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2020 (1) TMI 302
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....lleged 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 flats. The aforesaid reference was considered by the Standing Committee on Anti-profiteering, in its meetings held on 13th December, 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 No. 1 submitted a copy of her communication with the Respondent regarding passing on of the benefit of input tax credit along with her application. 3. On receipt of the recommendation from the Standing Committee on Anti-profiteering, the DGAP found that the Applicant No. 1 had booked a flat in the Respondent's project "Pyramid City -5", in the pre-GST era and had paid the booking amount of Rs. 50,000, vide Cheque dated 28.03.2017 and the first demand letter/invoice was raised by the Respondent in the post-GST era. Thus, the DGAP issued Notice dated 16.01.2019 under Rule 129 (3) of the above Rules, asking the Respondent to intimate as to whether he admitted that the benefit of ITC had not been passed on by hi....
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....tive chart showing the units sold post-GST and the nearest comparable unit sold in the pre-GST period, to show that due to GST implementation, prices had been reduced by him. d) The Respondent had submitted that the Applicant No. 1 had made a payment of Rs. 50,000 only on 28.03.2017, as initial booking amount, but she did not register her agreement after paying such initial booking amount in the pre-GST period. Upon registration of the Agreement to sale on 29.08.2017 in the Post-GST period, demand was raised on the Applicant No. 1 on 02.09.2017, after deducting the initial booking amount paid earlier and the Respondent had no choice but to charge 12% GST on the said amount. e) The Respondent, vide his letter dated 07.06.2019, had also contended that he had already reduced the price by more than the amount of additional input tax credit in the GST era, either by way of reduction in prices or by offering various discounts on other charges to be collected from his recipients. In support of this contention the Respondent had also submitted sample copies of sale deeds for the units sold in the GST era at reduced prices as compared to similar units sold in the pre-GST e....
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....the investigation:- a) Copies of GSTR-I Returns for the period July, 2017 to December, 2018. b) Copies of GSTR-3B Returns for the period July, 2017 to December, 2018. c) Copy of Electronic Credit Ledger for the period01.07.2017 to 31.12.2018. d) Copies of VAT & ST-3 Returns for the period April, 2016 to June, 2017. e) Copies of all demand letters, sale agreement/contract issued to the Applicant No. 1. f) CENVAT/input tax credit registers for the period April, 2016 to December, 2018. g) Copies of Balance Sheets for FY 2016-17 & 2017-18. h) Copy of project report submitted to the RERA. i) Details of VAT, Service Tax and GST for the periods FY 2016-17, 2017-18. j) List of home buyers in the project "Pyramid City 5". 7. In his Report dated 28.06.2019, the DGAP has stated that all the documents placed on record were carefully examined and it was found that the main issues for determination were as to whether there was reduction in the rate of tax or benefit of ITC on the supply of construction service by the Respondent after implementation of the GST w.e.f. 01.07.2017 and in case it was so, whet....
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....ble to him post-GST. 9. The DGAP has also reported that prior to 01.07.2017, i.e., before GST was introduced, the Respondent was eligible to avail CENVAT credit of Service Tax paid on the input services. However, CENVAT credit of Central Excise duty paid on the inputs was not admissible as per the CENVAT Credit Rules, 2004, which was in force at the material time. Moreover, since the Respondent was paying VAT @ 1% under Maharashtra VAT Composition Scheme, he was not eligible to avail input tax credit of VAT paid on the inputs. Further, post-GST, the Respondent could avail the input tax credit of GST paid on all the inputs and input services. From the information submitted by the Respondent for the period April, 2016 to December, 2018, the details of the input tax credit availed by him, his turnover from the project "Pyramid City 5" and the ratio of input tax credit to the turnover, during the pre-GST (April, 2016 to June, 2017) and post-GST (July, 2017 to December, 2018) periods, the DGAP has furnished Table-'B' as below:- Table-'B' (Amount in Rs.) S. No. Particulars (Pre-GST) April, 2016 to June, 2017 (Post-GST) July, 2017 to Dec, 2018 1 ....
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....% of the basic price, the Applicant No. 1 did not appear to be eligible for any further benefit. However, in respect of the units which were already booked/ sold in the pre-GST era, the Respondent could not establish that he had actually reduced the basic prices of the units. Further, on examination of records, it was observed by the DGAP that while the booking amount was received and the booking form was signed between the Applicant No. 1 and the Respondent on 28.03.2017 i.e. prior to the implementation of GST, there was no mention in the said form that the price of the flat had factored the benefit of additional input tax credit in the post GST period. The DGAP has further reported that the Respondent was required to pass on the benefit of the additional input tax credit to his unit buyers who had booked their units in the pre-GST period and hence, for the purpose of calculation of profiteering, the turnover from the units booked in the pre-GST period has only been taken into consideration. 12. The DGAP has further stated that the Central Government, on the recommendation of the GST Council, had levied 18% GST (effective rate was 12% in view of 1/3rd abatement for land value) ....
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....ds raised by the Respondent on the Applicant No. 1 and other home buyers (who had booked the flats in the pre-GST period) towards the value of construction on which GST liability @ 12% was discharged by the Respondent during the period 01.07.2017 to 31.12.2018, the amount of benefit of input tax credit not passed on or in other words, the profiteered amount was computed by the DGAP as Rs. 51,12,928/- which included GST @12% on the base profiteered amount of Rs. 45,65,114/-. The home-buyers and unit no. wise break-up of this amount has been given in Annexure-14 of the DGAP Report. It was also observed that the Respondent had supplied the construction services in the State of Maharashtra only. 15. The DGAP has further mentioned in his Report that above computation of profiteering was made only with respect to 100 home buyers, including the Applicant No. 1, who had booked their units prior to the implementation of GST. Out of the 153 units (out of a total 159 units) booked till 31.12.2018, 43 buyers of residential units, who had booked their flats in the post-GST period at the reduced price, had not been considered for the purpose of calculation of profiteering. Out of the 110 unit....
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....ction of the project was yet to be completed. He has further stated that the provisions of Section 171 (1) of the Central Goods and Services Tax Act, 2017 requiring 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 in the present case. 18. The above Report was considered by the Authority in its meeting held on 09.07.2019 and it was decided that the Applicant No. 1 and the Respondent be asked to appear before the Authority on 06.08.2019. The Respondent was issued notice on 10.07.2019 to explain why the above Report of the DGAP should not be accepted and his liability for violating the provisions of Section 171 of the CGST Act, 2017 should not be fixed. During the course of the hearings no one appeared for the Applicant No. 1 while the Respondent was represented by Sh. Shailesh Chandak, Authorised Representative. 19. The Respondent vide his submissions dated 23.08.2019, 12.11.2019, 21.11.2019, 29.11.2019, 10.12.2019 and 14.12.2019 has made following contentions:- a) The Respondent has submitted tha....
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....urther submitted that the period considered for comparison was not equal in as much as the DGAP had compared the data of 15 months of pre GST era with data of 18 months of post GST era. f) The Respondent has further contended that the formula of the difference of the ratio of Input Tax Credit / Taxable Turnover in the post GST and pre-GST regime was not correct for the following reasons:- i. Taxable Turnover would vary as per the market conditions and it was difficult to maintain the same ratio of turnover in proportion to procurement in a real estate sector. ii. Project Life cycle of construction projects effect had been totally ignored and it was assumed that uniform expenses were being incurred by him throughout the lifecycle based on the formula adopted by this Authority. iii. Input Tax Credit was an absolute number which would vary as per the Govt. rate policies. A lot of goods had been moved from 28% to 18% tax-rate slab. This had not resulted into any benefit to him as a buyer of raw materials/inputs as he was entitled to credit in both the scenarios. The ratio of ITC/turnover calculated by the DGAP would have varied significantly had this....
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....AN-2 Returns. Further he had submitted that during the period under investigation, no reversal of ITC was done by him. j) The Respondent has also submitted that during the period under investigation 143 units were sold by him and 16 units remained unsold. Details of the total number of units in the project are as under:- Type of unit Numbers Area Sq. Mt. Bungalow 43 5828.350 Flats 114 7282.750 Commercial unit 2 197.720 Total 159 13308.82 k) The Respondent has also submitted that the construction work of the said project had been completed and the occupancy certificate was received in the month of June 2019. l) The respondent has also submitted the following documents and information:- i. Detailed statement showing Turnover as per statutory returns & ITC/CENVAT Credit availed for the period from 01/04/2016 to 31/12/2018. ii. List of payment received from buyers. iii. Balance sheets for the F.Y. 2016-17, 2017-18 & 2018-19. iv. Copy of registry of land in the name of the Respondent. 20. The submissions filed by the Respondent were forwarded to the DGAP vide Order dated 25.11.....
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.... post GST & pre-GST regime did not seem to be appropriate, the DGAP has clarified that in terms of Section 171(1) of the CGST Act, 2017, "any 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." Hence, the Anti-profiteering provisions are not meant to curb the profit margins of a supplier. It is a mechanism to pass on the benefit to the recipients which the government has decided to pass on to the consumers by way of reduction in tax rate of the goods/Services or increased benefit of Input Tax Credit. Thus, the additional benefit that has accrued to the supplier in terms of Section 171 of CGST Act, 2017 had to be passed on to the recipients of services. Further, the costing of goods/services was not looked into by the DGAP in its investigation. In this regard, methodology of DGAP had been consistent throughout in all its reports involving allegation of profiteering in cases of similar nature. e) On the issue raised by the Respondent that only proportionate ITC in respect of sold flats should have been considered, the DGAP has clarified that this aspect....
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....s, profiteering should have only been calculated on the material component of his inputs. d) The Respondent has reiterated his previous submissions that the CGST law did not prescribe any methodology or procedure for determining the amount of profiteering, neither the rules did prescribe any method or formula for the calculation of profiteering amount. The procedure and methodology adopted by this Authority and the DGAP for calculating profiteering was based on the premise that flats/builder-units were products in the real estate sector that were sold in the market on MRP, whereas in actual practice, the situation was completely different wherein prices of two identical units/flats in same building varied on account of various factors such as floor, side (front or back), view, number of flats on floors, additional amenities, additional fittings / work etc. Similarly, the prices of different units also varied based on other factors such as completion of building, location of building in premises etc. which have been ignored by the DGAP while computing the profiteering amount in the instant case. e) The Respondent has further submitted that he denied to have profite....
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.... the tune of 4.52% (7.28% - 2.76%) of the total turnover which he was required to pass on to the flat buyers of this project. The DGAP has also found that the Respondent has not reduced the basic prices of his flats by 4.52% due to additional benefit of ITC and by charging GST at the increased rate of 12% on the pre-GST basic price, he has contravened the provisions of Section 171 of the CGST Act, 2017. The DGAP has further submitted that the amount of benefit of ITC which has not been passed on by the Respondent or the profiteered amount was Rs. 51,12,928/- which included 12% GST on the basic profiteered amount of Rs. 45,65,114/-. The DGAP has also intimated that this amount of profiteering also included the profiteered amount of Rs. 1,33,503/- including 12% GST in respect of the Applicant No. 1. He has also supplied the details of all the buyers who have purchased flats from the Respondent along with their unit numbers and the profiteered amount vide Annexure-14 attached with his Report dated 28.06.2019. 23. Further, we observe that the Respondent has contended that the profiteering should have been computed on incremental/extra amount of ITC only. Perusal of DGAP Report sugge....
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....ution of the project, the area sold and the turnover realised. The Respondent has himself admitted that each case of the Real Estate Sector is unique and a single mathematical formula cannot be applied on every case hence, he should have no objection on the computation of the profiteered amount. Therefore, the objection raised by the Respondent on this ground is frivolous and without legal force. 26. The Respondent has claimed that he has passed on the GST benefit of 5% to his customers as he was not able to compute the exact benefit. However, this claim of the Respondent is incorrect as he has given different discounts to different buyers. The Respondent has not submitted any methodology how he had computed the amount of discount offered to the home buyers. The Respondent has also not produced any evidence to prove that the above discount was computed by him on the basis of the ITC availed by him. Further, it is observed from the Annexure-13 of the DGAP Report that the discount offered by the Respondent to his home-buyers varies from 4% to 17% which shows that this discount has no correlation with ITC benefit to be passed on. Therefore, there is no ground to believe that the ab....
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....id not seem to be appropriate. In this regard, Section 171(1) of the CGST Act, 2017 says, "any 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." Hence, the Anti-profiteering provisions suggest a mechanism to pass on the benefit to the recipients which the Government has decided to pass on to the consumers by way of reduction in tax rate of the goods/Services or increased benefit of Input Tax Credit. Thus, the additional benefit that accrues to the supplier in terms of Section 171 of CGST Act, 2017 has to be passed on to the recipients of services. Further, the formula used by the DGAP to compute the amount of profiteering has also factored the impact of ITC that was available with the Respondent before implementation of GST. Therefore, the formula used for computation of profiteering is best suitable in this case and appropriate. Hence, the contention of the Respondent is without any basis and frivolous. 30. The Respondent has also contended that the ITC in respect of unsold units was uncertain and it may have to be reversed at the time of completion of t....
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....nt that there is no credible evidence to establish that the reduction in price of units had any correlation the benefit of ITC. The claim of the respondent is that he reduced the price of units in March 2017, i.e. months before roll out of GST. In such a scenario, it is just not possible that the reduction, if any, was a result of change in the tax laws which resulted in the benefit of ITC to the Respondent. Hence, this contention of the Respondent is not tenable. 33. The Respondent has further contended that it was settled that in the taxing statutes mechanism and machinery for computation of value should be provided. However, this contention of the Respondent is fallacious as no tax has been levied under Section 171 (1) of the above Act and hence no machinery is required to be provided. However, to enforce the Anti-profiteering measures, as provided under Section 171 (2) of the above Act, this Authority has been established to determine whether both the above benefits have been passed on or not to the consumers. Under Rule 123 Standing and Screening Committees on Anti-Profiteering have been constituted to examine the accuracy and adequacy of the evidence to prima facie establi....
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....by the Respondent that he had earned relevant additional ITC of Rs. 41,02,974/- during the pre GST period and Rs. during the post GST period @ 2.76% and 7.28% of the turnover respectively during the above periods which has resulted in additional benefit of 5.99% of the turnover to him which he is bound to pass on. Hence, there is no basis for exclusion of services portion from the ITC post GST for calculation of the above ratio. 36. The Respondent has also contended that the investigation authorities should restrict their investigation to the particular transaction i.e. subject matter of the complaint filed by the Applicant No. 1 only and not to entire company/project. In terms of Section 171 (2) of the CGST Act, 2017, it is provided that "The Central Government may, on recommendation of the council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him", therefore this Authority has been con....
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....f the CGST Rules, 2017. Otherwise also "any other person" can file complaint for violation of the provisions of Section 171 of the above Act as per Rule 128 (1) of the above Rules and therefore, the Applicant No. 1 is fully entitled to file the present complaint. Accordingly, the above contention of the Respondent cannot be accepted. 39. It is established from the perusal of the above facts that the Respondent has benefited from the additional ITC to the extent of 4.52% of the turnover during the period from July, 2017 to December, 2018 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. 51,12,928/- inclusive of GST @ 12% on the base profiteered amount of Rs. 45,65,114/-. Further, the Respondent has realized an additional amount of Rs. 1,33,503/- from the Applicant No. 1 which includes both the profiteered amount @ 4.52% of the taxable amount (base price) and 12% GST on the said profiteered amount. He has further realized an additional amount of Rs. 49,79,425/- which includes both the profiteered amount @ 4.52% of the taxable amount (b....