TMI Blog2022 (9) TMI 1508X X X X Extracts X X X X X X X X Extracts X X X X ..... une-2017) was 5.07%, whereas, during the post-GST period (July-2017 to September, 2020), it was 5.60% for the project 'Victoria Vista'. The profiteering amount determined by the DGAP during the period 1-7-2017 to 30-9-2020 is in respect of the units in respect of units which belong to Sh. Narendra Kumar Bardia (unit no. 8B) Rs. 11,872/- (including GST), Sh. Swapan Ghosh (unit no. 9B) Rs. 1,60,626/- (including GST), Sh. Harish Agarwal (unit no. 18B) Rs. 2,01,339/- (including GST) and Sh. Firoz Bei (unit no. 19B) Rs. 6,530/- (including GST). Further, it also appears from the report of the DGAP that the commensurate proportion of benefit of ITC is to be calculated as discussed supra and needs to be passed on to the eligible recipients proportionate to their share at the time of supply (sale of their share of flats) as envisaged in the Notification No. 4/2018-(Central Tax). The Authority finds that this case needs to be reinvestigated by the DGAP based on the above findings in the para 11 to 13 supra of this Authority. Thus the Authority directs the DGAP to reinvestigate the matter as per the provisions of Rule 133(4) of the CGST Rules 2017 for the period 1-7-2017 to 18- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 supporting documents. Further, the Respondent was given an opportunity to inspect the non-confidential evidences/information submitted by the Applicant No. 1 during the period 26-11-2020 to 27-11-2020, which the Respondent did not avail. (c) On verification of the documents/information submitted by the Respondent from time to time, it had been observed that the Respondent had availed additional benefit of ITC under the GST regime, the benefit of the same had to be passed on to the recipients u/s 171 of CGST Act. (d) The period covered by the current investigation was from 1-7-2017 to 30-9-2020. (e) The time limit to complete the investigation was 14-4-2021. (f) In response to the DGAP's Notice dated 13-11-2020, the Respondent submitted his reply vide mail/letter dated 25-11-2020, 2-12-2020, 4-1-2021, 3-2-2021, 10-3-2021, 17-3-2021 and 25-3-2021. The Applicant No. 1 had also submitted home buyers list for the owners share of allotment vide his letter dated 8-3-2021 forwarded through email. (g) Vide the aforementioned letters/e-mails, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent after implementation of GST w.e.f. 1-7-2017 and if so, (ii) whether the Respondent passed on such benefit to the recipients, in terms of Section 171 of the CGST Act, 2017. j. The other aspect to be considered, while determining profiteering was that para 5 of Schedule-Ill of the CGST Act, 2017 (Activities or Transactions which shall be treated neither as a supply of goods nor a supply of services) 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 has been received after issuance of completion certificate, where required, by the competent authority or after his first occupation, whichever is earlier . Thus, the ITC pertaining to the residential units which was under construction but not sold was provisional ITC which might be required to be reversed by the Respondent, if such units remained unsold at the time of issue of the Completion Certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent was eligible to avail CENVAT credit of Service Tax paid on the input services. However, CENVAT credit of Central Excise Duty paid on the inputs was not admissible as per the CENVAT Credit Rules, 2004, which was in force at the material time. Further, post-GST, the Respondent could avail the ITC of GST paid on all the inputs and input services. From the information submitted by the Respondent for the period April, 2016 to September, 2020, the details of the ITC availed by him, his turnover from the project Victoria Vista , and the ratio of ITC to the turnover, during the pre-GST (April, 2016 to June, 2017) and post-GST (July, 2017 to September, 2020) periods were calculated and has been furnished in table-'A' below: Table-'A' S . No. Particulars Total (Pre-GST) (April, 2016 -June, 2017) Total (Post-GST) (July, 2017-September, 2020) 1 CENVAT of Service Tax Paid on Input Services used for flats (A) 12,09,387 - 2 ITC of VAT Paid on Purchase of Inputs (B) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iteering. Further, the project wise bifurcation of Service Tax/ITC provided by the Respondent in respect of the project Victoria Vista had been considered for the computation of profiteering. Further, besides the project Victoria Vista , the Respondent had been executing the project Suncrest Estates . o. 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 5.07% and during the post-GST period (July, 2017 to April, 2020), it was 5.60%. This clearly confirmed that post-GST, the Respondent had benefited from additional ITC to the tune of 0.53% [5.60% (-) 5.07%] of the turnover for the project Victoria Vista . p. 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 28-6-2017. Accordingly, the profiteering had been examined by comparing the applicable tax rate and ITC available to the Respondent during for the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eering Amount (in Rs. ) L=H-K 3,80,367 r. From table- 'B' above, it was clear that the additional ITC of 0.53% of the turnover should had resulted in commensurate reduction in the basic price as well as cum-tax price for the home-buyers of the project Victoria Vista . Therefore, in terms of Section 171 of the CGST Act, 2017, the Respondent had not reduced the basic prices for the buyers of this project commensurate to the additional benefits accrued and this benefit of the additional ITC was required to be passed on by the Respondent to the recipients. In other words, by not reducing the pre-GST basic price on account of additional benefit of ITC and charging GST @12% on the pre-GST basic price, the Respondent appears to had contravened the provisions of Section 171 of the of the CGST Act, 2017. s. On the basis of the aforesaid CENVAT/ITC availability in the pre and post-GST periods and the demands raised by the Respondent on the Applicant No. 1 to 9 and other home buyers towards the value of construction on which GST liability @ 12% was discharged by the Respondent during the period 1-7-2017 to 30-9-2020, the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument (e.g. allotment letter). (ii) Value, in the case of flats given to the second category of service receivers, shall be determined in terms of section 67 of the Finance Act, 1994.' and also, in view of Notification No. 4/2018-Central Tax (Rate) dated 25-1-2018, wherein it had been envisaged that In exercise of the powers conferred by section 148 of the CGST Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby notifies the following classes of registered persons, namely :- (a) registered persons who supply development rights to a developer, builder, construction company or any other registered person against consideration, wholly or partly, in the form of construction service of complex, building or civil structure; and (b) registered persons who supply construction service of complex, building or civil structure to supplier of development rights against consideration, wholly or partly, in the form of transfer of development rights, as the registered persons in whose case the liability to pay central tax on supply of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of benefit of ITC was to be calculated as discussed supra and needed to be passed on to the Applicant No. 1 to 9 proportionate to their share at the time of supply envisaged in the Notification referred to above. Section 171 of the CGST Act, 2017 appeared to had been contravened by the Respondent, in as much as the benefit of additional ITC on the demand raised by the Respondent during the post-GST period from 1-7-2017 to 30-9-2020, had not been commensurately passed on to the to the eligible recipients. On this account, the Respondent had been found to have profiteered an amount of Rs. 3,80,367/- (Three Lakh Eighty-Three Thousand One Hundred only) which included GST to all the four customers as on 30-9-2020. AH the recipients were identifiable as the Respondent had provided their names and addresses along with unit no. allotted to them. As aforementioned, the present investigation covers the period from 1-7-2017 to 30-9-2020. z. In view of the aforementioned findings, it appeared that the provisions of Section 171(1) of the CGST Act, 2017, requiring 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 recipi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1960, dated 28-3-1962] [1978] (2) E.L.T. (J172) (S.C.), had held that the findings based on presumptions and assumptions without any tangible evidence would be vitiated by an error of law. D. In the instant case, the Respondent sold 4 units in the following manner - Date Recipient Net Rate 30-6-2017 Narendra FCr Bardia 9,600.00 18-4-2018 Harish Agarwal 13,150.00 01-4-2019 Swapan Ghosh 10,273.00 24-1-2020 Namita Ghosh 12,375.00 From the above chart it was clear that one unit was sold in service tax regime and 3 units was sold in GST regime. Section 171 could be applied in respect of those ITC, as per Section 171, which was not available to the Respondent in GST regime itself and subsequently become available. However, in the instant Report no such findings of the DGAP were noticed. Further, any benefit if at all was required to be passed then it should be only in respect of the unit which was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Applicant No. 1 to 9, the project got delayed which resulted in unwarranted escalation in the project cost. Such unwarranted cost escalation fuelled in the price escalation of the units. J. In the financial year 2019-20, the first year in which the Respondent recognized revenue in respect of the project 'Victoria Vista', the Respondent actually suffered a total loss of Rs. 1.76 crores against a turnover (revenue recognized on the basis of generally accepted accounting principles) of Rs. 9.43 crores, attributed to the project, far from any kind of profiteering. K. Assuming Section 171 was applicable: - Even if it was assumed that Section 171 was at all applicable then it should be restricted in respect of those units which were sold in Service Tax regime as while determining the sale price of the unit the tax component of Central Excise Duty and State VAT would had been considered as cost and embedded in the sale price. However, in respect of units sold in GST regime the same could not happen. i. In fact, real estate development and sale in West Bengal was not liable to VAT. Thus, no ITC benefit was available to the Respondent either in respect of VAT or C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was stated that the benefit in respect of the prospective buyers of the land-owners might be passed on 1through the land-owners. On a conjoint reading of both the paras, it was understood that the DGAP was of the view that the proportionate benefit of the land-owners was to be passed on at the time of CC and the land-owners in turn would pass on the same to his customers. Hence if any amount on account of additional ITC was to be passed on then it should be on CC date. If this analogy was adopted, then the amount, as quantified, was not required to be passed on right now as CC was not yet received and hence no question of profiteering could arise. N. Submissions of penalty: - As there was no case of profiteering at all, the question of imposition of penalty did not arise at all. Assuming that at all there was profiteering, as submitted above, no time limit was prescribed to pass on benefit, if any, under section 171. The Respondent had not yet handed over the units either to the Applicant No. 1 to 9 or to the customers. Construction Service, being a continuous supply of service, would get completed upon handing over the units to the customers. Hence it would be too early t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent relied upon this Authority's decisions where it was held that Section 171 was not applicable in cases where units was sold after implementation of GST i.e., 1-7-2017:- a. Ashish Jain v. GLS Infraprojects (P.) Ltd. [2022] 139 taxmann.com 480 (NAA). b. Darshan Joshi v. Lodha Developers Ltd. [2022] 137 taxmann.com 301 (NAA) c. Nermeet Kaur Bakshi v. Conscient Infrastructure (P.) Ltd. [2019] 105 taxmann.com 343/74 GST 294 (NAA) U. In the absence of any reasoning and the uniqueness in the manner of charging consideration from the Applicant No. 1 to 9 in the instant case (i.e., in kind and not monetary), the standard practice u/s 171 by way of commensurate reduction in price cannot be applied. This methodology could be applied where transaction was between builder and intending buyer. V. The concept applied by the DGAP for calculation of profiteering was not founded on sound logical understanding of law, more particularly to the nature of transaction under consideration, hence not acceptable to the Respondent. W. The benefit of ITC should be computed at the completion of construction of residential units and the same needed to be passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of supply of passing of the benefit amount. In fact going by the Time of supply provisions specified in Notf. No. of 4/2018-CT as referred by the DGAP, the benefit amount had already accrued to the Applicant No. 1 to 9 for his share of flats and hence the Respondent must pass on the benefit amount immediately. (d) The method adopted using comparison of Pre post-GST ITC to Turnover ratio was faulty and untenable: a. The comparison of above ratio was not appropriate for the reason that under the real estate sector there was no correlation of turnover with the cost of construction or development of a project. b. ITC was higher in the initial stages of Development. c. Turnover was mostly linked with market. d. Profiteering should reflect the Benefit amount accrued to the Applicant No. 1 to 9. e. Profiteering must be computed on the basis of total cost of the project. (e) Computation of Anti-Profiteering Benefit:- i. The construction expense incurred upto March' 2019 as per the details in the invoice raised by the Respondent had been considered as basis to compute the Total projected cost of the Project. The detail of percentage completion la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 *The amount reflected in the bill was Rs. 14,93,15,426.21/- which was due to a calculation error in the invoice. The amount as per the detailed sheet of the invoice was considered for the purpose of calculation. **Completion Percentage as on March'2019 had been assumed on the basis of various discussions held with the Respondent in the due course. It was to mention herewith that the Applicant No. 1 to 9 had been following up with the Respondent for the latest percentage completion details, but the same was in vain. Hence, the workings had been made on the basis of data available as on 31s' March '2019. ii. The nature of expenses incurred by the Respondent during the course of construction, largely being material, labour and works contract inter alia other expenses. Out of these expenses, the Respondent was allowed to avail Cenvat Credit of only services in the earlier tax regime. A comparison chart of nature of expenses and cenvatable and non-cenvatable ITC therein was laid down below: Nature of Expense Tax Component Pre-GST regime Post GST regime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss credit facility allowed under section 16 of the CGST Act, 2017 read with the rules prescribed there under. iv. Further, CBIC vide press release dated 15-6-2017 clarifies that Under GST, full input credit would be available for offsetting the headline rate of 12%. As a result, the input taxes embedded in the flat will not ( should not) form a part of the cost of the flat. The input credits should take care of the headline rate of 12% and it is for this reason that refund of overflow of input credits to the builder has been disallowed and expected the builders to pass on the benefits of lower tax burden under the GST regime to the buyers of property by way of reduced prices/instalments. v. Accordingly, the DGAP following the standard procedure/methodology had compared the ITC to turnover ratio in pre post GST periods in the present case which was rational, logical appropriate in terms of Section 171 and that had been approved by this Authority in similarly placed cases. vi. On applying the above methodology, it had been observed that the Respondent was benefitted by the accumulation of credit which was to be passed on to the homebuyers in whose demands had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 2004 and also the ITC of VAT paid on inputs provided the Respondent had not availed the Composition Scheme under VAT. In the instant case, as submitted by the Respondent, in West Bengal the Real Estate Development was not liable to VAT. However, the Respondent was ineligible to avail credit of CENVAT paid on inputs under CENVAT Credit Rules, 2004. Whereas on introduction of GST from 1-7-2017, the Respondent could avail the ITC of GST paid on all inputs and input services in pursuance to the seamless credit facility allowed under section 16 of the CGST Act, 2017 read with the rules prescribed there under. ii. Accordingly, the DGAP following the standard procedure/methodology had compared the ITC to turnover ratio in pre post GST periods in the present case which was rational, logical appropriate in terms of Section 171 and that had been approved by this Authority in similarly placed cases. h. Timing of calculation of profiteered amount: - The contention of the Respondent in this paras was incorrect and hence denied as discussed hereunder: i. The Respondent had availed ITC every month by filing GSTR-3B Returns despite a long gestation period in a housing pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii. Under sub-rule 1 of Rule 129 of CGST Rules, 2017, where the Standing Committee was satisfied that there was a. prima-facie evidence to show that the supplier had not passed on the benefit of reduction in the rate of tax on the supply of goods or services or the benefit of ITC to the recipient by way of commensurate reduction in prices, it shall refer the matter to the DGAP for a detailed investigation. iv. Under sub-rule 2 of Rule 129 of CGST Rules, 2017, the DGAP shall conduct investigation and collect evidence necessary to determine whether the benefit of reduction in the rate of tax on any supply of goods or services or the benefit of ITC had been passed on to the recipient by way of commensurate reduction in prices. v. Accordingly, the DGAP had called for all the relevant documents/information and worked out the profiteered amount following the standard procedure upheld by this Authority in all such similar cases. Clarifications on the Applicant No. 1 's submissions:- j. The Applicant No. 1 in his written submissions had contested neither the findings of the DGAP in its report nor the observations of the DGAP in the clarifications filed under Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hearing and the submissions made by the Applicant No. 1. 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 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 GST period; hence the only issue to be examined is as to whether there was any net benefit of ITC with the introduction of GST. It is observed 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 5.07%, whereas, during the post-GST period (July-2017 to September, 2020), it was 5.60% for the project 'Victoria Vista'. The DGAP has found that, post-GST, the Respondent has been benefited from additional ITC to the tune of 0.53% (5.60% - 5.07%) of his turnover for the project 'Victoria Vista' and the same was required to be passed on to the customers/flat buyers/recipients. The DGAP has calculated the amount of ITC benefit to b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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