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TMI Blog2022 (9) TMI 1511X X X X Extracts X X X X X X X X Extracts X X X X ..... Puram, Bangalore-560048 on introduction 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 25-2-2021 had inter alia, stated that: (a) The Karnataka State Screening Committee on Anti-Profiteering examined the said Application and forwarded the same with his recommendation, to the Standing Committee on Anti-Profiteering for further action, in terms of rule 128 of the Rules. (b) The aforesaid application was examined by the Standing Committee on Anti-profiteering, which 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 Input Tax Credit had been passed on by the Respondent to the Applicant No. 1 in respect of construction service supplied by the Respondent. (c) On receipt of the reference from the Standing Committee on Anti-profiteering, a Notice under rule 129 of the Rules was issued by the Director General of Anti-profiteering, calling upon the Respondent to reply as to whether he admitted that the benefit of input tax credit had not been passed on to the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utput GST and ITC of GST for the period July, 2017 to April, 2020 for the project "Bollineni Silas". ix. CENVAT/lnput lax Credit Register for the FY 2016-17, 2017-18, 2018-19 and for the period April, 2019 to April, 2020. x. List of home buyers for the project "Bollineni Silas". xi. Brief profile of the Respondent. xii. Details of applicable tax rates, Pre-GST and Post-GST. xiii. Status of Project as on 30-4-2020. xiv. Copy of Occupancy Certificate. (j) The subject application, various replies of the Respondent and the documents/evidences on record had been carefully examined. The main issues for determination are: - i. Whether there was benefit of reduction in rate of tax or input tax credit on the supply of construction service by the Respondent after implementation of GST w.e.f. 1-7-2017 and if so. ii. Whether the Respondent passed on such benefit to the recipients by way of commensurate reduction in price, in terms of section 171 of the CGST Act, 2017. (k) Another relevant point in this regard was para 5 of Schedule-Ill of the CGST Act, 2017 (Activities or Transactions which shall be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2017 but the Respondent failed to do so. Hence, the above contention of the Respondent was not accepted. (m) As regards the allegation of profiteering, prior to 1-7-2017, i.e.. before the GST was introduced, the Respondent were eligible to avail Service Tax paid on the input services (CENVAT credit of Central Excise duty was not available) in respect of the flats for the project "Bollineni Silas" sold by them. The Respondent were not eligible to avail input tax credit of VAT paid on the inputs as he had opted for composition scheme in the VAT regime. Further, post-GST, the Respondent could avail input tax credit of GST paid on all the inputs and input services, from the data submitted by the Respondent covering the period April, 2016 to April, 2020, the details of the Input Tax Credit availed by them, his turnover from the project "Bollineni Silas" and the ratio of input tax credit to turnover, during the pre-GST (April, 2016 to June, 2017) and post-GST (July, 2017 to April, 2020) periods, was furnished in tablc-A below. Table- 'A' (Amount in Rs. ) Sl.No. Particulars Total (Pre-GST) April, 2016 to June, 2017 Total (Jury, 2017 to April, 2020) 1. CENVAT o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E 1,71,69,50,605 11. GST @ 12% J=I* B 20,60,34,072 12. Commensurate demand price K=I+J 1,92,29,84,677 13. Excess Collection of Demand or Profiteering Amount (in Rs. ) L=H-K 13,74,29,635 * The demand raised/advances received during the period 1-7-2017 to 30-4-2020 was net of post O.C. sales, (i.e. excluding 11 buyers who had booked Flats after O.C.) (p) from the calculation explained in Table-B based on the Respondent's submission, that the benefit of lTC which needed to be passed on by the Respondent to the buyers of fiats comes to Rs. 13,74,29,635/- which included 12% GS'I" on the base amount of Rs. 12,27,05,031/- during the period 1-7-2017 to 30-4-2020 in respect of 373 (384-11 (Post OC sold units) =373) buyers including the Applicant No. 1. The home buyer and unit no. wise break-up of this amount was given. This amount was inclusive of profiteered amount of Rs. 4,97,806/- (including GST) in respect of the Applicant No. 1. (q) On the basis of the details of outward supplies of the construction service submitted by the Respondent, it was observed that the service had been supplied in the State of Karnataka only. (r) From the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this case. Applicant No. 1 who booked the flat No. J703. 07th floor in the J-Block of "Bollineni Silas' vide construction agreement dated 16-11-2018 ( i.e. agreed in constructing and owning apartment was being constructed in a phased manner) in which he had purchased above flat (measuring to 1390 sft) @ Rs. 67,78.367/- (including amenities and taxes and pass on charges) and the entire price of consideration had been paid during 16 Nov. 2018 to 8th March 2019. Further, as per section 171(1) any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices" Thus, the supplier of taxable goods or service was required to pass on the benefit accruing to him on the following two accounts: i. Reduction in rate of tax ii. Availability of additional Input Tax Credit. On the issue of reduction in the tax rate, it was apparent from the DGAP's Report that there had been no reduction in the rate of tax in the post-GST period, hence the only issue to be examined was as to whether there was any additional benefit of ITC with the introduction of GST availed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was any additional benefit of ITC with the introduction of GST availed by the Respondent or not. C. The proposed Anti-profiteering of additional benefit Input tax credit as arrived by the DGAP was need to be revised as the DGAP was required to consider certain items as detailed below in Table-A of calculating ratio of ITC to the turnover and hence, to the extent of such ignored/resubmitted items the alleged additional benefit of input tax credit need to be revised. As per the master sheet of home buyers list the total area of both pre-GST and post-GST period's home buyer bookings was 1,21,095 Sqft. and 3.76,015 Sqft. respectively only. However, in Table-A the DGAP, while arriving the Ratio of post-GST Input 'Tax Credit to turnover (post-GST) had considered the area of pre-GST and post-GST period's home buyer bookings as 93,825 Sqft. and 4.77.645 Sqft. instead of 1,21.095 Sqft. and 3,76.015 Sqft. respectively only. Hence, the Respondent requested that the DGAP had to consider area of both pre-GST and post-GST period's home buyer bookings as 1,21.095 Sqft. and 3.76.015 Sqft. respectively. The Respondent was herewith re-submitting the details of pre-GST and post-GS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and, wherein, the Authority allowed the WCT credit i.e. deduction of turnover on which the sub-contractor had paid the WCT. The details of relevant clause under Karnataka Value added Tax Act and copy of assessment orders had been provided for immediate reference. Hence, it was requested to consider the said WCT tax credit for the pre-GST period in calculating ratio of pre-GST ITC to the turnover (pre-GST). Therefore, the DGAP was required to consider the WCT credit to the tune of Rs. 3,05,58,439/-, hence it was requested to consider the said WCT credit which the Respondent was entitled under Karnataka Value Added Tax Act. The DGAP. while taking the recalibrated base price for the purpose of calculating the excess collection of demand or anti-profiteering, had applied the ratio of Post-GST Input Tax Credit to the turuover (post-GST) on total demand received from the home buyers without excluding the demand recived from the home buyers, who made the bookings of Hats during the post-GST period i.e. on or after 1-7-2017 for the reason that there was neither change in the rate of tax nor any benefits of additional ITC. Further, with respect to the fiats booked on or after 1-7-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Buyers list (d-1) 18,92,50,513 183,97,15,637 Add: Collection received/receivable against demand for Flats as per Home Buyers list (d-2) 25,85,21,624 Total Collection received/receivable against demand for Flats as per Home Buyers list (D)(dl+d2) 18,92,50,513 209,82,37,261 6. Total Saleable Area (in SQF) (E) 6,74,475 6,74,475 7. Total Sold Area (in SQF) relevant to turnover (F) 1,21,095 3,76,015 8. Relevant ITC (G)-(A+Al) or B)*(F)/(E)} 1,25,72,144 12,18,57,056 Ratio of Input Tax Credit post-GST {(H) = (G)/)D)} 6.64% 5.81% From the above table-'A', 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 6.64 % and during the post-GST period (July, 17 to April. 2020), it was 5.81% for the project "Bollineni Silas" and the revised ratio of additional input tax credit comes to the tunc of (-) 0.84% (15.81% (-) 6.64%) of the turnover. Further, the Central Government, on the recommendation of the GST Council, had levied 18% GST (effective rate was 12% in view of l/3rd abatement for land value) on construction service, vide Notif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyer was already negotiated price after the introduction of GST i.e. the price at which flats was sold on or after 1-7-2017. The details of objective data maintained by the Respondent was as follows: a. sale price (mainly based on progressive of work i.e. considering the inventory carrying cost), b. cost details (including additional cost incurred during post introduction of GST), c. negotiated price, and d. Input Tax Credit. Based on such above objective data and as a matter of conservative approach, the average negotiated prices at which the Flats booked on or after 1-7-2017 was lower when compared to negotiated prices during the pre-GST period. Hence, there was no clement of the passing of benefit under section 171(1) of the CGST Act/SGST Act for unit home buyers whose agreement had been entered into in post introduction of GST. for the reason that there was neither change in the rate of tax nor there was any benefits of any additional ITC and the price agreed between the Respondent and such unit buyer was already negotiated prices after the introduction of GST. Recently in March 2021. in case of M/s DRA Aadithya Projects Pvt. Ltd. the Hon&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bankers were also conservative or denying financing the real estate projects. Accordingly, Respondent had brought in private loans such as NBFC for early completion of the construction in order to boost the sales. Accordingly, all these had led to increasing the project cost. Further, the COVID-19 had made further slow in bookings of flats which leads to increasing the inventory carrying cost, change in sale/price etc. Accordingly, due the above factors, the project experienced increased costs i.e. excess of expenditure incurred over revenue which was due to circumstances beyond the control of the Respondent. Further, the net-worth of Respondent had also been completely eroded. Statement of project revenue and cost incurred for the project of "Bollineni Silas' and copy of audited balance sheet for the FY 2019-20 had been provided immediate reference. F: The anti-profiteering provisions and the constitution of Authority under rule 122 was unconstitutional. The Authority, under the Goods & Services Tax Methodology and Procedure, 2018, had only provided the procedure, however, no methodology for computation of profiteering was provided. Accordingly, the taxpayer had been l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The DGAP had investigated the matter of additional benefit of ITC in respect of project which was launched before implementation of GST (pre-GST era) and continued in GST regime. This was done so because in the erstwhile tax regime (pre-GST), various taxes and cases were being levied by the Central Government and the State Governments, which got subsumed in the GST. Out of these taxes, the input tax credit (ITC) of some taxes was not allowed in the erstwhile tax regime. 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 service provider. Such input taxes, the credit of which was not allowed in the erstwhile tax regime, used to get embedded in the cost of the goods or services supplied, resulting in increased price. With the introduction of GST w.e.f. 01-7-2017, all these taxes got subsumed in the GST and the input tax credit of GST was 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 was allowed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the units in post-GST period was also equally eligible for the benetit of ITC. Furthermore, in the cases of benefit of Input Tax Credit in GST regime, in pre and post-GST regimes, the availability ITC had to be examined and compared. Without doing so. it would not serve the intent of the Statute. Therefore, the practice of comparing pre and post-GST prices and ITC availability was justified and correct. Further, as stated above that every recipient/customer was entitled to receive the due benefit of input tax credit from the supplier. Thus, under the provisions of section 171 of the CGST Act, 2017, each and every recipient/customer was entitled to receive the due benefit of input tax credit from the supplier, therefore, the recipients/customers who booked the units in post-GST period was also equally eligible for the benefit of ITC. B: No reduction in output rate of GST either from the pre-GST period to post-GST period or during the post-GST period to till date, hence the provisions of section 171 of CGST Act does not apply in this case. It was not a case of reduction in the rate of tax. It was a case of accrual of additional benefit of ITC on account of intro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered. Further, in the home buyers' list the total turnover during the post-GST period was reflected as Rs. 183,96,55,636- and not Rs. 183,97,15,637/- as claimed by the Respondent now. The pending receivable of Rs. 25,85,21,624/- stated to had been ignored during investigation was nowhere reflected in the submissions/data furnished by the Respondent during the course of investigation (copies of sereenshots of pre and post-GST turnover enclosed). As far as WCT credit was concerned, it was submitted that in the Details of Output and Input Tax Statement for the period April, 2016 to April, 2020, furnished by the Respondent during investigation reflected figures of Service Tax and GST but did not reflect any credit on account of WCT (copy of summary enclosed). Moreover, in para 13 of the Report dated 25-2-2021, it had been mentioned that - "The Respondent were not eligible to avail Input Tax Credit of VAT paid on Inputs as he had opted for composition scheme in the VAT regime." Therefore, the WCT credit was not considered in the investigation Report, and accordingly, the profiteering calculated by the Respondent taking his revised figures, which were not subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent. Hence all unit/flat buyers were eligible to get his due benefit of ITC from the Respondent irrespective of his bookings made in pre-GST or post-GST period. Whatever was the negotiated price, the benefit of additional ITC had to be specifically passed on to all the recipients by the Respondent. This benefit had to be passed on over and above any other kind of negotiations made with the homebuyers. However, section 171(1) of the CGST Act, 2017 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 was clear from the perusal of the above provision that it mentions "benefit o[' input tax credit shall be passed on to the recipient" which does not mean that the benefit of input tax credit was to be restricted to the customers/home buyers of pre-GST regime. Therefore, under section 171, the Authority had been mandated to ensure that the benefit which was a sacrifice of precious revenue from the stake of Central and State Governments was passed on to the recipients. The soul of this provision was the welfare of the consumers who was voicel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing provisions and the constitution of Authority under rule 122 was unconstitutional. The Parliament as well as all the State Legislature had delegated the task of framing of the Authority and the framing of the Rules under the CGST Act, 2017 on the Central Government as per the provisions of section 164 of the above Act. Accordingly, the Central Government in terms of section 171(3) of the CGST Act, 2017 read with section 2(87) of the Act. had prescribed the powers and functions of the Authority, on the recommendation of the GST Council, which was a Constitutional federal body created under the 101st Amendment of the Constitution, as per rules 127 and 133 of the CGST Rules, 2017. Further, the power to determine his own Methodology &. Procedure had been delegated to this Authority under rule 136 of the above Rules as per the provisions of section 164 of the above Act as such power was generally and widely available to all the judicial, quasi-judicial and statutory authorities to carry out his functions and duties. The above delegation had been granted to this Authority after careful consideration at several levels and therefore, there was no ground for claiming that the present d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-composition scheme, whenever the sub-contractor paid WCT on his turnover, the main-contractor is eligible to avail deduction of turnover and WCT paid to sub-contractor from his turnover and vice versa. Hence, with regard to turnover and WCT paid to sub-contractor the Respondent is eligible to avail the deduction of turnover and WCT tax paid to the sub-contractor as such WCT tax was paid by the sub-contractor to the Karnataka VAT department. Accordingly, the turnover declared by the Respondent in the VAT returns/assessment orders for the period ending 30th June, 2017 is Rs. 61,11,68,770/- which includes the WCT paid by the sub-contractor @ 5% amounting to Rs. 2,91,03,274/- for the which the Respondent (as main-contractor) is entitled for WCT credit as per the provisions of Karnataka VAT Act. Further, the Respondent has been assessed under Karnataka VAT Act and wherein the authority allowed the sub-contractor's turnover amounting Rs. 58,20,65,496/- and the WCT tax of Rs. 2,91,03,274/- totalling to Rs. 61,11,68,770/- i.e. deduction of turnover including WCT tax which the sub-contractor had paid to VAT department was allowed as deduction from total turnover amounting to Rs. 61,11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered only the amount received of Rs. 183,97,15,637/- against total demand raised (from all the customers who booked the flats upto April.2020) and hence ignored to consider the pending/receivable of Rs. 17,14,83,699/- against said demand. Accordingly, having ignored to consider the pending/receivable of Rs. 17,14,83,699/- against said demand it is resulted in higher side ratio of post-GST input tax credit to the turnover (post-GST) which is not correct and not justifiable under the GST provisions. Therefore, for the purpose of computing the relevant ITC in Table -A. the DGAP is required to consider the said pending/receivables of Rs. 17,14,83,699/-against demand raised. Hence, with regard to demand raised on home-buyers and payable to the Respondent amounting to Rs. 17,14,83,699/- the DGAP ignored to take into consideration form the home-buyers provided during investigation proceedings. Accordingly, it was requested to consider the submission and give proper direction to DGAP as deem fit in accordance with law. 6. We have carefully considered the Report furnished by the DGAP, the clarifications filed by him and the records of the case including the submissions made during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,165 Sft. respectively only. However, in Table-A the DGAP while arriving the Ratio of post-GST Input Tax Credit to turnover (post-GST) has considered the area of pre-GST and post-GST periods' home buyer bookings as 93,825 Sft. and 4,77,645 Sft. instead of 1,71,575 Sft. and 4,63,165 Sft. respectively. This claim of the Respondent needs to be examined from the documents already submitted. 8. Hence, in view of the above facts and observations, the Authority, without going into the merits of the case, directs the DGAP to re-examine/re-investigate and recalculate the amount of profiteering under rule 133(4) of the CGST Rules, 2017 strictly in respect of the findings made in para 7(i) to 7(iii) above and submit its Report within 3 months of this order. 9. Further, the Hon'ble High Court of Delhi, vide its Order dated 10-2-2020 in the case of Nestle India Ltd. v. Union of India [2020] 114 taxmann.com 488/80 GST 369 has held that: - "We also observe that prima facie, it appears to us that the limitation of period of six months provided in rule 133 of the CGST Rules, 2017 within which the authority should make its order from the date of receipt of the report of the Directorate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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