TMI Blog2022 (10) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant No. 1) during the period from 01.07.2017 to 30.09.2020 which was required to be passed on to home buyers/customers/recipients of supply of his impugned project. Since the Applicant No. 1, had booked his unit in the impugned project and paid the amount in pre-GST period only hence the profiteering in respect of the Applicant No.1 has not been calculated by the DGAP. Since, all the home buyers/recipients of supply are identifiable as per the documents placed on record therefore, the Respondent is directed to pass on the above said profiteered amount along with the interest @ 18% per annum (from the dates from which the said profiteered amount was collected by him from each of them till the date such amount is passed on/returned/refunded) to above said buyers/recipients, within a period of 3 months from the date of passing of this Order as per the details mentioned in Annexure- A', failing which the said amounts shall be recovered as per the provisions of the CGST Act, 2017. Penalty - HELD THAT:- The Respondent has denied the benefit of ITC to the buyers of his flats/customers/recipients in contravention of the provisions of Section 171 (1) of the CGST Act, 2017. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Services Tax Rules, 2017, alleging profiteering by the Respondent in respect of purchase of a flat in the Respondent's project ATS Picturesque Reprieves , situated at Plot No. SC-01, Sector-152, Noida, Uttar Pradesh. The Applicant No. 1 alleged that the Respondent had not passed on the commensurate benefit of input tax credit (ITC) to him by way of commensurate reduction and charged GST @ 12 % on the amount due to him against payment. He had submitted that the Respondent always communicated that he was working on the computation and would pass on the benefit of ITC (if determined) after the project completion/ handing over the project. However, he had not given certainty of doing the same. The Applicant No. 1 providing a copy of Allotment letter (consisting breakup of consideration, payment plan, and flat description) along with his application in form APAF, has requested to keep his application confidential. 2. On receipt of the aforesaid reference from the Standing Committee on Anti-profiteering on 15.10.2020, a Notice under Rule 129 of the CGST Rules 2017, was issued on 06.11.2020 by the DGAP, calling upon the Respondent to reply as to whether he admitted that the be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll also stand excluded in computing the limitation period as per the Hon'ble Supreme Court's Order dated 27.04.2021 passed in Miscellaneous Application No. 665/2021 in SMW (C) No. 3/2020. 7. In response to the Notice dated 06.11.2020 and various reminders and Summons, the Respondent has submitted his replies vide letters/e-mails dated 26.11.2020, 18.12.2020, 23.12.2020, 22.01.2021, 02.02.2021, 03.02.2021, 05.02.2021, 26.02.2021 23.03.2021, 26.012021, 15.04.2021, 20.07.2021, 23.07.2021 and 27.08.2021, which have been summed up by the DGAP as under:- (a) The Respondent was engaged in the construction of residential projects and presently he has two projects in running. The project ATS Picturesque Reprieves' at Noida was launched in the end of 2016 which is still under construction and Occupancy Certificate has not been received by him. (b) He has opted old scheme for discharging GST @ 12% (after 1/3rd abatement towards Land) in accordance with the Notification No. 3/2019-Central Tax (Rates) dated 29.03.2019 w.e.f. 01.04.2019. (c) The instant project ATS Picturesque Reprieves Phase 1 has 932 units with total saleable area of 21,79,800 sq. ft. The towe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclaration in Annexure-IV to the Notification No. 3/2019-CT (Rate) dated 29.03.2019. k. CENVAT/ Input Tax Credit register for the period April, 2016 to September, 2020. l. Details of VAT, Service Tax and GST turnover, output tax liability payable and input tax credit availed by the Noticee. m. Copy of Lease Deed dated 30.12.2015 b/w Noticee and NOIDA Authority. n. Copy of Project Report submitted to RERA. o. Copies of RERA Registration Certificates and Architect Certificates. p. List of home buyers in the project ATS Picturesque Reprieves along with details of benefit passed on. q. Copies of all documentary evidences vide which benefit passed on to the customers. All the documents/information were classified by the Respondent as confidential in terms of Rule 130 of the Rules 2017. 9. The DGAP had scrutinized the submissions/replies of the Respondent, Applicant No. 1 and the documents/evidences on record and submitted his Investigation Report dated 02.09.2020 to this Authority, wherein the DGAP has inter alia stated that:- (i). The main issues for determination were:- Whether there was benefit of reduction in the rate of tax or inp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,04,91,853 (iii). As per Para 5 of Schedule-III of the Central Goods and Services Tax Act, 2017 (Activities or Transaction 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 Central Goods and Services Tax 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 has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier . Thus, the input tax credit pertaining to the residential units and commercial shops which are under construction but not sold is provisional input tax credit which may be required to be reversed by the Respondent, if such units remain unsold at the time of issue of the completion certificate, in terms of Section 17 (2) Section 17(3) of the Central Goods and Services Tax Act, 2017, which read as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profiteering, prior to GST introduction, the Respondent was eligible to avail Credit of Service Tax paid on input services but no credit was available in respect of Central Excise Duty paid on inputs as per the CENVAT Credit Rules, 2004. With regard to VAT credit paid on purchase of inputs, Since, the Respondent was not collecting VAT from customers and discharging his output tax liability on deemed 10% value addition on purchase value in cash and there is no direct relation of turnover reported in VAT returns with the amount collected from home buyers hence, credit of VAT paid on purchase of inputs and the VAT turnover is not considered while computation of input tax credit ratio to taxable turnover in pre-GST regime. Whereas, in post-GST period, the Respondent was entitled to avail input tax credit of GST paid on all the inputs and the input services including the sub-contracts. From the information submitted by him for the period April, 2016 to September, 2020, the details of the input tax credits availed by him, his turnovers from the impugned project ATS Picturesque Reprieve Ph-l , the ratios of input tax credits to turnovers, during the pre-GST (April, 2016 to June, 2017) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to September, 2020) when the effective GST rate was 12% (GST @18% along with 1/3rd abatement for land value) on construction services as per Notification No.11/2017-Central Tax (Rate), dated 28.06.2017. However, on the basis the figures contained in Table- 'D' above, the comparative figures of the ratios of input tax credits availed/available to the turnovers 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, are tabulated in Table E below. Table-E (Amount in Rs.) S.No. Particulars Post-GST 1. Period A 01.07.2017 to 30.09.2020 2. Output GST Rate (%) B 12.00 3. Ratio of CENVAT credit/ Input Tax Credit to Total Turnover as per table - 'D' above (%) C 5.81% 4. Increase in input tax credit availed post-GST (%) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Uttar Pradesh only. (x). The Respondent, out of total 932 units, had booked 801 flats till 30.09.2020 out of which 535 units were booked in the post GST period from 01.07.2017 to 30.09.2020. Remaining 266 customers [801- 535] (including the Applicant No. 1) had booked their units in pre-GST period who had paid the amount in the pre-GST period. Since 266 customers had not paid any consideration during the period 01.07.2017 to 30.09.2020, the profiteered amount has been calculated in respect of aforesaid 535 customers by taking into account proportionate input tax credit in respect to the saleable area relevant to turnover/amount raised/collected from them during the period from 01.07.2017 to 30.09.2020 (period of investigation). In any case, if the input tax credit in respect of these 266 units is considered for calculation of profiteering in respect of 535 flats where payments have been received during period under investigation, the input tax credit as a percentage of turnovers would be erroneous. Hence, the benefit of input tax credit in respect of these 266 units might be calculated when the consideration is received from such units by taking into account the proportionat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,51,16,777 (1,12,17,075) Excess Benefit passed on. 3. Other Buyers (confirmation not received) 445 10,40,750 10,26,67,179 26,00,02,964* 10,26,67,179 Further Benefit to be passed on. 4. Buyers including Applicant 266 6,36,100 - - - No Consideration received during period from 01.07.2017 to 30.09.2020. 5. Buyers other than Applicant 131 2,89,750 - - - Unsold Units Total 932 21,79,800 12,78,61,818 29,63,18,048 * Other buyers from whom confirmation not received. (xiii). In view of the above Table- F', DGAP has observed that the benefit passed on by the Respondent to the buyers is less than what he ought to have passed on in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed on to the recipient by way of commensurate reduction in prices , has been contravened by the Respondent. 10. The above Report was carefully considered by this Authority and a Notice dated 25.02.2022 was issued to the Respondent to explain why the Report dated 02.09.2021 submitted by the DGAP should not be accepted and his liability for profiteering in violation of the provisions of Section 171 of the CGST Act 2017 should not be determined 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. The Respondent was directed to file his reply to the allegations levelled in the aforesaid DGAP's Report dated 02.09.2021. Accordingly the Respondent has filed his written submissions dated 22.05.2022 wherein the Respondent has inter alia stated that:- (a). Calculations of profiteering done by DGAP is erroneous and conceptually flawed:- (i). The periods from April 2016 to June 2017 and July 2017 to Sep 2020 for pre-GST and post-GST respectively have been considered for computation of ratios which are not equal, true and fair as ratios fluctuate. (ii) The benefit which is required to be passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduce his profit in the business, as the Constitution provides him freedom to increase the prices of his services anytime for profit, GST Act cannot restrict his such profit. Further, the fresh contracts/bookings made in post GST, can have profits as per his discretion. The provisions of Section 171 of the CGST Act 2017, can be invoked for transition phase and it does not cover such contracts made in post GST period. (h). The provisions of Section 171 of the CGST Act, 2017 are applicable to the long term/continuous contracts, they are not applicable to the fresh contracts made after 01/07/2017 (post-GST). The price was offered in post-GST after considering the cost of inputs, which was recalibrated as per new taxes. As the Customers had agreed to the applicable taxes and other terms and conditions as per the agreement hence, it cannot assumed that he has taken benefit of ITC on bookings made in post-GST. Therefore, the allegation of profiteering on area for which agreements to sell had been entered after 01-07-2017 is totally baseless, illogical and not enforceable under the law. (i). Various provisions of Anti-profiteering has been challenged in the High Courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng profiteering. (viii). Peculiarities of Real Estate Industry have been completely ignored by the Authority while computing profiteered amount. In any development project, the developer seeks to sell the flats/commercial units at the inception of the project to ensure that adequate finance is available for the construction activity. The Authority should have appreciated the actual proportion and approached the proceedings accordingly. In view of above, the DGAP's Report is liable to be quashed accordingly. 11. The above said submissions dated 22.05.2022 of the Respondent were forwarded to the DGAP for clarifications under Rule 133(2A) of the CGST Rules, 2017, The DGAP vide his letter dated 27.06.2022, has furnished his clarifications on the contentions of the Respondent mentioned at para 10 supra, given as under:- (i). Upon the contention mentioned at para 10 (a) supra:- The DGAP in his Report dated 02.09.2021, has adopted a mechanism which has been upheld by the Authority in several cases. The detailed calculation of profiteering for the project has been done in Tables 'D' 'E' of aforesaid Report, on the basis of information submitted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned at para 10 (g) supra:- The Respondent can fix his prices and profit margins in respect of the supplies made by him. Vide the anti-profiteering provisions enshrined in Section 171 of the CGST Act 2017 and Rules made thereunder, the DGAP has only been mandated to investigate whether both the benefits of ITC and Tax reduction which are derived from the sacrifice of precious indirect tax revenue of the Central and the State Governments, are passed on to the end consumers who bear the burden of indirect tax. The intent of this provision is the welfare of the consumers who are voiceless, unorganized and vulnerable. (viii). Upon contention mentioned at para 10 (h) supra:- The Respondent was benefitted with additional ITC due to introduction of the GST. Since, the said additional benefit of ITC pertained to each flat/unit of impugned project of the Respondent, hence the same was required to be passed on by the Respondent to all eligible buyers of the project by way of commensurate reduction in prices under the provision of section 171 (l) of the CGST Act, 2017. Therefore the contention of the Respondent is incorrect. (ix). Upon contention mentioned at para 10 (i) su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The DGAP had also found that the Respondent has not reduced the basic prices of his flat by 5.69% due to the additional benefit of ITC. Accordingly, he has contravened the provisions of Section 171 of the CGST Act, 2017 and Rules made thereunder. The DGAP had concluded that the benefit of Rs. 12,78,61,818/- (including GST@ 12%) was to be passed on by the Respondent to 535 buyers/recipients for the period from 01.07.2017 to 30.09.2020 under the provisions of Section .171 of the CGST Act, 2017. Further the DGAP has found that since, the Respondent has passed on the benefit of ITC of Rs, 2,50,98,009/- to 90 buyers (Rs. 2,38,99,702/- to 85 buyers and Rs. 11,98,307/- to 05 buyers). Hence, according to the DGAP, the Respondent is yet to pass on the ITC benefit of Rs.10,27,63,809/- to 450 buyers as mentioned at Table-F above whereas the Respondent has claimed to have passed the ITC benefit of Rs. 29,63,18,048/- to 535 buyers as per annexure 22 to 26 of the above said Report of DGAP. 14. As per the said Report, only 90 home buyers/customers/recipients out of 535 eligible home buyers/customers/recipients have confirmed receipt of some ITC benefit and the remaining home buyers/customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the reduction in the tax or the benefit of ITC is passed on to the end consumers. The Respondent is absolutely free to exercise his rights to practice any profession, or to carry on any occupation, trade or business, as per the provisions of Article 19 (1) (g) of the Constitution. He can also fix his prices and profit margins in respect of the supplies made by him. Moreover, the said provisions nowhere intervene in the business decisions of the suppliers. These provisions were made only to ensure that the benefits of tax reduction and ITC are passed to the consumers as per the specific provisions of Section 171 (1) of the CGST Act, 2017. The said provisions do not violate right to property as there is no deprivation of his property by any anti-profiteering provision enshrined in CGST Act, 2017 and the Rules. Hence, there is no violation of Article 19 (1) (g) and Article 300A of the Constitution of India. 18. Further, this Authority which has been constituted under section 171 of the CGST Act passes detailed and reasoned orders after careful examination of Investigation Report of the DGAP, documents/information submitted by the applicants and the suppliers and ample opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of Rs. 12,78,61,818/- which includes both the profiteered amount @ 5.69% of the taxable amount (base price) and GST @ 12% on the said profiteered amount from the 535 buyers/recipients (other than the Applicant No. 1) during the period from 01.07.2017 to 30.09.2020 which was required to be passed on to home buyers/customers/recipients of supply of his impugned project. Since the Applicant No. 1, had booked his unit in the impugned project and paid the amount in pre-GST period only hence the profiteering in respect of the Applicant No.1 has not been calculated by the DGAP. 23. The details of eligible buyers to whom supply was made by the Respondent in his impugned Project and to whom benefit of ITC is required to be passed on by the Respondent during the aforesaid period along with details of such additional amount is given in Annexure- A' to this Order, 24. Since, all the home buyers/recipients of supply are identifiable as per the documents placed on record therefore, the Respondent is directed to pass on the above said profiteered amount along with the interest @ 18% per annum (from the dates from which the said profiteered amount was collected by him from each of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofiteering Rs. 12,78,61,818/-, so that the concerned home buyers/recipients of supply can claim the benefit of ITC, if not passed on. Home buyers/recipients of supply may also be informed that the detailed Order is available on this Authority's website www.naa.gov.in. 28. Contact details of concerned Jurisdictional CGST/SGST Commissioner may also be advertised through the said advertisement. A report in compliance of this Order shall be submitted to this Authority and the DGAP by the Commissioners CGST /SGST within a period of 4 months from the date of receipt of this Order. 29. The present investigation has been conducted up to 30.09.2020 only. However, the Respondent is liable to pass on the benefit of ITC which would become available to him till the date of issue of Completion Certificate. Accordingly, the concerned jurisdictional Commissioner CGST/SGST are directed to ensure that the Respondent passes on the benefit of ITC to the eligible home buyers/recipients of supply as per the methodology approved by this Authority in the present case and submit report to this Authority through the DGAP. The Applicant No. 1 or any other interested party/person shall also be at l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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