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TMI Blog2022 (10) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... g profiteering by the Respondent No. 1 in respect of purchase of flat no. HR/II/505 (3BHK + 2T) in the Respondent No. 1's project "Siddha Eden Lakeville", situated at Lake View Park Road, Banhooghly, Kolkata, West Bengal-700108 on 17.09.2016. The Applicant No.1 alleged that the Respondent No. 1 had not passed on the benefit of ITC to him by way of commensurate reduction in prices and charged GST @12% on the amount due to him against payments. 2. The DGAP vide his Report dated 31.12.2020 has inter-alia submitted the following points :- a. The Applicant No. 1 submitted the following documents along with the application: i. E-mails of correspondence with Respondent No. 1 requesting to pass on the benefit of ITC. ii. Copies of Demand Letters and Allotment letter. 4 b. On receipt of the aforesaid reference from the Standing Committee on Anti- profiteering on 09.10.2019, a Notice under Rule 129 of the Rules was issued by the DGAP on 22.10.2019, calling upon the Respondent No. 1 to reply as to whether he admitted whether the benefit of ITC 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.11.2019, 13.11.2019, 25.11.2019, 06.12.2019, 28.02.2020, 13.03.2020, 18.03.2020, 19.03.2020, 05.05.2020, 25.05.2020, 08.06.2020, 05.11.2020, 06.11.2020, 10.11.2020, 18.11.2020 and 24.11.2020. The Reply of the Respondent No. 1 was summed up as follows:- i. In the subject project i.e. "Siddha Eden Lakeville, he was engaged as Landowner whereas, the Developer was M/s. Siddha Real Estate Private Limited. Further, all expenses in relation to construction activities of the project were borne out exclusively by Respondent No. 2. The Respondent No. 1 was neither incurring any expenditure nor claiming any GST ITC in respect of the impugned project. ii. The Respondent No. 1 submitted that Section 171 of the CGST Act, 2017 provides that any 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. However, he was not providing the Construction Service directly and the same was provided by the Developer. He was acting as the seller for his area allocation only in accordance with the Joint Development Agreement entered into by him with the developer. Hence, in his opinion, there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintenance services etc. ii. The Respondent No. 2 had furnished the block wise details of the impugned project "Siddha Eden Lake Ville" in table -'A' below:- Table 'A' S.No. Blocks Phase RERA No. Eden's share Siddha's share Total Area (in Sq. Ft.) Unit Type Super Area Unit Type Super Area Unit Type Super Area 1 ISLET Phase I HIRA/P/NOR/2018/000183 41 51,247 90 1,09,815 131 1,61,062 2 LAGOON Phase I 50 57,821 99 1,13,664 149 1,71,485 3 MARINA Phase I 53 63,255 96 1,13,872 149 1,77,127 4 OCEANIA Phase I 59 67,710 90 1,03,775 149 1,71,485 5 STREAM Phase I 31 56,300 42 77,857 73 1,34,157 6 HARMONY BLOCK-1 Phase I 32 29,544 45 42,289 77 71,833 7 HARMONY BLOCK-2 Phase I 32 29,544 47 44,334 79 73,878 8 PROMENADE Phase I 60 62,380 87 90,707 147 1,53,087 9 RIPPLE Phase I 61 82,002 88 1,18,492 149 2,00,494 Total Phase-I 419 4,99,803 684 8,14,805 1,103 13,14,608 10 HARBOUR Phase II HIRA/P/NOR/2018/000385 149 1,57,668 Grand Total 1,252 14,72,276 The Respondent No. 2 had submitted that the Block-Harbour was covered under Phase-II which was compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... niable and the Respondent No. 2's submission that he was not a party to documents entered with the Applicant No. 1 was incorrect. Further, in the impugned project, the CENVAT/ITC on the purchase of inputs, input services and capital goods was availed by the Respondent No. 2 for the whole project including the purchases made towards the unit allotted to the Applicant No. 1. Therefore, the Respondent No. 2 being a GST registered person was also statutory required to comply with the provisions of Section 171 of the CGST Act, 2017 and cannot deny passing on the benefit pertaining to Landowner's share in the project. Further, profiteering, if any, had to be computed considering the whole project as a whole irrespective of allocation of Developer or Landowner in order to remove any discrimination among the buyers only because of his purchase of the unit from one party rather than other party. Further, the agreement with the buyers was also signed by both the Respondent No. 1 & 2 jointly. Moreover, DGAP was empowered to issue Notice to such other persons as deemed fit for a fair enquiry into the matter in terms of Rule 129 (4) of the Rules. Therefore, the submission of the Respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to avail CENVAT credit of Service Tax paid on Services but no credit was available in respect of Central Excise Duty and VAT paid on the inputs. However, post-GST, the Respondent No. 2 could avail ITC of GST paid on all the inputs and the input services including the sub-contracts. From the information submitted by the Respondent No. 2 for the period April, 2016 to September, 2019, the details of the ITC availed by him, his turnover from the project "Siddha Eden Lake Ville Phase-I", and the ratios of ITC's to turnovers, during the pre-GST (April, 2016 to June, 2017) and post-GST (July, 2017 to September, 2019) periods, have been furnished by the DGAP in Table-'B' below:- Table-'B' (Amount in Rs.) S.No. Particulars April, 2016 to June, 2017(Pre-GST) July, 2017 to Sept., 2019 (Post-GST) 1. CENVAT of Service Tax Paid on Input Services as per CENVAT Register reconciled with ST-3(A) 2,64,10,366 - 2. Input Tax Credit of VAT Paid on Purchase of Inputs (B) - - 3. Input Tax Credit of GST Availed (C) - 17,42,03,570 4. Net CENVAT/Input Tax Credit Available (D)= (A+B) or (C) 2,64,10,366 17,42,03,570 5. Total Turnover as per List of Horne Buyer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Analysis of Increase in input tax credit: Noticee (Landowner) C-Noticee (Developer) Total 6. Total Base Price raised/collected during July, 2017 to September, 2019 (Rs.) E 64,55,63,988 89,24,10,569 1,53,79,74,557 7. Less: Base Price raised during July, 2017 to September, 2019 (Flats sold after 01.07.2017 and Price negotiated after ITC adjustments) F - 49,86,40,732 49,86,40,732 8. Net Base Price raised/collected during July, 2017 to September, 2019 (Rs.) G=E-F 64,55,63,988 39,37,69,837 1,03,93,33,825 9. GST @ 12% over Base Price H=G*12% 7,74,67,679 4,72,52,380 12,47,20,059 10. Total amount collected/raised by Respondent and Co-noticee I=G+H 72,30,31,667 44,10,22,217 1,16,40,53,884 11. Recalibrated Base Price J=(G)*(1-D) or 94.31% of (G) 60,88,31,397 37,13,64,333 98,01,95,730 12. GST @ 12% I=H*12% 7,30,59,768 4,45,63,720 11,76,23,488 13. Commensurate demand price J=H+I 68,18,91,165 41,59,28,053 1,09,78,19,218 14. Excess Collection of Demand or Profiteering Amount K=G-J 4,11,40,502 2,50,94,164 6,62,34,666 r. It was clear from Table-'C' above that the additional ITC of 5.69% of the turnover should have resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a percentage of turnover might be erroneous. Furthermore, the Respondent No. 1 & 2 had submitted that effective from 01.07.2017, they had sold 144 flats at the rates agreed by the customers and the consideration for such units had already factored benefit of ITC. The Respondent No. 2 claimed that Section 171 of the CGST could be applied only on the units the prices of which had been agreed before 01.07.2017 i.e. pre-GST customers since due to introduction of GST, the benefit of ITC had been accrued which should be computed and passed. In other words, the consideration of bookings made in GST regime were determined based on various factors including benefit of ITC and the same shall be outside the scope of calculation. Clause 8.3 of the Agreement to Sell also confirms the same which reads as "Clarification on GST input Tax Credit; The Transferees/Allottees understand, confirm and accept that the consideration of the said Apartment And Appurtenances had been arrived at after adjusting the full GST ITC to be passed on to the Transferees/Allottees and the Transferees/Allottees consequently shall not be entitled to and covenant not to raise any manner of dispute, claim and/or damage a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present case. 3. The above Report was carefully considered by this Authority and a Notice dated 05.01.2021 was issued to the Respondent No. 1 & No. 2 to explain why the Report dated 31.12.2020 furnished by the DGAP should not be accepted and there liability for profiteering in violation of the provisions of Section 171 should not be fixed. The Respondent No. 1 was directed to file written submissions which had been filed on 19.01.2021 wherein the Respondent No. 1 had submitted:- a. He and the Respondent No. 2 (the Developer) had entered into a Joint Development Agreement (JDA) on 8th May, 2015 for development of a project namely 'Siddha Eden Lakeville'. As per the terms of the agreement, he transferred his development rights to the Respondent No. 2 who was responsible to construct the project at his own cost and resources at agreed terms and conditions. He would not incur any construction cost and would get constructed and completed units. b. That the Project was under 'Area Sharing' model wherein the Respondent No. 2 would receive 38.5% of the allocated units and remaining 61.5% belonged to the Developers. Six Blocks were proposed to be constructed by De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AP dated 14/06/2019, the Authority upheld the mechanism of DGAP to compute the amount of benefit as per the above referred mechanism i.e. availment of ITC to Turnover ratio in pre and post regime. Further, since it was an Allocation agreement between the landowner and the developer, the authority also ordered to pass on the benefit of the profiteered amount to the land owner who would in turn pass on the benefit to his buyers. 4. Copy of the above submissions dated 19.01.2021 filed by the Respondent No. 1 were supplied to the DGAP for supplementary Report under Rule 133 (2A) of the CGST Rules, 2017. The DGAP filed his clarification dated 12.02.2021 and has stated that:- a) Vide the aforesaid letter dated 19.01.2021, the Respondent No. 1 had not disputed the DGAP's Report. b) Vide para-30 of the Report dated 31.12.2020, the additional amount of ITC or the profiteering amount required to be passed on by the Respondent No. 1 was determined to be Rs. 4,11,40,502/- which included GST @12% on the base amount of Rs. 3,67,32,591/-. Since the Respondent No. 2 i.e. the developer had availed the entire CENVAT/Input Tax Credit for the project (including units pertaining to the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CGST Act, the person who was not liable to pay consideration to him could not be said to be his "recipient" for the supplies made by it. The Applicant No. 1 was liable to pay consideration to Respondent No. 1 not to him. g. The ratios of ITC's to the turnovers of Pre-GST and GST period for calculating the benefit of additional ITC accrued to the Respondent shall never yield the correct quantum of anti-profiteering. Under the real estate sector there was no correlation of turnover with the cost of construction or development of a project. The turnover reflects the amount collected as per the payment or booking plans issued by the developer which was dependent upon marketing driven strategy. On the contrary, the ITC accrued to a developer on the basis of actual cost incurred by it while undertaking the development of a project. Thus, accrual of ITC was not dependent on the amount collected from the buyers. Accordingly, calculating profiteering on the basis of turnover could not reflect the correct outcome for the Respondent. The additional ITC in his hands in terms of Section 171 of the CGST Act should reflect such ITC on goods or services which was not available earlier. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which was purely based on market driven strategy. On the contrary, the ITC had accrued to him based on actual cost incurred by has while undertaking the development of a project. Thus, accrual of ITC was not dependent on the amount collected from the buyers. k. Investigation of profiteering could be initiated only on receipt of written Application from interested party, commissioner or any other person. In the instant case, the proceedings were started with the Application received from the Applicant No. 1. Hence, the investigation could not go beyond the Application and cover other customers also who had not questioned the benefit passed on to them. He has relied upon the decision of this Authority in the case of M/s LIP Sales & Services vs. M/s Vrandavaneshwree Automotive Private Limited reported as 2018-VIL-01-NAA, Shri Rishi Gupta vs. M/s Flipkart Internet Pvt Ltd. reported as 2018 VIL-04-NAA. l. The DGAP could not suo motu assume jurisdiction with regard to other recipients of the Respondent No. 2, on receipt of reference from the Standing Committee to conduct a detailed investigation in the matter of Applicant No. 1 It was submitted that the DGAP could not exceed his ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total amount charged from customers. Hence, the same yardstick should be used for profiteering computation also. Accordingly, an amount of Rs. 83,64,721/- needed to be excluded from the total profiteering determined. He has also made reference to Para 2 of the Notification No. 11/2017-CT(R). q. The CGST Act read with the CGST Rules, 2017 did not provide the procedure and mechanism of determination and calculation of profiteering. In absence of the same, the calculation and methodology the proceedings were arbitrary and were in violation of principle of natural justice. Accordingly, the investigation was liable to be rejected. Further, the Authority under the 'Methodology and Procedure, 2018' issued on 19.07.2018 under Rule 126 of the CGST Rules, 2017, merely provided the procedure to be followed pertaining to the investigation and hearing and no method/formula had been issued pertaining to the calculation of profiteering amount. r. In order to control rise in inflation on account of implementation of GST, the Malaysian Government introduced the 'Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit) (Net Profit Margin) Regulations 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admittedly a construction service provider and supplied construction services on which there was no reduction in rate of tax. u. ITC meant credit of input tax, and input tax means CGST, SGST, UTGST and IGST. Based on the definition of ITC and input tax, if one were to derive the meaning of the phrase benefit of ITC, it would mean benefit in the form of availability of ITC of GST charged on procurement of certain goods/services, which was earlier not available as ITC (either fully or partially) but became now available as ITC. For instance, under section 17(5)(a) of the CGST Act, ITC in respect of motor vehicles was not available (except in certain cases) and the said bar was on ITC in respect of all types of motor vehicles, irrespective of seating capacity. This was subsequently amended by the CGST (Amendment) Act, 2018 to provide that ITC should not be available only in respect of motor vehicles having seating capacity of not more than 13 persons (including the driver), except in certain cases. The effect of this amendment was that in respect of motor vehicles exceeding the seating capacity of 13 persons, ITC was available. Section 171 was intended to cover such kind of situatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing units pertaining to the Respondent No. 1), therefore the aforesaid amount of profiteering had to be passed on by the Respondent No. 2 to the Respondent No. 1 who in turn were required to pass it on to his recipients (including the Applicant No. 1) as per buyers and unit no. wise break-up given the DGAP's Report dated 31.12.2020. c. The facts in the case of M/s. Bhartiya City Developers Pvt. Ltd. were different from the facts in the present case as in case of M/s Bhartiya City Developers Pvt. Ltd., the Company had entered into two separate Agreements namely Agreement to sell and Agreement for construction, wherein the Company charged GST @ 18% on agreement for construction without any abatement. Since, the consideration was received as per Agreement to sell (towards land) which was altogether separate from the Agreement for construction and did not levy GST, so no benefit was computed towards the value of Land. However, in the present case, there was a common agreement entered with the customers agreeing total price bifurcating among towards Land and Construction. Further, in the present case, GST @12% (after abatement for Land) has been considered by the DGAP while calcul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lementation of GST had not been examined. 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 credit of some taxes was not allowed in the erstwhile tax regime. For example, the ITC of Central Sales Tax, which was being collected and appropriated by the States, was not admissible. Similarly, in case of construction service, while the ITC of Service Tax was available, the ITC of Central Excise Duty paid on inputs was not available to the services provider. Such input taxes, the credit of which was not allowed in the erstwhile tax regime, got embedded in the cost of the goods or services supplied, resulting in increased price. With the introduction of GST with effect from 01.07.2017, all these taxes got subsumed in the GST and the ITC of GST was available in respect of all goods and services, unless specifically denied. 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 prices, in terms of Section 171 of GST Act, 2017. 7. The Respondent No. 1 has also filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the DGAP's Report that there has been no reduction in the rate of tax in the post GST period; hence the only issue to be examined is as to whether there was any net benefit of ITC with the introduction of GST. It is observed from the Report of the DGAP 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 1.16%, whereas, during the post-GST period (July-2017 to September-2019), it was 6.85% for the project 'Siddha Eden Lakeview'. This confirms that, post-GST, the Respondent No. 1 & 2 have been benefited from additional ITC to the tune of 5.69% (6.85% - 1.16%) of their turnover for the project 'Siddha Eden Lakeview' and the same was required to be passed on to the customers/flat buyers/recipients. Therefore, the Respondent No. 1 had benefit by an additional amount of ITC amounting to Rs. 4,11,40,502/- (which includes GST @12%), similarly, the Respondent No. 2 had benefited by an additional amount of ITC amounting to Rs. 2,50,94,164/- (which includes GST @12%). The DGAP has calculated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard, we find that the objection raised by the Respondent No. 2 has been covered in para-21 of the DGAP's Report dated 31.12.2020 which is reproduced below: "Regarding the Co-Noticee contention that the Application filed by the Applicant No.1 was not against them, it was observed from the Sale Agreement entered with the Applicant that the Notice& was a party and signed the said agreement in the capacity of Developer. Further, as per clause 14.3 of the Joint Development Agreement dated 08.05.2015 requires that 'Siddha shall join the deed of transfer in favor of Eden's Transferees and shall execute and register the same in his capacity as a confirming party" It is clear from above that, the agreement of supply was a tripartite where the Respondent No. 2 was a necessary party and thus, participation of the Respondent No. 2 in the said transactions was undeniable and the Respondent No. 2's submission that he was not a party to the transaction of supply with the Applicant No. 1 is incorrect. Further, the CENVAT/ITC on the purchase of inputs, input services and capital goods was availed only by the Respondent No. 2 for the whole project including the purchases made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant No. 1. d. The Respondent No. 2 has further contended that there should be exclusion of land value from the calculation of profiteering amount. In this regard, the Authority finds that the facts in the case replied upon by the Respondent No. 2 of M/s. Bhartiya City Developers Pvt. Ltd. was different from the facts in the present case as in case of Bhartiya City Developers Pvt. Ltd., the Company had entered into two separate Agreements namely Agreement for sale of land and Agreement for construction, wherein the supplier charged GST @ 18°/0 on agreement for construction without any abatement. Since, the consideration was received as per Agreement for sale of land which was altogether separate from the Agreement for construction and did not levy GST, so no benefit was computed towards the value of land sold. However, in the present case, there was a common agreement entered with the customers agreeing to a total price without bifurcating towards sale of land and supply of construction service. Further, the DGAP in his Report dated 31.12.2020 had considered GST @ 12% (after abatement for Land) which was mentioned in para-28 of the Report. The Authority finds that the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of ITC are enshrined in Section 171 (1) of the CGST Act, 2017 itself which states 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". It is clear from the perusal of the above provision that it mentions "reduction in the rate of tax on any supply of goods 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. Therefore, the benefit of tax reduction has to be passed on at the level of each supply of each unit to each buyer of such unit and in case it is not passed on the profiteered amount has to be calculated on each unit. Further, the above Section mentions "any supply" i.e. each taxable supply made to each recipient thereby clearly indicating that netting off of the benefit of tax reduction by any supplier is not allowed. Each customer is entitled to receive the benefit of tax reduction on each product purchased by him. The word "commensurate" mentioned in the above Section gives the extent of benefit to be passed on by way of redu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entions of the Respondent No. 2 is that he was not liable to pass on the benefit to the Respondent No. 1 as per Section 171 of the CGST Act. In this regard, the Authority finds that the contention of the Respondent No. 2 is not tenable. In this regard, the Authority finds that, it is a fact that Agreement with homebuyers/customers/recipients of supply was Tripartite where the Respondent No. 2 was a necessary party and thus, participation of the Respondent No. 2 in the said transactions is undeniable. Further, in the impugned project, the CENVAT/ ITC on the purchase of inputs, input services and capital goods was availed by the Respondent No. 2 for the whole project including the purchases made towards the unit allotted to the Applicant No.1. Therefore, the Respondent No. 2 being a GST registered person was also statutorily required to comply with the provisions of Section 171 of the CGST Act, 2017 and cannot deny passing on the benefit pertaining to Landowner's share (Respondent No. 1) in the project. Further, profiteering, if any, had to be computed considering the whole project as a whole irrespective of allocation of Developer or Landowner in order to remove any discrimina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve-detailed computation of profiteering in the DGAP's Report or the methodology adopted. The Authority finds that the Respondent No. 1 has profiteered by an amount of Rs. 4,11,40,502/- and the Respondent No. 2 has profiteered by an amount of Rs. 2,50,94,164/- during the period of investigation i.e. 01.07.2017 to 30.09.2019. The Authority determines an amount of Rs. 4,11,40,502/- (including 12% GST) under section 133 (1) as the profiteered amount by the Respondent No. 1 and an amount of Rs. 2,50,94,164/- (including 12% GST) as the profiteered amount by the Respondent No. 2 under section 133 (1) from their 265 (including Applicant No. 1) and 270 homebuyers /customers/recipients of supply, respectively (as per Annexure 'A' to this Order), which shall be refunded/returned/passed on by the Respondents to the respective homebuyers/customers/recipients of supply along with interest @18% thereon, from the date when the amounts were profiteered by them till the date of such return/refund/payment, in accordance with the provisions of Rule 133 (3) (b) of the GCST Rules 2017. The amount profiteered is Rs. 96,857/-(including GST) in respect of the Applicant No.1. Since the Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of Section 171 (1) of the CGST Act, 2017 and have thus committed an offence under Section 171 (3A) of the above Act and therefore, they are liable for imposition of penalty under the provisions of the above Section. However, since the provisions of Section 171 (3A) have come into force w.e.f. 01.01.2020, whereas, the period during which violation has occurred is w.e.f. 01.07.2017 to 30.09.2019, hence the penalty prescribed under the above Section cannot be imposed on Respondent retrospectively. 19. The concerned jurisdictional CGST/SGST Commissioner is also directed to ensure compliance of this Order. It may be ensured that the benefit of ITC has been passed on to each homebuyer/customer/recipients of supply as per this Order along with interest @18%. In this regard an advertisement of appropriate size to be visible to public at large may also be published in minimum of two local newspapers/ vernacular press in Hindi/English/local language with the details i.e., Name of builder (Respondent No. 1) - M/s Eden Realty Ventures Pvt. Ltd., and (Respondent No. 2) - M/s Siddha Real Estate Pvt. Ltd., Project- 'Siddha Eden Lakeview', Location- Lake View Park Road, Banhooghl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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