TaxTMI 
TaxTMI 
2019 (10) TMI 1083
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....tate Screening Committee on Anti-profiteering, 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 Stan....
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....area of 60 sq. mtr. per house, in a housing project approved by the State 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 Respond....
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....1,726 2,93,262 Total 87.50% 21,72,275 58,380 76,040 23,16,693 7. After detailed investigation, the DGAP has, in his report dated 22.04.2019, inter-alia reported that para 5 of Schedule-III of the Central Goods and Services Tax 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". 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 i....
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....2017 to June, 2017 Total (Pre-GST) Turnover for the period 01.07.2017 to 24.01.2018 (when GST @ 12%) Turnover for the period 25.01.2018 to 30.09.2018 (when GST @ 08%) Total (Post-GST) (01.07.2017 to 30.09.2018) 1 CENVAT Credit of service Tax Paid on Input Services (A) 0 0 0 - - - 2 Credit of VAT Paid on Inputs (B) 1,38,80,832 0 1,38,80,832 3 Input 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)] ....
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.... 92,77,005 4,13,26,525 8 Total Cum-tax Demand G=E+F 8,65,85,380 55,79,08,082 9 Recalibrated Base Price I=E*(1-D) or 96.16% of E 7,43,99,733 49,67,44,825 10 GST applicable J=I*12% or 8% 89,20,768 3,97,39,586 11 Commensurate Demand Price K=I+J 8,32,60,501 53,64,84,411 12 Excess Demand/Profiteering L=H-K 33,24,879 2,14,23,670 10. The DGAP further stated that from table- 'C' above, it appeared that the additional input tax credit of 3.84% of the turnover should have resulted in commensurate reduction in the basic price as well as cum-tax price. Therefore, 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 ....
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....was required to be passed on to the above Applicants and the other eligible buyers, who were identifiable based on the documents placed on record. The DGAP report states that an aggregate amount of Rs. 2,47,48,549/- was required to be returned to all the eligible recipients as per the present investigation which covered the period from 01.07.2017 to 30.09.2018. It has been categorically clarified by the DGAP that profiteering, if any, for the period post September, 2018 has not been examined as the exact quantum of input tax credit that would be available to the Respondent in future, could be determined at this stage when the construction of the project was yet to be completed and no occupancy 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....
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....e recipients as required under rule 126 of CGST Rules, 2017, the investigating agency has followed approach of comparing average ratio of input tax credit with turnover, which is not feasible or appropriate in case of real estate business and which is also clearly against basic principles of accounting i.e. matching concept, whereby the accrual of input tax credit may not necessarily match with sales / output of current accounting period. g) That the said basis adopted by the Investigating agency is bad in law and the amount calculated is not depictive of actual affairs. The approach adopted by the agency in calculation of the amount of Profiteering is theoretical and not justifiable in courts of law. h) That his cost of construction 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. 1,65,91,3....
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....pies of VAT and GST returns as requested by the Applicant No. 1 and 7 should not be provided as the details contain confidential information. n) That he was also submitting calculation of profiteering as per his understanding with assumptions and formula to enable the authority to take a view on the same. o) That his Project falls under the exemption entry in the pre GST era therefore, the output services were not taxable under the Service Tax; that both the Input as well as output tax were exempted under the service tax, while input of WCT was available, hence the entire input on sub-contractor's payment was fully allowable and therefore there is no profiteering in respect of input on bills of labor or other contractor payments. p) That as he was exempted under Service Tax, 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 co....
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.... As per return VAT Return* 66,92,31,924.00 13,38,05,290.00 - - 80,30,37,214.00 GST Return* - 25,18,10,348.00 51,21,10,760.57 49,37,17,292.04 1,25,76,38.400.61 Total (b) 66,92,31,924.00 38,56,15,638.00 51,21,10,760.57 49,37,17,292.04 2,06,06,75,614.61 Difference (a) - (b) 0.00 He also attached a copy of the turnover reconciliation. w) That he is required to reverse the input tax credit on unsold units approximately amounting to Rs. 29, 20,000/-. A copy of calculation sheet was also attached. In view of above submissions he requested to drop the proceedings, since the benefit of ITC had been passed on and also the time period given under Rules of CGST, Rules 2017 had elapsed. 15. We have carefully considered the Report of the DGAP, submissions made by the Respondent and based on the record it is revealed that the Respondents 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....
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.... one hand the Respondent claims that he assumed that the investigations were closed by the DGAP in a hurry and on the other hand, in points raised subsequently he has himself admitted to having profiteered. We find that this conduct of the Respondent only shows that he had been attempting to derail the investigation and delay the proceedings by not submitting required documents in time. C. Further, the investigation report was finalized by the DGAP based on the data and information which was as provided by the Respondent only. There is no provision under CGST Rules, 2017 under which the DGAP, is supposed to give formal hearing of personal hearing to the respondent, in case he is found to have contravened the provisions of Section 171. Further, the Authority affords ample opportunity to any Respondent during the courses of its proceedings and hearing, to put-forth any contentious grievances. Hence, the respondent's claim that the basic principles of natural justice were not followed by the DGAP does not hold. D. In the absence 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 ....
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.... law. In the instant case, all documents submitted on or before 18.04.2019 were duly taken into consideration by the DGAP for the purpose of finalisation of profiteering and Report. In the instant case, for calculation of profiteering, the increase in the Input Tax Credit as a percentage of total taxable turnover has been taken. During investigation, only the VAT returns for the period 01.04.2016 to 31.03.2017 were made available to the DGAP and despite repeated reminders the Respondent did not furnish the returns pertaining to the period from April to June 2017. The Respondent did so only on 22.04.2017, which was the last day for submission of the investigation report by the DGAP by the Authority. Therefore increase in ITC as percentage of total taxable turnover for the impugned period 01.04.2016 to 31.03.2017 with the Post-GST period was only considered in the investigation Report dated 22.04.2019. It is also pertinent that in the methodology followed by the DGAP, if VAT input is accounted for, consequently VAT turnover shall also increase for the impugned period. However, as the details were submitted on the very last day, the changes could not be incorporated and rightly so bec....
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....le to the Respondent in the erstwhile regime has been completely ignored. K. We also find that Respondent has contended that only saving in basic expenditure of construction due to reduction in prices on change of regime would lead to profiteering. This contention is also not in conformity with Section- 171 of CGST Act, 2017 which Stipulates that any reduction in rate of tax on supply of goods or services or the benefit of input tax credit shall be passed on to the recipients by way of commensurate reduction in prices. The statutory position regarding definition of profiteering is contained in Section 171 of the CGST Act, 2017 and the rules made there under, which has an inbuilt mechanism and procedure for determination of profiteering. Hence, to say that the Savings accrued on account of reduction in prices due to regime change, only is profiteering, is an incorrect interpretation of the statute and rules made therein. L. The Respondent's submission that computation of profiteering can be done only on completion of the project has been duly considered, we find that this issue has already been dealt with at para-10 and para-26 of the DGAP Report dated 22.04.2019. ....
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....ons as mentioned in Annexure 13 of his Report. Thus, based on the above facts this Authority determines the profiteered amount as Rs. 2,47,48,549/- which includes GST @12% or 8% as applicable on the base profiteered amount of Rs. 2,28,05,373/- realized from all the 731 residential units for the period w.e.f. 01.07.2017 to 31.09.2018 as per the Annexure- 13 of the Report., including the above Applicants. 18. It is established from the perusal of the above facts of the case that the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondents as he has profiteered an amount of Rs. 2,47,48,549/- which includes GST @12% or 8% as applicable on the base profiteered amount of Rs. 2,28,05,373/- from all the 731 residential units for the period w.e.f. 01.07.2017 to 31.09.2018 as per Annexure- 13 of the Report. Accordingly, the above amounts shall be paid to the above Applicants and the other eligible house buyers by the Respondents along with interest @18% from the date from which these amounts were realised from them till they are paid as per the provisions of Rule 133 (3) (b) of the CGST Rules, 2017, failing which shall be recovered by the concerned Commissi....