TaxTMI 
TaxTMI 
2019 (12) TMI 156
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....8 (2) of the CGST Rules, 2017, the Applicant No. 1 had alleged profiteering by the Respondent in respect of purchase of Flat at AMALFI-2603, House of Hiranandani, 5-63 OMR, Egattur, Chennai-600130. The above Applicant had also alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) availed by him by way of commensurate reduction in the price of the above flat. The Tamil Nadu State Screening Committee on Anti-profiteering had prima facie found that the Respondent had not passed on the benefit of ITC to the above Applicant as the same should have been computed against the instalments paid by the Applicant No. 1 against the price of the flat. The above Screening Committee had forwarded the said application with its recommendation to the Standing Committee on Anti-profiteering for further action, in terms of Rule 128 (2) of the above Rules. The aforesaid reference was considered by the Standing Committee on Anti-profiteering, in its meetings held on 07th & 08th August, 2018, wherein it was decided to forward the same to the DGAP to conduct detailed investigation in to the complaint according to Rule 129 (1) of the CGST Rules, 2017. 2. The Applicant had fu....
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....roject was approx. 75% complete as on 01.07.2017. Under GST, the Respondent was availing the credit of GST paid on inputs and input services and paying 12% GST on the sale value of the flats. b) That the benefit of TRAN-1 credit under Section 140 of the Central Goods and Services Tax Act, 2017 and the benefit available under Section 142 (11) (c) of the said Act were not available to him. Further, the credit of Central Excise Duty paid on inputs was not available prior to GST but the same was admissible under the GST, the benefit of which was to be calculated and passed on to the customers at the time of handing over the possession of the flats after the completion of the project. c) That the agreements for sale of flats entered into between the buyers and the Respondent had specified the milestones for recovery of the amount. The invoice could be raised only on achieving the milestone when the credit had been accruing on incurring the expenditure on construction. Therefore, there was no synchronization between the accrual of credit and the receipt of consideration for service during any period. In Amalfi project, Slab 35 had been cast in November, 2017 and the dem....
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....enefit could be determined only at the stage of the receipt of CC. The Respondent should pass on the benefit of ITC once the CC has been received. 6. The Respondent had also submitted the following documents/information to the DGAP vide his above mentioned letters/e-mails during the course of the investigation:- (a) Copies of GSTR-1 Returns for the period from July, 2017 to August, 2018. (b) Copies of GSTR-3B Returns for the period from July, 2017 to August, 2018. (c) Copies of VAT & ST-3 Returns for the period from April, 2016 to June, 2017. (d) Electronic Credit ledger for the period from July, 2017 to August, 2018. (e) Copies of all demand letters, receipts and sale agreement/ in the name of the Applicant Sh. Kavi Mahajan. (f) Details of applicable Tax rates- pre-GST and post-GST. (g) Balance Sheet for the FY 2016-17. (h) Copy of project report submitted to RERA. (i) Details of taxable turnover and input tax credit for the project "AMALFI". (j) List of home buyers in the project "AMALFI". 7. The DGAP has also stated that all the documents placed on record were carefully examined by hi....
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.... - 165,209 165,209 16. Billing Slab 21 1/31/2017 01-03-2017 158,095 7,114 - - 165,209 165,209 17. Billing Slab 22 2/22/2017 23-03-2017 158,095 7,114 - - 165,209 165,209 18. Billing Slab 23 3/18/2017 16-04-2017 158,095 7,114 - - 165,209 165,209 19. Billing Slab 24 4/3/2017 02-05-2017 158,095 7,114 - - 165,209 165,209 20. Billing Slab 25 4/29/2017 28-05-2017 158,095 7,114 - - 165,209 165,209 21. Billing Slab 26 5/31/2017 29-06-2017 158,095 7,114 - - 165,209 165,209 22. Billing Slab 27 7/29/2017 27-08-2017 158,095 - - 18.971 177,066 177,066 23. Billing Slab 28 8/1/2017 30-08-2017 158,095 - - 18.971 177,066 177,066 24. Billing Slab 29 8/4/2017 02-09-2017 158,095 - - 18.971 177,066 177,066 25. Billing Slab 30 8/19/2017 17-09-2017 158,095 - - 18.971 177,066 177,066 26. Billing Slab 31 8/31/2017 29-09-2017 158,095 - - 18.971 177,066 177,066 27. Billing ....
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....sale of building. Therefore, the DGAP has claimed that the ITC pertaining to the unsold units was outside the scope of this investigation and the Respondent was required to recalibrate the selling price of such units to be sold to the prospective buyers by considering the net benefit of additional ITC available to him post-GST. 10. The DGAP has also observed that prior to 01.07.2017, i.e., before the GST was introduced, the Respondent was eligible to avail credit of Service Tax paid on input services and credit of VAT paid on the purchase of inputs. However, the CENVAT credit of Central Excise Duty, paid on inputs, was not admissible as per the CENVAT Credit Rules, 2004, which were in force at the material time. The Respondent was collecting one-time VAT from his customers at the time of handing over possession of apartments and discharging his output VAT liability on deemed 25% value addition to the purchase value of the inputs. Therefore, there was no direct relation between the turnover reported in the VAT returns for the period from April, 2016 to June, 2017 filed by the Respondent and the actual consideration collected from the home buyers. Therefore, the credit of VAT p....
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....igures contained in Table-C' above, the ITC availed/available during the pre-GST and the post-GST periods, the recalibrated base price on the basis of benefit of ITC post-GST and the excess collection/realization by the Respondent (profiteering) have been tabulated by the DGAP as is given in Table-'D' below:- Table-'D' (Amount in Rs.) S. No. Particulars Pre-GST Post-GST 1. Period A April, 2016 to June, 2017 July, 2017 to June, 2018 2. Output tax rate (%) B 4.50% 12.00% 3. Ratio of CENVAT/ Input Tax Credit to Taxable Turnover as per Table - C above (%) C 1.94% 12.60% 5. Increase in input tax credit availed post-GST (%) D= 12.60% less 1.94% - 10.66% 6. Analysis of Increase in input tax credit: 7. Base Price collected during July, 2017 to August, 2018 E 31,75,25,945 8. Less: Units cancelled and amount refunded F 9. Net Base Price collected during July, 2017 to August, 2018 G=E-F 31,75,25,945 10. GST Collected @ 12% over Basic Price H=G*12% 3,81,03,113 11. Total De....
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....2017 inasmuch as the additional benefit of ITC @ 10.66% of the turnover (base price) received by the Respondent during the period from 01.07.2017 to 31.08.2018, has not been passed on to the above Applicant and the other recipients. On this account, the Respondent has realized an additional amount to the tune of Rs. 1,69,878/- from the Applicant No. 1 which included both the profiteered amount @ 10.66% of the turnover (base price) and 12% GST on the said profiteered amount. Further, the investigation has revealed that the Respondent has also realized an additional amount of Rs. 3,77,40,180/-(Rs. 3,79,10,058/-(-) Rs. 1,69,878/)- which included both the profiteered amount @ 10.66% of the turnover (base price) and GST on the said profiteered amount, from other recipients as well who were not Applicants in the present proceedings. These recipients were identifiable as per the documents provided by the Respondent giving the names and addresses along with Unit No. allotted to such recipients. Therefore, this additional amount of Rs. 3,77,40,180/- was required to be returned to such eligible recipients. 17. The DGAP has also stated that the present investigation has covered the period ....
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....ng amount of Rs. 3.79 Crore which was not correct as the method adopted by the DGAP could not directly be applied to the construction industry since the manner of accrual of credit and raising of demand on the customers was different than the general industries. He has also stated that in the construction industry, the credit may accumulate in a particular period but the tax liability with respect to the same may arise in a different period as the construction activity went on gradually which resulted into accrual of CENVAT credit, however, demand notices for the same were raised as per the milestones mentioned in the agreement. Unless the milestone was achieved, the builder could not raise demand on the customer, however, CENVAT credit would still accrue to the builder. He has also furnished the details of payment as per the agreement executed with the buyers as per which the milestones specified were as follows:- Stage Description Percentage 1 Billing Earnest 20 2 Foundation 10 3 Lower Basement Slab 5 4 Middle Basement Slab 2.5 5 Upper Basement Slab 2.5 6 36 equal installment - slab wise (ending 55 at slab 35) 5....
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....he two periods (both falling under GST regime) itself substantiated that there was no synchronization of accrual of credit with raising of demand of recovery amount from the customer. He has further claimed that in the present case, the slab No. 35 was cast in December, 2017 and the demand was also raised in December, 2017, however, after slab 35, as per the schedule of payment, the demand on the customer could be raised only on possession which has not been given to the customers as on the date of submissions. He has also stated that therefore, although the expenditure was incurred during December, 2017 to August, 2018 however, the demand could not be raised in August, 2018 as the milestone was not achieved. He has further stated that the total credit accruing with respect to the possession demand had been taken in the calculation in Table-D, however there was no corresponding taxable turnover i.e. no demand was raised on customers for possession, thus, credit has accrued and availed but corresponding income has not accrued and billed. Accordingly, the credit from December, 2017 to August, 2018 needed to be reduced from the post-GST credit in the Table-C for computing the credit t....
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....it available to the Respondent could be computed only after 1st April, 2019. 24. It has further been pleaded by the Respondent that if option was granted to avail ITC after 1st April, 2019 and pay tax at full rate, the benefit of credit arising to the Respondent could be computed only after the end of the project i.e. on receipt of CC and the same would be passed on to the customers at that point of time. 25. In his submissions dated 16.04.2019 the Respondent has reiterated the submissions which were made by him on 13.03.2019 and further added that the credit could be available to a recipient when the following four conditions of Section 16 of the above Act were complied with:- a) He is in a possession of tax invoice or debit note issued by the supplier. b) He has received the goods or services or both. c) The tax in respect of supply has been actually paid by the supplier. d) The supplier has filed the return under Section 39 of the CGST Act, 2017. The Respondent has also stated that the supplier was required to file Returns in Form GSTR-3B and Form GSTR-1 and the details of supply furnished by him were reflected in Form GSTR-2A of the ....
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....ontracts. * All amounts towards labour charges and other charges not involving any transfer of property in goods, actually incurred in connection with the execution of works contract. The Respondent has also stated that the valuation mechanism provided that the cost of the goods plus the profit of the assessee was the value on which the VAT was payable. In the present case, the profit margin of the Respondent was 25%. Thus, the Respondent had loaded 25% on the cost of goods and paid VAT by availing the credit. 28. The Respondent has also submitted the list of the finished projects executed by him along with their completion month as follows:- Project Month of Completion Seawood March 2012 Pinewood March 2012 Brentwood March 2012 Greenwood March 2013 Bridgewood March 2014 Birchwood March 2013 Oceanic March 2014 Edina September 2016 Bayview June 2017 Sinovia June 2017 29. The details of other projects which were on-going as on 1st July, 2017 were submitted by the Respondent as under:- Sr. No. Particulars Tiana Anchorage 1 Total area of the project 3,10,860 4,76,925 2 Area....
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....e taxable values did not synchronize in the same month or the same period. The DGAP has stated that he has considered a period of 1 Year and 3 months in the pre-GST period and a period of 1 year and 2 months in the post-GST period to neutralize the effect of monthly variations in the ITC and taxable turnovers. 34. We have carefully considered all the submissions filed by the Applicants, the Respondent and the other material placed on record and find that the Applicant No. 1, vide his complaint dated 12.06.2018 had alleged that the Respondent was not passing on the benefit of ITC to him in spite of the fact that he was availing ITC on the purchase of the inputs at the higher rates of GST which had resulted in benefit of additional ITC to him and was also charging GST from him @12%. The above complaint was forwarded by the Tamil Nadu State Screening Committee to the Standing Committee on Anti-Profiteering for further action. This complaint was examined by the Standing Committee in its meetings held on 07 & 08.08.2018 and was forwarded to the DGAP for investigation who vide his Report dated 21.02.2019 has found that the ITC as a percentage of the total turnover which was available ....
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....ethodology applied by the DGAP while computing the above ratios and benefit as per the above Tables is correct and the same can be relied upon. 36. The Respondent has also claimed that the method adopted by the DGAP to compute the profiteered amount could not be applied to the construction industry since the manner of accrual of credit and raising of demand on the customers was different than the general industries. In this connection it would be appropriate to mention that the benefit of ITC is required to be passed on as soon as the Respondent uses the ITC to discharge his GST output liability which he is doing every month and accordingly, he is required to pass on the above benefit every month. The Respondent cannot claim that since there was no synchronization between the accrual of ITC and the instalments to be realised from the buyers he cannot pass on the benefit. The Respondent is under legal obligation to pass on the above benefit as per the provisions of Section 171 (1) of the above Act and therefore, he has to pass it. He cannot be allowed to wait till there is no mismatch between the above two parameters as they would match only at the time of completion of the proje....
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....ax liability and has not waited till the turnover would be realized by the Respondent and hence the above amount cannot be reduced from the ITC availed post-GST. 39. The Respondent has also stated that he had deposited the excess GST collected by him with the Government and he had not retained the same and hence, the same could not be considered as profiteered amount. However, it would be relevant to state here that the Respondent has not passed on the benefit of additional ITC to his customers which he was legally bound to pass on by commensurate reduction in the prices of the flats and has charged more price than what he could have charged. The Respondent has not only charged more price but has also compelled his customers to pay more GST on the extra price charged illegally by him. Therefore, the above extra price as well as the additional GST charged by the Respondent amounts to the denial of benefit to be passed on. There was no legal obligation on the Respondent to realise the additional GST from the flat buyers and by doing so he has not only defeated the purpose of the concession given by the Central and the State Govt. from their own tax revenue but has also made the ho....
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....above contention of the Respondent is untenable. 43. The Respondent has also averred that he was discharging his VAT liability by adding 25% profit on the purchase value of the inputs as per the provisions of Section 5 of the Tamil Nadu Value Added Tax Act, 2006 and was claiming ITC. However, the DGAP in his Report dated 21.02.2019 has stated that the Respondent was collecting VAT only once at the time of handing over the possession of the flats and was discharging his VAT output liability by adding 25% in the purchase value of the inputs and hence, there was no direct connection between the turnover reported by the Respondent in his VAT Returns filed during the pre-GST period and the actual consideration received by him from his customers and therefore, the DGAP has not taken in to account the ITC available on the inputs and the VAT turnover for computation of the ratio of ITC to turnover in Table-C supra. The above claim of the DGAP is reasonable and justified as there is no relation between the ITC available to the Respondent on the deemed value of purchases and the turnover reflected in his pre-GST Returns and also that the Respondent was not charging VAT from his customers ....
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....e pre-GST period. 15 flats having area 30,525 sq. ft. have been sold after implementation of GST. Further, 32 flats having area of 57,960 sq. ft. had remained unsold. 48. It is established from the perusal of the above facts that the Respondent has benefited from the additional ITC to the extent of 10.66% of the turnover during the period from July, 2017 to August, 2918 and hence the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent as he has not passed on the above benefit to his customers and has profiteered an amount of Rs. 3,79,10,058/- inclusive of GST @ 12% on the base profiteered amount of Rs. 3,38,48,266/-. Further, the Respondent has realized an additional amount of Rs. 1,69,878/- which includes both the profiteered amount @ 10.66% of the taxable amount (base price) and 12% GST on the said profiteered amount from the Applicant No. 1. He has further realized an additional amount of Rs. 3,77,40,180/- which includes both the profiteered amount @ 10.66% of the taxable amount (base price) and 12% GST on the said profiteered amount from the flat buyers other than the Applicant No. 1 as mentioned in Annexure-22 of the Report dated 21.02.20....
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....e eligible house buyers in respect of the above projects. Accordingly, the DGAP is directed to investigate the issue of passing on the benefit of additional ITC in respect of the above two projects and submit his Report in terms of Rule 133 (5) of the CGST Rules, 2017 which reads as under:- "(5) (a) Notwithstanding anything contained in sub-rule (4), where upon receipt of the report of the Director General of Anti-profiteering referred to in sub-rule (6) of rule 129, the Authority has reasons to believe that there has been contravention of the provisions of section 171 in respect of goods or services or both other than those covered in the said report, it may, for reasons to be recorded in writing, within the time limit specified in sub-rule (1), direct the Director General of Anti-profiteering to cause investigation or inquiry with regard to such other goods or services or both, in accordance with the provisions of the Act and these rules. (b) The investigation or enquiry under clause (a) shall be deemed to be a new investigation or enquiry and all the provisions of rule 129 shall mutatis mutandis apply to such investigation or enquiry." 51. It is also evident....