TaxTMI 
TaxTMI 
2020 (5) TMI 287
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....a No.3, Sector-11, Lucknow and had also alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) by way of commensurate reduction in the prices of the apartment purchased by him, on implementation of the GST w.e.f. 01.07.2017. The said application was examined by the Standing Committee on Anti-profiteering in its meeting held on 11.03.2019 and upon being prima facie satisfied that the Respondent had contravened the provision of Section 171 (1) of the CGST Act, 2017, had forwarded the same with its recommendation to the DGAP for investigation to determine whether the benefits of reduction in the rate of tax or ITC had been passed on by the Respondent to his recipients. The minutes of the meeting were received by the DGAP on 27.03.2019 (Annex-2). 2. The DGAP has mentioned that alongwith the application the Applicant No. 1 had also submitted a copy of the flat buyer- seller agreement, copies of demand letters and copies of his communication with the Respondent. 3. Thereafter, the DGAP on receipt of the reference from the Standing Committee on Anti Profiteering. had issued notice to the Respondent on 04.04.2019 (Annex-3) under Rule 129 (3) of the above Rule....
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....formation:- a. GSTR-1 & GSTR-3B Returns for the period from July-2017 to March-2019. b. Copies of Tran-1 Returns for transitional credit availed by him. b. Copies of Service Tax and VAT Returns for the period from April, 2016 to June, 2017. c. Electronic Credit Ledger for the period from July, 2017 to March, 2019. d. Pre-GST and post-GST Applicable tax rates. e. Copy of Balance Sheets for FY 2016-17 & 2017-18. f. Details of turnover and ITC in respect of the project "Azea Botanica". g. List of home buyers in the project "Azea Botanica". 7. The DGAP in his report has further stated that the Respondent had requested that the ITC Register and home buyers list were to be treated as confidential in terms of Rule 130 of the above Rules. 8. The DGAP has further stated that the various replies of the Respondent and the documents/evidence on record have been carefully examined and the main issues to be examined were (a) whether there was benefit of reduction in the rate of tax or ITC on the supply of construction service by the Respondent after implementation of the GST w.e.f. 01.07.2017 and if so, (b) Whether the Respondent has passed on such benefit to the recipien....
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....s. Therefore, the ITC which was available to the Respondent and the amount received by him from the Applicant and other recipients till 31.03.2019, had to be taken into account for determining the extent of profiteering 11. The DGAP has also reported that another aspect that was kept in mind while determining the amount of profiteering was that the ITC proportionate to the unsold units would have to be reversed once the completion certificate was obtained, as ITC in respect of such unsold units would have been claimed in the relevant months when inward supplies were received by the Respondent. This finding was supported by para 5 of the 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) which reads as "Sale of land and, subject to clause (b) of paragraph 5 of Schedule 11, sale of building" read with clause (b) of Paragraph 5 of Schedule II of the Central Goods and Services Tax Act, 2017 which 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 conside....
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....17 (Pre-GST) July, 2017 to March, 2019 (Post-GST) 1. CENVAT credit of Service Tax paid on input services (A) 2,88,12,927 - 2. Credit of VAT on Inputs (B) - - 3. Total CENVATNAT Credit Available (C)= (A+B) 2,88,12,927 - 4. ITC of GST (D) - 8,07,24,336 5. Total turnover as per home buyers list (E) 72,38,10,202 69,64,97,850 6. Total saleable residential area in the project (in Sq. Ft.) (F) 10,27,462 10,27,462 7. Area Sold relevant to Turnover as per Home buyers list (in Sq. Ft.) (G) 3,43,360 4,58,535 8. CENVAT/ITC relevant to turnover (H)= [(C) or D*(G)/(F)] 96,28,781 3,60,25,599 9. Ratio of CENVAT/ ITC to Turnover [(I)=(H)/(E)]*100 1.33% 5.17% 13. The DGAP has also claimed that as per the Table-B, the ITC as a percentage of the total turnover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 1.33% and during the post-GST period (July-2017 to December, 2018), it was 5.17%. This clearly confirmed that post-GST, the Respondent had been benefited from additional ITC to the tune of 3.84% (5.17% - 1.33%) of the turnover. Accordingly, the profiteering had been examined by comparing the applicable tax an....
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....s, but as observed earlier, the profiteering has to be determined at a given point of time, in terms of Rule 129 (6) of the Rules. For the present, the Respondent had retained the benefit on account of additional ITC. In other words, by not reducing the pre-GST base price by 3.84% on account of additional benefit of ITC and charging GST @ 12% on the pre-GST base price, the Respondent appeared to have contravened the provisions of Section 171 of the of the CST Act, 2017. 15. The DGAP in his report has also contended that on the basis of aforesaid CENVAT/ITC availability in pre-GST and post-GST periods and the amount collected by the Respondent from the Applicant No. 1 and other buyers of the flats and commercial shops during the period from 01.07.2017 to 31.03.2018, the amount of benefit of ITC that needed to be passed on by the Respondent to the recipients or in other words, the profiteered amount came to Rs. 2,72,21,532/- which included 12% GST on the base profiteered amount of Rs. 2,34,04,939/-. The home buyer wise break-up with the flat/ unit number was given in Annex-12. Further, as per SI. No. 130 of Annexure-12, the benefit to be passed on to the Applicant No. 1 worked out t....
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....07.2017 on which agreements were executed after adjusting benefit of GST ITC. Whereas the Respondent had booked 319 flats till 31.03.2019, he had claimed that effective from 01.07.2017, he had sold 11 flats at the rates agreed by the customers on all-inclusive prices after considering market conditions, escalations, demand-supply balance, GST ITC benefit, development in the locality, location of the land, proximity to education institution/ hospitals/ airport etc. and the price so fixed was mutually negotiated and agreed upon. The Respondent had also submitted the declaration letter given by these 11 home buyers to the Respondent with the agreement. This argument of the Respondent has merit and therefore, ITC pertaining to the above 11 units was outside the scope of this investigation as the selling price of such units was negotiated between the home buyers and the Respondent taking into consideration the benefit of ITC or change in the rate of GST. Further, out of the remaining 298 flats [(309) -(11)], 36 customers had booked the flats in pre-GST period and also paid amounts in pre-GST period but they had not paid any consideration towards construction during the post-GST period f....
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....decided to accord opportunity of hearing to the Applicants and the Respondent on 24.10.2019. Notice was also issued to the Respondent directing him to explain why the Report dated 24.09.2019 furnished by the DGAP should not be accepted and his liability for violation of the provisions of Section 171 of the CGST Act, 2017 should not be fixed. 22. The Respondent vide his submissions dated 13.11.2019 contended as under:- a. That there was no benefit of ITC on supplies received by him as the costing (including taxes) had increased in the GST regime. b. That the basic sale price was agreed by him and the home buyers in the pre-GST Service Tax era after considering the CENVAT available to the Respondent. Now in the GST era since the same benefits were available to him, there was no additional benefit of ITC that had accrued to him. c. That during the Service Tax period, most of the CENVAT/ITC was accruing to him from receipt of works contract service. Since the rate paid to the contractor had remained the same pre and post GST and there had been no benefit on account of the reduction in tax rate thereon, the additional ITC accruing to him was mainly on account of higher rate....
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....n the manner as laid down in the report of DGAP) if the entire CENVAT prior to April 2016 was also considered:- Table-1 (Amount in Rs.) S.No. Particulars Upto Mar Apr 16 to Jun 17 Total Pre- GST 1 Total CENVAT Credit of Service Tax Paid on Input Services (Refer annexure 2) (A) 2,23,32,968 2,88,12,927 5,11,45,895 2 Total Turnover as per Home Buyers List (B) 18,84,06,472 72,38,10,202 91,22,16,674 3 Total Saleable Residential Area in the project (Sq Ft) (C) 10,27,462 10,27,462 10,27,462 4 Area Sold relevant to Turnover as per Home Buyers List (Sq Ft) (D) 2,22,011 3,43,360 3,43,360 5 CENVAT relevant for Turnover (E) = (B) * (D) / (C) 48,25,643 96,28,781 1,71,63,007 6 Ratio of CENVAT / Input Tax Credit to Turnover (I)=(H)/(E)*100 2.56% 1.33% 1.88% g. That it was evident from the abobe Table that the period during which major construction activities (i.e. upto March 2016) were undertaken, had not been considered while computing the ratio of CENVAT to Turnover. Had the same been considered, the ratio of Total CENVAT to Total Turnover Pre-GST would have increased to 1.88% and the profiteering calculated as per Table '2' below:- Table-2 (Amount in ....
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.... the ratio of ITC availed to turnover during the pre-GST (April 2016 to June 2017) and post-GST (July 2017 to March 2019) periods. The Construction of Azea Botanica project was continuing since 2012-2013. The pre-GST period excluded the previous period data (i.e. upto March 2016). This implied that the ratio of ITC availed to turnover in the initial years was substantially higher than the period considered (April 2016 to June 2017). b. That the increase in ratio of ITC availed to the turnover post implementation of GST could be attributed to higher tax on inward supplies in post GST era. That the construction cost excluding taxes had remained the same however, the construction cost including taxes had increased post GST which was evident from the invoices of sub-contractor raised pre and post GST (Annexure - 1 of submission dated 13-11-2019). It was on account of the higher taxes paid on inward supplies post GST which had resulted in higher ITC being available to him as the tax on works contract service had increased from 6% (pre-GST) to 18% (post-GST). The method adopted by DGAP did not consider this aspect while computing the ratio of ITC availed to the turnover. c. That he h....
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....e Respondent vide submissions dated 02,12.2019 has submitted all the demand letters issued to the home buyers in which total benefit of ITC amounting to Rs. 2,04,77,6781- had been passed on at the time of issuance of these demand letters. The demand letters had been duly verified with the worksheet submitted by the Respondent and upon verification, it was observed that the Respondent had already passed on the benefit of Rs. 2,04,77,678/- by reducing the amount from the demand letters. The summary of benefit already passed on and to be passed on, to all the home buyers had already been explained in Table-D and para-20 of the DGAP's report dated 24.09.2019. Further, as per para-22 of the DGAP's Report, the benefit already passed on to the home buyers by the Respondent was already adjusted in the further benefit to be passed on by the Respondent to these home buyers. 26. The Respondent vide submissions dated 22.01.2020 has also submitted acknowledgement from 40 home/flat buyers alongwith the details of ITC benefit passed. 27.The Respondent further vide submissions dated 25.01.2020 has stated that he in order to buy peace of mind and avoid future litigations had agreed to pass on the....
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.... profiteering and whether the benefit, if any, has been passed on to the customers/ recipients/ flat buyers by the Respondent along with interest as applicable. 31. A perusal of Section 171 (1) of the CGST Act shows that it provides as under:- (1). Any reduction in rate of tax on any supply of goods or services or the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in prices." It is clear from the plain reading of Section 171 (1) mentioned above that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second pertaining to the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the DGAP's Report that there has been no reduction in the rate of tax in the post GST period; hence the only issue to be examined is as to whether there was any net benefit of ITC with the introduction of GST. On this issue it has been revealed from the DGAP's Report that the ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period (April-2016 to June-2017) was 1.33% and during the post-GST period (July-2017 to December-2018....
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....n by the Respondent, which was in the process of being passed on by him to his customers/ flat buyers/ recipients. 34. We find no reason to differ from the above-detailed computation of profiteering and hence the profiteered amount for the period from 01.07.2017 to 31.03.2019, in the instant case, is determined as Rs. 2,72,21,532/-. This Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondent shall reduce the prices to be realized from the buyers of the flats/shops commensurate with the benefit of ITC received by him as has been detailed above. 35. Further, out of the total profiteered amount of Rs. 2,72,21,532/- (inclusive of GST), the balance amount of benefit of Rs. 73,61,288/- shall be passed on, forthwith, by the Respondent to the customers/ flat buyers/ recipients, including Applicant No. 1, in accordance with Annexure-12 of the DGAP Report dated 24.09.2019. 36. The Respondent is also liable to pay interest as applicable on the entire amount profiteered, i.e. Rs. 2,72,21,532/-. Hence the Respondent is directed to also pass on interest @18% to the customers/ flat buyers/ recipients, including Applicant No. 1, on the entire amount prof....