AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 1085
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....ted at Sector-81, Gurugram, Haryana and alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) to him by way of commensurate reduction in price, in terms of Section 171 of the Central Goods and Services Tax Act, 2017 and had charged GST on the pre-GST base price of Rs. 4000 per sq. ft. 2. The above application was examined by the Standing Committee on Anti-profiteering and vide minutes of its meeting dated 13.12.2018 it was forwarded to the DGAP for detailed investigation. 3. The DGAP on receipt of the application issued notice dated 16.01.2019 to the Respondent to reply as to whether he admitted that the benefit of ITC had not been passed on to the Applicant No.1 by way of commensurate reduction in price and if so, to suo moto determine the quantum thereof and indicate the same in his reply to the notice as well as furnish all the supporting documents. The DGAP vide his letter dated 16.01.2019, had given an opportunity to the Respondent to inspect the non-confidential evidences/information submitted by the above Applicant. However, the Respondent did not avail of the said opportunity. The DGAP, vide email dated 06.05.2019, had also given the Appl....
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....,000/- per sq. ft. was fixed after considering the benefit of ITC of VAT/WCT. However, the Central taxes, i.e., the Central Excise Duty and Service Tax levied on the goods & services used in the execution of works contract were part of the cost of the project. Now, under the GST regime, the benefit of erstwhile Central Excise Duty/Service Tax was available to the Respondent and the same was required to be passed on to the recipients. 6. The Respondent has also admitted that Section 171 of the CGST Act, 2017 provided that it was mandatory to pass benefit due to reduction in the rate of tax or the ITC, to the consumers, by way of commensurate reduction in prices and the applicability of this statute would have arisen in the following two situations: a) If there was reduction of rate of tax on the supply of goods or services b) If additional benefit of input tax credit was available. He has also stated that on perusal of the facts of the present case, it could be summarised that in the GST regime, there was no reduction in the rate of tax on supply of goods and services as compared to the pre-GST regime, instead, there was an increase in the rate of GST by appr....
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....ils of applicable tax rates, pre-GST and post-GST. (g) Copies of Balance Sheets (including all annexures and profit & loss account) for FY 2016-17& 2017-18. (h) Copy of Electronic Credit Ledger for the period 01.07.2017 to 31.12.2018. (i) CENVAT Credit/Input Tax Credit register for the period April, 2016 to December, 2018. (j) Details of turnover, output tax liability, GST payable and input tax credit availed. (k) List of home buyers and commercial shop buyers in the project "Synera", along with the details of benefit passed on to them. (I) Reconciliation of turnover reported in the GSTR-3B Returns with that in the list of home buyers. (m) Copies of sample ledger showing benefit passed on. The Respondent had also requested to treat all the data/information furnished by him as confidential, in terms of Rule 130 of the CGST Rules, 2017. 10. Based on the above mentioned documents filed by the Respondent, the DGAP has submitted that the main issue for determination was whether there was any benefit of reduction in the rate of tax or ITC on the supply of construction service by the Respond....
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....11.2018 which worked out to Rs. 33.50 per sq. ft. of the carpet area. But the correctness of the amount of benefit so passed on by the Respondent had to be determined in terms of Rule 129 (6) of the CGST Rules, 2017. Thus, the ITC available to the Respondent and the taxable amount received by him from the Applicant No. 1 and other recipients post implementation of GST had to be taken into account for determining the benefit of ITC that was required to be passed on by the Respondent to his recipients, the DGAP has stated. 13. The DGAP has further stated that the Respondent also contended that the Applicant No. 1 had misled the investigation by not disclosing the fact of getting benefit of the ITC, in terms of Section 171 of the CGST Act, 2017. The DGAP, upon examination has found that the Applicant No. 1 had filed the application on 29.09.2018 which was prior to the date of receipt of benefit from the Respondent on 01.11.2018. 14. The DGAP has also argued 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) read as "Sale of land and, subject to clause (b) of paragraph 5....
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....t services, as per the CENVAT Credit Rules, 2004, which were in force at the material time. However, the Respondent was eligible to avail credit of Service Tax paid on the input services however, CENVAT credit of Central Excise Duty was not available, for the commercial shops sold by him. The DGAP has further observed that the Respondent was also eligible to avail ITC of VAT paid on the inputs and claim deduction from the taxable turnover under the VAT (WCT), of the payments made to the registered contractors or sub-contractors for the execution of the project. Further, post-GST, the Respondent could avail ITC of GST paid on inputs and input services including the sub-contracts. From the information submitted by the Respondent for the period from April, 2016 to December, 2018, the DGAP has furnished the details of the ITC availed by the Respondent, his turnover from the present project and 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 December, 2018 in the Table given below:- Table-'B' (Amount in Rs.) S.No. Particulars April, 2016 to March, 2017 April, 2017 to June, 2017 Tot....
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....ctive rate was 12% in view of 1/3rd abatement on value) on construction service, vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. The effective GST rate on construction service in respect of affordable and low-cost houses upto a carpet area of 60 square metres per house was further reduced from 12% to 8%, vide Notification No. 1/2018-Central Tax (Rate) dated 25.01.2018. In view of the change in the GST rate after 01.07.2017, the DGAP has examined the issue of profiteering in two parts, i.e., by comparing the applicable tax rate and ITC available in the pre-GST period from April, 2016 to June, 2017 when only VAT@ 4.50% was payable with (1) the post-GST period from 01.07.2017 to 24.01.2018, when the effective GST rate was 12% and (2) with the GST period from 25.01.2018 to 31.12.2018, when the effective GST rate was 8% and accordingly, on the basis of the figures contained in Table-B above, the comparative figures of the ratio of ITC availed/available to the turnover in the pre-GST and the post-GST periods as well as the turnover, the recalibrated base price and the excess realization (Profiteering) during the post-GST period, have been tabulated by the DGAP in Table....
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....eded to be passed on by the Respondent to the recipients during the period from 25.01.2018 to 31.12.2018, came to Rs. 82,21,174/- which included 12% GST on commercial shops and 8% GST on residential flats, on the base profiteered amount of Rs. 75,83,201/, Therefore, the total benefit of ITC to be passed on during the period from 01.07.2017 to 31.12.2018, came to Rs. 1,42,06,267/- which included GST (@ 12% or 8%) on the base profiteered amount of Rs. 1,29,27,035/, The DGAP has also furnished the home buyer and unit no. wise break-up of the above mentioned amount. The DGAP has also clarified that this amount was inclusive of Rs. 15,812/- (including GST on the base amount of Rs. 14,375/-) which was the benefit of ITC required to be passed on to the Applicant No. 1. 21. The DGAP has also observed that the Respondent had supplied the service in the State of Haryana only. 22. The DGAP has also stated that the Respondent had submitted that he had passed on the benefit of Rs. 1,47,68,865/- to the home buyers and the summary of category-wise ITC benefit required to be passed on and the benefit claimed to have been passed on, has been furnished by him as per Table-'D' below:- ....
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.... be set off against the additional benefit required to be passed on to the other recipients and it could only be adjusted against any future benefit that might accrue to such recipients. 24. The DGAP has also submitted that the benefit of additional ITC to the tune of 2.61% of the turnover has accrued to the Respondent post-GST and the same was required to be passed on by the Respondent to the Applicant No 1 and the other recipients. Thus, the Respondent has contravened the provisions of Section 171 of the CGST Act, 2017, in as much as the additional benefit of ITC @2.61% of the base price received by the Respondent during the period from 01.07.2017 to 31.12.2018, has not been passed on by the Respondent to 85 recipients (35 buyers of residential flats plus 50 buyers of commercial shops). The DGAP has also mentioned that although the Respondent has claimed to have passed on an excess amount of Rs. 3,688/- to the Applicant No. 1, his investigation has revealed that the Respondent had realized an additional amount of Rs. 20,57,756/-, from 85 other recipients (35 home buyers and 50 shop buyers) who were not Applicants in the present proceedings. Those recipients were identifi....
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....hat in the absence of any computational machinery the charging provisions would be construed to have never included the transaction within its fold and no tax could be levied on such transactions. He has also cited the judgements recorded in the cases of B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) = 1981 (2) TMI 1 - SUPREME COURT, Palai Central Bank Ltd. (1984) 150 ITR 539 (SC) = 1984 (10) TMI 41 - SUPREME COURT and National Mineral Development Corporation (2004) 65 SCC 281 = 2004 (5) TMI 575 - SUPREME COURT in his support. He has also contended that the Hon'ble Patna High Court has held in the case of Larsen & Toubro v. State of Bihar 2004 (134) STC 354 (Pat.) = 2003 (11) TMI 565 - PATNA HIGH COURT which was affirmed by the Hon'ble Supreme Court in the case of Voltas Ltd. (2007) 7 VST 317 (SC) = 2007 (5) TMI 18 - SUPREME COURT thot in the absence of all exclusions which were to be prescribed for computation of tax, no tax was payable. He has further contended that in the recent case of Larsen & Toubro 2015 SCC Online SC 738 = 2015 (8) TMI 749 - SUPREME COURT, supra, the Hon'ble Supreme Court has also quoted with approval the judgements of the Hon'ble Patna, Madras....
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....tended that the average method adopted by the DGAP for computation of profiteering suffered from the following errors:- i. Certain inputs in construction including bricks, stones and dust stone aggregate etc. were exempted from VAT in the pre-GST period. In post GST period, such inputs suffer GST @ 5%. Therefore, while computing the input GST, the amount of GST on such tax free items had also been considered by the DGAP which was to the detriment of the Respondent and in fact, the GST on such items which earlier were tax free had to be eliminated while computing possible profiteering. ii. Even while adopting average basis for alleging profiteering, the DGAP had erred in not doing a likewise comparison adopting similar set of circumstances in pre and post GST period. Profiteering could be freely determined in the case of a tangible product while comparing the pricing and tax input benefit in the pre and post GST regime and thus, adopting an ad hoc average basis for determining profiteering on a product which was yet to be completed was both arbitrary and premature and was biased. 31. The Respondent has also claimed that the DGAP in his Report dated 21.05.2019 ha....
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....ch the provisions of Section 171 and the applicable Rules have been framed. 33. The Respondent has also submitted that the excess payments made to the 799 flat owners aggregated to Rs. 26,20,354/- and hence, in case of only 85 flat owners, it could not be stated that Rs. 20,57,756/- had been short paid as per the arbitrary calculation made by the DGAP on average basis. He has further submitted that instead of directing him to recover the excess payments from 799 flat owners and pass it on to the 85 flat owners who were alleged to be short paid, the DGAP and the Authority had issued an aggressively worded notice threatening dire consequences. He has also stated that he proposed to initiate appropriate measures of raising debit and credit notes on the respective flat owners to ensure parity and passing on of the profiteering amount as determined. 34. The Respondent has also contended that Rule 129 (6) of the CGST Rules, 2017 only provided a time frame of 3 months for concluding an enquiry and submitting Report along with records. It did not provide for profiteering to be determined at any point during the process of any product / service which was under completion and if ....
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..... 4,0001- per sq. ft. The above complaint was examined by the Standing Committee in its meeting held on 13.12.2018 and was forwarded to the DGAP for detailed investigation as per the provisions of Rule 129 (1) of the CGST Rules, 2017. The DGAP has conducted investigation in the above allegations levelled by the Applicant and vide his Report dated 21.05.2019 has stated that the Respondent had violated the provisions of Section 171 of the above Act by resorting to profiteering of an amount of Rs. 1,42,06,267/-. 38. The Respondent in his written submissions filed on 01.07.2019 has claimed that the DGAP's Report dated 21.05.2019 had recorded incorrect finding by stating that he had benefited from additional ITC of 2.61% of the turnover, as this finding was based on the average method applied by the DGAP on his own accord. However, perusal of Table B of the above Report shows that the ratio of CENVAT and VAT for the period between April, 2016 to June, 2017 has been calculated on the basis of the figures reflected by the Respondent in his Service Tax and the VAT Returns filed during the above period. Similarly, the computation of ratio of ITC to turnover for the period from July, ....
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....ecipient by way of commensurate reduction in prices." Therefore, it is quite clear that both the above benefits are required to be passed on by reduction in the prices and in case they are not passed on profiteered amount has to be computed as per the provisions of Section 171 (3A) of the above Act. In view of the above facts this contention of the Respondent is not correct. 41. He has further contended that it was settled that in the taxing statutes mechanism for computation of value should be provided. However, this contention of the Respondent is fallacious as no tax has been imposed under Section 171 of the above Act. It would also be appropriate to mention here that under Section 171 (2) this Authority has been constituted to ensure that the provisions of Section 171 (1) are implanted. Rule 123 of the CGST Rules, 2017 provides constitution of Standing Committee at the Central level and Screening Committees at the State level to prima facie examine the allegations of profiteering which are investigated by the DGAP in detail under Rule 129 (1). This Authority can also seek assistance of the State and Central tax authorities to monitor its orders as per the provisions of Rule ....
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....the Procedure & Methodology drafted under Rule 126 was silent on the timing of passing on of the benefit. However, there can be no doubt that the above benefit has to be passed on as soon as the Respondent avails the benefit for discharging his output tax liability by utilising the ITC. Since, the Respondent is utilising the benefit of ITC every month through his GSTR-3B Returns he should also pass on the benefit by commensurate reduction in the price every month. The Respondent cannot use two yardsticks while passing the above benefit by using the ITC every month and by claiming that his buyers would be entitled to get the same when the project would be near completion. The Respondent cannot enrich himself at the expense of vulnerable house buyers by denying them the benefit for more than 4 and half year and use the additional ITC in his business. In case he wants to do so he should also claim the ITC at the time of completion of the project. There is also no provision in the anti-profiteering measures which mentions that the benefit of ITC would be passed on when the flats would be delivered to the buyers. The execution of the project under the works contract also does not entitl....
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....ms. Accordingly, the above amount of Rs. 1,47,49,365/- cannot be treated to have been passed on by the Respondent to his buyers and hence the same cannot be allowed to be adjusted against the ITC benefit. 46. The Respondent has also contended that he had passed on the benefit of ITC on adhoc basis @ Rs. 36.18 per sq. ft. to the Residential flat buyers and @ Rs. 37.52 per sq. ft. to the commercial shop buyers however, he has neither submitted the details of his above computation nor he has submitted the details of the credit notes or the tax invoices or cheques through which the above benefit has been passed on. His above claims have also not been verified by the DGAP in his Report. Therefore, there is no reliable and cogent evidence available on record due to lack of which the above claims of the Respondent cannot be accepted. 47. The Respondent has further contended that once it was established that he had passed on excess benefit of Rs. 3,688/- to the above applicant the present proceedings were not maintainable. However, the above contention of the Respondent is not maintainable as he has been found to have not passed on the benefit of Rs. 1,47,49,365/- to the other ....
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....er account on 01.11.2018 of one Mr. Ankit Jain, who has been allotted unit No. 2012 in the above project by the Respondent, reads as "Receipt Ref. CR81/01187/18-19 (19,028.00+ Tax 1522.00)" which shows that no where it has been mentioned that this amount has been transferred on account of ITC benefit. Perusal of the copies of the ledger accounts of the other house buyers to whom the Respondent has claimed to have passed on the benefit of ITC also shows that the same entry has been made in all such cases on 01.11.2018. By no stretch of imagination this entry can be construed to have been made on account of passing on the benefit of ITC, therefore, the above amount cannot be taken to have been passed on account of the ITC benefit, hence, the contention of the Respondent that he had passed on the full benefit of ITC is not correct and therefore, the same cannot be accepted. 51. We also observe that the provisions of Section 171 of the CGST Act, 2017 are aimed at ensuring that the recipients get the commensurate benefit, in the form of reduction in price, in case of any tax rate reduction and/or incremental benefit of ITC which has become available to them due to sacrifice mad....
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....e period from 01.07.2017 to 24.01.2018, as Rs. 59,85,094/- for the residential flats and commercial shops, which includes 12% GST on the base profiteered amount of Rs. 53,43,834/-. He has also computed the amount of benefit of ITC or the profiteered amount that needs to be passed on by the Respondent to his recipients during the period from 25.01.2018 to 31.12.2018 as Rs. 82,21,174/- which includes 12% GST on commercial shops and 8% GST on residential flats, on the base profiteered amount of Rs. 75,83,201/-. Therefore, the total benefit of ITC which is required to be passed on during the period from 01.07.2017 to 31.12.2018, comes to Rs. 1,42,06,267/- which includes GST (c) 12% or 8% on the base profiteered amount of Rs. 1,29,27,035/- as per Table C of the above Report. The home buyer and unit no. wise break-up of this amount has been given by the DGAP vide Annex-13 of his Report. This amount is inclusive of Rs. 15,812/- including GST on the base amount of Rs. 14,375/- which is the benefit of ITC which is required to be passed on to the Applicant No. 1, mentioned at Serial No. 409 of Annex-13. Since, Table C has been prepared on the basis of the information reflected in the Returns....