TaxTMI 
TaxTMI 
2019 (5) TMI 1607
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....ng profiteering by the Respondent in respect 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) Agreemen....
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...." 6. The Report has also stated that the Respondent claimed that on introduction of GST from 01.07.2017, it had thrown open a lot of challenges and 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 ....
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....ent had submitted the following documents:- (a) Copies of GSTR-1 returns for July, 2017 to June, 2018. (b) Copies of GSTR-3B returns for July, 2017 to June, 2018. (c) Copies of Tran-1 returns for transitional credit 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 purchas....
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.... or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier". Thus, the ITC pertaining to units which are under construction but not sold was provisional which was to be reversed in terms of Section 17 (2) & Section 17 (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 a....
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....E)] 3.06% 4.51% 14. The Report has further submitted that as could be seen from the Table-D', the ITC as a percentage of the total turnover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 3.06% and during the post-GST period (July, 2017 to June, 2018), it was 4.51%, which confirmed that post-GST the Respondent had benefited from additional ITC to the tune of 1.45% [4.51% (-) 3.06%] of the taxable turnover. Accordingly, vide Annexure24 of the DGAP's Report, the profiteered amount has been computed by comparing the applicable tax 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 ....
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....nt of Rs. 17,58,921/which pertained to only 51 home buyers (59,408 Sq. ft. Saleable Area). The Report also provided details of the home buyers and unit no. wise break-up of this amount as per Annex-24 of the DGAP Report and this amount is inclusive of Rs. 67,816/- (including 12% GST on the base amount of Rs. 60,550/-) which was the profiteered amount in respect of the Applicant No. 1, mentioned at serial no. 15 of the Annex-24 of the DGAP's Report. 17. The DGAP has further stated that though the Respondent had booked 263 apartments till 30.06.2018, 212 apartments were booked in the pre-GST period on payment of the booking amount but these buyers had not paid any consideration during the period from 01.07.2017 to 30.06.2018 (Post-GST-period under investigation). 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 profit....
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....Respondent, while Ms. Gayatri, Deputy Commissioner, Sh. Rana Ashok Rajneesh, Assistant Commissioner appeared on behalf of the DGAP. The Applicant No. 1 Sh. Sahil Mehta did not attend the hearing. Subsequently further hearings were held on 03 01.2019 and 31 .01.2019. 21. The Respondent vide his written submissions dated 05.12.2018 had maintained that the contents of the DGAP's Report were legally untenable and premature. He has also stated that the DGAP himself had admitted that the ITC availed was subject to restrictions/disallowance/reversals and since the project was under execution the final figures could not be computed. For the above reasons the DGAP should not have proceeded with computing of profiteering. He has further submitted that there was no attempt 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 ....
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....t:- Table-F Particulars Rs. In crores Pre-GST Post-GST Overall project cost 214.14 120.04 94.09 Composition Sub-contractors 127.79 76.59 51.20 Direct purchase of materials 48.36 31.36 17.00 Services 20.69 3.74 16.95 Professional & consultancy 6.55 3.68 2.87 Statutory approvals 7.52 2.86 4.66 Administration cost 3.22 1.80 1.42 TotaI 214.14 120.04 94.09 23. Further the Respondent submitted that he was registered under the composition scheme under the Karnataka VAT Act which allowed him deduction of payments made to the sub-contractors from the total turnover and no ITC was allowed under the Karnataka VAT Act for a composition dealer, while Service Tax was paid on 40% of the construction value with the benefit 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 projec....
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....nd further considering that he had cooperated with the anti-profiteering investigations there should not be any levy of penalty. If the registration was cancelled the Respondent would not be in a position to discharge his tax dues and comply with other procedural formalities, which would be detrimental to the interest of the revenue as well. ii) He has also submitted that Section 122 of the CGST Act, 2017 was also not to be invoked as there was no proof adduced by the DGAP regarding violations contemplated in section 122 of the above Act. None of the ingredients stated in the above section had been violated warranting penal action thereof and the specific violation of section 122 had not been mentioned in the notice and the charge was vague and unclear. The said section did not apply to the alleged anti-profiteering contraventions. iii) It is also submitted 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....
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....01 (SC) = 2018 (3) TMI 357 - SUPREME COURT. e. Life Insurance Corporation V. Escorts Limited & Others, 1986 (8) ECC 189 (SC) = 1985 (12) TMI 289 - SUPREME COURT. ix) The Respondent has also stated that Rule 133 of the CGST Rules, 2017 was ultra vires of the Act and hence could not be enforced and there could not be imposition of penalty or cancellation of registration in the facts and circumstances of the present case. 26. The DGAP in his supplementary Report dated 04.01.2019 has stated that he had no additional submissions to be made on the pleadings of the Respondent filed on 03.01.2019 and further the DGAP in his Report dated 27.03.2019 has stated that he had no comments on imposition of penalty and on the issue of applicability of GST on the additional charges in view of Service Tax. It was also stated that it was outside the statutory mandate to provide any comments on the above issue. 27. We have carefully considered 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 corpora....
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.... made payments before issuance of the occupancy certificate to the Respondent. Accordingly as seen from Table-E above the benefit to be extended to 51 home buyers for the period from July 2017 to June 2018 is determined as Rs. 19, 69,991/- which is also part of the DGAP's Report as Annex-24. The Respondent has admitted that this benefit had been passed on and has produced the credit notes issued to all the customers for an amount of Rs. 19,69,991/- which has been filed as Annex-A to his letter dated 05.12.2018 which is taken on record. 29. The Respondent has claimed that the order passed by this Authority in the case of Pyramid Infratech Pvt. Ltd. had been stayed by the Hon'ble Delhi High Court and had requested to keep the proceedings pending till the final order was passed. In the case of Pyramid Infratech Pvt. Ltd. the Hon'ble High Court had directed the Respondent to deposit 5,11,60,450/- without giving any findings on merits. So the question of 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 submissi....
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....yers and accordingly total profiteered amount was arrived at Rs. 19,69,991/- which has been discussed and confirmed by the Authority. The Respondent has admitted that 209 flats were sold by him and 42 flats were sold by the land owner after June 2018 and that the ITC benefit as estimated by him could be to the extent of Rs. 53/- per sq. ft. Since these facts were not before the DGAP and during the hearings documents have been produced admitting net benefit of ITC for the remaining home buyers of the project 'East Crest', the Authority under Rule 133 (4) of the CGST Rules, 2017 directs the DGAP to investigate the benefit of ITC to be passed on for the balance flats sold by the Respondent and the 42 flats sold by the land owner and submit his Report accordingly within a period of 3 months from the date of receipt of this order. 33. It is evident from the above facts that the Respondent has denied the benefit of the ITC to the buyer of the flats being constructed 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 th....