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TMI Blog2022 (8) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on commensurate benefit of Input Tax Credit (ITC) to him, on implementation of GST w.e.f. 01.07.2017, in terms of Section 171 of the CGST Act, 2017. 2. The DGAP in his Report dated 29,01.2021, inter-alia staled that:- i. The Karnataka State Screening Committee on Anti-profiteering examined the said application and observed that the Respondent had not passed on the appropriate benefit of 17-C to the Applicant No. 1 as the additional ITC available to Respondent should have been apportioned against the instalments towards the price of the fiat. The Karnataka State Screening Committee forwarded the said application with its recommendation, to the Standing Committee on Anti-profiteering for further action, in terms of Rule 128 of the Rules ii. The aforesaid reference had been examined by the Standing Committee on Anti-profiteering, the minutes of which were received by the DGAP on 06.05.2020. iii. The Applicant No. 1 had submitted along with application the copy of demand letters issued to him, both pre- ST and post-GST. iv. The Applicant No. 1 had booked a Flat No. 103 in the Respondent's project "Axis Vedam", for which Agreement for Sale, Construction Agreement & Customiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-Central Tax dated 14.12.2020 (Annex-5), issued by the CBIC under Section 168A of the CGST Act, 2017 wherein the last date for submission of Report has been extended up to 31.03.2021. ix. In response to the notice dated 04.06 2020, the Respondent has submitted his reply vide letters/e-mails dated 12.06.2020, 30.06.2020, 02.09.2020, 28.09.2020. 30.09.2020. 01.12.2020, 21.12.2020, 24.12.2020, 23.01.2021, 28.01.2021 x. Vide the aforementioned Ietters/e-mails, the Respondent submitted the following documents/information: a. Copies of GSTR-1 returns for the period July, 2017 to April, 2020 b. Copies of GSTR-3B returns for the period July, 2017 to April, 2020. c. Copy of Electronic Credit Ledger for the period 01.07.2017 to 30.04 2020 d. Copies of Tran-1 for the period July, 2017 to December, 2017. e. Copies of VAT & ST-3 returns for the period April. 2016 to June, 2017. f. Copies of all demand letters. sale agreement/contract issued in the name of the Applicant No 1 g. CENVAT/Input Tax Credit register for the period April, 2016 to April, 2020. h. Copy of Balance Sheet for FY 2016-17 & 2017-18. i. Tax rates, pre-GST and post-GST. j. Details of turnover, output tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 17 (3) "The value of exempt supply under sub-section (2) shall be such as might be prescribed and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule 11, sale of building". Therefore, ITC pertaining to the unsold units was outside the scope of this investigation and the Respondent was required to recalibrate the selling price of such units to be sold to the prospective buyers by considering the proportionate additional ITC available to him post-GST. xiv. In response to the notice of initiation of investigation dated 01.06.2020 and subsequent reminders, the Respondent vide his submission dated 21.11.2020 provided the details of turnover and CENVAT credit /ITC availed for all the projects as mandated under erstwhile CENVAT Credit Rules 2004, present CGST Rules, 2017. The Respondent vide his submission dated 02.09.2020 further submitted that the provisions of the RERA Act. 2016 were not applicable to the subject project and accordingly, he had not obtained RERA registration for the same. xv. From the above, it was clear that the credit on in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under notification 3/2019, effective from 01/04/2019 for on-going project. xvii From the above table-'A', it was clear that the ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 1.17% and during the post-GST period (July, 2017 to April, 2020), it was 13.52% This clearly confirmed that post-GST, the Respondent had benefited from additional ITC to the tune of 12.36% [13.52% (-)1.17%] of the turnover for the project "Axis Vedam". xviii. It was also observed that the Central Government, on the recommendation of the GST Council, had levied 18% GST on construction service (after one third abatement towards value of land, effective GST rate was 12% on the gross value), vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 Accordingly, the profiteering has been examined by comparing the applicable tax rate and ITC available to the Respondent during for the pre-GST period (April, 2016 to June, 2017) when Service Tax @ 15% on net value of work contract (60% abatement on the gross value) (effective tax rate was 6% on the basic price) and VAT 4.0% under Composition scheme were leviable with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers towards the value of construction on which GST liability @ 12% was discharged by the Respondent during the period 01.07.2017 to 30 04.2020. the amount of benefit of ITC not passed on to the recipients or in other words, the profiteered amount comes to Rs. 40,94,480/- which included GST. The buyers (of flats sold upto 30.04.2020) and unit no. wise break-up of this amount had given in Annexure-18 of the Report dated 29.01.2021 for Project "Axis Vedam". xxii. Before concluding the investigation, it was pertinent to mention here that above computation of profiteering was with respect to 21 home buyers amongst all the customers as on 30.04.2020 in the project "Axis Vedam". In as much as, the project comprises of 46 units in all & out of the above, 21 units belong to land owner share which were handed over to him after obtaining the Occupancy Certificate for possession and, in respect of rest 4 units of the developer's share of 25 units, 2 units were sold post OC and in respect of other 2 units, there were no payments received in post GST period. 3. Therefore, the DGAP has concluded that - i. Post-GST. the benefit of additional ITC to the tune of 12.36% of the turnover, ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the investigation period viz. Amairo, Antara, Mountrose, Tatvam, Tuscan Terrace and Vanam. 4. The above Report was carefully considered by this Authority and it was decided to allow the Respondent and the Applicant to file their consolidated written submissions by 17.02.2021. A notice dated 04.02.2021 was issued to the Respondent to explain why the Report dated 29.01.2021 furnished by the DGAP should not be accepted and his liability for profiteering in violation of the provisions of Section 171 should not be fixed and penalty under Section 171 (3A) of the CGST Act. 2017 read with Rule 133 (3)(d) of the CGST Rules, 2017 should not be imposed. 5. The Respondent filed his written submissions vide letter dated 08.03,2021 in which he has submitted:- i. That the project was on joint development with the landowner and the built-up area of the apartments sharing ratio was as follows: Developer 55% Land Owner 45% ii. That the total area of construction was 61.920 sq ft. and the developer share was 33,980 sq. ft. and the sale of apartments can be segregated as follows: S.No. Description Area 1 Booked prior to 1st July 2017 29,815 2 Booked after 1st July 2017 before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dictionary - taking advantage of unusual or exceptional circumstances to make excessive profits; - Law Lexicon - To seek or obtain excessive profits, one who had given to make excessive profits; - Shorter Oxford Dictionary - Make or Seek to make an excessive profit. - To seek or obtain excessive profits especially illegally Whereas the Report of the DGAP did not bring out any of these factors, to establish that there was a benefit. which had accrued which otherwise would have not accrued to the Respondent Without establishing the same the Report was not sustainable under law and therefore cannot be accepted. viii. That the methodology adopted in the Report for ascertaining the increase in credit was not acceptable for the following reasons: a. The availment of Input Tax Credit/CENVAT Credit was essentially linked to the expenditure incurred or to be incurred and not linked to the revenue. Adopting the percentage of credit to revenue without considering the expenditure incurred was improper. Example, with Total realizable value of Rs. 1,000/- and cost of land Rs. 400/. and cost of construction Rs. 400/- with 30% cost incurred pre-GST and 70% post-GST has been as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts establish that the methodology adopted was inappropriate, illogical and questionable. The respondent objects to the methodology adopted by the DGAP. ix. That as per his submissions made above it was humbly requested before the Authority that a. No additional benefit of credit accrued to the respondent post GST; b. In the absence of mechanism and methodology prescribed under the law the methodology explained by the respondent for stating that he had not got any undue benefit has to be accepted; c. The methodology adopted in the Report was unscientific, illogical and without statutory back-up and could not be accepted; d. The ideal method would have been based on cost and also with reference to the difference in basic cost (net of credits) and not based on actual ITC availed as ITC availed would be based on various other factors including increase in cost. e. The additional ITC was eligible subject to making payment of additional amount and thereby there was no additional benefit accruing to the Respondent. f. There were anomalies in the workings as explained above which require to be changed. 6. Copy of the above submissions dated 08.03,2021 received on 15.03. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recommendation of the GST Council, Accordingly, the Authority might exercise such power as has been prescribed under the CGST Rules, 2017. Since the functions and powers to be exercised by the Authority had been approved by competent legislatures. the same was legal and binding on the Petitioner. The Authority in exercise of power delegated to it under the above rule has notified the Methodology & Procedure vide Notification last updated on 19.07.2018 which was also available on the website. However. it was submitted that no fixed/ uniform mathematical methodology could be determined for all the cases of profiteering as the facts and circumstances of each case as well as the nature of goods or services supplied in each case differ. Therefore, the determination of the profiteered amount has to be computed by taking into account particular facts of each case. Accordingly, the profiteering has been computed based on the methodology approved by the Authority in its Orders passed from time to time. Similar methodology has been followed in all the cases in the past, which have been upheld by the Authority. 7. Further, the DGAP's clarification dated 24.03.2021 has been supplied to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of the Respondent is without substance as the 'Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and ITC or for computation of the profiteered amount has been outlined in Section 171 (1) of the CGST Act, 2017 itself which provides that "'any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices." The Authority finds that, it is clear from the plain reading of the above provision that it mentions ''reduction in the rate of tax or benefit of ITC" which means that if any reduction in the rate of tax is ordered by the Central and the State Governments or a registered supplier avails benefit of additional ITC post GST implementation, the same have to be passed on by him to his recipients since both the above benefits are being given by the above Governments out of their scarce and precious tax revenue, It also provides that the above benefits are to be passed on any supply i.e. on each product or unit of construction or service to every buyer and in case they are not passed on, the quantum of denial of thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts and mathematics as per the Explanation attached to Section 171. However, to further explain the legislative intent behind the above provision, this Authority has been authorised to determine the 'Procedure and Methodology' which has been done by it vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017. However, no fixed mathematical formula. in respect of all the Sectors or the products or the services, can be set for passing on the above benefits or for computation of the profiteered amount, as the facts of each case are different. In the case of one real estate project, date of start and completion of the project. price of the flat/shop, mode of payment of price or instalments, stage of completion of the project, rates of taxes pre and post GST implementation, amount of CENVAT credit and ITC available, total saleable area, area sold and the taxable turnover received before and after the GST implementation would always be different from the other project and hence the amount of benefit of additional ITC to be passed on in respect of one project would not be similar to the other project. Therefore, no set procedure or mathematical methodo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any extra benefit without paying extra for it. Further the Respondent submitted that the benefit has to be understood in the context of profiteering, therefore. he has cited the definitions of 'Profiteering' from The Black's Law Dictionary, Law Lexicon and Shorter Oxford Dictionary in his support. In this regard, this Authority finds that the word "profiteered" has been duly defined in the Explanation attached to Section 171 of the above Act as under:- "Explanation : For the purposes of this section, the expression 'profiteered' shall mean the amount determined on account of not passing The benefit of reduction in rate of tax on supply of goods or services or both or the benefit of ITC to the recipient by way of commensurate reduction In the price of the goods or services or both." Section 171 of the CGST Act is very much clear. according to which the benefit commensurate to the amount of reduction in rate of tax has to be passed on to the recipients by way of reduction in prices. Based on the above Explanation there is no doubt on the definition of profiteering which has been duly incorporated in the CGST Act, 2017 and hence the above contention of the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in discharging his output tax liability, Therefore, the Authority finds that the above contention of the Respondent cannot be accepted. 14. The Respondent has also submitted that, the profiteering amount determined according to Table B of the Report was of Rs. 40, 94,480/- which was much more than the proportionate Input Credit of Rs. 39,98.952/- as calculated in Table-A of the Report availed on the Sold area of 28,880 sq.ft. The anti-profiteering benefit could not be more than the proportionate Input Credit availed by the respondent Hence, according to the Respondent, the methodology adopted by the DGAP was inappropriate, illogical and questionable, The Authority has considered this contention of the Respondent and finds it devoid of any merit. It is clear from a perusal of Table A and Table B supra that, the amount of Rs. 40,94,480/- as calculated therein is inclusive of 12 % GST collected on the profiteered amount by the Respondent from his recipients. The ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period (April-2016 to June-2017) was only 1.17% and during the post-GST period (July-2017 to April-2020), it was 13.52% for the proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;Axis Vedam". The list of 21 customers/flat buyers/recipients has been attached as Annexure 'A' with this Order, containing the details of the amount of benefit of ITC to be passed on in respect of the project "Axis Vedam" of the Respondent. 16. In view of the above discussions, the Authority finds that the Respondent has profiteered by an amount of Rs. 40.94.480/- for the Project "Axis Vedam" during the period of investigation i.e. 01.07.2017 to 30.04.2020. The above amount that has been profiteered by the Respondent from his customers/flat buyers/recipients in the above said 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 accordance with the provisions of Rule 133 (3) (b) of the CGST Rules, 2017. 17. The Authority finds no reason to differ from the above-detailed computation of profiteering in the DGAP's Report or the methodology adopted and hence, the Authority determines the profiteered amount for the period from 01.07.2017 to 30.04 2020. in the instant case, as Rs. 40,94,480/- for the Project "Axis Vedam". This Authority under Rule 133 (3) (a) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Hence, there are adequate reasons to believe that the Respondent may not have passed on the benefit of ITC to his recipients in such other Projects as per Section 171(1) of the Act ibid, in the same manner as in the project in hand, Le. "Axis Vedam". Therefore. the Authority, in accordance with the provisions of Section 171 (2) of the CGST Act, 2017 and as per the provisions of Rule 133 (5) (a) of the CGST Rules 2017 directs the DGAP to investigate all the others projects of the Respondent under the same GST registration which have not yet been investigated for the purposes of Section 171 of the CGST Act, 2017 and submit his Report as per the provisions of Rule 133 (5) (b) of the CGST Rules, 2017. 22. The concerned jurisdictional CGST/SGST Commissioner is directed to ensure compliance of this Order. It may be ensured that the benefit of ITC is passed on to each homebuyer as per Annexure- A' attached with this Order along with interest @ 18% as prescribed. if not already paid, in this regard an advertisement of appropriate size to be visible to the public may also be published in minimum of two local Newspapers/vernacular press in Hindi/English/local language with the deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ataka and Karnataka RERA for necessary action. Ends:- Annexure- A List of homebuyers with details of determined profiteered amount (1 Page). ANNEXURE-A LIST OF HOME BUYERS OF THE PROJECT "AXIS VEDAM" S. No. Customer Name Unit Number Amount of ITC to be passed on (in Rs.) 1. Ms Shruthi Vinayakumar G-07 246,332.82 2. Mrs. Seethalakshmi G-08 77,213.36 3. Mr Abhilash R G-09 164,534.60 4. Mr. V L Varadaraj 101 56,363.42 5. Mr. Ganesh 104 223,066,14 6. Mrs. Jayasharma & Mr. Vivek Kumar 107 113,738.50 7. Mr. Birendra Jha & Mrs Mamta Ala 109 118,093.71 8. Mr. G K Venkatesh 201 7,360.15 9. Mr. Bablu Dutt K 203 42,313.54 10. Mr. Ravi Karthik Ramesh 206 128,276.21 11. Mr. R Ramanathan 207 93,808.44 12. Mr. Ajoy Saha & Mrs. Saheli Saha 209 846.93 13. Ms. Kavitha Chander 210 988,799.84 14. Mr. Mithun Vashist 303 73,570.38 15. Mr. Sebin Jhony 305 58.816.71 16. Mr. Raghu Pelakkat 307 120,727.93 17. Mr. Ranjit Nandakumar Menon 309 360,163.24 18. Mrs. Anita Kumari & Mr. Nitish Ranjan 310 1,078,842.38 19. Mr C Jaishankar 406 3,645.88 20. Ms. Vishnu Maya K S 408 128.092.61 21. Mr Surender Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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