Venugopal Gella Vs Shapoorji Palonji (NAA)
It is established from the perusal of the above facts that the Respondent has benefited from the additional ITC to the tune of 1.99% of the total turnover in respect of the project PARKWEST-EMERALD during the period from July, 2017 to April, 2019 which he was required to pass on to the buyers of the flats of the above project by commensurately reducing the prices of the flats which he has not done and hence he has violated the provisions of Section 171 (1) of the CGST Act, 2017. Accordingly, as per the provisions of Section 171 (2) of the above Act read with Rule 133 (1) of the CGST Rules, 2017 the profiteered amount is determined as Rs. 9,67,3301- which also includes the GST on the base profiteered amount of Rs. 8,63,687/- in respect of the above project. Since, the Respondent has already passed on an amount of Rs. 31,823/- to the Applicant No. 1 which was due to him, hence, no further benefit is to be passed on to the above Applicant. The details of the buyers of the flats of the PARKWEST-EMERALD project sold upto 30.04.2019 along with their unit Nos. and the amount of benefit due to them have been given in Annexure-21 of the Report dated 31.01.2020. These buyers are identifiable as per the documents placed on record and therefore, the Respondent is directed to pass on an amount of Rs. 9,67,330/- to the flat buyers mentioned in the above Annexure along with the interest @ 18% per annum in terms of Section 171 (1) read with Rule 133 (3) (b) of the above Rules from the dates from which the above amounts were collected by him from them till the payment is made, within a period of 3 months from the date of passing of this order as per the details mentioned in Annexure-21 attached with the Report dated 31.01.2020.
The Respondent has also availed benefit of ITC of 3.62% of the total turnover in respect of the project PARKWEST-MAPLE during the period from July, 2017 to April, 2019 which he was required to pass on to the flat buyers of the above project which he has failed to do and hence the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent and thus an amount of Rs. 3,03,94,1131- inclusive of GST @ 12% on the base amount of Rs. 2,71,37,601/- is determined as the profiteered amount as per the provisions of Section 171 (2) and Rule 133 (1). Further, the Respondent has realized an additional amount of Rs. 74,9291- which includes both the profiteered amount @ 3.62% of the taxable amount (base price) of Rs. 66,900/- and 12% GST on the said profiteered amount from the Applicant No. 2. The details of the profiteered amount and buyers of the above project have been mentioned by the DGAP in Annexure-22 of his Report dated 31.01.2020. These buyers are identifiable as per the documents placed on record and therefore, the Respondent is directed to pass on the amounts of Rs. 3,03,19,184/- and Rs. 74,929/- to the other flat buyers and the Applicant No. 2 respectively along with the interest @ 18% per annum in terms of Section 171 (1) read with Rule 133 (3) (c) of the above Rules from the dates from which the above amounts were collected by him from them till the payment is made Within a period of 3 months from the date of passing of this order as the details mentioned in Annexure-22 attached with the Report dated 31.01 2020.
Accordingly, 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 of the above projects commensurate with the benefit of ITC received by him as has been detailed above. Since the present investigation is only up to 30.04.2019 any benefit of ITC which accrues subsequently shall also be passed on to the buyers by the Respondent. The concerned Commissioner CGST/SGST shall ensure that the above benefit is passed on to the eligible flat buyers. In case the above benefit is not passed on by the Respondent the above Applicants or any other buyer shall be at liberty to approach the Karnataka State Screening Committee to initiate fresh proceedings against the Respondent as per the provisions of Section 171 of the CGST Act, 2017.
It is also evident from the above narration of the facts that the Respondent has denied benefit of ITC to the buyers of the flats being constructed by him in his above projects in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has 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 30.04.2019 and therefore, he is apparently liable for imposition of penalty under the provisions of the above Section. However, perusal of the provisions of Section 171 (3A) under which penalty has been prescribed for the above violation shows that Section 171 (3A) has 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 01.07.2017 to 30.04.2019 when the Respondent had committed the above violation and hence, the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondent retrospectively. Accordingly, notice for imposition of penalty is not required to be issued to the Respondent.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1 The present Report dated 31.01.2020, has been received from the Applicant No. 3 i.e. the Director General of Anti-Profiteering (DGAP) after a detailed investigation under Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the case are that an application was filed before the Karnataka State Screening Committee on Anti-profiteering by the Applicant No. 1, alleging profiteering by the Respondent in respect of purchase of Apartment No. Emerald-002, in the Respondent’s project “PARKWEST-EMERALD”, situated at 1 & 1, 1, Hosakerehalli Main Road, Binnyfields, Binny Pete, Jagajeevanram Nagar, Bengaluru, Karnataka-560023. The above Applicant had also alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) to him, on
5. The Applicant No. 1 had also submitted the following documents along with his application:-
a. Copies of demand letters issued to him, both pre-GST and post-GST.
b. Copy of the cost breakup for the unit as shared by the Respondent with the Applicant during booking of the unit.
c. Copy of Aadhaar Card as proof of identity.
d. Copy of Construction Agreement signed between the Respondent and the Applicant.
e. Copy of the Agreement for Sale executed between the Respondent and the Applicant.
6. On receipt of the said reference from the Standing Committee on Anti-profiteering, a Notice under Rule 129 (3) of the Rules was issued by the DGAP on 13.05.2019, calling upon the Respondent to reply as to whether he admitted that the benefit of input tax credit had not been passed on to the Applicant No. 1 by way of commensurate reduction in price and if so, to suo moth determine the quantum thereof and indicate the same in his reply to the Notice as well as furnish all the supporting documents. Vide the said Notice, the Respondent was given an opportunity to inspect the non-confidential evidence/ information submitted by the Applicants during the period from 21.05.2019 to 23.05.2019 which the Authorized Signatory of the Respondent availed of on 10.10.2019. Vide e-mail dated 23.09.2019 and 24.01.2020, the Applicant No. 1 and 2 were given an opportunity implementation of the GST w.e.f. 01.07.2017, in terms of Section 171 (1) of the CGST Act, 2017.
2. The Karnataka State Screening Committee on Anti-profiteering had examined the said application and observed that the Respondent had not passed on the appropriate benefit of input tax credit to the above Applicant as the additional input tax credit available to the Respondent should have been apportioned against the instalments towards the price of the flat. The Karnataka State Screening Committee had forwarded the said application with its recommendation, to the Standing Committee on Anti-profiteering for further action in terms of Rule 128 (1) of the above Rules.
3. The aforesaid reference was examined by the Standing Committee on Anti-profiteering, in its meeting held on 11.04.2019, the minutes of which were received by the DGAP on 02.05.2019, whereby it was decided to forward the same to the DGAP to conduct a detailed investigation in the matter.
4. Further, the Standing Committee on Anti-profiteering vide its minutes of meeting dated 13.09.2019 had forwarded one more application filed by the Applicant No. 2 in respect of purchase of Apartment No. MA-0905, in the Respondent’s project “PARKWEST-MAPLE, situated at Ward No. 121, No. 1/1, Hosakere Road, Binny Pete, Binnyfields, Binnypet, Bengaluru, Karnataka-560023, against the Respondent for not passing on the benefit of ITC. As the investigation was already underway, the Applicant No. 2 was made a co-applicant by the DGAP in the ongoing investigation, vide his letter dated 29.11.2018.
g. CENVAT/Input Tax Credit Register for the period from April, 2016 to April, 2019.
h. Copies of Balance Sheets for FY 2016-17 & 2017-18.
i. Tax rates, pre-GST and post-GST.
j. Details of turnover, output tax liability/GST payable and input tax credit availed and its reconciliation with the turnover as per the list of home-buyers.
k. List of home buyers in the project “ParkWest”.
10. The DGAP has stated that the subject applications, various replies of the Respondent and the documents/evidence on record have been carefully examined by him and he has found that the main issues for determination were whether there was reduction in the rate of tax or benefit of input tax credit on the supply of construction service by the Respondent after implementation of GST w.e.f. 01.07.2017 and if so, whether the Respondent has passed on such benefits to the recipients, in terms of Section 171 of the CGST Act, 2017.
11. The DGAP has also stated that another aspect was that Para 5 of Schedule-Ili of the CGST Act, 2017 (Activities or Transactions which shall be treated neither as a supply of goods nor a supply of services) read 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 Schedule II of the CGST Act, 2017 read 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 consideration had been received after issuance of to inspect the non-confidential documents/reply furnished by the Respondent on 01.10.2019 or 03.10.2019 which they did not avail of.
7. The period covered by the DGAP in the present investigation is from 01.07.2017 to 30.04.2019. The time limit to complete the investigation was extended upto 01.02.2020 by this Authority vide its order dated 31.10.2019, in terms of Rule 129 (6) of the Rules.
8. In response to the Notice dated 13.05.2019, the Respondent has submitted his replies vide letters/e-mails dated 28.05.2019, 17.06.2019, 29.06.2019, 25.07.2019, 16.08.2019, 19.08.2019, 19.10.2019, 21.10.2019, 06.12.2019, 17.12.2019, 19.12.2019 and 26.12.2019.
9. Vide the aforementioned letters/e-mails, the Respondent has submitted the following documents/information before the DGAP:-
a. Copies of GSTR-1 Returns for the period from July, 2017 to April, 2019.
b. Copies of GSTR-3B Returns for the period from July, 2017 to April, 2019.
c. Copy of Electronic Credit Ledger for the period from 01.07.2017 to 30.04.2019.
d. Copies of Tran-1 Statements for the period from July, 2017 to December, 2017.
e. Copies of VAT & ST-3 Returns for the period from April, 2016 to June, 2017.
f. Copies of all demand letters, sale agreement/contract is ed in the name of the Applicants.
completion certificate, where required, by the competent authority or after his first occupation, whichever was earlier”. Thus, the input tax credit pertaining to the residential units which were under construction but not sold was provisional input tax credit which might be required to be reversed by the Respondent, if such units remained unsold at the time of issue of the Completion Certificate (CC), in terms of Section 17 (2) & Section 17 (3) of the CGST Act, 2017, which read as under:-
Section 17 (2) “Where the goods or services or both was used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempted supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as was attributable to the said taxable supplies including zero-rated supplies”.
Section 17 (3) “The value of exempted supply under sub-section (2) shall be such as might be prescribed and shall include supplies on which the recipient was liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building”.
Therefore, the DGAP has further stated that the input tax credit pertaining to the unsold units was outside the scope of this investigation and the Respondent was required to recalibrate the selling prices of such units to be sold to the prospective buyers by considering the proportionate additional input tax credit available to him post-GST.
12. The DGAP has also submitted that in response to the Notice of Initiation of investigation dated 13.05.2019. the Respondent vide his submissions dated 29.06.2019 has stated that the allegation made by the Applicant No. 1 that the benefit of input tax credit by way of commensurate reduction in price was not passed on to him was untrue in as much as he had already passed on the benefit of the additional input tax credit which has accrued to him on account of implementation of GST, by way of a corresponding reduction in the price on the demand invoices raised on the above Applicant post implementation of GST which had been termed as ‘Reduction on account of GST’, vide invoice No. RS0800000112 and RS080000147 dated 27.04.2018 and 28.04.2018 respectively. The Respondent has also provided a copy of the intimation letter dated 18.10.2017 issued to the above Applicant for passing on of the GST benefit. The Respondent has further submitted that on a suo moto basis, he had passed on the benefit of input tax credit to his all customers, who were eligible for this benefit, as on July 01, 2017, by way of commensurate reduction in the prices and tax invoices issued by him reflected a line item for reduction on account of GST.
13. The Respondent vide his submissions dated 14.08.2019 has also furnished details of the input tax credit for the pre-GST period from March, 2016 to June, 2017 and for the post-GST regime from July, 2017 to April, 2019, as were sought from the Respondent. The Respondent has also placed following points for consideration before the DGAP while computing the profiteering amount:-
a. There was an increase in the amount of input tax credit availed by the Respondent in the post-GST regime due to increase in rate of taxes:
The rate of tax applicable to the works contract services was more than the rate which was applicable in the pre-GST regime and if the GST had not been introduced then the rate of tax would had remained the same. Therefore, the benefit which has accrued to the Respondent was only to the extent of the tax rate which was applicable in the earlier period only and not to the extent of the entire tax being charged on the said works contract services.
Tax Rate of works contract services under the earlier regime was 16.15% i.e. VAT 10.15% (14.50% X 70%) and Service Tax of 6.00% (15.00% x 40%). However, after GST, the rate of tax on works contract services was 18.00%. Therefore, the benefit arising to the Respondent due to GST was only 16.15% and not entire 18.00% because with the implementation of GST the rate had been increased from 16.15% to 18.00%. Had the GST not been implemented, the cost of the Respondent would have been restricted to 16.15% of the tax only. Therefore, it was submitted that the benefit to the Respondent due to GST was only 16.15% and not 18.00%.
In view of the above, it was submitted that amount of Rs. 28,99,898/- was not an additional benefit accruing to the Respondent due to advent of GST on the works contract services. This credit was now available to the him under GST regime only due to increase in the rate of tax under the GST vis-a-vis the earlier regime. Thus, the same must be reduced from the post-GST ITC availed by him.
Further, under the pre-GST regime, services were subject to Service Tax at the rate of 15.00%. and the Respondent was eligible to avail Cenvat credit of these input services. Under the GST, in most of the cases, services were taxable @ 18.00%. Therefore, there was an increase by 3.00% (18.00% – 15.00%) of the ITC available to him. It was submitted that this benefit of extra 3.00% was not due to introduction of GST but due to increase in the rate of tax from 15.00% to 18.00% and therefore, the same should not be considered as a benefit due to GST and accordingly Rs. 3.66,781/- must be reduced from the GST Input tax credit.
b. Input tax credit of GST pertaining to work done in the pre-GST should not be considered in the GST Regime credit:
In construction sector, the goods and services were provided before the invoice was raised based on the various internal approvals of the work done and accordingly the invoice was raised. Further, even under the Service Tax laws, service provider was allowed to raise the invoice within 30 days from the provision of service.
In case of certain services like brokerage, service had been provided in the pre-GST regime, however, due to the reasons mentioned above, invoice had been raised after 1 “July, 2017 i.e. under the GST regime and GST had been charged on the same.
Sample copy of invoice No. JP051/2017 dated 15.03.2018 was submitted by the Respondent vide which it was claimed that the brokerage was for sale of flat to Ms. Mithila Jain and the GST had been charged on the same. However, the agreement for sale between the Respondent and Ms. Jain had already been signed on 21.01.2017. Therefore, it could be seen that the activity in relation to the brokerage i.e. the sale of flat had already taken place in pre-GST regime however, since the invoice had been raised in the GST regime and GST had been charged on the same, ITC had been availed by the Respondent.
It was submitted that though such invoices had been raised in the GST regime and the Respondent had availed ITC on such invoices, these invoices pertained to the activities undertaken in the Pre-GST regime and therefore, they must be considered as input tax availed in the pre-GST regime instead of input tax availed in the GST regime.
Therefore, in view of the above, Rs. 1,39,795/- should not be included in the input tax credit availed in the pre-GST regime.
c. The credit and taxable value do not synchronise in the same month or the same period:
The agreement for sale of premises entered into between the buyer and the Respondent specified the milestone for recovery of the amount. The invoice could be raised only on achieving milestones whereas the credit accrued to the Respondent on incurring expenditure for construction of the project. Therefore, there was no synchronization between the credit availed and the value of taxable service provided by the Respondent during any period. Due to this reason, the percentage of availment of credit during the period would also vary.
In the given case of the PARKWEST-EMERALD project, billing done by the Respondent upto 30.06.2017 was 90%. The same could be seen from the invoice No. 907098646 issued to the Applicant No. 1 dated 29.06.2017 and the schedule of payment as per the contract. However, the work completed upto 30.06.2017 was only 53%. The same could be verified from the RERA certificate of PARKWEST-EMERALD project. Therefore, it could be seen that 90% of the billing had been done for 53% of the work done and in the GST regime, balance 10% billing had been done as against 47% of the work done. Thus, it could be said that there was no synchronization between the work done and the billing which has also led to no synchronization between the credit availment and the billing.
It was also submitted that in order to determine the true profiteering amount, it was important to synchronize the work done / credit with the billing raised on the customers. Since, only 10% of the billing had been done in the GST regime, even input tax credit in synchronization to the same must be considered for anti-profiteering and the balance credit for the 37% of work done for which billing had already been done in the pre-GST regime must be excluded from the GST input tax credit. The Respondent has also furnished the following details in support of his above claim:-
