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TMI Blog2019 (11) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... realized from the buyers of the flats commensurate with the benefit of ITC received by him. The present investigation is only up to 31.08.2018 therefore, any additional benefit of ITC which shall accrue subsequently shall also be passed on to the buyers by the respondent as per provisions of sections 171 (1) of CGST Act, 2017. Penalty - HELD 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 profiteered as per the explanation attached to Section 171 of the above Act. Therefore he is liable for imposition of penalty under Section 171 (3A) of the CGST Act, 2017 - Therefore, a Show Cause Notice be issued to him directing him to explain why the penalty prescribed under the above sub-section read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him. - Case No. 58/2019 - - - Dated:- 20-11-2019 - SH. B.N. SHARMA, CHAIRMAN, SH. J.C. CHAUHAN, TECHNICAL MEMBER, MS. R. BHAGYADEVI, TECHNICAL MEMBER, SH. AMAND SHAH, TECHNICAL MEMBER. Present:- None for the Applicant No. 1. Sh. Sachin, Superintendent, for the Appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d booked the flat on 24.08.2016. b) That the Respondent was registered under the works contract service under the erstwhile Service Tax regime wherein Service Tax was not applicable on the consideration payable under the agreement for sale of undivided share of land but the consideration payable under the construction agreement attracted Service Tax. c) That the advances received from the above Applicant in the pre-GST period were appropriated against the consideration for sale of undivided share of land by the Respondent and after the said consideration was fully paid, Service Tax was duly charged and paid on the advances pertaining to the construction agreement. d) That the total consideration payable for the sale of undivided share of land was ₹ 33,97,500/- as per the agreement for sale of undivided share of land dated 28.09.2016, registered as Document No. 8818/2016 before the Sub-Registrar, Neelankarai, Chennai. e) That the total consideration for the construction of the flat was ₹ 55,06,092/- as per the agreement dated 28.09.2016, registered as Document No. 8819/2016 before the Sub-Registrar, Neelankarai, Chennai. f) That 87.5% of the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completed constructed area as unsold stock and had reversed proportionate ITC amounting to ₹ 52,30,085/(CGST ₹ 31,67,157/- SGST ₹ 20,62,928/-) l) That the Respondent had also submitted that the issues raised by the Applicant had been fully resolved. The Applicant had withdrawn the complaint and therefore, further proceedings against the Respondent should be dropped. 5. The DGAP s present investigation Report has covered the period from 01.07.2017 to 31.08.2018 and the period for completing the same was extended by this Authority till 28.02.2019 vide its orders dated 20.11.2018 and 22.01.2019 as per the provisions of Rule 129 (6) of the above Rules. The Respondent had also submitted the following documents along with his replies:- (a) Copies of GSTR-I and GSTR-3B Returns for the period from July, 2017 to August, 2018. (b) Copies of Tran-I Returns for the period from July, 2017 to December, 2017. (c) Copies of VAT ST-3 Returns for the period from April, 2016 to June, 2017. (d) Electronic Credit Ledger for the period from July, 2017 to August, 2018. (e) Copies of all the demand letters, receipts and sale agreement/contract and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,359 54,422 0 943,781 5. On completion of 3rd floor roof slab 7.50% 6% 667,769 40,066 0 707,835 6. On completion of 7th floor roof slab 7.50% 6% 667,769 40,066 0 707,835 7. On completion of 11th floor roof slab 7.50% 6% 667,769 40,066 0 707,835 5,738,437 29.11.2016 8. On completion of 15th floor roof slab 07.02.2017 7.50% 6% 667,769 40,066 0 707,835 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above provisions, the DGAP has claimed that the ITC pertaining to the units which were under construction but not sold was provisional ITC which may be required to be reversed by the Respondent, if such units remained unsold at the time of issue of the CC, in terms of Section 17 (2) Section 17 (3) of the CGST Act, 2017 which read as under:- 17(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. 17 (3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule 11, sale of building. 9. The DGAP has further claimed that the ITC pertaining to the unsold units was outside the scope of the present in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,144 017 44,261,263 - 2. Input Tax Credit of GST Available as per GST Returns (B) - - - 85,034,930 3. Total Turnover as per Home Buyers List (C) 433,760,103 160,488,715 4. Total Saleable Area of Flats in the project (Sq. ft.) (D) 1,461,532 1,461,532 5. Area Sold relevant to turnover as per Home Buyers List (Sq. ft.) (E) 155,036 177,512 6. Relevant CENVAT/Input Tax Credit (F)= [(A)*(E)/(D)] or [(B)*(E)/(D)] 4,695,134 10,328,012 7. Ratio of CENVAT/ Input Tax Credit to Turnover [(G)=(F)/(C)] 1.08% 6.44% 10. The DGAP has also pleaded that it was clear from the Table 13 that the ITC as a percentage of the total turnover that was available to the Respondent during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 160,488,715 9. GST Collected @ 18% over Basic Price H= G*18% 28,887,969 10. Total Demand collected I=G+H 189,376,684 11. Recalibrated Basic Price J= G*(1-D) or 94.64% of G 151,886,520 12. GST @18% K= J*18% 27,339,574 13. Commensurate demand price L= J+K 1,79,226,093 14. Excess Collection of Demand or Profiteering Amount M=I-L 10,150,590 11. The DGAP has also claimed that from Table C above, it was clear that the additional ITC of 5.36% of the turnover should have resulted in commensurate reduction in the base prices as well as cum-tax prices and therefore, in terms of Section 171 of the CGST Act, 2017, the benefit of the additional ITC was required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was yet to be completed. 13. The Respondent was issued show cause notice dated 21.02.2019 to explain why the Report dated 18.02.2019 submitted by the DGAP should not be accepted and his liability for violation of the provisions of Section 171 of the CGST Act, 2017 should not be fixed. He was also asked to state why penalty should also not be imposed upon him under Section 29 and 122-127 of the CGST Act, 2017 read with Rule 21 and 133 of the CGST Rules, 2017. During the course of the proceedings the Applicant No. 1 did not appear, the Applicant No. 2 (DGAP) was represented by Sh. Sachin, Superintendent and the Respondent was represented by Sh. Rupesh Sharma, Advocate and Sh. Manohar Londe, Authorised Representative. The first hearing was fixed on 07.03.2019 however, the Respondent had sought adjournment and the next hearing was scheduled on 20.03.2019 which was also not attended by the Respondent and next date of appearance was fixed on 09.04.2019 which was attended by the Respondent. The Respondent had also not attended the hearings fixed on 16.04.2019, 22.05.2019 and 30.05.2019. 14. The Respondent vide his submissions dated 05.04.2019 has stated that he was engaged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e against the land consideration, the Applicant No. 1 had agreed that the method adopted by the Respondent was correct and he had immediately withdrawn the complaint vide his letter dated 25.09.2018 addressed to the DGAP. 15. The Respondent has further contended that the present investigation was apparently based on an application dated 30.01.2018 filed before the Tamil Nadu State Screening Committee under Rule 128 of the above Rules, however, the Applicant No. 1 had withdrawn the complaint and therefore, further proceedings against him should be dropped. He has also argued that after the withdrawal of the complaint had been taken on record the present investigation and the findings recorded without referring to the withdrawal of the complaint were wrong. He has further argued that as per Rule 128 a written compliant was required to be filed by the interested party, Commissioner or any other person and in the present case the complaint had been filed by the above Applicant who had withdrawn the same vide his e-mail dated 25.09.2018 addressed to the DGAP mentioning that all the issues had been resolved. He has also argued that when the basis for the proceedings namely the complai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent has also submitted that despite his request made vide his letter dated 25.09.2018 that the complaint had been withdrawn and the issue had been amicably resolved, the DGAP had sought data from him which was supplied by him vide his letters dated 04.10.2018 and 27.12.2018, again intimating that the above Applicant had withdrawn the complaint. The Respondent has also alleged that although withdrawal of the complaint was mentioned in his Report by the DGAP it was not discussed in detail and it was recommended that the Respondent had availed benefit of 5.36% of the turnover which was required to be passed on. 16. The Respondent has also stated that the present proceedings were not maintainable for the reasons that the time lines provided in the GST statute had been breached as was apparent from the following grounds:- (i) That in terms of Rule 128 of the CGST Rules, 2017 the Standing Committee within a period of 2 months from the date of receipt of a written application was required to examine the accuracy and adequacy of the evidence provided in the application and determine whether there was prima facie evidence to support the claim of the applicant. (ii) That in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplied for CC for the project and he was likely to receive the same during April, 2019. (ii) That when the CC was issued, in terms of para 5, Schedule-II of the CGST Act, no GST was payable and based on the various amendments made to the CGST Rules and the Notification dated 29.03.2019, he might not be in a position to even retain the ITC which was attributable to the units which would be sold post issue of the CC. When ITC was not going to be available, the entire calculations made vide Table C of the Report were incorrect as they were based on assumptions and presumptions. (iii) That Rule 42 of the CGST Rules, 2017 had been amended vide Notification No. 16/2019 dated 29.03.2019 w.e.f. 01.04.2019 which stated that E which denoted the value of exempt service during the tax period was now defined as aggregate carpet area of the apartments, construction of which was exempt from tax plus aggregate carpet area of the apartments, construction of which was not exempt from tax but were identified by the promoter to be sold after issue of CC or first occupation whichever was earlier. (iv) That the effect of the above amendment was that the carpet area of the apartments tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if T4 was taken as zero the entire ITC would become common ITC and based on the formula whereby the exempted supply included the carpet area of the apartments which had not been booked till the date of issue of CC, there would be loss of ITC. 19. He has also submitted that the calculation of benefit of 5.36% of the credit under the post-GST period as against the pre-GST period was incorrect for the following reasons:- (i) That the DGAP had not taken into account the fact that the cost of the material had increased which had resulted in increase in the cost of construction. (ii) The Steel prices without factoring the tax element post-GST had increased by 16 to 17%; M Sand by 20%, the Blue Metal had increased by 36% and the Soling Stone used for construction had increased by 46%. (iii) That this Authority in Case No. 9/2018 in the matter of Jijrushu N. Bhattacharya V. N. P. Foods = 2018 (10) TMI 1338 - NATIONAL ANTI-PROFITEERING AUTHORITY (Franchisee of Subway) had held that when the base price of Hara Bhara Kabab had been increased from ₹ 130/- to ₹ 135/- and the respondent had increased the price to make good the loss which had occurred due to lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits without factoring the CC and the loss of ITC made the entire proceedings null and void. (viii) That the calculation of the DGAP to arrive at the percentage of credit available to him under the old law was also fundamentally flawed as the calculation had been done for the period from 2016 whereas the project had started in the year 2014 and the availability of credit ought to have been calculated from 2014 which would in turn increase the percentage of credit available to him under the pre-GST regime thereby reducing the difference of credit available under the pre-GST vis- -vis the post-GST regime. 20. Vide his submissions dated 16.04.2019 the Respondent has submitted that the proceedings were not maintainable since the complaint had been withdrawn by the Applicant No. 1 and the proceedings were also time barred in terms of Rule 128 of CGST Rules and there was no other project except this project which was being executed by him. He has also attached his own calculations as per the Table C of the DGAP s Report. He has also stated that the law had completely changed due to Notification No. 3/2019 dated 29.03.2019 w.e.f. 01.04.2019 whereby if the CC was obtained, the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent had started construction of the project Risington in the year 2014 for building 1228 apartments out of which 161 flats has been sold. It is also revealed that the Applicant No. 1 had filed an application before the Tamil Nadu State Screening Committee under Rule 128 (2) of CGST Rules, 2017 on 30.01.2018 alleging that he had purchased a flat from the Respondent in the above project but he had not passed on the benefit of ITC by commensurate reduction in the price of the flat after coming in to force of the GST to him. This application was forwarded to the Standing Committee by the above Committee on 29.06.2018 on its prima facie satisfaction that the Respondent had not passed on the above benefit. The Standing Committee had also examined the above application in its meetings held on 07.08.2018 and 08.08.2018 and sent the same to the DGAP with its recommendation to conduct detailed investigation as per Rule 129 (1) of the above Rules. The DGAP after conducting detailed investigation vide his Report dated 18.02.2019 has stated that the Respondent has not passed on the benefit of ITC to his customers and has profiteered an amount of ₹ 1,01,50,590/- @ 5.36% of the turnov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial of passing of the benefit of ITC which fell under the anti-profiteering provisions of the GST law. Therefore, the contention of the Respondent that the above Applicant had not mentioned denial of passing of the ITC benefit in his above application is incorrect. 26. It is also revealed from the perusal of the application dated 25.09.2019 filed by the above Applicant before the DGAP for withdrawal of the complaint that it states as under:- I had written an e-mail on 30.01.2018 with reference to a flat that I had booked in September, 2016 with Shree Mahalaxmi Enterprises. Subsequently, I met the builders and all the information that I had sought was made available to me and all the issues raised by me were fully resolved to my satisfaction. In such circumstances, I request you to treat my application to the Anti-Profiteering Authority as withdrawn. It is clear from the above that the complaint was withdrawn as a compromise between the above Applicant and the Respondent which the above Applicant could not have done as it amounts to abetment of the offence committed by the Respondent under Section 171 (1) of the CGST Act, 2017. The above Applicant has also not claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the above Applicant was incorrect and was mere misunderstanding and on being satisfied with the explanation given by him the above Applicant had withdrawn the complaint therefore, no further investigation could have been carried out. In this connection it would be pertinent to mention that the above Applicant was not entitled to withdraw the complaint once its cognizance had been taken by the Screening Committee, Standing Committee as well as the DGAP as there is no provision of withdrawal of the application in the above Act or the Rules, once it has been filed. The above Applicant also appears to have been withdrawn the above complaint dated 25.09.2018 due to undue influence exercised on him by the Respondent as has been mentioned above. It is also apparent from the perusal of the Report filed by the DGAP that the Respondent had infact not passed on the benefit of ITC to his customers and therefore, he cannot escape his liability on the ground that the complaint had been withdrawn. 30. The Respondent has also placed reliance on the case of Anil Kumar Singh V. Vijay Pal Singh and others (2018) 12 SCC 584 in which it was held that where a plaintiff had filed an applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of tax on any supply of goods or services or the benefit of input tax credit has not been passed on to the recipient by way of commensurate reduction in prices. (2) All applications from interested parties on issues of local nature shall first be examined by the State level Screening Committee and the Screening Committee shall, upon being satisfied that the supplier has contravened the provisions of section 171, forward the application with its recommendations to the Standing Committee for further action. Perusal of the provisions of Rule 128 (1) clearly shows that the applications received by the Standing Committee are to be disposed of within a period of two months from the date of receipt by it and not from the date when the application was received by the Screening Committee. The above Committee can neither dispose of an application within the period of 2 months which is not lying before it nor it can presume which application is pending before the Screening Committee. Since the application dated 30.01.2018 filed by the above Applicant before the Screening Committee was forwarded by it on 29.06.2018 to the Standing Committee and it was considered and recommended to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 43 of the CGST Rules, 2017 amended vide Notification No. 16/2019 dated 29.03.2019 and stated that as per the above amendment the carpet area of the apartments that were to be sold after issuance of the CC was considered as exempt supply and the ITC attributable to the exempt supply would have to be reversed, therefore, the assumption that the ITC was fully available as per the calculation made in Table C of the Report was incorrect. The above claim of the Respondent is not relevant in respect of the present case since the CC has not yet been obtained by the Respondent, therefore, there is no question of reversal of the ITC. Moreover, as per the Table C the DGAP has considered only that amount of ITC which has been availed by the Respondent on the area which he has sold as is clear from Sr. No. 6 of Table C. The Respondent is required to pass on the benefit of the relevant ITC only to those buyers who had purchased the flats in the pre-GST period and made payment of due amount in the post-GST period. Nowhere the Respondent has been asked to pay the benefit in respect of the unsold flats and the ITC available on such flats would be available to him for reversal in case these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence, no set prescription can be laid while computing profiteering. Therefore, the above contention of the Respondent cannot be accepted as the mathematical methodology adopted by the DGAP while computing the benefit of ITC @ 5.36% of the turnover is correct. 36. The Respondent has also pleaded that the calculations made by the DGAP which were based on ratios of the CENVAT/ITC availed during the pre-GST and the post-GST periods were prima facie incorrect as they were required to be calculated as per the provisions of Rule 42 and 43 as amended w.e.f. 01.04.2019. As already discussed above the Respondent has not received the CC yet and hence, the ITC is not required to be reversed at this stage as per the provisions of the above Rules as well as the notification and hence the computation made by the DGAP based on the above ratios is correct. 37. He has also submitted that the calculation of benefit of ITC of 5.36% of the turnover was also wrong as there has been increase in the cost of the construction material. In this connection it would be pertinent to mention that the above benefit is only required to be computed in respect of the benefit of additional ITC which the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Respondent has also claimed that his turnover post-GST was ₹ 16,04,88,715/- which also included the instalments paid by the buyers who had booked apartments in the pre-GST period and the instalments due in the post-GST period from such customers amounted to ₹ 5,84,74,134/- and hence the eligibility of credit was also restricted to that amount whereas in Table C it had been assumed that the full credit had been utilized. However, perusal of Table C shows that the above turnover has been taken by the DGAP from the GSTR-3B Returns filed by the Respondent and hence the same could not include the pre-GST instalments amounting to ₹ 5,84,74,134/- as has been claimed by the Respondent and hence the above claim of the Respondent is incorrect. 40. The Respondent has also objected to the calculation methodology adopted by the DGAP to arrive at the percentage of the ratio of ITC to turnover post-GST as it was an ongoing project in which only 161 apartments had been booked and therefore, all the customers were not entitled to the above benefit. However, perusal of Table C and D submitted by the DGAP shows that the above benefit has been computed in respect of those flat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Respondent shows that he has taken in to account the ITC w.e.f. April, 2014 to June, 2016 and hence there is going to be difference in the computation of the benefit. Hence, the above plea of the Respondent is incorrect. 43. The Respondent has also contended that he had applied for the CC and was likely to get the same by the end of April, 2019 and once the above certificate was obtained the ITC would have to be reversed. However, the Respondent has failed to submit the CC during the course of the proceedings and therefore, the above argument of the Respondent is not plausible. Otherwise also even after receipt of the CC the amount of ITC which the Respondent has not released on the unsold flats would still be available to him which he can very easily reverse and hence the above claim of the Respondent is frivolous. 44. Based on the above facts it is clear as per Table C supra that during the pre-GST period from April. 2016 to June, 2017 the Respondent was paying tax @ 6% which was increased to 18% during the post-GST period and hence there was increase in the rate of tax and therefore, the Respondent is not liable to pay the benefit of tax reduction to his customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt proceedings. The above amounts shall be paid within a period of 3 months from the date of issue of this Order to the Applicant No. 1 and the other eligible house buyers by the Respondent along with interest @18% from the date from which these amounts were realised by the Respondent from them, till they are paid as per the provisions of Rule 133 (3) (b) of the CGST Rules, 2017, failing which the above amounts shall be recovered by the concerned Commissioner CGST / SGST and paid to the eligible house buyers. 46. From the above discussions it is clear that the Respondent has profiteered by an amount of ₹ 1,01,50,590/- during the period of investigation from 01.07.2017 to 31.08.2018. Therefore, 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 commensurate with the benefit of ITC received by him as has been detailed above. The present investigation is only up to 31.08.2018 therefore, any additional benefit of ITC which shall accrue subsequently shall also be passed on to the buyers by the Respondent as per the provisions of Section 171 (1) of the CGST Act, 2017. In cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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