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TMI Blog2019 (12) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1. In view of the above facts 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. Since the present investigation is only up to 31.08.2018 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by the Respondent. The concerned Commissioner CGST/SGST shall ensure that the above benefit is passed on to the eligible flat buyers - In case the above benefit is not passed on by the Respondent the Applicant No. 1 or any other buyer shall be at liberty to approach the Tamil Nadu State Screening Committee to initiate fresh proceedings against the Respondent as per the provisions of Section 171 of the CGST Act, 2017. Penalty - HELD THAT:- The Respondent has denied benefit of ITC to the buyers of the flats being constructed by him in his above project in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST Act, 2017 and therefore, he is apparently liable for imposition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing documents along with his application:- i. Duly filled in Form APAF-1. ii. Copy of the Demand letters of both pre-GST post-GST periods. 3. On receipt of the recommendation from the Standing Committee on Anti-profiteering, the DGAP had issued Notice dated 11.09.2018 under Rule 129 (3) of the above Rules, asking the Respondent to intimate as to whether he admitted that the benefit of ITC had not been passed on to the above Applicant by way of commensurate reduction in the price of the flat and in case it was so, to suo moto compute the quantum of the same and mention it in his reply to the Notice along with the supporting documents. The Respondent was given opportunity to inspect the non-confidential evidence/information furnished by the above Applicant during the period between 18.09.2018 to 20.09.2018 in accordance with Rule 129 (5) of the above Rules and he availed of the said opportunity and inspected the documents on 24.09.2018. Vide e-mail dated 05.02.2019, the above Applicant was also given opportunity to inspect the non-confidential documents/reply submitted by the Respondent on 11.02.2019 or 12.02.2019. However, the Applicant did not avail of the said o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter Slab 35, as per the schedule of payment, the demand could be raised only after handing over the possession to the customers. The possession had not been given to the customers till the date of investigation and was most likely to be given in May, 2019. Thus, though the credit had accrued in December 2017, the corresponding income was yet to be received. Thus, the credit availed during the post-GST period should exclude ₹ 3,31,12,094/-, i.e., the value of credit availed during December, 2017 to August, 2018. d) That the Service Tax turnover was ₹ 54,98,31,779/-(2016-17) and ₹ 9,80,26,261/- (April-June, 2017). Therefore, the total Service Tax turnover was ₹ 64,78,58,040/-. The total area of the project was 3,54,025 sq. ft. whereas the turnover was only for 2,67,510 sq. ft. It was submitted that the total credit of ₹ 2,21,13,537/- must be re-computed based on the area relevant to the turnover. Therefore, the credit of ₹ 1,67,09,533/-(2,21,13,537 * 2,67,510 / 3,54,025) must be considered for determining the benefit derived by the Respondent. Similarly, in the post GST regime, the total turnover was ₹ 31,33,60,755/-and the area relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssues for determination were whether there was reduction in the rate of tax or benefit of ITC on the supply of construction service by the Respondent after implementation of the GST w.e.f. 01.07.2017 and in case it was so, whether the Respondent had passed on the above benefits to the home buyers as per the provisions of Section 171 of the CGST Act, 2017 or not. 8. The DGAP has further stated that the Respondent, vide his letter dated 17.10.2018 had submitted the copies of the demand letters, the agreement and the payment schedule for the flat booked by the Applicant, the details of which are mentioned in Table-A below:- Table- A (Amount in Rs.) S.No. Payment Stages Bill Date Due Date BSP Service Tax including SBC KKC TN VAT GST Total Actual Payment 1. Billing Earnest 5/7/2016 07-05-2016 2,009,400 87,409 - - 2,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/26/2016 25-10-2016 158,095 7,114 - - 165,209 165,209 12. Billing Slab 17 10/14/2016 12-11-2016 158,095 7,114 - - 165,209 165,209 13. Billing Slab 18 11/7/2016 06-12-2016 158,095 7,114 - - 165,209 165,209 14. Billing Slab 19 11/25/2016 24-12-2016 158,095 7,114 - - 165,209 165,209 15. Billing Slab 20 1/5/2017 03-02-2017 158,095 7,114 - - 165,209 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17-09-2017 158,095 - - 18.971 177,066 177,066 26. Billing Slab 31 8/31/2017 29-09-2017 158,095 - - 18.971 177,066 177,066 27. Billing Slab 32 9/26/2017 25-10-2017 158,095 - - 18.971 177,066 177,066 28. Billing Slab 33 10/13/2017 11-11-2017 158,095 - - 18.971 177,066 177,066 29. Billing Slab 34 11/21/2017 20-12-2017 158,095 - - 18.971 177,066 177,066 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building. Therefore, the DGAP has claimed that the ITC pertaining to the unsold units was outside the scope 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 net benefit of additional ITC available to him post-GST. 10. The DGAP has also observed that prior to 01.07.2017, i.e., before the GST was introduced, the Respondent was eligible to avail credit of Service Tax paid on input services and credit of VAT paid on the purchase of inputs. However, the CENVAT credit of Central Excise Duty, paid on inputs, was not admissible as per the CENVAT Credit Rules, 2004, which were in force at the material time. The Respondent was collecting one-time VAT from his customers at the time of handing over possession of apartments and discharging his output VAT liability on deemed 25% value addition to the purchase value of the inputs. Therefore, there was no direct relation between the turnover reported in the VAT returns for the period from April, 2016 to June, 2017 filed by the Respondent and the actual consideration collected from the home buyers. Therefore, the credit of VAT paid on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the pre-GST period (April, 2016 to June, 2017) was 01.94% and during the post-GST period (July, 2017 to August, 2018), it was 12.60% which clearly confirmed that post-GST, the Respondent has been benefited from additional ITC to the tune of 10.66% [12.60% (-) 01.94%] of the turnover. 12. The DGAP has further submitted that the issue of profiteering has been examined by comparing the applicable tax rate and the available ITC for the pre-GST period (April, 2016 to June, 2017) when Service Tax @ 4.5% and one-time VAT on deemed value addition were payable with the post-GST period (July, 2017 to August, 2018) when the GST rate was 12%, fixed vide Notification No.11/2017-Central Tax (Rate), dated 28.06.2017. On the basis of the figures contained in Table-C above, the ITC availed/available during the pre-GST and the post-GST periods, the recalibrated base price on the basis of benefit of ITC post-GST and the excess collection/realization by the Respondent (profiteering) have been tabulated by the DGAP as is given in Table- D below:- Table- D (Amount in Rs.) S. No. Particulars Pre-GST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, in terms of Section 171 of the Central Goods and Services Tax Act, 2017, the benefit of the additional ITC was required to be passed on to the recipients. 14. On the basis of the aforesaid CENVAT/ITC availability pre and post-GST and the details of the amount collected by the Respondent from the Applicant and other home buyers during the period from 01.07.2017 to 31.08.2018, the amount of benefit of ITC not passed on or in other words, the profiteered amount has been quantified by the DGAP as ₹ 3,79,10,058/- which included GST @ 12%, on the base profited amount of ₹ 3,38,48,266/-. The home buyer and Unit No. wise break-up of this amount has been given in Annexure-22 of the DGAP s Report. This amount was inclusive of ₹ 1,69,878/- (including GST @ 12% on the base amount of ₹ 151,676/-) which was the profiteered amount in respect of the Applicant No. 1, mentioned at Serial No. 93 of Annesure-22 of the Report. It was also observed that the Respondent had supplied the construction services in the State of Tamil Nadu only. 15. The DGAP has further stated that the Respondent has sold 139 flats out of which 137 home buyers have made payments in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit shall be passed on to the recipient by way of commensurate reduction in prices , have been contravened by the Respondent in the present case. 18. The above Report was considered by the Authority in its meeting held on 26.02.2019 and it was decided that the Applicants and the Respondent be asked to appear before the Authority on 13.03.2019. The Respondent was issued notice on 27.02.2019 to explain why the above Report of the DGAP should not be accepted and his liability for violating the provisions of Section 171 of the CGST Act, 2017 should not be fixed along with imposition of penalty as per Section 29, 122-127 of the above Act read with Rule 21 133 of the CGST Rules, 2017 and his registration under the above Act should also not be cancelled. During the course of the hearings no one appeared for the Applicant No. 1, the DGAP was represented by Smt. Gayatri, Deputy Commissioner and Sh. Sachin Kodnani, Superintendent and the Respondent was represented by Sh. S. S. Gupta, Consultant, Sh. T. Somasundaram, GM (Accounts) and Sh. Abhishek A. Rastogi, Advocate. The Respondent has filed his written submissions on 13.03.2019, 16.04.2019, 10.05.2019 and 20.05.2019. The main issues r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Respondent has also contended that after slab 35 was cast, demand could be raised only on possession, however, credit had been accruing to him for the construction work carried out between slab 35 and possession. He has further contended that the finishing activity had to be carried out before possession demand which could result into accrual of huge credit, thus, the mechanism of comparing the credit during the period with the turnover could not provide the correct picture of profiteering since the billing and credit did not accrue simultaneously. 20. The Respondent has also submitted that the agreement for sale of premises entered into between the buyer and the Respondent specified the milestone for recovery of the amount and the invoice could be raised only on achieving milestones, whereas the credit accrued on incurring of expenditure on construction. Therefore, there was no synchronization between the accrual of credit and the value of taxable service during any period. He has further submitted that due to this reason, the percentage of utilization of credit during the period would also vary which would be evident from bifurcation of the post-GST period into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he milestone was not achieved. He has further stated that the total credit accruing with respect to the possession demand had been taken in the calculation in Table-D, however there was no corresponding taxable turnover i.e. no demand was raised on customers for possession, thus, credit has accrued and availed but corresponding income has not accrued and billed. Accordingly, the credit from December, 2017 to August, 2018 needed to be reduced from the post-GST credit in the Table-C for computing the credit to the turnover ratio. He has therefore, submitted that the credit availed figure during the post-GST period amounting to ₹ 3,31,12,094/- must be reduced in Table-C and as per his calculations, the revised Table-C would be as follows:- Particular Pre-GST Post-GST Net Cenvat / ITC (after reducing ₹ 3.31 Crore) (A) 1,67,13,377 1,66,96,462 Total Saleable Area of the project (in sq. ft.) (B) 3,54,025 3,54,025 Total Area Sold Relevant to Taxable Turnover (C) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the end of the project i.e. on receipt of CC and the same would be passed on to the customers at that point of time. 25. In his submissions dated 16.04.2019 the Respondent has reiterated the submissions which were made by him on 13.03.2019 and further added that the credit could be available to a recipient when the following four conditions of Section 16 of the above Act were complied with:- a) He is in a possession of tax invoice or debit note issued by the supplier. b) He has received the goods or services or both. c) The tax in respect of supply has been actually paid by the supplier. d) The supplier has filed the return under Section 39 of the CGST Act, 2017. The Respondent has also stated that the supplier was required to file Returns in Form GSTR-3B and Form GSTR-1 and the details of supply furnished by him were reflected in Form GSTR-2A of the recipient. He has further stated that he had availed the credit in Form GSTR-3B on the assumption that all the suppliers had paid the taxes and filed the return, however, there may be a possibility that the suppliers have not paid taxes in respect of the supplies on which credit has been availed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for each such item of work. The Rules provided that the taxable turnover needed to be arrived by deducting the following amounts from the total amount:- All amounts involved in goods in respect of export or import or in course of interstate trade or commerce. All amounts involved in goods which were exempt from levy of VAT. All amounts paid to the sub-contractors as consideration for execution of works contracts. All amounts towards labour charges and other charges not involving any transfer of property in goods, actually incurred in connection with the execution of works contract. The Respondent has also stated that the valuation mechanism provided that the cost of the goods plus the profit of the assessee was the value on which the VAT was payable. In the present case, the profit margin of the Respondent was 25%. Thus, the Respondent had loaded 25% on the cost of goods and paid VAT by availing the credit. 28. The Respondent has also submitted the list of the finished projects executed by him along with their completion month as follows:- Project Month of Completion Seawood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,74,662 4 December 2018 16,00,395 5 January 2019 12,79,374 6 February 2019 7,44,532 31. In his submissions dated 10.05.2019 the Respondent has reiterated the submissions which were made by him on 13.03.2019 and 16.04.2019. Further the Respondent has submitted that he has duly passed on 2.28% benefit to the eligible customers and a total benefit of ₹ 81,08,343 has been passed on. The calculation of the amount is as follows:- ₹ 31,75,25,945 * 2.28% = ₹ 72,39,592 12% GST on above = ₹ 8,68,751 Total = ₹ 81,08,343 32. The Respondent has also contended that the above computation of ₹ 81.08 lakhs included customers who had booked flats after 1 st July, 2017 i.e. in the post-GST period. It was further contended that since the flats have been booked after the GST had been implemented there was no additional benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6% due to additional benefit of ITC and by charging GST at the increased rate of 12% on the pre-GST basic price, he has contravened the provisions of Section 171 of the CGST Act, 2017. The DGAP has further submitted that the amount of benefit of ITC which has not been passed on by the Respondent or the profiteered amount came to ₹ 3,79,10,058/- which included 12% GST on the basic profiteered amount of ₹ 3,38,48,2661-. The DGAP has also intimated that this amount of profiteering also included the profiteered amount of ₹ 1,69,8781- including 12% GST on the base amount of ₹ 1,51,676/- in respect of the Applicant No. 1. He has also supplied the details of all the buyers who have purchased flats from the Respondent along with their unit numbers and the profiteered amount vide Annexure-22 attached with the Report. 35. The Respondent has claimed that the method of calculation adopted by the DGAP while computing the profiteered amount in Table-D based on the computations made in Table-C was incorrect. Perusal of Table-C shows that the ratios of CENVAT/ITC to turnover for the pre and post-GST periods have been computed on the basis of the Returns filed by the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above benefit from his own money. The Respondent has sufficient leverage in adjusting the amount of above benefit while passing on the same periodically in case there is more or less passing on of the above benefit. Therefore, the above claim of the Respondent is incorrect. 37. The Respondent has also submitted that as per his computations mentioned in the Table supra the ratio of availment of ITC to the taxable turnover for the period from July, 2017 to March, 2018 was 10.75% and for the period from April, 2018 to August, 2018 was 28.89% whereas the average percentage of availment had been shown in Table-C as 12.60% and hence, there was no synchronization of accrual of credit with raising of demand of recovery amount. The above claim of the Respondent is not correct as the ratio of ITC to turnover computed by the Respondent exactly matches with the ratio of 12.60% computed by the DGAP in Table-C and therefore, the above claim of the Respondent is far-fetched and hence the same cannot be accepted. 38. He has further submitted that the total credit accruing with respect to the possession demand has been taken in the calculation in Table-D, however there was no corresponding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CGST Act, 2017. In this regard it would be appropriate to mention that the CC has still not been obtained by the Respondent and hence there is no question of reversal of the ITC at this stage. Moreover, as per the present proceedings no benefit is proposed to be passed on in respect of those flats which have not been sold yet and the ITC in respect of these flats would be available with the Respondent in case it is required to be reversed at the time of issue of CC. Hence, the above argument of the Respondent is untenable. 41. The Respondent has also submitted that GST would be payable at the rate of 5% without benefit of ITC w.e.f. 01.04.2019 and hence the actual benefit of ITC could be computed only after 1st April, 2019. It is apparent from the perusal of Notification No. 03/2019-Central Tax (Rate) dated 29.03.2019 that 5% rate of tax would be applicable only prospectively from 01.04.2019 and all the additional ITC which the Respondent has availed till 31.03.2019 would have to be passed on by him to his customers. The above benefit can also not be delayed till the completion of the project even if the benefit of ITC is allowed by charging full rate of tax as the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sr. No. Particulars Tiana Anchorage 1 Total area of the project 3,10,860 4,76,925 2 Area sold prior to GST 2,23,795 61,078 3 Area sold post GST 48,680 78,085 4 Total flats of the project 264 245 5 No. of Flats sold prior to GST 193 28 6 No. of Flats sold post GST 38 40 7 If Yes, date of OC or if No date of completion mentioned in RERA Jun 2020 Sep 2023 8 Whether OC received? (Y/N) N N 45. The Respondent has also claimed that he has duly passed on 2.28% benefit to the 137 eligible c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cludes both the profiteered amount @ 10.66% of the taxable amount (base price) and 12% GST on the said profiteered amount from the flat buyers other than the Applicant No. 1 as mentioned in Annexure-22 of the Report dated 21.02.2019. These buyers are identifiable as per the documents placed on record and therefore, the Respondent is directed to pass on this amount of ₹ 3,77,40,180/- and the amount of ₹ 1,69,878/- to the other flat buyers and the Applicant No. 1 respectively along with the interest @ 18% per annum from the dates from which the above amount was collected by him from them till the payment is made, within a period of 3 months from the date of passing of this order as per the details mentioned in Annexure-22 attached with the Report dated 21.02.2019. 49. In view of the above facts 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. Since the present investigation is only up to 31.08.2018 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained 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 General 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 of rule 129 shall mutatis mutandis apply to such investigation or enquiry. 51. It is also evident from the above narration of the facts that the Respondent has denied benefit of ITC to the buyers of the flats being constructed by him in his above project in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST ..... X X X X Extracts X X X X X X X X Extracts X X X X
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