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TMI Blog2019 (12) TMI 1265X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Respondent had not passed on the benefit of input tax credit to him by way of commensurate reduction in price, in terms of Section 171 of the Central Goods and Services Tax Act, 2017 and had charged GST on the pre-GST base price of Rs. 4000 per sq. ft. The Haryana State Screening Committee on Anti-profiteering on prima facie having satisfied itself that there was less burden of tax in the GST regime due to availability of input tax credit which the Respondent should have passed to the buyers, had forwarded the above application with its recommendation to the Standing Committee on Anti-profiteering on 20.06.2018 for further action, in terms of Rule 128 (2) of the above Rules. 2. The above reference was examined by the Standing Committee on Anti-profiteering and vide minutes of its meetings dated 07.08.2018 and 08.08.2018, it had forwarded the same to the DGAP for detailed investigation under Rule 129 (1) of the above Rules. 3. The DGAP on receipt of the application issued two letters to the Standing Committee on Anti-profiteering on 12.09.2018 and 17.10.2018 and sought supporting documents along with details of the Applicant No. 1. The Standing Committee on Anti-profite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 29.10.2018 issued by the DGAP, the Respondent vide his replies dated 19.11.2018, 03.12.2018, 04.12.2018, 05.12.2018, 14.12.2018, 17.12.2018, 01.01.2019, 21.02.2019, 10.04.2019 and 12.04.2019 submitted that the Respondent was a single housing project construction company and was developing the present project in Sector-103, Gurugram under the Affordable Housing Scheme under the Pradhan Mantri Awas Yojna. He also submitted that he had already informed his customers that the benefit of reduction in the cost on account of tax benefit with the implementation of GST, would be duly passed on to them. He further submitted that his project was nearing completion and he was in the process of computing the final tax benefit which would be passed on to the customers in the next demand invoices to be raised in the month of May, 2019. The Applicant No. 1 had also been apprised of the above facts with the request for withdrawal of his complaint which had been made in haste. 9. He further stated that he was not directly engaged in any construction activity and all the work related to the project was assigned to various sub-contractors, who procured all the required raw materials on their ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the rate of tax on supply of goods and services as compared to the pre-GST regime, instead, there was an increase in the rate of GST by approximately 3.5%. 11. The Respondent also submitted that the Central taxes, i.e., Central Excise Duty/Service Tax levied under the pre-GST regime, on the transfer of property in goods in the execution of works contracts, were now available as input tax credit in the GST regime. The Respondent was only procuring Cement, Steel and RMC on his own and all other raw materials used in construction were sub-contracted to the various contractors, who procured raw materials directly, after due payment of Central Excise Duty/GST. However, the Respondent was negotiating with the sub-contractors for seeking the benefits under the GST regime and would pass on the same to his buyers, on or before the completion of the project. 12. The DGAP in his Report has also stated that the Respondent had furnished the following documents:- (a) Copies of GSTR-I Returns for the period from July, 2017 to December, 2018. (b) Copies of GSTR-3B Returns for the period from July, 2017 to December, 2018. (c) Copy of Tran-1 return for transitional credit. (d) Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ths of Allotment 31.05.2018 12.50% 213,990 17,119 2,31,109 7. Within 30 months of Allotment 25.11.2018 12.50% 213,990 17,119 2,31,109 8. Within 36 months of Allotment Not yet due 12.50% 213,990 17,119 2,31,109 Total 100% 17,11,920 1,36,953 18,48,873 15. The DGAP has also observed that the Respondent stated that he would compute the benefit of reduction in the cost on account of tax benefit in respect of the project, at the end of the project and pass on the benefit to his customers, might have merit but the profiteering, if any, had to be determined at a given point of time, in terms of Rule 129 (6) of the CGST Rules, 2017. Therefore, the additional ITC available to the Respondent and the amounts received by him from the Applicant No. 1 and other recipients post implementation of GST, have to be taken into account to determine the benefit of input tax credit that was required to be passed on. 16 The DGAP has further stated that the Respondent also contended that the Applicant No. 1 had been requested to withdraw the complaint which had been made in haste without any merit and consequentially, the Applicant No. 1 has withdrawn his complaint. The DGAP furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... II, sale of building" 18. Thus the DGAP has claimed that the ITC pertaining to the unsold units may not fall within the ambit of the current investigation and the Respondent would be required to recalibrate the selling prices of such units to be sold to the prospective buyers by considering the net benefit of additional input tax credit available to them post-GST. 19. The Respondent has also submitted that out of total 1,472 flats and 113 commercial shops, only 55 flats and 38 commercial shops were unsold as on 31.12.2018. 20. The DGAP has also claimed that prior to 01.07.2017 i.e. before the GST was introduced, the service of construction of affordable housing provided by the Respondent, was exempted from Service Tax, vide Notification No.25/2012-ST dated 20.06.2012, as amended by Notification No. 9/2016-ST dated 01.03.2016. The Respondent was also not eligible to avail CENVAT credit of Central Excise Duty paid on inputs or Service Tax paid on the input services, as per the CENVAT Credit Rules, 2004, which were in force at the material time. However, the Respondent was eligible to avail credit of Service Tax paid on the input services but CENVAT credit of Central Excise Duty wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,50,11,592 Ratio of Input Tax Credit to Turnover Post-GST [(L)=(K)/(H)*100] 4.76% 7.27% 21. Thus, from the above Table, the DGAP has contended that it was clear that the input tax credit as a percentage of the turnover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 4.76% and during the post-GST period (July, 2017 to December, 201 8), it was 7.27% which confirmed that post-GST, the Respondent had benefited from additional input tax credit to the tune of 2.51% [7.27% (-) 4.76%] of the turnover. 22. 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 1/3fd abatement on value) on construction service, vide Notification No. 11/2017-Central 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 square metres per house was further reduced from 12% to 8%, vide Notification No. 1/2018-Central Tax (Rate) dated 25.01.2018. In view of the change in the GST rate after 01.07.2017, the DGAP has examined the issue of profiteering in two parts i.e. b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld eventually have to be passed on to the recipients at the time of giving possession of the flats, it was a fact that this had not been done so far. Thus, by not reducing the pre-GST base price by 2.51% on account of additional benefit of input tax credit and charging GST at the increased rate of 12% or 8% on the pre-GST base price, the Respondent had contravened the provisions of Section 171 of the of the CGST Act, 2017, the DGAP has alleged. 24. The DGAP has also submitted that on the basis of the aforesaid CENVAT/input tax credit availability in the pre and the post-GST periods and the details of the amount collected by the Respondent from the Applicant No. 1 and other home buyers during the period from 01.07 2017 to 24.01.2018, the amount of benefit of input tax credit that needed to be passed on by the Respondent to the recipients, came to Rs. 1,16,75,749/- for residential flats and commercial shops, which included 12% GST on the base profiteered amount of Rs. 1,04,24,775/-. The DGAP has also mentioned that the amount of benefit of ITC that needed to be passed on by the Respondent to the recipients during the period from 25.01.2018 to 31.12.2018, came to Rs. 2,42,15,122/- wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamined by him as the exact quantum of input tax credit that would be available to the Respondent in future could not be determined at the present stage, when the construction of the project was yet to be completed. 28. The above Report was considered by this Authority in its meeting held on 29 04 2019 and it was decided to hear the Applicants and the Respondent on 17.05.2019. A Notice was also issued to the Respondent on 01.05.2019 asking him to reply why the Report dated 25.04.2019 furnished by the DGAP should not be accepted and his liability for profiteering under Section 171 of the CGST Act, 2017 should not be fixed. He was also asked to explain why penal provisions should not be invoked against him under Section 29 and 122-127 of the CGST Act, 2017 read with Rule 21 and 133 of the CGST Rules, 2017. 29. Five personal hearings were accorded to the parties on 17.05 2019, 30.05 2019, 10.06.2019, 18.06.2019 and 11.07.2019 out of which none was attended by the Respondent as well as by the Applicant No. 1 and the Applicant No. 2. 30. The Respondent has filed his written submissions on 17.06.2019 vide which he has reproduced the alleged complaint of the Applicant No. 1 as below.- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouncil Meeting, it was declared that all under construction houses that are being built as a part of Credit Linked Subsidy Scheme (CLSS) would be charged at 8% GST, contrary to its current rate of 12%. Note: Anyone who is not entitled to CLSS will continue to pay 12% GST on real estate. NOTE: Sale of building is an activity or consideration that is neither a supply of goods nor a supply of services (Refer to Para 5 of schedule III of the CGST Act, 2017). Therefore, it follows that the sale of ready to move or completed property does not attract GST. GST is payable only on under-construction property. For detailed information on recommendations made by the GST Council in its 25th Meeting held on 1811 January, 2018 at Delhi for the housing sector, please click the link:_______ If you require any further information, please call us on our toll-free number 1800-1200-232, and we would be glad to assist you. Thanks and Regards, CBEC Mitra Helpdesk" He has further contended that the Applicant No. 1, in response to the reply from the Helpdesk dated 14.04.2018 had asked for further clarifications from the Helpdesk on 28.04.2018 which was as follows. He has also mentioned tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Applicant had become a successful allottee in the project only in the post-GST period on 27.01.2018, therefore by necessary implication he was not an allottee in the pre-GST period to be impacted by any change in the rate. The Respondent has further stated that since the flat was allotted on 27.01.2018, the reduction in GST rate from 12% to 8% (after abatement of 1/3rd towards cost of land) notified on the recommendation of the GST Council Meeting held on 18.01.2018 had already been done by him. 32. The Respondent has also submitted that the DGAP's Report dated 25.04.2019 had made incorrect finding that he had benefited from additional input tax credit of 2.51% of the turnover which was based on the average method on his own accord. He has further submitted that he had not been given opportunity to either controvert or respond to the DGAP adopting the average basis for determining the alleged profiteering. 33. The Respondent has further submitted that Rule 126 of the CGST Rules, 2017 provided that this Authority should prescribe the "Methodology and Procedure" for determination as to whether the reduction in the rate of tax on the supply of goods or services or the benefit of inp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement entered in the pre-GST regime and the transfer of property in goods/services executed in the GST regime and the passing on of the same to the buyer. He has also mentioned that in a conventional sale of goods/services, the property in goods/services got transferred as intended by the parties, and after transferring risk and reward of the goods/services, the recipient became the owner after paying due consideration along-with taxes thereon. In a conventional case, the provision of anti-profiteering would come into effect from the time, the recipient received the goods/services. He has further submitted that in the present case, he was engaged in the development of Affordable Group Housing residential flats. The project was launched on 14.10.2015 with expected completion on 31.12.2019. The transaction entered with the buyer was covered under the definition of works contract involving undivided share of land, transfer of property in goods and services and thus, it was a composite works contract. The Respondent has further mentioned that the project was nearing completion and the final calculation of the tax benefit was in the process of being computed and would be passed on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... misinterpretation of the Rule 129 (6) which only provided a time frame of 3 months for concluding an enquiry and submitting his Report along with records. It did not provide for profiteering to be determined at any point during the process of any product / service which was under completion and if so, profiteering will have to be determined in respect of all works in progress. (e) Absence of mechanism for computing profiteering in case of real estate project not being provided in the Act, Rules or in the Procedure & Methodology formulated by this Authority in terms of Rule 126 of the CGST Rules, 2017. (f) The Respondent was not given any opportunity to object to the adoption of the average basis for computing alleged profiteering. (g) There were errors in computing profiteering under the Anti-Profiteering provisions on average basis as per the Table B and consequently Table C especially with regard to the average method not being representative of like comparison. 38. The Respondent has also requested that his above submissions should be taken on record for concluding the case without granting any further hearing to him and in case any documents / clarifications were req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Customs (CBEC) had only raised queries regarding the proceedings of the 25th meeting of the GST Council held on 18.01.2018 which could not be construed as complaint against him and hence the present proceedings were not maintainable. However, perusal of Annexure-I attached with the Report of the DGAP dated 25.04.2019 shows that the above Applicant had made a specific complaint to the Anti-Profiteering authorities against the Respondent for not passing on the benefit of ITC. The e-mail dated 10.04.2018 sent by the above Applicant to the [email protected] reads as under:- "Subject :Fwd: GST charged by Builder on affordable housing scheme To: [email protected] Date: 04/12/18 12.25PM From: dharm goud [email protected] Dear Sir or Mam, Kindly look into the matter and guide me what to do in the case as per trail mail. Builder charging using the basic rate of 4000/- Rs., this rate is pre-GST and never revised by builder, and this was exempted in earlier service tax law but after GST they did not transfer any benefit of ITC taken on Input to customers by lowering the rate but putted an additional burden on weaker section of Indian people, Prime minister tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the above Applicant had not mentioned in his above letter that he has received the benefit of ITC which was his main allegation against the Respondent. Therefore, the above withdrawal cannot be taken to be bonafide and genuine There is also no provisions in the CGST Act or the Rules for withdrawal of the complaint as there is possibility of coercion or undue influence on the complainants by the unscrupulous builders. The DGAP is also bound to launch investigation on a complaint once he has received recommendation from the Standing Committee on Anti-Profiteering under Rule 129 (1) and he cannot stop such investigation on the withdrawal of the complaint once it discloses commission of an offence under Section 171 of the above Act. Since, the benefit of ITC has been given by the Central and the State Government out of the public exchequer in favour of the buyers it is also incumbent on the DGAP to find out whether the above benefit has been passed on by the Respondent or it has been misappropriated by him. Therefore, the above contention of the Respondent is frivolous and hence, the same cannot be accepted 45. The Respondent has further claimed that the DGAP's Report dated 25.04.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any basis, method and reasoning for computing profiteering in respect of violation of the provisions of Section 171 of the CGST Act, 2016 under Rule 126 of the above Rules. In this connection it is mentioned that this Authority has already determined the Methodology and Procedure under Rule 126 vide its Notification dated 28.03.2018 which is available on its website. However, the basis and the reasons for computing profiteering have been mentioned in Section 171 (1) of the above Act itself 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 quite clear that both the above benefits are required to be passed on by commensurate reduction in the price on every product to each buyer 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 facts no methodology is required to be prescribed by this Authority as the same has been clearly and unambiguously prescribed in the above Section. Therefore, this contention of the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not being followed as adequate machinery has been provided to implement the Anti-Profiteering measures in the CGST Act and the Rules made thereunder. The Respondent has also relied on the case of Commissioner of Income Tax v. The Official Liquidator Palai Central Bank Ltd. (1984) 150 ITR 539 (SC) = 1984 (10) TMI 41 - SUPREME COURT in which the issue of charging of super profit tax was involved. However, as mentioned above there exists appropriate mechanism and machinery to enforce the Anti-Profiteering measures and hence the law settled in the above case is not being relied. The Respondent has also cited the judgement 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 in which the issue of levy of royalty on 'slimes' was involved however, the above case is of no help to the Respondent as has been discussed above. He has also placed reliance on the law settled in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrong and therefore, they cannot be accepted. 51. The Respondent has also submitted that while computing the above benefit the DGAP has not taken in to account the rate of tax on those material which were tax free in the pre-GST period. This argument of the Respondent is untenable since the DGAP has computed the benefit of additional ITC by comparing the ITC which was available to him in the pre and the post-GST period and it is clear from his computation that the Respondent has got additional benefit of 2.51% of ITC to the turnover. In case the Respondent had bought those goods on which no tax was leviable then no ITC was available to him during the pre-GST period and hence the same was not be considered while computing the ratio of ITC to turnover. As discussed in para supra the DGAP has also not calculated the profiteered amount by using averages. Hence, the above arguments of the Respondent are incorrect. 52. The Respondent has also contended that Rule 129 (6) of the CGST Rules, 2017 only provided a time frame of 3 months for concluding an enquiry and it did not provide for profiteering to be determined at any point. in this connection it would be pertinent to mention that pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DGAP has calculated the profiteered amount or the benefit to be passed on for the period from 01.07.2017 to 24.01.2018, as Rs. 1,16,75,749/- for the residential flats and commercial shops, which includes 12% GST on the base profiteered amount of Rs. 1,04,24,775/-. He has also computed the amount of benefit of ITC or the profiteered amount that needs to be passed on by the Respondent to his recipients during the period from 25.01.2018 to 31.12.2018 as Rs. 2,42,15,122/- which includes 12% GST on commercial shops and 8% GST on residential flats, on the base profiteered amount of Rs. 2,23,88,036/-. Therefore, the total benefit of ITC which is required to be passed on during the period from 01.07.2017 to 31.12.2018, comes to Rs. 3,58,90,871/- which includes GST @ 12% or 8% on the base profiteered amount of Rs. 3,28,12,811/- as per Table C of the above Report. The home buyer and Unit No. wise break-up of this amount has been given by the DGAP vide Annexure-22 of his Report. This amount is inclusive of Rs. 40,606/- including GST on the base amount of Rs. 37,598/- which is the benefit of ITC which is required to be passed on to the Applicant No. 1, mentioned at Serial No. 187 of Annexure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 apparently 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 01.05.2019 vide which it was proposed to impose penalty under Section 29 and 122-127 of the above Act read with Rule 21 and 133 of the CGST Rules, 2017 is withdrawn to that extent. 59. The Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioners of CGST/SGST Haryana to monitor this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by the Authority is passed on to all the eligible buyers. A Report in compliance of this order shall be submitted to this Authority by the Commissioners CGST/SGST Haryana through the DGAP within a period of 4 months from the date of receipt of this order. 60. A copy each of this order be supp ..... 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