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TMI Blog2020 (12) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... had also charged GST @12% on the instalments paid by him. 2. The above Applicant had also submitted copies of the Notices issued by the Central Board of Excise and Customs (CBEC) and Commercial Taxes Department of the State, published on 16th September, 2017 in leading English & Hindi Newspapers along with his application. 3. The aforesaid application was examined by the Standing Committee on Anti-Profiteering in its meeting and it had forwarded the same to the DGAP for detailed investigation in the matter. 4. Accordingly, the DGAP had issued notice dated 08.07.2019 after receipt of the aforesaid reference from the Standing Committee on Anti-profiteering under Rule 129 (3) of the above Rules calling upon the Respondent to reply as to whether he admitted that the benefit of input tax credit had not been passed on to the recipients by way of commensurate reduction in prices and if so, to suo moto determine the quantum thereof and indicate the same in his reply to the above Notice as well as furnish all documents in support of his reply. The DGAP has further stated that the Respondent was afforded opportunity to inspect the non-confidential evidence/information which formed the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance sheets for FY 2016-17 & 2017-18. (i) Copy of Electronic Credit Ledger for the period from July, 2017 to June, 2019. (j) CENVAT/Input Tax Credit Register for the period from April, 2016 to June, 2019. (k) Details of turnover, output tax liability, GST payable and input tax credit availed for the project "Mercado". (I) List of home buyers in the project "Mercado". (m) Copies of VAT Assessment Order Nos. 285/2016-17 & 286/2017-18 dated 27.09.2019. 9. The Respondent submitted before the DGAP that he was engaged in development of two Commercial projects i.e. "Mercado" and "Epic". Project "Mercado" was launched in the pre-GST regime whereas "Epic" was launched in the post-GST regime. The Respondent had further submitted that the project "Mercado" consisted of total 531 units (comprising total area of 3,11,000 sq. ft.) out of which 409 units having an area of 2,15,457 sq. ft. had been sold as on 30.06.2020. 10. The DGAP has also stated that he has carefully scrutinised various replies of the Respondent and the documents/evidence placed on record. The DGAP has found the following issues which needed to be determined: (i) Whether there was benefit of reduction in the rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,601 23,28,076 12. The DGAP has also submitted that Para 5 of Schedule-III of the Central Goods and Services Tax Act, 2017 (Activities or Transactions which shall be treated neither as a supply of goods nor a supply of services) reads as "Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building". Further, clause (b) of Paragraph 5 of Schedule II of the Central Goods and Services Tax Act, 2017 reads as "(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 input tax credit pertaining to the residential units and commercial shops which were under construction but not sold was provisional input tax credit which would be required to be reversed by the Respondent, if such units remained unsold at the time of issue of the Completion Certificate (CC), in terms of Section 17 (2) & Section 17 (3) of the Central Goods and Services Tax Act, 2017, which read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nput Services used for Commercial Shops as per ST-3 (A) 76,09,324 62,98,588 1,39,07,912 - - - 2. Input Tax Credit of VAT Paid on Purchase of Inputs as per VAT Returns (B) 62,92,962 15,00,460 77,93,422 - - - 3. Less: Disallowances of ITC by VAT Assessing Authority (C) 62,803 - 62,803 - - - 4. Rebate of VAT(WCT) for the payment made to registered Sub-contractors (D) 25,16,156 16,89,115 42,05,271 5. Input Tax Credit of GST Availed (E) - - - 3,14,66,224 5,88,67,573 9,03,33,797 6. Total CENVAT/Input Tax Credit Availed (F)= (A+B-C+D) or (E) 1,63,55,639 94,88,163 2,58,43,802 3,14,66,224 5,88,67,573 9,03,33,797 7. Turnover for Commercial Shops as per Shop Buyers List (G) 37,53,15,213 36,98,45,829 8. Total Saleable Area (in SQF) (H) 3,11,000 3,11,000 9. Total Sold Area (in SQF) (I) 1,19,981 1,09,085 10. Relevant ITC [(J)= (F)*(I)/(H)] 99,70,306 3,16,85,088 Ratio of Input Tax Credit Post-GST [(K)= (J)/(G) 2.66% 8.57% 14. The DGAP has further submitted 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 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AP has further stated 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 raised/collected by the Respondent from the Applicant No. 1 and the other shop buyers during the period from 01.07.2017 to 30.06.2019, the Respondent had benefited by an additional amount of input tax credit of Rs. 2,44,80,835/- which included GST @12% on the base profiteered amount of Rs. 2,18,57,888/-. The buyers and Unit No. wise break-up of this amount has been submitted by the DGAP vide Annexure-14 of his Report. This amount was inclusive of Rs. 66,463/- (including GST on the base profiteered amount of Rs. 59,342/-) which was the benefit of input tax credit required to be passed on to the Applicant No. 1, mentioned at Serial No. 62 of Annexure-14 of the DGAP's Report. 17. The DGAP has also intimated that the said service has been supplied by the Respondent in the State of Haryana only. 18. The DGAP has also claimed that the above computation of profiteering was with respect to 229 commercial shop buyers. Whereas the Respondent had booked 409 units till 30.06.2019, 180 customers who had booked the shops and also pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e available to the Respondent in future could not be determined when the Respondent was continuing to avail input tax credit in respect of the present project. 21. The DGAP has further contended that Section 171 (1) of the Central Goods and Services Tax Act, 2017, requiring 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", has been contravened by the Respondent in the present case. 22. The above Report of the DGAP was considered by this Authority in its meeting and it was decided that the Applicants and the Respondent be asked to appear before this Authority on 22.05.2020. The Respondent was issued a notice on 05.05.2020 to explain why the above Report of the DGAP should not be accepted and his liability for violating the provisions of Section 171 of the CGST Act, 2017 should not be fixed. During the course of the proceedings, the Respondent has filed written submissions dated 10.09.2020. The above submissions of the Respondent have been mentioned in the subsequent paras. 23. The Respondent has submitted that the incremental tax paid on services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed that in the early stages of GST implementation, real estate sector was going through a rough phase. To overcome this situation, Respondent had to incur some additional expenses including marketing and payment of commissions which has resulted in overall project cost. Therefore, increased cost of the project should also have been considered while calculating the profiteered amount. 26. The above submissions of the Respondent were supplied to the DGAP for filing clarifications under Rule 133 (2A) of the CGST Rules, 2017. Accordingly, the DGAP has filed his clarifications dated 22.09.2020 which have been mentioned below: Incremental Tax paid on Services should not form part of profiteering: The DGAP has stated that Section 171 (1) of Central Goods and Services Tax Act, 2017, reads as "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, in terms of the above provisions, the input tax credit availed by the Respondent needed to be quantified and passed on to the recipients (the benefit of input tax credit post introduction of GST would be ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verted in central tax was not correct. Further, Section 171 of Central Goods and Services Tax Act, 2017 which governed the anti- profiteering provisions under the GST reads as "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." Thus, the legal requirement was abundantly clear that in the event of benefit of input tax credit or reduction in rate of tax, there must be a commensurate reduction in the prices of the goods or services. Such reduction could obviously be in money terms only so that the final price payable by a consumer got reduced. This was the legally prescribed mechanism for passing on the benefit of input tax credit or reduction in the rate of tax to the consumers under the GST regime. Moreover, it was also clear that the Section 171 simply did not provide a supplier of goods or services, any other means of passing on the benefit of input tax credit or reduction in rate of tax to the consumers. Thus, the legal position was unambiguous which could be summed up as follows: (a) A supplier of goods or services must pass on the benefit of ITC or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, the Respondent has benefited from the additional ITC to the tune of 5.91% (8.57% - 2.66%) of the total turnover which he was required to pass on to the buyers of this Project. The DGAP has also found that the Respondent has not reduced the base prices of his shops by 5.91% due to additional benefit of ITC and by charging GST at the increased rate of 12% on the pre-GST basic prices, he has contravened the provisions of Section 171 of the CGST Act, 2017. The DGAP has also submitted that the amount of benefit of ITC which has not been passed on by the Respondent or the profiteered amount came to Rs. 2,44,80,835/- which included 12% GST, as per the computations made vide Table-C of the Report. The DGAP has also intimated that this amount also included the profiteered amount of Rs. 66,463/- including 12% GST in respect of the Applicant No. 1 and Rs. 2,44,14,372/- including 12% GST in respect of 228 other shop buyers. He has also supplied the details of all the buyers who have purchased shops from the Respondent along with their unit numbers and the profiteered amount in respect of each buyer vide Annexure-14 attached with the Report. 30. The Respondent has contended that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITC of Rs. 77,93,422/- had become available to the Respondent on account of the VAT, while purchasing goods during the pre GST period, which has been duly taken in to consideration by the DGAP while computing the ratio of ITC to turnover for the above period and hence, the claim of the Respondent that he has not availed benefit of ITC on VAT is incorrect. The DGAP has also taken the sold and the unsold area in to account while calculating the benefit of ITC and hence, the Respondent should have no objection on this ground. Therefore, the amount of ITC cannot be taken to be Rs. 2,52,00,202/- claimed to be relating to the purchase of the goods for computation of the profiteered amount, as has been asserted by the Respondent. Accordingly, all the above contentions of the Respondent are fallacious and hence they are not tenable. 32. The Respondent has further contended that due to slump in the real estate sector he has incurred additional expenses on marketing and payment of commissions which has resulted in overall increase in the project cost which should have been considered while calculating the profiteered amount. In this connection it would be appropriate to mention that ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prices to be realized from the buyers of the shops of the above project commensurate with the benefit of ITC received by him as has been detailed above. Since the present investigation is only up to 30.06.2019 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by the Respondent. The Commissioner CGST/SGST Haryana are directed to ensure that the Respondent passes on the benefit of ITC till the Completion Certificate is received by the Respondent. 35. It is also evident from the above narration of the facts that the Respondent has denied the benefit of ITC to the buyers of the shops being constructed by him in his above project w.e.f. 01.07.2017 to 30.06.2019, in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus resorted to profiteering. Hence, he has committed an offence under Section 171 (3A) of the CGST Act, 2017, and therefore, he is liable for imposition of penalty under the provisions of the above Section. However, perusal of the provisions of Section 171 (3A) under which penalty has been prescribed for the above violation shows that it has been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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