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TMI Blog2022 (10) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... GAP under Rule 133 (5) of the Central Goods and Services Tax Rules, 2017 to conduct investigation of all the other projects undertaken by the Respondent under the same registration that had not been investigated from the perspective of Section 171 of the Central Goods and Service Tax Act, 2017. Accordingly, the Present case has been investigated and report was filed on 27.11.2020. 2. The DGAP in its report dated 27.11.2020, inter-alia, has stated that:- i. A letter was issued to the Respondent on 25.10.2019 calling upon him to submit the details of other projects under the GST registration No. 29AAACZ3571A1ZE. In response, the Respondent had submitted vide letter dated 07.11.2019 that he had following projects under the same GSTIN: Table-'A' S. No. Name of the Project / Phase Type of the Project 1 Nikoo Homes - I Residential 2 Nikoo Homes - II Residential 3 Leela Residences Residential On perusal of the above table, it had been observed that the DGAP had already furnished it's Investigation Report in ease of the project "Nikoo Homes-I" vide report dated 30.09.2020 and in case of the project "Nikoo Homes-II" this Authority had already passed Final Order N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot been made within such time then, the time-limit for completion or compliance of such action, shall be extended up to the 30th day of November, 2020." iv. In response to the Notice dated 18.112019 and subsequent reminders, the Respondent Submitted his reply vide letters/e-mails dated 25.11.2019, 19.12.2019, 21.01.2020, 08.06.2020, 02.07.2020, 10.08.2020, 25.10.2020, 13.11.2020 and 19.11.2020. The reply of the Respondent was summed up as follows. (a) The following projects are under the same GSTIN: S. No. Name or the Project / Phase Type of the Project. 1. Nikoo Homes -I Residential 2. Nikoo Homes - II Residential 3. Leela Residences Residential The Authority had already issued its Order No. 49/2019 dated 14.10.2019 in case of Nikoo Homes-II. For the projects "Nikoo homes-1" and "Leda Residences", the Respondent had raised objection that while Rule 133 (4) of the Rules empowered calling for information and causing for further investigation in respect of goods/services in question (covered in the report of DGAP, viz., Nikoo Homes-I), the provisions of Rule 133 (5) of the Rules provided for similar powers in respect of any other goods or services which were not cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and illegal. Therefore, Respondent requested to consider his objections at investigation stage itself and sought this office's comments on the same. (c) With effect from 1st July 2017, The Respondent had sold 36 flats in "Leda Residences- project to various customers For all- inclusive prices, after considering the market conditions, escalations, demand-supply balance, GST benefit / concession, development in the locality, location of the land, proximity to educational institutions/ hospitals/ airport etc. It's agreed between the Respondent and the Buyers that the Buyers would not claim any GST ITC benefit as per Clause 6.4 of the Agreement to Sell which was reproduced herein below for easy reference: "'The Purchaser hereby agrees that the consideration agreed herein was based on the mutual negotiations between the Purchaser and the Seller as on the date of the application for allotment. It was made clear that after considering the above fact, the Purchasers shall have no right to claim any input benefits of sellers or reduction in cost due to changes in GST or renegotiate on the considerations in comparison with the other purchasers and/or for whatsoever reasons. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the other two projects i.e. Nikoo homes-I & Nikoo Homes-II had already been investigated. ix. Respondent's objection with respect to calling information/documents after expiry of 6 months as mentioned in Rule 133 (1) was forwarded by the DGAP to the Authority vide letter dated 19.11.2019 seeking its guidance for further course of action in the instant case. In response, the Authority vide letter dated 02.12.2019 informed that all such submissions of the Respondent would be addressed by the Authority in its final Order and the DGAP was directed to proceed with the investigation. x. Another relevant point in this regard was para 5 of Schedule-III of the CGST Act, 2017 (Activities or Transactions which shall 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 had been received after issua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of ITC's to turnovers, during the pre-GST (April, 2016 to June, 2017) and post-GST (July, 2017 to October, 2019) periods, were furnished in table-'B' below. Table B S.No. Particulars April, 2016 to June, 2017 (Pre-GST) July, 2017 to October, 2019 (Post-GST) (1) (2) (3) (4) 1. CENVAT of Service Tax Paid on Input Services (A) Credit of VAT Paid on Purchase of Inputs (B) 1,48,69,371 - 2. Credit of VAT Paid on Purchase of Inputs (B) 56,63,360 - 3. Rebate of VAT (WCT) for the payment made to registered Contractors or Sub-contractors (C) 1,02,04,304 - 4. Input Tax Credit of GST Availed (D) - 9,95,24,529 5. Total CENVAT/VAT/Input Tax Credit Availed (E)[(A)+(B)+(C) or (D) 3,07,37,035 9,95,24,529 6. Total Turnover including land value as per List of Home Buyers (Flats sold upto 31.10.2019) (F) 30,32,42,814 1,17,54,37,381 7. Total Saleable Area (in sq.ft.) (G) 3,76,602 3,76,602 8. Area Sold relevant to Turnover as per List of Home buyers (Flats sold upto 31.10.2019) (H) 1,24,892 1,89,937 9. Relevant CENVAT/INPUTS TAX CREDIT (I) [(E)*(H)/(G)] 1,01,93,280 5,01,94,610 10. Ratio of CENVAT/VAT/ITC to Turnover [(J)(I)/(F)] 3.36% 4.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould had resulted in the commensurate reduction in the base price as well as cum-tax price. Therefore, in terms of Section 171 of the CGST Act, 2017, the benefit of such additional ITC was required to be passed on by the Respondent to the respective recipients. xiv. The DGAP observed from the above calculation and analysis that on the basis of the aforesaid CENVAT/Input Tax Credit availability in the pre and post-GST periods and the details of the amount raised/collected by the Respondent from the home buyers during the period 01.07.2017 to 31.10.2019, the Respondent had benefited by an additional amount of input tax credit, by an amount of Rs. 50,09,158/- which included GST @ 18% on the base amount of Rs. 42,45,049/-. The buyers and unit no. wise break-up of this amount was given in Annex-23 of the report. xv. On the basis of the details of outward supplies of the Construction Services submitted by the Respondent, it was observed that the said service had been supplied in the State of Karnataka only. xvi. The DGAP concluded that it was pertinent to mention here that above computation of profiteering was with respect to 85 home buyers from whom construction value had been recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um of ITC that would be available to the Respondent in future cannot be determined at this stage, when the Respondent was continuing to avail ITC in respect of the present project. xix. Section 171 (1) of the CAST' Act, 2017, requiring that "a reduction in rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in prices", had been contravened by the Respondent "M/s. Bhartiya Urban Pvt. Ltd. (Formerly known as Bhartiya City Developers Pvt. Ltd.) amounting to Rs. 50,09,158/- in the present case. 3. After perusal of the DGAP's report, this Authority in its sitting held on 01.12.2020 directed the Applicant and the Respondent to submit consolidated reply/written submissions by 17.12.2020. A Notice dated 03.12.2020 was also issued to the Respondent to explain why the Report dated 27.11.2020 furnished by the DGAP should not be accepted and his liability for profiteering in violation of the provisions of Section 171 should not be determined u/s 171 of the CGST Act. 2017. During the course of the proceedings, the Respondent has filed his written submissions dated 11.01.2021, wherein he has stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rules." (ii) From the reading of the above rule, it was prudent to note that the calling of information for "Leela Residences" through the report of "Nikoo I" would be subject to a time limit of 6 months from the date of the DGAP's report for Nikoo I, as per the detailed given below: S.No. Name of the Project/Phase Particulars Date 1. Nikoo-l- Residential Anti-Profiteering Report by DGAP 07.03.2019 2. Due Date for Rule 133 (5) Expiry or the six months from 07.03.2019 06.09.2019 3. Leela Residences Notice requisitioning documents for conducting Anti-Profiteering study based on Nikoo-I DGAP report 18.11.2019 (iii) Tax paid on services was not a benefit when compared to the pre-GST regime, by any stretch of imagination. The report of the DGAP was oblivious to this basic and important fact. Service Tax-15% was paid up to 30.06.2017 and the GST paid was @ 18% thereafter on services. In both the circumstances, the cost of the service remains the same to the Respondent. It therefore goes without saying that a mere increase of the tax from 15% to 18% was not a benefit. The Respondent further explained that though the same need no elaboration for the sake of ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and where the sale and purchase commence and conclude within a very short duration. e.g. consumer durables, food items etc., which were sold off-the-shelf and that could not be applied where the business was seasonal; it was imperative that in such cases. the ratios would be heavily and highly skewed when applied for the season or off-season only. The Respondent further explained that in the business involving construction and sale of residential flats, the total turnover, taxable turnover and output tax liability was a function of sale of new units out of the total inventory in the project, and that, on the contrary, the inward supplies and the input taxes is a function of work completion and speed in project execution. The two did not have any correlation. The provisions relating to anti-profiteering clearly mandate that any 'additional input credit' that has arisen due to GST (when compared to the previous laws) should be passed on to the customers by way of a commensurate reduction in the price of the goods or services being supplied. On the basis of the above the pricing would be lower at the beginning of the project when compared to the pricing as it approached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the DGAP, in its report was incorrect. (vi) The computation of 'turnovers' by the DGAP in different tables was varying and inconsistent for the reason that in Table G of the DGAP's report, the turnover included the value of land, but the same was exclusive of land in Table IL It appears to be a deliberate attempt to (1) arrive at a positive percentage difference in Table G and computation of the alleged profiteered amount in Table H of the report. (vii) It must be borne in mind that 'land' was not a taxable element, neither under Service Tax nor under GST and as such, without prejudice to any other comments in this reply and assuming but not admitting, that the methodology adopted by the DGAP was appropriate, it was also submitted that the value of land should be excluded even in Table G of the report. Given that bland' is not a taxable element I component in the entire scheme, the same should also not be included for the limited purposes of S. 171. (viii) That pricing for sale of residential units was market driven. However, the methodology adopted by the DGAP in arriving at the alleged profiteered amount was based on the input credits which had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only with respect to the units sold and it must be appreciated that this amount as a comparison of the same with input credits remained skewed out of the total input credits claimed during the period in the approach adopted by the NAA, it was critical to note that it was not final -- credits to the extent they related to units that remain unsold on the date of OC would have to be reversed. (xi) That the DGAP's report Para 19 on page no. 14 Profiteering, if any, for the period post October 2019, has not been examined as the exact quantum of input tax credit that will be available 10 the Respondent in future cannot be determined at this stage..... 'This observation of the DGAP also confirmed that the methodology adopted by the DGAP itself was flawed and skewed. The provisions of S. 171, in our humble submission required the 'determination of the profiteered -amount for a supply'. It was not incorrect to assume that the same should be undertaken (i) once for any transaction, and (ii) after the completion of the supply. The fact that even the DGAP said that the Respondent was continuing, to avail the ITC for the project makes the whole computation unscientific and based on i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit of input tax credit, it was necessary to quantify the credits available to the Respondent in the pre-GST regime and also the credits available in the GST regime. Further, the amount of the additional benefit of ITC required to be passed on, was the amount paid by the customers or flat buyers to the Respondent in the form of GST charged from them which was to be deposited by the Respondent in the Government exchequer. But the Respondent instead of paying this GST amount in cash to the Government exchequer utilized the additional ITC available to him in post GST regime which was earlier not available in the pre-GST period. Therefore, Respondent was not required to pay anything from his own coffer to pass on the benefit of additional ITC accrued to him in GST period. Hence, the methodology adopted by the DGAP was correct and justiciable. Further in the report dated 27.11.2020, the increase in input tax credit as a percentage of total taxable turnover availed by the Respondent post-GST had been quantified. The input or input service wise availability or non-availability of input tax credit prior and post implementation of GST had not been examined. Further there should be no ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Section 171 of the Act. iii. In response to the contention of the Respondent that Provisions of Section 171 of CGST Act, 2017 be applied for the project as a whole and not for a specified period the DGAP replied that the reply was furnished in succeeding paras. iv. In response to the contention of the Respondent that the input credit and the amounts realized from the customers have no correlation, therefore, applying the same ratio would be meaningless the DGAP replied that there was direct correlation between the turnover and the ITC as the Respondent was discharging his GST output liability out of the ITC available to him on the basis of the turnover i.e. the cost realised by him from the buyers. Moreover, the benefit was to be passed on the additional ITC proportionate to the payment made by a buyer and hence -the above ratios were relevant. Therefore, the above claim of the Respondent could not he accepted. It is also stated in para-11 of the DGAP's Report dated 27.11.2020 that "the input tax credit pertaining to the unsold units may not fall within the ambit of this investigation and the Respondent was required to recalibrate the selling price of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Central Goods and Services Tax Act, 2017 and the methodology adopted by the DGAP and the analysis thereto and requested to be heard in person before the case is finalised. 6. The proceedings in the matter could not be completed by the Authority due to lack of required quorum of members in the Authority during the period 29.04.2021 till 23.02.2022, and that the minimum quorum was restored only w.e.f. 23.02.2022 and hence the matter was taken up for conducting proceedings vide Order dated 23.02.2022 and hearing in the matter through Video Conferencing was scheduled to be held on 15.03.2022. However, the Respondent vide his email dated 15.03.2022 requested for adjournment. 7. Further, the Next hearing in the case was granted to the Respondent on 25.03.2022. Hearing dated 25.03.2022 was attended by Shri Vijay Kumar R, V.P. Finance, Lohith B. N., GM Finance, Badrinath N. R., Tax Consultant for the Respondent. During the personal hearing the Respondent has re-iterated his arguments based on his written submissions dated 11.01.2021 and 26.02.2021. 8. We have carefully considered the Reports filed by the DGAP, all the submissions and the documents placed on record, and the arguments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the report of the Directorate General of Anti-Profiteering, appears to be directory in as much as no consequence of non-adherence of the said period of six months is prescribed either in the CGST Act or the rules framed thereunder." Reliance is also placed on the judgment of the Hon'ble Supreme Court in the case of Mahadev Govind Charge v. Special Land Acquisition Officer (2011) 6 SCC 321 wherein it was held that:- '37. Procedural laws, like the Code, are intended to control and regulate the procedure of judicial proceedings to achieve the objects of justice and expeditious disposal of cases. The provisions of procedural law which do not provide for penal consequences in default of their compliance should normally be construed as directory in nature and should receive liberal construction. The Court should always keep in mind the object of the statute and adopt an interpretation which would further such cause in light of attendant circumstances. To put it simply, the procedural law must act as a linchpin to keep the wheel of expeditious and effective determination of dispute moving in its place. The procedural checks must achieve its end object of just, fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods or services" which does not mean that the reduction in the rate of tax is to be taken at the level of an entity/group/company for the entire supplies made by it. Further, the amount of the additional benefit of ITC required to be passed on, was the amount paid by the customers or flat buyers to the Respondent in the form of GST charged from them which was to be deposited by the Respondent to the Government exchequer. But the Respondent instead of paying this GST amount in cash to the Government exchequer utilised the ITC available to him in addition to the credit which was not available to him in pre-GST period. Therefore, the Respondent was not required to pay anything from his own pocket to pass on the benefit of additional ITC accrued to him in GST period. Hence, the methodology adopted by the DGAP is correct and justifiable. In the erstwhile pre-GST regime, various taxes and cesses were being levied by the Central Government and the State Governments, which got subsumed in the GST. Out of these taxes, the ITC of some taxes was not being allowed in the erstwhile tax regime. For example, the ITC of Central Sales Tax, which was being collected and appropriated by the States, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of the turnover i.e cost realised by him from the Home/Flat buyers/recipients of supply, hence, there is a direct correlation between the Input Tax Credit and the amount realized from the Home/Flat buyers/recipients of supply. The benefit has to be passed on the additional ITC proportionate to the payment made by a customer. The DGAP's Report dated 27.11.2020 also states that the input tax credit pertaining to the unsold units do not fall within the ambit of this investigation and the Respondent was required to recalibrate the selling price 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. Therefore, the proportionate credit of GST on expenses incurred attributable to such unsold units was outside the scope of impugned investigation. The DGAP has computed the benefit of ITC on the area sold and the turnover received on such area. The DGAP had neither computed the benefit on the unsold area nor the Respondent was being asked to pass on the benefit on the unsold area and hence, the ITC relevant to this area would remain intact with the Respondent which he could reverse at the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Respondent has profiteered by an amount of Rs. 50,09,158/- during the period of investigation i.e. 01.07.2017 to 31.10.2019. The above amount of Rs. 50,09,158/-(including 18% GST) that has been profiteered by the Respondent from his home buyers/shop buyers/recipients of supply, shall be refunded by him, along with interest @18% thereon, from the date when the above amount was profiteered by him till the date of such payment, in accordance with the provisions of Rule 133 (3) (b) of the GCST Rules 2017. 16. We find no reason to differ from the above-detailed computation of profiteering and hence the profiteered amount for the period from 01.07.2017 to 31.10.2019, in the instant case, is determined as Rs. 50,09,158/, 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 home buyers/shop buyers/recipients of supply commensurate with the benefit of ITC received by him as has been detailed above. 17. The Respondent is also liable to pay interest as applicable on the entire amount profiteered, i.e. Rs. 50,09,158/-. Hence the Respondent is directed to also pass on interest @18% to home buyers/sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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