TMI Blog2022 (8) TMI 1413X X X X Extracts X X X X X X X X Extracts X X X X ..... imed by the Respondent that he had already passed on substantial amount of GST ITC to the homebuyers in accordance with the requirements of Section 171 of the CGST Act, 2017 which come out to be Rs. 58,35,648/- this fact has also been endorsed by the DGAP and accordingly the profiteering amount which is still required to be passed on comes out to be Rs. 1,45,28,245/-. Interest - HELD THAT:- 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/Customers commensurate with the benefit of ITC received by him. The Authority directs the Respondent to return/pass on/refund the profiteered amount along with interest as prescribed to each homebuyer/recipient of supply along with interest @ 18% p.a, as prescribed from the date the profiteered amount was collected until the date of such return/passing on/refund. The names of such homebuyers along with unit number, profiteered amount and the benefit already passed on. Levy of penalty - HELD THAT:- The Respondent has denied benefit of [TC to the buyers of his flats in contravention of the provisions of Section 171 (1) of the CGST A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.07.2017. in terms Of Section 171 of the Central Goods and Services Tax Act, 2017. The Standing Committee forwarded the copies Of the Complaint of the Applicants along With demand letters to the DGAP for further investigation. 2. DGAP vide the above said Report dated 30.12.2020 had inter-alia stated the following: - I. 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 21.10.2019, calling upon the Respondent to reply as to whether he admit 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 afforded an opportunity to inspect the non-confidential evidences/information which formed the basis of the said Notice, during the period 30.10.2019 to 31.10.2019. The authorized representative of the Respondent availed of the said Opportunity On 14.11.2019. II. The period covered by the current investigation was from 01.07.2017 to 30.09.2019. III. As co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 46,83,193 Rs. 58 Lakhs has already been passed on to the Customers in terms of Section 171 of the CGST Act, 2017. Hence, he was not required to pass on any additional benefit on account of anti-profiteering. VI. Further, the Respondent had submitted that he had already passed on the benefit to all the customers who had booked the flats after implementation of GST, by way of reduction in the prices of the flat, as specified in the agreements executed with specific clause% '-the consideration accounts for the benefits to be passed on vide computation Of estimated ITC under GST and the promoters were under no obligations to make any concession to the Allottee/purchaser in the above consideration . Basic price of the flats sold to the customer post implementation of GST had been reduced by Rs- 296/Sq. Ft- on average basis, illustrated as below: Particulars Taxable Value Area Per Sq. Ft. Area (Rs) Agreements executed during the last quarter (pre-GST) 23,21,90,850 46,650 4977 Agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... troduction Of GST and he had charged GST @5% for the flats sold post 01.04.2019. IX. The phase wise project registration details were verified by the J)GAP from official website of RERA, and relevant information is furnished in table- below: Table-'A' Tower Phase RERA Registration No. Total Flats Remark A 1 P52100000392 165 OC received on 15.02.2019. B 110 D 110 C 110 Opted for GST payment @5% as per Notification NO. 3/2019. Central dated 29.03.2019. E 2 P52100017178 81 The project was launched in post-GST. X. DGAP also submitted that para 5 of Schedule-ill of the Central Goods and Services Tax 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 par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot part of the investigation. XII. Respondent's claim With respect to reduction on the basis of cost reduction method Was not relevant, as the investigation was limited to aspect of passing of the benefit of ITC resulting on account of implementation of GST. The profit or loss or costing was not looked into by the DGAP- The Respondent's claim that the benefit of estimated ITC had already been passed On to the customers booking the flats after 01.07.2017, by way of reduction in the prices as mentioned in allotment letter and the Agreement for sale had been looked into and it was observed that he had submitted sample copies of agreements with the home buyers for the post-GST period. In the agreement, the following clause was inserted: the consideration as mentioned in Clause 3 hereinabove, accounts for the benefits to be passed on vide computation of estimated ITC under GST' and the promoters were under no obligations to make any further concession to the Allottee/purchaser in the above consideration as mentioned in Clause 3. Since, the Respondent had already given the benefit of rate reduction and the same was backed by Agreement or Sale wherein definite claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24,54,947 2 Input tax Credit of VAT Paid on Purchase of Inputs as per VAT Returns (B) - - - 3 Total CENVAT/lnput Credit Available (C)=(A+B) 1,67,16,539 57,38.408 2,24,54,947 4 Input Tax Credit of GST Availed as per GST Return (D) 11,02,87,535 5 Total Taxable Turnover as per homebuyer list (excluding turnover for the units sold post OC) (E) 55,34,99,865 1,31,42,01,642 6 Total Saleable Area in the project (Sq.ft) (F) 5,27,361 5,27,361 7 Area Sold relevant to Taxable turnover as per returns (excluding turnover for the units sold post OC) (G) 1,49,184 4,81,751 8 Relevant CENVAT/Input Tax Credit (H)=[(C)*(G)/(F)] or [(D)*(G)/(F)] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Collected @ 12% over Basic price F=E*12% 3,33,65,010 8 Total Demand collected G=F+E 31,14,06,760 9 Recalibrated Basic price H=G*(I-D) or 93.48% of E 25,99,13,428 10 GST@12% I=H*12% 3,11,89,644 11 Commensurate demand price J=I+H 29,11,03,039 12 Excess Collection or Demand or Profiteering Amount K=G-J 2,03,03,720 From Table- B and C above, it was deduced that the additional TC of 6.52% of the turnover should had resulted in the commensurate reduction in the base price as well as cum-tax price. XVI The Respondent had claimed that he had passed on the benefit of Rs. 58,35,648/- to the home buyers. Ongoing through the home buyers list submitted by the Respondent, it was observed that the Respondent had passed on excess credit of Rs. 59,210/- to the 04 home buyers. This credit can t be set off against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XVIII. To verify the claim of the Respondent, with respect to Pre-GST bookings, DGAP had sent emails dated 12.10.2020 to all 255 home buyers. In response to these 255 emails, 83 home buyers replied that he had received benefit of ITC. XIX. From the Table C and Table D' above, it was observed that the benefit already passed on by the Respondent was less than what he ought to had passed on in case of 251 residential flats by an amount of Rs. 1,49,28,245/- (including applicants). Thus, on the basis of the aforesaid CENVAT/input tax credit availability pre and post-GST and the details of the amount during the period 01.07.2017 to 31.03.2019, the amount of benefit of ITC that had not been passed on by the Respondent to the recipients, who booked flat in pre-GST period comes to Rs. 1,45,28,245/- which included GST @12% on the base profiteered amount of Rs. 1,29,71,647/- profiteered amount of Rs. 94,726/- for Applicant no. 1 and Rs. 96,373 each for Applicant no. 2 3. XX. The Respondent had total of 495 units in the whole Phase-1 project as on 31.03.2019, out of which 255 Mats were booked in pre-GST period, 199 flats were booked in post-GST period and 41 flats remained unsol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions dated 10.02.2021. 27.03.2021 and 12.05.2022 wherein the Respondent had inter-alia submitted following points:- I. The Respondent was engaged in the business of construction and sale of residential units, The Company was in the process of constructing residential project Tinsel Town consisting of Towers A,B,C,D, and E. In the Phase-I, Tower A to D had been constructed and in Phase-II, Tower E had been constructed. Towers A, B, C and D were registered with Maharashtra Real Estate Regulatory Authority vide Project Registration No. PS2100000392. Under the erstwhile regime, the Respondent was not allowed to avail credit of Central Excise Duty and VAT paid on the goods used for providing construction services to his customers. Therefore, such non-creditable duties and taxes paid on inward supplies were embedded in the budgeted cost of the project. However, pursuant to introduction of GST law, Respondent was allowed to avail the credit of taxes paid on procurement of goods. Therefore, the benefit accruing on account of such non-creditable taxes was being computed and the Respondent passed on these benefits to the customers in terms of Section 171 of the CGST Act, 2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pient willfully by the supplier, implying a mala fide-intent on part of the supplier must be proved. VII. It was quite impossible in an industry, like Real Estate where the project itself takes 3-4 years for completion to accurately compute in advance the benefit which should be passed on to the customer. Further, construction of multiple towers and commencement and completion of each tower might vary from time to time, and the exact benefit of which would be available only on the completion of the project. Accordingly, the Respondent had computed the benefit on implementation of GST pertaining to non-creditable taxes under the pre-GST regime basis quo the construction cost incurred post July 1, 2017 and had passed on the benefit to the customers. VIII. It could also be observed that there was no reduction in the rate of tax of supply on the contrary the tax liability of the Respondent had increased also for additional ITC, the Respondent was cligible for the additional ITC to the extent of VAT and Excise duty considered as cost at the time of budgeting. The Respondent submitted that it had appropriately computed such non creditable cost and had passed on these benefits to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Respondent had profited from such amount. Since the amount collected as GST from the recipients on alleged profiteering amount had already been deposited with Government and there was no factual dispute on this aspect, inclusion of GST component again to calculate the alleged profiteering was incorrect. The Respondent does not profit from any GST collected from the recipients on behalf of the Government. In case the GST amount was included in alleged profiteering calculation, it would lead to double payment of the same amount by the Respondent. The role of the Respondent was to collect the GST amount on behalf of the Government and deposit the same with the Government. The Respondent neither earns revenue in the form of GST collected from customers nor was legally entitled to retain the same. Conversely put, had the Government granted-exemption to restaurant services from payment of GST, the Respondent would had not collected GST in addition to the base price of the subject goods. 4. The DGAP filed his clarifications on the Respondent's submissions dated 10.02.2021 vide supplementary Report dated 12.03.2021 and had clarified:- i. Regarding no methodology presc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in some cases was not allowed in the erstwhile tax regime. In case of 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 w.e.f 01.07.2017, all these taxes got subsumed in the GST and the ITC of GST is available in respect of all goods and services, unless specifically denied, The method adopted is to find out the ratio of CENVAT/ITC to taxable turnover in the pre GST era as well as post-GST era, which is nothing but an exercise to find out the accrual of additional amount of ITC, if any. in the post-GSTT cra. vi. Section 171 of the CGST Act, 2017 and Rules made thereunder require the supplier of goods or services to pass on the benefit of the tax rate reduction to the recipients by way of commensurate reduction in price. Price included both, the base price and the tax paid on it. If any supplier had charged more tax from the recipients, the aforesaid statutory provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, it is necessary to quantify the credits available to the Respondent in the pre-GST regime and also the credits available in the GST regime. 5. The proceedings in the matter could not be completed by this Authority due to lack of required quorum of Members in the Authority during the period 29.04.2021 till 23.02.2022, and that the minimum quorum was restored only w.e.f. 23.02.2022 and hence the matter was taken up for proceedings vide Order dated 03.03.2022 and the Respondent as well as the Applicants were given an opportunity to be heard in person on 12.04.2022. The Respondent has made his submissions dated 12.05.2022 wherein, he reiterated his earlier submissions. [earing in the matter was closed vide order dated 07.06.2022. 6. We have carefully considered the Report furnished by the DGAP and the clarifications filed by the him, the submissions made by the Applicants and Respondent and other records of the case and it is revealed that the instant Report dated 30.12.2020 had been furnished by the DGAP under Rule 129(6) of the Central Goods Services ax (CGST) Rules, 2017 after detailed investigation of the case. The Respondent is in the business of the supply of Constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of ITC benefit to be passed on to all the eligible recipients as Rs. 2,03,03,720/- on the basis of the information supplied by the Respondent, The main objections of the Respondent and observation of the Authority on them is as follows:- II. The Respondent has submitted that no methodology was prescribed to derive profiteering thus, leading to arbitrary exercise of powers by DGAP in absence of proper methodology prescribed under law, It was open to DGAP for change the methodology and basis of computation without any rationale and basis to suite its convenience. He also relied upon Hon'ble Supreme Court judgement in the case of Commissioner, Central Excise and Customs, Kerala vs. Larsen and Toubro Limited (2016) 1 SCC 170. In this regard the averment of the Respondent cannot be accepted as the Methodology and Procedure has been notified by this Authority vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017. However, one formula which fits all cannot be set while determining such a Methodology und Procedure as the facts of each case are different. In one real estate project, date of start and completion of the project, price of the house/commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ST Act was itself unconstitutional as it seeks to regulate prices. It was submitted that under the guise of a tax enactment, the legislature cannot act as a price regulator. It was settled Iaw that prices were governed by market forces and price regulation would be violative of fundamental right of trade and commerce. Reliance in regard was also placed on Indraprastha Gas Ltd. vs. Petroleum and Natural Gas Regulatory Board and Ors, 2015 (9) SCC 209) However, the averment of the Respondent is not correct as the Authority does not act in any way as price controller or regulator as it doesn t have the mandate to regulate the same, The Respondent is absolutely free to exercise his right 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, Under Section 171 this Authority has only been mandated to ensure that both the benefits of tax reduction and ITC which are the sacrifices of precious tax revenue made from the kitty of the Central and the State Governments are passed on to the end consumers who bear the burden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther been elucidated by the word commensurate. The word profiteering had been given in the Statute itself and it cannot be confused with the DICTIONARY MEANING of the word profit or from common parlance. In this context it is submitted that an explanation added to the provision of the Act is clarificatory in nature and had retrospective effect unless it overrides the basic provision of the Act. Respondent had misinterpreted the term profit with profiteering as the latter is the benefit which had been pocketed by Respondent and had not been passed on to his buyers. Accordingly, the cases of Indian Aluminium Company v. Kerala State Electricity Board (1975) 2 SCC 414 and the Commissioner of Income Tax, Gujarat vs. Vadilal Lallubhai do not support the cause of the Respondent. VII. The respondent also submitted that the DGAP had incorrectly included GST already paid by respondent to government in value of profiteering amount, In this regard the Respondent had not only collected excess base prices from his customers which they were not required to pay due to the reduction in the rate of tax but the Respondent had also compelled customers to pay additional GST on this exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mebuyer/recipient of supply along with interest @ 18% p.a, as prescribed from the date the profiteered amount was collected until the date of such return/passing on/refund. The names of such homebuyers along with unit number, profiteered amount and the benefit already passed on is enclosed with this order as Annexure-A. 10. It is also evident from the above narration of the facts that the Respondent has denied benefit of [TC to the buyers of his flats in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he had thus resorted to profiteering, Hence, he has committed an offence for violation of the provisions of Section 171 (1) during the period from 01.07.2017 to 31.03.2019 and therefore, appears to be liable for imposition of penalty under the provisions of Section 171 3 (A) of the above Act. However, the provisions of Section 171 (3A) have been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019 and it was not in operation during the period from 01.17.2017 to 31.03.2019 when the Respondent had committed the above violation and hence, the penalty under Section 171 (3A) cannot be imposed on the Respondent for such p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e its Order dated 23.03.2020. while taking suo-moto cognizance of the situation arising on account of Covid-19 pandemic, has extended the period of limitations prescribed under general law of limitation or any other specified laws (both Central and State) including those prescribed under Rule 133(1) of the CGST Rules, 2017, as is clear from the said Order which states as Follows:- A period of limitation in all such proceedings, irrespective of the limitation prescribed under the general law or Special Laws whether condonable or not shall stand extended w.e.f. 15th March 2020 till further order/s to be passed by this Court in present proceedings. Further, the Hon'ble Supreme Court, vide its subsequent Order dated 10.01.2022 has extended the period(s) of limitation till 28.02.2022 and the relevant portion of the said Order is as follows:- The Order dated 23.03.2020 is restored and in continuation of the subsequent Orders dated 08.03.2021, 27.04.2021 and 23.09.2021, it is directed that the period from 13.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation as may be prescribed under any general of special laws in respect of all judicial or quasi- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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