AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 1083
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....am". The above Applicant had alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) to him by way of commensurate reduction in the price. This complaint was examined and forwarded by the above Committee with its recommendation to the Standing Committee on Anti-profiteering on 29.06.2018 for further action, in terms of Rule 128 (2) of the CGST Rules, 2017. 2. The above complaint was considered by the Standing Committee on Anti-profiteering in its meetings held on 07.08.2018 & 08.08.2018 and was forward to the DGAP for detailed investigation under Rule 129 (1) of the CGST Rules, 2017. 3. The above Applicant had also submitted the following documents along with his application:- (a) Form APAF-1. (b) Copy of the Demand letter. (c) Copy of e-mail. 4. The DGAP on receipt of the above minutes from the Standing Committee on Anti-profiteering had called upon the Respondent vide his notice dated 12.09.2019 to submit his reply as to whether the ITC benefit was passed on by him to his recipients and also asked him to suo-moto determine the quantum of benefit to be passed on and intimate the same to the DGAP with supporting eviden....
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....e amount receivable under the construction agreement in the post-GST period was Rs. 10,88,988/- after factoring in a discount of Rs. 20,555/-. GST @ 18% on Rs. 10,88,988/- (Rs. 1,96,017/-) was payable by the above Applicant. h) That the above Applicant was of the view that the amount of Rs. 10,88,988/- should be broken into two towards land and construction. This was also the basis of his complaint. The Respondent had explained to the above Applicant that the advance paid in the pre-GST period had gone towards the full consideration of the land and the balance advance paid in the pre-GST period was subjected to Service Tax. Since the amount due after GST was only under the construction agreement, GST @ 18% was discharged, as and when the instalments were received. The GST rate was 18% for works contract service which was fixed vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. i) That so far as the ITC was concerned, nearly 87.5% of the consideration was received in the pre-GST period and very little construction work was done in the post-GST period. Hence, there was not much ITC available post-GST. After considering all the information provided, t....
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....or the land value and the other for the construction value and was charging GST @ 18% on the consideration received post-GST under the construction agreements. The Respondent had also submitted the demand letters and the payment schedule in respect of the flat booked by the Applicant No. 1. The details of the amount and taxes paid by the Applicant No. 1 to the Respondent are furnished in the Table-'A' below. Table 'A' (Amount in Rs.) S.No. Payment Stages Due Date %BSP +Other Charges Applicable Tax rate BSP Service Tax including SBC & KKC GST Total Actual Payment Receipt Date 1. On Booking 10.00% 6% 890,362 0 0 890,362 100,000 24.08.2016 2. Within 30 days of Agreement 20.00% 6% 1,780,718 0 0 1,780,718 400,000 30.09.2016 3. On completion of foundation of respective block 10.00% 6% 890,396 9,675 0 900,071 400,000 30.10.2016 4. On completion of basement of respective block 10.00% 6% 890,359 54,422 0 943,781 5. On completion of 3rd floor roof slab 7.50% 6%....
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....e ITC pertaining to the units which were under construction but not sold was provisional ITC which may be required to be reversed by the Respondent, if such units remained unsold at the time of issue of the CC, in terms of Section 17 (2) & Section 17 (3) of the CGST Act, 2017 which read as under:- 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 and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. 17 (3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule 11, sale of building. 9. The DGAP has further claimed that the ITC pertaining to the unsold units was outside the scope of the present investigation and the Respondent was....
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....project (Sq. ft.) (D) 1,461,532 1,461,532 5. Area Sold relevant to turnover as per Home Buyers List (Sq. ft.) (E) 155,036 177,512 6. Relevant CENVAT/Input Tax Credit (F)= [(A)*(E)/(D)] or [(B)*(E)/(D)] 4,695,134 10,328,012 7. Ratio of CENVAT/ Input Tax Credit to Turnover [(G)=(F)/(C)] 1.08% 6.44% 10. The DGAP has also pleaded that it was clear from the Table '13' that 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 1.08% and during the post-GST period (July, 2017 to August, 2018), it was 6.44% which clearly confirmed that post-GST, the Respondent had benefited from additional ITC to the tune of 5.36% [6.44% (-) 1.08%] of the turnover. The DGAP has further pleaded that accordingly, the issue of profiteering had been examined by him by comparing the applicable tax and the ITC available during the pre-GST period (April, 2016 to June, 2017) when Service Tax @ 6% was payable with the post-GST period (July, 2017 to August, 2018) when the GST rate was 18% on the construction service, as per the Notification No. 11/2017-Central Tax (Rate), dated 28.06.20....
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....86,02,195/-. 12. The DGAP has also submitted that provisions of Section 171 (1) of the CGST Act, 2017, which required that "a reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices", have been contravened by the Respondent as the benefit of additional ITC of 5.36% of the turnover which had accrued to the Respondent and which was required to be passed on to the Applicant No. 1 and the other recipients had not been passed on. He has also averred that on this account, the Respondent had realized an additional amount to the tune of Rs. 41,434/- from the Applicant No. 1 which included both the profiteered amount @ 5.36% of the base price and 18% GST on the said profiteered amount and an additional amount of Rs. 1,01,09,156/- (Rs. 1,01,50,590/-(-) Rs. 41,434/-) which included both the profiteered amount @ 5.36% of the base price and GST on the said profiteered amount from the other recipients as well who were not Applicants in the present proceedings. He has also informed that these recipients were identifiable as per the documents provided by the Respondent and there....
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....ments namely Sale Deed for undivided share of land and Builder's agreement for the construction of the apartments were executed by him as per the applicable stamp and the registration laws. On the consideration taken for the land there was no Service Tax and he had discharged the Service Tax on the Builder's agreement. He has further stated that VAT was discharged based on the VAT rates applicable on the items involved under the deemed sale method where a deemed profit of 10% was added to the cost of the material. He has also stated that the advances paid by the customers in the pre-GST regime were first set off against the cost of the land and after the consideration for the land was fully paid, the advances were adjusted against the builder's agreement and applicable Service Tax was also discharged. He has further stated that he had entered into two such agreements with the Applicant No. 1 who had paid advances in the pre-GST period totalling to 87.5% of the total amounts payable. These advances had been adjusted against the cost of the land which was not liable to Service Tax and on the balance amount Service Tax has been levied. Since the balance 12.5% amount was due post-GST, ....
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....td. V. Union of India (2012) 282 ELT 33 = 2012 (5) TMI 210 - GUJARAT HIGH COURT, and claimed that in the above case the Hon'ble Gujarat High Court had held that the maxim sublato fundamento cadit opus was applicable which stated that if the foundation was removed the superstructure falls meaning thereby that if the initial action was not in consonance with law, the subsequent proceedings would not validate it. He has also submitted that in terms of Rule 129 (3), the DGAP before initiation of investigation was required to issue Notice to the interested parties containing inter-alia information viz. summary of the statement of the facts on which the allegation was based and when a detailed reply had been furnished to him stating that the allegation itself was incorrect and was mere misunderstanding of the mode of operation of the business and the person who had made the complaint was fully satisfied with the explanation given and had duly communicated the resolution of the dispute to the DGAP, proceeding further with the investigation was itself violation of Rule 129. He has further submitted that the Hon'ble Supreme Court in the case of Anil Kumar Singh V. Vijay Pal Singh and Others....
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....tanding Committee vide its minutes dated 07.08.2018 and 08.08.2018 had forwarded the same to the DGAP which was clearly beyond the time limit specified in Rule 128. (iv) That there was nothing in Rule 128 to indicate that the time limit commenced from the date of receipt of the application by the Standing Committee from the Screening Committee and no such provisions could be read into the Statute. (v) That the DGAP's Report in para 1 referred to the application dated 30.01.2018 and minutes of the meetings of the Standing Committee which were received by the DGAP on 30.08.2018. The very fact that the period of 2 months had expired on 30.03.2018 it was evident that the entire proceedings were null and void being violative of Rule 128. (vi) That Annexure-6 attached to the above Report referred to the request of the DGAP for extension of period for submission of the Report in respect of the present complaint which was misconceived. The request of the DGAP for extension was dated 20.11.2018 in which the complaint of the above Applicant was mentioned even though the DGAP was fully aware that the complaint was no longer in existence, since the above Applic....
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.... area of the apartments which had not been booked till the date of issuance of the CC or first occupation whichever was earlier. 18. The Respondent has further stated that the calculations made in Table C identifying 5.36% of the turnover as the benefit of ITC were prima facie incorrect since there was no method or formula mentioned in the Act or the Rules for determination of the benefits to be passed on. In fact the provisions of Section 171 itself were the subject matter of challenge on the Constitutional validity before the Hon'ble Delhi High Court as there was no mechanism provided for identification or determination of benefits. He has also argued that the calculations made by the DGAP which were based on the pre-GST and the post-GST periods and computations of the ratio of credit as 1.08% under the old law and 6.44% under the new law were prima facie incorrect since even the credit availed from 01.07.2017 onwards was required to be calculated in the formula set out in Rule 42 as amended w.e.f. 01.04.2019. He has further argued that normally, in terms of Rule 42, T4 represented the amount of ITC attributable to the inputs and input services intended to be used exclusively ....
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....ntally flawed as it was based on the assumption that the tax was the only factor relevant to the cost without appreciating the fact that increase in the construction cost by itself has an impact on the pricing and when the cost of construction had gone up in the relevant period, the same was a critical factor which had to be taken into account. He has also maintained that despite the increase in the cost of the construction material, Steel and other services, he had retained the agreement prices and had not increased them. (v) That despite the increase in the cost of construction after taking into account the overall impact of the GST he had also given an additional discount to his customers which had not been considered by the DGAP in his Report. (vi) That the calculations made in Table C were also incorrect for the following reasons:- • That the turnover post-GST which was Rs. 16,04,88,715/- also included the instalments paid by the buyers who had booked apartments in the pre-GST period and the instalments due in the post-GST period from such customers amounted to Rs. 5,84,74,134/- and hence the eligibility of credit was also restricted to that amou....
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....sed on, he has claimed. 21.The above submissions dated 16.04.2019 of the Respondent were sent to the DGAP for filing his Report, who vide his Report dated 24.04.2019 has submitted that he had no comments to offer on para 1 & 2 of the above submissions while the contents of para 3 & 4 had already been addressed in his Report dated 18.02.2019. The DGAP vide his final Report dated 21.05.2019 has submitted that the worksheet submitted by the Respondent covered the pre-GST period from April, 2014 to June, 2017 while his investigation Report dated 18.02.2019 covered the pre-GST period from April, 2016 to June, 2017 and hence the two worksheets were not comparable. He has further submitted that in case of all such investigations he had taken the period between 01.04.2016 to 30.06.2017 for the pre-GST period. 22. Vide his submissions dated 30.05.2019 the Respondent has stated that even though he had not received the CC but according to Rule 42 and 43 of the CGST Rules as amended by Notification No. 16/2019-CT dated 29.03.2019 the amount of ITC which would be required to be reversed for unbooked flats on receipt of the CC would be Rs. 16,66,27,208/- and no ITC would be left in his cre....
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....mount of benefit not passed on after adjusting difference between Post GST and Pre GST actual price/value" an amount of Rs. 26,614/- has been mentioned as amount of benefit not passed on which clearly proves that the above Applicant had claimed that the above amount had not been passed on to him which was due to him as benefit of additional ITC. Perusal of the complaint filed by the above Applicant on 30.01.2018 also shows that it is worded as under:- "Myself Booked flat with Doshi - Risington, OMR, Karapakkam, in Sept. 2016. Construction /land agreement and welcome letter was signed with proper disbursement schedule. I paid 87.5% disbursement as per the agreement and on time. Since GST was incorporated from July 2017, for the remaining 12.5% disbursement builder is not following the agreed schedule and asking to pay more on account of GST i.e. Charging 18% GST on construction plus land cost. To my knowledge, GST of 18% can be charged to construction disbursement value but not on the land value which has now become a dispute. Builder is not agreeing and saying that the cost initially paid is all apportioned to land cost as per their accounting procedure and company policy.....
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....ither in the CGST Act, 2917 or the CGST Rules, 2017 which allows withdrawal of the application once it has been filed. It will also be appropriate to mention here that the DGAP is bound to proceed with the investigation once recommendation for such investigation has been made by the Standing Committee, under Rule 129 (1) of the above Rules and submit his Report under Rule 129 (6) and he has no option of terminating the investigation on the withdrawal of the complaint. The DGAP is further legally bound to proceed with the investigation once he has reasons to believe that violation of the provisions of Section 171 of the above Act has been made. Therefore, the above contention of the Respondent is not tenable and hence the same cannot be accepted. 28. The Respondent has also referred to the case of Gujarat Paraffins Pvt. Ltd. V. Union of India (2012) 282 ELT 33 = 2012 (5) TMI 210 - GUJARAT HIGH COURT, wherein the Hon'ble Gujarat High Court had held that the maxim sublato fundamento cadit opus was applicable which stated that if the foundation was removed the superstructure falls. Perusal of the facts of the above case reveals that the above petitioner had challenged the constituti....
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....hdrawn. Perusal of the case of Anil Kumar Singh supra shows that in this case the trial court had allowed the plaintiff to withdraw the suit under Order XXIII Rule 1 of the Civil Procedure Code (CPC) 1908 whereas the Hon'ble High Court had set aside the above order of the trial court whereas the Hon'ble Supreme Court had upheld the order of the trial court. Therefore, it is clear that the above proceedings had been conducted under the provisions of the CPC which do not apply in respect of the present proceedings and hence it is respectfully submitted that the law settled in the above case is not being followed. Perusal of the case of Bijayananda Patnaik mentioned above shows that it pertains to the interpretation of the provisions of the Representation of People Act, 1951 which has a clear provision for withdrawal of the appeal whereas there is no such provisions in the CGST Act, 2017 and hence the above case does not help the Respondent. 31. The Respondent has also contended that the present proceedings were not maintainable for the reason that the time lines provided in the CGST statute had been breached. In this connection it would be appropriate to refer to the provisions of....
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....d hence forwarding of the application dated 30.01.2018 to the Standing Committee on 18.07.2018 is not hit by the limitation of 2 months as has been contended by the Respondent. The DGAP had received the above application on 30.08.2019 which is also well within the prescribed time limit of 2 months as per Rule 128 (1). Therefore, all the objections raised by the Respondent on this ground are frivolous and hence they cannot be accepted. 32. It has also been submitted by the Respondent that the request of the DGAP for extension of the period for submission of the Report was misconceived since the complaint was not in existence. This claim of the Respondent is untenable since the DGAP was bound to investigate the above complaint once it had been forwarded to him by the Standing Committee as per Rule 129 (1) of the above Rules and therefore, his request for extension of the time for completing investigation as per the provisions of 129 (6) was correct. 33. The Respondent has also argued that the DGAP had calculated the benefit of ITC without taking into consideration that once the CC was received by the Respondent he would be required to reverse the ITC as per the provisions of pa....
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.... (1) of the CGST Act, 2017 clearly states that Any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices". Therefore, the intention of the legislature is amply clear from the above provision which requires that the benefit of tax reduction or ITC is required to be passed on to the customers by commensurate reduction in prices and the same cannot be retained by the suppliers. In exercise of the powers conferred on this Authority under Rule 126 of the CGST Rules, 2017 it has already notified the 'Procedure & Methodology' for determination of the profiteered amount vide its Notification dated 28.03.2018. However, the mathematical methodology for determination of the profiteered amount has to be applied on case to case basis depending on the facts of each case and no set formula can be fixed for calculating the same as the facts of each case differ. The mathematical methodology applied in the case where the rate of tax has been reduced and ITC disallowed cannot be applied in the case where the rate of tax has been reduced and ITC allowed. Similarly, the mathematic....
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....benefit of ITC which they were required to pass on to him. The Respondent has himself received the benefit of ITC on the GST paid on the construction material and hence he cannot claim that his construction cost had increased. The Respondent has also claimed that he had given discount to his customers which is contradictory to his argument of increase in the cost of the material. 38. The Respondent has also cited the order of this Authority passed in Case No. 9/2018 in the matter of Jijrushu N. Bhattacharya V. N. P. Foods = 2018 (10) TMI 1338 - NATIONAL ANTI-PROFITEERING AUTHORITY (Franchisee of Subway) and claimed that in the above case it was held that when the base price of Hara Bhara Kabab had been increased from Rs. 130/- to Rs. 135/- and the respondent had increased the price to make good the loss which he had incurred due to loss of ITC post-GST rate reduction and the increase was commensurate with the increase in the cost of production on account of denial of ITC, there was no profiteering. He has also pleaded that the ratio of this ruling was applicable in his case since his base price of the construction material in the GST regime had gone up and he had not increased t....
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....from Sr. No. 14 of Table D. It has also been specifically mentioned in para 26 of the Report dated 18.02.2019 by the DGAP that the profiteering has been computed only in respect of the period between 01.07.2017 to 31.08.20198 and profiteering if any, after the above period has not been examined as the exact quantum of ITC that would be available to the Respondent in future could not be determined at present when the construction was yet to be completed. Therefore, the above contention of the Respondent is wrong and hence the same cannot be accepted. 41. The Respondent has also averred that the calculation of the percentage of credit available to him under the pre-GST period as per Table C was flawed as it has been done for the period from 2016 whereas the project had started in the year 2014 and the availability of credit ought to have been calculated from 2014. In this connection perusal of the Report dated 21.05.2019 filed by the DGAP shows that he had taken the period from April, 2016 to June, 2017 for the computation of ITC available to the Respondent uniformly in respect of all such case of construction service to arrive at the benefit of additional ITC. In this respect it ....
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....o clear as per the above Table that the ITC available to the Respondent in the post-GST period from July, 2017 to August, 2018 was Rs. 8,50,34,930/- and his turnover was Rs. 16,04,88,715/-. He had also sold an area of 1,77,512 Sq. Ft., relevant to the above turnover during the above period. The proportionate ITC availed by the Respondent was Rs. 1,03,28,012/- on the basis of which ratio of ITC to turnover comes to 6.44%. Therefore, it is abundantly clear that the Respondent has benefited from the additional benefit of ITC to the tune of 5.36% (6.44%-1.08%) of the turnover which lie is required to pass on to his customers as per the provisions of Section 171 of the above Act. Since the above figures of ITC and turnover have been taken form the Returns filed by the Respondent himself and the figures of sold area have been supplied by the Respondent himself, the same cannot be disputed by the Respondent and can be relied upon and accordingly, the above computations are held to be correct. Therefore, the profiteered amount is determined as Rs. 1,01,50,590/- which includes GST @12% on the base profiteered amount of Rs. 86,02,195 as per Annexure-17 of the Report dated 18.12.2019 for the ....