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TMI Blog2019 (12) TMI 703X X X X Extracts X X X X X X X X Extracts X X X X ..... ,04,342/- along with interest @18% per annum to these flat buyers from the dates from which the above amount was collected by him from these buyers till the payment is made, within a period of 3 months from the date of passing of this order. Thus, 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 30.09.2018 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by the Respondent. Penalty - HELD THAT:- The Respondent has denied benefit of ITC to the buyers of the flats and the shops being constructed by him in his Project Fusion Homes in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty - Accordingly, a SCN be issued to him directing him to explain as to why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 103 1,05,114 - 22,93,217 Balance to be paid Post GST (C)=(A)-(B) 17,19,224 82,581 - 18,01,805 Demanded by the Respondent (D) 17,19,224 - 2,09,290 19,28,514 Excess Demand: (E)=(D)-(C) 1,26,709 3. The DGAP on receipt of the application issued notices dated 15.10.2018 and 05.11.2018 to the Respondent to reply as to whether he admitted that the benefit of ITC had not been passed on to the Applicant No. 1 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 furnish all the supporting documents. The Respondent was also given an opportunity to inspect the non-confidential evidences/information submitted by the above Applicant which was not availed by him. However, the Respondent did not avail of the said opportunity and vide his letter dated 02.11.2018, requested for extension of 30 days ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In response to the Notice dated 15.10.2018 issued by the DGAP, the Respondent vide his replies dated 02.11.2018, 13.11.2018, 26.11.2018, 05.12.2018, 10.12.2018, 13.12.2018, 26.12.2018, 28.12.2018, 12.02.2019, 22.02.2019 and 14.03.2019 submitted that before the introduction of GST, he had applied for completion certificates in respect of Towers A to F and all the expenses related to construction of these towers were incurred before the implementation of GST. Therefore, he had not received any benefit of input tax credit in respect of these towers and the benefit of input tax credit was not required to be passed on to the recipients under the GST regime. He further submitted that he had settled the case with the Applicant No. 1, vide final settlement letter dated 23.06.2018. The Applicant No. 1 had made the booking in the Respondent s project on 26.06.2017, at the agreed value of ₹ 39,29,928/- 3357.81 sq. ft. for 1130 sq. ft., plus IFMS (Interest Free Maintenance Security) charges @ ₹ 20 per sq. ft. plus PLC (Preferential location charges) @ ₹ 100 per sq. ft.) plus the applicable taxes and possession charges. He also submitted that it was also agreed upon that in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd other documents submitted by the Respondent, he observed that the above contention of the Respondent had no merit on the following grounds:- (i) The Completion Certificate was issued by the Greater Noida Authority on 01.01.2018 and 19.01.2018 and not in the month of May, 2017 or June, 2017 as claimed by the Respondent. (ii) The letter dated 22.05.2017 of the Respondent, addressed to the Greater Noida Authority, for issuing the Completion Certificate clearly mentioned that the work was still under progress and would take another 45 days. Thus, the contention of the Respondent that Applicant No. 1 had no claim to the benefit of input tax credit post-GST implementation was not acceptable. (iii) No evidence to the effect that Towers A to F were completed before the implementation of GST, was submitted by the Respondent. (iv) No evidence to prove that CENVAT credit of the pre-GST period, pertaining to unsold units in Towers A to F, was not carried forward to the post-GST period, was submitted by the Respondent. (v) No evidence was submitted by the Respondent to prove that CENVAT credit that accrued in the pre-GST period in respect of the unsold units in To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 22,766 2,19,150 Total 37,94,327 95,620 2,00,344 41,95,747 13. The DGAP also observed that prior to 01.07.2017, i.e., before GST was introduced, the Respondent was eligible to avail CENVAT credit of Service Tax paid on input services and the credit of the VAT paid on the purchase of inputs. However, CENVAT credit of the Central Excise Duty paid on the inputs was not admissible as per the CENVAT Credit Rules, 2004, which were in force at the material time. Post-GST, the Respondent was eligible to avail the input tax credit of GST paid on all the inputs and input services including the sub-contracts. The DGAP also asked the Respondent to provide sample copies of invoices raised by him in the pre-GST era, in support of the applicable tax rates for the services provided by him. The Respondent submitted that he had to pay Service Tax at the applicable rate (4.5% of the gross value) and VAT on the deemed sale value of the flats. The DGAP also analysed that from the VAT returns submitted by the Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Goods and Services Tax Act, 2017 reads (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 ITC pertaining to the residential units which were under construction but not sold was provisional input tax credit which may be required to be reversed by the Respondent if such units remained unsold at the time of issue of completion certificate, in terms of Section 17(2) Section 17(3) of the CGST Act, 2017, which reads as under: Section 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 . Section 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E)] 77,33,464 5,30,34,747 8. Ratio of CENVAT/ Input Tax Credit to Total Turnover [(H)=(G)/(D)] 1.21% 6.25% Thus, from the above table, it was clear that the input tax credit as a percentage of the total turnover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 1.21% and during the post-GST period (July, 2017 to September, 2018), it was 6.25% and it clearly confirmed that post-GST, the Respondent has benefited from additional input tax credit to the tune of 5.04% [6.25% (-) 1.21%] of the turnover. 18. The DGAP also observed that the Central Government, on the recommendation of the GST Council, had levied 18% GST (effective rate was 12% in view of 1/3rd abatement on value) on construction service, vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 (Annex-21). Accordingly, the profiteering had been examined by comparing the applicable tax and input tax credit available for the pre-GST period (April, 2016 to June, 2017) when effective Service Tax @ 4.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above table, it was clear that the additional input tax credit of 5.04% of the turnover should have resulted in commensurate reduction in the basic price as well as cum-tax price. Therefore, in terms of Section 171 of the Central Goods and Services Tax Act, 2017, the said benefit of the additional input tax credit was required to be passed on to the recipients. In other words, by not reducing the pre-GST basic price by 5.04%, on account of the benefit of additional input tax credit and charging GST at the rate of 12% on the pre-GST basic price, the Respondent appeared to have contravened the provisions of Section 171 of the of the Central Goods and Services Tax Act, 2017. 19. The DGAP further submitted that on the basis of the aforesaid CENVAT/lnput Tax Credit availability in the pre and post-GST periods and the details of the turnover or the amounts collected by the Respondent from the Applicant No. 1 and other home buyers during the period 01.07.2017 to 30.09.2018, the amount of benefit of input tax credit not passed on, i.e. the profiteered amount came out to ₹ 4,79,04,342/- which included GST on the base profiteered amount of ₹ 4,27,71,733/-. This amount was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il dated 15.05.2019 stating that the statements made by the Respondent were contradictory in nature. On the one hand, he claimed that the benefit of ITC was not available as all works related to Phase-1 were completed in pre-GST era, whereas on the other hand, he claimed that he had provided discount due to GST. The Applicant No. 1 also stated that the Respondent s claim that all the works of all the flats were completed before GST era was false and lot of work had been done by him in the GST regime. He had further submitted that the flat was handed over by the Respondent to him on 16.09.2019 and at that time, lot of work was incomplete viz. wooden texture flooring which was done two weeks post-handing over of the flat, laying of electrical wiring, all painting work, charging of fire line, installation of CCTVs in lobbies and common areas and lifts, non implementation of solar heating on terrace, non functioning of fire alarm panel and Public Address system, external services like park, pathways, street lighting and greenery, club house, swimming pool (except children play area which was handed over in November 2018 and sofa set for entrance Area of each tower which was provided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been passed onto the customers. Thus, in view of above, the Respondent submitted the following:- (i) That the DGAP Report had exceeded his jurisdiction in calculating profiteering in respect of the customers other than the Applicant No. 1 in the matter and in. terms of the provisions of Anti profiteering as contained under CGST Act 2017, the DGAP could not go beyond the complaint of the Applicant No. 1 (ii) That para 25 of the DGAP Report mentioned that for the purposes of this investigation the credit of VAT paid on input has not been considered. The Respondent claimed that the Report had failed to consider that as per the decision by Hon ble Supreme Court in the case of Raheja Builders and Larsen Toubro , the activity of a builder was like sale of material during construction and was liable for payment of VAT under VAT laws. Therefore, while discharging liability under VAT laws, the Respondent was eligible to avail ITC of VAT paid on purchase of inputs/capital goods. He also submitted that during the period 01.04.2016 to 30.06.2017, the Respondent had availed ITC of Rs. under VAT and the said amount of ITC availed should have been included while computing the perce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent had completed construction of 6 towers in the month of May, 2017 itself i.e. prior to implementation of GST. He also claimed that he had been regularly requesting the local authorities to grant completion certificates so that possession could be given and the apartments could be registered in the name of customers and balance payments could be obtained. He further submitted that even though the completion certificates had been issued subsequently, the Respondent had hardly incurred any amount on construction of these towers. Thus, the ITC availed after 01.07.2017 did not include any ITC pertaining to construction of these towers. On this basis, the total turnover for the period 01.07.2017 to 30.09.2018 should also have not included the amount billed/ received relating to flats sold in Tower A, B, C, D, E, and F. He also submitted that during the period 01.07.2017 to 30.09.2018, the Respondent received ₹ 63,69,91,887/- from the customers who had purchased apartments in Tower A, B, C, D, E and F. He also claimed that the para 31 of the DGAP Report computed that there was an increase in availability of ITC by 5.04%. Assuming that the said ratio of 5.04% was correct (w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d his next submissions on 03.06.2019 vide which he submitted that the Credit of VAT had not been considered in the Pre-GST regime by the DGAP in his Report dated 02.04.2019. He further submitted that the Respondent was liable to pay VAT in the earlier regime on deemed sales basis i.e VAT was paid on total purchases plus 20% deemed profit after considering ITC of the VAT paid on purchases. Thus, ITC of VAT was available in the pre-GST regime. He further submitted that the credit availed in Trans-1 statement should have been considered in Pre-GST regime for the purposes of calculation, as it pertained to the same period. He also enclosed the calculation sheet showing impact on profiteering. He also mentioned that the ITC availed in Post GST regime was also not correct in DGAP Report. It had wrongly been calculated from ledgers. Actual ITC availed and utilised had been shown in GSTR 3B Returns. He also enclosed the summary sheet of ITC availed utilized as per GSTR 3B Returns. He also mentioned that ITC utilized should have been considered in post GST regime, as it was the maximum credit that could be used for payment of Tax. He also stated that the total area sold in sq. ft. in pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 812493218.93 Recalibrated plus GST 909992405.21 Difference - Profiteering 40490574.95 Calculation Sheet - 2 Issue- Trans 1 ITC In Pre-GST Regime Pre GST 01-04-2016 to 30-06-2017 Post GST 01-07-2017 to 30-09-2018 Cenvat of ST 30551024 VAT 19804225 ITC 14342157 Trans-1 27281055 Total Credit 77636304 143421257 Gross Taxable Turnover 641597757 848645518 Total Saleable Area 2120603 2120603 Total Sold Area relevant to Turnover 536794 784163 ITC Relevant to Sold Area 19652289 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90347860 Trans-1 27281055 Total Credit 77636304 90347860 Gross Taxable Turnover 641597757 848645518 Total Saleable Area 2120603 2120603 Total Sold Area relevant to Turnover 851555 954820 ITC Relevant to Sold Area 31175841 40679912 Ratio 4.859094516 4.793510513 Difference -0.07 Turnover plus GST 950482980 Recalibrated 849239570 Recalibrated plus GST 951148318 Difference Profiteering -665338 Calculation Sheet - 5 Issue - Discount Already Extended Avg. Sale price Pre GST (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be applied in the case of a consumer goods industry and hence the computation varies from sector to sector and from product to product. Within various products also the products which are sold on MRP and the products which are sold under the cost of production methodology the method of calculation of the profiteered amount will vat) . Similarly -in the case of services and within services also in the case of construction services it may differ depending upon the land cost from the other services, therefore the commensurate reduction in prices as stipulated in Section 171 will vary not only between the goods and the services but also within the various types of goods and services hence, no fixed methodology can be prescribed and it can only be determined in each case. The provisions of Section 171 are further very explicit which state that the recipient has to be given the benefits of tax reduction and the ITC on every supply commensurate with such reduction or the ITC. Hence, it was duty of the Respondent to ascertain on which of his products the rate of tax had been reduced and after taking in to account the impact of denial of ITC to what extent the prices should have been in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor and the Government had notified new GST rates for residential projects w.e.f. 01.04.2019 and had prescribed GST Rates @ 5% / 1% with no ITC. He also submitted that the Government was conscious of the fact that availment of ITC has no nexus with the revenue booked and therefore, it linked the ITC with percentage of work done in the project which was also not a correct method but much better than one adopted in this case by the DGAP. He had also claimed that in the Notification No. 03/2019-C.T. (Rate), dated 29-03-2019, the detailed procedure was prescribed to adjust the ITC availed with the percentage of work done. The Respondent further submitted that if there was any 32. substance in the methodology adopted by taking ratio of ITC over revenue booked then it should show a broad similar trend across the industry. The Authority had passed many orders adopting the same methodology. He also furnished the comparative chart of the ratios so arrived in the said orders which are mentioned below:- ORDER NO. APPLICANT vs. RESPONDENT PRE-GST PERIOD POST-GST PERIOD PERIOD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l complete. A detail of pending/partly completed services was also given, wherein work relating to electric wiring, final paint coat, external development, sewerage, water treatment plant, sewerage treatment plant, Main Gate and common area development were stated to be in progress. He also contended that it was also specifically stated that the said work will be completed in next 30-40 days, which ended before 30th June, 2017 and even if it was assumed that any minor work stretched beyond 30th June, 2017 then also it could not be alleged that any major procurement of material was left to be made. c) The DGAP had mentioned that the Respondent adduced no evidence to the effect that tower A to F were complete before implementation of GST. The Respondent said that the letter dated 22.05.2017, addressed to Greater Noida Authority and RERA Declarations were sufficient enough to shift the onus, if any, on the Department to prove otherwise. d) The DGAP had mentioned that the Respondent had not adduced any evidence to show that it had not carried forward CENVAT Credit of pre-GST period in respect of unsold units in towers A to F. The Respondent said that the if he had carried fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in each of his outlets and was also centrally fixing the prices and hence he has been rightly assessed for profiteering collectively. There is also no justification for netting off the increases and the decreases in the prices of the various products as the benefit is required to be passed on each SKU and profiteering is required to be computed only in respect of those SKUs where prices have been increased more than 5.59%. 35. The Respondent also mentioned that Section 171 could not be invoked to compare pre-GST and post GST taxes and these provisions were applicable only when there was a reduction in rate of tax. Since, the GST was levied from 1st July 2017 and thus, it could not be stated that there was any reduction in rate of tax. He further claimed that in the DGAP report, it was found that he had been benefited from additional input tax credit to the tune of 5.04% of the turnover. He added that even if it was admitted that the said additional credit was available to him (the Respondent) by virtue of introduction of GST, this could not be termed as benefit to him, unless there was likelihood of encashment of such credit. He further furnished a chart given below and stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent vide which he has raised objections against the DGAP s Report dated 02.04.2019. 38. We observe that the first objection of the Respondent is that the DGAP had exceeded his jurisdiction in calculating profiteering in respect of the customers other than the Applicant No. 1 in the matter. This claim is incorrect since the ITC was collected by the Respondent over the complete project and hence the benefit is required to be passed to all the eligible flat buyers. Thus, the Authority is of the opinion that in order to compute the ITC benefit to be passed on to the buyers, it was necessary to computer the same for the whole project and for every buyer. Further, in the interest of justice, the benefit of input tax credit should be passed on to every buyer in the present project. 39. We also note that one of his prime contentions against the DGAP s report is that the credit of VAT paid on inputs has not been considered. We find that this claim of the Respondent is incorrect since though the Respondent had claimed credit of VAT paid on the inputs, but he had not discharged any output VAT liability. Further Respondent also did not charge VAT in the pre-GST period from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this contention is not tenable since the mathematical computation pertaining to benefit of additional ITC is case specific and it depends on various factors specific to each case. These factors include the stages viz. completion of the project pre-GST and post-GST; the payment schedule; the number of units in the project; the total area sold and unsold in pre-GST and post-GST periods, the ITC availed in the two periods; and the turnover i.e. (aggregate amounts billed to the home-consumers) recalibrated in the two periods. 43. We also find it pertinent to mention that Section 171 (1) of the CGST Act, 2017 clearly states that Any reduction in the 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, the intention of the legislature is amply clear from the above provision which requires that the benefit of tax reduction or ITC is required to be passed on to the customers by commensurate reduction in prices and the same cannot be retained by a supplier. In furtherance of the same, this Authority has in exercise of the powers conferred on it under Rule 126 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greed value of ₹ 39,29,928/- (@ 3357.81 for 1130 sq. ft. plus IFMS @ ₹ 20 per sq. ft. plus PLC @ ₹ 100 per sq. ft.) plus the applicable taxes and possession charges. Further, Section 171 of the CGST Act, 2017 states that:- 171. (1) 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. Nowhere does the above provision of law mentions that the above provisions would not be applicable to the fresh contracts entered after 01.07.2017. 46. The Respondent s further contention that he had already offered more than 10% discount in basic prices to all the customers who have booked flats Post GST and the discount had been given mainly on account of availability of ITC, thus the allegation that he had failed to give the necessary discount was absolutely incorrect. However the discount offered by the Respondent to the customers cannot be considered as passing on of the benefit of additional ITC as the above discount has been given by the Respondents to set off the prices which he had increased and not on account of the benefit of ITC. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by him as has been detailed above. Since the present investigation is only up to 30.09.2018 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by the Respondent. 49. It is also evident from the above narration of facts that the Respondent has denied benefit of ITC to the buyers of the flats and the shops being constructed by him in his Project Fusion Homes in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty under the provisions of the above Section. Accordingly, a Show Cause Notice be issued to him directing him to explain as to why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him. Accordingly, the notice dated 09.04.2019 vide which it was proposed to impose penalty under Section 29, 122-127 of the above Act read with Rule 21 and 133 of the CGST Rules, 2017 is withdrawn to that extent. 50. The Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioners of CGST/SGST Uttar Pradesh to m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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