TaxTMI 
TaxTMI 
2019 (12) TMI 585
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....ules, 2017. The DGAP has reported that a reference was received from the Standing Committee on 07.01.2019 to conduct detailed investigation in respect of applications filed by the Applicants No. 1 to 38 under Rule 128 of the CGST Rules, 2017 alleging profiteering in respect of construction service supplied by the Respondent. The above Applicants had submitted that they had purchased flats in the Respondent's project "Floridaa" situated at Bhatola, Sec-82, Faridabad, Haryana and alleged that the Respondent had not passed on the benefit of input tax credit (ITC) to them by way of commensurate reduction in prices. 2. The Haryana State Screening Committee on Anti-profiteering had originally examined the application of the above Applicants, in its meeting held on 30.10.2018 and observed that there was lesser burden of tax in the GST regime due to availability of ITC, which the Respondent should have passed on to his customers, in terms of Section 171 of the CGST Act, 2017. The Haryana State Screening Committee had forwarded the said application with its recommendation, to the Standing Committee on Anti-profiteering on 31.10.2018, for further action, in terms of Rule 128 of the CGST R....
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....nstruction of affordable housing was taxable @ 18% (effectively @ 12% after 1/3rd abatement for the value of land), vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 which was further reduced to 12% (effectively @ 8% after 1/3^rd abatement for the value of land), w.e.f. 25.01.2018, vide Notification No. 01/2018-Central Tax (Rate) dated 25.01.2018. Therefore, the total indirect tax burden on the project had increased after the introduction of GST. (c) He also claimed that construction business was very complex and on a provisional basis, he had passed on the benefit of Rs. 2.23 crores (approx.) in the month of January, 2019 as the benefit of additional ITC on introduction of GST, to his customers who had booked flats and commercial shops in the project prior to the introduction of GST and assured that the final benefit which accrued to them post-GST over the period of completion of the project, would be duly passed on at the time of giving possession of the flats. Accordingly, he had requested to drop the proceedings. (d) The Respondent also requested to stay the present proceedings on the basis of stay granted by the Hon'ble High Court of Delhi in ....
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....p; 2,42,820 8,499 2,51,319 4 Within 12 months of Allotment 09.04.2016 12.50% 2,42,820 - - - - 2,42,820 5 Within 18 months of Allotment 09.10.2016 12.50% 2,42,820 - - - - 2,42,820 6 Within 24 months of Allotment 09.04.2017 12.50% 2,42,820 - - - - 2,42,820 7 Within 30 months of Allotment 09.10.2017 12.50% 2,42,820 - - 29,138 - 2,71,958 8 Within 36 months of Allotment 09.04.2018 12.50% 2,42,820 - - 19,426 - 2,62,246 9 Change in Size 01.03.2018 - 27,360 - - 2,189 - 29,549 10 Miscellaneous (IF-MS, VAT,) 11.01.2019 - 25,000 - 72,846 - (29,138) 68,708 Total 100.00% 19,94,920 25,496 72,846 50,753 (29,138) 21,14,877 9. The DGAP on examining the various documents observed that the Respondent had claimed that ....
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....TC pertaining to the residential units which were under construction but not sold, was provisional ITC 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 CGST 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 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". Section 17 (3) "The value of exempt supply under subsection (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 Il, sale of building". Therefore, ITC pertaining to the unsold units might not fall within the ambit of his investigation and the ....
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.... 6 Turnover from residential flats as per VAT Returns as per Annex-22 (F) 3361,13,395 1482,12,584 4843,25,979 - 3048,02,496 - 7 Total Turnover (G) 3569,56,439 1592,11,395 5161,67,834 1929,17,285 3229,41,207 5158,58,492 8 Total Saleable Carpet Area (Excluding Balcony Area) (in SQF)(H) 3,95,375 (Residential) 14,985, (Commercial) 4,10,360 3,95,375 (Residential) 1,4985 (Commercial) 4,10,360 9 Total Sold Carpet Area (Excluding Balcony Area) (in SQF) relevant to turnover (I) 3,50,240 (Residential) 8,841 (Commercial) 3,59,081 3,81,471 (Residential) 9,177 (Commercial) 3,90,648 10 Relevant ITC [(J)=(C)*(I)/(H)] or [(J)=(D)*(I)/(H)] 1,34,26,438 3,80,09,425 Ratio of Input Tax Credit to Turnover [(K)=(J)/(G)*100] 2.60% 7.37% 14. The DGAP has claimed in the above Table-'B', that the ITC as a percentage of the tumover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 2.60% and during the post-GST period (July, 2017 to December, 2018), it was 7.37% and therefore the Respondent had benefite....
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....) or 95.23% of E 18,37,15,131 1,72,73,494 29,02,63,417 49,12,52,042 10. GST @ 12% or 8% I=H*B 2,20,45,816 20,72,819 2,32,21,073 4,73,39,708 11. Commensurate demand price J=H+I 20,57,60,946 1,93,46,314 31,34,84,490 53,85,91,750 12. Excess Collection of Demand or Profiteering Amount K=G-J 1,03,06,413 9,69,042 1,57,02,205 2,69,77,661 16. The DGAP has further claimed that from the data given above it was clear that the additional ITC of 4.77% of the turnover should have been passed on to the buyers in terms of reduction in the prices of the fiats. By not doing so the Respondent had in terms of Section 171 of the CGST Act, 2017, denied the benefit of such additional ITC which was required to be passed on to the recipients. 17. The DGAP has further intimated that on the basis of the aforesaid CENVAT/ITC availability in the pre and post-GST periods and the details of the amount collected by the Respondent from the Applicants and other recipients during the period 01.07.2017 to 24.01.2018, the amount of benefit of ITC that needed to be passed on by the Respondent to the recipients, was Rs. 1,03,06,413/- for &n....
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....ceived Post GST Benefit to be passed on as per Annex-25 Benefit claimed to have bee Passed on by the Respondent (Excess)/Shortage of Benefit (profiteering) Remark A B C D E F G H=F-G I 1. Co-applicants (Residential) 40 19227.48 195,21,437 10,23,845 11,43,230 (1,19,385) Excess Benefit Passed on as per Annex-26 2. Co-applicant (Residential) 1 474.14 19,46,560 1,00,279 - 1,00,279 Flats Booked post-GST. Further Benefit to be passed on as per Annex-27 3. Other Buyers (Residential) 85 40,811 1455,46,052 75,27,297 - 75,27,297 4. Other Buyers (Residential) 669 3,21,432 3221,08,418 168,97,895 196,14,602 (27,16,707) Excess Benefit passed on. List Attached as Annex-28 5. Other Buyers (Residential) 28 13,431 - - 732280 (7,32,280) No consideration paid post-GST, However, Respondent have passed on benefit. List Attached as Annex-28. Total Residential (A) 823 3,95,375 4891,22,467 255,49,316 214,90,112 6. Commercial Shops Buyers 20 6,408 180,96,754 9,66,801 4,46....
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....st-GST (Sr. No. 2, 3 & 7 of Table-'D') on account of benefit of additional ITC. 22. Consequently, the DGAP concluded that the benefit of additional ITC to the tune of 4.77% of the turnover, accrued to the Respondent post-GST was required to be passed on by him to the Applicants and other home buyers. Accordingly the DGAP submitted that the Respondent had contravened the provisions of Section 171 of the CGST Act, 2017, in as much as the additional benefit of ITC @4.77% had not been passed on by the Respondent to 113 recipients (86 buyers of residential flats and 27 buyers of commercial shops). The Report also stated that though the Respondent claimed to have passed on excess amount of Rs. 1,19,385/- to 40 Applicants as mentioned in Sr. 1 of Table-'D', the investigation revealed that the Respondent had realized an additional amount of Rs. 1,00,279/- from the Applicant mentioned at Sr. No. 2 of Table-'D' and the Applicant No. 24 and Rs. 84,95,123/- from 112 other recipients (85 home buyers and 27 shop buyers) as mentioned at Sr. No. 3, 6 & 7 of Table-'D'. These recipients were identifiable as per the documents provided by the Respondent, giving the names and addresses along with un....
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....urnished the investigation Report of the case on 04.06.2019 as required under Rule 129(6) of the CGST Rules, 2017, based on the facts of the case and the submissions of the Respondent and the Applicants during the investigation. The issue of passing on the benefit of ITC had been addressed in para-17 and Annexure-19 of the DGAP's Report dated 04.06.2019. Further, the grievance of the Applicants regarding collection of amounts towards maintenance charges, electricity etc. was outside the scope of the investigation conducted by the DGAP. 26. The Respondent was not present in any hearing. However, the Respondent has filed his written submissions on 05.08.2019 in which the Respondent has raised objections on the DGAP's Report dated 04.06.2019. He submitted that the DGAP had made a finding against him that he had benefited from additional ITC of 4.77% of the turnover which was based on the calculation made by applying the average method on his own accord and the Respondent had not been given any opportunity to either controvert or respond to the DGAP for adopting the average basis for determining the alleged profiteering. 27. The Respondent contended that Rule 126 of the CGST Rule....
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....ng of benefit accrued on the agreement entered in pre-GST regime & transfer of property in goods/services executed in the GST regime, and the passing on of the same to the buyer especially for unfinished projects. In a conventional sale of goods/services, the property in goods/services got transferred as intended by the parties, and after transferring risk and reward of the goods/services, the recipient became the owner after paying due consideration along with taxes thereon. In a conventional case, the provision of anti-profiteering came into effect from the time; the recipient received the goods/services. 30. The Respondent has also stated that he was engaged in the development of Affordable Group Housing residential flats. The project commenced on 25.01.2015 and was completed on 09.01.2019 (the completion certificate has not been received yet). Intimation offering possession to the buyers was sent on 10.01.2019. The transaction entered with the buyer has been covered under the definition of 'works contract' involving undivided share of land, transfer of property in goods and services. It was thus a composite works contract. Thus, during the period covered by the arbitrary cal....
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....lat owners-the ITC benefit in comparison with the pre-GST era was determined on ad hoc basis @ Rs. 60.69/- per sq. ft b. For commercial shop buyers-the ITC benefit was determined on ad hoc basis@ Rs. 63.28/- per sq. ft. 34. Further, the Respondent disputed the observation made by the DGAP at para 28 of his Report that he should not set Off the excess payment made to certain flat owners from the alleged short credits allowed to the other flat owners. He claimed that he was in the process of handing over the possession of the flats and once it was done it would be difficult for him to recover the excess payments. The Respondent has also submitted that he had launched the subject project on 25.01.2015 & occupation certificate was received on 09.01.2019. There was no inventory of unsold units left on the date of issue of occupation certificate from the competent authority. 35. The Respondent further contended that the observation made by the DGAP in his Report that the Applicants numbering 40 had been paid an excess amount of Rs. 1,19,385/-meant that he had addressed the grievance of the Applicants who had filed the complaints. He also claimed that 85 residential flats a....
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....oved free-of-FAR, additional recovery could be made for it @Rs. 500/- per sq.ft. flat adding upto and limited to 100 sq.ft. Hence the DGAP in his Report while determining the proportionate relevant ITC, had taken only the Carpet Area as specified in the notification. 39. We have carefully considered the Report of the DGAP, submissions made by the Respondent and based on the record it is revealed that the Respondent is in the Real Estate business and the DGAP's Report is with regard to his project namely "Floridaa" an affordable housing project in Bhatola, Sec-82, Faridabad, Haryana. 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? 40. The Respondent has through his submissions claimed that he had not been given opportunity by the DGAP to either controvert or respond to the DGAP's adoption of the average basis for determining the alleged profiteering. In this connection it would be appropriate to ment....
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....rovided by the Respondent, the returns and the homebuyers' turnover as per the various documents filed by the Respondent. 43. The Respondent in his written submissions filed on 05.08.2019 has also claimed that the DGAP's Report dated 04.06.2019 had recorded incorrect findings by stating that he had benefited from additional ITC of 4.77% of the turnover, as this finding was based on the average method applied by the DGAP on his own accord. However, careful perusal 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 shown by the Respondent in his Service Tax and the VAT Returns filed during the above period. Likewise, the computation of ratio of ITC to turnover for the period from July, 2017 to December, 2018 is based on his post-GST Retums. The figures of turnover for both the above periods have also been extracted from his Returns. The Respondent had himself submitted the details of the total saleable carpet area and the total sold area relevant to the turnover for both the above periods. Hence, both the above ratios are based on actual mathematical computations and not on ave....
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....mittees 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 136. Therefore, there is adequate machinery to enforce the anti-profiteering provisions. Moreover, Section 171 does not impose any tax and hence no charge can be created under it which requires machinery to impose it. 47. He has also mentioned the judgement passed in the case of Commissioner of Income Tax v. B. C. Srinivasa Setty (1981) 128 ITR 294 (SC) = 1981 (2) TMI 1 - SUPREME COURT in support of his argument. Careful perusal of this judgement shows that it involved valuation of the goodwill for computation of income tax which is not the issue in the present case. Hence, it is submitted that the above case is not relevant in case Of the Respondent. The Respondent has also referred the case of Commissioner of Income Tax v. The Official Liquidator Palai Central Bank Ltd. (1984) 150 ITR 539 (SC) = 1984 (10) TMI 41 - SUPREME COURT wherein the issue of charging of super profit tax was taken up, however, no ....
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....t 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 furtherance of his business. In case he wishes to do so he should also claim the ITC after 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 entitle him to pass on the above benefit when the project would be completed. Hence, all the above claims of the Respondent are unwarranted and hence they cannot be accepted. 49. The Respondent has also submitted that while computing the above benefit the DGAP has not taken into account the rate of tax on those material which were tax free in the pre-GST period. This argument of the Respondent is untenable since the DGAP has computed the benefit of additional ITC by comparing the ratios of ITC which was available to him in the pre and the post-GST period and it is clear from his computation that the Respondent has got additional benefit of 4.77% of the turnover. As discussed in para supr....
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....d 04.06.2019. The Respondent has also not produced any document to show that the benefit of ITC has been passed on to the homebuyers. It is also not clear from the DGAP's Report as to whether the benefit of ITC has been passed on through credit notes or cheques. Therefore, the Report of the DGAP relating to the claim made by the Respondent that he had passed on the benefit of ITC in some cases cannot be accepted since no evidence been adduced before this Authority. 52 The Authority based on the facts discussed above and based on the various parameters as discussed in the Table-B above determines the additional benefit of the ITC ratio as 4.77%. Based on this ratio, taking into consideration, the turnover of the post-GST period, the profiteered amount for the period 01.07.2017 to 24.01.2018 is determined as Rs. 1,03,06,413/- for residential flats and commercial shops which includes 12% GST on base profiteered amount of Rs. 92,02,154/- For the period 25.01.2018 to 31.12.2018, the profiteered amount is determined as Rs. 1,66,71,248/- which includes 12% GST on the commercial shops and 8% GST on residential flats on the base profiteered amount of Rs. Therefore, the total benefit of I....