TMI Blog2020 (3) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... cludes both the profiteered amount @ 4.04% of the taxable amount (base price) and 12% GST on the said profiteered amount from the Applicant No. 1. 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 31.03.2019 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by the Respondent. The concerned Commissioner CGST/SGST shall ensure that the above benefit is passed on to the eligible flat buyers. In case the above benefit is not passed on by the Respondent the Applicant No. 1 or any other buyer shall be at liberty to approach the Telangana State Screening Committee to initiate fresh proceedings against the Respondent as per the provisions of Section 171 of the CGST Act, 2017. Penalty - HELD THAT:- The Respondent has denied benefit of ITC to the buyers of the flats being constructed by him in his above project in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad not been passed on to the above Applicant 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 along with the supporting documents. The Respondent was given opportunity to inspect the non-confidential evidence/information furnished by the above Applicant during the period between 10.04.2019 to 12.04.2019 in accordance with Rule 129 (5) of the above Rules and he availed of the said opportunity and inspected the documents on 22.04.2019. Vide e-mail dated 23.08.2019, the above Applicant was also given opportunity to inspect the non-confidential documents/reply submitted by the Respondent on 27.08.2019 or 28.08.2019. However, the Applicant expressed his inability to do so due to medical emergency in his family and requested to provide copies of non-confidential documents which were sent to him by the DGAP vide e-mail dated 28.08.2019. The Applicant acknowledged the same vide e-mail dated 28.08.2019 and requested the DGAP to proceed further. 4. The DGAP has covered the period from 01.07.2017 to 31.03.2019 during the current investigation. The time limit to complete the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per methodology procedure to be determined by GST Standing Committee Screening Committee under relevant Sections Rules of GST Act, 2017 . In this regard it was submitted by the Respondent that the method of arriving or modus operandi to arrive at the benefit had not been provided in the statute and therefore this provision had not become workable at that time and hence the validity of the Rules and methodology adopted, without any guidelines or criteria in the statute, was subject matter of several Writ Petitions pending before the Hon ble High Courts of Delhi and Bombay. Therefore, Respondent requested to await the decision in the said Writ Petitions before proceeding further in this matter. c) That the Project Aparna Serene Park was a joint development project where development agreements were entered on 20.12.2012, 28.2.2013, 02.5.2013, 23.8.2013, 04.3.2013, 27.8.2013, 19.9.2013 and 05.5.2016 respectively with various land owners to develop the project. The Joint Development Agreements were signed after the approval for construction of project was obtained on 11.8.2016. The project consisted of 1679 Residential Units out of which the Respondent s share was 1173 Resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yers as per the provisions of Section 171 of the CGST Act, 2017 or not. 8. The DGAP has further stated that the Respondent, vide his letter dated 24.04.2019 had submitted the copies of the Sale agreement dated 28.08.2018, booking application form dated 17.06.2018, demand letters and payment receipts for the sale of Flat No. 806, H Block, 8th Floor to the Applicant, measuring 1,710 square feet, at total basic sale price of ₹ 1,05,49,290/- (₹ 5,599/- basic sale price per square feet and ₹ 50,000/- for Gas Pipeline, ₹ 75,000/- for Air conditioner conducting Copper wiring and ₹ 8,50,000/- for car parking, water drainage, electricity, D.G. Set etc). The details of amounts and taxes paid by the Applicant to the Respondent are mentioned in Table-A below:- Table- A (Amount in Rs.) S.No. Payment Stage Basic % BSP Maint. Charges Corpus Fund Caution Deposit GST @ 12% Total Payment Date 1. 20% payable on Unit Value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25,318 2,36,304 12. Handing Over (of respective apartment) 2.00% 2,10,986 1,23,120 1,50,000 47,480 5,31,586 Total 100.00% 105,49,290 1,23,120 1,50,000 12,88,076 1,21,10,486 9. The DGAP has observed that the contention of the Respondent that he would, compute the benefit on account of input tax credit of GST in respect of the project, at the end of the project and pass on the benefit that has accrued on account of GST, may have merit but the profiteering, if any, was to be determined at a given point of time, in terms of Rule 129 (6) of the above Rules. Therefore, the additional input tax credit available to the Respondent and the amounts received by him from the Applicant and other recipients post implementation of GST, had to be taken into account to determine the benefit of input tax credit that was required to be passed on. 10. The DGAP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject matter of several Writ Petitions pending before the Hon ble High Court of Delhi and Bombay was not acceptable as the Hon ble High Court had not granted any stay on the present proceedings. 12. The DGAP has also observed that prior to 01.07.2017, i.e. before the GST was introduced, the Respondent was eligible to avail Credit of Service Tax paid on input services only (no credit was available in respect of Central Excise Duty paid on the inputs) and input tax credit of VAT paid on inputs was not available to the Respondent. Further, post-GST, the Respondent could avail input tax credit of GST paid on all the inputs and the input services including the sub-contracts. From the information submitted by the Respondent for the period from April, 2016 to March, 2019, the details of the input tax credit availed by him, his turnover from the impugned project Aparna Serene Park , the ratio of input tax credit to turnover, during the pre-GST period from April, 2016 to June, 2017 and post-GST period from July, 2017 to March, 2019 was furnished by the DGAP as per the Table-B given below:- Table- B (Amount in Rs.) S.No. Particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted from the Table-LB that the ITC as a percentage of the total turnover that was available to the Respondent during the pre-GST period from April, 2016 to June, 2017 was 0.38% and during the post-GST period from July, 2017 to March, 2019, it was 4.42% which clearly confirmed that post-GST, the Respondent has been benefited from additional ITC to the tune of 4.04% [4.42% (-) 0.38%] of the turnover. 14. The DGAP has further observed that the Respondent had paid Service Tax on the total construction value pertaining to the area of land owners and had not charged any GST from them and therefore he was not required to pass on any benefit on account of input tax credit to them. 15. The DGAP has examined profiteering by comparing the applicable tax rate and input tax credit available in the pre-GST period (April, 2016 to June, 2017) when Service Tax @4.5% and VAT@1.25% were payable (total tax rate of 5.75% approx.) with the post-GST period (July, 2017 to March, 2019) when the effective GST rate was 12% (GST @18% alongwith 1/3 rd abatement for land value) on the construction service, which was levied vide Notification No.11/2017-Central Tax (Rate), dated 28.06.2017. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 2017, the benefit of the additional ITC was required to be passed on to the respective recipients. 17. On the basis of the aforesaid CENVAT/ITC availability pre and post-GST and the details of the amount collected by the Respondent from the Applicant and the other home buyers during the period from 01.07.2017 to 31.03.2019 the amount of benefit of ITC not passed on or in other words, the profiteered amount has been quantified by the DGAP as ₹ 22,59,91,979/-(Rupees Twenty Two Crore Fifty Nine Lakh Ninty One Thousand Nine Hundred and Seventy Nine Only) which included GST 12%, on the base profited amount of ₹ 20,17,78,553/-. The home buyer and Unit No. wise break-up of this amount has been given in Annexure-18 of the DGAP s Report. This amount was inclusive of ₹ 4,74,865/- (including GST 12% on the base amount of ₹ 4,23,986/-) which was the profiteered amount in respect of the Applicant No. 1, mentioned at Serial No. 300 of Annesure-18 of the Report. It was also observed that the Respondent had supplied the construction services in the State of Telangana only. 18. The DGAP has further stated that the above computation of the profiteered amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t March, 2019, has not been examined by him, as the exact quantum of ITC that would be available to the Respondent in future could not be determined at the stage, when the construction of the project was yet to be completed. He has further stated that the provisions of Section 171 (1) of the Central Goods and Services Tax Act, 2017 requiring 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 recipient by way of commensurate reduction in prices ,have been contravened by the Respondent in the present case. 21. The above Report was considered by this Authority in its meeting held on 11.09.2019 and it was decided that the Applicants and the Respondent be asked to appear before this Authority on 27.09.2019. The Respondent was issued notice on 16.09.2019 to explain why the above Report of the DGAP should not be accepted and his liability for violating the provisions of Section 171 of the CGST Act, 2017 should not be fixed. During the course of the hearings Sh. Abhishek Singh the Applicant No. 1 appeared in person and the Respondent was represented by Sh. K. Joga Rao and Sh. B. Ravi Kumar, Authorised Repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e projects and ITC reversal was applicable on such expenses on sale of properties post obtaining of OC. 26. The Respondent has further submitted that the GST law provided for disallowance of ITC credit due to non-payment (of value and tax) to the vendors within 180 days which might result in disallowance of ITC on the payments made to the sub-contractors. 27. The Respondent has also claimed that cancellation of bookings after 1-2 years was a common event in the real estate industry where the amount paid by the customers was required to be refunded by the developer after retention. Offering of rebates for timely payment and early move-in etc. was also prevalent in the industry. However, the time limits prescribed under the law for issuance of credit notes would lead to tax loss in many cases as the tax would have been paid but no adjustment was available. Thus, the issuance of credit notes on account of cancellation of contracts or as a result of rebates offered imposed a challenge for tax adjustments on the refundable portion and this might increase tax burden and the developer could not refund the tax amount to customers. 28. It was further claimed by the Respondent that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om (ii) 01.07.2017 to 31.09.2019, it would come to ₹ 15,38,55,476 and ₹ 9,30,63,742 respectively. From the above computations for the periods ending on 30.6.2019 and 30.9.2019, it was evident that the benefit of ITC to all the customers would not be equal if the computation of the net benefit on account of implementation of GST was confined to a particular period and the deprived customers may initiate appropriate legal action against the Respondent before different judicial forums by claiming equal benefit of ITC. In such situation, the Respondent was required to re-compute and arrive at benefit of ITC after issue of CC after considering all the above factors and pass the benefit of ITC to all the buyers in just and equitable manner. Therefore, any order based on the Report dated 30-8-2019, would put the Respondent to irreparable loss and hardship. In this regard, the Respondent has also submitted following documents:- (a) Copy of the Form dated 04.5.2019 exercising the option of collection of GST @12% and discharging GST@12% by availing ITC. (b) Sample copies of Taxable Receipts issued to the customers showing collection of GST @5% by passing of ITC @7% for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong with list of home buyers for the period from 01.04.2019 to 30.09.2019. Further, vide letter dated 28.11.2019, the Respondent has expressed his agreement with the methodology used for determination and computation of profiteered amount by the DGAP in his Report dated 30.08.2019. Accordingly vide letter dated 10.12.2019, the Respondent has recomputed the profiteering percentile as 3.33% for the period from 01.07.2017 to 30.09.2019 resulting into total profiteering amount of ₹ 28,99,07,458/- as against ₹ 22,59,91,979/- computed by the DGAP in his investigation Report dated 30.08.2019 for the period from 01.07.2017 to 31.03.2019. The Respondent has also submitted customer wise list of profiteered amount of ₹ 28,99,07,458/- along with passing on of ₹ 12,44,96,038/- (by way of short collection of GST on receipts for the period from 01.04.2019 to 30.09.2019) and ₹ 16,54,11,420/- (by way of Bank Cheques dated 30.11.2019). Further, the Respondent has submitted computation of interest as ₹ 1,57,75,602/- on the above amount passed on to the customers. In this regard, the DGAP has clarified that the period covered by the present investigation was from 01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to conclude the hearings accordingly. 34. We have carefully considered all the submissions filed by the Applicants, the Respondent and the other material placed on record and find that the Applicant No. 1, vide his complaint dated 26.02.2018 has alleged that the Respondent was not passing on the benefit of ITC to him in spite of the fact that he was availing ITC on the purchase of the inputs at the higher rates of GST which has resulted in benefit of additional ITC to him and was also charging GST from him @12%. This complaint was examined by the Standing Committee in its meetings held on 11.03.2019 and was forwarded to the DGAP for investigation who vide his Report dated 30.08.2019, received by this Authority on 06.09.2019 has found that the ITC as a percentage of the total turnover which was available to the Respondent during the pre-GST period was 0.38% and during the post-GST period this ratio was 4.42% as per the Table-B mentioned above and therefore, the Respondent has benefited from the additional ITC benefit to the tune of 4.04% (4.42% - 0.38%) of the total turnover which he was required to pass on to the flat buyers of this project. The DGAP has also found that the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for passing on the benefits of reduction in the rate of tax and the benefit of ITC are enshrined in Section 171 (1) of the CGST Act, 2017 itself which states 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 recipient by way of commensurate reduction in prices. It is clear from the perusal of the above provision that it mentions reduction in the rate of tax on any supply of goods or services which means that the benefit of reduction in the rate of tax is to be passed on each supply of goods or flat and not at the level of an entity/group/company or on the entire supplies. Therefore, the benefit of tax reduction has to be passed on at the level of each supply of Stock Keeping Unit (SKU) to each buyer of such SKU or flat and in case it is not passed on the profiteered amount has to be calculated on each such SKU/flat. Further, the above Section mentions any supply i.e. each taxable supply made to each recipient thereby clearly indicating that netting off of the benefit of tax reduction or ITC by a supplier is not allowed. A supplier cannot claim that he has passed on more benefit to one customer ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), restaurants, construction and cinema houses are completely different and therefore, the mathematical methodology employed in the case of one sector cannot be applied in the other sector otherwise it would result in denial of the benefit to the eligible recipients. Moreover, both the above benefits have been granted by the Central as well as the State Governments by sacrificing their tax revenue in the public interest and hence the suppliers are not required to pay even a single penny from their own pocket and hence they have to pass on the above benefits as per the provisions of Section 171 (1). Therefore, the above contention of the Respondent is frivolous and hence the same cannot be accepted. 37. The Respondent has further claimed that the profiteering should have been computed at the time of completion of the project as the exact amount of ITC benefit cannot be computed before completion. In this connection it would be appropriate to mention that the benefit of ITC is required to be passed on as soon as the Respondent uses the ITC to discharge his GST output liability which he is doing every month and accordingly, he is required to pass on the above benefit every month. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith his suppliers. Therefore, the above contention of the Respondent is not correct. 40. The Respondent has also submitted that he had not refused to pass on the benefit of ITC however, it is clear from the submissions dated 28.11.2019 filed by the Applicant No. 1 that the Respondent has not passed any benefit of ITC to his buyers till date and hence the claim of the Respondent that he has not refused to pass on the benefit of ITC is not bonafide and hence it cannot be accepted. 41. It is further submitted by the Respondent that though Anti-profiteering provisions mandated passing on of the tax benefits by way of price reduction but without clear guidelines or explicit rules it was not possible to decide the quantum of the net ITC benefit. In this connection it would be pertinent to mention that the Respondent had all the details of the CENVAT Credit and the ITC available to him on payment of VAT with him as well as the ITC which was available to him post implementation of GST and hence, there should have been no problem in computing the benefit of additional ITC which had accrued to him post GST and pass the same every month as he was availing the benefit himself through his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,38,55,476/- and ₹ 9,30,63,742/- respectively is also without any basis as he has not explained the methodology of computation and the amount of benefit which is to be passed to each flat buyer. The above calculation of the benefit cannot be taken in to account on the mere assertion of the Respondent. He has also contended that the benefit of ITC to all the customers would not be equal if the computation of the net benefit on account of implementation of GST was confined to a particular period. The above contention of the Respondent is frivolous as the benefit is required to be passed on the basis of the amount of price collected from each buyers post GST which can never be same in the case of all the buyers as it would depend upon multiple variables mentioned supra. Moreover, the benefit is also required to be passed periodically and the buyers cannot be forced to wait till the completion of the project. Therefore, there is no question of the buyers claiming equal amount of ITC benefit and his suffering irreparable loss the Respondent is not paying even a single penny from his own account. 45. The Respondent vide his submissions dated 13.01.2020 has also claimed that he h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tlement of the buyers as the project is still under execution. Hence, there are no grounds to remand this case to the DGAP under Rule 133 (4) of the CGST Rules, 2017 at this stage as has been suggested by him. 47. It is established from the perusal of the above facts that the Respondent has benefited from the additional ITC to the extent of 4.04% of the turnover during the period from 01.07.2017 to 31.03.2019 and hence the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent as he has not passed on the above benefit to his customers by commensurate reduction in the prices of the flats. Accordingly, the profiteered amount is determined as ₹ 22,59,91,979/- inclusive of GST @ 12% on the base profiteered amount of ₹ 20,17,78,553/- in terms of Rule 133 (1) of the CGST Rules, 2017. Further, the Respondent has realized an additional amount of ₹ 4,74,865/- which includes both the profiteered amount @ 4.04% of the taxable amount (base price) and 12% GST on the said profiteered amount from the Applicant No. 1. He has further realized an additional amount of ₹ 22,55,17,114/- which includes both the profiteered amount @ 4.04% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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