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TMI Blog2019 (12) TMI 585X X X X Extracts X X X X X X X X Extracts X X X X ..... eference was received from the Standing Committee on 07.01.2019 to conduct detailed investigation in respect of applications filed by the Applicants No. 1 to 38 under Rule 128 of the CGST Rules, 2017 alleging profiteering in respect of construction service supplied by the Respondent. The above Applicants had submitted that they had purchased flats in the Respondent's project "Floridaa" situated at Bhatola, Sec-82, Faridabad, Haryana and alleged that the Respondent had not passed on the benefit of input tax credit (ITC) to them by way of commensurate reduction in prices. 2. The Haryana State Screening Committee on Anti-profiteering had originally examined the application of the above Applicants, in its meeting held on 30.10.2018 and observed that there was lesser burden of tax in the GST regime due to availability of ITC, which the Respondent should have passed on to his customers, in terms of Section 171 of the CGST Act, 2017. The Haryana State Screening Committee had forwarded the said application with its recommendation, to the Standing Committee on Anti-profiteering on 31.10.2018, for further action, in terms of Rule 128 of the CGST Rules, 2017. 3. The Standing Committee on An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12% after 1/3rd abatement for the value of land), vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 which was further reduced to 12% (effectively @ 8% after 1/3rd abatement for the value of land), w.e.f. 25.01.2018, vide Notification No. 01/2018-Central Tax (Rate) dated 25.01.2018. Therefore, the total indirect tax burden on the project had increased after the introduction of GST. (c) He also claimed that construction business was very complex and on a provisional basis, he had passed on the benefit of Rs. 2.23 crores (approx.) in the month of January, 2019 as the benefit of additional ITC on introduction of GST, to his customers who had booked flats and commercial shops in the project prior to the introduction of GST and assured that the final benefit which accrued to them post-GST over the period of completion of the project, would be duly passed on at the time of giving possession of the flats. Accordingly, he had requested to drop the proceedings. (d) The Respondent also requested to stay the present proceedings on the basis of stay granted by the Hon'ble High Court of Delhi in the case of M/s. Abbott Healthcare Pvt. Ltd. = 2019 (5) TMI 563 - DELHI HIGH COUR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.50% 2,42,820 - - - - 2,42,820 6 Within 24 months of Allotment 09.04.2017 12.50% 2,42,820 - - - - 2,42,820 7 Within 30 months of Allotment 09.10.2017 12.50% 2,42,820 - - 29,138 - 2,71,958 8 Within 36 months of Allotment 09.04.2018 12.50% 2,42,820 - - 19,426 - 2,62,246 9 Change in Size 01.03.2018 - 27,360 - - 2,189 - 29,549 10 Miscellaneous (IF-MS, VAT,) 11.01.2019 - 25,000 - 72,846 - (29,138) 68,708 Total 100.00% 19,94,920 25,496 72,846 50,753 (29,138) 21,14,877 9. The DGAP on examining the various documents observed that the Respondent had claimed that he had already passed on the benefit of ITC even before initiation of the present proceedings, to the Applicants and other recipients who had booked flats and commercial shops in pre-GST regime and had assured that the final benefit which would accrue to them post-GST over the period of completion of the project, would be duly passed on at the time of giving possession of the fiats. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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". Section 17 (3) "The value of exempt supply under subsection (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 Il, sale of building". Therefore, ITC pertaining to the unsold units might not fall within the ambit of his 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. 12. The DGAP also observed that prior to 01.07.2017, i.e., before introduction of GST the service of construction of affordable housing provided by the Respondent, was exempt from Service Tax, vide Notification No. 25/2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Commercial) 3,59,081 3,81,471 (Residential) 9,177 (Commercial) 3,90,648 10 Relevant ITC [(J)=(C)*(I)/(H)] or [(J)=(D)*(I)/(H)] 1,34,26,438 3,80,09,425 Ratio of Input Tax Credit to Turnover [(K)=(J)/(G)*100] 2.60% 7.37% 14. The DGAP has claimed in the above Table-'B', that the ITC as a percentage of the tumover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 2.60% and during the post-GST period (July, 2017 to December, 2018), it was 7.37% and therefore the Respondent had benefited from additional ITC to the tune of 4.77%[7.37% - 2.60%] of the turnover. 15. The DGAP has also stated that the Central Government, on the recommendation of the GST Council, had levied 18% GST (effective rate was 12% in view of 1/3%batement on value) on construction service, vide Notification No. 11/2017-CentraI Tax (Rate) dated 28.06.2017. The effective GST rate on construction service in respect of affordable and low-cost houses upto a carpet area of 60 sq. mtr. per house was further reduced from 12% to 8%, vide Notification No. 1/2018-CentraI Tax (Rate) dated 25.01.2018. In view of the change in the GST rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipients. 17. The DGAP has further intimated that on the basis of the aforesaid CENVAT/ITC availability in the pre and post-GST periods and the details of the amount collected by the Respondent from the Applicants and other recipients during the period 01.07.2017 to 24.01.2018, the amount of benefit of ITC that needed to be passed on by the Respondent to the recipients, was Rs. 1,03,06,413/- for residential flats and commercial shops, which included 12% GST on the base profiteered amount of Rs. 92,02,154/-. Further, the amount of benefit of ITC that needed to be passed on by the Respondent to the recipients during the period 25.01.2018 to 31.12.2018, was Rs. 1,66,71,248/- which included 12% GST on commercial shops and 8% GST on residential flats, on the base profiteered amount of Rs. Therefore, the total benefit of ITC to be passed on during the period 01.07.2017 to 31.12.2018, was Rs. 2,69,77,661/-which included GST (@ 12% or 8%) on the base amount of Rs. 2,46,06,450/-. The home buyer and unit no. wise break-up of this amount was given in Annex-25 Of the DGAP Report. This amount was inclusive of Rs. 11,24,124/- (including GST on the base amount of Rs. 10,24,023/-) which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, However, Respondent have passed on benefit. List Attached as Annex-28. Total Residential (A) 823 3,95,375 4891,22,467 255,49,316 214,90,112 6. Commercial Shops Buyers 20 6,408 180,96,754 9,66,801 4,46,209 5,20,592 Further Benefit to be passed on as per Annex-29 7. Commercial Shops Buyers 7 2,415 83,71,414 4,47,234 - 4,47,234 Shops booked post-GST. Further Benefit to be passed on as per Annex-31 8. Commercial Shops Buyers 1 354 2,67,857 14,310 19,736 (5,066) Excess Benefit passed on. List Attached as Annex-31 9. Commercial Shops Buyers 17 5,808 - - 3,29,929 (3,29,929) No consideration paid post-GST, However, Respondent have passed on benefit. List Attached as Annex-31. Total Commercial (B) 45 14,985 267,36,025 14,28,345 7,95,514 Grand Total (C)=(A)+(B) 868 4,10,360 5158,58,492 269,77,661 222,85,626 20. The DGAP has claimed from the above Table 'D' that the benefit claimed to have been passed on by the Respondent to the recipients was less than what he should have passed on in case of 86 residential flats (Sr. No. 2 & 3 of above Table), by an amount of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Table-'D'. These recipients were identifiable as per the documents provided by the Respondent, giving the names and addresses along with unit no. allotted to such recipients and therefore, the additional amount of Rs. 84,95,123/- was required to be returned to such eligible recipients. 23. The above Report was considered by the Authority in its meeting held on 11.06.2019 and accordingly the Applicants and the Respondents were asked to appear before the Authority on 25.06.2019 for hearing. Six personal hearings were accorded to the interested parties on 04.07.2019, 18.07.2019, 06.08.2019, 22.08.2019, 17.09.2019 & 04.10.2019 wherein Sh. Pawan Kumar, Applicant No. 1, Sh. Anil Kumar, Applicant No. 2, Sh. Sailesh Dikshit, Applicant No. 34, Sh. Prem Kumar Dubey, Applicant No. 42, Sh. Ankush Raghav, Applicant No. 43, Sh. Hemant Kumar on behalf of Ms. Geeta Devi, Applicant No. 44, Sh. Shyam Kumar, Applicant No. 45, Sh- Ritesh Kumar, Applicant No. 65, Sh. Deepak Bisla, Applicant No. 66, Sh. Hem Vats, Applicant NO. 67, Sh. Ritesh Yadav, Applicant No. 68, Sh. Balvinder Singh, Applicant No. 69, Sh. Sukhbir Singh, Applicant No. 70 and Sh. Kuldeep Kumar Pandey, Applicant No. 71 were present. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r adopting the average basis for determining the alleged profiteering. 27. The Respondent contended that Rule 126 of the CGST Rules, 2017 directed the Authority to prescribe the "Procedure and Methodology and for determining whether the reduction in the rate of tax on the supply of goods or services or the benefit of ITC has been passed on by the registered person to the recipient by way of commensurate reduction in prices". The Authority had accordingly drafted the Procedure and Methodology comprising of 41 paras but did not provide the basis, method and reasoning for computing any alleged contravention of the provisions of section 171 of the CGST Act, 2017. Further, the DGAP had not explained as to why the average method was being adopted for computing any alleged benefit of additional ITC. The average method had been adopted unilaterally by the DGAP without the same being prescribed in any provision of GST Act, 2017 or Rules framed thereunder. 28. The Respondent has also stated that it was trite law that for taxing statutes, to provide a mechanism for computation of value on which tax was to be paid. It had been held by several Courts including the Apex Court that in absence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us a composite works contract. Thus, during the period covered by the arbitrary calculation of profiteering by the average method i.e. 01.07.2017 to 31.12.2018, the project was under completion. And therefore, the Report of DGAP could have been based on the calculations made by the Respondent. He pleaded that profiteering, if any, could only be determined once the project was nearing completion and all costs, inputs, claims and contingencies had to be determined and concretized, had been ignored by the DGAP. 31. The Respondent has also referred to para 17 of the DGAP's Report wherein he had stated that profiteering, if any, should be determined within the ambit Of the Rule 129(6) of the CGST Rules, 2017 and should be within the framework of profiteering computed by the DGAP. He further claimed that the DGAP's calculations were ad hoc which he also has done on the basis of averages. Therefore he claimed profiteering, if any, could be determined only on completion of the project. 32. The Respondent has further submitted that the DGAP in his Report has ascertained profiteering @ 4.77% by the average method on the ITC claimed during pre and post GST regime. The average method adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the complaints. He also claimed that 85 residential flats and 7 commercial shops which were booked in the post-GST where the DGAP had held that benefit of ITC was to be passed on was not acceptable since the transaction was commenced and completed in the post GST period and the buyers were aware and had accepted the transaction rate during the post GST period. 36. The Respondent also submitted that he had passed on the benefit to 28 home buyers amounting to Rs. 7,32,280/- despite the fact that those Applicants did not make any payment during the post GST period. He claimed that the entire payment from such home buyers was received in the pre-GST period and accordingly this amount also should be viewed as an excess payment made by him. 37. Supplementary Report was sought from the DGAP on the issues raised by the Respondent. The DGAP vide his Report dated 21.08.2019 has claimed that in terms of Section 171 of the CGST Act, 2017, each and every recipient should receive the benefit of ITC and excess benefit passed on to some recipients cannot be set off with further benefit required to be passed on to other recipients. 38. Further, the Authority sought clarification from the DGAP un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion it would be appropriate to mention that as per the provisions of Rule 129 (1) of the CGST Rules, 2017 the DGAP has been entrusted with the responsibility of carrying out detailed investigation in the allegations of profiteering and collect necessary evidence and therefore, he is not required to afford opportunity of hearing to the Respondent being an investigating agency. As per the provisions of Rule 129 (3) the DGAP is required to give notice to the Respondent which he has given on 15.01.2019 and hence he has complied with the above provision. Proper opportunity of being heard has been provided to the Respondent by this Authority in which the Respondent has controverted the computations of the DGAP through his written submissions and hence he should have no objection on this ground. However, he has not cared to attend any of the personal hearings which were afforded to him by this Authority on 04.07.2019, 18.07.2019, 06.08.2019, 22.08.2019, 17.09.2019 & 04.10.2019. Though the Respondent has alleged that hearing notices were received late but it's a fact that 6 hearings were provided and he had enough opportunity between 4th July 2019 to 4th Oct, 2019 to appear in any of the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l computations and not on averages as has been claimed by the Respondent and hence, the above claim of the Respondent is untenable. 44. The Respondent has also contended that this Authority has not provided any basis, method and reasoning for computing profiteering in respect of violation of the provisions Of Section 171 of the CGST Act, 2016 and under Rule 126 of the above Rules. In this regard, it is mentioned that this Authority has already determined the Methodology and Procedure under the powers vested in it under Rule 126 vide its Notification dated 28.03.2018 which is available on its website for ready reference. The basis and reasons for computing profiteering have been mentioned in Section 171 (1) of the above Act which require that "any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices." Therefore, it is very clear that both the above benefits are required to be passed on by reduction in the prices and in case they are not passed on profiteered amount has to be computed as per the provisions of Section 171 (3A) of the above Act. In view of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken up, however, no such issue is involved in the present case, hence the law settled in the above case is not being followed. The Respondent has also relied upon the decision passed in the case of National Mineral Development Corporation v. State of M. P. and another (2004) 65 SCC 281 = 2004 (5) TMI 575 - SUPREME COURT in his support wherein the issue of levy of royalty on 'slimes' was involved hence, it is pertinent to mention here that the above case has no relevance in case of the Respondent as no such issue is involved in the present case. He has also referred to the case of Larsen & Toubro v. State of Bihar and others. 2004 (134) STC 354 (Pat.) = 2003 (11) TMI 565 - PATNA HIGH COURT which was affirmed by the Hon'ble Supreme Court in the case of State of Jharkhand and others v. Voltas Ltd. (2007) 7 VST 317 (SC) = 2007 (5) TMI 18 - SUPREME COURT, in which it was decided that in the absence of all exclusions which were to be prescribed for computation Of tax, no tax was payable. Careful perusal of the facts of the above cases shows that they relate to the issue of works contracts and hence the facts of this case are not same to the facts of the above cases and therefore they ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed in para supra the DGAP has also not calculated the profiteered amount by using averages. Hence, the above arguments of the Respondent are incorrect. 50. We also observe that the provisions of Section 171 of the CGST Act, 2017 are aimed at ensuring that the recipients get the commensurate benefit, in the form of reduction in prices, in case of any tax rate reduction and/or incremental benefit of ITC which has become available to them due to sacrifice of revenue by the State and the Central Govt. from their own tax pool to provide accommodation to the vulnerable section of society under the Affordable Housing Scheme. The method of interpretation of this provision has been given in the text of Section 171 of the CGST Act, 2017 itself. We also observe that the said provision clearly links profiteering to be a function of each supply of goods or services or both and hence, profiteering needs to be computed at the level of each tax invoice. From a plain reading of Section 171 of the Act ibid, it is very clear that the total quantum of profiteering by a registered person is the sum total of all the benefits that stood denied to each of the recipients/consumers individually. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit of ITC to be passed on during the period 01.07.2017 to 31.12.2018, comes to Rs. which includes GST@ 12% or 8% as applicable on the base amount of Rs. 2,46,06,450/-. Accordingly, the above amounts shall be paid to the above Applicants and the other eligible house buyers by the Respondent along with interest @18% from the date from which these amounts were realised from them till they are paid as per the provisions of Rule 133 (3) (b) of the CGST Rules, 2017, failing which they shall be recovered by the concerned Commissioner CGST / SGST and paid to the eligible house buyers. 53. From the above discussions it is clear that the Respondent has profiteered by an amount of Rs. 2,69,77,661/- during the period of investigation. Therefore, in view of the above facts, this 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 has been detailed above. As far as the final computation of the additional ITC that will be available to the Respondent is concerned, the same could not be determined at the time of investigation by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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