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TMI Blog2022 (10) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... any net benefit of ITC with the introduction of GST. On this issue, it has been revealed from the DGAP s Report that the ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 0.76% and during the post-GST period (July-2017 to October-2020). it was 9.13% for the Project SKA Green Arch - the DGAP has calculated the amount of ITC benefit to be passed on to all the flat buyers as Rs. 4,75,87,468/- for the Project SKA Green Arch , the details of which are mentioned in Annexure-24 of the Report. The Authority finds no reason to differ from the above-detailed computation of profiteering in the DGAP s Report or the methodology adopted and hence, the Authority determines the profiteered amount for the period from 01.07.2017 to 31.10 2020 in the instant case, as Rs. 4,75,87,468/- for the Project SKA Green Arch . 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. Interest - HELD THAT:- The Authority finds that the Respondent has profiteered by Rs. 4,75,87,468 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Noida (West) under Prime Minister Awas Yojana (PMAY) and alleged that the Respondent had charged GST @12%. In his application, the Applicant No.1 also submitted that MRP of the flat had increased and the Respondent had not passed on the benefit of ITC to him by way of commensurate reduction in the price on introduction of GST w.e.f. 01.07.2017, in terms of Section 171 of the CGST Act, 2017. 2. The DGAP in his Report dated 29.10.2021, inter-alia stated that:- i. The said application was examined by the Standing Committee on Anti-profiteering. in its meeting, the minutes of which were received in the DGAP's office on 15.10.2020, whereby it was decided to forward the same to the DGAP to conduct a detailed investigation in the matter. Accordingly, investigation was initiated to collect evidence necessary to determine whether the benefit of ITC had been passed on by the Respondent to his customers in respect of construction service supplied by the Respondent. ll. On receipt of the reference from the Standing Committee on Anti-profiteering, a notice under Rule 129 of the Rules was issued by the DGAP on 06.11.2020, calling upon the Respondent to reply as to whether he admitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an application received from the Applicant No. 1. The said Applicant No. 1 had purchased one flat in the project. Hence, the investigation could not go beyond the Applicant No, 1 and cover other customers also who had not questioned the benefit passed on to them. b. The Applicant No. 1 had booked flat after more than one year of implementation of GST, so the provisions of Section 171 of the CGST Act, 2017 were not applicable. c. Since, there was reduction in rate of GST from 12% (after abatement of Land cost) to 8% (after abatement of Land cost), vide Notification No. 01/2018 dated 25.01.2018 under provision of GST law. the Applicant No. 1 had been charged GST @ 8% only. So, the benefit of reduction had already been given to the buyers. Hence. the provision of Anti-Profiteering did not apply in his case. d. The project "SKA Green Arch" was not an approved affordable Under this scheme. the beneficiary had to apply Housing loan with Primary Lending Institutions (PLI) after booking of a flat and Central Nodal Agencies (CAN) to verify the eligibility & terms of the policy, and after the satisfaction of the eligibility they could release interest subsidy amount to the PLI and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gress report of the project, sales detail of the project and Chartered Engineers certificate etc., the contractor's Work Order issued for the said phase and 1st RA bill provided by the contractor for those Towers and from the 1st booking for the Phase-2 where it was clearly mentioned in the payment plan which was part of the agreement that when raft work would be started, the buyer had to pay certain percentage of the total sale value. The Respondent had raised invoices for the same mile stone on 17.07.2018. The Contractors bill of the said work had been issued on 06.10.2018. This clearly showed that the raft work which was the foundation work of a Tower had started after 17.07.2018 which was post GST regime. h. The Respondent had been providing service for construction of residential service and other services like sale of RMC, society maintenance services etc. during the period under consideration. The Respondent was availing input credit for the said services & sale. i. The Respondent had taken input credit for services, which was used for providing taxable services under head construction of residential complex. Following were some examples of the services with rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 020, the Respondent was informed that if any information/documents was provided on confidential basis, in terms of Rule 130 of the Rules, a non-confidential summary of such information/documents was required to be furnished. The Respondent claimed that all information/documents submitted by him were to be treated as confidential. ix. The above said reference from the Standing Committee on Anti-profiteering along with subject application of the Applicant No. 1, various replies of the Respondent and the documents/evidences on record had been carefully examined. x. Further vide Para 5 of Schedule-III of the CGST Act, 2017 (Activities or Transactions which should be treated neither as a supply of goods nor a supply of services) which 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 CGST 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s." It was clear from perusal of the above provision that it mentioned "benefit of ITC shall be passed on to the recipient" which did not mean that the benefit of ITC was to be taken only for the applicant or the complainant. Further, the above Section mentions "any supply" i.e., each taxable supply made to each recipient thereby clearly indicating that every customer/recipient was eligible to get his due benefit. Therefore, it was clear that the intent of the statute was to ensure that the benefit of any reduction in the rate of tax or the benefit of ITC had to be passed on to the each and every recipient by way of commensurate reduction in price. In other words, every recipient of goods or services had to get the due benefit from the supplier and hence, this benefit had to be calculated for each and every recipient/customer and therefore, in the current investigation all the eligible home buyers were included. xii. Further, the Respondent contended that the project "SKA Green Arch" was not an approved affordable housing project and therefore the benefit of reduced rate of GST for the project was subject to individuals' eligibility under the Credit Linked Subsidy Scheme (CLSS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be adjusted against the amount of profiteering. xv. The Respondent had also claimed that he had been paying VAT/Sales Tax on purchase of goods for which input credit was not available to the Respondent for providing services under head of construction of residential services but the Respondent had been claiming the said VAT/Sales Tax as expenditure and getting benefit of Income Tax at applicable rate. Now, the Respondent was entitled to claim input credit for GST paid on purchase of good, so the Respondent was not eligible for claiming expenses of GST paid on purchase. Therefore, for calculation of profiteering, the income tax benefit forgone by the Respondent must be considered. In this regard, it was pertinent to mention that even the passing on of additional benefit on account of ITC to homebuyers in the GST period could also be reckoned as expenditure and commensurate benefit under the Income Tax Act be availed by the Respondent. Therefore, the contention of the Respondent was not acceptable. xvi. As regards the allegation of profiteering, it was observed that prior to 01.07.2017, i.e., before the GST was introduced, the Respondent was eligible to avail CENVAT credit of Ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nized. As per the homebuyers list submitted by the Respondent it was observed that 642 number of buyers whose turnover was Rs. 1,84,83,74,531 had purchased the Apartments/Units from the Respondent in post-GST period. As such all the Application Forms in respect of said 642 home buyers, which were signed by the buyers had been submitted by the Respondent. All such Application Forms/Agreements are annexed as Annexure-22 with the Report. Therefore, it was observed that the Respondent's claim that the benefit of ITC provided as under Section 171 of CGST Act, 2017 was already considered in the consideration value which was mentioned in all the builder buyer's agreement in respect of post GST buyers, was correct only to extent of 642 number of buyers whose documents were submitted by the Respondent and in which the aforesaid clause was clearly indicated. Accordingly, while computing the profiteering amount, only the turnover in respect of 642 buyers who had booked flats in the post-GST period and whose documents clearly mentioned the aforesaid clause, were excluded from calculation of profiteering as mentioned in Table-B below. xviii. It was observed that the Central Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 12% GST on the base amount of Rs. 4,24,88,811/-. The flat buyers and unit no. wise break-up of this amount was given in Annexure-24 of the Report. xx. The Respondent in his submissions stated that he had passed on the additional benefit of ITC of Rs. 2,41,18,611/- to 206 home buyers who booked the units before implementation of GST i.e., 01.07,2017, which had accrued after implementation of GST. He had also submitted details of home buyers and amount passed on to the individual home buyers. In order to cross check the claim of the Respondent. e-mails were sent to the 206 buyers. Replies from only 18 Homebuyers had been received and out of 18 homebuyers, 14 had confirmed that benefit of GST/Input Tax Credit had been received, 5 had denied that benefit of GST/Input Tax Credit had been received and in respect of 187 buyers, no reply was received. The details of confirmation of the receipt of payment received through e-mails were enclosed in Annexure-25 of the Report. Hence, the contention of Respondent that benefit to all the homebuyers had been passed on could not be accepted in respect of all homebuyers. A summary of benefit of ITC required to be passed on and the ITC benefit cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Respondent has supplied construction services in the State of Uttar Pradesh only. ii. As aforementioned, the present investigation covered the period from 01.07.2017 to 31.10.2020. Profiteering, if any, for the period post October, 2020 had not been examined as the exact quantum of ITC that would be available to the Respondent in future could not be determined at this stage, when the construction of the Project was yet to be completed. 4. The above Report was carefully considered by this Authority and it was decided to allow the Applicant No. 1 and the Respondent to file their consolidated written submissions by 15.03.2022. A notice dated 25.02.2022 was issued to the Respondent to explain why the Report dated 29.10.2021 furnished by the DGAP should not be accepted and his liability for profiteering in violation of the provisions of Section 171 should not be fixed and penalty under Section 171 (3A) of the CGST Act, 2017 read with Rule 133(3)(d) of the CGST Rules, 2017 should not be imposed. 5. Further, a number of complaints were received against the Respondent for the same Project i.e. "SKA Green Arch" and the complainants requested to be considered as Applicants in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplied to the Applicants and the DGAP for their replies and clarifications under Rule 133 (2A) of the CGST Rules, 2017. The Applicant No. 2 & 3 by e-mail dated 03.05.2022 have filed their submissions against the Respondent's submissions dated 13.04.2022 vide which, inter-alia, they stated:- i. That with reference to page No. 6 of the Respondent's submissions, the Respondent objected to ratios used in the DGAP's Report for calculating profiteering amount, however if Respondent believed that it had applied accurate and logical method to compute amount of refund to customer, then why benefit was not received by all customers. The Applicants felt that the Respondent had been partial towards few customers only. It was also claimed that no amount was retained by the Respondent and same was paid to tax authorities, Either all amounts should have been refunded or all amounts should have been paid to authority. The Respondent's policy seemed to be made in contradiction of CGST Act, 2017 and contained ambiguity, which failed to fulfil the purpose. Why advance ruling was not obtained from department, if the Respondent believed that no formulae/ratio or criteria was defined b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ST and the ITC of GST became available in respect of all goods and services, unless specifically denied. Broadly, the additional benefit of ITC in the GST regime would be limited to those input taxes, the credit of which was not allowed in the pre-GST regime, but allowed in the GST regime. This additional benefit of ITC in the GST regime was required to be passed on by the suppliers to the recipients by way of commensurate reduction in price, in terms of Section 171 of GST Act, 2017. It was amply clear that the ITC which was related to inputs and taxable turnover which was related to outputs (payments of GST on amounts collected), was mutually dependent on each other. Hence it was incorrect to say that in Real Estate Sector. there was no correlation of turnover with cost of construction or development of project. ii. That the methodology adopted by the DGAP in his Report was in line with the legal principles and this methodology of the DGAP had been consistent throughout in all his reports involving allegation of profiteering in similar cases and had been settled before the Authority. As regards methodology prescribed by the Authority, the procedure and methodology for determinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts to file their rejoinder. Vide e-mail dated 14.06.2022, the Respondent has submitted his rejoinder against DGAP's clarifications wherein beside reiterating earlier submissions dated 13.04.2022he has inter-alia stated:- i. That in DGAP's Report dated 29.10.2021, the DGAP had not considered the amount of VAT credit while arriving at the ITC ratio to the total turnover and accordingly, the amount of VAT credit should be taken into consideration for arriving at such ITC ratio. Hence, the profiteering demand should be reduced accordingly. ii. That the construction of 2nd phase of the Project namely, "SKA Green Arch" started well after the implementation of GST law and thus, the second phase of the said Project could not be included for the purpose of calculation of profiteering amount which also got support from the following points: a. As per the consolidated progress report of the Project, no activity had been undertaken by the Respondent before 01.07.2017. Copy of consolidated progress report of project was collectively enclosed with this submission. b. RERA registration of the Project was effective from 03.08.2017 to 20.09.2022 i.e. post GST. To substantiate the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stioning the formulae was not viable in law. iv. Reply to point No. 8- VAT credit 2022 was incorrect term, these taxes were subsumed into GST after GST applicability and to claim VAT there used to be form TRANS-1. Hence, proceedings should not go off the track. v. Reply to point No. 11- Anti profiteering was any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit which had to be passed on to the recipient by way of commensurate reduction in prices. 12. Further, the DGAP by letter dated 19.07.2022 filed his clarifications vide which the DGAP has clarified:- i. That during the course of investigation, the Respondent claimed before the DGAP that ITC of VAT was not allowed to him (Para 18 of the Report dated 29.10.2021). Further, as per VAT Returns submitted by the Respondent for the period from 01.04.2016 to 30.06.2017, the Respondent was paying VAT @10% of the total VAT paid on the purchase of inputs. Hence, it was observed that the ITC of VAT was not allowed to the Respondent. Therefore, no ITC of VAT was considered for computation of profiteering. ii. That the project was launched in pre-GST regime and the Respondent had obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... single unit and considered financial statements have been submitted to RERA as a single unit. As such, they cannot be spared from the current investigation on the mere basis that the construction of second phase commenced in GST regime. The uniform practice of limiting the scope of investigation to the Project has been adopted by the DGAP/NAA, on the basis of RERA registration only, in respect of which the anti-profiteering application has been filed. Also, it is a fact that, Tulip Tower and Zinnia Tower which are constructed in second phase of the Project "SKA Green Arch" are located in the same premises of the Project for which no separate accounting of ITC is maintained by the Respondent. Therefore, the inputs and inputs services intended/meant for Tulip Tower and Zinnia Tower could be used for Aster Tower and Orchid Tower and also the ITC available in respect of Tulip Tower and Zinnia Tower might have been availed at the time of discharging his tax liability in respect of Aster Tower and Orchid Tower or vice versa. Therefore, investigation carried out by the DGAP considering second phase i.e., Tulip Tower and Zinnia Tower is correct, as per law and as approved by this Authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onducted in respect of all such products/units/services by the DGAP. 17 The term 'profiteered amount' is clearly defined in the explanation attached to Section 171 of the CGST Act. These benefits can also not be passed on at the entity/organization/branch/ invoice/ business vertical level as they have to be passed on to each and every buyer at each product/unit/service level by treating them equally. The above provision also mentions "any supply" which connotes each taxable supply made to each recipient thereby making it evident that a supplier cannot claim that he has passed on more benefit to one customer on a particular product therefore he would pass less benefit or no benefit to another customer than what is actually due to that customer, on another product. Each customer is entitled to receive the benefit of tax reduction or ITC on each product or unit or service purchased by him subject to his eligibility. 18. The term "commensurate" mentioned in the above Sub-Section provides the extent of benefit to be passed on by way of reduction in the price which has to be computed in respect of each product or unit or service based on the price and the rate of tax reduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een empowered to 'determine' Methodology & Procedure and not to 'prescribe' it. The facts of the cases relating to the sectors of Fast Moving Consumer Goods (FMCG), restaurant service, construction service, and cinema service are completely different from each other and therefore, the mathematical methodology adopted in the case of one sector cannot be applied to the other sector. Moreover, both the above benefits are being given by the Central as well as the State Governments as a special concession out of their tax revenue in the public interest and hence the suppliers are not required to pay even a single penny from their own pocket and therefore, they are bound to pass on the above benefits as per the provisions of Section 171 (1) which are abundantly clear, unambiguous, mandatory and legally enforceable. The above provisions also reflect that the true intent behind the above provisions, made by the Central and the State legislatures in their respective GST Acts, is to pass on the above benefits to the common buyers who bear the burden of tax and who are unorganized, voiceless and vulnerable. It is abundantly clear from the above narration of the facts and the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent. In cases of Real Estate where it was alleged that provisions of Section 171 have been violated, the actual beneficiaries are identifiable as the details of home-buyers are available with the Respondent. Accordingly, the Report covers all the eligible beneficiaries and not just the Applicant No. 1 and the DGAP is justified in examining all the supplies made by the Respondent beyond the Application filed by the Applicant No. 1. 23. The Respondent has also contended that without prejudice to his submissions, the alleged profiteering amount has been incorrectly inflated by adding GST and the same is not sustainable. In this connection, the Authority holds that the Respondent has not only collected excess base prices from his customers which they were not required to pay due to the benefit of ITC but the Respondent has also compelled his customers to pay additional GST on these excess base prices which they should not have paid. By doing so, the Respondent has defeated the very objective of both the Central and the State Governments which aimed to provide the benefit of rate reduction to the general public. The Respondent was legally not required to collect the excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the only issue to be examined is whether there was any net benefit of ITC with the introduction of GST. On this issue, it has been revealed from the DGAP's Report that the ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 0.76% and during the post-GST period (July-2017 to October-2020). it was 9.13% for the Project "SKA Green Arch". This confirms that post-GST, the Respondent has benefited from additional ITC to the tune of 8.37% [9.13% (-) 0.76%] of his turnover for the said Project, and the same was required to be passed on to the customers/flat buyers/recipients. The DGAP has calculated the amount of ITC benefit to be passed on to all the flat buyers as Rs. 4,75,87,468/- for the Project "SKA Green Arch", the details of which are mentioned in Annexure-24 of the Report. 27. For the reasons discussed hereinabove, the Authority finds no reason to differ from the above-detailed computation of profiteering in the DGAP's Report or the methodology adopted and hence, the Authority determines the profiteered amount for the period from 01.07.2017 to 31.10 2020 in the instant case, as Rs. 4,75,87,468 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... why penalty should not be imposed on him. 32. The concerned jurisdictional CGST/SGST Commissioner is directed to ensure compliance of this Order. It may be ensured that the benefit of ITC is passed on to each home buyer/customer/recipient of supply as per Annexure-'A' attached with this Order along with interest @18% as prescribed, if not paid already. In this regard an advertisement of appropriate size to be visible to the public may also be published in a minimum of two local Newspapers/vernacular press in Hindi/English/local language with the details i.e. Name of the builder (Respondent) - M/s Prasu Infrabuild Pvt. Ltd., Project- "SKA Green Arch", Location- Greater Noida (West), Uttar Pradesh and profiteered amount i.e. Rs. 4,75,87,468/- so that the concerned home buyers/customers/recipients of supply canclaim the benefit of ITC if not passed on. Homebuyers/customers/recipients of supply may also be informed that the detailed NAA Order is available on Authority's website www.naa.gov.in. Contact details of the concerned Jurisdictional CGST/SGST Commissioner may also be advertised through the said advertisement. 33. The concerned jurisdictional CGST/SGST Commissioner shall a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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