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2020 (3) TMI 288

..... price, not passed on - contravention of section 171 of CGST Act - Penalty - HELD THAT:- It is established from the perusal of the 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. 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 investi .....

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..... eering, in its meetings held on 11th March, 2019, wherein it was decided to forward the same to the DGAP to conduct detailed investigation in to the complaint according to Rule 129 (1) of the CGST Rules, 2017. 2. The Applicant had furnished the following documents along with his application:- (a) Copy of booking application form along with receipts. (b) Copies of e-mails sent to the Respondent, requesting to pass on the benefit of appropriate input tax credit. 3. On receipt of the recommendation from the Standing Committee on Anti-profiteering, the DGAP had issued Notice dated 04.04.2019 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 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 .....

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..... vices Tax Rules, 2017, the Respondent would have to reverse the input tax credit proportionately. Therefore, input tax credit which formed part of the cost of construction of such unsold units would be reversed and the exact input tax credit attributable to units sold prior to receiving of completion certificate would be known only at the end of the project and after issue of occupancy certificate. Accordingly, the Respondent would pass on the net benefit of input tax credit to the customers. b) That the Respondent had also mentioned a term in booking application form which reads as (za) The Company is agreeable to pass the net benefit of input tax credit for the projects under construction as 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 s .....

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..... ails of flat allotment share details. (j) Details of turnover, output tax liability, GST payable and input tax credit availed for the project Aparna Serene Park . (k) List of home buyers in the project Aparna Serene Park . 7. The DGAP has also stated that all the documents placed on record were carefully examined by him and he had found that the main issues for investigation were 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 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/- .....

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..... e (b) of para 5 of Schedule II of the Central Goods and Services Tax Act, 2017 reads as (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier . In the light of these provisions, the DGAP has contended that the ITC pertaining to the units which were under construction but not sold was provisional ITC that may be required to be reversed by the Respondent, if such units would remain unsold at the time of issue of CC, in terms of Section 17 (2) & Section 17 (3) of the Central Goods and Services Tax Act, 2017 which read as under:- 17 (2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting 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 s .....

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..... Input Tax Credit Available (D)= (A+B) or (C) 1,48,84,446 41,50,093 1,90,34,539 7,11,97,013 37,37,73,621 44,49,70,634 5. Turnover for Residential Flats as per Home Buyers List (E) 42,97,24,965 44,81,93,285 87,79,18,250 1,63,25,67,864 3,36,19,50,767 4,99,45,18,631 6. Total Saleable Build-up Area (including Land Owners share) (in SQF) (F) 28,02,340 28,02,340 7. Total Sold Build-up Area relevant to turnover as per Home Buyers List (in SQF) (G) 4,89,960 13,91,175 8. Relevant ITC [(H)= (D)*(G)/(F)] 33,27,991 22,08,98,257 Ratio of Input Tax Credit Post-GST [(I)=(H)/(E)] 0.38% 4.42% 13. The DGAP has also submitted 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 t .....

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..... GAP 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 amount was with respect to 827 home buyers, whereas the Respondent had booked 842 units till 31.03.2019. 15 customers who had booked the flats and also paid the booking amounts in the pre-GST period, had not paid any consideration during the post-GST period from 01.07.2017 to 31.03.2019 (period under investigation). Therefore, if the input tax credit in respect of these 15 units was considered to calculate profiteering in respect of 827 units w .....

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..... it 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 Representatives. The Respondent has filed written submissions dated 09.11.2019, 27.11.2019, 28.11.2019, 10.12.2019 and 13.01.2020. The main issues raised by the Respondent in his above submissions are mentioned in the subsequent paras. 22. The Respondent has stated that the Report dated 30.8.2019 submitted by the DGAP was contrary to the provisions of the CGST Act, 2017 and the Rules made there under. The DGAP has not considered the relevant factors w .....

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..... 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 though GST laws provided the credit of goods held in stock by the developers as on GST transition date subject to satisfaction of certain conditions: a) The developer needed to be in possession of the invoice evidencing payment of duty and such invoice should not be issued more than twelve months prior to the GST transition date. b) Credit of Central Excise and VAT paid on goods held in stock as on transition date was not availed as credit in returns and c) The goods .....

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..... ial 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 the months of April 2019, May 2019, June 2019, July 2019, Aug, 2019 and Sept. 2019. (c) Form GSTR-1 (monthly GST return) showing discharge of GST liability @12% along with list of buyers from whom GST has been collected @5% for the months of April 2019, May 2019, June 2019, July 2019, Aug. 2019 and Sept. 2019. 31. The submissions of the Respondent dated 09.11.2019, 27.11.2019, 28.11.2019 and 10.12.2019 were forwarded to the DGAP for his Report. The DGAP vide his supplementary Report dated 02.0 .....

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..... #8377; 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 01.07.2017 to 31.03.2019 as conveyed vide para-6 of his Report dated 30.08.2019. Since the project was in execution stage, the Respondent had incremental ITC along with incremental receipts which had bearing on the computation of profiteered amount which was determined at a given point of time in terms of Section 171 of the Central Goods and Services Tax Act, 2017. However, the concern raised by the Respondent that he had collected short GST post 01.04.2019 but discharged full GST output liability due to exercisi .....

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..... 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 Respondent has not reduced the basic prices of his flats by 4.04% due to additional benefit of ITC and by charging GST at the increased rate of 12% on the pre-GST basic price, he has contravened the provisions of Section 171 of the CGST Act, 2017. The DGAP has further submitted that the amount of benefit of ITC which has not been passed on by the Respondent or the profiteered amount came to ₹ 22,59,91,9791- which included 12% GST on the basic profiteered amount of ₹ 20,17,78,5531-. The DGAP has also intimated th .....

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..... 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 therefore he could pass less benefit to another customer than the benefit which is actually due to that customer. Each customer is entitled to receive the benefit of tax reduction or ITC on each product/flat purchased by him. The word commensurate mentioned in the above Section gives the extent of benefit to be passed on by way of reduction in the prices which has to be computed in respect of each product based on the tax reduction as well as the existing base price (price without GST) of the product or the benefit ITC which has accrued t .....

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..... 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. The Respondent is under legal obligation to pass on the above benefit as per the provisions of Section 171 (1) of the above Act and therefore, he has to pass it. He cannot be allowed to wait till the time of completion of the project. In case the Respondent proposes to pass on the above benefit at the time of the closure of the project he should also avail the benefit of ITC at that time only since, he cannot apply different yardsticks while availing the benefit himself and while passing it on to his recipients. The Respondent cannot use the a .....

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..... ering 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 monthly returns. No specific rules or guidelines were required to be provided for mathematical calculation of the benefit as the methodology to compute the above benefit has already been provided in Section 171 (1) itself. Hence, the above contention of the Respondent is not correct. 42. The Respondent has also claimed that cancellation of bookings and offering of rebates would increase his tax liability as he would not be able to adjust his tax liability on the basis of the credit notes. However, the above contention of the Respondent is incorrect as t .....

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..... fit 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 has adequate balance towards profiteered amount of ₹ 16,54,11,420/- and interest of ₹ 1,57,75,602/-(subject to TDS@ 10%) in the HDFC Bank Ltd., Jubilee Hills Branch, Hyderabad and he has disbursed cheques to the respective customers at the Serene Park s site Accounts office. He has also enclosed bank statement evidencing the above amount. In this connection it would be pertinent to mention that the Respondent has furnished different figures of the profiteered amount and interest in his various submissions as per his own whims and fancies without explainin .....

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..... y 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 taxable amount (base price) and 12% GST on the said profiteered amount from the flat buyers other than the Applicant No. 1 as has been mentioned in Annexure-18 of the DGAP s Report dated 30.08.2019. These buyers are identifiable as per the documents placed on record and therefore, the Respondent is directed to pass on this amount of ₹ 22,55,17,114/- and the amount of ₹ 4,74,865/- 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 t .....

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