9911796707
TMI Blog2022 (9) TMI 1508X X X X Extracts X X X X X X X X Extracts X X X X ..... vices Pvt. Ltd., collectively referred to as 'land owners' alleging profiteering by the Respondent in respect of the development agreement entered into with the Respondent on 26-12-2013 and also the allocation agreement dated 2-5-2017 thereto, in respect of the Respondent project "Victoria Vista", Kolkata. The above Applicants had alleged that the Respondent had not passed on commensurate benefit of ITC to him, on implementation of GST w.e.f. 1-7-2017, in terms of Section 171 of the CGST Act, 2017. 2. The DGAP in his Report dated 31-3-2021, had inter-alia, stated that:- (a) The aforesaid reference was examined and forwarded by the Standing Committee on Anti-profiteering and was received by the DGAP on 15-10-2020 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 the Applicant No. 1 to 9 in respect of construction service supplied by the Respondent. (b) On receipt of the said reference from the Standing Committee on 15-10-2020, a Notice under Rule 129 of the CGST Rules, 2017 was issued by the DGAP on 13-11-2020, cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) Status of the project "Victoria Vista" as on 30-9-2020 in terms of tower-wise sold and unsold units. (xiii) Details of VAT, Service Tax, ITC of VAT, CENVAT credit for the period April, 2016 to June, 2017 and output GST and ITC of GST for the period July, 2017 to September, 2020 for all the projects separately including the project "Victoria Vista". (xiv) List of home buyers in the project "Victoria Vista". (xv) Copy of tax invoices for the months of Feb'18, Mar'18, Sept' 18 to Mar'19, April'19, July'19, Aug'19, Nov'19 to March'20, June' 20 to Sept'20. h. In the Notice dated 13-11-2020, 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 vide mail dated 25-3-2021 requested to treat all the documents submitted by him as confidential. Accordingly, the documents had been treated as confidential under Rule 130 of the Rules. i. The subject Application and several replies submitted by the Respondent along with the documents had been carefully examined b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nits to be sold to the prospective buyers by considering the proportionate additional ITC available to him post-GST. k. In response to the Notice of Initiation of investigation dated 13-11-2020 and subsequent reminder dated 12-3-2021, the Respondent vide his submission dated 3-2-2021 provided the details of turnover and CENVAT credit/ITC availed for all the projects as mandated under erstwhile CENVAT Credit Rules 2004, present CGST Rules, 2017 & RERA regulations. From the Respondent's submission dated 17-3-2021, it was observed that the Respondent obtained the RERA Registration bearing No. HIRA/P/KOL/2018/000025 for the project "Victoria Vista" under West Bengal Housing Industry Regulatory Authority. l. From the above, it was clear that the credit on input services was admissible to the Respondent under Rule 2( 1) of the Cenvat Credit Rules 2004, which was utilized to pay Service Tax. Further, as seen from the Respondent's submissions dated 17-3-2021 "We were not registered under the State VA T laws in the state of West Bengal. We are engaged only in real estate development activity, on which VA T was not payable in the state. Hence no such return was requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n all. Out of 44 units, 17 units were under the Respondent's (Developer) allocation and 27 units were under Applicant No. 1 to 9 (land owners) allocation. As per the home buyers list submitted by the Respondent, out of the 17 units allocated to the him only 4 units had been sold and the balance 13 units were unsold as on 30-9-2020. Similarly, as per the home buyers list submitted by the Applicant No. 1 vide his letter dated 8-3-2021 forwarded through email, it was noticed that out of the 27 units allocated to the Applicant No. 1 to 9, no unit was sold as on 30-9-2020. The 3 units that were sold by the Applicant No. 1 to 9 were sold after the investigation period. Accordingly, the 4 units that were sold by the Respondent had been considered for computation of profiteering. Further, the project wise bifurcation of Service Tax/ITC provided by the Respondent in respect of the project "Victoria Vista" had been considered for the computation of profiteering. Further, besides the project "Victoria Vista", the Respondent had been executing the project "Suncrest Estates". o. From the above table-'A', it was clear that the ITC as a percentage of the turnover that was available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From table- 'B' above, it was clear that the additional ITC of 0.53% of the turnover should had resulted in commensurate reduction in the basic price as well as cum-tax price for the home-buyers of the project "Victoria Vista". Therefore, in terms of Section 171 of the CGST Act, 2017, the Respondent had not reduced the basic prices for the buyers of this project commensurate to the additional benefits accrued and this benefit of the additional ITC was required to be passed on by the Respondent to the recipients. In other words, by not reducing the pre-GST basic price on account of additional benefit of ITC and charging GST @12% on the pre-GST basic price, the Respondent appears to had contravened the provisions of Section 171 of the of the CGST Act, 2017. s. On the basis of the aforesaid CENVAT/ITC availability in the pre and post-GST periods and the demands raised by the Respondent on the Applicant No. 1 to 9 and other home buyers towards the value of construction on which GST liability @ 12% was discharged by the Respondent during the period 1-7-2017 to 30-9-2020, the amount of benefit of ITC not passed on to the recipients or in other words, the profiteered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by entering into a conveyance deed or similar instrument (e.g. allotment letter). (ii) Value, in the case of flats given to the second category of service receivers, shall be determined in terms of section 67 of the Finance Act, 1994.' and also, in view of Notification No. 4/2018-Central Tax (Rate) dated 25-1-2018, wherein it had been envisaged that "In exercise of the powers conferred by section 148 of the CGST Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby notifies the following classes of registered persons, namely :- (a) registered persons who supply development rights to a developer, builder, construction company or any other registered person against consideration, wholly or partly, in the form of construction service of complex, building or civil structure; and (b) registered persons who supply construction service of complex, building or civil structure to supplier of development rights against consideration, wholly or partly, in the form of transfer of development rights, as the registered persons in whose case the liability to pay central tax on supply of the said services, on the consideration received in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be calculated as discussed supra and needed to be passed on to the Applicant No. 1 to 9 proportionate to their share at the time of supply envisaged in the Notification referred to above. Section 171 of the CGST Act, 2017 appeared to had been contravened by the Respondent, in as much as the benefit of additional ITC on the demand raised by the Respondent during the post-GST period from 1-7-2017 to 30-9-2020, had not been commensurately passed on to the to the eligible recipients. On this account, the Respondent had been found to have profiteered an amount of Rs. 3,80,367/- (Three Lakh Eighty-Three Thousand One Hundred only) which included GST to all the four customers as on 30-9-2020. AH the recipients were identifiable as the Respondent had provided their names and addresses along with unit no. allotted to them. As aforementioned, the present investigation covers the period from 1-7-2017 to 30-9-2020. z. In view of the aforementioned findings, it appeared that the provisions of Section 171(1) of the CGST Act, 2017, requiring 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 commensur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1960, dated 28-3-1962] [1978] (2) E.L.T. (J172) (S.C.), had held that the findings based on presumptions and assumptions without any tangible evidence would be vitiated by an error of law. D. In the instant case, the Respondent sold 4 units in the following manner - Date Recipient Net Rate 30-6-2017 Narendra FCr Bardia 9,600.00 18-4-2018 Harish Agarwal 13,150.00 01-4-2019 Swapan Ghosh 10,273.00 24-1-2020 Namita Ghosh 12,375.00 From the above chart it was clear that one unit was sold in service tax regime and 3 units was sold in GST regime. Section 171 could be applied in respect of those ITC, as per Section 171, which was not available to the Respondent in GST regime itself and subsequently become available. However, in the instant Report no such findings of the DGAP were noticed. Further, any benefit if at all was required to be passed then it should be only in respect of the unit which was sold before GST regime considering that the sale price of that particular unit did not contain the benefit of ITC available to the Respondent now on materials as well. E. Further, from the booking date and rate per sq. ft. of unit, it was understood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2019-20, the first year in which the Respondent recognized revenue in respect of the project 'Victoria Vista', the Respondent actually suffered a total loss of Rs. 1.76 crores against a turnover (revenue recognized on the basis of generally accepted accounting principles) of Rs. 9.43 crores, attributed to the project, far from any kind of profiteering. K. Assuming Section 171 was applicable: - Even if it was assumed that Section 171 was at all applicable then it should be restricted in respect of those units which were sold in Service Tax regime as while determining the sale price of the unit the tax component of Central Excise Duty and State VAT would had been considered as cost and embedded in the sale price. However, in respect of units sold in GST regime the same could not happen. i. In fact, real estate development and sale in West Bengal was not liable to VAT. Thus, no ITC benefit was available to the Respondent either in respect of VAT or Central Excise. Rather the purchase of all inputs was inclusive of taxes, without any tax being separately charged, say at an inclusive price of Rs. 100/-. On introduction of GST, the suppliers charged GST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty did not arise at all. Assuming that at all there was profiteering, as submitted above, no time limit was prescribed to pass on benefit, if any, under section 171. The Respondent had not yet handed over the units either to the Applicant No. 1 to 9 or to the customers. Construction Service, being a continuous supply of service, would get completed upon handing over the units to the customers. Hence it would be too early to conclude that the Respondent had profiteered any amount as concluded by the DGAP in his report. Accordingly, no question could ever arise for imposition of penalty as proposed in the DGAP's Notice. O. Eligibility of Application dated 30-1-2020: - As understood the Application filed by the Applicant No. 1 to 9 dated 30-1-2020 which was rejected by the Standing Committee due to there being prima facie lack in the claim of the Applicant No. 1 to 9. Now surprisingly the DGAP issued a Notice to the Respondent dated 13-11-2020 on the basis of the same Application dated 30-1-2020 which was rejected by the Standing Committee, which was not tenable on this ground alone. P. As per Rule 128, the Standing Committee shall examine the accur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurate reduction in price cannot be applied. This methodology could be applied where transaction was between builder and intending buyer. V. The concept applied by the DGAP for calculation of profiteering was not founded on sound logical understanding of law, more particularly to the nature of transaction under consideration, hence not acceptable to the Respondent. W. The benefit of ITC should be computed at the completion of construction of residential units and the same needed to be passed on to the ultimate buyers at that point of time. 5. The Applicant No. 1 had also filed his written submissions dated 20-7-2021, 30-4-2022 and 20-6-2022 wherein he had inter-alia stated that:- (a) Accrual of Profiteering Benefit to be passed on to the Applicant No. 1 to 9:- i. The Respondent must have benefitted from availment of ITC on account of Material purchases post introduction of GST as per Section 171 of the CGST Act, 2017. In the instant case, substantial construction had incurred in the GST regime, hence, the profiteering amount was palpable. ii. There was no denial of the fact that the Respondent must have e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost of construction or development of a project. b. ITC was higher in the initial stages of Development. c. Turnover was mostly linked with market. d. Profiteering should reflect the Benefit amount accrued to the Applicant No. 1 to 9. e. Profiteering must be computed on the basis of total cost of the project. (e) Computation of Anti-Profiteering Benefit:- i. The construction expense incurred upto March' 2019 as per the details in the invoice raised by the Respondent had been considered as basis to compute the Total projected cost of the Project. The detail of percentage completion last known to us was 35% on March'19, hence the same had been used to work out the total budgeted cost of the project. Sr. No. Cost Break-up Cost incurred upto March'19 Total projected Cost Cost/sq. ft. A. Architectural & Consultancy fees 63,70,350.00 1,82,01,000.00 161.80 B. Civil 9,55,89,269.84 27,31,12,199.54 2,427.79 C. Electrical Works 24,24,169.61 1,29,36,810.00 115.00 D. Initial Site Development 18,98,519.01 18,98,519.01 16.88 E. Phe work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,16,68,302.67/- for the entire project i.e. Rs. 370.42 per square feet. iv. To re-evaluate the profiteering accrued by the Respondent in lieu of ITC benefit availed for the project in the GST regime. 6. Supplementary Report under Rule 133(2A) of the CGST Rules, 2017 was sought from the DGAP on the submissions of the Respondent and the Applicant No. 1 to 9. In response, the DGAP vide his Report dated 31-3-2021 and 24-5-2022 had inter-alia furnished the following clarifications:- Clarifications on the Respondent's submissions:- a. Applicability of Section 171: The contention of the Respondent in these paras was incorrect and hence denied as discussed hereunder:- i. Section 171(1) 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. ii. The instant case was clearly covered under the provisions of Section 171(1) of the CGST Act, 2017 as there was benefit of ITC consequent to introduction of GST. iii. Prior to 1-7-2017 i.e. before the introduction of GST, the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso for confirmation of the same from the homebuyers who booked his flats post GST. c. The documents submitted by the Respondent, indicate that he had been raising the bills on the Applicant No. 1 to 9 on monthly basis for the expenditure incurred during that month and had been collecting GST @18% in proportion to the share of each Applicant No. 1 to 9. In the said bills it was indicated that "only tax amount to be recovered, basic value not to be paid". d. There were no units as allocated to the Applicant No. 1 to 9 who were otherwise the landowners had been supplied as on 30-9-2020 i.e. during the investigation period. e. The bills raised and the corresponding GST charged on the Applicant No. 1 to 9 by the Respondent had not been considered for the purpose of computation of profiteering in as much as the said charging of GST appeared to be not in consonance with the provisions of law. f. Accordingly, the DGAP following the standard procedure/methodology had compared the ITC to turnover ratio in pre & post GST periods in the present case which was rational, logical & appropriate in terms of Section 171 and that had been approved by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y demand raised by him. v. Further, it had been the standard practice to call for the data/information up to the month preceding the month in which the Application/complaint received from the Standing Committee on Anti-profiteering and the element of profiteered amount was being calculated based on the data submitted for such period as was done in similar cases and upheld by this Authority. Section 171(1) of CGST Act, 2017 mandates passing on of the benefit of additional ITC which had accrued to the Respondent during the life of the project subsequent to introduction of GST till the Occupancy Certificate was issued. i. Eligibility of Application dated 30-1-2020:- i. The Standing Committee on Anti-profiteering in the meeting held on 19-8-2020 after detailed discussions decided to forward the case to DG Anti-profiteering for further investigation with the observation that "From the documents submitted, it appears that a benefit of reduction in ITC has not been passed, hence case is being forwarded to the DGAP". ii. Under sub-rule 1 of Rule 128 of CGST Rules, 2017, the Standing Committee shall, within a period of two months from the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons dated 20-6-2022 on the DGAP's clarifications dated 24-5-2022 vide which he had also reiterated and relied upon his submissions made earlier. The Respondent requested for personal hearing in the matter. 8. 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 29-4-2021 till 23-2-2022, and that the minimum quorum was restored only w.e.f. 23-2-2022 and hence the matter was taken up for further proceedings vide Order dated 10-3-2022. 9. Therefore, hearing in the matter was held on 8-6-2022. It was attended by Sh. Rohit Surana, Smt. Sunayna Banthia, Chartered Accountants and Sh. Kishor Dagar for the Applicant No. 1 to 9, Sh. Raminder Singh, Assistant Commissioner for the DGAP, Sh. Ashok. Batra, Sh. Arun Kumar Agarwal, Chartered Accountants and Sh. Ankit Khemka, Manager (Indirect Taxes) for the Respondent. During the personal hearing, the Respondent has re-iterated his arguments based on his written submissions dated 7-7-2021, 20-4-2022 and 8-6-2022 and also informed that a consolidated written submissions would be filed. The Applicant No. 1 has also reiterated his written submissions d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GST) and Sh. Firoz Bei (unit no. 19B) Rs. 6,530/- (including GST). Further, it also appears from the report of the DGAP that the commensurate proportion of benefit of ITC is to be calculated as discussed supra and needs to be passed on to the eligible recipients proportionate to their share at the time of supply (sale of their share of flats) as envisaged in the Notification No. 4/2018-(Central Tax). 12. However, the Authority finds that the profiteering amount of Rs. 3,80,367/- (including GST) has been determined by the DGAP in respect of the four units (out of Respondent's 17 units) sold by the Respondent from his share of flats till the period of investigation i.e. upto 30-9-2020. It was reported by the DGAP that no unit from the Applicant No. 1 to 9's share of flats (27 units) were sold till the investigation period. Therefore, only 4 units were considered for the calculation of profiteered amount by the DGAP during the investigation period 1-7-2017 to 30-9-2020. 13. Further, the Authority finds that as per the Applicant No. l's submissions dated 20-6-2022, the Respondent has received the Completion Certificate on 18-5-2022. Further, the Respondent during the Per ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
