TMI Blog2020 (9) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount of ₹ 31,823/- to the Applicant No. 1 which was due to him, hence, no further benefit is to be passed on to the above Applicant. These buyers are identifiable as per the documents placed on record and therefore, the Respondent is directed to pass on an amount of ₹ 9,67,330/- to the flat buyers mentioned in the above Annexure along with the interest 18% per annum in terms of Section 171 (1) read with Rule 133 (3) (b) of the above Rules from the dates from which the above amounts were 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-21 attached with the Report dated 31.01.2020. The Respondent has also availed benefit of ITC of 3.62% of the total turnover in respect of the project PARKWEST-MAPLE during the period from July, 2017 to April, 2019 which he was required to pass on to the flat buyers of the above project which he has failed to do and hence the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent and thus an amount of ₹ 3,03,94,113/- inclusive of GST @ 12% on the base amount of ₹ 2,71,37,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above violation and hence, the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively. Accordingly, notice for imposition of penalty is not required to be issued to the Respondent. - Case No. 59/2020 - - - Dated:- 31-8-2020 - DR. B.N. SHARMA, CHAIRMAN, SH. J.C. CHAUHAN, TECHNICAL MEMBER, SH. AMAND SHAH. TECHNICAL MEMBER Present: - 1. Sh. G. Venugopal, the Applicant No. 1 in person. 2. None for the Applicant No 2. 3. Sh. S. S. Gupta and Sh. Ram Kasyapa, Authorised Representatives for the Respondent. ORDER 1. The present Report dated 31.01.2020, has been received from the Applicant No. 3 i.e. the Director General of Anti-Profiteering (DGAP) after a detailed investigation under Rule 129 (6) of the Central Goods Service Tax (CGST) Rules, 2017. The brief facts of the case are that an application was filed before the Karnataka State Screening Committee on Anti-profiteering by the Applicant No. 1, alleging profiteering by the Respondent in respect of purchase of Apartment No. Emerald-002, in the Respondent s project PARKWEST-EMERALD , situated at 1 1, 1, Hosakerehalli Main Road, Binnyfields, Binny Pete, Jagaje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the DGAP on 13.05.2019, calling upon the Respondent to reply as to whether he admitted that the benefit of input tax credit had not been passed on to the Applicant No. 1 by way of commensurate reduction in price and if so, to suo moto determine the quantum thereof and indicate the same in his reply to the Notice as well as furnish all the supporting documents. Vide the said Notice, the Respondent was given an opportunity to inspect the non-confidential evidence/ information submitted by the Applicants during the period from 21.05.2019 to 23.05.2019 which the Authorized Signatory of the Respondent availed of on 10.10.2019. Vide e-mail dated 23.09.2019 and 24.01.2020, the Applicant No. 1 and 2 were given an opportunity to inspect the non-confidential documents/reply furnished by the Respondent on 01.10.2019 or 03.10.2019 which they did not avail of. 7. The period covered by the DGAP in the present investigation is from 01.07.2017 to 30.04.2019. The time limit to complete the investigation was extended upto 01.02.2020 by this Authority vide its order dated 31.10.2019, in terms of Rule 129 (6) of the Rules. 8. In response to the Notice dated 13.05.2019, the Respondent has subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of completion certificate, where required, by the competent authority or after his first occupation, whichever was earlier . Thus, the input tax credit pertaining to the residential units which were under construction but not sold was provisional input tax credit which might be required to be reversed by the Respondent, if such units remained unsold at the time of issue of the Completion Certificate (CC), in terms of Section 17 (2) Section 17 (3) of the CGST Act, 2017, which read as under:- Section 17 (2) Where the goods or services or both was 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 exempted supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as was attributable to the said taxable supplies including zero-rated supplies . Section 17 (3) The value of exempted supply under sub-section (2) shall be such as might be prescribed and shall include supplies on which the recipient was liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Therefore, the benefit which has accrued to the Respondent was only to the extent of the tax rate which was applicable in the earlier period only and not to the extent of the entire tax being charged on the said works contract services. Tax Rate of works contract services under the earlier regime was 16.15% i.e. VAT 10.15% (14.50% X 70%) and Service Tax of 6.00% (15.00% x 40%). However, after GST, the rate of tax on works contract services was 18.00%. Therefore, the benefit arising to the Respondent due to GST was only 16.15% and not entire 18.00% because with the implementation of GST the rate had been increased from 16.15% to 18.00%. Had the GST not been implemented. the cost of the Respondent would have been restricted to 16.15% of the tax only. Therefore, it was submitted that the benefit to the Respondent due to GST was only 16.15% and not 18.00%. In view of the above, it was submitted that amount of ₹ 28,99,898/- was not an additional benefit accruing to the Respondent due to advent of GST on the works contract services. This credit was now available to the him under GST regime only due to increase in the rate of tax under the GST vis- -vis the earlier reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, ₹ 1,39,7951- should not be included in the input tax credit availed in the pre-GST regime. c. The credit and taxable value do not synchronise in the same month or the same period: The agreement for sale of premises entered into between the buyer and the Respondent specified the milestone for recovery of the amount. The invoice could be raised only on achieving milestones whereas the credit accrued to the Respondent on incurring expenditure for construction of the project. Therefore, there was no synchronization between the credit availed and the value of taxable service provided by the Respondent during any period. Due to this reason, the percentage of availment of credit during the period would also vary. In the given case of the PARKWEST-EMERALD project, billing done by the Respondent upto 30.06.2017 was 90%. The same could be seen from the invoice No. 907098646 issued to the Applicant No. 1 dated 29.06.2017 and the schedule of payment as per the contract. However, the work completed upto 30.06.2017 was only 53%. The same could be verified from the RERA certificate of PARKWEST-EMERALD project. Therefore, it could be seen that 90% of the billing had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As submitted above, ₹ 3,43,72,990/- was the input tax credit for 37% of the work done. Therefore, ₹ 3,25,14,990/- was for the 35% of the work done and the remaining credit was for work and billing done prior to April, 2016. Accordingly, the credit for the 2% work amounting to ₹ 18,58,000/- and credit availed during the period from April, 2016 to June, 2017 should not be considered as input tax credit of pre-GST regime for the purpose of anti-profiteering calculations since the same also pertained to the period prior to April, 2016 as the invoicing was done in the period prior to April, 2016. He has also submitted the following details:- Particulars Total Pre-GST Total Credit in Pre-GST regime - (A) 4,50,88,505 Factual adjustments a) Addition of credit pertaining to work done prior to GST regime 1,39,795 and invoice raised in GST regime - Paragraph 2 - (B) 1,39,795 b) Work done prior to April-16 but invoice raised, and credit availed after April-16 - (C A + B) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under rule 2 (1) of the Cenvat Credit Rules, 2004 which was utilised to pay the Service Tax. The Respondent was also allowed to avail the credit of VAT paid on purchase of goods under Section 10 of the Karnataka Value Added Tax Act, 2003 (KVAT Act) which was utilised to pay outward VAT liability. The same has been explained below:- a) Works contractors operating in Karnataka were allowed to opt either for the regular scheme or for the composition scheme. Works contractors who opted to pay tax under the Composition Scheme were governed by the provisions contained in Section 15 of the KVAT Act, which read as under:- 15. Composition of tax.- (1) Subject to such conditions and in such circumstances as might be prescribed, any dealer other than a dealer who purchases or obtains goods from outside the State or from outside the territory of India, liable to pay tax as specified in Section 4 and, (a) whose total turnover does not exceed an amount as might be notified by the State Government which shall not exceed fifty lakh rupees, and who was not a dealer falling under clause (b) or (c) of ta) (d) below (b) who was a dealer executing works contracts, or --- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax invoice, debit note or credit note, in relation to a sale, had been issued in accordance with Section 29 and was with the registered dealer taking the deduction at the time any return in respect of the sale was furnished, except such tax paid under sub-section (2) of Section 3. (5) Subject to input tax restrictions specified in Sections 11, 12, 14. 17, 18 and 19, where under sub-section (3) the input tax deductible by a dealer exceeded the output tax payable by him, the excess amount shall be adjusted or refunded together with interest. as might be prescribed. It was clear from the above, that works contractors who had opted to go under the regular scheme were entitled to avail of the benefit of input tax credit. ITC was allowed to be taken by the works contractors on purchase of all goods and materials and there was no restriction. As a works contractor, the Respondent had claimed input tax credit of the eligible goods, materials and capital goods as allowed under Section 10 read with Section 11 and his assessments under the KVAT Act were completed till June 30, 2017. It was evident from the said returns that he had claimed VAT credit. b. The benefit to be pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2% of the balance demand to be raised on the customers. He had raised 90% of the invoicing in the pre-GST regime. Accordingly, he had passed on benefit to the customers at the rate of 2% on the 10% value of the total consideration from all the customers. The customer wise data of the benefit amounting to ₹ 50,37,790/- passed on to the customers has been furnished vide Annexure-3. Further, the sample copies of invoices of the 5 customers showing that the amount of input tax credit benefit had been passed on to them were attached as Annexure-4. It could be seen from the working that the total Excise Duty benefit accruing to the Respondent was ₹ 55,37,108/-. The total work done in the pre-GST regime in this project was 53%. Thus, it was clear from the above list of materials that the balance 47% work was carried out in the post-GST regime. However, in post-GST regime, the Respondent had billed only 10% to the customers. Thus, the benefit which was required to be passed on account of the purchase of these materials was only ₹ 11,78,108 (i.e. 55,37,108/47*10). However, he had already passed on ₹ 50,37,790/- GST benefit to his customers. Thus, there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... input services was admissible to him under Rule 2 (I) of the Cenvat Credit Rules 2004 which was utilized to pay the Service Tax. The Respondent has also submitted that he was allowed to avail the credit of VAT paid on the purchase of goods under Section 10 of the KVAT Act which was utilised to pay outward VAT liability. Under the KVAT Act, works Contractors who opted to go under the Regular Scheme were entitled to avail the input tax credit. The term Sale as defined under Section 2 (29) (v) (b) of the KVAT Act, included transfer of property in goods involved in the execution of a works contract. The DGAP has further claimed that upon analysing the KVAT Act and the invoices raised by the Respondent to the home-buyers it was observed that VAT for works contracts was levied @14.5% on 70% of the construction value of the demand made from the home-buyers. Thus, it was evident that there was a direct correlation between the demand made from the home buyers and the VAT charged from them. 16. From the perusal of the submission of the Respondent the DGAP has also stated that VAT was charged on the works contract agreement executed between the buyers and the Respondent in terms of the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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% It could be seen that just because the GST rate had increased/decreased on a particular product, the ITC working done by the DGAP had changed drastically. However, the gross profit and cost to the Respondent had remained constant irrespective of the GST rate on the product. This showed that the working done by the DGA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent had passed on the benefit at the rate of 2.0% on the balance demand. Thus, he had already passed on additional benefit of 1.8% (2.0% -0.2%). In this regard, the DGAP has submitted that the Respondent s contention was not tenable in the context of the GST regime. The purpose of GST was not only to extend the ITC in respect of Excise Duty on inputs used in construction service but to allow ITC of GST paid on all inward supplies of goods and services. However, in view of proper intimation to the home-buyers and reduction in the basic cost on account of GST benefit extended in compliance of Section 171 being duly mentioned with description as Less: Reduction towards Section 171 of the CGST Act, 2017 , in the demand letters, such benefits extended by the Respondent shall be accounted for in determination of amount of profiteering and properly adjusted. c. Without prejudice to other submissions, it was submitted by the Respondent that the benefit received due to increase in the rate of credit needed to be distributed to the customers. In the given case, the Respondent had received average input tax credit at the rate of 12%, i.e, 6% CGST and 6% SGST. In the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefits extended by the Respondent have been accounted for in determination of amount of profiteering and properly adjusted. d. The Respondent has also worked out the Excise Duty benefit on the actual materials procured from the start of the GST till handing over of the possession which was ₹ 55 Lakhs for the PARKWEST-EMERALD project as per the following details:- GST Benefit to be passed on to Emerald Customers for units sold until 30th June 2017- Reviewed in Sept 2019 In Rs. Particulars GST Impact Tax Benefits due to GST ED impact on actual materials procured from Jul-17 till handover 55,02,353 Total Cost impact on account of GST (A) 55,02,353 Total Saleable area to be constructed (In Sq. Feet) (C) 3,24,725 Total Area sold till date of introduction of GST (In Sq. Feet) (D) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which huge expenditure was incurred on tiles. marbles and bathroom fittings etc. The Respondent was entitled to Input tax credit on the GST charged on such items. However, it was possible that the outward liability at that stage might be much less than the ITC accrued. The excess ITC accrued to the Respondent could not be claimed as refund owing to restriction imposed vide Notification No. 15/2017-Central Tax (Rate) dated 28.06.2017. The said notification reads as follows:- In exercise of the powers conferred by sub-section (3) of section 54 of the CGST Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council hereby notifies that no refund of unutilized input tax credit shall be allowed under sub-section (3) of section 54 of the said CGST Act, in case of supply of services specified in sub-item (b) of item 5 of Schedule-II of the CGST Act. It was also submitted that there was no guarantee that the ITC accrued to the Respondent would get utilized against the output liability. If the output liability was lesser than the ITC accrued, then the excess ITC was nothing but cost to the Respondent. The ratio computed by the DGAP for arriving at profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was further submitted that the Respondent had initially worked out benefit estimate of 2.5% on the balance consideration to be billed to the customers after the implementation of the GST after taking into consideration the estimated inflation and contingencies. Further the Respondent had reviewed the status of actual benefit accruing till Sept 2019 and found that the actual benefit was working out to be lesser than the initial estimate. Mentioned below are the arguments of the Respondent in this regard. i. As already submitted, the Respondent was allowed to avail the credit of Service Tax and KVAT levied by the vendors in the pre-GST regime and only the credit of Excise Duty was not allowed to the Respondent, therefore, on advent of the GST, the Respondent had received the credit of all tax components including the Excise Duty. Thus, the Respondent had received the benefit only to the extent of Excise Duty as the same was not admissible in the pre GST regime. The Respondent had computed the benefit as per the records which was as follows:- Particular Amount Selling Price of Flat (assuming 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approx. in the pre-GST regime, however on advent of GST, the Respondent had received ₹ 6 as state credit only. Thus, the Respondent had not received any additional benefit on advent of GST. Similarly, the Respondent was allowed to avail credit of Service Tax levied on services. As per the provisions of the Finance Act, 1994, 30% of component in the value inclusive of land was service. Thus, in case total project cost was ₹ 100, value of service in the said component was ₹ 30. The Service Tax was levied @ 15%. Thus, the Respondent used to receive the credit amounting to ₹ 4.5 (15% of ₹ 30). On the advent of GST, the Respondent was receiving benefit of ₹ 6 as central credit. Thus, Respondent was receiving benefit amounting to ₹ 1.5 which was 1.25% (i.e. ₹ 1 .5/120*1 00). The Respondent had already passed on 2.5% benefit. Thus, additional benefit of 1.25% (2.5% - 1.25%) had been passed on. Further, if benefit was determined on combining the state and the central taxes, the Respondent had received benefit of ₹ 0.5 (₹ 1.5 (-) ₹ 1) whereas the Respondent had passed on ₹ 3 (i.e. 2.5% of ₹ 120). iii. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s different phases and he was in the process of developing many towers at present, each of these towers was initiated at a different point of time, that the progress of each tower was at a different stage and the Completion Certificates had been obtained for some of the towers. The Respondent has further submitted that in terms of the provisions of the RERA Act, promoter was legally bound to register his on-going as well as new projects and maintain separate accounts for each of the projects. In compliance, he had obtained RERA registration for each of the on-going projects as well as for the other planned towers and hence each of them should be considered as a separate project. The Respondent vide his submissions dated 17.12.2019 has provided the details of the credit availed and the turnover realised during the pre and the post GST regime for each project. The Respondent has also informed that he was maintaining separate accounts for each of these projects and it was established that each of the projects was different from another. In this regard, the invoices made available by the Applicant No. 1 and 2 along-with their applications specifically mentioned the names of the project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocurements/contacts. We have, however, analyzed the overall commercial scenario and had decided to pass on the benefits of transition to GST from the erstwhile tax regime. We value you as our customer and we are keen to pass the benefits arising out of GST input tax credit. Please know that you are hereby entitled to receive a discount of 12.5% of the agreement value what amounts which was yet to build. This means, 2.5% of demands would be adjusted on all future installments and on installment payment featured build on or after July 1st 2017. We also wish to inform you that these benefits would not be applicable for transactions such as maintenance charges electricity and water charges, infrastructure charges or any additional charges that was payable at the time of possession or earlier, over and above agreement value of the apartment as the case might be. In the demand letters issued post-GST to the Applicant No. 2, there was a reference to the benefit so extended, as reduction towards Section 171 of the CGST Act 2017 and the amount in proportion of the balance amount yet to be billed was duly reduced from the actual demand. Similarly, in the invoices issued to the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to GST. Thus, the Respondent would have liability to reverse the proportionate input tax credit to the extent of the flats sold after receipt of the Completion Certificate. Hence, the credit which had been availed during the period from July, 2017 onwards would also proportionately have to be reversed by him which could not be considered today. In this regard, the Respondent s contention holds no merit, as calculations of DGAP has considered the sold area and proportionate input tax credit only for the purposes of calculation of profiteering and hence the same could not be accepted. 24. The DGAP has also mentioned that the Respondent contends that even though no methodology for determination of such benefits had been notified by the authorities, based on the stage of construction of each tower, balance amount to be billed and estimates of input tax credit that would accrue to them, the Respondent had calculated on his own the quantum of benefit and offered it as discount in the net original agreement value. The Respondent has submitted that he had initially worked out benefit estimate of 2.5% on the balance consideration to be billed to the customers after implementation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence submitted by the Respondent, it was evident that the Respondent had duly intimated his home-buyers regarding passing on of the benefit of additional input tax credit on account of GST. The same was also established from the invoices raised to the home-buyers and the intimation letters sent by the Respondent to the home-buyers. 26. The DGAP has further submitted that the claim of the Respondent that the benefit so offered by reduction in the base prices had been duly incorporated might have merit but whether the reduction made or discount offered was commensurate with the increase in the benefit of input tax credit or not had to be determined in terms of Rule 129 (6) of the Rules. Therefore, the additional input tax credit available to the Respondent and the amounts received by him from the above Applicants and other recipients, both pre and 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. 27. The DGAP has also mentioned that the point for consideration was the submission of the Respondent regarding different projects on a portion of the land to be treated separately or not? The Respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enario, where separate books of accounts had been maintained by the Respondent for each tower, separate purchase register and input tax credit ledger had been maintained for each phase, reconciliation of credit and turnover for each tower with the statutory returns had been provided which had been duly verified and found to be in order, it was very logical to consider each of them as a separate project, the DGAP has claimed. As the two complaints pertained to the project PARKVVEST-EMERALD and PARKVVEST-MAPLE respectively, the ambit of this investigation had been kept limited to these two projects only. 28. The DGAP has also stated that the Respondent s claim that he had intimated his home buyers about the benefits on account of introduction of GST had been verified randomly by examining the correspondence made with the home-buyers in this regard, demand letters issued to the home-buyers and the description used in the demand letters and was found to be correct. The Respondent in the demands made to the home-buyers had duly reduced the benefit offered on account of GST with description as Less: Reduction towards Section 171 of the CGST Act, 2017 , and hence, had passed on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D) - 2,69,66,615 5. Total Turnover from Residential and Commercial Area (E) 93,76,89,135 28,41,61,628 6. Total Saleable Residential Area in sq. ft. (F) 3,24,725 4,35,219 7. Sold Area Relevant to Turnover in sq. ft. (I) 3,17,590 3,06,611 8. ITC proportionate to Sold Area (J) 4,40,97,802 1,89,97,932 9. Ratio of CENVAT/ VAT/Input Tax Credit to Turnover (K=/E) 4.70% 6.69% Table- C (Amount in Rs.) S. No. Particulars (Pre-GST) April, 2016 to June, 2017 (Post-GST) July, 2017 to December, 2018 1. Credit of Service Tax Paid on Input Services (A) 2,28,10,678 - 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the profiteering had been examined by comparing the applicable tax rate and input tax credit available to the Respondent during for the pre-GST period (April, 2016 to June, 2017) when Service Tax @ 4.5% and VAT@ 14.50% on the construction value were leviable (total tax rate was 11.6% on the basic price) with the post-GST period (July, 2017 to April, 2019) when the effective GST rate was 12% on the gross value. 32. On the basis of the figures contained in Table-B and C above, the comparative figures of input tax credit availed/available as a percentage of the turnover in the pre-GST and the post-GST periods, the recalibrated base prices as well as the excess collection (profiteering) during the post-GST period, have been tabulated by the DGAP as is given in Table- D and E below:- Table-D (Amount in Rs.) S.No. Particulars Pre-GST Post-GST 1. Period A April, 2016 to June, 2017 July, 2017 to April, 2019 2. Output tax rate (%) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pre-GST Post-GST 1. Period A April, 2016 to June, 2017 July, 2017 to April, 2019 2. Output tax rate (%) B 11.60% 12.00% 3. Ratio of CENVAT/VAT/GST Input Tax Credit to Total Turnover as per Table - B above (%) C 1.97% 5.59% 4. Increase in input tax credit availed post-GST (%) D - 3.62% 5. Analysis of Increase in input tax credit: 6. Total Basic Demand during July, 2017 to April, 2019 E 1,76,66,14,794 7. GST @12% F=E*12% 21,19,93,775 8. Total Actual Demand G=E+F 1,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeared to have contravened the provisions of Section 171 of the CGST Act, 2017. 34. On the basis of the aforesaid CENVAT/input tax credit availability in the pre and the post-GST periods and the demands raised by the Respondent from the Applicants and other home buyers towards the value of construction on which GST liability @ 12% was discharged by the Respondent during the period from 01.07.2017 to 30.04.2019, the amount of benefit of input tax credit not passed on to the recipients or in other words, the profiteered amount comes to ₹ 9,67,330 /- which included GST on the base profiteered amount of 8,63,687/-. However, no benefit is due to the Applicant No. 1 as the Respondent has already passed on an amount of ₹ 31,823/- to him which was due to him. The buyer and unit no. wise break-up of the profiteered amount of the fiats sold up to 30.04.2019 of the project PARKWEST-EMERALD has been given by the DGAP vide Annexure-21 of his Report. The amount of benefit of input tax credit not passed on to the recipients or in other words, the profiteered amount comes to ₹ 3,03,94,113/- which included GST on the base profiteered amount of ₹ 2,71,37,601/- in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s required to be returned to all the eligible recipients including the Applicant No. 2. 37. The above Report was considered by this Authority in its meeting held on 04.02.2020 and it was decided that the Applicants and the Respondent be asked to appear before this Authority on 25.02.2020. The Respondent was issued notice dated 05.02.2020 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. G. Venugopal, the Applicant No, 1, was present in person, no one appeared for the Applicant No. 2 and the Respondent was represented by Sh. S. S. Gupta and Sh. Ram Kasyapa, Authorised Representatives. The Respondent has filed written submissions dated 25.02.2020 during the hearing. The main contentions raised by the Respondent vide his above submissions are discussed in the subsequent paras. 38. The Respondent has submitted that it could be seen from Section 171 of the CGST Act, 2017 that the benefit received on account of reduction in the tax rate or in the input tax credit should be passed on to the customers. There was no reduction i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent in the post-GST regime due to increase in the rates of tax. Tax rate on the works contract service under the pre-GST regime was 16.15% i.e. VAT 10.15% (14.50% X 70%) and Service Tax @ 6.00% (15.00% X 40%). However, after the GST was implemented, the rate of tax on works contract service was 18.00%. This benefit of extra 1.85% was not due to introduction of GST but due to increase in the rate of tax from 16.15% to 18.00%. Therefore, the additional 1.85% should not be considered as a benefit received by the Respondent d. The input tax credit of GST pertaining to the work done in pre-GST regime should not be considered in the GST regime credit. in construction sector, the goods and services were provided before the invoice was raised. The invoice was raised based on the various internal approvals of the work done. Therefore, an amount of ₹ 1,39,795/- with respect to PARKVVEST-EMERALD project should not be included in the input tax credit availed in the GST regime and instead it must be included in the input tax credit availed in the pre-GST regime. e. The credit and the taxable value do not synchronize in the same month or the same period. The agreement for sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DGAP has computed the profiteered amount as ₹ 63.33 Lakh for the PARKWEST-EMERALD project. This amount included the base price as well as 12% GST on the same. The profiteered base price was ₹ 56,54,816/-. The balance amount of ₹ 6,78,578/- was towards the GST. Similarly, for the PARKWEST-MAPLE project the total amount of profiteering calculated by the DGAP was ₹ 7,16,25,630/- i.e. base price of ₹ 6,39,51,456/- and GST to the tune of ₹ 76,74,175/-. It was also submitted that the excess collection made by the Respondent was only ₹ 6,96,06,272/-. The excess GST collected has duly been deposited with the Government and the Respondent had not retained it. Hence, the same could not be considered as profiteered amount to be passed on to the customers. It was submitted that the term profiteering has been described in various dictionaries as follows:- Black s Law Dictionary - Taking advantage of unusual or exceptional circumstances to make excessive profits. Law Lexicon - To seek or obtain excessive profits, one who was given to making excessive profits. Shorter Oxford English Dictionary - Make or seek to make an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Turnover 93,76,89,135 27,93,70,499 CENVAT/ITC 4,50,88,505 4,70,69,461 4.81% 16.85% He has claimed that the above Table indicated that the ITC benefits were higher in the GST regime. 48. The Applicant No. 1 has also submitted that the profiteering working was applied only on ₹ 92 Lakh by the DGAP. In this regard he has claimed that most of the ITC benefit was available in the GST era owing to the Excise Duty credits. The Respondent had agreed that most of the ITC has accrued at the finishing stage on the purchase of the tiles, marble and bathroom fittings etc., therefore, buyers should be entitled for more ITC benefit in the GST era. 49. The Applicant No. 1 has also contended that there was mis-match in the purchases made by the Respondent. He has also added that project wise cost was not shared, however the same had been arrived at as per the RERA submissions. He has further added that out of total cost of ₹ 1,71,55,78,824/-, submitted to the RERA in July 2017, the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red. The investigation was limited to the accrual of additional benefit of input tax credit as mandated under Section 171 of CGST Act, 2017. 56. On the issue of excess ITC towards the end of the project, the DGAP has stated that the contention of the above Applicant was not relevant as the ITC accrued post GST period had been taken into record in his Report and the investigation was limited to the accrual of additional benefit of input tax credit as mandated under Section 171 of CGST Act, 2017. 57. On the issue of mismatches in the purchases made by the Respondent, the DGAP has stated that the contention of the above Applicant was not relevant as the profiteering calculation methodology used by the DGAP had not looked into the aspect of costing of the project and future cost yet to be incurred and the benefit of ITC that shall accrue on such expenditure. 58. On the issue of allocation of anti-profiteering logic being different for each home-buyer, the DGAP has stated that the contention of the above Applicant was not acceptable as the concept of profiteering was related to the time of supply of service i.e. each taxable supply made to each recipient would attract profiteer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the ratio of input tax credit being higher in post-GST regime did not automatically translate into additional GST benefit to the Respondent and various other factors needed to be considered. The Respondent had computed the benefit on his own accord and passed on 2% benefit. 62. The Respondent has further submitted that the Applicant No. 1 has claimed that majority of the ITC has accrued in the end stage of the project and therefore, the entire ITC availed in the GST regime must have been considered for calculation of profiteering. The Respondent has added that the claim made by the Applicant No. 1 had already been accepted by the Respondent that a lot of ITC accrued at the end stage of the project which would happen in the GST regime. However, the same needed to be synchronised with the demands already raised by the Respondent in the Service Tax regime. 63. The Respondent has also stated that the Applicant No. 1 has pointed out that the future construction cost of the Respondent as per the details given to RERA as on July, 2017 was ₹ 64,51,31,383/- whereas as per the submissions of the Respondent, excisable product procurement cost in the GST regime would be ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the pre-GST period was 4.70% and during the post-GST period this ratio was 6.69%, as per the Table-B mentioned above and in respect of the project PARKWEST-MAPLE the ITC as a percentage of the total turnover which was available to the Respondent during the pre-GST period was 1.97% and during the post-GST period this ratio was 5.59%, as per the Table-C mentioned above. Therefore, the Respondent has benefited from the additional ITC to the tune of 1.99% (6.69% - 4.70%) and 3.62% (5.59% - 1.97%) of the total turnover in respect of the projects PARKWEST-EMERALD and PARKWEST-MAPLE respectively which he was required to pass on to the flat buyers of these projects. The DGAP has also found that the Respondent has not reduced the basic prices of his flats by 1.99% in case of the project PARKWEST-EMERALD and 3.62% in case of the project PAERKWEST-MAPLE due to additional benefit of ITC and by charging GST at the increased rate of 12% on the pre-GST basic prices, he has contravened the provisions of Section 171 of the CGST Act, 2017. The DGAP has also submitted that the amount of benefit of ITC which has not been passed on by the Respondent or the profiteered amount came to ₹ 9,67, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered amount as per the Tables C to E supra is logical, reasonable, appropriate and in consonance with the provisions of Section 171 (1) of the above Act. The above mathematical methodology has also been approved by this Authority in all such cases of real estate sector where benefit of additional ITC is to be passed on and hence the same can be relied upon. 66. The Respondent has submitted that after coming in to force of the GST he had become entitled to the ITC of Excise Duty only which amounted to ₹ 55,02,353/- in respect of the PARKWEST-EMERALD project as per Annexure-2 and ₹ 2,85,34,060/- for the PARKWEST-MAPLE project as per Annnexure-8 submitted by him and hence, he was required to pass on the above amounts only as the benefit of ITC. In this regard it would be pertinent to mention that there is no provision in Section 171 which states that the Respondent is required to pass on the benefit of Excise Duty only therefore, the entire amount of additional ITC which has become available to the Respondent in the post GST period has to be taken in to account to compute the benefit which he is required to pass on. The exact quantum of additional ITC which has become a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EMERALD project had been completed in the pre-GST period and material in the post GST period as per Annexure-2 was purchased to complete the balance 47% work. Since, only 10 percent amount was demanded from the buyers in the post GST period as 90% amount had already been received in the pre-GST period, therefore, only an amount of ₹ 11,70,713/- was required to be passed on as benefit of ITC. The above contention of the Respondent is not tenable due to the reason that the benefit has to be computed on the basis of the additional ITC as well as the turnover received by the Respondent during the post-GST period and it has no connection with the percentage of work completed or percentage of the amount received or purchases made by the Respondent. 69. The Respondent has also claimed that the computation of the profiteered amount as per Table B was incorrect as there was no correlation between the accrual of ITC and raising of the demand as he could not raise the demand unless a particular mile stone was achieved whereas the ITC accrued as per the construction carried out. He has also given the time schedule for raising the demand as per Table-3. In this connection it would be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence to establish that in case there was increase in the rate of tax he was not given ITC on the increased rate of tax and he had to bear the extra burden of tax. The Respondent has also received the benefit of ITC in the shape of reduced prices of the goods and services purchased by him from his suppliers as they have also become entitled to the benefit of ITC in the post-GST period. Therefore, the above contention of the Respondent is not established from the record and hence, an amount of ₹ 24,814/- and ₹ 13,52,876/- cannot be reduced from the ITC due to increase in the rate of Service Tax and the Works Contract Tax. 72. The Respondent has further claimed that the ITC available on the work done in the pre-GST period should not be considered in the post-GST period as the invoices in the construction sector are issued after the goods and services are received. The above claim of the Respondent is not tenable as the ITC accrues only on fulfilling of conditions prescribed under Section 16 of the CGST Act, 2017 and in case they have been met in the post-GST period the ITC cannot be counted in the pre-GST period. As per the provisions of Section 16 (2) (a) the ITC would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 37% raised in the pre-GST period was illegal and incorrect. Therefore, an amount of ₹ 2,00,34,421/- of pre-GST ITC on the illegally raised excess demand of 37% cannot be excluded from the post-GST ITC. As the Respondent is availing benefit of ITC every month to discharge his tax liability he also has to pass on the benefit every month. The buyers cannot be compelled to wait till the completion of the project to avail benefit of ITC. In case of less or more payment of benefit of ITC to the buyers the Respondent can always adjust the amount subsequently. Therefore, no synchronisation is required to be done between the ITC and the turnover while passing on the benefit of ITC. 74. The Respondent has also argued that during the pre-GST period total billing of 35% was done as per the invoices attached as Annexure-7. As the ITC for 37% work was ₹ 2,00,34,421/- the ITC for the 35% work would be ₹ 1,89,51,4801-. Therefore, an amount of ₹ 10,82,942/- being ITC on the 2% work should not be considered during the pre-GST period. Vide Table-6 the Respondent has computed the balance ITC as ₹ 1,89,51,480/-. The Respondent has also submitted revised Table-B as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be passed to the extent of the Excise Duty of ₹ 2,85,34,060/- which he had paid on the purchase of the material as per the details given in Annexure-8. In this connection it is reiterated that the benefit has to be calculated on the entire additional ITC which has become available to the Respondent and it cannot be restricted to the amount of Excise Duty. The DGAP could not have computed the benefit input wise as there is no such provisions in Section 171. The Respondent cannot misappropriate the ITC other than which he has earned on account of Excise Duty as it has been granted to him out of the public exchequer in the interest of the buyers. Therefore, the above claim of the Respondent cannot be accepted. 76. The Respondent has also stated that maximum purchases are made at the time of finishing of the project due to which huge ITC is generated which cannot be utilised as per the provisions of Notification No. 15/2017-Central Tax (Rate) dated 28.06.2017 as the output tax liability is very less. He has further stated that the DGAP has not investigated this aspect under Rule 129 and hence his Report could not accepted. In this context it would be pertinent to mention t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- + ₹ 7,329/- as GST which comes to ₹ 74,229/-. Therefore, the computation of ₹ 37,290/- as excess GST claimed by the Respondent is incorrect and hence it cannot be accepted. 79. The Respondent has also claimed that there has been increase in the rates of tax on the services and the works contracts and hence no additional benefit of ITC has accrued to him. He has further claimed that the ITC pertaining to the pre-GST period should not be counted in the post-GST period and an amount of ₹ 14,94,078/- as per Annexure-9 should be reduced from the ITC pertaining to the post-GST period. Both the above issues have been dealt in detail in Para supra and hence they are not being discussed here. Since both the above claims of the Respondent are frivolous they cannot be accepted. Accordingly, the above amount of ₹ 14,94,078/- cannot be reduced from the post-GST ITC. Similarly the ITC on the brokerage paid to Mr. Sanjay H. Sethiya vide invoice No. 32N010332018 dated 01.03.2018 attached as Annexure-10 cannot be counted during the pre-GST period in terms of Section 16 of the above Act as the above tax invoice has been issued in the post-GST period. 80. The R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount made by the DGAP was wrong as the gross profit and cost of the Respondent had remained same as was evident from Annexure-14. In this regard it would be relevant to mention that the benefit of additional ITC has to be calculated on the basis of the additional ITC which has become available to the Respondent during the post-GST period as compared to the ITC which he had earned during the pre-GST period and the cost and gross profit of the Respondent has no connection with passing on of the benefit. Section 171 of the Act also does not provide that both the above factors are required to be considered while passing on the benefit of ITC. Therefore, the above contention of the Respondent is untenable. 83. The Respondent has also pleaded that an amount of ₹ 6,78,578/-collected as GST in respect of the PARKWEST-EMERALD project and an amount of ₹ 76,74,175/- collected as GST on the PARKWEST-MAPLE project has been deposited with the Government and hence the same cannot be treated as the profiteered amount. He has also cited the various definitions of profiteering in his support. In this connection it would be appropriate to mention that the Respondent has not only colle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess nexus with the amount received by him and more with the work completed. In this context it would be relevant to mention that 47% is the percentage of completion of the work achieved by the Respondent and not the percentage of the amount collected by him. As explained in para supra percentage of completion of work has no correlation with the amount of benefit as it has to be computed on the basis of the comparison of the CENVAT/VAT/ITC and the turnovers received by the Respondent during the pre and the post-GST periods and hence, the above contention of the above Applicant cannot be accepted. 86. The above Applicant has also submitted that he was entitled to benefit of ₹ 1,49,566/- on account of the 47% work completed in the post-GST period out of which he has received ₹ 31,823/- and balance amount of ₹ 1,17,744/- was still due to him. However, as been discussed above the Applicant is entitled to the benefit of ₹ 31,664/- only in proportion to the consideration which he has paid during the post-GST period and not on the basis of the percentage of completion of work during the above period. Since, he has already been passed on an amount of ₹ 31.82 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uyer in the post-GST period. He has also cited the cases of flat Nos. E-206, E-104, E-1004, E-1103 etc. in this regard. However, as has been submitted above the benefit has to be passed on the basis of amount of consideration paid by a buyer in the post-GST period. Since, the Applicant No, 1 has already been passed on the benefit of ITC based on the amount of consideration paid by him during the post-GST period no further benefit is required to be passed on to him. Hence. the above argument of the Applicant cannot be accepted. 91. it is established from the perusal of the above facts that the Respondent has benefited from the additional ITC to the tune of 1.99% of the total turnover in respect of the project PARKWEST-EMERALD during the period from July, 2017 to April, 2019 which he was required to pass on to the buyers of the flats of the above project by commensurately reducing the prices of the flats which he has not done and hence he has violated the provisions of Section 171 (1) of the CGST Act, 2017. Accordingly, as per the provisions of Section 171 (2) of the above Act read with Rule 133 (1) of the CGST Rules. 2017 the profiteered amount is determined as ₹ 9,67,330/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Rule 133 (3) (c) of the above Rules from the dates from which the above amounts were 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-22 attached with the Report dated 31.01.2020. 93. Accordingly, 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 of the above projects commensurate with the benefit of ITC received by him as has been detailed above. Since the present investigation is only up to 30.04.2019 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 above Applicants or any other buyer shall be at liberty to approach the Karnataka State Screening Committee to initiate fresh proceedings against the Respondent as per the provisions of Section 171 of the CGST Act, 2017. 94. It is also evident from the above narration of the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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