TaxTMI 
TaxTMI 
2019 (10) TMI 863
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.... dated 31.05.2018 filed by the Applicant No. 1 to the Standing Committee on Anti-profiteering under Rule 128 of the CGST Rules, 2017. The Applicant No. 1 had alleged in his application that the Respondent had increased the price of the flat after the introduction of GST w.e.f. 01.07.2017 and had not passed on the benefit of Input Tax Credit (ITC) by way of commensurate reduction in the price in respect of supply of construction service to him related to the purchase of Flat No. C1308, Tower-C, in the Respondent's project "Nikoo Homes II", situated in Bhartiya City, Chokkanahalli, Yelahanka, Bengaluru Karnataka. 2. The Standing Committee on Anti-profiteering vide the minutes of its meetings held on 07.08.2018 & 08.08.2018 had referred the above application to the DGAP for investigation under Rule 129 (1) of the CGST Rules, 2017 to determine whether the benefits of reduction in the rate of tax or ITC had been passed on by the Respondent to his recipients or not. The application was sent to the DGAP along with the details submitted by the Applicant No. 1 viz the duly filled in Form APAF-1, copies of intimation letters & receipts, copies of Agreem....
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....al projects by executing works contracts. The Respondent has further stated that he had no intention to deny the benefit of ITC to the customers. He has also submitted that taking in to account the size of the project which was spread over 4 to 5 years, in case there was accrual of benefit of ITC, it could only be computed at the end of the project and accordingly, he would pass on the ITC benefit, if any, to the buyers on completion of the project. 8. The Respondent has further submitted that the sale prices of the flats would be dependent on various parameters including surrounding developments, standard of life in that area, facilities like hospitals, schools, public transport, accessibility to various offices, airport, railway station, competition in the market and the demand and supply of homes, irrespective of the costs. He has also claimed that the flats would be sold over a period of 4 to 5 years and the customers who had purchased them in the beginning would enjoy price advantage over the other customers who had purchased them later. The Respondent has further claimed that the cost of constructing a flat was irrelevant in the context of pricing of the flat and therefore....
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....tory at the time of issue of the completion certificate by way of reversal of credit. 10. The Respondent has also intimated the DGAP that under the Karnataka Value Added Tax (VAT) and Service Tax laws, the following taxes were payable by him on the construction value (excluding land value), as has been shown in Table- 'C' below:- Table- 'C' S.No. Type of Levy Rate of Tax Abatement Effective rate of tax 1 Service Tax 14% 5.60% 2 Central Surcharges & Cesses 1% 60% 0.40% 3 State VAT 14.5% 30% 10.15% The Respondent has also stated that he had collected 5% VAT from his customers which was lower by 5.15% as compared to his actual tax liability. The collection of VAT at a rate lower than the actual tax rate amounted to passing on the benefit to the customers though not directly related to the GST credits or the anti-profiteering provisions. He has further stated that under the GST the abatement allowed for the value of land was 33.33%, whereas he had taken the value of land as 35% to 40% of the total agreement value which had resulted in lower tax liability for the Applicant No. 1, as has been sh....
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.... for the period from April, 2016 to June, 2017, details of turnover, output tax liability, GST payable and ITC availed and list of home buyers in the project "Nikoo Homes-II". The Respondent has also intimated that except copies of the GSTR-I and GSTR-3B returns for the period from July, 2017 to August, 2018, copies of VAT & ST-3 returns for the period from April, 2016 to June, 2017, copies of all demand letters, Sale Agreement, Contract issued to the Applicant No. 1, all other details/ information were to be treated as confidential, in terms of Rule 130 of the CGST Rules, 2017. 13. The DGAP in his Report has stated that the Respondent had vide his letter dated 09.10.2018 submitted a copy of the agreement to sell dated 16.03.2016, agreement to build/construct and demand letters for the sale of Flat No. C1308 to the Applicant No. 1, measuring 1,634 sq. ft., at the basic sale price of Rs. 5,168/- per sq. ft. The details of amounts and taxes paid by the Applicant No. 1 to the Respondent has been furnished in Table-'F' below:- Table-'F' (Amount in Rs.) S.No. Payment Stages Due Date BSP Other Charges Service Tax VAT GST Total Land Ot....
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.... if any, had to be determined at a given point of time, in terms of Rule 129 (6) of the above Rules and therefore, the additional ITC available to the Respondent, the amounts received by him from the Applicant NO. 1 and the other recipients post implementation of the GST, had to be taken into consideration to determine the benefit of ITC that was required to be passed on. 15. The DGAP has also intimated that para 5 of Schedule-III of the CGST Act, 2017 (Activities or Transactions which shall be treated neither as a supply of goods nor a Supply of services) reads as "Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, Sale of building". He has further intimated that clause (b) of Paragraph 5 of Schedule II of the CGST Act, 2017 reads as "(b) construction of a complex, building, civil structure 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". Based on these provisions the DGAP has stated that the ITC pertaining to the res....
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....ount paid on the purchase of inputs, deduction for payment to sub-contractors consequent to opting for State VAT Scheme and ineligibility for claiming CENVAT credit under the Finance Act, 1994, were different in the case in hand from those of M/s. Pyramid Infratech Private Limited and therefore, the facts of the above case and those of the Respondent were clearly distinguishable. 18. The DGAP has also intimated that Section 171 of CGST Act, 2017 provides that in the event of the benefit of ITC or reduction in the rate of tax, there must be a commensurate reduction in prices of the goods or services and it simply did not provide a supplier any other means of passing on the benefit of ITC or reduction in the rate of tax to the consumers. Therefore, the contention of the Respondent that the collection of VAT and Service Tax at lower rate than their actual liability, was a benefit already passed on to the customers, was incorrect and could not be considered as compliance of Section 171 of the CGST Act, 2017. He has also contended that the claim of the Respondent that he had given the deemed benefit of Rs. 41,628/- to the Applicant No. 1, by way of tax on the differential value of la....
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....om April, 2016 to August, 2018, the details of the ITC availed by him, his turnover from the project "Nikoo Homes-II", the ratio of ITC to turnover, during the pre-GST period from April, 2016 to June, 2017 and post-GST period from July, 2017 to August, 2018 periods, has been computed and furnished in Table-'G' below:- Table-'G' (Amount in Rs.) S.No. Particulars April, 2016 to March, 2017 April, 2017 to June, 2017 Total July, 2017 to March, 2018 April, 2018 to August, 2018 Total (Pre-GST) (Post-GST) (1) (2) (3) (4) (5)=(3)+(4) (6) (7) (8)=(6)+(7) 1. CENVAT of Service Tax Paid on Input Services (A) 5,76,63,250 1,85,41,614 7,62,04,874 - - - 2. Credit of VAT Paid on Purchase of Inputs (B) 53,85,784 41,53,319 95,39,103 - - - 3. Rebate of VAT(WCT) for the payment made to registered Contractors or Sub-contractors (C) 1,53,18,163 40,68,155 1,93,86,318 - - - 4. Input Tax Credit of GST Availed (D) - - - 13,07,42,364 13,09,35,260 26,16,77,624 5. Total CENVAT/VAT/Input Tax Credit Available (E)=(A)+(B)+(C) or (D) &nbs....
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....t availed post-GST (%) D=6.55% less 4.32% - 2.23 5. Analysis of Increase in input tax credit: 6. Total Base Price excluding land value raised during July, 2017 to August, 2018 E 2,04,02,02,792 7. Less: Base Price raised during July, 2017 to August, 2018 (Flats sold after 01.07.2017 as per new agreement) F 11,43,05,220 8. Base Price raised during July, 2017 to August, 2018 (Flats sold upto 30.06.2017) G=E-F 1,92,58,97,572 9. GST raised @ 18% over Base Price H=G*18% 34,66,61,563 10. Total Demand raised I=G+H 2,27,25,59,135 11. Recalibrated Base Price J=G*(1-D) or 97.77% of E 1,88,29,50,056 12. GST@18% K=J*18% 33,89,31,010 13. Commensurate demand price L=J+K 2,22,18,81,066 14. Excess Collection of Demand or Profiteered Amount M=I-L 5,06,78,069 22. The DGAP has claimed from Table-'H' above that the additional ITC of 2.23% of the taxable turnover should have resulted in the commensurate reduction in the base prices as well as cum-tax prices. The....
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....after considering the market conditions, escalations, demand-supply balance, GST concession, development in the locality, location of the land, proximity to educational institutions/ hospitals/ airport etc. and the prices so fixed were mutually negotiated and agreed upon as per Clause 6.4 of the Agreement to Sell which reads as "The Purchaser hereby agrees that the consideration agreed herein is based on the mutual negotiations between the Purchaser and the Seller as on the date of the application for allotment. It is made clear that after considering the above fact, the Purchasers shall have no right to claim any ITC benefits of sellers or reduction in cost due to changes in GST or renegotiate on the considerations in comparison with the other purchasers and/or for whatsoever reasons." The DGAP has claimed that the above argument of the Respondent had merit and therefore, the ITC pertaining to the above 409 units was outside the scope of this investigation as the selling prices of these units were negotiated between the home buyers and the Respondent taking into consideration the benefit of ITC. He has further claimed that out of the remaining 1304 flats [(1713) - (409)], 243 cust....
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....him to explain why the Report submitted by the DGAP in which allegation of violation of the provisions of Section 171 of the above Act has been levelled against him should not be accepted and penalty imposed. The Applicants and the Respondent were asked to appear before the Authority on 27.03.2019 for hearing. Six personal hearings were accorded to the parties on 27.03.2019, 11.04.2019, 24.04.2019 10.05.2019, 21.05.2019 & 14.06.2019 wherein the Applicant No. 1 was not present. Applicant No. 2 was represented by Sh. Bhupender Goyal, Assistant Director (Cost) and Sh. P. K. Tyagi, Superintendent. The Respondent was represented by Sh. Vijayakumar R., Vice-President (Finance) and Sh. Badrinath, Chartered Accountant. The Respondent was not present during the hearings scheduled on 11.04.2019, 10.05.2019 & 14.06.2019 as he had sought adjournments. The Respondent has attended the hearings held on 27.03.2019, 24.04.2019, 21.05.2019. 27. The Respondent has filed his first written submissions on 27.03.2019 vide which he has stated that computation of profiteered amount should be based on the cost and not the sale realisations. He has also stated that the provisions relating to profiteering ....
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....ty to various offices, access to airport and railway station and pricing of competitors and the demand and supply of the homes irrespective of their cost. 30. The Respondent has further claimed that the developers always aimed to achieve an overall betterment in the prices of the flats which would be sold over a period of 4 to 5 years from the date of launch of the project and even after obtaining the occupation certificate, therefore, the customers who had purchased flats initially would have price advantage over the customers who had purchased flats at a later point in time, irrespective of the GST. He has also contended that the cost of constructing a flat was wholly irrelevant in the pricing mechanism which had no role to play and the provisions relating to anti-profiteering more specifically on the availability of credits should not be applied to the developers. 31. The Respondent has further stated that the project generally took 4 to 5 years to complete, thus, the comparison of the input credits with output taxes should mandatorily be undertaken covering the entire life span and comparing of the output taxes with input credit for a part of a period or for the company a....
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....has recommended that the rate of GST on contracts for sale of residential units would be reduced from effective rate of 12% to 5%, but without ITC. This amendment would further negatively impact the cost of the project due to withdrawal of benefit of ITC which was granted earlier. He has also stated that the Karnataka VAT and the Service Tax components which were factored as eligible credits would now become cost of the project, under the new scheme of taxation. In the light of the denial of ITC and the consequent increase in the cost of the project, the Respondent has requested that before concluding the anti-profiteering proceedings the impact of this amendment on the project cost and alleged profiteering amount should be considered. He has also stated that the above amendment would not only take away all the benefits which the GST was to provide for the project but even the VAT and Service Tax components which were initially factored as eligible credits. He has again reiterated that he would compute and determine the ITC benefit that would accrue to him on account of the additional ITC and pass on the same to the eligible customers at the end of the project. 35. The Responden....
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..... It is clear from the plain reading of Section 171 (1) mentioned above that it deals with two issues one relating to the passing on of the benefit of reduction in the rate of tax and the second pertaining to the passing on of the benefit of the ITC. On the issue of reduction in the tax rate, it is revealed from the DGAP's Report that there has been no reduction in the rate of tax as the same was 16.15% in the pre-GST period and 18% in the post-GST period hence the only issue to be examined is as to whether there was any additional benefit of ITC with the introduction of GST. It is also revealed from Table G of the Report submitted by the DGAP that the Respondent has availed CENVAT/VAT credit of Rs. 10,51,30,295/- during the pre-GST period from April, 2016 to June, 2017 and ITC of Rs. 26,16,77,624/- during the post-GST period from July, 2017 to August, 2018. It is also apparent that the DGAP has taken area sold relevant to the turnover as per the home buyers list of the flats sold till 31.08.2018 as 16,86,966 sq. ft. for the pre-GST period and 22,33,585 sq. ft. for the post-GST period. He has further calculated the relevant CENVAT credit for the pre-GST period from April, 2016 to J....
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.... hence, it has no link with the outward supplies or sales. Therefore, the contentions of the Respondent made in this regard are untenable. 41. The Respondent has also claimed that the tax paid on services was not a real benefit when compared to the pre-GST regime as it has been increased from 15% to 18%. However, the claim of the Respondent is not correct as it is the total benefit of additional ITC which he has been given on account of purchase of goods and services which is required to be passed on and not only the ITC earned on the services. It is apparent from Table G supra that the Respondent has availed additional benefit of ITC to the extent of 2.23% of the turnover which he is required to pass on. The Respondent has also claimed full ITC on the GST paid on the services purchased by him and hence he has not suffered any additional burden and hence the claim made by the Respondent on this ground cannot be accepted. 42. The Respondent has also submitted that the prices of the flats were market driven and depended on various other parameters irrespective of their costs. It would be relevant to mention here that as has been admitted by the Respondent himself cost has no be....
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....n for true-up' and 'true-down' was introduced which was referred to as the 'partial rebating scheme' under the Karnataka VAT laws and the same provision was made under Rule 6 (3) the CENVAT Credit Rules, 2004 and hence, the benefit should be computed for the whole project and not for a specified period. In this connection it would be relevant to mention that the additional benefit of ITC has to be computed and passed on till such benefit is available/availed by the Respondent as per the provisions of Section 171 (1) of the above Act. Since the same is spread over a long period of time periodical calculation of the ITC benefit has to be made and benefit passed on to the buyers as they cannot be forced to pay more price than what is due from them after reducing the prices commensurately. 46. The Respondent has also contended that the provisions of Section 171 of the CGST Act, 2017 in the instant case should be applied for the project as a whole and not for a specific period. As already discussed above computation of the ITC benefit has to be made periodically as the Respondent is availing the benefit of ITC every month to discharge his output tax liability and using the amount of ....
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....ssing on the benefit of ITC. The Respondent has also argued that the findings recorded in the case of M/s. Pyramid Infratech Pvt. Ltd. supra did not apply in his case. The claim made by the Respondent is incorrect as the basic methodology applied in both the cases is similar except that some parameters are different. The DGAP has also cited the provisions of Schedule-III, para 5 of Schedule-II and Section 17 (2) and (3) of the CGST Act, 2017 to claim that the ITC will have to be reversed in respect of those flats which would be sold after issue of the completion certificate of the project. In this connection it would be pertinent to mention that the above provisions are not applicable in the facts of the present case as the completion certificate has not been issued yet. 49. It is also clear from the Report of the DGAP that the profiteered amount has been computed in respect of 1061 home buyers only from whom instalments have been received by the Respondent during the period from 01.07.2017 to 31.08.2018 whereas the Respondent has booked 1713 flats till 31.08.2018. It is further clear that the Respondent has sold 409 flats w.e.f. 01.07.2018 at the prices which were mutually agre....