TaxTMI 
TaxTMI 
2019 (12) TMI 777
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....s Tax Act, 2017 and had charged GST on the pre-GST base price of Rs. 4000 per sq. feet. 2. The above reference 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. Further, 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 e-mail dated 14.01.2019 had requested the Applicant No. 1 to provide copies of demand letters and any other relevant documents along with his contact details. However, neither the Applicant responded nor did he submit the desired documents to the DGAP. The DGAP, vide em....
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....sing sale price of Rs. 4,000/- per sq. ft. was fixed after considering the benefit of ITC of VATM/CT. However, the Central taxes, i.e., 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. He also stated that he was negotiating with the sub-contractor for getting the benefit of ITC and the same would be passed on to the home buyers on or before the completion of the project. 5. The Respondent further submitted that Section 171 of the CGST Act, 2017 provided that it was mandatory to pass on any benefit due to reduction in rate of tax or input tax credit, to the consumer, 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 then submitted that on perusal of the facts of the present case, it could b....
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...., along with the details of benefit passed on to them. (k) Reconciliation of turnover reported in the GSTR-3B returns with that in the list of home buyers. (l) Copies of sample ledger showing benefit of ITC 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. 9. Based on the above mentioned documents filed by the Respondent, the DGAP submitted that the main issues for determination were whether there was any benefit of reduction in rate of tax or input tax credit on the supply of construction service by the Respondent after implementation of GST w.e.f. 01.07.2017 and if so, whether such benefit was passed on to the Applicant No. 1, in terms of Section 171 of the CGST Act, 2017. 10. The DGAP further submitted that the Respondent, vide his letter dated 06.02.2019, submitted a copy of an application dated 17.08.2016, demand letters and payment recipients for the sale of flat No. A-801 to one of the recipients Shri Nephe Singh, measuring 543.539 square feet, at the basic sale price of Rs. 4,000/- per square feet and 85.94 square feet balcony area at the basic sale price of....
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....an application alleging profiteering might be filed by an interested party or a commissioner or any other person. Therefore, though the Applicant No. 1 was not a recipient of service provided by the Respondent, he could still file an application under Rule 128 of the CGST Rules, 2017 alleging profiteering by a registered person. 13. The DGAP also submitted 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) 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 ITC pertaining to the residential units which were under construction but were not sold was provisional IT....
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....t services including the sub-contracts. From the information submitted by the Respondent for the period April, 2016 to December, 2018, the DGAP furnished the details of the input tax credit availed by him, his turnover from the present project and the ratio of ITC to turnover, during the pre-GST (April, 2016 to June, 2017) and post-GST (July, 2017 to December, 2018) periods in the Table given below:- Table-'B' (Amount in Rs.) S.No. Particulars April, 2016 to March, 2017 April, 2017 to June, 2017 Total (Pre-GST) 01.07.2017 to 24.01.2018 (GST@12%) 25.01.2018 to 31.12.2018(GST@8%) Total (Post-GST) (1) (2) (3) (4) (5) = (3)+(4) (6) (7) (8) = (6) + (7) 1. Credit of Service Tax Paid on Input Services used for Commercial Shops (A) 7,04,170 15,29,496 22,33,665 - - - 2. Input Tax Credit of VAT Paid on Purchase of Inputs (B) 57,49,401 6,05,284 63,54,685 - - - 3. Rebate of VAT(WCT) Paid to sub-contractors (C) 16,60,642 2,69,370 19,30,012 - - - 4. Total CENVAT/lnput Tax credit Available (D) = (A+B+C) 81,14,212 24,04,149 1,05,18,362 - - - 5. input Tax Credit of GST Availed (E) - - - 1,94,74,702 3,38,83,516 5,33,58,219 6. Turnover from ....
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....ive figures of the ratio of input tax credit availed/available to the turnover in the pre-GST and post-GST periods as well as the turnover, the recalibrated base price and the excess realization (Profiteering) during the post-GST period, were tabulated in Table-'C' below. Table 'C' (Amount in Rs.) S.No. Particulars Post- GST Period 1. Period A 01.07.2017 to 24.01.2018 (Flats & Shops) 25.01.2018 to 31.12.2018 (Shops) 25.0.2018 to 31.12.2018 (Flats) Total 2. Output GST rate % B 12 12 8 3. Ratio of CENVAT credit/Input Tax Credit to Total Turnover as per table - 'B' above (%) C 5.89 5.89 5.89 5.89 4. Increase in input tax credit availed post-GST (%) D=5.89% less 3.17% 2.72 2.72 2.72 2.72 5. Analysis of Increase in input tax credit: 6. Base Price raised during July, 2017 to December, 2018 (Rs.) E 21,89,59,064 5,36,11,866 59,83,56,680 87,09,27,610 7. GST raised over Base Price @12% or 8% (Rs.) F=E*B 2,62,75,088 64,33,424 4,78,68,534 8,05,77,046 8. Total Demand raised G=E+F 24,52,34,152 6,00,45,290 64,62,25,214 95,15,04,656 9. Recalibrated Base Price H=E*(1-D) or 97.28% of E 21,30,03,377 5....
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....low:- Table-'D' (Amount in Rs.) S.No. Category of Customers No. of units Area (In Sq.Ft) Amount Received Post-GST Benefit to be passed on as per Annex-12 Benefit claimed to have been Passed on by the Respondent Difference (profiteering) Remark A B C D E F G H=F-G I 1. Applicant (Residential) - - - - - - No unit sold to the Applicant 2. Others Buyers (Residential) 712 3,89,022 78,77,52,831 2,33,47,091 1,27,61,725 1,05,85,366 Further benefit to be passed on List Attached as Annex-13 3. Unsold Flats 17 8,666 - - - - Unsold Units Total Residential (A) 729 3,97,688 78,77,52,831 2,33,47,091 1,27,61,725 1,05,85,366 4. Applicant (Commercial Shop Buyers) - - - - - - No unit sold to the Applicant 5. Commercial Shop Buyers 53 13,045.52 8,31,74,779 25,33,836 13,95,975 11,37,861 Further benefit to be passed on List Attached as Annex-14 6. Commercial Shop Buyers 2 517.48 - - - - No Consideration Paid Post-GST. Further no benefit passed on by the Respondent. List Attached as Annex-14 7. Unsold Shops 15 6,919 - - - - Unsold Units Total Commercial (B) 70 20,482 8,31,74,779 25,33,83....
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....this fact was also brought to the notice of the DGAP during the investigation phase but was not considered by the DGAP. He further stated that if the Applicant No. 1 was not a flat owner in the said project, then on what basis was he claiming that the benefit of ITC in the pre and post GST period should be passed on to him. He had no locus standi in the said project under complaint. Thus, the entire proceedings had therefore been conducted on misrepresentation made by the Applicant No. 1. The law did not provide for passing on of the benefit of ITC to any passerby on the road. 27. He also submitted that the DGAP's Report dated 12.06.2019 had made incorrect finding that he had benefited from additional input tax credit of 2.72% of the turnover which was based on the average method of his own. He also clarified that he had not been given any opportunity to either controvert or respond to the DGAP adopting the average basis for determining the alleged profiteering. 28. He further stated that it was trite law that for taxing statutes, a mechanism for computation of value on which tax was to be paid was required as had been held by several Courts including the Apex Court that in absen....
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....the goods/services. He further submitted that in the present case, he was engaged in the development of Affordable Group Housing residential flats. The project was commenced on 04.05.2016 with expected completion on 31.03.2020. The transaction entered with the buyer was covered under the definition of works contract involving undivided share of land, transfer of property in goods and services and thus, it was a composite works contract. The Respondent also mentioned that during the period covered by the arbitrary calculation of profiteering by the average method i.e. 01.072017 to 31.12.2018, the project was under construction with expected date of completion being approximately fifteen months later. He also requested that the profiteering, if any, could only be determined once the project was nearing completion. 30. The Respondent also contended that the average method adopted by the DGAP suffered from the following errors:- i. Certain inputs in construction including bricks, stone, dust stone aggregate etc. were exempted from VAT in pre GST period. In the post GST period, such inputs suffer GST @ 5%. Therefore, while computing the input GST, the amount of GST on such tax free i....
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....project being half complete. ii. It had not been appreciated by the DGAP while framing the report that he had pending completion of the project, made an ad hoc estimate of the benefit against ITC. The actual and factual computation could only be made near the completion. 33. The Respondent further raised objections which are as follows:- (i) Did the allegation of Profiteering by the Applicant exist when it had been noticed that the provisions of Rule 128(1) had not been followed by the Standing Committee. The application had been dealt by the Standing Committee beyond the prescribed time. (ii) Did the continuation of the proceedings under the Anti-Profiteering provisions subsisted when it has been established that the applicant No. 1 was not a flat owner and had misrepresented to the Authority. Further the complainant had also misrepresented of not receiving the benefits of ITC difference in the pre and post GST era. (iii) Once the allegation of the Applicant of profiteering against the Respondent had been established to be incorrect, could the proceedings against the Respondent continue suomoto. Paragraph 9 read with paragraph 12, 13 and 14 of the "Procedure & Methodol....
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....larified that he had already submitted these documents to the DGAP during the investigation period which were sought by the Authority. He also claimed that Tran - 2 Return was not applicable, in his case and the agreement executed between the land owner and the Respondent for the project was not applicable for the purpose of section 171 of the CGST Act. He also submitted that it was evident from the submissions made by him before the DGAP on 14.05.2019 and subsequently on 01.05.2019, that he had already passed on the benefit of 1.50% to the buyers and also filed the copy of proof thereof. He further clarified that he had neither claimed any ineligible CENVAT/ITC credit nor reversed any CENVAT/ITC credit during the investigation period. 36. The DGAP was also asked to submit his report on the issues raised by the Respondent vide his above mentioned submissions. The DGAP vide his Report dated 22.07.2019 has submitted that regarding the Respondent's submissions that profiteering could only be determined once the project was nearing completion and all costs, inputs, claims and contingencies had to be taken into account and claimed that the above issues were required to be deliberated u....
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.... present project and thus, he was not entitled to claim that the benefit of ITC in the pre and post GST period should be passed on to him. In this connection, it would be relevant to refer to Rule 128 (1) of the CGST Rules, 2017, under which an application alleging profiteering can be filed by an interested party or a commissioner or any other person. Therefore, though the Applicant No. 1 is not a recipient of service provided by the Respondent, he can still file an application under Rule 128 (1) of the Rules, alleging profiteering by the Respondent. Therefore, the above contention of the Respondent is not tenable. 39. The Respondent has further contended that the DGAP's Report dated 12.06.2019 had recorded incorrect findings by stating that he had benefited from additional ITC to the tune of 2.72% 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. Sim....
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....uly constituted under Section 171 (2) of the above Act and in exercise of the powers conferred on it under Rule 126 of the CGST Rules, 2017 has 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 fixed formula can be set for calculating the same as the facts of each case are different. 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 mathematical methodology applied in the case of Fast Moving Consumer Goods (FMCGs) cannot be applied in the case of construction services. Even the methodology applied in two cases of construction service may vary on account of the period taken for execution of the project, the area sold and the turnover realised. It would also be appropriate to mention here that this Authority has power to 'determine' the methodology and not to 'prescribe' it as per the provisions....
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.... (1984) 150 ITR 539 (SC) = 1984 (10) TMI 41 - SUPREME COURT which is related with the issue of charging of super profit tax, but, no such issue is involved in the present case, hence the law settled in the above case is not being followed. The Respondent has also relied on the judgement passed in the case of National Mineral Development Corporation v. State of M. P. and another (2004) 65 SCC 281 = 2004 (5) TMI 575 - SUPREME COURT in his support which pertains to the issue of levy of royalty on 'slimes', but since in the present case, this issue is not involved hence, the above case is of no help to the Respondent. He has also placed reliance on the law settled in the case of Larsen & Toubro v. State of Bihar and others 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 State of Jharkhand and others v. Voltas Ltd. (2007) 7 VST 317 (SC) = 2007 (5) TMI 18 - SUPREME COURT, in which the Hon'ble Supreme Court had held that in the absence of all exclusions which were to be prescribed for computation of tax, no tax was payable. However, perusal of the facts of the above cases shows that they pertain to the i....
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....passed on by the Respondent was Rs. 1,27,61,725/-, and hence he had passed on benefit under the provisions of section 171 of the CGST Act, 2017 to the flat buyers. However, as per the DGAP's Report dated 12.06.2019, the total benefit to be passed on by the Respondent was Rs. 2,58,80,927/-, and the amount of Rs. 2,33,47,091/- pertained only to the 712 Residential flat buyers. Thus, the claim of Respondent that the DGAP has stated that the total benefit to be passed on by him was Rs. 2,33,47,091/- is incorrect. Further, the DGAP has not verified the benefit of Rs. 1,27,61,725/- claimed to have been passed on by the Respondent to 712 buyers as has been mentioned in the Table-D. The DGAP has also not verified an amount of Rs. 13,95,975/- which the Respondent has claimed to have passed on in respect of the commercial shops. The Respondent has also not produced any evidence during the course of the proceedings despite clear directions from the Authority nor he has attended the personal hearings afforded to him on 03.07.2019 and 16.07.2019 to prove that he has passed on the above amount as benefit of additional ITC. Therefore, there is no ground to accept his above claims. Accordingly, th....
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....r accounts of these buyers. A typical entry of Rs. 13,469/- made in the ledger account on 01.05.2019 in resect of one Mr. Amit Rajoria, who has been allotted unit No. D-004 in the above project by the Respondent, reads as "Receipt Ref. CRMCNOV/00020/19-20 (12,471+ Tax 998.00)" 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 01.05.2019. 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. 50. 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 in....
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....ted the profiteered amount or the benefit to be passed on for the period from 01.07.2017 to 24.01.2018, as Rs. 66,70,369/- for the residential flats and commercial shops, which includes 12% GST on the base profiteered amount of Rs. 59,55,687/-. 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. 1,92,10,558/- which includes 12% GST on commercial shops and 8% GST on residential flats, on the base profiteered amount of Rs. 1,77,33,544/-. 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. which includes GST @ 12% or 8% on the base profiteered amount of Rs. 2,36,89,231/- 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 Annexure-12 of his Report This amount does not include profiteering pertaining to the Applicant No. 1 as he had not bought any flat or commercial shop in the Respondent present project. Since, the above tabulated calculations have been prepared on the basis of the information r....