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TMI Blog2022 (8) TMI 1512X X X X Extracts X X X X X X X X Extracts X X X X ..... on purchase of Apartment No. 503, Tower-E, from the Respondent in the Project "Panchshil Towers" situated at Kharadi, Pune on the introduction of GST w.e.f. 01.07.2017, in terms of Section 171 of the CGST Act, 2017. 2. The DGAP in his Report dated 25.10.2021, inter-alia stated that: - i. The said application was then examined by the Standing Committee on Anti-profiteering in its meeting, the minutes of which were received in the DGAP's Office on 11.11.2020, whereby it was decided to forward the same to the DGAP to conduct detailed investigation in the matter. Accordingly, an investigation was initiated to collect the evidence necessary to determine whether the benefit of ITC had been passed on by the Respondent to his customers in respect of the construction service supplied by the Respondent. ii. On receipt of the reference from the Standing Committee on Anti-profiteering, a notice under Rule 129 of the Rules was issued by the DGAP on 07.12.2020, Calling upon the Respondent to reply as to whether he admitted that the benefit of ITC had not been passed on to his customers by way of commensurate reduction in price and if so, to suo moto determine the quantum thereof and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and e-mails dated 21.12.2020, 08.01.2021, 08.02.2021, 04.03.2021, 13.08.2021 and 26.08.2021. The Respondent stated that he had passed on the benefit of ITC of Rs.4,25,35,150/- to 53 homebuyers. vii. Vide the aforementioned letters & emails, the Respondent submitted the following documents/ information: a. Copies of GSTR-1 returns for the period July 2017 to November 2020. b. Copies of GSTR-3B returns for the period July 2017 to November 2020. c. Copies of GSTR-9 returns for the period FY 2017-18 & 2018-19. d. Electronic Credit Ledger for the period July 2017 to November 2020. e. Copies of Service Tax for the period of April 2016 to June 2017 & VAT returns for the period April 2016 to June 2017. f. Details of applicable tax rate before and after GST Regime. g. Financial Statement for the FY 2016-17 to FY 2018-19. h. Agreement executed with the landowners. i. Demand letters and Agreement executed with the Applicant. j. Completion Certificate for Tower-A, B, D. and E. k. Details of Tran-1 credit. l. Flat sale agreement executed with buyers. m. Summary of Input Tax Credit. n List of home buyers in the Project "Panchshil Towers". o. Booking documents o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of exempt supply under sub-section (2) shall be such as might be prescribed and shall include Supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale or budding". Therefore, ITC on the unsold units was outside the scope 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 proportionate additional ITC available to him post-GST. xi. The Respondent is a Developer and is engaged in the construction of the buildings. He was earlier registered as an assessee with VAT & Service Tax Department up to 30.06.2017. Thereafter, he was registered with the GST Department vide Registration No. 27AADCP6098D1Z8 foe providing taxable service under the category of construction services. xii. As regards the allegation of profiteering, it was observed that before 01.07.2017, i.e., before the GST was introduced, the Respondent was eligible to avail credit of Service Tax paid on the input services (CENVAT credit of Central Excise duty was not available) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2017." However, to examine this aspect, all Original application forms concerning all the buyers who had booked flats in the post-GST period were required to be scrutinized. As per the homebuyers list submitted by the Respondent, it was observed that 212 buyers had paid an amount of Rs.3,12,25,31,669/- had purchased the flats from the Respondent in the post-GST period. As such all the Application forms which were signed by the buyers were required to be scrutinized. On scrutiny of these original application forms in respect of 212 buyers, it was found that these documents mentioned that it was agreed between the Respondent and the buyers that the benefit of input credit of GST was already considered in the consideration value and passed on to the said purchaser and henceforth, the buyers would not demand any separate discount/setoff or claim against the GST. Therefore, it was observed that the Respondent's contention that the benefit of ITC provision as under Section 171 of CGST Act, 2017 was already considerod in the consideration value which was mentioned in all the builder buyers agreements in respect of post GST buyers, was correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of such additional ITC was required to be passed on to the recipients. xvii. It was evident from the above calculation explained in Table B based on the aforesaid CENVAT/ITC availability pre and post-GST and the details of the amount collected by the Respondent from the customers/homebuyers in respect of the flats sold by the Respondent during the period 01.07.2017 to 30.11.2020, the benefit of ITC that need to be passed on by the Respondent to the buyers of flats worked out to Rs.1,96,69,483/- including 12% GST on the base amount of Rs.1,75,62,038/-. The homebuyer and unit-wise break-up of this amount was given in Annex-14 of the Report. This amount was inclusive of the profiteered amount of Rs. 24,997/- (including GST) in respect of Applicant No. 1 mentioned at serial no. 244 of Annex-14 of the Report. xviii. The Respondent in his submission stated that he had passed on the additional benefit of ITC of Rs 4,25,35,150/- to 53 home buyers, which had accrued after the implementation of GST. The Respondent had also submitted details of home buyers and the amount passed on to the individual home buyers. To cross-check the claim of the Respondent, e-mails were sent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts to be passed on to each of the homebuyers were given in Annex-14 & 16 of the Report. The Respondent claimed that he had passed on more than commensurate benefit to certain homebuyers. DGAP has further observed that any excess benefit claimed to have been passed on by the Respondent to some of the recipients cannot be offset against the additional benefit required to be passed on to other home buyers who did not receive the commensurate benefit as each recipient/home buyer was entitled to receive the commensurate benefit. 3. Therefore. the DGAP has concluded that:- i. Based on the above Investigation Report, it had been observed that the Respondent has profiteered Rs.1,96,69,483/- inclusive of GST, after the implementation of GST. The profiteered amount 1.90% of the turnover. The Respondent has also claimed that he had passed on the benefit of ITC amounting to Rs.4,25,35,150/- to the home buyers. On verification, 48 buyers have confirmed that the benefit of GST /Input Tax Credit has been received, and another 4 buyers did not respond. Further, from the above it was also observed that the Respondent was yet to pass on an additional amount of Rs. 78, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment by him was taken from the Website or the Respondent (copy attached with his submissions). It might be seen that the Respondent has taken excess payment over and above the billed amount to the tune of Rs. 17,966,25/-. It was relevant to submit that against his liability to pay Rs.3,31,36,500/- as per the offer letter, he has paid Rs.3,32,47,493.75/-, an excess of Rs. 1,10,493.75/- despite the Government claiming that buyers would be gainers on the introduction of GST. iv. That he paid 96% of the flat and other infrastructure mentioned in Para (5) (ii) above as per faulty offer conditions stipulated in the offer letter which unduly benefited the Respondent. He has paid Rs.3,10,22,640/- up to 12 Jul 2017 including the taxes and registration fee. More than 100% of the cost of the flat was paid to the Respondent, as billed, solely for profiteering in an unfair manner. 6. The Respondent filed his written submissions vide letter dated 27.04.2022 in which he submitted:- i. No methodology is prescribed to derive profiteering; thus, loading to arbitrary exercise of powers by the DGAP. a. That none of the provisions of GST laws had prescribed any mechanism or methodology determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the price to the same extent as benefit accrues due to the availability of ITC. a. That the entire concept of passing on the benefit/ burden of tax to the customer was not envisaged through tax law. The levy of tax under GST was on the supplier and he/she might choose to pass it on to the customer or bear the burden himself/herself. The passing of the burden of the tax was not determinative of the nature of the tax Reliance could be placed on the decision of the Hon'ble Supreme Court in the case of British India Corporation Ltd vs CCE 1978 (2) ELT J307 (SC). b. That the DGAP sought to make it imperative and mandatory to pass on all the credit availed by the Respondent to the Consumer. This interpretation by the DGAP of the anti- profiteering provision is unconstitutional and against the basic tenant of taxation itself. c. That if the computation exercise was only supposed to be a mathematical calculation, then the legislature should have stated the same. There was also no requirement for the legislature to prescribe Rule 126 of the Rules. It was law that legislation was required to be read in entirety and no part of it could be made otiose or redundant. Reliance was place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corresponding assumption of risk, or by doing so unethically Wiki Diff online 5 Any conduct or practice involving the acquisition of excessive profits Mount vs Welsh The above meanings/ definitions/ connotations read together with the FAO (supra) suggest that profiteering could be concluded only if a wilful lack of fairness was noted in a given profiting scenario. This was possible only when (a) any inclement margins or profits were made (in comparison to the base scenario with similar facts & circumstances) and (b) Such incremental profit was not a derivative of action, which confirms established practice and pricing trends (and is, therefore, unfair businesswise). Further, a bare reading of the aforementioned definitions dearly suggests that profiteering was only when a person makes excessive, unreasonable. or exorbitant profits. The act of earning profits per se was not profiteering. The Notices submits that in the present case it has not made any exorbitant or unreasonable profits unlawfully. Accordingly, it cannot be said that the Respondent has profiteered. d. In the present case, two supplies were comparable and prices were extremely dynamic and could go up and do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g at the difference of ratio of CENVAT Credit to taxable turnover in the pre-GST regime vis-a-vis ratio of ITC to the Taxable Turnover during the period July 2017 to November 2020, which was clearly not in line with the intention of Section 171 of the CGST Act and hence an Incorrect approach for a real estate Project. Some of the shortcomings and/or errors in the approach adopted by the DGAP have been as follows: a. The term 'Anti-Profiteering' in Section 171 or the CGST Act connoted that no registered person should make additional profits on the transition to GST in respect of the taxes which were not available as credit under the erstwhile re-gime and hence included in the cost which however on implementation of GST, did not remain as cost and accordingly such benefit of non-creditable taxes should be passed on to the end customer. However, the taxes paid on services were available as credit even under the erstwhile regime and the price was accordingly determined. Accordingly, such taxes should not be considered for computing the benefit under Anti-profiteering. b. Any increase in the rate of tax cannot be considered as the reason for Anti-Profiteering under the GST regime, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause of different purchase patterns of inputs like cement, steel, fittings, etc.; area sold; taxable turnover, etc. before or after the GST implementation, For example, consider a Project which was completed only 10% before the implementation of the GST, and the remaining was completed after the GST came into force and there was another Project which was completed 90% before the GST, and 10% after the implementation of the GST. The above parameters would vary substantially in both of these cases, Different schemes of payment exist in the real estate sector like construction-linked plans and subvention schemes, hence payment schedules would be different in both these schemes. There Were different Projects in the real estate sector like residential units or commercial units or combinations. The government had also launched schemes like affordable housing scheme which add further variations in facts of each case. The date of commencement and date of completion differs from one Project to another. For example, a Project started in 2013 but only 60% was completed before the introduction of GST whereas another Project started in the same year but only 30% was completed during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t acted in any manner as a price controller or regulator in a free market economy as it does not have the legislative intent to regulate when it comes to price hike decisions. The supplier was free to exercise his right to practice any profession or to carry any occupation, trade or business as Article 19 (1) (g) of the constitution protects it. The supplier could fix any margin of profit he wants but the event of invocation of Section 171, the Authority has been mandated to ensure that the benefit (which was a sacrifice of precious revenue from the kitty of the Central and State Government in a State) of reduction of the rate of tax and ITC was passed on to the recipient. The soul of these provisions was the welfare of the consumer who are voiceless, unorganized, and scattered. The DGAP/Authority has nowhere interfered in the business decisions of the business decisions of the Respondent. iv. That under the provisions of Section 171 of the CGST Act, 2017, no tax is being levied or collected from the Respondent. However, Section 171 of the CGST Act, 2017, mandates that any benefit of reduction in the rate of tax or additional benefit of ITC which accrues to a supplier must be pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egations made in the DGAP's Report and without prejudice to the submissions already made vide letter dated 27.04.2022, as an abundant precaution, he has accepted the liability quantified in the Report dated 25.10.2021 and intends to pay the balance amount to the customers and the Respondent has also requested that the final Order of this Authority be issued without being personally heard. 9. Further, in the interest of natural justice, the Respondent and Applicant No. 1 were given an opportunity for a personal hearing in the matter on 17.06.2022. The hearing, held on 17.06.2022 via video conferencing, was attended by Sh. Madhumal Panjumal Keswani, Applicant No. 1 in person and Sh. Shivendu Pandey, Superintendent, for the DGAP. During the hearing, Applicant No. 1 reiterated his earlier submissions dated 05.04.2022 and 28.05.2022. 10. This Authority has carefully considered the Report furnished by the DGAP, all the submissions and the other material placed on record, and the arguments advanced by the Respondent. On examining the various submissions, the Authority finds that the following issues need to be addressed.- i. Whether there was any violation of the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons "any supply" which connotes each taxable supply made to each recipient thereby making it evident that a supplier cannot claim that he has passed on more benefit to one customer on a particular therefore he would pass less benefit or no benefit to another customer than what is actually due to that customer, on another product. Each customer is entitled to receive the benefit of tax reduction or ITC on each product or unit or service purchased by him subject to his eligibility. 13. The term "commensurate" mentioned in the above Sub-Section provides the extent of benefit to be passed on by way of reduction in the price which has to be computed in respect of each product or unit or service based on the price and the rate of tax reduction or the additional ITC which has become available to a registered person. The legislature has deliberately not used the word 'equal' or 'equivalent' .In this Section and used the word 'Commensurate' as it had no intention that it should be used to denote proportionality and adequacy. The benefit of additional ITC would depend on the comparison of the ITC/CENVAT credit which was available to a builder in the pre-GST period with the ITC available to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted in the case of one sector cannot be applied to the other sector. Moreover, both the above benefits are being given by the Central as well as the State Governments as a special concession out of their tax revenue in the public interest and hence the suppliers are not required to pay even a single penny from their own pocket and therefore, they are bound to pass on the above benefits as per the provisions of Section 171 (1) which are abundantly clear, unambiguous, mandatory and legally enforceable. The above provisions also reflect that the true intent behind the above provisions, made by the Central and the State legislatures in their respective GST Acts, is to pass on the above benefits to the common buyers who bear the burden of tax and who are unorganized, voiceless and vulnerable. It is abundantly clear from the above narration of the facts and the law that no elaborate mathematical calculations are required to be prescribed separately for passing on the benefit of ITC and computation of the profiteered amount. The Respondent cannot deny the benefit of ITC to his customers on the above ground and enrich himself at the expense of his buyers as Section 171 provides a clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules, 2017. Further, the power to determine its Methodology & Procedure has been delegated to this Authority under Rule 126 of the above Rules as per the provisions of Section 164 of the above Act as such power is generally and widely available to all the judicial, quasi- judicial and statutory authorities to carry out their functions and duties. The above delegation has been granted to this Authority after careful consideration at several levels and therefore, there is no ground for claiming that the present delegation is excessive. Since the functions and powers to be exercised by the Authority have been approved by competent bodies, the same are legal and binding on the Respondent and they cannot be termed to be arbitrary or excessive. It is also submitted that this Authority is a quasi-judicial body and is not an adjudicating authority as is dear from the provisions of Section 2 (4) of the CGST Act, 2017. 18. The Respondent has contended that Section 171 was unconstitutional in so far as it seeks to regulate prices. The Respondent has submitted that if this finding of DGAP is accepted then Section 171 of the CGST Act is itself unconstitutional as at seeks to regulate prices. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts or if a registered supplier avails the benefit of additional ITC the same have to be passed on by him to his recipients since both the above benefits are being given by the above Governments out of their tax revenue Under Section 171 this Authority has only been mandated to ensure that both the benefits of tax reduction and ITC which are the sacrifices of precious tax revenue made from the kitty of the Central and the State Governments are passed on to the end consumers who bear the burden of tax. The intent of this provision is the welfare of the consumers who are voiceless, unorganised and vulnerable. This Authority is charged with the responsibility of ensuring that the both the above benefits are passed on to the general public as per the provisions of Section 171 read with Rule 127 and 133 of the CGST Rules, 2017. Hence, the contention of the Respondent is not tenable. Therefore, the cases of Voltas Limited vs. State of Gujarat 2015 VIL 23 (SC) and British India Corporation Ltd. CCE 1978 (2) ELT J1307 (SC) relied upon by the Respondent do not pertain to anti-profiteering and are clearly not applicable in the present matter. Hence, the contention of me Respondent is not cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofiteered from such an amount. In this connection, the Authority holds that the Respondent has not only collected excess base prices from his customers which they were not required to pay due to the benefit of ITC but the Respondent has also compelled his customers to pay additional GST on these excess base price which they should not have paid. By doing so, the Respondent has defeated the very objective of both the Central and the State Governments which aimed to provide the benefit of rate reduction to the general public, the Respondent was legally not required to collect the excess GST and therefore, he has not only violated the provisions of the CGST Act, 2017 but has also acted in contravention of the provisions of Section 171 (1) of the Act supra, as he has denied the benefit at ITC to his customers by charging excess GST. Had he not charged the excess GST the customers would have paid less price while purchasing houses from the Respondent and hence above amount has rightly been included in the profiteering amount. The Profiteered amount could also not be paid from the GST deposited in the account of the Central and State Governments by the Respondent as the amount is requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant case, as Rs.1,96,69,483/- for the Project "Panchshil Towers'. This Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondent shall reduce the prices to be realized from the buyers of the flats commensurate with the benefit of ITC received by him as has been detailed above. 26. Given the above discussions, the Authority finds that the Respondent has profiteered by Rs.1,96,69,483/- for the Project "Panchshil Towers" during the period of Investigation i.e. 01.07.2017 to 30.11.2020. The above amount that has been profiteered by the Respondent from his home buyers/customers/recipients in the above said Project 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, under the provisions of Rule 133(3) (b) of the CGST Rules, 2017. 27. The Respondent is also liable to pay Interest as applicable on the entire amount profiteered, i.e. Rs.1,96,69,483/- for the Project "Panchshil Towers". Hence the Respondent is directed to also pass on Interest @18% to the customers/ flat buyers/ recipients on the entire amount profiteered, starting from the dale from which the above a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts can claim the benefit of ITC if not passed on Homebuyers/customers/recipients may also be informed that the detailed NAA Order is available on Authority's website www.naagov.in Contact details of the concerned Jurisdictional CGST/SGST Commissioner may also be advertised through the said advertisement. 31 The concerned jurisdictional CGST/SGST Commissioner shall also submit a Report regarding the compliance of this Order to this Authority and the DGAP within a period of 4 months from the date of this Order. 33. It is clear to us that the Respondent has profiteered in the project 'Panchshil Towers'. Therefore, as per the provisions of Section 171(2) of the CGST Act, 2017, this Authority has reasons to believe that there is a need to verity all the Input Tax Credits of the Respondent so as to arrive at the aggregate profiteering of the Respondent, since profiteering on the part of the Respondent has already been established in the case of 'Panchshil towers' project of the Respondent as also the fact that supplies from various projects of the Respondent are being made through a single GST registration and the same ITC Pool/Electronic Credit Ledger being used for all the supplies b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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