TaxTMI 
TaxTMI 
2019 (10) TMI 1083
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....under Rule 128 of the CGST Rules, 2017 by Applicant No. 1 alleging profiteering by the Respondent, in respect of purchase of a flat in the Respondent's project "ROF Aalayas" in Sector-102, Gurgaon, Haryana. The Applicant No. 1 alleged that the Respondent did not pass on the benefit of input tax credit to him by way of commensurate reduction in price at the time of introduction of GST w.e.f. 01.07.2017. Along with the application, the above Applicant submitted copies of the demand letters issued to him by the Respondent. 2. The Haryana State Screening Committee on Anti-profiteering examined the aforesaid application in its meeting held on 20.06.2018 and observed that the burden of tax had reduced in the GST era due to increased availability of input tax credit, which the builder should have passed on to the recipients in terms of Section 171 of the Central Goods and Services Tax Act, 2017. The State Screening Committee referred the said application with its recommendations to the Standing Committee on Anti-profiteering on 27.06.2018 for further action in terms of Rule 128 of the Rules. The aforesaid reference was examined by the Standing Committee on Anti-profiteering in its meetin....
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....Government, attracted GST @12% (effective GST @ 8% after 1/3rd abatement towards value of land) vide Notification No. 01/2018- Central Tax (Rate) dated 25.01.2018; that therefore, the total indirect tax burden on the project had increased by 3.5% after GST was introduced. iv. That in the pre-GST regime, he was allowed to avail input tax credit of VAT paid to his vendors/ sub-contractors; that the affordable housing sale price of 4,000/- per sq.ft. was fixed after considering the benefit of input tax credit of VAT/WCT; that, however, the Central taxes, i.e., Central Excise Duty & Service Tax levied on the goods & services used in the execution of Works Contract, the credit of which was not available in the pre-GST regime, was part of the cost of the project; and that in the GST regime, input tax credit of GST paid on all goods and services was available to him. v. That he, i.e. the Respondent was availing credit of Service Tax paid on the input services used towards the construction of the commercial project in the pre-GST period. 5. Vide the aforementioned letters and e-mails, the Respondent submitted the following documents/information:- i. Copies of GSTR-1 returns for the ....
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.... nor a supply of services) reads as "Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building". Further, clause (b) of Paragraph 5 of Schedule II of the Central Goods and Services Tax 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". Thus, the input tax credit pertaining to the residential units which were under construction but not sold, was provisional input tax credit which might be required to be reversed by the Respondent, if such units remained unsold at the time of issue of the Occupancy Certificate, in terms of Section 17(2) & Section 17(3) of the Central Goods and Services Tax Act, 2017, which read as under: Section 17 (2) "Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act a....
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....Tax Credit of GST Availed (C) 1,62,13,534 3,87,50,131 5,49,63,665 4 Total VAT Credit / Input Tax Credit Availed (D)= (A)+(B) or (C) 1,38,80,832 0 1,38,80,832 1,62,13,534 3,87,50,131 5,49,63,665 5 Turnover as per VAT returns / Home-buyer List (E) 28,74,19,637 - 28,74,19,637 7,73,08,375 51,65,81,557 59,38,89,932 6 Total Residential Area (in SQF) (F) 3,82,699 3,82,699 7 Total Sold Residential Area relevant to turnover (in SQF) (G) 3,41 ,889 3,36,980 8 ITC relevant to the sold Residential Area [(H)=(D)*(G)/(F)] 1,24,00,617 4,83,97,450 9 Ratio of Input Tax Credit to Turnover [(I)=(H)/(E*100)] 4.31% 8.15% 9. The DGAP has also reported that from the above table- 'B', it was apparent that the input tax credit as a percentage of the turnover that was available to the Respondent during the pre-GST period was 4.31% and during the post-GST period it was 8.15%, which implies that the Respondent has benefited from additional input tax credit to the tune of 3.84% [8.15%-4.31%] of the turnover. Further, the DGAP has reported that the Central Government, on the recommendation of the GST Council, had levied 1....
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....erefore, in terms of Section 171 of the Central Goods and Services Tax Act, 2017, the benefit of the aforesaid additional input tax credit that has accrued to the Respondent, was required to be passed on to the recipients. 11. The DGAP has stated that on the basis of the CENVAT/VAT/input tax credit availability during the pre-GST and the post-GST periods and the amounts collected by the Respondent from the above Applicants and other home buyers during the period 01.07.2017 to 24.01.2018, the amount of benefit of input tax credit that should have been passed on by the Respondent to the recipients, or in other words, the profiteered amount worked out to Rs. 33,24,879/- which included 12% GST on the base profiteered amount of Rs. 29,68,642/-. Further, the amount of benefit of input tax credit that should have been passed on by the Respondent to the recipients, during the period 25.01.2018 to 30.09.2018, worked out to Rs. 2,14,23,670/- which included 8% GST on the base profiteered amount of Rs. 1,98,36,732/. Therefore, the total profiteered amount during the period 01.07.2017 to 30.09.2018 worked out to Rs. 2,47,48,549/-, which included GST @12% or 8% on the base profiteered amount of....
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....upancy certificate has been issued. 14. The above report was considered by the Authority in its meeting held on 25.04.2019 and it was decided to hear the above Applicants and the Respondent on 15.05.2019. On 15.05.2019 Sh. Sandeep Kumar, Applicant No. 1 and Sh. Nitin Gambhir, Applicant No. 7 appeared in person and the DGAP was represented by Smt. Neelam Kapoor, Superintendent while Sh. Vaibhav Jain, Advocate and Ms. Garima Jain, Advocate appeared on behalf of the Respondent. Further hearings were held on 23.08.2019 and 12.09.2019. The Applicant No. 1 and 7 requested to provide copies of GST and VAT returns filed by the Respondent for the investigation period. The Applicants No. 2 to 6 were not present during the hearings. The Respondent further made his submissions on 14.05.2019, 24 05.2019, 05.06.2019, 23.08.2019, 12.09.2019 & 13.09.2019 Which may be summed up as follows:- a) That he was engaged in the business of construction of project "ROF Aalayas", an affordable housing project, located at Sector-102, Village Dhankot, District Gurugram, Haryana. b) That the report from DGAP dated 22-04-2019 which states that profiteering amounting to Rs. 2,45,75,633/- had been established....
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....ruction has increased due to increase in prices of inputs and other purchases after the introduction of GST and due to natural inflation, such as firming up of the prices of steel and cement and unprecedented increase in Minimum Wages; that consequentially, the estimated total cost of construction of his project which was estimated at the close of FY 16-17 as Rs. 1,53,91,33,634.08/-, had to be revised at the close of FY 17-18 as Rs. 1,65,91,33,634.08/- as per his audited books of account and Income Tax returns, which imply that the the actual cost of inputs has gone up by Rs. 12,00,00,000/- i.e. 7.79% from previous year, which needs to be incorporated in the calculation of the amount of profiteering; that the provisions of Section 171 of the CGST Act do not apply in his case as the sales prices of the flats are already regulated and the Respondent is prohibited from charging a price higher than the price fixed under the scheme of PMGKY. i) That the calculation of ratio of input tax credit to turnover for Pre-GST period as per Table B of the DGAP's Report was worked out as 4.31% without even considering the VAT input for the period from April 2017 to June 2017. This figure was not....
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....x, any sub-contractor providing services in relation to the exempted project were also exempt and now his output and input both are taxable under GST, which showed that there is no profiteering in respect of these expenses. q) That the services which do not have direct nexus to the construction and are more related to non-operating and indirect business expenses should not be considered for calculation of profiteered amount. Such services are Advertisement expenditure, AMC Charges, Audit Fees, bank Charges, Consultancy and insurance etc. r) That expenses only on account of goods that are used in construction of project should be considered while calculating profiteering and expenses on goods such as bike, laptop, and mobile should not be accounted for as these were either company assets or not related to construction of project. s) That earlier, input tax credit of VAT was available @ 13.125%/ 5%/5.25% and now GST credit is available @ of 28%/18%/12%/5% and the difference between these rates i.e. (18% - 13.125%) 4.875% is profiteering. t) That the Respondent is ready to pass on benefit amounting to Rs. 1,68,75,112/- to his home-buyers/ customers and since the total area of ....
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....ts in the Real Estate business and the DGAP's Report is with regard to one of his projects namely "ROF Aalayas" an affordable housing project in Sector-102, Village Dhankot, District Gurugram. On examining the various submissions we find that the following issues need to be addressed:- a. Whether there was any net additional benefit of ITC to the Respondent? b. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017, by not passing on the benefit ITC by the Respondent? 16. The Respondent has himself agreed to the profiteering and shown his willingness to pass on the benefit of additional ITC of Rs. 1,68,75,112/- received by him on the project to his customers vide his submissions dated 05.06.2019. While considering the various contentions made by the Respondent on the report of the DGAP, our findings are as under:- A. All the relevant documents were demanded by the DGAP vide his Notice of Initiation (NOI) dated 26.10.2018. As the Respondent failed to submit the required documents in the given time, further reminders requesting the Respondent to submit the remaining documents were issued by the DGAP. Since the last date for submission of investi....
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....bsence of any new facts and submissions regarding the case, or factual error in the report dated 22.04.2019, we find that there is no valid reason to refer the matter back to the DGAP. E. We find that the Respondent has contended that the Authority has not prescribed methodology for calculation of profiteering and consequently the DGAP has followed a methodology that is questionable and erroneous. In this regard, we/Authority observed that the profiteering and extent thereof is determined on cases to case basis, by adopting the most appropriate and accurate method based on the facts and circumstances of each case as well as the nature of the goods and services supplied. We reiterate that there cannot be any fixed mathematical formulations/methodology for determination of the quantum of benefit to be passed on which could cover different sectors of the economy and that each case has to be decided based on its specific facts. In this case, for calculation of profiteering, the increase in the Input Tax Credit as a percentage of total taxable turnover has been taken by the DGAP and we do not find anything incorrect therein. F. The Respondent has mentioned that the estimated cost of....
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.... period. However, as the details were submitted on the very last day, the changes could not be incorporated and rightly so because the Respondent had himself not submitted the requisite documents/returns knowing fully that the DGAP proceedings were time bound. We find that this act of the Respondent of non-submission of documents is just to derail the whole proceedings and enrich himself at the expense of the flat buyers. The delay in justice will hamper the interest of vulnerable home buyers investing in an affordable housing scheme. The arguments regarding number of flats and not considering the VAT ITC/turnover can be considered at the time of calculation of the final figures of the profiteering when occupancy certificate is received. In the interest of justice, we find no aberration in accepting the DGAP report. H. The variation in the number of flats mentioned in the submissions of the Respondent was provided to the DGAP by the Respondent only after the finalization of the investigation report. The data regarding number of flats has been considered for final calculations on the basis of the earlier submissions given by the Respondent himself on 18 04.2019 (Annex-IO of the Re....
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....ue has already been dealt with at para-10 and para-26 of the DGAP Report dated 22.04.2019. We also find that the present investigation by the DGAP covers the period from 01.07.2017 to 30.09.2018. Profiteering, if any, for the period post September, 2018 has not been examined by the DGAP as yet, since the exact quantum of input tax credit that would be available to the Respondent in future, cannot be determined at this stage when the construction of the project is yet to be completed. Hence the present report of the DGAP only covers the quantum of profiteering for the interim period as covered during the investigation and the matter merits to be revisited and finalized after completion of the project. M. We also observe that the Respondent has referred to a guidance note issued by ICAI. In this context, we find that the Investigation Report of the DGAP has not looked into the costing of the project and other requirements of ICAI being not relevant to the investigation. Also, for the purpose of calculation of profiteering, only demands raised as per the payment plan agreed upon during allotment of the units between the home-buyers and the Respondent in accordance with the guideline....
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....T Rules, 2017, failing which shall be recovered by the concerned Commissioner CGST / SGST and paid to the eligible house buyers. 19. From the above discussions it is clear that the Respondent has profiteered an amount of Rs. 2,47,48,549/- for the period of investigation. Therefore, in view of the above facts the Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondent shall reduce/refund the price to be realized from the buyers of the flats commensurate with the benefit of ITC received by him as has been detailed above. As far as the total additional input tax credit that will be available to the Respondent is concerned it cannot be determined at this stage when the construction of the project is yet to be completed and the DGAP is directed to carry out a comprehensive investigation at the time of issue of occupancy certificate. The present investigation is only up to 30.09.2018 and any additional benefit of ITC which shall accrue subsequently shall also be passed on to the buyers by the Respondent. In case this additional benefit is not passed on to the Applicant No. 1 to 7 or any other buyer shall be at liberty to approach the State Screening Committee....