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TMI Blog2022 (6) TMI 1127X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the DGAP has concluded that the Residential project i.e. 'The Serenas' of the Respondent was launched in the post-GST regime and there was no price history of the residential units sold in the pre-GST regime which could be compared with the post-GST base price to establish whether there was any profiteering by the Respondent or not. However, as per the heading 'Other Current Liabilities' under Note 6 of the Annual Financial Statement of the Respondent for the period 2016-17, it is observed that the Respondent has received an amount of Rs. 16,77,22,611/- as 'Security from Applicants(d)' which is explained as "(d) During the Financial Year, the Company has launched "Affordable Housing Project" by the name & style of "SERENAS" under the Affordable Housing Scheme by Haryana Urban Development Authority Limited. The flats shall be allotted to the applicants by way of a draw of lots which is yet to happen as on 31st March 2017 & pending the same, the application money received has been shown as Security from Applicants." Given the above, it is clear that the Respondent has received the above mentioned 'Security Amount' in the pre-GST period and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice under Rule 129 of the CGST Rules was issued by the DGAP on 08.07.2019 to the Respondent to reply as to whether he admitted that the benefit of ITC had not been passed on to the recipients 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 documents in support of his reply. Further, the Respondent was allowed to inspect the non-confidential evidence/information which formed the bases of the said notice, during the period 15.07.2019 to 17.07.2019. The Respondent availed of the said opportunity on 22.07.2019 and inspected the documents. iii. Vide E-mail dated 18.02.2020, Applicant No. 1 was also allowed to inspect on 26.02.2020 or 27.02.2020 the non-confidential documents/reply furnished by the Respondent. However, the Applicant No. 1 did not avail of the said opportunity. iv. The period covered by the current investigation was from 01.07.2017 to 30.06.2019 and the time limit to complete the investigation was extended up to 02.03.2020 by this Authority, vide Order dated 12.12.2019, in terms of Rule 129 (6) of the CGST Rules, 2017. v. The Respondent had subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith certain commercial retail shops in the shopping complex named as "Signum-36" within the Group Housing Project. The Respondent submitted that he had received a sum of Rs 4,49,25,897/- during the pre-GST regime as advance token money/underwrite money in respect of commercial units in the commercial complex "Signum-36" in the Group Housing Project "The Serenas" before the start of any construction activities in the project. The Builder Buyer Agreement (BBA) in respect of Commercial Units sold was first executed on 03.11.2017 i.e. during the post GST period. Further, neither tax was levied/recovered under the provisions of Haryana Value Added Tax Act, 2003 nor had he availed any ITC since, there was no transfer of property in goods that had occurred in the pre-GST period consequently 'NIL' Return under the provision of HVAT Act, 2003 was filed. However, Service tax as applicable was payable on a 'receipt basis' and he was claiming credit in respect of service tax paid on various input services received by him, such as Legal, Architecture & structure engineers relatable to the commercial units only. Therefore, the Respondent had both CENVAT Credit as well as Turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d input tax credit available in the pre-GST period (April 2016 to June 2017) when Service Tax @4.50% was payable with the post-GST period (July 2017 to June 2019) when the effective GST rate was 12% (GST @18% along with 1/3rd abatement for land value) on construction service, vide Notification No.11/2017-Central Tax (Rate), dated 28.06.2017. Accordingly, based on the figures contained in Table-'B' above, the comparative figures of the ratio of ITC available/availed to the turnover in the pre-GST and post-GST periods as well as the turnover, the recalibrated base price, and the excess realization (profiteering) during the post-GST period has been furnished by the DGAP in the below mentioned Table B:- Table-B (Amount in Rs.) S.No. Particulars Post-GST 1 Period A After 01.07.2017 2 Output GST Rate (%) B 12.00 3 The ratio of CENVAT credit/Input Tax Credit to Total Turnover as per table-`B' above (%) C 5.26 4 Increase in input tax credit availed post-GST (%) D=5.26% less 2.26% 3.00 5 Analysis of Increase in input tax credit: 6 Base Price raised/collected from July 2017 to June 2019 (Rs.) E 12,56,34,568 7 GST@12% over Base Price F=E*12% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 6 of the Annual Financial Statement merits to be incorporated in the pre-GST turnover while computing the quantum of profiteering. b) The Authority observed that the two projects, namely, 'The Serenas' (comprising residential units) and (Signum 36' (comprising commercial units) had been developed and executed by the Respondent under a single registration on the same plot of land having common facilities and common areas. Further, the ITC paid was also common for the commercial and the residential area of the projects. Further, it was observed that the Respondent had also been maintaining a common ITC Ledger and other connected records for the residential and commercial units of 'The Serenas' and `Signum 36'. Therefore, these two projects deserve to be considered as an integrated project comprising both, residential and commercial units for the purpose of computation of profiteering in terms of Section 171 of the CGST Act, 2017. c) While computing the quantum of profiteering in the instant case, the amount received as `Security Amount' in respect of the Serenas' and the 'Advance Token Money' in respect of `Signum 36' shall be appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 700 applicants (amounts ranging from Rs. 89,843/- to Rs. 1,07,681/- per applicant) for participation in the draw of lots, which was held in post-GST period. Whereas, the impugned project "The Serenas" consists of only 1,304 residential units available for draw of lots & rest un-successful buyers were to be refunded all the security deposit, without any interest. The question that now arises was that whether the security deposit of Rs. 16,77,22,611/- received as application money, as on 31.03.2017 for participation of draw of lot to be held on 20.07.2017 (post-GST) was to fall under the definition of services in the pre- GST regime? iv. The DGAP referred to various statutory provisions, Circulars and Guidance Notes and to the decision of the the Hon'ble Supreme Court of India in the case of M/s Larsen & Toubro Limited & Anr. Vs State of Karnataka wherein it was held that: "the activity of construction undertaken by the Developer would be work contract only from the stage the Developer enters into a contract with the flat purchaser". and concluded that, for an activity to be eligible to Service Tax following three essential pre-requisites were required to be fulfilled: a) S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n might be in cash or kind. The payment received would not be treated as consideration, if there was no direct link between the payment and supply. There should be a close nexus between the payment and supply and thus any payment/exchange/barter etc. would be treated as consideration for supply and liable to GST. However, any deposit given in respect of the prospective supply shall not be considered as payment made for such supply, unless the supplier appropriates such deposit as consideration for the said supply. In view of the above, the security deposit/application money received by the Respondent cannot be treated as consideration for the supply to be made by him and therefore such amount cannot be incorporated in the 'turnover'. There was an obligation to return the entire amount to the unsuccessful applicants. For successful applicants, till an agreement was signed, such deposits cannot be considered as consideration for such supply of services and hence would not be liable to tax. The DGAP submitted that the till the draw of lots followed by signing of sale agreement by successful applicants, the Respondent cannot assume that the receipt of Security Deposit/Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in the instant case, the amount received as 'Security Amount' in respect of 'the Serenas' cannot be incorporated in the Turnover as discussed above. The dates of events took place in the residential project 'the Serenas' was given in tabular form in table-'D' below: Table-'D' S. No. Date Event 1. 26.09.2016 Grant of License by the Director General, Town and Country Planning Department, Haryana 2. 19.06.2017 Issuance of registration certificate by the Haryana Real Estate Regulatory Authority 3. 01.07.2017 Introduction of Goods and Services Tax 4. 20.07.2017 Draw of Lots conducted by the Respondent (Allotment of Units) 5. 31.08.2017 Work order for construction to contractor. 6. 10.09.2017 Construction Activities started 7. 18.09.2017 First Builder Buyer Agreement entered b/w Respondent and the home buyer. viii. As per the DGAP Report, in the present case, the following events were the determining factors in furnishing the Report dated 19.03.2020: a. Allotment of dwelling unit was made on 20.07.2017. b. Builder Buyer Agreement containing the allotment terms was entered on 18.09.2017. c. Contract for const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Govt. accounts. ii. Price of the units to be sold has been fixed by the Govt. Authorities as per Affordable Housing Policy-2013, which can be considered as Pre-GST price for comparison and working of Pre-GST and Post GST Scenario. iii. There is a single license on the same piece of land for the residential as well as the commercial area under affordable residential housing policy. iv. Booking was done in the pre-GST period and he was supposed to allot the same in pre-GST period i.e. within 90 days from the booking i.e latest by Feb., 2017. Further, duly filled application form signed by the customer and acknowledgement of the same by builder is contract only. v. The Amount collected by the Builder in pre-GST period, for residential project also comes under the definition of Goods and Services as the same was received on the basis of agreed-supply of Goods/ Services in due course of time. 6. Supplementary report was sought from the DGAP on the above submissions of the Applicant No. 1 under Rule 133 (2A) of the CGST Rules, 2017. The DGAP has filed his supplementary report dated 24.03.2021 as under :- i. The contention of Applicant No.1 that, "it had not been investigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpet area basis for Sohna and this is not the actual rate at which units is to be sold but supplier of construction service is free to fix their base price subject to the ceiling of Rs. 3,600/- per sq. feet. Therefore, the submission of the Applicant No.1 that prices are fixed by Govt. Authorities is not correct and the same cannot be used for comparison purpose. iii. In relation to the contention of Applicant No. 1 that, there was a single license on the same piece of land for the residential as well as the commercial area under affordable residential housing policy, the DGAP submitted that grant of single license is a matter of record. However, it was stated that the Respondent had submitted details of turnover as well as invoice-wise CENVAT/Input Tax Credit vide their letter dated 02.03.2020 (Annex-12 to this office Report dated 19.03.2020). The Summary is given in Table below: Table S.No. Project Particular Turnover CENVAT/ITC Remark 1 'The Serenas' (Residential) 01.04.2016 to 30.06.2017 (Pre-GST) Nil Nil Cross checked with ST-3/VAT Returns and Assessment Order. 2 01.07.2017 to 30.06.2019 (Post-GST) 1,64,77,88,150 15,32,01,400 Reconciled with GSTR- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has received a sum of Rs. 16,77,22.611/- as application security deposit from approx. 1,700 applicants (amounts ranging from Rs. 89,843/- to Rs. 1,07,681/- per applicant) for participation in the draw of lots, which was held in post-GST period. Whereas, the impugned project "The Serenas" consists of only 1,304 residential units available for draw of lots & rest un-successful buyers were to be refunded all the security deposit, without any interest. The question that now arises is that whether the security deposit of Rs. 16,77,22,611/- received as application money, as on 31.03.2017 for participation of draw of lot to be held on 20.07.2017 (post-GST) is to fall under the definition of services in the pre-GST regime? For clarity, reference is made to Section 668 of the Finance Act, 1994 which reads as: "66B. There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen percent on the value of services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed." The definition of term 'Service' has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2 of Service Tax Education guide dated 20.06.2012 discussed about the term 'Consideration and it reads as 2.2 Consideration 2.2.1 The phrase 'consideration' has not been defined in the Act. What is, therefore, the meaning of 'consideration'? As per Explanation (a) to section 67 of the Act "consideration" includes any amount that is payable for the taxable services provided or to be provided. Since this definition is inclusive it will not be out of place to refer to the definition of 'consideration' as given in section 2 (d) of the Indian Contract Act, 1872 as follows: "When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise" In simple terms, consideration means everything received or recoverable in return for a provision of service which includes monetary payment and any consideration of non-monetary nature or deferred consideration as well as recharges between establishments located in a non-taxable territory on one hand and taxable terr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee received application money/security deposit from various applicants and after receiving such application money. Noticee was obliged to conduct draw of lots, to select successful applicants who will then sign an agreement to confirm the services to be provided by the Noticee. At the time of receiving such application money, Noticee was not engaged in making or providing any services. Only after the draw of lots followed by signing of agreement, services can be provided. The application money is merely a security deposit given by the applicant to confirm his willingness to enter in an agreement with the Noticee, if successful in the draw of lots. Thus, amount received from applicants as application money/security deposit cannot be treated as consideration received towards supply of any service and accordingly the same cannot form part of the term "Turnover". 7. Reference is also made to the provisions of Section 2(112) of the Central Goods and Services Tax Act, 2017 which defines the term Turnover as: "(112) turnover in State' or 'turnover in Union territory' means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made for a consideration. 3. Supply should be made in the course or furtherance of business. 4. Supply should be made by a taxable person. 5. Supply should be a taxable supply. Besides above parameters, GST Laws have provided certain exceptions to the requirement of supply being made for consideration and in the course of furtherance of business. Therefore, it is important to find whether the security deposit (application money) taken from the prospective buyers on account of application against allotment of flat, if any, constitute consideration vis a vis any supply under the provisions of CGST Act. Section 2(31) defines the term consideration as above which is inclusive and the consideration may be in cash or kind. The payment received will not be treated as consideration, if there is no direct link between the payment and supply. From the close scrutiny of above definition, it is clear that there should be a close nexus between the payment and supply and thus any payment/exchange/barter etc. would be treated as consideration for supply and liable to GST. However, any deposit given in respect of the prospective supply shall not be considered as payment made for such s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 171 should not be fixed. The Respondent was directed to file written submissions which have been filed on 16.02.2021 in which the Respondent has requested to conclude the proceeding on the basis of comprehensive written submission filed by it on 28.09.2020. 11. On perusal of the records and the Reports of the DGAP, the Authority finds that the Anti-profiteering provisions do not apply to the project "The Serenas", since the draw for the selection of the allottees, the allotments, the Builder-Buyer agreements, and construction activities were executed in the GST period only. The Respondent entered into an agreement with the Contractor for the construction of Residential Units on 31.08.2017 after which construction activities started on 10.091017. Further the Respondent held the draw on 20.07.2017. Post draw, the first Builder-Buyer agreement was entered into on 18.09.2017. Therefore, the Residential project "The Serenas" was launched in the post-GST regime and there was no price history of the residential units sold in the pre-GST regime which could be compared with the Post-GST base price to establish whether there was any profiteering by the Respondent or not as the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion therein as supported by Tables 'C' and 'D' therein. 15. With regards to the computation of profiteering in Commercial Project "Signum-36", the Authority has examined Annexure 16 of the DGAP Report dated 19.03.2020 and finds that the shops/units in the commercial complex were assigned to the various buyers prior to 1.07.2017 and demands of varying amounts were made from such buyers and consideration received. Such amounts have been correctly considered as turnover by the DGAP in his Reports and profiteered amount has been correctly determined therein. The Authority finds no reason to disagree with such calculation of profiteered amount or the method of calculation adopted by the DGAP as has been detailed at paragraph 2 (viii) to 2 (xi) above and Tables 'A' and 'B' therein. 16. The Authority finds that, though there was a single license on the same piece of land for the residential as well as the commercial area under Affordable Residential Housing Policy, as per the details in the DGAP's Report dated 30.12.2020, the Respondent had submitted details of turnover as well as invoice-wise CENVAT/Input Tax Credit vide his letter dated 02.03.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers/ recipients of supply. The DGAP has calculated the amount of ITC benefit to be passed on to all the shop buyers/ recipients of supply as Rs. 42,21,321/- for the project 'Signum 36'. 19. In view of the above discussions, the Authority finds and determines that the Respondent has profiteered by an amount of Rs. 42,21,321/- for the project `Signum 36' during the period of investigation i.e. 01.07.2017 to 30.06.2019. The above amount that has been profiteered by the Respondent from his shop buyers/ recipients of supply in the above mentioned project shall be refunded by him, along with interest @18% thereon, from the date when the above amount was profiteered by him till the date of such payment, in line with the provisions of Rule 133 (3) (b) of the GCST Rules 2017. 20. 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 shops commensurate with the benefit of ITC received by him as has been detailed above. 21. The Respondent is also liable to pay interest as applicable on the entire amount profiteered, i.e. Rs. 42,21,321/-, for the project 'Signurn 36'. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed in minimum of two local Newspapers/vernacular press in Hindi/English/local language with the details i.e. Name of builder (Respondent) - M/s. Sternal Buildcon Pvt. Ltd., Project-`Signum 36', Location- Sector 17, Sohna, Gurugram-122002, Haryana and amount of profiteering of Rs. 42,21,321/- so that the concerned recipients of supply/shop buyers can claim the benefit of ITC if not passed on. Such recipients of supply/shop buyers may also be informed that the detailed NAA Order is available on Authority's website www.naa.gov.in. Contact details of concerned Jurisdictional CGST/SGST Commissioner may also be advertised through the said advertisement. 26. The concerned jurisdictional CGST/SGST Commissioner shall also submit a Report regarding compliance of this Order to this Authority and the DGAP within a period of 4 months from the date of receipt of this Order. 27. Further, the Hon'ble Supreme Court, vide its Order dated 23.03.2020 in Suo Moto Writ Petition (C) no. 3/2020, while taking suo-moto cognizance of the situation arising on account of Covid-19 pandemic, has extended the period of limitation prescribed under general law of limitation or any other special laws ..... X X X X Extracts X X X X X X X X Extracts X X X X
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