TaxTMI 
TaxTMI 
2022 (8) TMI 1413
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....nd Services Tax Act, 2017. The Standing Committee forwarded the copies Of the Complaint of the Applicants along With demand letters to the DGAP for further investigation. 2. DGAP vide the above said Report dated 30.12.2020 had inter-alia stated the following: - I. On receipt of the reference from the Standing Committee on Anti profiteering, a Notice under Rule 129 of the Rules was issued by the DGAP on 21.10.2019, calling upon the Respondent to reply as to whether he admit that the benefit of ITC had not been passed on to the recipients 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 documents in support of his reply. Further, the Respondent was afforded an opportunity to inspect the non-confidential evidences/information which formed the basis of the said Notice, during the period 30.10.2019 to 31.10.2019. The authorized representative of the Respondent availed of the said Opportunity On 14.11.2019. II. The period covered by the current investigation was from 01.07.2017 to 30.09.2019. III. As complete and relevant documents were not s....
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....;-the consideration accounts for the benefits to be passed on vide computation Of estimated ITC under GST and the promoters were under no obligations to make any concession to the Allottee/purchaser in the above consideration". Basic price of the flats sold to the customer post implementation of GST had been reduced by Rs- 296/Sq. Ft- on average basis, illustrated as below: Particulars Taxable Value Area Per Sq. Ft. Area (Rs) Agreements executed during the last quarter (pre-GST) 23,21,90,850 46,650 4977 Agreements executed during the first quarter(poS1-GST) 21,06,34,083 44,999 4681 Reduction in per Sq. Ft. rate 296 In view Of the above. the turnover Of Rs. 103 Crores (approx) pertaining to flats sold post-GST was not required to be considered for the purpose of computation Of anti-profiteering benefit- VII. Vide the aforementioned letters./e-mails, Respondent submitted the following documents/ information: a. Copies of GSTR-I returns for the period July, 2017 to September, 2019. b. copies of GSTR-3B returns for period July, 2017 to September, 2019. c. Copies of Tran-I return for transitional cred....
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....X. DGAP also submitted that para 5 of Schedule-ill of the Central Goods and Services Tax 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 Il, sale of building". Further, clause (b) of Paragraph 5 of Schedule Il of the Central Goods and Services Tax Act. 2017 reads "(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 had been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever was earlier", Thus, the ITC pertaining to the residential units and commercial shops which were under construction but not sold was provisional ITC which might be required to be reversed by the Respondent, if Such units remain unsold at the time of issue of the completion certificate, in terms Of Section 17(2) & Section 17(3) of the Central Goods and Services Tax Act, 2017, which read as under: Section 17 (2) "Where the goods or serv....
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....ST' and the promoters were under no obligations to make any further concession to the Allottee/purchaser in the above consideration as mentioned in Clause 3." Since, the Respondent had already given the benefit of rate reduction and the same was backed by Agreement or Sale wherein definite clause of GST benefit had been given. Hence, it appears that bookings made post-GST were Out Of purview of investigation. Accordingly, profiteering had been calculated with respect to flats booked in pre-GST era only. As per home buyers list submitted ted by the Respondent, 199 flats were booked post- implementation of GST. XIII. The Respondent had submitted that he had opted for payments of GST @5% without ITC, as notified vide Notification No. 03/2019- Central Tax (Rate) dated 29.03.2019 w.e.f. 01.04.2019. Accordingly, the investigation period was limited upto 31.03.2019. XIV. As regards the allegation of profiteering, it was observed that Phase-I Of the project had 04 towers (A, B, C & D) Work on all the 04 towers started in pre-GST era and continued in post-GST. O.C. for 03 towers (A, B & D) was received on 15.02-2019 and for Tower-C,O,C. was not issued upto 31.....
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....ms that post-GST, the Respondent had benefited from additional ITC to the tune of 6.52% [7.67% (-) 1.15%] of the turnover. Accordingly, the profiteering had been examined by comparing the applicable tax rate and ITC available in the pre-GST period (April. 2016 to June, 2017) when effective Service Tax @4.50% was payable with the post-GST period (July, 2017 to March, 2019) when the effective GST rate was 12% (GST @18% along with 1/3 abatement for land value) on construction service, vide Notification No. 11/2017- Central Tax (Rate), dated 28.06.2017. XVI. On the basis of the figures contained in Table' above, the comparative figures of the ratio of ITC 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) from the home buyers who booked flats during the pre-GST period. 'were tabulated in Table-"C" below:- Table-'C' (Amount in Rs.) S. No. Particulars 1 Period A July, 2017 to March 2019 2 Output tax rate (%) B 12.00% 3 Ratio of CENVAT/ ITC to Taxable Turnover as Table -C above (%) C 7.67% 4....
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.... 55,89,462 1,42,40,774 Further Benetil to be passed on Total 255 2,73,143 27,80,41,750 2,03,03,720 58,35,648 1,45,28,245 XVIII. To verify the claim of the Respondent, with respect to Pre-GST bookings, DGAP had sent emails dated 12.10.2020 to all 255 home buyers. In response to these 255 emails, 83 home buyers replied that he had received benefit of ITC. XIX. From the Table 'C' and Table "D' above, it was observed that the benefit already passed on by the Respondent was less than what he ought to had passed on in case of 251 residential flats by an amount of Rs. 1,49,28,245/- (including applicants). Thus, on the basis of the aforesaid CENVAT/input tax credit availability pre and post-GST and the details of the amount during the period 01.07.2017 to 31.03.2019, the amount of benefit of ITC that had not been passed on by the Respondent to the recipients, who booked flat in pre-GST period comes to Rs. 1,45,28,245/- which included GST @12% on the base profiteered amount of Rs. 1,29,71,647/- profiteered amount of Rs. 94,726/- for Applicant no. 1 and Rs. 96,373 each for Applicant no. 2 & 3. XX. The Respondent....
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....uld not be accepted and his liability for profiteering in violation of the provisions of Section 171 should not be fixed. The Respondent was directed to file written submissions which had been filed vide submissions dated 10.02.2021. 27.03.2021 and 12.05.2022 wherein the Respondent had inter-alia submitted following points:- I. 'The Respondent was engaged in the business of construction and sale of residential units, The Company was in the process of constructing residential project - "Tinsel Town' consisting of Towers A,B,C,D, and E. In the Phase-I, Tower A to D had been constructed and in Phase-II, Tower E had been constructed. Towers A, B, C and D were registered with Maharashtra Real Estate Regulatory Authority vide Project Registration No. PS2100000392. Under the erstwhile regime, the Respondent was not allowed to avail credit of Central Excise Duty and VAT paid on the goods used for providing construction services to his customers. Therefore, such non-creditable duties and taxes paid on inward supplies were embedded in the budgeted cost of the project. However, pursuant to introduction of GST law, Respondent was allowed to avail the credit of taxes paid on procuremen....
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....ully' not passed on to the recipient by commensurate reduction in prices (i.e. the prescribed action in Section 171(1) of the CGST Act). Further, it must be noted that profiteering could be confirmed only if the benefits were not passed on to a recipient willfully by the supplier, implying a mala fide-intent on part of the supplier must be proved. VII. It was quite impossible in an industry, like Real Estate where the project itself takes 3-4 years for completion to accurately compute in advance the benefit which should be passed on to the customer. Further, construction of multiple towers and commencement and completion of each tower might vary from time to time, and the exact benefit of which would be available only on the completion of the project. Accordingly, the Respondent had computed the benefit on implementation of GST pertaining to non-creditable taxes under the pre-GST regime basis quo the construction cost incurred post July 1, 2017 and had passed on the benefit to the customers. VIII. It could also be observed that there was no reduction in the rate of tax of supply on the contrary the tax liability of the Respondent had increased also for ad....
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....eged profiteering amount had already been deposited with Government and there was no factual dispute on this aspect, inclusion of GST component again to calculate the alleged profiteering was incorrect. The Respondent does not profit from any GST collected from the recipients on behalf of the Government. In case the GST amount was included in alleged profiteering calculation, it would lead to double payment of the same amount by the Respondent. The role of the Respondent was to collect the GST amount on behalf of the Government and deposit the same with the Government. The Respondent neither earns revenue in the form of GST collected from customers nor was legally entitled to retain the same. Conversely put, had the Government granted-exemption to restaurant services from payment of GST, the Respondent would had not collected GST in addition to the base price of the subject goods. 4. 'The DGAP filed his clarifications on the Respondent's submissions dated 10.02.2021 vide supplementary Report dated 12.03.2021 and had clarified:- i. Regarding no methodology prescribed to derive profiteering. Thus leading to arbitrary exercise of powers by DGAP, it was submitted that t....
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.... service, while the ITC of Service 'Tax was available, the ITC of Central Excise duty paid on inputs was not available to the service provider. Such input taxes, the credit of which was not allowed in the erstwhile tax regime, used to get embedded in the cost of the goods or services supplied, resulting in increased price, With the introduction of GST w.e.f 01.07.2017, all these taxes got subsumed in the GST and the ITC of GST is available in respect of all goods and services, unless specifically denied, The method adopted is to find out the ratio of CENVAT/ITC to taxable turnover in the pre GST era as well as post-GST era, which is nothing but an exercise to find out the accrual of additional amount of ITC, if any. in the post-GSTT cra. vi. Section 171 of the CGST Act, 2017 and Rules made thereunder require the supplier of goods or services to pass on the benefit of the tax rate reduction to the recipients by way of commensurate reduction in price. Price included both, the base price and the tax paid on it. If any supplier had charged more tax from the recipients, the aforesaid statutory provisions would require that such amount be refunded to the eligible recipients or a....
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....ondent in the pre-GST regime and also the credits available in the GST regime. 5. 'The proceedings in the matter could not be completed by this 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 proceedings vide Order dated 03.03.2022 and the Respondent as well as the Applicants were given an opportunity to be heard in person on 12.04.2022. The Respondent has made his submissions dated 12.05.2022 wherein, he reiterated his earlier submissions. [earing in the matter was closed vide order dated 07.06.2022. 6. We have carefully considered the Report furnished by the DGAP and the clarifications filed by the him, the submissions made by the Applicants and Respondent and other records of the case and it is revealed that the instant Report dated 30.12.2020 had been furnished by the DGAP under Rule 129(6) of the Central Goods & Services 'ax (CGST) Rules, 2017 after detailed investigation of the case. The Respondent is in the business of the supply of Construction services and he has executed project by the name of Tinsel....
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....d on to all the eligible recipients as Rs. 2,03,03,720/- on the basis of the information supplied by the Respondent, The main objections of the Respondent and observation of the Authority on them is as follows:- II. The Respondent has submitted that no methodology was prescribed to derive profiteering thus, leading to arbitrary exercise of powers by DGAP in absence of proper methodology prescribed under law, It was open to DGAP for change the methodology and basis of computation without any rationale and basis to suite its convenience. He also relied upon Hon'ble Supreme Court judgement in the case of Commissioner, Central Excise and Customs, Kerala vs. Larsen and Toubro Limited (2016) 1 SCC 170. In this regard the averment of the Respondent cannot be accepted as the "Methodology and Procedure" has been notified by this Authority vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017. However, one formula which fits all cannot be set while determining such a "Methodology und Procedure" as the facts of each case are different. In one real estate project, date of start and completion of the project, price of the house/commercial unit, mode of payme....
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....itself unconstitutional as it seeks to regulate prices. It was submitted that under the guise of a tax enactment, the legislature cannot act as a price regulator. It was settled Iaw that prices were governed by market forces and price regulation would be violative of fundamental right of trade and commerce. Reliance in regard was also placed on Indraprastha Gas Ltd. vs. Petroleum and Natural Gas Regulatory Board and Ors, 2015 (9) SCC 209) However, the averment of the Respondent is not correct as the Authority does not act in any way as price controller or regulator as it doesn't have the mandate to regulate the same, The Respondent is absolutely free to exercise his right to practice any profession, or to carry on any occupation, trade or business, as per the provisions of Article 19 (1) (g) of the Constitution. He can also fix his prices and profit margins in respect of the supplies made by him, Under Section 171 this Authority has only been mandated to ensure that both the benefits of tax reduction and ITC which are the sacrifices of precious tax revenue made from the kitty of the Central and the State Governments are passed on to the end consumers who bear the burden of tax. Thi....
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....urther been elucidated by the word 'commensurate. 'The word "profiteering" had been given in the Statute itself and it cannot be confused with the DICTIONARY MEANING of the word "profit" or from common parlance. In this context it is submitted that an explanation added to the provision of the Act is clarificatory in nature and had retrospective effect unless it overrides the basic provision of the Act. Respondent had misinterpreted the term 'profit' with 'profiteering' as the latter is the benefit which had been pocketed by Respondent and had not been passed on to his buyers. Accordingly, the cases of Indian Aluminium Company v. Kerala State Electricity Board (1975) 2 SCC 414 and the Commissioner of Income Tax, Gujarat vs. Vadilal Lallubhai do not support the cause of the Respondent. VII. 'The respondent also submitted that the DGAP had incorrectly included GST already paid by respondent to government in value of profiteering amount, In this regard the Respondent had not only collected excess base prices from his customers which they were not required to pay due to the reduction in the rate of tax but the Respondent had also compelled customers to pay additional GST on thi....
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....ed to each homebuyer/recipient of supply along with interest @ 18% p.a, as prescribed from the date the profiteered amount was collected until the date of such return/passing on/refund. The names of such homebuyers along with unit number, profiteered amount and the benefit already passed on is enclosed with this order as Annexure-A. 10. It is also evident from the above narration of the facts that the Respondent has denied benefit of [TC to the buyers of his flats in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he had thus resorted to profiteering, Hence, he has committed an offence for violation of the provisions of Section 171 (1) during the period from 01.07.2017 to 31.03.2019 and therefore, appears to be liable for imposition of penalty under the provisions of Section 171 3 (A) of the above Act. However, the provisions of Section 171 (3A) have been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019 and it was not in operation during the period from 01.17.2017 to 31.03.2019 when the Respondent had committed the above violation and hence, the penalty under Section 171 (3A) cannot be imposed on the Responde....