AI Drafter 
TaxTMI 
TaxTMI 
2022 (10) TMI 243
X X X X Extracts X X X X
X X X X Extracts X X X X
....opers Pvt. Ltd. wherein NAA has directed DGAP under Rule 133 (5) of the Central Goods and Services Tax Rules, 2017 to conduct investigation of all the other projects undertaken by the Respondent under the same registration that had not been investigated from the perspective of Section 171 of the Central Goods and Service Tax Act, 2017. Accordingly, the Present case has been investigated and report was filed on 27.11.2020. 2. The DGAP in its report dated 27.11.2020, inter-alia, has stated that:- i. A letter was issued to the Respondent on 25.10.2019 calling upon him to submit the details of other projects under the GST registration No. 29AAACZ3571A1ZE. In response, the Respondent had submitted vide letter dated 07.11.2019 that he had following projects under the same GSTIN: Table-'A' S. No. Name of the Project / Phase Type of the Project 1 Nikoo Homes - I Residential 2 Nikoo Homes - II Residential 3 Leela Residences Residential On perusal of the above table, it had been observed that the DGAP had already furnished it's Investigation Report in ease of the project "Nikoo Homes-I" vide report dated 30.09.2020 and in case of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the 29th day of November, 2020, and where completion or compliance of such action had not been made within such time then, the time-limit for completion or compliance of such action, shall be extended up to the 30th day of November, 2020." iv. In response to the Notice dated 18.112019 and subsequent reminders, the Respondent Submitted his reply vide letters/e-mails dated 25.11.2019, 19.12.2019, 21.01.2020, 08.06.2020, 02.07.2020, 10.08.2020, 25.10.2020, 13.11.2020 and 19.11.2020. The reply of the Respondent was summed up as follows. (a) The following projects are under the same GSTIN: S. No. Name or the Project / Phase Type of the Project. 1. Nikoo Homes -I Residential 2. Nikoo Homes - II Residential 3. Leela Residences Residential The Authority had already issued its Order No. 49/2019 dated 14.10.2019 in case of Nikoo Homes-II. For the projects "Nikoo homes-1" and "Leda Residences", the Respondent had raised objection that while Rule 133 (4) of the Rules empowered calling for information and causing for further investigation in respect of goods/services in question (covered in the report of DGAP, viz., Nikoo Homes-I), the pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing, to order of Delhi high Court in Reekitt Benckiser TS-1162-HC-2019(DEL)-NT] it was submitted that expansion of investigation sans any legal powers would be incorrect and illegal. Therefore, Respondent requested to consider his objections at investigation stage itself and sought this office's comments on the same. (c) With effect from 1st July 2017, The Respondent had sold 36 flats in "Leda Residences- project to various customers For all- inclusive prices, after considering the market conditions, escalations, demand-supply balance, GST benefit / concession, development in the locality, location of the land, proximity to educational institutions/ hospitals/ airport etc. It's agreed between the Respondent and the Buyers that the Buyers would not claim any GST ITC benefit as per Clause 6.4 of the Agreement to Sell which was reproduced herein below for easy reference: "'The Purchaser hereby agrees that the consideration agreed herein was based on the mutual negotiations between the Purchaser and the Seller as on the date of the application for allotment. It was made clear that after considering the above fact, the Purchasers shall have no right to clai....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... passed on by the Respondent to the recipients. in terms of Section 171 of the CGST Act, 2017. viii. The Respondent had 3 residential projects i.e. Nikoo Homes-I, Nikoo Homes-II and Leela Residences. Leela Residences was covered in the present report whereas the other two projects i.e. Nikoo homes-I & Nikoo Homes-II had already been investigated. ix. Respondent's objection with respect to calling information/documents after expiry of 6 months as mentioned in Rule 133 (1) was forwarded by the DGAP to the Authority vide letter dated 19.11.2019 seeking its guidance for further course of action in the instant case. In response, the Authority vide letter dated 02.12.2019 informed that all such submissions of the Respondent would be addressed by the Authority in its final Order and the DGAP was directed to proceed with the investigation. x. Another relevant point in this regard was 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) which 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 Sch....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ITC of GST paid on all the inputs and input services including the sub-contracts. From the information submitted by the Respondent for the period April, 2016 to October, .2019, the details of the ITC's availed by him, his turnover from the project -Leela Residences", the ratios of ITC's to turnovers, during the pre-GST (April, 2016 to June, 2017) and post-GST (July, 2017 to October, 2019) periods, were furnished in table-'B' below. Table B S.No. Particulars April, 2016 to June, 2017 (Pre-GST) July, 2017 to October, 2019 (Post-GST) (1) (2) (3) (4) 1. CENVAT of Service Tax Paid on Input Services (A) Credit of VAT Paid on Purchase of Inputs (B) 1,48,69,371 - 2. Credit of VAT Paid on Purchase of Inputs (B) 56,63,360 - 3. Rebate of VAT (WCT) for the payment made to registered Contractors or Sub-contractors (C) 1,02,04,304 - 4. Input Tax Credit of GST Availed (D) - 9,95,24,529 5. Total CENVAT/VAT/Input Tax Credit Availed (E)[(A)+(B)+(C) or (D) 3,07,37,035 9,95,24,529 6. Total Turnover including land value as per List of Home Buyers (Flats sold upto 31.10.2019) (F) 30,32,42,814 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Price H=G*18% 8,39,68,007/- 10. Total Demand raised I=G+H 55,04,56,934/- 11. Recalibrated Base Price J=G*(1-D) or 99.09% of G 46,22,43,878/- 12. GST @18% K-J*18% 8,32,03,898/- 13. Commensurate demand price L=J+K 54,54,47,776/- 14. Excess Collection of Demand or Profiteering Amount M=I-L 50,09,158/- xiii. The DGAP has concluded from the above Table-'C' that the additional ITC of 0.91% of the taxable turnover should had resulted in the commensurate reduction in the base price as well as cum-tax price. Therefore, in terms of Section 171 of the CGST Act, 2017, the benefit of such additional ITC was required to be passed on by the Respondent to the respective recipients. xiv. The DGAP observed from the above calculation and analysis that on the basis of the aforesaid CENVAT/Input Tax Credit availability in the pre and post-GST periods and the details of the amount raised/collected by the Respondent from the home buyers during the period 01.07.2017 to 31.10.2019, the Respondent had benefited by an additional amount of input tax credit, by an amount of Rs. 50,09,158/- which included GST @ 18% on the base amoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovided by the Respondent, giving the names and addresses along with Unit No. allotted to such recipients. Therefore, this additional amount of Rs. 50,09,158/- was required to be returned to such eligible Recipients. As observed earlier, the Respondent had supplied construction services in the State of Karnataka only. xviii. The present investigation covers the period from 01.07.2017 to 31.10.2019. Profiteering, if any, for the period post October, 2019, had not been examined as the exact quantum of ITC that would be available to the Respondent in future cannot be determined at this stage, when the Respondent was continuing to avail ITC in respect of the present project. xix. Section 171 (1) of the CAST' Act, 2017, requiring that "a 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", had been contravened by the Respondent "M/s. Bhartiya Urban Pvt. Ltd. (Formerly known as Bhartiya City Developers Pvt. Ltd.) amounting to Rs. 50,09,158/- in the present case. 3. After perusal of the DGAP's report, this Authority in its sitting held on 01.12.2020 directed the Ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l of Anti-profiteering referred to in sub-rule (6) of rule 129, the Authority has reasons to believe that there has been contravention of the provisions of section 171 in respect of Goods or Services or both other than those covered in the said report, it may, for reasons to be recorded in writing, within the time limit specified in sub-rule (1), direct the Director General of Anti-profiteering to cause investigation or inquiry with regard to such other goods or services or both, in accordance with the provisions of the Act and these rules." (ii) From the reading of the above rule, it was prudent to note that the calling of information for "Leela Residences" through the report of "Nikoo I" would be subject to a time limit of 6 months from the date of the DGAP's report for Nikoo I, as per the detailed given below: S.No. Name of the Project/Phase Particulars Date 1. Nikoo-l- Residential Anti-Profiteering Report by DGAP 07.03.2019 2. Due Date for Rule 133 (5) Expiry or the six months from 07.03.2019 06.09.2019 3. Leela Residences Notice requisitioning documents for conducting Anti-Profiteering study based on Nikoo-I DGAP report....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was no additional benefit that accrues due to implementation of GST. (iv) That computation for the purposes of anti-profiteering should be based on the estimated cost of the project at the time it was launched and the amount of taxes thereon which were reckoned as project cost but not the sales realizations or the input credits actually claimed during the GST period. In this regard, he wished to submit that the comparison of output tax and input tax as a ratio to the turnover and within themselves would be an acceptable analysis for businesses which were season agnostic and where the sale and purchase commence and conclude within a very short duration. e.g. consumer durables, food items etc., which were sold off-the-shelf and that could not be applied where the business was seasonal; it was imperative that in such cases. the ratios would be heavily and highly skewed when applied for the season or off-season only. The Respondent further explained that in the business involving construction and sale of residential flats, the total turnover, taxable turnover and output tax liability was a function of sale of new units out of the total inventory in the project, and that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s only at the stage when the amounts were allocated towards the construction agreement, that the taxable turnover raised in so far as it was related to the erstwhile Service Tax and VAT and then, GST. Further, irrespective of these turnovers and allocations, cost continued to be incurred on the project, thus leading to claim and accumulation of input credits. Given this startling difference, it is followed that the if these two elements were applied as a ratio for any period thereto, would lead to wholly incorrect and absurd results and inferences thus, making the approach and computation of the DGAP, in its report was incorrect. (vi) The computation of 'turnovers' by the DGAP in different tables was varying and inconsistent for the reason that in Table G of the DGAP's report, the turnover included the value of land, but the same was exclusive of land in Table IL It appears to be a deliberate attempt to (1) arrive at a positive percentage difference in Table G and computation of the alleged profiteered amount in Table H of the report. (vii) It must be borne in mind that 'land' was not a taxable element, neither under Service Tax nor under GST and a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntially be applied, considered and determined for a project as a whole and not for a specific period in isolation as considered in the report of the DGAP. When applied for a period in isolation, the following are given a go-by and thus make the entire exercise, futile and incorrect (x) Input credits and the amounts realized from the customers had no correlation. Therefore, applying the same as a ratio would be meaningless. Input credits were based on costs incurred by the Company irrespective of whether or not, any sale or proportion of sale of units out of the total units, that was made the amounts realized were only with respect to the units sold and it must be appreciated that this amount as a comparison of the same with input credits remained skewed out of the total input credits claimed during the period in the approach adopted by the NAA, it was critical to note that it was not final -- credits to the extent they related to units that remain unsold on the date of OC would have to be reversed. (xi) That the DGAP's report Para 19 on page no. 14 Profiteering, if any, for the period post October 2019, has not been examined as the exact quantum of input tax credi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that all such submissions of the Noticee will be addressed by the Authority in its final Order and this office is directed to proceed with the investigation." ii. In response to the contention of the Respondent that methodology adopted by DGAP was biased and unscientific, the DGAP submitted that the methodology adopted by his office was correct and strictly as per law enshrined in Section 171 of the CGST Act. The methodology had been consistently adopted by his office and upheld by NAA in all similar cases including the Order No. 49/2019 dated 14.10.2019 passed in case of project "Nikoo Homes-II" of the Respondent itself. In order to quantify the benefit of input tax credit, it was necessary to quantify the credits available to the Respondent in the pre-GST regime and also the credits available in the GST regime. Further, the amount of the additional benefit of ITC required to be passed on, was the amount paid by the customers or flat buyers to the Respondent in the form of GST charged from them which was to be deposited by the Respondent in the Government exchequer. But the Respondent instead of paying this GST amount in cash to the Government exchequer utilized ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entral Excise Duty on Inputs, Central Sales Tax, Karnataka Entry Tax, Countervailing Duty and Special Additional Duty of Customs etc. during the pre-GST regime and alter introduction of the GST, the Respondent was eligible to avail the ITC paid on all inputs and input services including the Sub-contracts. Further, estimated cost approach was based on assumed figures which could not be verified. Section 171 of the CGST Act, 2017 casts an obligation on the suppliers to pass on the benefit of reduction in rate of tax or the benefit of ITC to the recipients by way of commensurate reduction in prices, therefore the approach & methodology adopted by his office was in consonance with the provisions of Section 171 of the Act. iii. In response to the contention of the Respondent that Provisions of Section 171 of CGST Act, 2017 be applied for the project as a whole and not for a specified period the DGAP replied that the reply was furnished in succeeding paras. iv. In response to the contention of the Respondent that the input credit and the amounts realized from the customers have no correlation, therefore, applying the same ratio would be meaningless the DGAP replied that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erefore, the Respondent had to make periodical assessment of the ITC benefit and pass it on to the eligible flat buyers on each and every demand raised by him. The Respondent could always make adjustments in case more or less benefit was passed on at the final computation and payment or the benefit. Therefore, this condition of the Respondent could not be accepted. 5. The above clarifications of the DGAP were supplied to the Respondent for filing re-joinder vide Order dated 10.02.2021. Accordingly, the Respondent has filed a rejoinder dated 26.02.2021. The Respondent has re-iterated his previous submissions made vide letter dated 11.01.2021 w.r.t. the applicability of the provision of the Section 171 of the Central Goods and Services Tax Act, 2017 and the methodology adopted by the DGAP and the analysis thereto and requested to be heard in person before the case is finalised. 6. The proceedings in the matter could not be completed by the Authority due to lack of required quorum of members in the Authority during the period 29.04.2021 till 23.02.2022, and that the minimum quorum was restored only w.e.f. 23.02.2022 and hence the matter was taken up for conducting proceedings vi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... this regard, the Authority finds that the time limits prescribed under Rule 129 (6) and 133 (1) are only directory and are not mandatory as no consequences have been provided in the above Rules or the CGST Act, 2017 in case these limits arc not observed. The Hon'ble High Court of Delhi while considering the time limit prescribed under Rule 133 (1) vide its order dated 27.01.2020 passed in W. P. (C) 969/2020 in the case of M/s Nestle India Ltd. & another. v. Union of India others has ruled as under:- "We also observe that prima facie, it appears to us that the limitation of period of six months provided in Rule 133 of the CGST Rules, 2017 within which the Authority should make its order from the date of receipt of the report of the Directorate General of Anti-Profiteering, appears to be directory in as much as no consequence of non-adherence of the said period of six months is prescribed either in the CGST Act or the rules framed thereunder." Reliance is also placed on the judgment of the Hon'ble Supreme Court in the case of Mahadev Govind Charge v. Special Land Acquisition Officer (2011) 6 SCC 321 wherein it was held that:- '37. Procedural l....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the CGST Act. The methodology adopted by the DGAP has been consistently office upheld by NAA in all similar cases including the Order No. 49/2019 dated 14.10.2019 passed in case of project "Nikoo Homes-II" of the Respondent himself. The main contours of the 'Procedure and Methodology' for passing on the benefits of reduction in the rate of tax and the benefit of ITC are enshrined in Section 171 (1) of the CGST Act, 2017 itself which states that "Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall he passed on to the recipient by way of commensurate reduction in prices.- It is clear from the perusal of the above provision that it mentions "reduction in the rate of tax on any supply of goods or services" which does not mean that the reduction in the rate of tax is to be taken at the level of an entity/group/company for the entire supplies made by it. Further, the amount of the additional benefit of ITC required to be passed on, was the amount paid by the customers or flat buyers to the Respondent in the form of GST charged from them which was to be deposited by the Respondent to the Government exchequer. But the Respond....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f ITC till completion of the project while he used the same in his business for discharging his output tax liability every month. The Respondent has to make periodical assessment of the ITC benefit and pass it on to the eligible flat buyers on each and every demand raised by them. The Respondent could always make adjustments in case more or less benefit was passed on at the final computation and payment of the benefit. Therefore, the averment made by the Respondent is not tenable. 12. The Respondent has contended that the Input Tax Credit and the amount realised from the customers has no correlation. In this regard the Authority finds that as the Respondent is utilising ITC while discharging his GST output liability, out of the ITC available to him on the basis of the turnover i.e cost realised by him from the Home/Flat buyers/recipients of supply, hence, there is a direct correlation between the Input Tax Credit and the amount realized from the Home/Flat buyers/recipients of supply. The benefit has to be passed on the additional ITC proportionate to the payment made by a customer. The DGAP's Report dated 27.11.2020 also states that the input tax credit pertaining to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....17) was 3.36% and during the post-GST period (July-2017 to October-2019), it was 4.27%. This confirms that, post-GST, the Respondent has been benefited from additional ITC to the tune of 0.91% (4.27%-3.36%) of his turnover and the same was required to be passed on to the home buyers/shop buyers/recipients of supply. The DGAP has calculated the amount of ITC benefit to be passed on to all the home buyers/shop buyers/recipients of supply as Rs. 50,09,158/-which includes the GST 18% on the base amount of Rs. 42,45.049/- on the basis of the information supplied by the Respondent and hence this Authority agrees with the methodology adopted by the DGAP and the profiteered computed by the DGAP in its Report. 15. In view of the discussions above, the Authority finds that the Respondent has profiteered by an amount of Rs. 50,09,158/- during the period of investigation i.e. 01.07.2017 to 31.10.2019. The above amount of Rs. 50,09,158/-(including 18% GST) that has been profiteered by the Respondent from his home buyers/shop buyers/recipients of supply, shall be refunded by him, along with interest @18% thereon, from the date when the above amount was profiteered by him till the date of such....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules. 2017 should not be imposed on him is not required to be issued. 21. The concerned jurisdictional CGST/SGST Commissioner is also directed to ensure compliance of this Order. It may be ensured that the benefit of ITC has been passed on to each home buyers shop buyers/recipients of supply as per this Order along with interest @ 18% as prescribed. In this regard an advertisement may also be published in minimum of two local Newspapers/vernacular press in Hindi/English/local language with the details i.e. Name of builder (Respondent) -M/s Bhartiya Urban Pvt. Ltd. (Formerly known as Bhartiya City Developers Pvt. Ltd. Project- 'Leela Residences-, Location: Bengaluru. Karnataka, and amount of profiteering Rs.50,09.158/- so War the concerned home buyers/shop buyers/recipients of supply can claim the benefit of ITC if not passed on. Home buyers/shop buyers/shop recipients of supply may also be informed that the detailed NAA Order is available on Authority's website www.naa.gov. in. Contact details or concerned Jurisdictional CGST/SGST who arc nodal officer for compliance of the NAA's order may also be advertis....