TMI Blog2022 (9) TMI 1511X X X X Extracts X X X X X X X X Extracts X X X X ..... ry inasmuch as no consequence of non-adherence of the said period of six months is prescribed either in the CGST Act or the rules framed thereunder. - Shri Amand Shah, Chairman, Pramod Kumar Singh and Hitesh Shah, Member (T) Shri Chandrashekhar, Authorized Representative for the Respondent. ORDER The present report dated 25-2-2021 had been received by the National Anti-Profiteering Authority (NAA or the Authority) from the Director General of Anti-Profiteering (DGAP), i.e. Applicant No. 2, after a detailed investigation under rule 129(6) of the CGST Rules, 2017. The brief facts of the case are that an Application was filed before the Karnataka State Screening Committee on Anti-profiteering under rule 128 of the CGST Rules, 2017, by Applicant No. 1, alleging profiteering in respect of construction service supplied by the Respondent. The Applicant No. 1 alleged that the Respondent had not passed on the benefit of Input Tax Credit to him by way of commensurate reduction in the price of the Flat No. J 703, 7th floor purchased from the Respondent in his project Bollineni Silas , situated at Sadarmangala, K R Puram, Bangalore-560048 on introduction of GST w.e.f. 1-7- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in business of development of real estate projects and execution of civil contracts such roads and irrigations. The Occupancy Certificate for the project Bollineni Silas was received on 3-3-2020. The Respondent also informed that he had given discount to the buyers against changes in tax structure. (i) Vide the aforementioned letters, the Respondent submitted the following documents/information: i. Copies of GSTR-1 returns for the period July, 2017 to April, 2020. ii. Copies of GSTR-3B returns for the period July, 2017 to April, 2020. iii. TRAN-I for the period July, 2017 to December, 2017. iv. Electronic Credit Ledger for the period July, 2017 to April, 2020. v. Copies of VAT returns (including all annexures) ST-3 returns for the period April, 2016 to June, 2017. vi. Copies of all demand letters issued and sale agreement made with the Applicant. vii. Copy of Balance Sheet for FY 2016-17, 2017-18 2018-19. viii. Details of VAT, Service tax, ITC of VAT, CENVAT credit for the period April, 2016 to June, 2017 and output GST and ITC of GST for the period July, 2017 to April, 2020 for the project Bollineni Silas . ix. CENVAT/lnput lax Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding zero-rated supplies . Section 17(3) The value of exempted supply under sub-section (2) shall be such as might be prescribed and shall include supplies on which the recipient was liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building . Therefore, the Input fax Credit pertaining to the unsold units might not fall within the ambit of this investigation and the Respondent was required to recalibrate the selling price of such units to be sold to the prospective buyers by considering the proportionate benefit of additional input tax credit available to him post-GST. (I) The Respondent submitted that he had passed on discount to the buyers against changes in tax structure and for the same vide letter dated 3-2-2021, the Respondent were asked to submitted all the documentary evidences to support his claim that benefit of GST ITC was already passed on to the buyers in terms of section 171 CGST Act, 2017 but the Respondent failed to do so. Hence, the above contention of the Respondent was not accepted. (m) As regards the allegation of profiteering, prior to 1-7-2017, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017 to April, (2020), it was 9.56% for the project Bollineni Silas . This clearly confirms that in post-GST period, the Respondent had benefitted from additional input tax credit to the tune of 6.67% [2.89% (-) 9.56%] of the turnover. (o) The Central Government, on the recommendation of the GST Council, had levied 18% GST (effective rate was 12% in view of l/3rd abatement for land value) on construction service, vide Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017. The effective GST rate was 12% for fiats. Accordingly, on the basis of the figures contained in table- 'B' above, the comparative figures of the ratio of input tax credit to the turnover 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, was tabulated in Table-B below: Table - B Sl.No. Particulars 1. Period A July, 2017 to April, 2020 2. Output GST rate (%) B 12 3. Ratio of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Karnataka only. (r) From the above discussion, it appeared that the benefit of additional ITC to the tune of 6.67% of the turnover, accrued to the Respondent post-GST and the same was required to be passed on by the Respondent to his recipients. Section 171 of the CGST Act, 2017 appears to had been contravened by the Respondent, inasmuch as the additional benefit of input tax credit @6.67% of the base price received by the Respondent during the period 1-7-2017 to 30-4-2020, had not been passed on by the Respondent to the Applicant No. 1 and 372 other recipients. On this account, it appeared that the Respondent had realized an additional amount to the tune of 13,74,29,635/- (including GST) which was inclusive of profiteered amount of Rs. 4,97,806/- (including GST) in respect of the Applicant No. 1. The Applicant No. 1 and 372 other recipients was identifiable as per the documents provided by the Respondent, giving the names and addresses along with unit. no. allotted to such recipients. (s) As aforementioned, the present investigation covers the period from 1-7-2017 to 30-4-2020. Profiteering, if any, for the period post April, 2020, had not been examined as the exact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of GST availed by the Respondent or not. Therefore, in the present case the applicant had booked the flat during the post-GST period i.e. on 16 Nov. 2018 and during the such period there was no any change in the rate of GST and hence the provisions of section 171 of GST Act does not apply in this case. further, with respect to the flats booked on or after 1-7-2017. the question of anti-profiteering would not arise as the savings in credit had already been considered to determine the price at which fiats was sold on or after 1-7-2017 as per the agreement entered with the home-buyers. Further, the price agreed between the Respondent and such unit buyer was already negotiated prices after the introduction of GST. Hence, the provisions of section 171 of GST Act was not applicable to said applicant's booking and hence, the proceedings as initiated u/s 171 of the Act might be dropped. B: No reduction in output rate of GST either from the pre-GST period to post-GST period or during the post-GST period to till date, hence the provisions of section 171 of GST Act does not apply in this case. As per section 171(1) any reduction in rate of output tax on any supply of goods or s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of pre-GST and post-GST period's home buyer bookings for the period under consideration (i.e. April, 2016 to April, 2020) in master sheet of home buyers list. In respect of turnover as per Home buyers list towards demand raised of Rs. 209,82,37,261/- during post-GST period, the DGAP, while calculating the Ratio of post-GST Input Tax Credit to the turnover (post-GST), had considered the amount received of Rs. 183,97,15,637/- against said demand raised (from all the customers who booked the flats upto April, 2020) and ignored to consider the pending/receivable of Rs. 25,85,21,624/- against said demand. Accordingly, having ignored to consider the pending/receivable of Rs. 25,85,21,624/- against said demand it was resulted in higher side ratio of post-GST ITC to the turnover (post-GST) which was not correct and not justifiable under the GST provisions. Therefore, for the purpose of computing the relevant ITC in Table -A, the DGAP was required to consider the said pending/receivables of Rs. 25,85,21,624/- against demand raised. The Respondent was herewith re-submitting the details of said pending receivables against demand raised in master sheet of home buyers list. With re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked on or after 1-7-2017, the question of anti-profiteering would not arise as the price agreed between the Respondent and such unit home buyer was already negotiated prices after the introduction of GST. Accordingly, while calculating the Ratio of post-GST Input Tax Credit to the turnover (post-GST) in arriving the excess collection of demand or anti-profiteering, for the purpose of recalibrated base price the DGAP was required to consider only the amount received and receivable against demand raised on the home buyers who made the booking of flats during the pre-GST period excluding the demand received from the home buyers who made the bookings of flats during the post-GST period i.e. on or after 1-7-2017 and details of the same as per the home buyers list was as follows: Sl. No. Description of collection GST Period Against the booking made during Pre-GST period Against the booking made during Post GST period Total 1. Demand received against customer's demand raised 24,14,97,657 159,82,17,980 183,97,15, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,74,475 6,74,475 7. Total Sold Area (in SQF) relevant to turnover (F) 1,21,095 3,76,015 8. Relevant ITC (G)-(A+Al) or B)*(F)/(E)} 1,25,72,144 12,18,57,056 Ratio of Input Tax Credit post-GST {(H) = (G)/)D)} 6.64% 5.81% From the above table-'A', 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 6.64 % and during the post-GST period (July, 17 to April. 2020), it was 5.81% for the project Bollineni Silas and the revised ratio of additional input tax credit comes to the tunc of (-) 0.84% (15.81% (-) 6.64%) of the turnover. Further, the Central Government, on the recommendation of the GST Council, had levied 18% GST (effective rate was 12% in view of l/3rd abatement for land value) on construction service, vide Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017. The effective GST rate was 12% for flats. Accordingly, on the basis of the figures contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22,59,923 Therefore, based on the above 'Table, the Respondent had neither benefitted from the additional ITC nor had there been any reduction of rate of output tax in the post period. Therefore, the provisions of section 171 of the CGST Act, 2017 did not appear to be attracted to the present case of Respondent and it was requested to drop the proceedings as proposed by the DGAP against the Respondent. D: Application of Anti-profiteering provisions to the customers who made the booking during the post-GST period was not correct and not justifiable as per the provisions of GST Act. With respect to the flats booked on or after 1-7-2017. the Respondent maintains an objective cost data. The price agreed between the Respondent and such unit home buyer was already negotiated price after the introduction of GST i.e. the price at which flats was sold on or after 1-7-2017. The details of objective data maintained by the Respondent was as follows: a. sale price (mainly based on progressive of work i.e. considering the inventory carrying cost), b. cost details (including additional cost incurred during post introduction of GST), c. negotiated price, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was a developer to the market in the state of Karnataka and till the completion of the project the sale bookings were very slow and not even reached the break-even point. Further, the project experienced problems in execution like land clearances, inter departmental clearances, delay in disbursement of funds etc. causing delay in completion and resulting the same into increased cost during the post-GST construction period and which also led into stress on the cash flow for supporting the project. Further, as the Respondent was new developer in the State of Karnataka. sale price was lower than the projected because of various macro-economic factors such as reducing the inventory carrying cost, to attract the customers and even Govt. clearances etc. and even the Bankers were also conservative or denying financing the real estate projects. Accordingly, Respondent had brought in private loans such as NBFC for early completion of the construction in order to boost the sales. Accordingly, all these had led to increasing the project cost. Further, the COVID-19 had made further slow in bookings of flats which leads to increasing the inventory carrying cost, change in sale/price etc. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority of minimum three Members, as provided under rule 134 was not available till 23-2-2022, the matter was not decided. With the joining of two new Technical Members in February 2022. the quorum of the Authority was restored from 23-2-2022, and a copy of the above submissions dated 14-7-2021 filed by the Respondent was supplied to the DGAP for supplementary Report under rule 133(2A) of the CGST Rules, 2017. The DGAP filed his clarifications dated 7-4-2022 on the Respondent's submissions and. inter alia clarified: - A: The Applicant No. 1 had booked the flat during the post-GST period i.e., on 16th Nov, 2018 and (during the such period there was no any change in the rate of GST and hence the provisions of section 171 of GST Act does not apply in this case. The DGAP had investigated the matter of additional benefit of ITC in respect of project which was launched before implementation of GST (pre-GST era) and continued in GST regime. This was done so because in the erstwhile tax regime (pre-GST), various taxes and cases 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the above provision that it mentions benefit of input tax credit shall be passed on to the recipient which does not mean that the benefit of input tax credit was to be restricted to the customers/home buyers of pre-GST regime. Therefore, under section 171, the Authority had been mandated to ensure that the benefit which was a sacrifice of precious revenue from the stake of Central and State Governments was passed on to the recipients. The soul of this provision was the welfare of the consumers who was voiceless, unorganised and scattered. Further under the provisions of section 171 of the CGST Act, 2017, each and every recipient customer was entitled to receive the due benetit of input tax credit from the supplier, therefore, the recipients customers who booked the units in post-GST period was also equally eligible for the benetit of ITC. Furthermore, in the cases of benefit of Input Tax Credit in GST regime, in pre and post-GST regimes, the availability ITC had to be examined and compared. Without doing so. it would not serve the intent of the Statute. Therefore, the practice of comparing pre and post-GST prices and ITC availability was justified and correct. Further, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er certain items as detailed below in Table A of calculating ratio of ITC to the turnover and hence, to the extent of such ignored/resubmitted items the alleged additional benefit of input tax credit need to be revised. In the report dated 25-2-2021, the total area of pre-GST and post-GST periods had been taken from the home buyers' list furnished by the Respondent during the course of investigation. In the pre-GST period, the total area reflected in the home buyers' list was 93,590 and in the post-GST period, it was 4,77,645 (copies of sereenshots enclosed). What the Respondent had submitted now was different from what was submitted during the course of investigation. Therefore, the contention of the Respondent regarding the said total area cannot be considered. Further, in the home buyers' list the total turnover during the post-GST period was reflected as Rs. 183,96,55,636- and not Rs. 183,97,15,637/- as claimed by the Respondent now. The pending receivable of Rs. 25,85,21,624/- stated to had been ignored during investigation was nowhere reflected in the submissions/data furnished by the Respondent during the course of investigation (copies of sereenshots of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the cost keeping in mind the prevailing taxes, cost of the raw material and input tax credits available, however, in all such case, there had been availability of additional benefit of ITC in GST regime. Therefore, the additional benefit of ITC in post-GST regime which was not available earlier was required to be passed on by the suppliers to all the recipients by way of commensurate reduction in price, in terms of section 171 of CGST Act, 2017. Therefore, the averment made by the Respondent was incorrect. As stated above, the Respondent had been benefitted with additional ITC only after introduction of the GST. This additional benefit of ITC pertains to the entire project or in other words relates to each flat/unit of the project of the Respondent. Hence all unit/flat buyers were eligible to get his due benefit of ITC from the Respondent irrespective of his bookings made in pre-GST or post-GST period. Whatever was the negotiated price, the benefit of additional ITC had to be specifically passed on to all the recipients by the Respondent. This benefit had to be passed on over and above any other kind of negotiations made with the homebuyers. However, section 171(1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. Hence, when ITC was being considered in the investigation, then, it implies that the cost to the Respondent had been considered as far as ITC was concerned. The main factor under consideration for the sake of profiteering was that there should not be any increase in the base price of sold-out flats to obviate passing of benefit of additional ITC. In other words, there should be commensurate reduction in prices of the sold-out flats. The factors like capital expenditure cost incurred to the company, substantial increase in cost, land clearances, inter departmental clearances, delay in disbursement of funds, covid-19 etc. was not factored in while calculating profiteering in terms of section 171 of the CGST Act, 2017. F: The anti-profiteering provisions and the constitution of Authority under rule 122 was unconstitutional. The Parliament as well as all the State Legislature had delegated the task of framing of the Authority and the framing of the Rules under the CGST Act, 2017 on the Central Government as per the provisions of section 164 of the above Act. Accordingly, the Central Government in terms of section 171(3) of the CGST Act, 2017 read with section 2(87) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Value Added Tax Act, both under composition and non-composition scheme, and where the execution of work is sub-contracted by main-contractor to the sub-contractor on back to back basis, then whenever the sub-contractor paid VAT/WCT on his turnover, the main-contractor is eligible to avail the credit of such VAT/WCT credit in the form of deduction of such sub-contract's turnover from his taxable turnover and vice versa. Hence, the Respondent is eligible to avail the credit of VAT/WCT being such credit is allowable to main-contractor in the form deduction of turnover (on which VAT/WCT tax was paid by the sub-contractor) from his taxable turnover. Further, in respect of VAT/WCT credit under Karnataka Value Added Tax Act, both under composition and non-composition scheme, whenever the sub-contractor paid WCT on his turnover, the main-contractor is eligible to avail deduction of turnover and WCT paid to sub-contractor from his turnover and vice versa. Hence, with regard to turnover and WCT paid to sub-contractor the Respondent is eligible to avail the deduction of turnover and WCT tax paid to the sub-contractor as such WCT tax was paid by the sub-contractor to the Karnataka VAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyer bookings are 1,71,575 Sft. and 4,63,165 Sft. respectively only. However, in Table-A the DGAP while arriving the Ratio of post-GST Input Tax Credit to turnover (post-GST) has considered the area of pre-GST and post-GST period's home buyer bookings as 93,825 Sft. and 4,77,645 Sft. instead of 1,71,575 Sft. and 4,63,165 Sft. respectively. Hence, it is requested that the authority to consider area of both pre-GST and post-GST period's home buyer bookings as 1,71,575 Sft. and 4,64,165 Sft. respectively. Further, it was submitted that in respect of turnover as per Home buyers list towards demand raised of Rs. 209,82,37,261/- during post-GST period, the DGAP, while calculating the Ratio of post-GST Input Tax Credit to the turnover (post-GST), has considered only the amount received of Rs. 183,97,15,637/- against total demand raised (from all the customers who booked the flats upto April.2020) and hence ignored to consider the pending/receivable of Rs. 17,14,83,699/- against said demand. Accordingly, having ignored to consider the pending/receivable of Rs. 17,14,83,699/- against said demand it is resulted in higher side ratio of post-GST input tax credit to the turnover (p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karnataka VAT Act, both under composition and non-composition scheme, and where, the execution of work is sub-contracted by main contractor to the sub-contractor on back to back basis, then whenever the sub-contractor paid VAT/WCT on his turnover, the main contractor is eligible to avail deduction of turnover and WCT paid to sub-contractor from his turnover and vice versa. The said claim of the Respondent needs to be examined with respect the relevant law after verification of the assessment orders from the State GST/VAT authorities. (iii) The Respondent has claimed that as per the master sheet of home buyers list the total area of both pre-GST and post-GST period's home buyer bookings are 1,71,575 Sft. and 4,63,165 Sft. respectively only. However, in Table-A the DGAP while arriving the Ratio of post-GST Input Tax Credit to turnover (post-GST) has considered the area of pre-GST and post-GST periods' home buyer bookings as 93,825 Sft. and 4,77,645 Sft. instead of 1,71,575 Sft. and 4,63,165 Sft. respectively. This claim of the Respondent needs to be examined from the documents already submitted. 8. Hence, in view of the above facts and observations, the Authority, wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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