AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (8) TMI 273
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....as alleged that the Respondent had not passed on commensurate benefit of Input Tax Credit (ITC) to him, on implementation of GST w.e.f. 01.07.2017, in terms of Section 171 of the CGST Act, 2017. 2. The DGAP in his Report dated 29,01.2021, inter-alia staled that:- i. The Karnataka State Screening Committee on Anti-profiteering examined the said application and observed that the Respondent had not passed on the appropriate benefit of 17-C to the Applicant No. 1 as the additional ITC available to Respondent should have been apportioned against the instalments towards the price of the fiat. The Karnataka State Screening Committee forwarded the said application with its recommendation, to the Standing Committee on Anti-profiteering for further action, in terms of Rule 128 of the Rules ii. The aforesaid reference had been examined by the Standing Committee on Anti-profiteering, the minutes of which were received by the DGAP on 06.05.2020. iii. The Applicant No. 1 had submitted along with application the copy of demand letters issued to him, both pre- ST and post-GST. iv. The Applicant No. 1 had booked a Flat No. 103 in the Respondent's project "Axis Vedam", for which A....
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....ed vide Notification No. 55/2020 dated 27.06.2020 and 91/2020-Central Tax dated 14.12.2020 (Annex-5), issued by the CBIC under Section 168A of the CGST Act, 2017 wherein the last date for submission of Report has been extended up to 31.03.2021. ix. In response to the notice dated 04.06 2020, the Respondent has submitted his reply vide letters/e-mails dated 12.06.2020, 30.06.2020, 02.09.2020, 28.09.2020. 30.09.2020. 01.12.2020, 21.12.2020, 24.12.2020, 23.01.2021, 28.01.2021 x. Vide the aforementioned Ietters/e-mails, the Respondent submitted the following documents/information: a. Copies of GSTR-1 returns for the period July, 2017 to April, 2020 b. Copies of GSTR-3B returns for the period July, 2017 to April, 2020. c. Copy of Electronic Credit Ledger for the period 01.07.2017 to 30.04 2020 d. Copies of Tran-1 for the period July, 2017 to December, 2017. e. Copies of VAT & ST-3 returns for the period April. 2016 to June, 2017. f. Copies of all demand letters. sale agreement/contract issued in the name of the Applicant No 1 g. CENVAT/Input Tax Credit register for the period April, 2016 to April, 2020. h. Cop....
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....s, 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 sub-section (2) shall be such as might 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 11, sale of building". Therefore, 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 proportionate additional ITC available to him post-GST. xiv. In response to the notice of initiation of investigation dated 01.06.2020 and subsequent reminders, the Respondent vide his submission dated 21.11.2020 provided the details of turnover and CENVAT credit /ITC availed for all the projects as mandated under erstwhile CENVAT Credit Rules 2004, present CGST Rules, 2017. The Respondent vide his submission dated 02.09.2020 further submitted that the provisions of the RERA Act. 2016 we....
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....17% 13.52% *The calculation above. was based on the home-buyers demand data submitted by the Respondent vide email dated 01.12.2020. The OC of the project was issued on 14.11.2017, as such the Respondent has not fired the option to be filled under notification 3/2019, effective from 01/04/2019 for on-going project. xvii From the above table-'A', it was clear 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 1.17% and during the post-GST period (July, 2017 to April, 2020), it was 13.52% This clearly confirmed that post-GST, the Respondent had benefited from additional ITC to the tune of 12.36% [13.52% (-)1.17%] of the turnover for the project "Axis Vedam". xviii. It was also observed that the Central Government, on the recommendation of the GST Council, had levied 18% GST on construction service (after one third abatement towards value of land, effective GST rate was 12% on the gross value), vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 Accordingly, the profiteering has been examined by comparing the applicable tax rate and ITC available to the Resp....
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....e Respondent appeared to have contravened the provisions of Section 171 of the of the CGST Act, 2017. xxi. Having established the fact of profiteering, the next step was to quantify the same. On the basis of the aforesaid CENVAT/ITC availability in the pre and post-GST periods and the demands raised by the Respondent on The Applicant and other home buyers towards the value of construction on which GST liability @ 12% was discharged by the Respondent during the period 01.07.2017 to 30 04.2020. the amount of benefit of ITC not passed on to the recipients or in other words, the profiteered amount comes to Rs. 40,94,480/- which included GST. The buyers (of flats sold upto 30.04.2020) and unit no. wise break-up of this amount had given in Annexure-18 of the Report dated 29.01.2021 for Project "Axis Vedam". xxii. Before concluding the investigation, it was pertinent to mention here that above computation of profiteering was with respect to 21 home buyers amongst all the customers as on 30.04.2020 in the project "Axis Vedam". In as much as, the project comprises of 46 units in all & out of the above, 21 units belong to land owner share which were handed over to him after obtaining t....
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....that the provisions of Section 171(1) of the CGST Act, 2017, requiring that 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", have been contravened by the Respondent in the present case. The Respondent has executed/is executing different other projects during the investigation period viz. Amairo, Antara, Mountrose, Tatvam, Tuscan Terrace and Vanam. 4. The above Report was carefully considered by this Authority and it was decided to allow the Respondent and the Applicant to file their consolidated written submissions by 17.02.2021. A notice dated 04.02.2021 was issued to the Respondent to explain why the Report dated 29.01.2021 furnished by the DGAP should not be accepted and his liability for profiteering in violation of the provisions of Section 171 should not be fixed and penalty under Section 171 (3A) of the CGST Act. 2017 read with Rule 133 (3)(d) of the CGST Rules, 2017 should not be imposed. 5. The Respondent filed his written submissions vide letter dated 08.03,2021 in which he has submitted:- i. That the project was on joint development with th....
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.... d there was reduction in output tax on one hand and also if there had benefit of ITC accruing to the supplier. In this regard it was humbly submitted that the term 'benefit' was employed in the statute with a purpose of any extra benefit without paying extra for it. vii That the benefit has to be understood in the context of profiteering. The meaning of the term 'profiteering' was explained in different dictionaries as follows: - Black's Law Dictionary - taking advantage of unusual or exceptional circumstances to make excessive profits; - Law Lexicon - To seek or obtain excessive profits, one who had given to make excessive profits; - Shorter Oxford Dictionary - Make or Seek to make an excessive profit. - To seek or obtain excessive profits especially illegally Whereas the Report of the DGAP did not bring out any of these factors, to establish that there was a benefit. which had accrued which otherwise would have not accrued to the Respondent Without establishing the same the Report was not sustainable under law and therefore cannot be accepted. viii. That the methodology adopted in the Report for a....
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....ss ITC to turnover. The Respondent's objection on the same as the computation of alleged benefit of ITC by arriving the percentage of Input Tax Credit/CENVAT Credit to amounts received was not scientific in construction projects. e. That the profiteering amount determined according to Table B of the Report was of Rs. 40,94,480/- which was much more than the proportionate Input Credit of Rs, 39.98,952/- as calculated in Table - A of the Report availed on the Sold area of 28,880 sq.ft. The anti-profiteering benefit could not be more than the proportionate Input Credit availed by the respondent. The above facts establish that the methodology adopted was inappropriate, illogical and questionable. The respondent objects to the methodology adopted by the DGAP. ix. That as per his submissions made above it was humbly requested before the Authority that a. No additional benefit of credit accrued to the respondent post GST; b. In the absence of mechanism and methodology prescribed under the law the methodology explained by the respondent for stating that he had not got any undue benefit has to be accepted; c. The methodology adopted in the Re....
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....ntral Government as per Section 171 of the CGST Act. 2017 read with Section 2(87) of the Act, on the recommendation of the GST Council. which was a Constitutional Federal body created under the 101st Amendment of Constitution, has formulated and notified Rules 127 and 133 which prescribe the functions and powers of the Authority Both the above Rules had been framed under Section 164 of the CGST Act, 2017 which also has sanction of the Parliament and the State Legislatures, it shows that the delegated power to prescribe powers and functions of the Authority given under Section 171 (3) has been duly exercised by the Central Government by formulating the above Rules. on recommendation of the GST Council, Accordingly, the Authority might exercise such power as has been prescribed under the CGST Rules, 2017. Since the functions and powers to be exercised by the Authority had been approved by competent legislatures. the same was legal and binding on the Petitioner. The Authority in exercise of power delegated to it under the above rule has notified the Methodology & Procedure vide Notification last updated on 19.07.2018 which was also available on the website. However. it was submitted t....
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....? 10. The Respondent has argued that in the absence of any prescribed methodology prescribed by law. adoption of any particular method without explaining the theory and purpose behind it and also without explaining legal validity of such methodology, would be arbitrary and is not legally correct. The Respondent submitted that the provisions of Section 171 mandate to reduce the price if there was reduction in output tax on one hand and also if there was benefit of ITC accruing to the supplier, in this regard it is submitted that the term 'benefit' is employed in the statute with a purpose of any extra benefit without paying extra for it. The Authority finds that, the above Contention of the Respondent is without substance as the 'Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and ITC or for computation of the profiteered amount has been outlined in Section 171 (1) of the CGST Act, 2017 itself which provides that "'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." The Authority finds that, i....
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....w.e.f. 01.07.2017. Similarly, the benefit of tax reduction would depend upon the pre rate reduction price of the product and quantum of reduction in the rate of tax from the date of its notification. Computation of commensurate reduction in prices is purely a mathematical exercise which is based upon the above parameters and hence it would vary from product to product or unit to unit or service to service and hence no fixed mathematical methodology can be prescribed to determine the amount of benefit which a supplier is required to pass on to a buyer. Similarly, computation of the profiteered amount is also a mathematical exercise which can be done by any person who has elementary knowledge of accounts and mathematics as per the Explanation attached to Section 171. However, to further explain the legislative intent behind the above provision, this Authority has been authorised to determine the 'Procedure and Methodology' which has been done by it vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017. However, no fixed mathematical formula. in respect of all the Sectors or the products or the services, can be set for passing on the above benefits or f....
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....rovides clear cut methodology and procedure to compute the benefit of tax reduction and the profiteered amount. Therefore, the decisions of the Hon'ble Supreme Court given in the cases of CIT v. B C, Srinivasa Shetty (1981) 2 SCC 460 and Commissioner of C. Ex. & Cus Kerala v. Larsen & Toubro Ltd. 2015 (039) S.T.R. 0913 (S.C.) cannot be relied upon in the present case. 10. The Respondent has also contended that the provisions of Section 171 mandate to reduce the price if there is reduction in output tax on one hand and also if there is benefit of ITC accruing to the supplier. In this regard it is submitted that the term 'benefit' is employed in the statute with a purpose of any extra benefit without paying extra for it. Further the Respondent submitted that the benefit has to be understood in the context of profiteering, therefore. he has cited the definitions of 'Profiteering' from The Black's Law Dictionary, Law Lexicon and Shorter Oxford Dictionary in his support. In this regard, this Authority finds that the word "profiteered" has been duly defined in the Explanation attached to Section 171 of the above Act as under:- "Explanation : For ....
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....te and it cannot be considered to be any benefit. The additional credit available of the taxes extra paid cannot be considered to be benefit of input tax, In this context, it is to state that the change in rate of tax in Service Tax from 15% to 18% is an additional benefit which has accrued to the Respondent in the post-GST period, as he has availed ITC of all such tax, which is required to be passed on to the flat buyers. The Respondent cannot be allowed to appropriate it illegally as it has been given from the public exchequer. The Respondent has not paid even a single penny from his account and therefore, he cannot claim not passing on the benefit of additional ITC to the buyers as he has used the same in discharging his output tax liability, Therefore, the Authority finds that the above contention of the Respondent cannot be accepted. 14. The Respondent has also submitted that, the profiteering amount determined according to Table B of the Report was of Rs. 40, 94,480/- which was much more than the proportionate Input Credit of Rs. 39,98.952/- as calculated in Table-A of the Report availed on the Sold area of 28,880 sq.ft. The anti-profiteering benefit could not be more than....
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.... to the customers/flat buyers/recipients as Rs. 40,94,480/- for the project 'Axis Vedam". the details of which are mentioned in Table- B above. This Authority finds that the project "Axis Vedam" comprises of 46 units in all and out of the above, 21 units belong to land owner which were handed over to him after obtaining the Occupancy Certificate for possession and in respect of rest 4 units of the Respondent's share of 25 units, 2 units were sold post OC and in respect of other 2 units, there were no payments receive in post GST period. Therefore, the profiteering amount of Rs. 40.94,480/- is with respect to 21 customers/flat buyers/recipients amongst all the customers as on 30.04.2020 in the project 'Axis Vedam". The list of 21 customers/flat buyers/recipients has been attached as Annexure 'A' with this Order, containing the details of the amount of benefit of ITC to be passed on in respect of the project "Axis Vedam" of the Respondent. 16. In view of the above discussions, the Authority finds that the Respondent has profiteered by an amount of Rs. 40.94.480/- for the Project "Axis Vedam" during the period of investigation i.e. 01.07.2017 to 30.04.2020. The ....
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....0 04.2020, therefore. he is liable for imposition of penalty under the provisions of the above Section for the amount profiteered from 1.01.2020 onwards. Accordingly, notice be issued to him. 21. It is also evident from the DGAP's Report dated 29.01.2021 that the Respondent has executed/is executing different other projects i.e, Amairo, Antara, Mountrose, Tatvam, Tuscan Terrace and Vanam. Profiteering on the part of the Respondent has been established in the case of "Axis Vedam" project of the Respondent and supplies from various projects of the Respondent are being made through a single GST registration and the same ITC Pool/Electronic Credit Ledger is being used for all the supplies being made from that registration. Hence, there are adequate reasons to believe that the Respondent may not have passed on the benefit of ITC to his recipients in such other Projects as per Section 171(1) of the Act ibid, in the same manner as in the project in hand, Le. "Axis Vedam". Therefore. the Authority, in accordance with the provisions of Section 171 (2) of the CGST Act, 2017 and as per the provisions of Rule 133 (5) (a) of the CGST Rules 2017 directs the DGAP to investigate all the oth....