TMI Blog2020 (1) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... an additional amount of ₹ 49,79,425/- which includes both the profiteered amount @ 4.52% of the taxable amount (base price) and 12% GST on the said profiteered amount from the 99 other flat buyers other than the Applicant No. 1 as mentioned in Annexure14 of the Report dated 28.06.2019. his 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 detailed above. Since the present investigation is only up to 31.12.2018 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by the Respondent - As the Respondent has claimed that the OC has been received by him in June, 2019 therefore, the DGAP is directed to carry out further investigation as per the provisions of Rule 133 (4) of the above Rules and compute the final amount of benefit of ITC which is required to be passed on and submit his Report within a period of 3 months of this Order. Since, the DGAP has carried out the present investigation till 31 .12.2018 only, any further benefit of additional ITC which might accrue to the Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication. 3. On receipt of the recommendation from the Standing Committee on Anti-profiteering, the DGAP found that the Applicant No. 1 had booked a flat in the Respondent's project Pyramid City -5 , in the pre-GST era and had paid the booking amount of ₹ 50,000, vide Cheque dated 28.03.2017 and the first demand letter/invoice was raised by the Respondent in the post-GST era. Thus, the DGAP issued Notice dated 16.01.2019 under Rule 129 (3) of the above Rules, asking the Respondent to intimate as to whether he admitted that the benefit of ITC had not been passed on by him to the Applicant No. 1 by way of commensurate reduction in the price of the flat and in case it was so, to suo-moto compute the quantum of the same and mention it in his reply to the Notice and furnish the same along with the supporting documents. The Respondent was given opportunity to inspect the nonconfidential evidence/information furnished by the Applicant No. 1 during the period between 21.01.2019 to 23.01.2019 in accordance with Rule 129 (5) of the above Rules but the Respondent did not avail of the said opportunity. Vide e-mail dated 17.06.2019, the Applicant No. 1 was also given opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent had no choice but to charge 12% GST on the said amount. e) The Respondent, vide his letter dated 07.06.2019, had also contended that he had already reduced the price by more than the amount of additional input tax credit in the GST era, either by way of reduction in prices or by offering various discounts on other charges to be collected from his recipients. In support of this contention the Respondent had also submitted sample copies of sale deeds for the units sold in the GST era at reduced prices as compared to similar units sold in the pre-GST era. f) The Respondent had also submitted a copy of his Agreement with the Applicant No. 1, entered into on 29.08.2017, after GST implementation, wherein it was provided that the agreed upon price of 26,85,000/- would be exclusive of taxes. g) The Respondent had also submitted a copy of e-mail to the Applicant No. 1 on 14.01.2018 to the DGAP, wherein the Applicant No. 1 was informed that as the project was in the last stage, physical possession of the flat would be handed over in the month of March, 2018. A detailed statement of payments made by the Applicant No. 1 and outstanding amount due at time of possession was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f GSTR-3B Returns for the period July, 2017 to December, 2018. c) Copy of Electronic Credit Ledger for the period01.07.2017 to 31.12.2018. d) Copies of VAT ST-3 Returns for the period April, 2016 to June, 2017. e) Copies of all demand letters, sale agreement/contract issued to the Applicant No. 1. f) CENVAT/input tax credit registers for the period April, 2016 to December, 2018. g) Copies of Balance Sheets for FY 2016-17 2017-18. h) Copy of project report submitted to the RERA. i) Details of VAT, Service Tax and GST for the periods FY 2016-17, 2017-18. j) List of home buyers in the project Pyramid City 5 . 7. In his Report dated 28.06.2019, the DGAP has stated that all the documents placed on record were carefully examined and it was found that the main issues for determination were as to whether there was reduction in the rate of tax or benefit of ITC on the supply of construction service by the Respondent after implementation of the GST w.e.f. 01.07.2017 and in case it was so, whether the Respondent had passed on the above benefits to the home buyers as per the provisions of Section 171 of the CGST Act, 2017 or not. 8. The DGAP has also reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the input services. However, CENVAT credit of Central Excise duty paid on the inputs was not admissible as per the CENVAT Credit Rules, 2004, which was in force at the material time. Moreover, since the Respondent was paying VAT @ 1% under Maharashtra VAT Composition Scheme, he was not eligible to avail input tax credit of VAT paid on the inputs. Further, post-GST, the Respondent could avail the input tax credit of GST paid on all the inputs and input services. From the information submitted by the Respondent for the period April, 2016 to December, 2018, the details of the input tax credit availed by him, his turnover from the project Pyramid City 5 and the ratio of input tax credit to the turnover, during the pre-GST (April, 2016 to June, 2017) and post-GST (July, 2017 to December, 2018) periods, the DGAP has furnished Table-'B' as below:- Table-'B' (Amount in Rs.) S. No. Particulars (Pre-GST) April, 2016 to June, 2017 (Post-GST) July, 2017 to Dec, 2018 1 CENVAT credit of Service Tax Paid on Input Services (A) 63,71,323 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the basic price and the amount actually passed on by way of reduction in price of the units sold in the post-GST period was Annexed to the Report as Annexure-13 by the DGAP. The DGAP has added that since the Applicant No. 1 had booked the flat in the post-GST period after the rates had already been reduced by the Respondent on account of estimated benefit of additional input tax credit by more than 4.52% of the basic price, the Applicant No. 1 did not appear to be eligible for any further benefit. However, in respect of the units which were already booked/ sold in the pre-GST era, the Respondent could not establish that he had actually reduced the basic prices of the units. Further, on examination of records, it was observed by the DGAP that while the booking amount was received and the booking form was signed between the Applicant No. 1 and the Respondent on 28.03.2017 i.e. prior to the implementation of GST, there was no mention in the said form that the price of the flat had factored the benefit of additional input tax credit in the post GST period. The DGAP has further reported that the Respondent was required to pass on the benefit of the additional input tax credit to his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 GST @12% F=E*12% 1,21,19,773 8 Total demand G=E+F 11,31,17,883 9 Recalibrated Basic Price H=E*(1-D) or 98.49% of E 9,64,32,995 10 GST @ 12% I=H*12% 1,15,71,959 11 Commensurate demand price J=H+I 10,80,04,955 12 Excess Collection of Demand or Profiteered Amount K=G-J 51,12,928 13. The DGAP has observed from the above Table-'C' that the additional ITC of 4.52% of the turnover should have resulted in commensurate reduction in the base price as well as cum-tax price. Therefore, in terms of Section 171 of the Central Goods and Services Tax Act, 2017, the benefit of the additional ITC was required to be passed on by him to the recipients. 14. On the basis of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een passed on to the Applicant No. 1 and 99 other recipients. On this account, the Respondent appeared to have realized an excess amount of ₹ 1,33,503/- from the Applicant No. 1 which included both the profiteered amount @ 4.52% of the basic price and GST @12% on the said profiteered amount. Further, the investigation revealed that the Respondent appeared to have realized an excess amount of ₹ 49,79,425/- which included both the profiteered amount @4.52% of the pre-GST basic price and GST on the said profiteered amount, from 99 other eligible unit buyers who were not applicants in the present proceedings. The said 99 unit buyers were identifiable since the Respondent had provided their names and addresses along with the unit no. allotted to each of them. Therefore, it appeared that the additional amount of ₹ 49,79,425/- was required to be returned to such other eligible recipients apart from the Applicant No. 1. 17. The DGAP has also stated that the period covered in the present investigation is from 01.07.2017 to 31.12.2018. Profiteering, if any, for the period post December, 2018, has not been examined in the Report as the exact quantum of ITC that would be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had passed on the benefit of GST input tax credit to his customers either by way of reduction in unit price or by way of various discounts in other charges to be collected from them. The reduction in price per unit was not at all commercial decision but the same was done on the premise that he was eligible for extra input tax credit which was not available in pre GST era. He has further submitted that his intention of passing on the ITC benefit was apparent from the advertisement that he had published in newspapers in the month of March, 2017 and pamphlet that he had distributed at a number of places, in and around the city, informing the unit-buyers about the reduction of price per unit on account of availability of GST input credit. d) The Respondent has further submitted details of the reduction in the per unit cost of units in the post-GST period on account of availability of ITC, comparing the same with the pre-GST period, which are as under:- Flat No. Area of flat in sq.mt. Date of booking price (Rs. In Lakh) Remark A-606 Unit of complainant 60.850 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Net Cost to Dealer Sale Price Gross Profit ITC Ratio as used by department 1 28% 100 28 128 28 100 120 20 23.33% 2 18% 100 18 118 18 100 120 20 15.00% 3 12% 100 12 112 12 100 120 20 10.00% 4 5% 100 5 105 5 100 120 20 4.17% vi. The unsold inventory of units on which the Respondent may have to reverse the input credit on a later date i.e. on receipt of completion certificate or first occupancy is a critical factor which needs to be given appropriate weight age while computing amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ications dated 11.12.2019 on the submissions of the Respondent as follows:- a) On the issue raised by the Respondent that the Profiteering should have been calculated on the basis of extra/incremental amount of Input Tax Credit which was available to builder in GST era, the DGAP has clarified that the investigation Report dated 28.06.2019 had taken into account all the details and evidence supplied by the Respondent. The additional benefit which the Respondent got in Post GST era on account of Input Tax Credit had been taken into consideration for calculation of profiteering and it addressed the concern of the Respondent. b) On the issue raised by the Respondent on the methodology adopted by the DGAP for calculation of profiteering, the DGAP has clarified that the procedure and methodology for determination of profiteering and intent thereof were determined by this Authority on case to case basis by adopting the most appropriate and accurate method based on facts and circumstance of each case as well as the nature of the goods and services supplied. There could not be any fixed mathematical formulations/methodology for determination of quantum of benefit to be passed on which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant to turnover and ITC relevant to sold area had been taken is clearly depicted in Table 'B'. Further, it was clearly mentioned in the investigation Report that profiteering, if any, for the period post December, 2018 had not been examined. Also, the eligibility of refund of excess credit had not been examined for calculation of profiteering. 21. The clarifications dated 11.12.2019 filed by the DGAP were supplied to the Respondent to file further submissions, if any. The respondent has filed submissions dated 14.12.2019 on the clarifications of the DGAP as follows:- a) The Respondent has submitted that he had reduced the selling prices of the units in the month of March itself as GST was initially scheduled to be implemented from 01/04/2017, but the same was deferred by the Government due to some technical reasons. The facts that Respondent had reduced the selling price by more than 5%, as compared to the previous selling price in the month of March 2017 and that this reduction was ignored by DGAP while calculating the profiteering amount, though DGAP had acknowledged the said fact in his report dated 28/06/2019. The Respondent has further submitted that he had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not provide any machinery for assessment of tax in terms of Section 171 of the above Act. He has also contended that the law being vague, it would not be open to the Assessing Authority to arbitrarily assess the tax amount. He has further added that where the statute did not provide procedural machinery for assessment or levy of tax, or where it was confiscatory, the same ought to be treated as unconstitutional. He has cited the case of Commissioner Central Excise and Customs Kerala v. Larsen and Toubro Limited (2016) 1 SCC 170 = 2015 (8) TMI 749 - SUPREME COURT in his defence, The Respondent has stated that the Hon'ble Apex court in the above cited case, held that in absence of prescribed machinery and prescribed procedure, acquires the character of a purely administrative affair and thus was a contravention of Article 19 (1) (g) of the Constitution of India. On the basis of the above cited decision of the Hon'ble Apex court, the Respondent has further contended that on the same analogy, determination of quantum of profiteering and thereby imposing a liability on the Respondent should be based on a prescribed machinery and a prescribed procedure, in the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T ITC to turnover ratio, i.e. 2.76%, from post GST ITC to turnover ratio, i.e. 7.26%. Therefore, amount of ITC which was available to the Respondent before introduction of GST, i.e. 2.76% of turnover, has been duly considered in Table 'B' above. Therefore, the profiteering has been calculated only on the additional ITC benefit which he has got during post-GST period and hence, the contention of the Respondent has already been addressed during investigation by the DGAP. 24. 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 any supply of goods or services or the benefit of input tax credit shall be passed on to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention made by the Respondent in this regard cannot be accepted. 27. The Respondent has contended that he had reduced the prices of flats after introduction of GST. In this regard it is observed from the Annexure-13 of the DGAP Report that the Respondent has reduced the prices in March, 2017, much before the implementation of GST and further prices reduced by the Respondent vary from 4% to 17% and it is nowhere mentioned that these prices have been reduced in respect of ITC benefit which has accrued to the Respondent due to implementation of the GST. Therefore, there is no ground to believe that the above price reduction was done on account of the ITC benefit and there is no doubt that this reduction was done only due to commercial reasons and hence the contention made by the Respondent in this regard cannot be accepted. 28. The Respondent has contended that the DGAP had wrongly compared data of 15 months of pre-GST period with data of 18 months of post GST period for the determination of profiteering. Perusal of DGAP's Report shows that the periods considered for calculation of ratio of Input Tax Credit to turnover are the period before introduction of GST, i.e. April, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant to sold and unsold units and profiteering has been computed by considering the proportionate ITC relevant to sold flats/units only. Therefore, the contention of the Respondent has already been addressed appropriately at the time of investigation by the DGAP. 31. The Respondent has also contended that at the time of completion of project, there may be the situation in which he would remain with excess ITC credit. In this regard it is clear from the DGAP Report that the profiteering has been calculated from July, 2017 to December, 2018 only and the ITC relevant to this period has been considered by the DGAP. It is clearly mentioned in the Para-22 of the DGAP Report that the profiteering after December, 2018 had not been examined as the exact quantum of ITC was not available at that time, since at that time the construction of the project was not complete. Therefore, the issue of excess ITC benefit at the time of completion of the project becomes irrelevant for the current proceedings since profiteering has been calculated only in respect of sold units on which GST is being charged by the Respondent from the customers and the effect of any future reversal of ITC must be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the complaints alleging non passing of the above benefits on the recommendation of the Standing Committee on Anti-Profiteering. Vide Rule 127 this Authority has been assigned the duty of determining whether these benefits have been passed on or not, to identify the registered person who has not passed on the above benefits, to provide relief to the affected consumers, get the profiteered amount returned or deposited and impose penalties. Under Rule 133 this Authority has been empowered to determine the above benefits grant them to the eligible recipients, get the profiteered amount deposited and impose penalties. Under Section 171 (3A) of the CGST Act, 2017 read with Rule 133 (3) (d) (e)) of the above Rules, this Authority has been given power to impose penalty on the registered persons and cancel their registration who do not pass on the above 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the goods or services or both supplied by him. Intention of the law clearly suggests that the registered person has to pass on the commensurate benefit of ITC to his each and every recipient not only to the complainant. Therefore, the contention of the Respondent is contradictory to the intent of the law and hence, cannot be accepted. 37. 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 to pay more price by not releasing the benefit of additional ITC and by collecting tax @12% on this additional realisation he has denied the benefit of additional ITC to them by not reducing the prices of the flats commensurately. Had he not collected additional GST the buyers would have paid less price and by doing so he has denied them the benefit of additional ITC which amounts to violation of Section 171 of the above Act. Both the Central as well as the State Government had no intention of collecting the additional GST as they had forfeited their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned in Annexure14 of the Report dated 28.06.2019. These buyers are identifiable as per the documents placed on record and therefore, the Respondent is directed to pass on this amount of ₹ 49,79,425/- and ₹ 1,33,503/- to the other flat buyers and the Applicant No. 1 respectively along with the interest @ 18% per annum from the dates from which the above amount was collected by him from them till the payment is made, within a period of 3 months from the date of passing of this order as per the details mentioned in Annexure- 14 attached with the Report dated 28.06.2019. 40. 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 detailed above. Since the present investigation is only up to 31.12.2018 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by the Respondent. As the Respondent has claimed that the OC has been received by him in June, 2019 therefore, the DGAP is directed to carry out further investigation as per the provisions of Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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