TMI Blog2022 (10) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... ion institutions/hospitals/airport etc. It is clear from the plain reading of Section 171 (1) mentioned above that it deals with two situations: - one relating to the passing on the benefit of reduction in the rate of tax and the second pertaining to 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 UST period., hence the only issue to be examined is as to 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 3.36% and during the post-GST period (July-2017 to October-2019), it was 4.27%. The Authority finds that the Respondent has profiteered by an amount of Rs. 50,09,158/- during the period of investigation i.e. 01.07.2017 to 31.10.2019. The above amount of Rs. 50,09,158/-(including 18% GST) that has been profiteered by the Respondent from his home buyers/shop buyers/recipients of supply, shall be refunded by him, along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the same GSTIN: Table-'A' S. No. Name of the Project / Phase Type of the Project 1 Nikoo Homes - I Residential 2 Nikoo Homes - II Residential 3 Leela Residences Residential On perusal of the above table, it had been observed that the DGAP had already furnished it's Investigation Report in ease of the project Nikoo Homes-I vide report dated 30.09.2020 and in case of the project Nikoo Homes-II this Authority had already passed Final Order No. 49/2019 dated 14.10.2019 and the Respondent had filed Writ Petition (Civil) No. 12717/2019 against the Order No. 49/2019 of the Authority in case of Nikoo homes-II before the Hon'ble high Court of Delhi and the Hon'ble Court vide its Order dated 04.12.2019 had directed a following: Subject to the Petitioner depositing the amount of Rs. 5,06,78,069/- with the Respondents within four weeks, the impugned order shall remain stayed. However, the penalty pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The following projects are under the same GSTIN: S. No. Name or the Project / Phase Type of the Project. 1. Nikoo Homes -I Residential 2. Nikoo Homes - II Residential 3. Leela Residences Residential The Authority had already issued its Order No. 49/2019 dated 14.10.2019 in case of Nikoo Homes-II. For the projects Nikoo homes-1 and Leda Residences , the Respondent had raised objection that while Rule 133 (4) of the Rules empowered calling for information and causing for further investigation in respect of goods/services in question (covered in the report of DGAP, viz., Nikoo Homes-I), the provisions of Rule 133 (5) of the Rules provided for similar powers in respect of any other goods or services which were not covered in the report. (b) The time limit of six months from the date of receipt of DGAP's report dated 14.03.2019 had already expired in this case as per GST Rule 133 (1). As per Authority's Order No. 12/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, The Respondent had sold 36 flats in Leda Residences- project to various customers For all- inclusive prices, after considering the market conditions, escalations, demand-supply balance, GST benefit / concession, development in the locality, location of the land, proximity to educational institutions/ hospitals/ airport etc. It's agreed between the Respondent and the Buyers that the Buyers would not claim any GST ITC benefit as per Clause 6.4 of the Agreement to Sell which was reproduced herein below for easy reference: 'The Purchaser hereby agrees that the consideration agreed herein was based on the mutual negotiations between the Purchaser and the Seller as on the date of the application for allotment. It was made clear that after considering the above fact, the Purchasers shall have no right to claim any input benefits of sellers or reduction in cost due to changes in GST or renegotiate on the considerations in comparison with the other purchasers and/or for whatsoever reasons. The Respondent had further stated that vide Para-49 of Order No. 49/2019 dated 15.10.2019 in the matter of Respondent itself, the Authority confirmed the DGAP's finding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing information/documents after expiry of 6 months as mentioned in Rule 133 (1) was forwarded by the DGAP to the Authority vide letter dated 19.11.2019 seeking its guidance for further course of action in the instant case. In response, the Authority vide letter dated 02.12.2019 informed that all such submissions of the Respondent would be addressed by the Authority in its final Order and the DGAP was directed to proceed with the investigation. x. Another relevant point in this regard was para 5 of Schedule-III of the CGST Act, 2017 (Activities or Transactions which shall be treated neither as a supply of goods nor a supply of services) which reads as Sale of land and. subject to clause (b) of paragraph 5 of Schedule II, sale of building . Further, clause (b) of Paragraph 5 of Schedule II of the CGST Act, 2017 reads as (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration had been received after issuance of Completion Certificate, where required, by the competent authority or after its first occupation, whichever was earlier . Thus, the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re furnished in table- B' below. Table B S.No. Particulars April, 2016 to June, 2017 (Pre-GST) July, 2017 to October, 2019 (Post-GST) (1) (2) (3) (4) 1. CENVAT of Service Tax Paid on Input Services (A) Credit of VAT Paid on Purchase of Inputs (B) 1,48,69,371 - 2. Credit of VAT Paid on Purchase of Inputs (B) 56,63,360 - 3. Rebate of VAT (WCT) for the payment made to registered Contractors or Sub-contractors (C) 1,02,04,304 - 4. Input Tax Credit of GST Availed (D) - 9,95,24,529 5. Total CENVAT/VAT/Input Tax Credit Availed (E)[(A)+(B)+(C) or (D) 3,07,37,035 9,95,24,529 6. Total Turnover including l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Turnover as per Table B above (%) C 4.27 4. Increase in ITC availed post-GST] (%) D 4.27% less 3.36% 0.91% 5. Analysis of Increase in input tax credit: 6. Total Base Price excluding land value raised during} July, 2017 to October, 2019 E 81,83,81,627/- 7. Less: Base Price raised during July, 2017 to October, 2019 (Flats sold after 01.07.2017 as per new agreement) F 35,18,92,700/- 8. Base Price raised during July, 2017 to October, 2019 (Flats sold upto 30.06.2017) G=E-F 46,64,88,927/- 9. GST raised @ 18% over Base Price H=G*18% 8,39,68,007/- 10. Total Demand raised I=G+H 55,04,56,934/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed was mutually negotiated agreed upon. Clause 6.4 of the Agreement to Sell also confirms the same which reads as The Purchaser hereby agrees that the consideration agreed herein was based on the mutual negotiations between the Purchaser and the Seller as on the dale of the application for allotment. It was made clear that alter considering the above fact, the Purchasers shall have no right to claim any input benefits of sellers or reduction in cost due to changes in GST or renegotiate on the considerations in comparison with the other purchasers and/or for whatsoever reasons. This argument of the Respondent had merit and therefore, TIC pertaining to the above 36 units was outside the scope of this investigation as the selling price of such units was negotiated between the home buyers and the Respondent taking into consideration the benefit of ITC or change in GST. xvii. The benefit of additional ITC to the tune of 0.91% of the turnover, accrued to the Respondent post-GST and the same was required to be passed on by the Respondent to the Recipients who had entered into the agreements with the Respondent upto 30.06.2017. On this account, the Respondent had realized an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DGAP was furnished as Annexure I. As per the Annexure I Anti-Profiteering Proceedings for the project Leda Residences were initiated under Rule 133 (5) of the CGST Rules, 2017. The Respondent has referred to the extract of the said Rules for easy and quick reference: Rule 133 of CGST Rules Order of the Authority (1.) The Authority shall, within a period of six months from the date of the receipt of the report from the Director General of Anti-profiteering determine whether a registered person has passed on the benefit of the reduction in the rate of tax on the supply of goods or services or the benefit of input Tax credit to the recipient by way of commensurate reduction in prices. (4). If the report of the Director General of Anti-profiteering referred to in sub-rule (6) of rule 129 recommends that there is contravention or even non-contravention of the provisions of section 171 or these rules, but the Authority is of the opinion that further investigation or inquiry is called for in the matter, it may, for reasons to be recorded in writing, refer the matter to the Director General of Anti-profiteering to cause further investigation or inquiry in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no increase, whether factual or fictional in the same. A mere Increase in the rate of tax which was eligible as credit wholly under both the laws, in his view, was not covered under Section 171 of CGST Act, 2017. The Respondent also stated that as a works contractor he was eligible to claim full Credit of Services Tax @ 15 % paid on all Input Services before the GST regime and so also GST @ 18% on all Input Services was eligible to be claimed as credit. The Change was essentially in the Rate of Tax which had increase from 15% to 18%. As a Recipient of such Services he was paying 15% to the Service Providers or under Reverse Charge Mechanism as applicable and claiming full credit of such 15%. With the implementation of GST, tax was paid to the Service Provider or under Reverse Charge Mechanism a, 18% which was fully claimed as credit. The fact that full tax, whether Service Tax or GST was allowed as input credit, meant that there is no real and additional benefit that accrues on 'services' due to implementation of GST. Further, the Respondent also submitted that the methodology adopted by the office of the DGAP at a higher level compares the total amount of input credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teering amount instead of the realizations from the customers. A comparison of the taxes that were originally envisaged as part of the project cost which were then subsumed into GST and therefore eligible as credit was the only additional credit that was available for the project. In his view, this was the amount that represented 'additional input credit' for the purposes or S. 171 of the CGST Act, 2017. (v) That the amounts realized or installments received from the customers were a mix of (a) towards construction (ii) towards UDI in land (iii) towards common amenities and registrations. Thus, using, the amounts realized and applying the same as a ratio to the credits actually claimed is a biased and unscientific, as an approach. lie further explained that a contract for sale of residential unit consisted of two major components, viz., sale of UDI in land and sale of constructed portion. While sale of UDI in land was a sale of immovable property and the sale of constructed portion was liable to Service Tax and VAT during the pre-GST regime and to GST under the GST regime. Thus, from an accounting and legal perspective, the receipt of money from the customers towards t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rameters like surrounding developments, standard of life of that area, facilities such as hospitals, schools, public transport and accessibility to various offices, access to airport and railway station, pricing of competition etc. The mix of demand of number of homes and the supply play a vital and significant role in the pricing irrespective of the costs. As a business practice in real estate industry, the developer always aims to achieve an overall betterment in prices of flats which would be sold over a period of 4 to 5 years from the date of launch of the project and in certain cases, even after obtaining the occupation certificate. As such, the customers who purchase flats initially will naturally have a price advantage over the other customer who purchased flats during a later point in time, irrespective of GST. The Respondent further submitted that the cost of constructing a flat or putting up the project was wholly irrelevant in the pricing mechanism. The Respondent also stated that cost has no role to play in the pricing mechanism, it was his submission that the provisions relating to anti-profiteering, more specifically on the availability of credits should not be applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atorily be undertaken (i) qua project and (ii) covering the entire life span. Comparing of the output taxes with input credit for a part of the period or for the company as a whole would lead to incorrect understanding and analysis. (xii) That the applicability of the provisions of Section 171 of the Central Goods and Services Fax Act, 2017 in the instant case needed a thorough reconsideration and should essentially be analyzed for a project as a whole and not for a specific period in isolation, using ratio or extrapolation techniques, as considered in the report of the DGAP. This, in their submission distorts the computation and the analysis thereto. 4. The above submissions of the Respondent were supplied to the DGAP for filling his clarifications under Rule 133 (2A) of the CGST Rules, 2017. According, the DGAP has filed his clarifications dated 08.02.2021 which have been detailed below:- i. In response to the contention of the Respondent that direction given u/r 133 (5) was time barred the DGAP has stated that the objection raised by the Respondent has been redressed in para-10 of his office's Report dated 27.11.2020 which is reproduced below: 10. The Noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... input tax credit on all the purchases made by them resulting in reduction in prices of the materials purchased by them which should pass on to the Respondent. In the erstwhile pre-GST regime, various taxes and Cess were being levied by the Central Government and the State Governments, which got subsumed in the GST. Out of these taxes, the input tax credit (ITC) of some taxes was not being allowed in the erstwhile tax regime. For example, the input tax credit of Central Sales Tax, which was being collected and appropriated by the States, was not admissible. Similarly, in case of construction service, while the input tax credit of Service Tax was available, the input tax credit 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, got 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 input tax credit of GST became available in respect of all goods and services, unless specifically denied. This additional benefit of input tax credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was as per the relevant GST Act and relevant Rules. Therefore, the proportionate credit of GST on expenses incurred attributable to such unsold units was outside the scope of impugned investigation. It was also apparent from the Report of DGAP that DGAP has computed the benefit of ITC on the area sold and the turnover received on such area. DGAP had neither computed the benefit on the unsold area nor the Respondent was being asked to pass on the benefit on the unsold area and hence, the ITC relevant to this area would remain intact with the Respondent which he could reverse at the time of receipt of Occupancy Certificate. I fence the above contention of the Respondent was incorrect. v. In response to the contention of the Respondent that Comparison of the input credits with output taxes should be taken qua project covering the entire life span the DGAP submitted that the contention made in these paras may be correct as Section 171 (1) of Central Goods and Services 'lax Act, 2017 mandates passing on of the benefit of additional ITC which had accrued to the Respondent during the entire life of the project before occupancy certificate is issued. However, the Respondent avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the pre-GST period (April-2016 to June-2017) was 3.36%, whereas, during the post-GST period (July-2017 to October-2019), it was 4.27%. This confirms that in the post-GST period, the Respondent has been benefited from additional ITC to the tune of 0.91% (4.27%-3.36%) of his turnover and the same is required to be passed on by him to the eligible flat buyers. We observe that the computation of the amount of ITC benefit to be passed on by the Respondent to the eligible flat buyers works Out to Rs.50,09,158/- which included GST @18% on the base amount of Rs. 42,45,049/-. 9. The Respondent has filed his first written submissions on 11.01.2021 vide which he had submitted that the proceedings were time barred as the Respondent observed that the time limit of 6 months from the date of receipt of DGAP's report dated 14.03.2019 has already expired in that case as per the provision of Rule 133 (4) of the Central Goods and Services Tax Rules, 2017. As per the NAA's Order No. 12/2019, the Authority has considered the date of institution as 12.04.2019 and even if that date is considered as DGAP's report date, the 6 month time limit prescribed under Rule 133 (1) of CGST Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard is further placed on the following judgement of the Hon'ble Supreme Court in the case or P. T. Rajan v. T. P. M. Sahir and Ors. (2003) 8 SCC 498:- 48. It is well-settled pinciple of law that where a statutory functionary is asked to perform a statutory duty within the time prescribed therefor, the same would be directory and not mandatory. (See Shiveshwar Prasad Sinha v. The District Magistrate of Monghyr Anr., AIR(1966) Patna 144,Nomita Chowdhury v. The State of West Bengal Ors., (1999) CLJ 21 and Garbari Union Co-operative Agricultural Credit Society Limited Anr. v. Swapan Kumar Jana Ors., (1997) 1 CHN 189.; 49. Furthermore, a provision in a statute which is procedural in nature although employs the word shall may not be held to be mandatory if thereby no prejudice is caused. 10. The Respondent vide his submissions has further stated that methodology currently applied was flawed, biased and unscientific and tax paid on services was not a benefit when compared to the pre-GST regime, by any stretch of imagination. The report of the DGAP was oblivious to this basic and important fact. Service Tax 15% was paid up to 30.06.2017 and the GST wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 got 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 was 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 was 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. Therefore, the approach methodology adopted by the DGAP was in consonance with the provisions of Section 171 of the CGST Act, 2017. 11. With respect to the contention of the Respondent that the provision of section 171 of CGST Act, 2017 be applied for the project as a whole and not for 'a specified period and comparison of the input ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the above ground is unacceptable. 13. Upon perusal of Para 17 of the Report of the DGAP and the documents placed on record it is apparent that above computation of profiteering was with respect to 85 home buyers front whom construction value had been received by the Respondent during the period 01.07.2017 to 31.10.2019 (excluding the flats sold post 01.07.2017). This was on account of the fact that. the Respondent had booked 121 flats till 31.10.2019, but, the Respondent had claimed that he had sold 36 flats after 01.07.2017 at the rates agreed by the customers as all inclusive price after considering the market condition, escalations, demand - supply balance, GST benefit/ concession, development in the locality, location of the land, proximity to education institutions/hospitals/airport etc. 14. It is clear from the plain reading of Section 171 (1) mentioned above that it deals with two situations: - one relating to the passing on the benefit of reduction in the rate of tax and the second pertaining to 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he date from which the above amount was profiteered till the date of passing on/ payment, as per provisions of Rule 133 (3) (h) of the CGS1' Rules 2017. 18. The complete list of home buyers/shop buyers/recipients of supply with the details of amount of benefit of ITC to be passed along with interest (ii) 18% is furnished in the below Table:- 19. We also order that the profiteering amount of Rs. 50,09,158/- along with the interest @ 18% from the date of receiving of the profiteered amount from the home buyers/shop buyers/recipients of supply till the date of passing the benefit of ITC shall be paid/passed on by the Respondent within a period of 3 months from the date of receipt of this order failing which it shall be recovered as per the provisions of the CGST Act, 2017. 20. It is evident from the above narration of facts that Respondent has denied the benefit of tax reduction to the customers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus committed an offence under Section 171 (3A) of the above Act and therefore. he is liable for imposition of penalty under the provisions of the above Section. Howevcr, since the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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