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TMI Blog2019 (10) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Rule 133 (3) (b) of the CGST Rules, 2017, failing which shall be recovered by the concerned Commissioner CGST / SGST and paid to the eligible house buyers - it is clear that the Respondent has profiteered an amount of ₹ 2,47,48,549/- for the period of investigation. Therefore, in view of the above facts the Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondent shall reduce/refund the price to be realized from the buyers of the flats commensurate with the benefit of ITC received by him As far as the total additional input tax credit that will be available to the Respondent is concerned it cannot be determined at this stage when the construction of the project is yet to be completed and the DGAP is directed to carry out a comprehensive investigation at the time of issue of occupancy certificate. Penalty - HELD THAT:- It is evident from the above that the Respondent has denied the benefit of ITC to the buyers of the flats being constructed by him in contravention of the provisions of Section 171(1) of the CGST Act, 2017 and has thus realized more price from them than he was entitled to collect. Therefore, he is liable for impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DGAP to conduct a detailed investigation in the matter. However, the complete set of documents related to the case was received by the DGAP only on 23.10.2018. 3. Further, six more applications by other applicants, hereinafter referred to as Applicants No. 2, 3, 4, 5, 6, and 7 containing similar allegations and pertaining to the same case were forwarded to the DGAP by the Standing Committee on Anti-profiteering. 4. Consequently, the DGAP issued a Notice under Rule 129 of the Rules on 26.10.2018 calling upon the Respondent to reply as to whether he admitted that the benefit of input tax credit had not been passed on to the Applicants 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 to furnish all supporting documents pertaining to the matter. The period covered by the DGAP in the current investigation is from 01.07.2017 to 30.09.2018. In response to the Notice dated 26.10.2018, the Respondent submitted his reply in parts vide his letters and e-mails dated 19.11.2018, 22.11.2018, 06.12.2018, 14.12.2018, 20.12.2019, 10.04.2019 and 18.04.2019. The reply of the Respondent to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Copies of GSTR-3B returns for the period July, 2017 to September, 2018. iii. Screenshot of Tran-1 return duly filed on GSTN. iv. Copies of ST-3 returns for the period April, 2016 to June, 2017. v. Copies of VAT returns for the period April, 2016 to Mar, 2017. vi. Copies of all demand letters issued in the name of the Applicants No. 1 No. 2. vii. Details of applicable tax rates, pre-GST and post-GST viii. Copy of Audited Balance Sheet for the FY 2016-17 and FY 2017-18. ix. Copy of Registration with Haryana RERA x. Copy of Electronic Credit Ledger for the period 01.07.2017 to 30.09.2018. xi. Reconciliation of turnover reported in GSTR-3B with that in the list of home buyers. 6. The Respondent, vide letter dated 16.11.2018, submitted copies of demand letters and the payment schedule in respect of the Applicants No. 1 No. 2, in respect of their purchase of flats measuring 535.40 square feet each, at the basic sale price of 4,000/- per square feet; that the details of amounts and taxes paid by the Applicant No. 1 to him are furnished in table- A below. Table- A (Amount in Rs.) S.No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 76,040 23,16,693 7. After detailed investigation, the DGAP has, in his report dated 22.04.2019, inter-alia reported that para 5 of Schedule-III 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) 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 which were under construction but not sold, was provisional input tax credit which might be required to be reversed by the Respondent, if such units remained unsold at the time of issue of the Occupancy Certificate, in ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April, 2017 to June, 2017 Total ( Pre-GST ) Turnover for the period 01.07.2017 to 24.01.2018 (when GST @ 12%) Turnover for the period 25.01.2018 to 30.09.2018 (when GST @ 08%) Total ( Post-GST ) (01.07.2017 to 30.09.2018) 1 CENVAT Credit of service Tax Paid on Input Services (A) 0 0 0 - - - 2 Credit of VAT Paid on Inputs (B) 1,38,80,832 0 1,38,80,832 3 Input Tax Credit of GST Availed (C) 1,62,13,534 3,87,50,131 5,49,63,665 4 Total VAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable @4.5% with (1) the post-GST period from July, 2017 to 24.01.2018, when the effective GST rate was 12% and (2) the GST period from 25.01.2018 to 30.09.2018, when the effective GST rate was 8%. Accordingly, on the basis of table-B above, the comparative figures of tax rate, ratio of input tax credit to the Respondent s turnover in the pre-GST and post-GST periods, the recalibrated basic price on account of benefit of additional input tax credit and the excess realization (profiteering) by the Respondent, during the post-GST period, are tabulated in the table- C below: Table 'C' (Amount in Rs.) S.No. Particulars Pre-GST Post- GST 1 Period A April, 2016 to June, 2017 01.07.2017 to 24.01.2018 25.01.2018 to 30.09.2018 2 Output tax rate (%) B 4.50% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as cum-tax price. Therefore, in terms of Section 171 of the Central Goods and Services Tax Act, 2017, the benefit of the aforesaid additional input tax credit that has accrued to the Respondent, was required to be passed on to the recipients. 11. The DGAP has stated that on the basis of the CENVAT/VAT/input tax credit availability during the pre-GST and the post-GST periods and the amounts collected by the Respondent from the above Applicants and other home buyers during the period 01.07.2017 to 24.01.2018, the amount of benefit of input tax credit that should have been passed on by the Respondent to the recipients, or in other words, the profiteered amount worked out to ₹ 33,24,879/- which included 12% GST on the base profiteered amount of ₹ 29,68,642/-. Further, the amount of benefit of input tax credit that should have been passed on by the Respondent to the recipients, during the period 25.01.2018 to 30.09.2018, worked out to ₹ 2,14,23,670/- which included 8% GST on the base profiteered amount of ₹ 1,98,36,732/. Therefore, the total profiteered amount during the period 01.07.2017 to 30.09.2018 worked out to ₹ 2,47,48,549/-, which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage when the construction of the project was yet to be completed and no occupancy certificate has been issued. 14. The above report was considered by the Authority in its meeting held on 25.04.2019 and it was decided to hear the above Applicants and the Respondent on 15.05.2019. On 15.05.2019 Sh. Sandeep Kumar, Applicant No. 1 and Sh. Nitin Gambhir, Applicant No. 7 appeared in person and the DGAP was represented by Smt. Neelam Kapoor, Superintendent while Sh. Vaibhav Jain, Advocate and Ms. Garima Jain, Advocate appeared on behalf of the Respondent. Further hearings were held on 23.08.2019 and 12.09.2019. The Applicant No. 1 and 7 requested to provide copies of GST and VAT returns filed by the Respondent for the investigation period. The Applicants No. 2 to 6 were not present during the hearings. The Respondent further made his submissions on 14.05.2019, 24 05.2019, 05.06.2019, 23.08.2019, 12.09.2019 13.09.2019 Which may be summed up as follows:- a) That he was engaged in the business of construction of project ROF Aalayas , an affordable housing project, located at Sector-102, Village Dhankot, District Gurugram, Haryana. b) That the report from DGA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch adopted by the agency in calculation of the amount of Profiteering is theoretical and not justifiable in courts of law. h) That his cost of construction has increased due to increase in prices of inputs and other purchases after the introduction of GST and due to natural inflation, such as firming up of the prices of steel and cement and unprecedented increase in Minimum Wages; that consequentially, the estimated total cost of construction of his project which was estimated at the close of FY 16-17 as ₹ 1,53,91,33,634.08/-, had to be revised at the close of FY 17-18 as ₹ 1,65,91,33,634.08/- as per his audited books of account and Income Tax returns, which imply that the the actual cost of inputs has gone up by ₹ 12,00,00,000/- i.e. 7.79% from previous year, which needs to be incorporated in the calculation of the amount of profiteering; that the provisions of Section 171 of the CGST Act do not apply in his case as the sales prices of the flats are already regulated and the Respondent is prohibited from charging a price higher than the price fixed under the scheme of PMGKY. i) That the calculation of ratio of input tax credit to turnover fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available, hence the entire input on sub-contractor s payment was fully allowable and therefore there is no profiteering in respect of input on bills of labor or other contractor payments. p) That as he was exempted under Service Tax, any sub-contractor providing services in relation to the exempted project were also exempt and now his output and input both are taxable under GST, which showed that there is no profiteering in respect of these expenses. q) That the services which do not have direct nexus to the construction and are more related to non-operating and indirect business expenses should not be considered for calculation of profiteered amount. Such services are Advertisement expenditure, AMC Charges, Audit Fees, bank Charges, Consultancy and insurance etc. r) That expenses only on account of goods that are used in construction of project should be considered while calculating profiteering and expenses on goods such as bike, laptop, and mobile should not be accounted for as these were either company assets or not related to construction of project. s) That earlier, input tax credit of VAT was available @ 13.125%/ 5%/5.25% and now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VAT Return* 66,92,31,924.00 13,38,05,290.00 - - 80,30,37,214.00 GST Return* - 25,18,10,348.00 51,21,10,760.57 49,37,17,292.04 1,25,76,38.400.61 Total (b) 66,92,31,924.00 38,56,15,638.00 51,21,10,760.57 49,37,17,292.04 2,06,06,75,614.61 Difference (a) - (b) 0.00 He also attached a copy of the turnover reconciliation. w) That he is required to reverse the input tax credit on unsold units approximately amounting to ₹ 29, 20,000/-. A copy of calculation sheet was also attached. In view of above submissions he requested to drop the proceedings, since the benefit of ITC had been passed on and also the time pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2019), issued by the DGAP, the Respondent had been informed that he may suo -moto determine the quantum of benefit not passed on, if any and indicate the same in his reply to the Notice. However, it is seen, that the Respondent neither admitted to any profiteering at that stage nor submitted any calculations, though he had been given ample opportunity to present his case and submit records. We find it amusing that on one hand the Respondent claims that he assumed that the investigations were closed by the DGAP in a hurry and on the other hand, in points raised subsequently he has himself admitted to having profiteered. We find that this conduct of the Respondent only shows that he had been attempting to derail the investigation and delay the proceedings by not submitting required documents in time. C. Further, the investigation report was finalized by the DGAP based on the data and information which was as provided by the Respondent only. There is no provision under CGST Rules, 2017 under which the DGAP, is supposed to give formal hearing of personal hearing to the respondent, in case he is found to have contravened the provisions of Section 171. Further, the Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G. The Respondent has submitted that the calculation of ratio of ITC to turnover for pre-GST period has been taken without considering the VAT from April, 2017 to June, 2017. In this regard, we take note that the last date of submission of the Investigation Report by the DGAP was 22.04.2019 taking into account the extension of time for completion of the investigation report that had been granted by the Authority in accordance with law. In the instant case, all documents submitted on or before 18.04.2019 were duly taken into consideration by the DGAP for the purpose of finalisation of profiteering and Report. In the instant case, for calculation of profiteering, the increase in the Input Tax Credit as a percentage of total taxable turnover has been taken. During investigation, only the VAT returns for the period 01.04.2016 to 31.03.2017 were made available to the DGAP and despite repeated reminders the Respondent did not furnish the returns pertaining to the period from April to June 2017. The Respondent did so only on 22.04.2017, which was the last day for submission of the investigation report by the DGAP by the Authority. Therefore increase in ITC as percentage of total taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the recipients by way of commensurate reduction in prices. We further find that based on his own understanding of Section 171 of CGST Act, 2017 and CGST Rules, 2017 regarding profiteering, the Respondent has furnished his calculation of profiteering but we observe that in this calculation, the impact of Central Excise Duty, Central Sales Tax, State Octroi e.t.c on the price of the impugned product for which there was no credit available to the Respondent in the erstwhile regime has been completely ignored. K. We also find that Respondent has contended that only saving in basic expenditure of construction due to reduction in prices on change of regime would lead to profiteering. This contention is also not in conformity with Section- 171 of CGST Act, 2017 which Stipulates that any reduction in rate of tax on supply of goods or services or the benefit of input tax credit shall be passed on to the recipients by way of commensurate reduction in prices. The statutory position regarding definition of profiteering is contained in Section 171 of the CGST Act, 2017 and the rules made there under, which has an inbuilt mechanism and procedure for determination of profiteering. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er taking into account the benefit of credit available during pre GST (April 2016 to June 2017) period to the taxable turnover received during the said period and comparing the same with the post GST period (01.07.2017 to 30.09.2018) has arrived at the percentage of ITC. Based on the above analysis the DGAP has as has been shown in the Table-C above correctly estimated the net benefit of ITC as 3.84%. This Authority is in agreement with the DGAP s calculations as mentioned in Annexure 13 of his Report. Thus, based on the above facts this Authority determines the profiteered amount as ₹ 2,47,48,549/- which includes GST @12% or 8% as applicable on the base profiteered amount of ₹ 2,28,05,373/- realized from all the 731 residential units for the period w.e.f. 01.07.2017 to 31.09.2018 as per the Annexure- 13 of the Report., including the above Applicants. 18. It is established from the perusal of the above facts of the case that the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondents as he has profiteered an amount of ₹ 2,47,48,549/- which includes GST @12% or 8% as applicable on the base profiteered amount of ₹ 2,28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jects of the Respondent including those mentioned in Para 27 above, for violation of the provisions of Section 171 of the CGST Act, 2017 and submit his Report as per the provisions of Rule 133 (5) (b) of the CGST Rules, 2017, as there may be a possibility of profiteering w.r.t. their other projects also. Rule 133 (5) (a) Rule 133 (5) (b) of the CGST Rules, 2017 is reproduced as below:- [(5) (a) Notwithstanding anything contained in sub-rule (4), where upon receipt of the report of the Director General of Anti-profiteering referred to in sub-rule (6) of rule 129, the Authority has reasons to believe that there has been contravention of the provisions of section 171 in respect of goods or services or both other than those covered in the said report, it may, for reasons to be recorded in writing, within the time limit specified in sub-rule (1), direct the Director Genera/ of Anti-profiteering to cause investigation or inquiry with regard to such other goods or services or both, in accordance with the provisions of the Act and these rules. (b) The investigation or enquiry under clause (a) shall be deemed to be a new investigation or enquiry and all the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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