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TMI Blog2020 (9) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... ituated at 1 & 1, 1, Hosakerehalli Main Road, Binnyfields, Binny Pete, Jagajeevanram Nagar, Bengaluru, Karnataka-560023. The above Applicant had also alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) to him, on implementation of the GST w.e.f. 01.07.2017, in terms of Section 171 (1) of the CGST Act, 2017. 2. The Karnataka State Screening Committee on Anti-profiteering had examined the said application and observed that the Respondent had not passed on the appropriate benefit of input tax credit to the above Applicant as the additional input tax credit available to the Respondent should have been apportioned against the instalments towards the price of the flat. The Karnataka State Screening Committee had forwarded the said application with its recommendation, to the Standing Committee on Anti-profiteering for further action in terms of Rule 128 (1) of the above Rules. 3. The aforesaid reference was examined by the Standing Committee on Anti-profiteering, in its meeting held on 11.04.2019, the minutes of which were received by the DGAP on 02.05.2019, whereby it was decided to forward the same to the DGAP to conduct a detailed investigation in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notice dated 13.05.2019, the Respondent has submitted his replies vide letters/e-mails dated 28.05.2019, 17.06.2019, 29.06.2019, 25.07.2019, 16.08.2019, 19.08.2019, 19.10.2019, 21.10.2019, 06.12.2019, 17.12.2019, 19.12.2019 and 26.12.2019. 9. Vide the aforementioned letters/e-mails, the Respondent has submitted the following documents/information before the DGAP:- a. Copies of GSTR-1 Returns for the period from July, 2017 to April, 2019. b. Copies of GSTR-3B Returns for the period from July, 2017 to April, 2019. c. Copy of Electronic Credit Ledger for the period from 01.07.2017 to 30.04.2019. d. Copies of Tran-1 Statements for the period from July, 2017 to December, 2017. e. Copies of VAT & ST-3 Returns for the period from April, 2016 to June, 2017. f. Copies of all demand letters, sale agreement/contract issued in the name of the Applicants. g. CENVAT/Input Tax Credit Register for the period from April, 2016 to April, 2019. h. Copies of Balance Sheets for FY 2016-17 & 2017-18. i. Tax rates, pre-GST and post-GST. j. Details of turnover, output tax liability/GST payable and input tax credit availed and its reconciliation with the turnover as per the list of home ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to clause (b) of paragraph 5 of Schedule II, sale of building". Therefore, the DGAP has further stated that the input t credit pertaining to the unsold units was outside the scope of this investigation and the Respondent was required to recalibrate the selling prices of such units to be sold to the prospective buyers by considering the proportionate additional input tax credit available to him post-GST. 12. The DGAP has also submitted that in response to the Notice of Initiation of investigation dated 13.05.2019. the Respondent vide his submissions dated 29.06.2019 has stated that the allegation made by the Applicant No. 1 that the benefit of input tax credit by way of commensurate reduction in price was not passed on to him was untrue in as much as he had already passed on the benefit of the additional input tax credit which has accrued to him on account of implementation of GST, by way of a corresponding reduction in the price on the demand invoices raised on the above Applicant post implementation of GST which had been termed as 'Reduction on account of GST', vide invoice No. RS0800000112 and RS080000147 dated 27.04.2018 and 28.04.2018 respectively. The Respondent has also pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be reduced from the post-GST ITC availed by him. Further, under the pre-GST regime, services were subject to Service Tax at the rate of 15.00%. and the Respondent was eligible to avail Cenvat credit of these input services. Under the GST, in most of the cases. services were taxable @ 18.00%. Therefore, there was an increase by 3.00% (18.00% -15.00%) of the ITC available to him. It was submitted that this benefit of extra 3.00% was not due to introduction of GST but due to increase in the rate of tax from 15.00% to 18.00% and therefore, the same should not be considered as a benefit due to GST and accordingly Rs. 3.66,781/- must be reduced from the GST Input tax credit. b. Input tax credit of GST pertaining to work done in the pre-GST should not be considered in the GST Regime credit: In construction sector, the goods and services were provided before the invoice was raised based on the various internal approvals of the work done and accordingly the invoice was raised. Further, even under the Service Tax laws, service provider was allowed to raise the invoice within 30 days from the provision of service. In case of certain services like brokerage, service had been prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% billing had been done as against 47% of the work done. Thus, it could be said that there was no synchronization between the work done and the billing which has also led to no synchronization between the credit availment and the billing. It was also submitted that in order to determine the true profiteering amount, it was important to synchronize the work done / credit with the billing raised on the customers. Since, only 10% of the billing had been done in the GST regime, even input tax credit in synchronization to the same must be considered for anti-profiteering and the balance credit for the 37% of work done for which billing had already been done in the pre-GST regime must be excluded from the GST input tax credit. The Respondent has also furnished the following details in support of his above claim:- Particulars Total Post-GST Total Credit in GST Regime 4,70,69,461 Factual adjustments a) Reduction of credit due to increase in rate of tax on services - Paragraph 1 (3,66,781) b) Reduction of credit due to increase in rate of tax on works contracts services - Paragraph 1 (28,99,898) c) Reversal of Credit for Work done prior to GST but bills booked in Pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total credit of Rs. 3,25,14,990/- must be re-computed based on the area relevant to the turnover. Therefore, the credit of Rs. 3,18,30,295/- (3,25,14,990*3,17,687/3,24,725) must be considered for determining the benefit derived by the Respondent. Similarly, in the post GST regime, the total turnover was Rs. 27,93,70,499/ and the area relevant to the turnover was 3,15,742 sq. ft. The credit of Rs. 92,89,997/- as computed in for 3 above must be re-computed after giving effect to the credit mentioned in above para. Therefore, the revised figure of credit would be Rs. 90,33,0041-(92,89,997*3,15,742/3,24,725). The customer-wise break-up of the above stated gross turnover was given in Annexure-6. Revised Table by considering the above points was submitted by the Respondent as follows:- Particulars Pre-GST Post-GST Cenvat/ITC 3,18,30,295 90,33,004 Turnover 93,76,89,135 27,93,70,499 Ratio 3.39% 3.23% 14. The DGAP has also submitted that the Respondent vide his submissions dated 21.10.2019 had submitted the legal position regarding availability of input tax credit in the pre-GST regime, which is as under:- a. The credit of Service Tax & VAT was admissible to the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able under this Act in respect of any taxable sale of goods made by that dealer in the course of his business, and includes tax payable. (2) Subject to input tax restrictions specified in Sections 11, 12, 14, 17 and 18 input tax in relation to any registered dealer means the tax collected or payable under this Act on the sale to him of any goods for use in the course of his business, and includes the to on the sale of goods to his agent who purchases such goods on his behalf subject to the manner as might be prescribed to claim input tax in such cases. (3) Subject to input tax restrictions specified in Sections 11, 12, 14. 17, 18 and 19, the net tax payable by a registered dealer in respect of each tax period shall be the amount of output tax payable by him in that period less the input tax deductible by him as might be prescribed in that period and relatable to goods purchased during the period immediately preceding five tax periods of such tax period, if input tax of such goods was not claimed in any of such five preceding tax periods and shall be accounted for in accordance with the provisions of this Act. (4) For the purpose of calculating the amount of net tax to be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details of the materials procured along with the rate of Excise Duty have been given as under:- Sr. No. Name of Material HSN Code Rate of Excise Duty 1. Sanitary Fittings Chapter 73 or 74 or 76 (depending on the material) 12.50% 2. Doors Chapter 44. 4418 12.50% 3. Electrical Equipment and Item Chapter - 84. 12.50% 4. Furniture Chapter 94. 9403/9405 12.50% 5. Sliding Window Chapter - 76. 7610 12.50% 6. Tiles Chapter - 69. 12.50% The Respondent had estimated that the amount of benefit would be Rs. 50,37,790/- on the basis of estimated procurement cost and accordingly he had passed on the same to the customers. He had passed on the benefit to the extent of 2% of the balance demand to be raised on the customers. He had raised 90% of the invoicing in the pre-GST regime. Accordingly, he had passed on benefit to the customers at the rate of 2% on the 10% value of the total consideration from all the customers. The customer wise data of the benefit amounting to Rs. 50,37,790/- passed on to the customers has been furnished vide Annexure-3. Further, the sample copies of invoices of the 5 customers showing that the amount of input tax credit benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertain to the corresponding billing in the post-GST period. Therefore, GST input tax credit on 37% of work done corresponded to the pre-GST billing to customers and thus there was no actual benefit which has accrued to the customers by comparison of Input-Output ratios. 15. The DGAP has also claimed that the Respondent has submitted that the credit on input services was admissible to him under Rule 2 (I) of the Cenvat Credit Rules 2004 which was utilized to pay the Service Tax. The Respondent has also submitted that he was allowed to avail the credit of VAT paid on the purchase of goods under Section 10 of the KVAT Act which was utilised to pay outward VAT liability. Under the KVAT Act, works Contractors who opted to go under the Regular Scheme were entitled to avail the input tax credit. The term 'Sale' as defined under Section 2 (29) (v) (b) of the KVAT Act, included transfer of property in goods involved in the execution of a works contract. The DGAP has further claimed that upon analysing the KVAT Act and the invoices raised by the Respondent to the home-buyers it was observed that VAT for works contracts was levied @14.5% on 70% of the construction value of the demand made f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 128 28 100 120 20 23.33% 2. 18% 100 18 118 18 100 120 20 15.00% 3. 12% 100 12 112 12 100 120 20 10.00% 4. 5% 100 5 105 5 100 120 20 4.17% It could be seen that just because the GST rate had increased/decreased on a particular product, the ITC working done by the DGAP had changed drastically. However, the gross profit and cost to the Respondent had remained constant irrespective of the GST rate on the product. This showed that the working done by the DGAP suffered from inherent fallacy and could not be accepted. The DGAP has stated that as the Anti-profiteering provisions were independent of the costing and profit component, the contentions raised by the Respondent were not acceptable. b. The Respondent was allowed to avail the credit of Service Tax levied on the supply of services and credit of KVAT levied on the supply of goods in the pre-GST regime only the credit of Excise Duty was not allowed to the Respondent. On the advent of GST, the Respondent had become eligible to avail the credit of all tax components including the Excise Duty. Thus, the Respondent had received the benefit only to the extent of Excise Duty which was levied on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 70 (Rs. 100 (-) Rs. 30) Material Cost was 70 % of Construction Cost = Rs_ 49 (70% of Rs. 70) VAT levied at the rate of 14.5% = Rs. 7 (approx.) Thus, it could be seen that the Respondent used to avail the credit amounting to Rs. 7 approx, in the pre-GST regime; however on advent of GST, the Respondent had received Rs. 6 as state credit only. Thus, the Respondent had not received any additional benefit on the advent of GST. Similarly, the Respondent was allowed to avail credit of Service Tax levied on services. As per the provisions of the Finance Act, 1994, 30% of component in the value inclusive of land was service. Thus, in case total project cost was Rs. 100, value of service in the said component was Rs. 30. The Service Tax was levied at the rate of 15%. Thus, the Respondent used to receive the credit amounting to Rs. 4.5 (15% of Rs. 30). On advent of GST, the Respondent was receiving the benefit of Rs. 6 as central credit. Thus, the Respondent was receiving benefit amounting to Rs. 1.5 which was 1.25% (i.e. Rs. 1.5/120*100). The Respondent had already passed on 2.0% benefit. Thus, he had already passed on additional benefit of 0.75% (2.0% - 1.25%). Further, if the be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em wise incidence of tax and availability of input tax credit in the pre and the post-GST era and actual benefits arising out of credit of Excise Duty and the pending bills and demand notes to be issued for the executed portion of development was not looked into by the DGAP during computation of profiteering. However, proper intimation to the home-buyers and reduction in the basic cost on account of GST benefit extended in compliance of Section 171 being duly mentioned with description as 'Less: Reduction towards Section 171 of the CGST Act, 2017", in the demand letters by the Respondent it has been accounted for in determination of amount of profiteering and properly adjusted. 18. The DGAP has mentioned regarding the project "PARKVVEST-MAPLE" that the Respondent vide his submissions dated 06.12.2019 had raised some more contentions stating that the profiteering worked by the DGAP was incorrect as the DGAP had compared the turnover with the input tax credit to arrive at the profiteering. In this regard, the points raised by the Respondent and the clarifications filed by the DGAP are as below:- a. No refund of overflow of credit: The Respondent has claimed that the credit which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artly, except where the entire consideration had been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever was earlier." It could be seen that once the Completion Certificate was received, the sale of flats would not be subject to GST. Section 17 (3) of the GST Act reads as follows: "(3) The value of exempted supply under sub-section (2) shalt be such as might be prescribed and shall include supplies on which the recipient was liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule-II, sale of building"." Thus, the Respondent would be liable to reverse the proportionate input tax credit to the extent of flats sold after receipt of Completion Certificate. Hence, the credit which had been availed during the period from July, 2017 onwards would also proportionately be reversed by the Respondent which could not be computed today. The DGAP has claimed in this regard that the Respondent's above contention held no merit, as the calculations of the DGAP had only considered the sold area and proportionate input tax cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x credit at the rate of 12%, i.e., 6% CGST and 6% SGST. In the State of Karnataka, the Respondent was allowed to avail the credit of VAT on the purchase of goods. The computation of VAT credit as per the provisions of KVAT Act, was as follows:- Total project cost = Rs. 100 Land Cost @ 30% = Rs. 30 Construction Cast = Rs. 70 (Rs. 100 (-) Rs. 30) Material Cost was 70 % of Construction Cost = Rs. 49 (70% of Rs. 70) VAT levied at the rate of 14.5% = Rs. 7 (approx.) Thus, it could be seen that the Respondent used to avail the credit amounting to Rs. 7 approx. in the pre-GST regime, however on advent of GST, the Respondent had received Rs. 6 as state credit only. Thus, the Respondent had not received any additional benefit on advent of GST. Similarly, the Respondent was allowed to avail credit of Service Tax levied on services. As per the provisions of the Finance Act, 1994, 30% of component in the value inclusive of land was service. Thus, in case total project cost was Rs. 100, value of service in the said component was Rs. 30. The Service Tax was levied @ 15%. Thus, the Respondent used to receive the credit amounting to Rs. 4.5 (15% of Rs. 30). On the advent of GST, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present, each of these towers was initiated at a different point of time, that the progress of each tower was at a different stage and the Completion Certificates had been obtained for some of the towers. The Respondent has further submitted that in terms of the provisions of the RERA Act, promoter was legally bound to register his on-going as well as new projects and maintain separate accounts for each of the projects. In compliance, he had obtained RERA registration for each of the on-going projects as well as for the other planned towers and hence each of them should be considered as a separate project. The Respondent vide his submissions dated 17.12.2019 has provided the details of the credit availed and the turnover realised during the pre and the post GST regime for each project. The Respondent has also informed that he was maintaining separate accounts for each of these projects and it was established that each of the projects was different from another. In this regard, the invoices made available by the Applicant No. 1 and 2 along-with their applications specifically mentioned the names of the projects as PARKWEST and PARKWEST Phase-2. Hence, the DGAP has submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o and had decided to pass on the benefits of transition to GST from the erstwhile tax regime. We value you as our customer and we are keen to pass the benefits arising out of GST input tax credit. Please know that you are hereby entitled to receive a discount of 12.5% of the agreement value what amounts which was yet to build. This means, 2.5% of demands would be adjusted on all future installments and on installment payment featured build on or after July 1st 2017. We also wish to inform you that these benefits would not be applicable for transactions such as maintenance charges" electricity and water charges, infrastructure charges or any additional charges that was payable at the time of possession or earlier, over and above agreement value of the apartment as the case might be." In the demand letters issued post-GST to the Applicant No. 2, there was a reference to the benefit so extended, as reduction towards Section 171 of the CGST Act 2017 and the amount in proportion of the balance amount yet to be billed was duly reduced from the actual demand. Similarly, in the invoices issued to the Applicant No. 1, as submitted by the Applicant as well as the Respondent, whose unit wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit to the extent of the flats sold after receipt of the Completion Certificate. Hence, the credit which had been availed during the period from July, 2017 onwards would also proportionately have to be reversed by him which could not be considered today. In this regard, the Respondent's contention holds no merit, as calculations of DGAP has considered the sold area and proportionate input tax credit only for the purposes of calculation of profiteering and hence the same could not be accepted. 24. The DGAP has also mentioned that the Respondent contends that even though no methodology for determination of such benefits had been notified by the authorities, based on the stage of construction of each tower, balance amount to be billed and estimates of input tax credit that would accrue to them, the Respondent had calculated on his own the quantum of benefit and offered it as discount in the net original agreement value. The Respondent has submitted that he had initially worked out benefit estimate of 2.5% on the balance consideration to be billed to the customers after implementation of the GST after taking into consideration the estimated inflation and other contingencies. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his home-buyers regarding passing on of the benefit of additional input tax credit on account of GST. The same was also established from the invoices raised to the home-buyers and the intimation letters sent by the Respondent to the home-buyers. 26. The DGAP has further submitted that the claim of the Respondent that the benefit so offered by reduction in the base prices had been duly incorporated might have merit but whether the reduction made or discount offered was commensurate with the increase in the benefit of input tax credit or not had to be determined in terms of Rule 129 (6) of the Rules. Therefore, the additional input tax credit available to the Respondent and the amounts received by him from the above Applicants and other recipients, both pre and post implementation of GST, had to be taken into account to determine the benefit of input tax credit that was required to be passed on. 27. The DGAP has also mentioned that the point for consideration was the submission of the Respondent regarding different projects on a portion of the land to be treated separately or not? The Respondent had submitted that each tower was launched at a different point of time, pricing decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, separate purchase register and input tax credit ledger had been maintained for each phase, reconciliation of credit and turnover for each tower with the statutory returns had been provided which had been duly verified and found to be in order, it was very logical to consider each of them as a separate project, the DGAP has claimed. As the two complaints pertained to the project "PARKVVEST-EMERALD" and "PARKVVEST-MAPLE" respectively, the ambit of this investigation had been kept limited to these two projects only. 28. The DGAP has also stated that the Respondent's claim that he had intimated his home buyers about the benefits on account of introduction of GST had been verified randomly by examining the correspondence made with the home-buyers in this regard, demand letters issued to the home-buyers and the description used in the demand letters and was found to be correct. The Respondent in the demands made to the home-buyers had duly reduced the benefit offered on account of GST with description as "Less: Reduction towards Section 171 of the CGST Act, 2017", and hence, had passed on the benefit that had accrued on account of GST. It was required to be seen whether the reduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulars (Pre-GST) April, 2016 to June, 2017 (Post-GST) July, 2017 to December, 2018 1. Credit of Service Tax Paid on Input Services (A) 2,28,10,678 - 2. Input Tax Credit of VAT Paid on Inputs (B) 1,14,85,719 - 3. Total CENVAT/VAT/Input Tax Credit Available (C)= (A+B) 3,42,96,397 - 4. Input Tax Credit of GST Availed (D) - 14,68,34,737 5. Total Turnover from Residential and Commercial Area (E) 1,23,31,51,501 1,76,66,14,794 6. Total Saleable Residential Area in sq. ft. (F) 7,82,263 7,82,263 7. Sold Area Relevant to Turnover in sq. ft. (I) 5,53,382 5,26,389 8. ITC proportionate to Sold Area (J) 2,42,61,673 9,88,05,888 9. Ratio of CENVAT/ VAT/Input Tax Credit to Turnover (K=/E) 1.97% 5.59% 30. The DGAP has stated from the Table-'B' 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 4.70% and during the post-GST period (July, 2017 to April, 2019), it was 6.69%. This clearly confirmed that post-GST, the Respondent had benefited from additional input tax credit to the tune of 1.99% [6.69% (-) 4.70%] of the turnover for the project PARKWEST-EMERALD. Sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Price K=I+J 31,19,27,629 13. Profiteering Amount L=G-K 63,33,394 14. Less: Benefits passed towards as Reduction in towards Section 171 of the CGST Act, 2017 M 47,91,129 15. GST @12% N=M*12% 5,74,935 16. Net Benefit passed on O=(M+N) 53,66,064 17. Excess Collection of Cum-tax Demand raised or Profiteered Amount P=H-O 9,67,330 Table-E (Amount in Rs.) S.No. Particulars Pre-GST Post-GST 1. Period A April, 2016 to June, 2017 July, 2017 to April, 2019 2. Output tax rate (%) B 11.60% 12.00% 3. Ratio of CENVAT/VAT/GST Input Tax Credit to Total Turnover as per Table - B above (%) C 1.97% 5.59% 4. Increase in input tax credit availed post-GST (%) D - 3.62% 5. Analysis of Increase in input tax credit: 6. Total Basic Demand during July, 2017 to April, 2019 E 1,76,66,14,794 7. GST @12% F=E*12% 21,19,93,775 8. Total Actual Demand G=E+F 1,97,86,08,569 9. ITC Benefits to be passed on Basic Price H=E*D or 3.62% of E 6,39,51,456 10. Recalibrated Basic Price I=E-H 1,70,26,63,338 11. GST @12% J=I*12% 20,43,19,601 12. Recal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of input tax credit not passed on to the recipients or in other words, the profiteered amount comes to Rs. 3,03,94,113/- which included GST on the base profiteered amount of Rs. 2,71,37,601/- in respect of the buyers of the flats sold upto 30.04.2019 for the project PARKWEST-MAPLE as per Annexure-22 of the Report. In respect of the Applicant No. 2, the amount of profiteering was Rs. 74,929/-. It was also observed that the Respondent had supplied construction services in the State of Karnataka only. 35. The DGAP has further stated that the above computation of profiteering was with respect to 336 home buyers in respect of project PARKWEST-MAPLE and 144 home buyers in the case of Project 'PARKWEST-EMERALD. As the project `PARKWEST-EMERALD' had been completed, neither GST was applicable on the flats sold after issuance of the Completion Certificate nor shall any benefit under Section 171 of the CGST Act, 2017 would be applicable on the sales effected now. For the project PARKWEST-MAPLE', the above calculation was for all the live customers as on 31.07.2017. For the units sold post-GST implementation, the cost of the units was mutually agreed upon between the buyers and the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Act, 2017 that the benefit received on account of reduction in the tax rate or in the input tax credit should be passed on to the customers. There was no reduction in the rate of tax. On the contrary, the tax rate on construction activity has increased in post-GST regime. Hence, there was no question of profiteering on account of reduction in the tax rate. He has also submitted that in the pre-GST regime, the credit of Service Tax on input services was admissible to the Respondent under Rule 2 (1) of Cenvat Credit Rules, 2004 which was utilised to pay the Service Tax. Further, the Respondent was also allowed to avail the credit of VAT paid on purchase of goods under Section 10 of the KVAT Act, which was utilised to pay the outward VAT liability. The Respondent has further submitted that the total Excise Duty benefit accruing to him was Rs. 55,02,353/- with respect to PARKWEST-EMERALD project. Thus, the total benefit to be passed on u/s 171 could be maximum of Rs. 55,02,353/, Similarly, the total Excise Duty benefit accruing to the Respondent was Rs. 2,85,34,060/- with respect to the PARKWEST-MAPLE project. Thus, the total benefit to be passed on u/s 171 could be maximum of Rs. 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit and the taxable value do not synchronize in the same month or the same period. The agreement for sale of premises entered into between the buyer and the Respondent specified the milestone for recovery of the amount. The invoice could be raised only on achieving milestones whereas the credit accrued to the Respondent on incurring expenditure for construction of the project. Therefore, there was no synchronization between the credit availed and the value of taxable service provided by the Respondent during any period. 40. The Respondent has also submitted that the credit which was being availed by him was utilised against the output liability arising out of sale of flats. Usually, at the end of the construction stage, finishing activity was carried out for which huge expenditure was incurred on tiles, marble and bathroom fittings etc. The Respondent was entitled to input tax credit on the GST charged on such items. However, it was possible that outward liability at that stage might be much less than the ITC accrued. The excess ITC accrued to the Respondent could not be claimed as refund owing to the restrictions imposed under Notification No. 15/2017-Central Tax (Rate) dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish Dictionary - Make or seek to make an excessive profit. * Mount vs Welsh - Any conduct or practice involving the acquisition of excessive profit. * Islamic Academy of Education vs State of Karnataka - Profiteering would mean taking advantage of unusual or exceptional circumstances to make excessive profits. It was also submitted that from the above definitions it was evident that only those amounts which have been collected and kept with the Respondent could be termed as "profiteering" on the part of the Respondent. Amounts which have been paid by the Respondent to the Government or to the customers as a part of the GST benefit could not be considered as 'profiteering'. 44. The Applicant No. 1 has also filed written submissions dated 02.03.2020. The main contentions of the Applicant No, 1 have been discussed in the subsequent paras. 45. The above Applicant has submitted that the Respondent has done disproportionate billing and work. He has also submitted that the Respondent had admitted that the work done as on July, 2017 was 53% while the amount collected from him was 90% of the consideration value of the apartment. In the present case when the Respondent had collected 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of several buildings being developed on the property bearing No. 1/1 (Old No. 31), Hosakere Road, Binnypet, Bengaluru-560023, by the Respondent. Owners of the land had entered into Joint Development Agreement with the Respondent and details of towers launched from time to time as per RERA were submitted by him as follows :- 52. The submissions of the Applicant No. 1 and the Respondent were forwarded to the DGAP vide Order dated 06.03.2020 for filing clarifications under Rule 133 (2A). The DGAP has filed his clarifications on 25.06.2020 which have been discussed in the subsequent paras. 53. On the issue of disproportionate billing and work done, the DGAP has stated that the contention of the Applicant No. 1 was not relevant as the profiteering was calculated on the basis of the ITC availed and the turnover of the Respondent. The turnover of the Respondent was calculated on the basis of the demands raised and the advances received. On this basis only, the GST was paid. Thus the percentage of work done had no relation with the calculation of profiteering. 54. On the issue of the computation of profiteering the DGAP has stated that the contention of the Applicant No. 1 was not acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent has filed rejoinder dated 16.07.2020. The main contentions raised by the Respondent vide his rejoinder are discussed in the following paras. 60. The Respondent has submitted that the Applicant No. 1 has claimed that the benefit derived has less nexus to monies collected in the GST regime but more nexus towards the work executed in the GST period. Accordingly, the Applicant No. 1 has submitted that even though the amount collected was 90% as on 30th June, 2017 and the work done was 53% only, the Applicant No. 1 was entitled to the extent of 47% work done in the GST regime, even though monies collected would only be 10%. It was submitted by the Respondent that the contention of the Applicant No. 1 was incorrect and baseless. If there was no demand in the GST regime, there was no question of benefit being received by the Respondent. The Applicant No. 1 had already synchronised the credit with the turnover in his submission to the DGAP report on 20.02.2020. The demand raised provided the amount to be received by the Respondent. The Respondent could not receive more money than demand. The turnover and the input tax credit needed to be synched and the turnover had more n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier and was now available as ITC under the GST. Therefore, the only benefit available to the Respondent in terms of Section 171 was the Excise Duty which was a cost earlier. The Excise Duty was not levied on the works contract charges or other services. Further, the Excise Duty benefit was not received on procurement of all materials. Materials were received from traders also who did not charge Excise Duty. Therefore, the list of procurement cost provided by the Respondent was only to the extent of Rs. 4,42,96,860/-. This list contained all procurements on which the Excise Duty would have been levied and the benefit would have been received by the Respondent. Therefore, the claim of the Applicant No. 1 was not tenable. 64. We have carefully considered all the submissions filed by the Applicants, the Respondent and the other material placed on record and find that the Applicant No. 1 and 2, vide their respective complaints had alleged that the Respondent was not passing on the benefit of ITC to them on apartments Nos. Emerald-002 and MA-0905 respectively which they had purchased in the "PARKWEST-EMERALD" and "PARKWEST-MAPLE" projects respectively being executed by the Respondent in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the profiteered amount in respect of each buyer vide Annexure-21 and Annexure-22 attached with his Report in respect of the projects PARKWEST-EMERALD and PARKWEST-MAPLE respectively. 65. The computation of the ratio of CENVAT and VAT to the total turnover for the period from April, 2016 to June, 2017 and of the ITC to the total turnover for the period from July, 2017 to April, 2019 for both the above projects as per Tables B and C has been done by the DGAP so that the benefit due to each flat buyer can be calculated. Calculation of the above ratios was also required to be done to compute the additional benefit of ITC which has become available to the Respondent. The above ratios have further been calculated after taking in to account the sold area relevant to the turnover during both the above periods and the ITC relevant to the sold area. Unless these ratios are computed it cannot be ascertained if the Respondent has availed benefit of additional ITC and if he has availed it what is the amount of benefit of ITC to be passed on to the buyers. The above ratios have further been computed on the basis of the information supplied by the Respondent in his Returns or the ITC Registers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he has to pass on the entire additional ITC which has accrued to him in the post-GST period. He can also not use it in his business or reflect it as his profit. The Respondent is also not required to pay even a single penny out of his own pocket to pass on the above benefit. Therefore, he cannot enrich himself at the expense of the buyers who are vulnerable, unorganised and voiceless. Therefore, the above contention of the Respondent is frivolous which cannot be accepted. 67. The Respondent has also submitted that as per the provisions of Rule 129 the DGAP was required to investigate on which products the ITC was available in the pre and the post GST period and hence, the claim of the DGAP that he has not investigated the above aspect was against the provisions of the above Rule. In this regard it would be relevant to note that there is no provision under Section 171 (1) or Rule 129 which states that DGAP is required to investigate the ITC on each good or service purchased by the Respondent during the pre and post GST periods. The intent of Section 171 (1) is only to pass on the benefit of additional ITC which has become available to the Respondent w.e.f. 01.07.2017, the exact qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he could not raise the demand unless the stage of construction mentioned in the agreement was reached is absolutely wrong and incorrect. 70. The Respondent has further claimed that he had collected Rs, 2,669/- only in excess from the Applicant No. 1 on account of GST as per Table-4 whereas the DGAP has reported that he was entitled to the benefit of Rs. 35,463/- which was more than the demand raised on the above Applicant. In this connection it would be relevant to mention that the benefit of ITC has to be computed on the basis of the amount of consideration received by the Respondent from the above Applicant during the post-GST period which has no connection with the excess GST claimed to have been received by the Respondent from the Applicant No. 1. Perusal of Sr. No. 86 of Annexure-21 of the Report shows that the Applicant No. 1 has paid consideration amount of Rs. 15,91,133/- post-GST and he was entitled to the ITC benefit of Rs. 31,664/-. However, he has already been passed on benefit of Rs. 31,823/- by the Respondent which is more than the benefit to which he is entitled and hence, no further benefit is required to be passed on to him. 71. The Respondent has also conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the pre-GST period as per the provisions of Section 16 and hence, an amount of Rs. 1,39,795/- cannot be included in the pre-GST period. 73. The Respondent has also argued that the ITC and the taxable value do not synchronise in the same month as the invoice can be raised only on achieving the mile stone whereas ITC accrues on incurring expenditure. He has further argued that for computing profiteering it was important to synchronise the work done and the ITC availed with the billing raised on the buyer. He has also cited invoice No. 907098646 dated 30.06.2017 (Annexure-5) vide which 90% amount of consideration has been received from the Applicant No. 1 in the pre-GST period whereas the work done in the above period was only 53% as per the RERA Certificate (Annexure-6) and 10% billing was done for the balance 47% work done in the post-GST period. Therefore, as per Table-5 an amount of Rs. 2,00,34,421/- of ITC pertaining to the pre-GST period in respect of the PARKWEST-EMERALD project should be excluded from the ITC available during the post-GST period. As has been submitted in pars supra the Respondent could have received the 90% consideration only after he had completed construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the pre-GST period and excluded an amount of Rs. 4,52,28,300/- from the pre-GST period on the ground that the work was done prior to April, 2016 but the invoices were received and ITC availed after April, 2016. The above additions and subtractions have no basis and are wrong and incorrect as the Respondent cannot include or exclude the ITC against the provisions of Section 16 of the Act as per his own whims and fancies. Perusal of Table-7 shows that the Respondent has arbitrarily taken the amount of CENVAT/VAT available to him during the pre-GST period as Rs. 1,89,51.480/- whereas the DGAP has taken the above amount as Rs. 4,50,88,506/- in Table-B of his Report which is based on the CENVAT/VAT and ITC Registers as well as the Returns filed by the Respondent himself. The ITC for the post-GST period has been shown by the Respondent as Rs. 54.14,708/- as compared to the amount of Rs. 2,69,66,615/- in Table-B. The Respondent has accordingly calculated the ration of CENVAT/VAT to turnover for the pre-GST period as 1.98% and ratio of ITC to turnover during the post-GST period as 1.34% against the ratios of 4.70% and 6.69% during the post-GST period computed by the DGAP. It is quite clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the calculation of ratios of 1.97% and 5.59% for the pre and the post-GST periods as per Table-E of the Report in respect of the PARKWEST-MAPLE project was not correct as there was no synchronisation between the ITC and the turnover as the demand could not be raised before the prescribed milestone is achieved. As already explained in the paras supra no synchronisation is required between the ITC and the demand to pass on the benefit of ITC as the Respondent has not been raising demand as per the milestones. The Respondent has himself admitted that he had collected 90% demand against the 53% work done during the pre-GST period which has no synchronisation with the turnover and ITC and hence his above claim is incorrect. He has to pass on the benefit of ITC every month as he is himself availing the ITC every month to pay his GST liability which he cannot deny on the ground that there is no synchronisation in the ITC and the demand. 78. The Respondent has further submitted that he had collected an excess amount of Rs. 37,290/- on account of GST from the Applicant No. 2 as has been computed vide Table-9 but the DGAP has shown the benefit to be passed on to him as Rs. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is completely incorrect and hence it cannot be accepted. Therefore, the computations made by the Respondent vide Table-10 are wrong and hence an amount of Rs. 8,14,21,489/- cannot be reduced from the ITC of the post-GST period. Similarly, the calculations made by the Respondent on account of billing of 45% in the post-GST period where the work done was only 18% as per Table-11 and Table-12 are utterly wrong, unreasonable and illogical and hence the same cannot be accepted. 81. The Respondent has also contended that the ratios computed by the DGAP in respect of the project PARKWEST-MAPLE vide Table-C of his Report should be 4.32% for the pre-GST period and 5.17% for the post-GST period instead of 1.97% and 5.59% as per the Report of the DGAP. In this connection it is revealed from the Table-13 prepared by the Respondent that he has arbitrarily shown the amount of pre-GST ITC as Rs. 7,53,90,268/- and post-GST ITC as Rs. 5,42,80,993/- as compared to the pre-GST/CENVAT ITC of Rs. 3,42,96,397/- and post-GST ITC of Rs. 14,68,34,737/- shown by the DGAP in Table-C. While the amount shown by the DGAP is based on the documentary evidence there is no such evidence produced by the Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove amount has rightly been included in the profiteered amount as it denotes the amount of benefit denied by the above Respondent. It would also be appropriate to state here that price includes GST also. The definitions of profiteering quoted by the Respondent are not relevant as what would constitute the profiteered amount has been defined in Section 171 (3A) of the above Act. Therefore, the above contention of the Respondent is untenable and hence it cannot be accepted. 84. The Applicant No. 1 vide his submissions dated 04.03.2020 has stated that the benefit of ITC should not be computed on the basis of the amount of consideration paid by him in the post-GST period and it should be based on the ITC availed by the Respondent. In this connection it would be pertinent to mention that the benefit has been computed on the basis of the additional ITC which has become available to the Respondent in the post-GST period but the same is required to be computed in the case of the above Applicant proportionate to the amount paid by him during the post-GST period only and it cannot be paid to him on the amount which he has paid during the pre-GST period as the benefit has become applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88. The above Applicant has also claimed that the Respondent has admitted that maximum ITC would be available at the time of finishing of the project therefore, the percentage of ITC available at the time of finishing should be applied for all the purchases made in the post-GST regime. In this connection it would be appropriate to mention that the percentage of ITC available at the time of finishing cannot be applied uniformly on rest of the purchases made during the post-GST period as it would be against the provisions of Section 16 of the CGST Act, 2017 as the ITC would accrue on the basis of the value, date of purchase and tax rate of the purchases and hence, the above claim of the Applicant cannot be accepted. 89. The Applicant No. 1 has further claimed that the Respondent had admitted before the RERA that an amount of Rs. 64.51 Crore was to be spent on rest of the construction to be done in the post-GST period however, during the present proceedings he has claimed that he had made purchases to the tune of Rs, 4.42 Crore only which has resulted in denial of benefit of ITC to the home buyers. On this issue it would be relevant to mention that cost of the project has no correla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lected 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-21 attached with the Report dated 31.01.2020. 92. The Respondent has also availed benefit of ITC of 3.62% of the total turnover in respect of the project PARKWEST-MAPLE during the period from July, 2017 to April, 2019 which he was required to pass on to the flat buyers of the above project which he has failed to do and hence the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent and thus an amount of Rs. 3,03,94,113/- inclusive of GST @ 12% on the base amount of Rs. 2,71,37,601/- is determined as the profiteered amount as per the provisions of Section 171 (2) and Rule 133 (1). Further, the Respondent has realized an additional amount of Rs. 74,929/- which includes both the profiteered amount (c) 3.62% of the taxable amount (base price) of Rs. 66,900/- and 12% GST on the said profiteered amount from the Applicant No. 2. The details of the profiteered amount and buyers of the above project have been mentioned by the DGAP in Annexure-22 of his Report dated 31.01.2020. These buyers are identif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be imposed on the Respondent retrospectively. Accordingly, notice for imposition of penalty is not required to be issued to the Respondent. 95. This Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioners of CGST/SGST Karnataka 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 within a period of 4 months from the date of receipt of this order. 96. As per the provisions of Rule 133 (1) of the CGST Rules, 2017 this order was required to be passed within a period of 6 months from the date of receipt of the Report from the DGAP under Rule 129 (6) of the above Rules. Since, the present Report has been received by this Authority on 31.01.2020 the order was to be passed on or before 30.07.2020. However, due to prevalent pandemic of COVID-19 in the Country this order could not be passed on or before the above date due to force majeure. Accordingly, this order is being passed today in terms of the Notification No. 35/2020-Central Tax d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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