TMI Blog2022 (10) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... AP's Report 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 0.76% and during the post-GST period (July-2017 to October-2020). it was 9.13% for the Project SKA Green Arch - the DGAP has calculated the amount of ITC benefit to be passed on to all the flat buyers as Rs. 4,75,87,468/- for the Project SKA Green Arch , the details of which are mentioned in Annexure-24 of the Report. 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 31.10 2020 in the instant case, as Rs. 4,75,87,468/- for the Project SKA Green Arch . This Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondent shall reduce the prices to be realized from the buyers of the flats commensurate with the benefit of ITC received by him. Interest - HELD THAT:- The Authority finds that the Respondent has profiteered by Rs. 4,75,87,468/- for the Project SKA Green Arch during the period of investigation i.e. 01.07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Greater Noida (West) under Prime Minister Awas Yojana (PMAY) and alleged that the Respondent had charged GST @12%. In his application, the Applicant No.1 also submitted that MRP of the flat had increased and the Respondent had not passed on the benefit of ITC to him by way of commensurate reduction in the price on introduction 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 29.10.2021, inter-alia stated that:- i. The said application was examined by the Standing Committee on Anti-profiteering. in its meeting, the minutes of which were received in the DGAP's office on 15.10.2020, whereby it was decided to forward the same to the DGAP to conduct a detailed investigation in the matter. Accordingly, investigation was initiated to collect evidence necessary to determine whether the benefit of ITC had been passed on by the Respondent to his customers in respect of construction service supplied by the Respondent. ll. On receipt of the reference from the Standing Committee on Anti-profiteering, a notice under Rule 129 of the Rules was issued by the DGAP on 06.11.2020, calling upon the Respondent to reply as to whether he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were initiated on the basis of an application received from the Applicant No. 1. The said Applicant No. 1 had purchased one flat in the project. Hence, the investigation could not go beyond the Applicant No, 1 and cover other customers also who had not questioned the benefit passed on to them. b. The Applicant No. 1 had booked flat after more than one year of implementation of GST, so the provisions of Section 171 of the CGST Act, 2017 were not applicable. c. Since, there was reduction in rate of GST from 12% (after abatement of Land cost) to 8% (after abatement of Land cost), vide Notification No. 01/2018 dated 25.01.2018 under provision of GST law. the Applicant No. 1 had been charged GST @ 8% only. So, the benefit of reduction had already been given to the buyers. Hence. the provision of Anti-Profiteering did not apply in his case. d. The project SKA Green Arch was not an approved affordable Under this scheme. the beneficiary had to apply Housing loan with Primary Lending Institutions (PLI) after booking of a flat and Central Nodal Agencies (CAN) to verify the eligibility terms of the policy, and after the satisfaction of the el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be verified from the documents uploaded by the Respondent from time to time on RERA website like progress report of the project, sales detail of the project and Chartered Engineers certificate etc., the contractor's Work Order issued for the said phase and 1st RA bill provided by the contractor for those Towers and from the 1st booking for the Phase- 2 where it was clearly mentioned in the payment plan which was part of the agreement that when raft work would be started, the buyer had to pay certain percentage of the total sale value. The Respondent had raised invoices for the same mile stone on 17.07. 2018. The Contractors bill of the said work had been issued on 06.10.2018. This clearly showed that the raft work which was the foundation work of a Tower had started after 17.07.2018 which was post GST regime. h. The Respondent had been providing service for construction of residential service and other services like sale of RMC, society maintenance services etc. during the period under consideration. The Respondent was availing input credit for the said services sale. i. The Respondent had taken input credit for services, which was used for providing taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd demand letters issued to Applicant and other home buyers. j. Details of sold and unsold units. k. Details of applicable tax rates, pre-GST and post-GST. I. Details of input and output VAT, Service Tax and GST for the project SKA Green Arch during the period April 2016 to October 2020. m. Copies of cheques dated 14.09.2020 and 20.09.2020, issued by the Respondent to the Applicant No. 1 for refund of Rs. 1.39,932/-. n. Summary of Input Tax Credit. o. List of home buyers in the project SKA Green Arch . viii. Vide the notice dated 06.11.2020, the Respondent was informed that if any information/documents was provided on confidential basis, in terms of Rule 130 of the Rules, a non-confidential summary of such information/documents was required to be furnished. The Respondent claimed that all information/documents submitted by him were to be treated as confidential. ix. The above said reference from the Standing Committee on Anti-profiteering along with subject application of the Applicant No. 1, various replies of the Respondent and the documents/evidences on record had been carefully examined. x. Further vide Para 5 of Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Vide his above submissions, the Respondent contended that the proceedings were initiated on the basis of an application received from the Applicant No. 1. The said Applicant No. 1 had purchased one flat in the Project. Hence, the investigation could not go beyond the Applicant No. 1 and cover other customers also who had not questioned the benefit passed on to them. In this regard, it was observed that Section 171 (1) of the CGST Act. 2017 envisage that Any reduction in rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in prices. It was clear from perusal of the above provision that it mentioned benefit of ITC shall be passed on to the recipient which did not mean that the benefit of ITC was to be taken only for the applicant or the complainant. Further, the above Section mentions any supply i.e., each taxable supply made to each recipient thereby clearly indicating that every customer/recipient was eligible to get his due benefit. Therefore, it was clear that the intent of the statute was to ensure that the benefit of any reduction in the rate of tax or the benefit of ITC had to be pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be spared from the current investigation on the mere basis that the same was launched in post-GST period. Hence, the contention of the Respondent in this regard was not considered and investigation was carried out for both the phases of the Project. xiv. The Respondent had also contended that he had paid taxes in excess in GST regime as compared to Service Tax regime. In this regard, it was observed that the Respondent had claimed that his cost has increased due to increase in rate of tax on his input services. However, the Respondent had not provided any data to quantify the extra cost incurred in GST period to be adjusted against the amount of profiteering. xv. The Respondent had also claimed that he had been paying VAT/Sales Tax on purchase of goods for which input credit was not available to the Respondent for providing services under head of construction of residential services but the Respondent had been claiming the said VAT/Sales Tax as expenditure and getting benefit of Income Tax at applicable rate. Now, the Respondent was entitled to claim input credit for GST paid on purchase of good, so the Respondent was not eligible for claiming expenses of GST paid on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 148 11,20,148 7. Total Sold Area (in SQF) relevant to turnover (G) 2,46,908 9,93,305 8. Relevant ITC [(H)= (B)*(G)/(F)] 12,82,084 21,51,69,533 Ratio of ITC Post-GST [(I)=(H)/(E)] 0.76% 9.13% 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 0.76% and during the post-GST period (July, 2017 to October, 2021), it was 9.13% in Project SKA Green Arch . This clearly confirmed that in post-GST, the Respondent had been benefitted with additional ITC to the tune of 8.37% [9.13% (-) 0.76%] of the turnover. xvii. The Respondent had claimed that the price quoted to the post GST customers was inclusive of the benefit of ITC under GST Laws. The application form which was signed by all home buyers mentions as the following: The Cost of Apartment/Unit was arrived after reduction on account of GST ITC B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;B' above (%) C 9.13%/0.76% 4. Increase in ITC availed post-GST (%) D=9.13% less 0.76% 8.37% 5. Analysis of Increase in input tax credit: 6. Base Price raised during July, 2017 to October, 2020 (Rs.) E 2,35,60,06,678 7. Less: Demand raised and advances raised during 1st July, 2017 to October, 2020 (Rs.) (Flats sold after 01.07.2017 as per documents of 642 buyers) F 1,84,83,74,531 8. Final Base Price raised during 1st July, 2017 to October, 2020 (Rs.) G=E-F 50,76,32,147 9. GST raised over Base Price (Rs.) H=G*B 6,09,15,858 10. Total Demand raised I=G+H 56,85,48,005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of all homebuyers. A summary of benefit of ITC required to be passed on and the ITC benefit claimed to had been passed on to the Applicant No.1 and other home buyers, was tabulated in Table- 'C' below: - Table-C Sr.No. Category of Customers No. of Units Area (in Sqft) Amount Received Post GST Profiteering Amt.as per Annex-24 of the Report Benefit claimed to had been passed on by the Respondent Difference Remark A B C D E F G H=F-G I 1. Buyers who confirmed through email 14 18,380 3,76,89,100 35,33,127 16,72,564 18,60,563 Further Benefit to be passed on as per Annex-26 of the Report. 2. Buyers who denied thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 206 recipients were identifiable as per the documents provided by the Respondent, giving the names along with unit allotted to such recipients and hence, the Respondent was required to pass on the benefit of ITC of GST to these buyers. Based on the details of the outward supply of Construction services submitted by the Respondent, it was also observed that the Respondent has supplied construction services in the State of Uttar Pradesh only. ii. As aforementioned, the present investigation covered the period from 01.07.2017 to 31.10.2020. Profiteering, if any, for the period post October, 2020 had not been examined as the exact quantum of ITC that would be available to the Respondent in future could not be determined at this stage, when the construction of the Project was yet to be completed. 4. The above Report was carefully considered by this Authority and it was decided to allow the Applicant No. 1 and the Respondent to file their consolidated written submissions by 15.03.2022. A notice dated 25.02.2022 was issued to the Respondent to explain why the Report dated 29.10.2021 furnished by the DGAP should not be accepted and his liability for profiteering in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verest Ltd. Vs. UOI, 1997 (89) E.L.T. 28 (Mad.). vi. Without prejudice to above, investigation proceedings cannot go beyond the application submitted by the Applicant No. 1. vii. Without prejudice to above, the alleged profiteering amount had been incorrectly inflated by adding GST and the same was not sustainable. 7. Copy of the Respondent's submissions dated 13.04.2022 was supplied to the Applicants and the DGAP for their replies and clarifications under Rule 133 (2A) of the CGST Rules, 2017. The Applicant No. 2 3 by e-mail dated 03.05.2022 have filed their submissions against the Respondent's submissions dated 13.04.2022 vide which, inter-alia, they stated:- i. That with reference to page No. 6 of the Respondent's submissions, the Respondent objected to ratios used in the DGAP's Report for calculating profiteering amount, however if Respondent believed that it had applied accurate and logical method to compute amount of refund to customer, then why benefit was not received by all customers. The Applicants felt that the Respondent had been partial towards few customers only. It was also claimed that no amount was retained by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction service, while the ITC of Service Tax was available, the ITC of Central Excise Duty paid on inputs was not available to the service provider. Such input taxes, the credit of which was not allowed in the erstwhile tax regime, used to get embedded in the cost of the goods or services supplied, resulting in increased price. With the introduction of GST with effect from 01.07.2017, all these taxes got subsumed in the GST and the ITC of GST became available in respect of all goods and services, unless specifically denied. Broadly, the additional benefit of ITC in the GST regime would be limited to those input taxes, the credit of which was not allowed in the pre-GST regime, but allowed in the GST regime. This additional benefit of ITC in the GST regime was required to be passed on by the suppliers to the recipients by way of commensurate reduction in price, in terms of Section 171 of GST Act, 2017. It was amply clear that the ITC which was related to inputs and taxable turnover which was related to outputs (payments of GST on amounts collected), was mutually dependent on each other. Hence it was incorrect to say that in Real Estate Sector. there was no correlation of turno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable supply made to each recipient thereby clearly indicating that every customer/recipient was eligible to get his due benefit. In other words, every recipient of goods or services had to get the due benefit from the supplier and hence, this benefit had to be calculated for each and every service supplied by the Respondent. 9. Further, the DGAP's clarifications dated 09.05.2022 were supplied to the Respondent and the Applicants to file their rejoinder. Vide e-mail dated 14.06.2022, the Respondent has submitted his rejoinder against DGAP's clarifications wherein beside reiterating earlier submissions dated 13.04.2022he has inter-alia stated:- i. That in DGAP's Report dated 29.10.2021, the DGAP had not considered the amount of VAT credit while arriving at the ITC ratio to the total turnover and accordingly, the amount of VAT credit should be taken into consideration for arriving at such ITC ratio. Hence, the profiteering demand should be reduced accordingly. ii. That the construction of 2nd phase of the Project namely, SKA Green Arch started well after the implementation of GST law and thus, the second phase of the said Project could not be included for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part D of point No. 6- All individuals who had purchased the property and were demanding their right had invested hard earned money and secondly, the Respondent won't be dishonest at giving incorrect information as to non-receipt of benefits. iii. Reply to part F of point No. 6- The comparison of ratio of ITC to turnover was a very correct method as there were also other Rules on the same (Rule 42 and 43), where ratio of ITC to turnover was applied hence questioning the formulae was not viable in law. iv. Reply to point No. 8- VAT credit 2022 was incorrect term, these taxes were subsumed into GST after GST applicability and to claim VAT there used to be form TRANS-1. Hence, proceedings should not go off the track. v. Reply to point No. 11- Anti profiteering was any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit which had to be passed on to the recipient by way of commensurate reduction in prices. 12. Further, the DGAP by letter dated 19.07.2022 filed his clarifications vide which the DGAP has clarified:- i. That during the course of investigation, the Respondent claimed before the DGAP that ITC of VAT w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial spaces have been constructed and in the second phase two towers i.e., Tulip Tower and Zinnia Tower have been constructed. The Respondent has obtained single RERA registration for the entire SKA Green Arch Project. Since, for all the towers i.e., Aster Tower, Orchid Tower, Tulip Tower and Zinnia Tower, there is single RERA registration, the whole proceedings under the investigation should be considered as single case. It is obvious that financing of the whole project has been done as a single unit and considered financial statements have been submitted to RERA as a single unit. As such, they cannot be spared from the current investigation on the mere basis that the construction of second phase commenced in GST regime. The uniform practice of limiting the scope of investigation to the Project has been adopted by the DGAP/NAA, on the basis of RERA registration only, in respect of which the anti-profiteering application has been filed. Also, it is a fact that, Tulip Tower and Zinnia Tower which are constructed in second phase of the Project SKA Green Arch are located in the same premises of the Project for which no separate accounting of ITC is maintained by the Respondent. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal ITC post-GST implementation, the same has 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 these benefits or the profiteered amount has to be computed for which investigation has to be conducted in respect of all such products/units/services by the DGAP. 17 The term 'profiteered amount' is clearly defined in the explanation attached to Section 171 of the CGST Act. These benefits can also not be passed on at the entity/organization/branch/ invoice/ business vertical level as they have to be passed on to each and every buyer at each product/unit/service level by treating them equally. The above provision also mentions any supply which connotes each taxable supply made to each recipient thereby making it evident that a supplier cannot claim that he has passed on more benefit to one customer on a particular product therefore he would pass less benefit or no ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 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 methodology can be framed for determining the benefit of additional ITC which has to be passed on to the buyers of the units. 21. This Authority under Rule 126 has been empowered to 'determine' Methodology Procedure and not to 'prescribe' it. The facts of the cases relating to the sectors of Fast Moving Consumer Goods (FMCG), restaurant service, construction service, and cinema service are completely different from each other and therefore, the mathematical methodology adopted in the case of one sector cannot be applied to the other sector. Moreover, both the above benefits are being given by the Central as well as the State Governments as a special concession out of their tax revenue in the public interest and hence the suppliers are not required to pay even a single penny from their own pocket and therefore, they are bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt which does not mean that the benefit of ITC is to be restricted only to the Applicant or the complainant. Therefore, the benefit of ITC has to be passed on to each buyer/recipient. Further, the above Section mentions any supply which expands the scope to cover all supplies: where tax reduction or ITC benefit has not been passed on. In other words, every recipient of goods or services has to get the due benefit from the supplier and hence, this benefit has to be calculated for each and every service supplied by the Respondent. In cases of Real Estate where it was alleged that provisions of Section 171 have been violated, the actual beneficiaries are identifiable as the details of home-buyers are available with the Respondent. Accordingly, the Report covers all the eligible beneficiaries and not just the Applicant No. 1 and the DGAP is justified in examining all the supplies made by the Respondent beyond the Application filed by the Applicant No. 1. 23. The Respondent has also contended that without prejudice to his submissions, the alleged profiteering amount has been incorrectly inflated by adding GST and the same is not sustainable. In this connection, the Authority holds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profiteered amount @8.37% of the taxable amount (base price) and GST on the said profiteered amount from the 206 customers/buyers. 26. It is clear from the plain reading of Section 171 (1) that it deals with two situations:- one relating to the passing on the benefit of reduction in the rate of tax and the second on the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the DGAP's Report that there has been no reduction in the rate of tax in the post-GST period; hence the only issue to be examined is whether there was any net benefit of ITC with the introduction of GST. On this issue, it has been revealed from the DGAP's Report 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 0.76% and during the post-GST period (July-2017 to October-2020). it was 9.13% for the Project SKA Green Arch . This confirms that post-GST, the Respondent has benefited from additional ITC to the tune of 8.37% [9.13% (-) 0.76%] of his turnover for the said Project, and the same was required to be passed on to the customers/flat buyers/recipients. The DGAP has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 171 (3A) of the above Act. This Authority finds that Section 171 (3A) of the CGST Act, 2017 has been inserted in the CGST Act, 2017 vide Section 112 of the Finance Act, 2019, and the same became operational w.e.f. 01.01.2020. As the period of investigation was 01.07.2017 to 31 10.2020. therefore. the Authority finds that the Respondent is liable for imposition of penalty under the provisions of the above Section for the amount profiteered from 01.01.2020 onwards. Accordingly, notice be issued to him to explain why penalty should not be imposed on him. 32. 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 home buyer/customer/recipient of supply as per Annexure- A attached with this Order along with interest @18% as prescribed, if not paid already. In this regard an advertisement of appropriate size to be visible to the public may also be published in a minimum of two local Newspapers/vernacular press in Hindi/English/local language with the details i.e. Name of the builder (Respondent) - M/s Prasu Infrabuild Pvt. Ltd., Project- SKA Green Arch , Location- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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