TaxTMI 
TaxTMI 
2022 (9) TMI 1508
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....an Pvt. Ltd., and M/s Techserve Tele Services Pvt. Ltd., collectively referred to as 'land owners' alleging profiteering by the Respondent in respect of the development agreement entered into with the Respondent on 26-12-2013 and also the allocation agreement dated 2-5-2017 thereto, in respect of the Respondent project "Victoria Vista", Kolkata. The above Applicants had alleged that the Respondent had not passed on commensurate benefit of ITC to him, on implementation of GST w.e.f. 1-7-2017, in terms of Section 171 of the CGST Act, 2017. 2. The DGAP in his Report dated 31-3-2021, had inter-alia, stated that:- (a) The aforesaid reference was examined and forwarded by the Standing Committee on Anti-profiteering and was received by the DGAP on 15-10-2020 to conduct a detailed investigation in the matter. Accordingly, investigation was initiated to collect evidence necessary to determine whether the benefit of ITC had been passed on by the Respondent to the Applicant No. 1 to 9 in respect of construction service supplied by the Respondent. (b) On receipt of the said reference from the Standing Committee on 15-10-2020, a Notice under Rule 129 of the CG....
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....per for the project "Victoria Vista". (xi) Copies of Declarations made in Annexure-IV to the Notification No. 03/2019 Central Tax (Rate) dated 29-3-2019. (xii) Status of the project "Victoria Vista" as on 30-9-2020 in terms of tower-wise sold and unsold units. (xiii) Details of VAT, Service Tax, ITC of VAT, CENVAT credit for the period April, 2016 to June, 2017 and output GST and ITC of GST for the period July, 2017 to September, 2020 for all the projects separately including the project "Victoria Vista". (xiv) List of home buyers in the project "Victoria Vista". (xv) Copy of tax invoices for the months of Feb'18, Mar'18, Sept' 18 to Mar'19, April'19, July'19, Aug'19, Nov'19 to March'20, June' 20 to Sept'20. h. In the Notice dated 13-11-2020, the Respondent was informed that if any information/documents was provided on confidential basis, in terms of Rule 130 of the Rules, a non-confidential summary of such information/documents was required to be furnished. The Respondent vide mail dated 25-3-2021 requested to treat all the documents submitted by him as confidential. Accordingly, the ....
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....subject to clause (b) of paragraph 5 of Schedule II, 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. k. In response to the Notice of Initiation of investigation dated 13-11-2020 and subsequent reminder dated 12-3-2021, the Respondent vide his submission dated 3-2-2021 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 & RERA regulations. From the Respondent's submission dated 17-3-2021, it was observed that the Respondent obtained the RERA Registration bearing No. HIRA/P/KOL/2018/000025 for the project "Victoria Vista" under West Bengal Housing Industry Regulatory Authority. l. From the above, it was clear that the credit on input services was admissible to the Respondent under Rule 2( 1) of the Cenvat Credit Rules 2004, which was utilized to pay Service Tax. Further, as seen....
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....9, effective from 01/04/2019 for ongoing project wherein the Respondent opted to pay tax at the old rate availing the benefit of ITC as envisaged in the Notification and hence the investigation had been earned out till September 2020 in as much as the Respondent was yet to receive the Occupancy Certificate. As seen from the Allocation Agreement dated 2-5-2017, it was noted that there were 44 units in all. Out of 44 units, 17 units were under the Respondent's (Developer) allocation and 27 units were under Applicant No. 1 to 9 (land owners) allocation. As per the home buyers list submitted by the Respondent, out of the 17 units allocated to the him only 4 units had been sold and the balance 13 units were unsold as on 30-9-2020. Similarly, as per the home buyers list submitted by the Applicant No. 1 vide his letter dated 8-3-2021 forwarded through email, it was noticed that out of the 27 units allocated to the Applicant No. 1 to 9, no unit was sold as on 30-9-2020. The 3 units that were sold by the Applicant No. 1 to 9 were sold after the investigation period. Accordingly, the 4 units that were sold by the Respondent had been considered for computation of profiteering. Further, th....
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....t: - 7 Base Price raised during July, 2017 to April, 2020 (Rs.) F 6,40,77,867 8 GST raised over Base Price (Rs.) G=F*B 76,89,344 9 Total Demand raised H=F+G 7,17,67,211 10 Recalibrated Base Price I=F*(l-E)or 99.47% of F 6,37,38,254 11 GST@12% J = I*B 76,48,590 12 Commensurate demand price K = I+J 7,13,86,844 13 Excess Collection of Demand or Profiteering Amount (in Rs. ) L=H-K 3,80,367 r. From table- 'B' above, it was clear that the additional ITC of 0.53% of the turnover should had resulted in commensurate reduction in the basic price as well as cum-tax price for the home-buyers of the project "Victoria Vista". Therefore, in terms of Section 171 of the CGST Act, 2017, the Respondent had not reduced the basic prices for the buyers of this project commensurate to the additional benefits accrued and this benefit of the additional ITC was required to be passed on by the Respondent to the recipients. In other words, by not reducing the pre-GST basic price on account of ....
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....tegory of service receivers. In case the prices of fiats/houses undergo a change over the period of sale (from the first sale of flat/house in the residential complex to the last sale of the flat/house), the value of similar flats as are sold nearer to the date on which land is being made available for construction should be used for arriving at the value for the purpose of tax. Service tax is liable to be paid by the builder/developer on the 'construction service' involved in the flats to be given to the land owner, at the time when the possession or right in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument (e.g. allotment letter). (ii) Value, in the case of flats given to the second category of service receivers, shall be determined in terms of section 67 of the Finance Act, 1994.' and also, in view of Notification No. 4/2018-Central Tax (Rate) dated 25-1-2018, wherein it had been envisaged that "In exercise of the powers conferred by section 148 of the CGST Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby notifies the fol....
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....he Respondent to the Applicant No. 1 to 9 and also to the other eligible recipients. However, since no unit allotted to the Applicant No. 1 to 9 who was otherwise the land owners had been sold as on 30-9-2020 i.e. during the investigation period. Since the period of investigation was till 30-9-2020, as per the submissions made no unit pertaining to the Applicant No. 1 to 9's share had been sold during this period of investigation and hence kept out of the purview of this investigation. The profiteering had been computed in respect of the four units that had been sold by the Respondent during the period of investigation. The commensurate proportion of benefit of ITC was to be calculated as discussed supra and needed to be passed on to the Applicant No. 1 to 9 proportionate to their share at the time of supply envisaged in the Notification referred to above. Section 171 of the CGST Act, 2017 appeared to had been contravened by the Respondent, in as much as the benefit of additional ITC on the demand raised by the Respondent during the post-GST period from 1-7-2017 to 30-9-2020, had not been commensurately passed on to the to the eligible recipients. On this account, the Responden....
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.... made to him. B. Comparison should not be made between ITC that was available in GST regime and Cenvat credit which was available to the taxpayers in Service Tax regime. The DGAP in his Report had nowhere stated how an ITC which was not available as on 1-7-2017, become available thereafter. C. For arriving at the finding of profiteering, it was necessary to distinguish the increase in base price/non-reduction of base price on account of profiteering by wilful pocketing of tax concession meant for consumers from that due to purely commercial reasons. In this regard Hon'ble Supreme Court in the case of Oudh Sugar Mills Ltd. v. Union of India [Civil Appeal No. 596 of 1960, dated 28-3-1962] [1978] (2) E.L.T. (J172) (S.C.), had held that the findings based on presumptions and assumptions without any tangible evidence would be vitiated by an error of law. D. In the instant case, the Respondent sold 4 units in the following manner - Date Recipient Net Rate 30-6-2017 Narendra FCr Bardia 9,600.00 18-4-2018 Harish Agarwal 13,150.00 01-4-2019 Swapan Ghosh 10,273.00 24-1-2020 Namita Ghosh ....
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....as ITC to them. In this case, cost was always calculated excluding taxes and, the benefit of ITC was thus already passed on as the tax was being charged by the Respondent on the net cost (net of ITC). In effect, the benefit of reduced cost stands passed on by the Respondent to the Applicant No. 1 to 9, irrespective of the applicability of Sec 171. Therefore, in the instant case the Respondent did not find any question of profiteering. I. Apart from above, due to delay in handing over the land to the Respondent for development of the project by the Applicant No. 1 to 9, the project got delayed which resulted in unwarranted escalation in the project cost. Such unwarranted cost escalation fuelled in the price escalation of the units. J. In the financial year 2019-20, the first year in which the Respondent recognized revenue in respect of the project 'Victoria Vista', the Respondent actually suffered a total loss of Rs. 1.76 crores against a turnover (revenue recognized on the basis of generally accepted accounting principles) of Rs. 9.43 crores, attributed to the project, far from any kind of profiteering. K. Assuming Se....
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..... 1 to 9 proportionate to their share at the time of supply as envisaged in Notification No. 04/2018. M. In Para 25 it was stated that the benefit in respect of the prospective buyers of the land-owners might be passed on 1through the land-owners. On a conjoint reading of both the paras, it was understood that the DGAP was of the view that the proportionate benefit of the land-owners was to be passed on at the time of CC and the land-owners in turn would pass on the same to his customers. Hence if any amount on account of additional ITC was to be passed on then it should be on CC date. If this analogy was adopted, then the amount, as quantified, was not required to be passed on right now as CC was not yet received and hence no question of profiteering could arise. N. Submissions of penalty: - As there was no case of profiteering at all, the question of imposition of penalty did not arise at all. Assuming that at all there was profiteering, as submitted above, no time limit was prescribed to pass on benefit, if any, under section 171. The Respondent had not yet handed over the units either to the Applicant No. 1 to 9 or to the customers. Construct....
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.... monetary consideration involved. S. The transaction between the Respondent and the Applicant No. 1 to 9 was 'B2B' transaction (Supply in consideration) and not lB2C transaction. T. The Respondent relied upon this Authority's decisions where it was held that Section 171 was not applicable in cases where units was sold after implementation of GST i.e., 1-7-2017:- a. Ashish Jain v. GLS Infraprojects (P.) Ltd. [2022] 139 taxmann.com 480 (NAA). b. Darshan Joshi v. Lodha Developers Ltd. [2022] 137 taxmann.com 301 (NAA) c. Nermeet Kaur Bakshi v. Conscient Infrastructure (P.) Ltd. [2019] 105 taxmann.com 343/74 GST 294 (NAA) U. In the absence of any reasoning and the uniqueness in the manner of charging consideration from the Applicant No. 1 to 9 in the instant case (i.e., in kind and not monetary), the standard practice u/s 171 by way of commensurate reduction in price cannot be applied. This methodology could be applied where transaction was between builder and intending buyer. V. The concept applied by the DGAP for calculati....
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....tral tax dated 25-1-2018, also emphasises the fact that a pursuant to Allocation Agreement, right in the constructed property gets transferred to the Applicant No. 1 to 9 as and when the construction milestones were executed and not only when the construction was completed and possession was handed over. ii. The Report must be revised to include the profiteering benefit accrued for the Applicant No. 1 to 9's share of units along with changes in the time of supply of passing of the benefit amount. In fact going by the Time of supply provisions specified in Notf. No. of 4/2018-CT as referred by the DGAP, the benefit amount had already accrued to the Applicant No. 1 to 9 for his share of flats and hence the Respondent must pass on the benefit amount immediately. (d) The method adopted using comparison of Pre & post-GST ITC to Turnover ratio was faulty and untenable: a. The comparison of above ratio was not appropriate for the reason that under the real estate sector there was no correlation of turnover with the cost of construction or development of a project. b. ITC was higher in the initial stages of D....
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....various discussions held with the Respondent in the due course. It was to mention herewith that the Applicant No. 1 to 9 had been following up with the Respondent for the latest percentage completion details, but the same was in vain. Hence, the workings had been made on the basis of data available as on 31s' March '2019. ii. The nature of expenses incurred by the Respondent during the course of construction, largely being material, labour and works contract inter alia other expenses. Out of these expenses, the Respondent was allowed to avail Cenvat Credit of only services in the earlier tax regime. A comparison chart of nature of expenses and cenvatable and non-cenvatable ITC therein was laid down below: Nature of Expense Tax Component Pre-GST regime Post GST regime Material Excise Duty (ED) or/and VAT No credit available ITC on all goods or services was available subject to provisions of Sec 16 & 17 of the CGST Act, 2017 Labour Service Tax Credit available Works Contract Material portion: ED or/and VAT Service portion: Service Tax Credit was available only on Service Portion ....
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....t credits should take care of the headline rate of 12% and it is for this reason that refund of overflow of input credits to the builder has been disallowed" and expected the builders to pass on the benefits of lower tax burden under the GST regime to the buyers of property by way of reduced prices/instalments. v. Accordingly, the DGAP following the standard procedure/methodology had compared the ITC to turnover ratio in pre & post GST periods in the present case which was rational, logical & appropriate in terms of Section 171 and that had been approved by this Authority in similarly placed cases. vi. On applying the above methodology, it had been observed that the Respondent was benefitted by the accumulation of credit which was to be passed on to the homebuyers in whose demands had been raised or advances had been received in the post GST period. Whereas the Respondent had not passed on such benefit and hence contravened the provisions of Section 171 of the CGST Act, 2017. b. The contention of the Respondent that the benefit should only be passed on to the homebuyers who had purchased the units before GST regime was not te....
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....ndent was ineligible to avail credit of CENVAT paid on inputs under CENVAT Credit Rules, 2004. Whereas on introduction of GST from 1-7-2017, the Respondent could avail the ITC of GST paid on all inputs and input services in pursuance to the seamless credit facility allowed under section 16 of the CGST Act, 2017 read with the rules prescribed there under. ii. Accordingly, the DGAP following the standard procedure/methodology had compared the ITC to turnover ratio in pre & post GST periods in the present case which was rational, logical & appropriate in terms of Section 171 and that had been approved by this Authority in similarly placed cases. h. Timing of calculation of profiteered amount: - The contention of the Respondent in this paras was incorrect and hence denied as discussed hereunder: i. The Respondent had availed ITC every month by filing GSTR-3B Returns despite a long gestation period in a housing project. ii. The Respondent could not enrich himself at the expense of the flat buyers by denying him the benefit of ITC till completion of the project while he used the same in his business for d....
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....t there was a. prima-facie evidence to show that the supplier had not passed on the benefit of reduction in the rate of tax on the supply of goods or services or the benefit of ITC to the recipient by way of commensurate reduction in prices, it shall refer the matter to the DGAP for a detailed investigation. iv. Under sub-rule 2 of Rule 129 of CGST Rules, 2017, the DGAP shall conduct investigation and collect evidence necessary to determine whether the benefit of reduction in the rate of tax on any supply of goods or services or the benefit of ITC had been passed on to the recipient by way of commensurate reduction in prices. v. Accordingly, the DGAP had called for all the relevant documents/information and worked out the profiteered amount following the standard procedure upheld by this Authority in all such similar cases. Clarifications on the Applicant No. 1 's submissions:- j. The Applicant No. 1 in his written submissions had contested neither the findings of the DGAP in its report nor the observations of the DGAP in the clarifications filed under Rule 133(2A) in respect of Respondent's subm....
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....ring and the submissions made by the Applicant No. 1. It is clear from the plain reading of Section 171(1) 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. It is observed 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 5.07%, whereas, during the post-GST period (July-2017 to September, 2020), it was 5.60% for the project 'Victoria Vista'. The DGAP has found that, post-GST, the Respondent has been benefited from additional ITC to the tune of 0.53% (5.60% - 5.07%) of his turnover for the project 'Victoria Vista' and the same was required to be passed on to the customers/flat buyers/recipients. The DGAP has calculated the amount of ITC benefit to be pas....