made by me without any pressure and with full consent and understanding of the matter. Thanking you for your help, Your s Sd/- Name: Dharmendra. Goud Mobile No: 9015745676 Address: 212/3, Tex Chand Nagar, Sec-104, Gurugram (Emphasis supplied) 44. It is clear from the perusal of the above letter that the Respondent had approached the above Applicant and won him over not to pursue the complaint as it would have made him liable for profiteering under Section 171 (1) of the above Act. It is also clear that the above Applicant had not mentioned in his above letter that he has received the benefit of ITC which was his main allegation against the Respondent. Therefore, the above withdrawal cannot be taken to be bonafide and genuine There is also no provisions in the CGST Act or the Rules for withdrawal of the complaint as there is possibility of coercion or undue influence on the complainants by the unscrupulous builders. The DGAP is also bound to launch investigation on a complaint once he has received recommendation from the Standing Committee on A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rule 129 (3) the DGAP is required to give notice to the Respondent which he has given on 29.10.2018 and hence he has complied with the above provision. 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 objection on this ground. However, he has not cared to attend any of the personal hearings which were afforded to him by this Authority on 17.05.2019, 30.05.2019, 10.06.2019, 18.06.2019 and 11.07.2019. 47. The Respondent has also contended that this Authority has not provided any basis, method and reasoning for computing profiteering in respect of violation of the provisions of Section 171 of the CGST Act, 2016 under Rule 126 of the above Rules. In this connection it is mentioned that this Authority has already determined the Methodology and Procedure under Rule 126 vide its Notification dated 28.03.2018 which is available on its website. However, the basis and the reasons for computing profiteering have been mentioned in Section 171 (1) of the above Act itself which require that any reduction in rate of tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefits. Under Rule 136 this Authority can get its orders monitored through the tax authorities of the Central or the State Governments. Hence, there is more than the adequate machinery required to implement the Anti- Profiteering measures and hence all the claims made by the Respondent on this ground are incorrect and hence they cannot be accepted. 49. He has also cited the judgement passed in the case of Commissioner of Income Tax v. B. C. Srinivasa Setty (1981) 128 ITR 294 (SC) = 1981 (2) TMI 1 - SUPREME COURT in his support. Keeping in view the facts mentioned in para supra it is respectfully submitted that the law settled in the above case is not being followed as adequate machinery has been provided to implement the Anti-Profiteering measures in the CGST Act and the Rules made thereunder. The Respondent has also relied on the case of Commissioner of Income Tax v. The Official Liquidator Palai Central Bank Ltd. (1984) 150 ITR 539 (SC) = 1984 (10) TMI 41 - SUPREME COURT in which the issue of charging of super profit tax was involved. However, as mentioned above there exists appropriate mechanism and machinery to enforce the Anti-Profiteering measures and hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expense of vulnerable affordable house buyers by denying them the benefit for more than 4 years and use the additional ITC in his business at the same time. In case he wants to pass on the benefit after completion of the project he should also claim the ITC after the project is completed. There is also no provision in the Anti-Profiteering measures which requires that the benefit of ITC would be passed on when the flats would be delivered to the buyers. The execution of the project by awarding works contracts also does not entitle him to pass on the above benefit when the project would be nearing completion or will be completed. Hence, all the above claims of the Respondent are wrong and therefore, they cannot be accepted. 51. The Respondent has also submitted that while computing the above benefit the DGAP has not taken in to account the rate of tax on those material 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Council, had levied 18% GST with effective rate of 12% in view of 1/3rd 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%. Accordingly, the DGAP has calculated the profiteered amount or the benefit to be passed on for the period from 01.07.2017 to 24.01.2018, as ₹ 1,16,75,749/- for the residential flats and commercial shops, which includes 12% GST on the base profiteered amount of ₹ 1,04,24,775/-. He has also computed the amount of benefit of ITC or the profiteered amount that needs to be passed on by the Respondent to his recipients during the period from 25.01.2018 to 31.12.2018 as ₹ 2,42,15,122/- which includes 12% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Respondent shall also be passed on by him to the eligible buyers. The concerned Commissioner CGST/SGST shall ensure that the above benefit is passed on by the Respondent to his recipients as per the provisions of Section 171 of the CGST Act, 2017. In case if the above benefit is not passed on in future the Applicant No. 1 or any other buyer shall be at liberty to approach the Haryana State Screening Committee to launch fresh proceedings against the Respondent as per the provisions of Section 171 of the CGST Act, 2017. 58. It is also evident from the above narration of facts that the Respondent has denied benefit of ITC to the buyers of the flats and the shops being constructed by him in his Project Grand IV A 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 apparently 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 imposed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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