TaxTMI 
TaxTMI 
2019 (5) TMI 1607
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....of purchase of a flat in the Respondent's project "East Crest" situated at No. 41, Bandapura Village, Bidarahalli Hobli, Bangalore- 560049. The Applicant No. 1 alleged that the Respondent had charged 12% GST on 2/3rd of the agreement value and 12% GST on the additional charges on which there was no Service Tax prior to GST and that the benefit of Input Tax Credit (ITC) had not been passed on to him by the Respondent by way of commensurate reduction in price of the flat after implementation of GST w.e.f. 01.07.2017. 2. The Applicant No. 1 had booked the flat on 31.07.2016 in the preGST period and had filed the payment details as has been shown in the Table A given below. The above application was examined by the Standing Committee on Anti-profiteering in its meeting held on 25.05.2018, and its minutes were forwarded to the DGAP for a detailed investigation:- Table- 'A' (Amount in Rs.) Particulars Land Value Construction Value Total Taxable Value Service Tax & VAT (10% on Construction) GST@12% Total (1) (2) (3) (4)=(2)+(3) (5)=(3)*10% (6)=(4)*10% (7)=(4)+(5)+(6) Agreement Value (A) 26,38,840 33,95,900 60,34,740 3,39,590 - 63 74,330 Paid in Pre-G....
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....d uncertainties in the indirect tax regime and hence the actual benefit on account of ITC could not have been ascertained immediately and he had to negotiate with the contractors, subcontractors and vendors for price reduction due to ITC that needed to be passed on. The Respondent has also claimed that various parameters such as prices of inputs and input services, increase or decrease in input tax credits after introduction of GST, negotiations with the vendors, eligibility to avail credit, restrictions and blocked credits in terms of Sections 16 and 17 of the CGST Act, relevant rules and other uncertainties due to interpretational nuances etc. needed to be considered before ascertaining the impact of GST. He has also claimed that the entire project would take a number of months to complete and hence, the impact of GST could be ascertained only upon completion or conclusion of the project and it would be premature to reach a conclusion on ITC benefit to be passed on based on assumptions and surmises. The Respondent contended that the provisions of Section 171 of the CGST Act, 2017 and the relevant rules could not be pressed into service as the project was yet to be completed. 7. ....
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.... availed. (d) Copies of VAT & ST-3 returns for April, 2016 to June, 2017. (e) Copies of all demand letters and sale agreement/contract & construction agreement dated 30.11.2016 in the name of 'Sheebeer Valiyakath Abdul Majeed' who is not an applicant in the present proceedings as the applicant had initially requested to keep his name confidential. (f) Tax rates- pre-GST and post-GST. (g) Computation of GST benefit to be passed on. (h) Copy of Balance Sheet for FY 2016-17. (i) Copy of Electronic Credit Ledger for 01.07.2017 to 31.08.2018. (j) CENVAT/lnput Tax Credit register for April, 2016 to June, 2018. (k) Details of taxable turnover and input tax credit for the project "East Crest". (l) List of home buyers in the project "East Crest" along with the details of land owners. 9. The DGAP in his Report has submitted that as per the payment schedule for the purchase of a flat measuring 1171 sq. ft. at the basic sale price of Rs. 5,153/- per sq. ft. the details of amount and taxes paid by the Applicant No. 1 to the Respondent were given as below in the Table-'C' - Table- 'C' (Amount in Rs.) S.No. Payment Stages Due Date Basic Other Charges Service Tax VAT G....
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....(3) of the CGST Act, 2017. Therefore, the Report has stated that the ITC pertaining to the unsold units was outside the scope of the investigation and the Respondent was required to recalibrate the selling price of such units to be sold to prospective buyers by considering net benefit of additional ITC available to them post-GST. 12. The Respondent has also contended that substantial portion (approx. 80%) of the construction activities were outsourced to sub-contractors, and accordingly the ITC was being availed by his sub-contractors and not by the Respondent. In this regard the DGAP has contended that this argument was not acceptable because the entire amount was available as ITC to the Respondent. Moreover, the subcontractors were also eligible for additional ITC which was not available to them earlier and on account of rationalization of tax rates, many of the inputs were also now available at the reduced prices. 13. The DGAP has also submitted that the Respondent had suo-moto accepted that he did not pass on the benefit of ITC to his customers but was willing to give an undertaking that at the end of the project, he would arrive at the ITC benefit to be passed on. The DGAP h....
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....x rate and the ITC available for the pre-GST period when Service Tax @6% and VAT@4% was payable with the post-GST period when the effective GST rate was 12%. On the basis of the figures contained in Table-'D' above, the comparative figures of ITC availed during pre-GST period and post-GST period have been tabulated in the Table-'E' below:- Table- 'E' S.No. Particulars Pre-GST Post- GST 1 Period A April, 2016 to June, 2017 July, 2017 to June, 2018 2 Output tax rate (%) B 10.00% 12.00% 3 Ratio of CENVAT/ Input Tax Credit to Taxable Turnover asper Table - D above (%) C 3.06% 4.51% 4 Increase in tax rate post-GST (%) D=12% less 10% - 2.00% 5 Increase in input tax credit availed post-GST (%) E=4.51% less 3.06% - 1.45% Analysis of Increase in input tax credit: 6 Base Price collected during July, 2017 to July, 2018 F 12,13,04,881 7 GST Collected @ 12% over Basic Price G=F*12% 1,45,56,586 8 Total Demand collected H=F+G 13,58,61,466 9 Recalibrated Basic Price I=F*(1-E) or 98.55% of F 11,95,45,960 10 GST @12% J=I*12% 1,43,45,515 11 Commensurate demand price K=I+J &nb....
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....tigation). However payments had been received only for 51 apartments. Therefore, according to the Report if the ITC in respect of the 212 apartments was calculated on account of the 51 units for which payment had been received after GST, the ITC as a percentage of turnover would be distorted and erroneous and therefore the Report has taken into consideration only the ITC that was relevant to the 51 apartments to arrive at the profiteered amount. 18. Finally the DGAP has submitted that the Respondent had benefitted with additional ITC of 1.45% of the taxable turnover which was required to be passed on to the Applicant No. 1 and other recipients. Thus the provisions of Section 171 of the CGST Act, 2017 had been contravened. The Respondent has realized an additional amount to the tune of Rs. 67,816/- from the Applicant No. 1 which included both the profiteered amount @1.45% of the taxable amount (base price) and GST on the said profiteered amount @12% which needed to be refunded to the Applicant No. 1. Further, the Report has stated that the Respondent had also realized an additional amount of Rs. 19,02,175/which included both the profiteered amount @1.45% of the taxable amount (base....
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....mpt to make profit by not passing on the benefit of ITC but rather suo-moto communication had been sent to all the eligible customers on 19.09.2018 stating that "As an esteemed customer we hereby wish to inform you that sum of Rs. 25/- per sq. ft. on the super built areas would be passed on to you on account of GST benefit. The final figures of GST benefit would be known only after completion of project as there are several factors to be considered, including the GST benefits passed on to us by our vendors. However, we are passing on this benefit on a provisional basis and in case the final figures arrived at, show more or less benefit to be passed on, then suitable steps would be taken to pass on the differential benefit and will be dealt accordingly" 22. The Respondent has also submitted that as per Annex-24 of the DGAP's Report he had issued credit notes to all his customers where payments were received after 01.07.2017. He has also submitted the details of 51 customers showing profiteered amount to be passed on as Rs. 19,69,991/- and has undertaken to pass on the additional benefit arising on account of ITC in the subsequent payments to be received from the home buyers in resp....
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....enefit of ITC. It is claimed that with introduction of GST there was no additional benefit of VAT on intra-state purchases as the entire project was sub-contracted and ITC was availed on the taxes paid on services, while CST benefit on inter-state purchases @2% had accrued to him. The Respondent has also submitted that 56% work of the project was completed prior to 30.06.2017 and procurement of all the goods was also completed before the implementation of GST. Therefore cost on services which was incurred post implementation of GST had resulted in additional benefit to him as such transactions were liable to service tax and eligible for ITC even before implementation of GST. 24. The Respondent has further submitted that the ruling given by the Authority in the case of Pyramid Infratech Private Limited vide case no. 7/2018 decided on 18.09.2018 = 2018 (9) TMI 1107 - NATIONAL ANTI-PROFITEERING AUTHORITY was not applicable to the real estate business. He has also emphasised that the Hon'ble High Court of Delhi has given an interim stay over the methodology adopted to compute the alleged profiteering in the above case. The Respondent has also submitted that there was no effective incr....
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....itted that Section 123 of the CGST Act, 2017 could not be invoked as this section applied only when a person failed to provide information in the return as per Section 150 of the CGST Act, 2017. There was no such allegation made out against the Respondent in the Report or notice and hence the said provision would not apply to the present case. iv) it is also claimed that Section 124 of the CGST Act, 2017 was not attracted as this section applied when there was failure to furnish statistics in terms of section 151 of the CGST Act, 2017 and since there was no such allegation made out against the Respondent in the Report or notice hence the said provision would not apply to the present case. v) He has also claimed that in the absence of mens rea or guilty mind Section 125 of the CGST Act, 2017 could not be invoked as this provision would not apply in the cases involving alleged profiteering. It was further submitted that even assuming without conceding that this provision was applicable there was a discretion to wave penalty, which was indicated by the words "extend to twenty-five thousand rupees' in the light of the facts and circumstances of the case and the Respondent would im....
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....the Reports submitted by the DGAP, the Respondent's submissions and all other material placed on record and it is revealed that the Respondent is engaged in the business of construction and selling of residential houses, having his corporate office at Bangalore which is duly registered under the GST. His only plea is that the construction service projects are to be treated differently as the prices of the flats were market driven and each and every project was spread over a period of 4 to 5 years. He has also claimed that he was registered under the composition scheme under the Karnataka VAT Act and under this scheme he was not eligible for any ITC but as far as Service Tax was concerned he had paid it on 40% of the construction value and had claimed the eligible credits. With the introduction of GST the only benefit he had got was CST @2% and the Central Excise Duty paid on the purchases from registered dealers. Thus overall there has been ITC benefit with the introduction of GST to him has not been denied. With regard to the present project his claim is that 50% of the work was completed prior to 01.07.2017 and only few activities were pending during the GST era which entitled hi....
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....f keeping the case pending does not arise. Moreover in the present case admittedly net benefit of ITC had accrued and partial amount has already been passed on to the home buyers. The records and the DGAP's Reports and various submissions made by the Respondent categorically show that there had been a net benefit to the extent of 1.45% which is purely based on the data submitted by the Respondent himself. 30. In view of the above facts the amount of profiteering in terms of Rule 133 (1) of the CGST Rules, 2017 is determined as Rs. 19,69,991/- including the GST @12% on the base profiteered amount of Rs. 17,58,921/- as per details furnished by the DGAP and admitted by the Respondent. He has also profiteered an amount of Rs. 67,816/- from the Applicant No. 1 which includes both the profiteered amount @ 1.45% and GST on the said profiteered amount @ 12%. Accordingly under Rule 133 (3) (a) of the CGST Rules, 2017 the Respondent shall reduce the price to be realised from the buyers of the flats commensurate to the benefit of ITC availed by him as has been discussed above. The Respondent has already refunded an amount of Rs. 67,816/- (including 12% GST) to the Applicant No. 1 and Rs. 19,....
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....cted by him in contravention of the provisions of Section 171 (1) of the CGST Act, 2017, where he had not only collected more price than the entitled amount but also collected more GST on the increased amount. The Respondent though aware of the fact that the net benefit of ITC had to be passed on to his buyers had not passed on the entire benefit till the completion of the investigation by the DGAP. The above act of the Respondent appears to be deliberate and conscious violation of the provisions of the CGST Act, 2017, thus he has committed an offence under Section 122 (1) of the CGST Act, 2017 and therefore he is liable for imposition of penalty. The Respondent has also submitted that the Show Cause Notice issued to him on 29.08.2018 has merely mentioned the provisions of Section 122-127 of the CGST Act, 2017 and Rule 133 of the CGST Rules, 2017 without specifying the exact allegations against him and the above Sections were not attracted in his case except for Section 125 which was general in nature. Perusal of the notice dated 29.08.2018 issued to the Respondent shows that he has been intimated that it was proposed to impose penalty under Section 122-127 of the CGST Act, 2017 re....