Shri. Abhishek Vs M/s Signature Global Developers Pvt. Ltd. (National Anti-Profiteering Authority)
The present Report dated 21.05.2019 and the subsequent Report dated 12.07.2019 have been received from the Applicant No. 2 i.e. the Director General of Anti-Profiteering (DGAP) after detailed investigation under Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the case are that the Applicant No. 1 had filed an application dated 29.09.2018 before the Standing Committee on Anti-profiteering, under Rule 128 of the Central Goods and Services Tax Rules, 2017 and submitted that he had purchase a flat in the Respondent’s project “Synera”, situated at Sector-81, Gurugram, Haryana and alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) to him by way of commensurate reduction in price, in terms of Section 171 of the Central Goods and Services Tax Act, 2017 and had charged GST on the pre-GST base price of Rs. 4000 per sq. ft.
We have carefully considered all the Reports filed by the DGAP, submissions of the Respondent and other material placed on record and it is revealed that the Respondent is executing his “Synera” project under the Affordable Housing Scheme approved by the Government of Haryana under the Prime Minister Awas Yojana and is constructing both the residential and commercial accommodation. It is also revealed that the Applicant No. 1 had complained to the Standing Committee on 29.09.2018 that the above Respondent was not passing on benefit of ITC to him on the flat which he has purchased from him and was also charging GST from him on the pre-GST base price of Rs. 4,000/- per sq. ft. The above complaint was examined by the Standing Committee in its meeting held on 13.12.2018 and was forwarded to the DGAP for detailed investigation as per the provisions of Rule 129 (1) of the CGST Rules, 2017. The DGAP has conducted investigation in the above allegations levelled by the Applicant and vide his Report dated 21.05.2019 has stated that the Respondent had violated the provisions of Section 171 of the above Act by resorting to profiteering of an amount of Rs. 1,42,06,267/-.
. We also observe that the provisions of Section 171 of the CGST Act, 2017 are aimed at ensuring that the recipients get the commensurate benefit, in the form of reduction in price, in case of any tax rate reduction and/or incremental benefit of ITC which has become available to them due to sacrifice made by the State and the Central Govt. from their own tax kitty to provide accommodation to the vulnerable section of society under the Affordable Housing Scheme. The method of interpretation of this provision has been given in the text of Section 171 of the CGST Act, 2017 itself. We also observe that the said provision clearly links profiteering to be a function of each supply of goods or services or both and hence, profiteering needs to be computed at the level of each tax invoice. From a plain reading of Section 171 of the Act ibid, it is amply clear that the total quantum of profiteering by a registered person is the sum total of all the benefits that stood denied to each of the recipients/consumers individually. Therefore, the Respondent is under legal obligation to pass on the benefit of ITC to his buyers and he cannot be allowed to appropriate the same.
Based on the above facts it it is clear that the ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period from April, 2016 to June, 2017 was 4.00% and during the post-GST period from July, 2017 to December, 2018, it was 6.61% as per Table B supra and hence it is established that the Respondent has benefited from the benefit of additional ITC to the extent of 2.61% [6.61% (-) 4.00%] of the turnover. Since, the above computations made in Table B have been done on the basis of the Returns filed by the Respondent as well as the information supplied by him therefore, the same can be relied upon.
It is also clear from the record that the Central Government, on the recommendation of the GST Council, had levied 18% GST with effective rate of 12% in view of 1/3rd abatement on value on the construction service, vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 which was reduced in the case of affordable housing from 12% to 8%, vide Notification No. 1/2018-Central Tax (Rate) dated 25.01.2018. Accordingly, the DGAP has computed the profiteering by comparing the applicable tax rate and ITC available in the pre-GST period when only VAT@ 4.50% was payable with (1) the post-GST period from 01.07.2017 to 24.01.2018, when the effective GST rate was 12% and (2) with the GST period from 25.01.2018 to 31.12.2018, when the effective GST rate was 8%. Accordingly, the DGAP has calculated the profiteered amount or the benefit to be passed on for the period from 01.07.2017 to 24.01.2018, as Rs. 59,85,094/- for the residential flats and commercial shops, which includes 12% GST on the base profiteered amount of Rs. 53,43,834/-. He has also computed the amount of benefit of ITC or the profiteered amount that needs to be passed on by the Respondent to his recipients during the period from 25.01.2018 to 31.12.2018 as Rs. 82,21,174/- which includes 12% GST on commercial shops and 8% GST on residential flats, on the base profiteered amount of Rs. 75,83,201/-. Therefore, the total benefit of ITC which is required to be passed on during the period from 01.07.2017 to 31.12.2018, comes to Rs. 1,42,06,267/- which includes GST @ 12% or 8% on the base profiteered amount of Rs. 1,29,27,035/- as per Table C of the above Report. The home buyer and unit no. wise break-up of this amount has been given by the DGAP vide Annex-13 of his Report. This amount is inclusive of Rs. 15,812/- including GST on the base amount of Rs. 14,375/- which is the benefit of ITC which is required to be passed on to the Applicant No. 1, mentioned at Serial No. 409 of Annex-13. Since, Table C has been prepared on the basis of the information reflected in the Returns filed by the above Respondent and the details submitted by him hence, the computations made in the above Table are taken to be correct and accordingly. the profiteered amount is determined as Rs. 1,42,06,267/- as per the details mentioned above in terms of the provisions of Rule 133 (1) of the CGST Rules, 2017.
In view of the above facts 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 commensurate with the benefit of ITC received by him as has been mentioned in detail if the preceding paras of this Order. As per the provisions of Rule 133 (1) (b) of the CGST Rules, 2017 it is further ordered that the Respondent shall refund the above profiteered amount to the flat buyers as per the details given by the DGAP in Annexure-13 without taking in to account the benefit which he has claimed to have passed on. However, no further benefit is to be passed on to the Applicant No. 1 as he has already got the benefit of Rs, 15,812/- which was due to him as has been confirmed by the DGAP. The above amount shall be passed on by the Respondent alongwith interest @18% payable from the date from which the excess amount was collected by the Respondent from the buyers till the date of its payment within a period of 3 months from the date of this order failing which the same shall be recovered by the concerned Commissioner CGST/SGST and paid to the eligible house buyers as per their entitlement as per the provisions of CGST/SGST Acts.
Since, the DGAP has carried out the present investigation till 31.12.2018 only any further benefit of additional ITC which might accrue to the Respondent shall also be passed on by him to the eligible buyers. The Commissioner CGST/SGST shall ensure that the above benefit is passed on by the Respondent to his recipients as per the provisions of Section 171 of the CGST Act, 2017. In case if the above benefit is not passed in future the Applicant No. 1 or any other buyer shall be at liberty to approach the Haryana State Screening Committee to launch fresh proceedings against the Respondent as per Section 171 of the CGST Act, 2017.
It is also evident from the above narration of facts that the Respondent has denied benefit of ITC to the buyers of the flats and the shops being constructed by him in his Project `Synera’ in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and has committed an offence under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty under the provisions of the above Section. Accordingly, a Show Cause Notice be issued to him directing him to explain as to why the penalty prescribed under Section 171 (3A) of the above Act read with Rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him. Accordingly, the notice dated 28.05.2017 vide which it was proposed to impose penalty under Section 29, 122-127 of the above Act read with Rule 21 and 133 of the CGST Rules, 2017 is withdrawn to that extent.
The Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioners of CGST/SGST Haryana to monitor this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by the Authority is passed on to all the eligible buyers. A Report in compliance of this order shall be submitted to this Authority by the Commissioners CGST/SGST Haryana through the DGAP within a period of 4 months from the date of receipt of this order.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. The present Report dated 21.05.2019 and the subsequent Report dated 12.07.2019 have been received from the Applicant No. 2 i.e. the Director General of Anti-Profiteering (DGAP) after detailed investigation under Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the case are that the Applicant No. 1 had filed an application dated 29.09.2018 before the Standing Committee on Anti-profiteering, under Rule 128 of the Central Goods and Services Tax Rules, 2017 and submitted that he had purchase a flat in the Respondent’s project “Synera”, situated at Sector-81, Gurugram, Haryana and alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) to him by way of commensurate reduction in price, in terms of Section 171 of the Central Goods and Services Tax Act, 2017 and had charged GST on the pre-GST base price of Rs. 4000 per sq. ft.
2. The above application was examined by the Standing Committee on Anti-profiteering and vide minutes of its meeting dated 13.12.2018 it was forwarded to the DGAP for detailed investigation.
3. The DGAP on receipt of the application issued notice dated 16.01.2019 to the Respondent to reply as to whether he admitted that the benefit of ITC had not been passed on to the Applicant No. 1 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 the supporting documents. The DGAP vide his letter dated 16.01.2019, had given an opportunity to the Respondent to inspect the non-confidential evidences/information submitted by the above Applicant. However, the Respondent did not avail of the said opportunity. The DGAP, vide email dated 06.05.2019, had also given the Applicant No. 1 an opportunity to inspect the non-confidential evidences/information submitted by the above Respondent. However, the Applicant No. 1 did not avail of this opportunity.
4. The DGAP had sought extension of time for completing the investigation which was extended by this Authority vide its order dated 19.03.2019 in terms of Rule 129 (6) of the CGST Rules, 2017. The period of the investigation is from 01.07.2017 to 31.12.2018.
5. In response to the Notice dated 16.01.2019 issued by the DGAP, the Respondent vide his replies dated 06.02.2019, 21.02.2019, 18.03.2019, 10.04.2019, 01.05.2019 and 14.05.2019 has submitted that the Respondent was a single housing project construction company and was developing the present project at Sector-81, Gurugram under the Affordable Housing Scheme, under the Pradhan Mantri Awas Yojna. He has also submitted that he was not directly engaged in any construction activity and all the work related to the project was assigned to various sub-contractors, who procured all the required raw materials on their own except Steel, Cement and RMC which were supplied by the Respondent on free of charge basis.
However, the project was executed under the supervision of the staff employed by the Respondent. He has further submitted that in the pre-GST regime, “under-construction properties” were covered by the definition of works contract and attracted Haryana VAT @ 4.5% (approximately) with full ITC of VAT paid on goods involved in the execution of works contract. Affordable housing was, however, exempt from Service Tax, vide Notification No. 9/2016-ST dated 01.03.2016. He further contended that in the GST regime, construction of low cost houses upto a carpet area of 60 square meters per house in a housing project approved by any State Government, was taxable © 12% (effectively @ 8% after 1/3rd abatement for the value of land), vide Notification No. 01/2018-Central Tax (Rate) dated 25.01.2018 and earlier the GST rate on affordable housing was 18% and the effective rate was 12% after 1/3rd abatement for the value of land. Thus, the total indirect tax burden on the project has increased by 3.5% after the introduction of GST. The Respondent has also clarified that under the erstwhile VAT/Service Tax regime, the Respondent was allowed ITC of all VAT/VVCT paid to the vendors/Sub-contractors. The affordable housing sale price of Rs. 4,000/- per sq. ft. was fixed after considering the benefit of ITC of VAT/WCT. However, the Central taxes, i.e., the Central Excise Duty and Service Tax levied on the goods & services used in the execution of works contract were part of the cost of the project. Now, under the GST regime, the benefit of erstwhile Central Excise Duty/Service Tax was available to the Respondent and the same was required to be passed on to the recipients.
6. The Respondent has also admitted that Section 171 of the CGST Act, 2017 provided that it was mandatory to pass benefit due to reduction in the rate of tax or the ITC, to the consumers, by way of commensurate reduction in prices and the applicability of this statute would have arisen in the following two situations:
a) If there was reduction of rate of tax on the supply of goods or services
b) If additional benefit of input tax credit was available.
He has also stated that on perusal of the facts of the present case, it could be summarised that in the GST regime, there was no reduction in the rate of tax on supply of goods and services as compared to the pre-GST regime, instead, there was an increase in the rate of GST by approximately 3.5%.
7. The Respondent has further stated that the Central taxes, i.e., Central Excise Duty/Service Tax levied under the pre-GST regime, on the transfer of property in goods in the execution of works contract, were now available as ITC in the GST regime. The Respondent was only procuring Cement, Steel and RMC on his own and all construction work was sub-contracted to the various contractors, who procured raw materials directly, after due payment of Central Excise Duty/GST. He has further stated that in order to comply with the provisions of Section 171 of the CGST Act, 2017, the Respondent had himself calculated the additional benefit of ITC provisionally and the same had already been credited to the buyers.
8. The Respondent had also raised three objections before the DGAP with the request to dispose of the same by passing a speaking order before proceeding under Section 171 of the Central Goods and Services Tax Act, 2017, in view of the methodology explained by the Supreme Court in the case of M/s. GKN Driveshafts (India) Ltd. [2002] 1 SCC 72. These objections are mentioned below:
(i) Whether on the facts & circumstances of the case, there was any reduction of rate of tax on the supply of goods and services involved in the execution of works contract in the current GST regime.
(ii) Whether on the facts & circumstances of the case, the benefit already credited/passed on to the buyers before initiation of proceeding, would have not been treated as compliance with the provisions of Section 171 of the CGST Act, 2017.
(iii) Whether on the facts and circumstances of the case, the Applicant No. 1 had misled this investigation by not providing complete facts about the receipt of benefit of ITC, in terms of Section 171 of the CGST Act, 2017.
9. The DGAP in his Report has also stated that the Respondent has furnished the following documents:-
(a) Copies of GSTR-1 Returns for the period July, 2017 to December, 2018.
(b) Copies of GSTR-3B Returns for the period July, 2017 to December, 2018.
(c) Copy of Tran-1 Return for transitional credit.
(d) Copies of VAT & ST-3 Returns for the period April, 2016 to June, 2017.
(e) Copies of all demand letters and sale agreement/contract issued in the name of the Applicant.
(f) Details of applicable tax rates, pre-GST and post-GST.
(g) Copies of Balance Sheets (including all annexures and profit & loss account) for FY 2016-17& 2017-18.
(h) Copy of Electronic Credit Ledger for the period 01.07.2017 to 31.12.2018.
(i) CENVAT Credit/Input Tax Credit register for the period April, 2016 to December, 2018.
(j) Details of turnover, output tax liability, GST payable and input tax credit availed.
(k) List of home buyers and commercial shop buyers in the project “Synera”, along with the details of benefit passed on to them.
(l) Reconciliation of turnover reported in the GSTR-3B Returns with that in the list of home buyers.
(m) Copies of sample ledger showing benefit passed on.
The Respondent had also requested to treat all the data/information furnished by him as confidential, in terms of Rule 130 of the CGST Rules, 2017.
10. Based on the above mentioned documents filed by the Respondent, the DGAP has submitted that the main issue for determination was whether there was any benefit of reduction in the rate of tax or ITC on the supply of construction service by the Respondent after implementation of the GST w.e.f. 01.07.2017 and if so, whether such benefit was passed on to the Applicant No. 1, in terms of Section 171 of the CGST Act, 2017.
11. The DGAP has also submitted that the Respondent, vide his letter dated 21.02.2019, submitted a copy of apartment buyer agreement dated 31.03.2015, demand letters and payment receipts for the sale of flat no. 12036 to the above Applicant, measuring 539 square feet, at the basic sale price of Rs. 4,000/- per square feet and 94 square feet balcony area at the basic sale price of Rs. 500/- per square feet. The DGAP has furnished the details of amounts and GST paid by the Applicant No. 1 to the Respondent in the Table below:-
12. The DGAP has further submitted that the Respondent had claimed that the benefit already credited/passed on to the buyers before initiation of proceedings, should be treated as compliance with the provisions of Section 171 of the Central Goods and Services Tax Act, 2017 and from the copy of the ledger, furnished by Respondent as a part of his letter dated 14.05.2019, the DGAP has observed that he had passed on benefit amounting to Rs. 19,500/- (including 8% GST on the base amount of Rs. 18,056/-) to the Applicant No. 1 on 01.11.2018 which worked out to Rs. 33.50 per sq. ft. of the carpet area. But the correctness of the amount of benefit so passed on by the Respondent had to be determined in terms of Rule 129 (6) of the CGST Rules, 2017. Thus, the ITC available to the Respondent and the taxable amount received by him from the Applicant No. 1 and other recipients post implementation of GST had to be taken into account for determining the benefit of ITC that was required to be passed on by the Respondent to his recipients, the DGAP has stated.
13. The DGAP has further stated that the Respondent also contended that the Applicant No. 1 had misled the investigation by not disclosing the fact of getting benefit of the ITC, in terms of Section 171 of the CGST Act, 2017. The DGAP, upon examination has found that the Applicant No. 1 had filed the application on 29.09.2018 which was prior to the date of receipt of benefit from the Respondent on 01.11.2018.
14. The DGAP has also argued that 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) 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 Central Goods and Services Tax 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 has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier”. Thus, he has pleaded that the ITC pertaining to the residential units which were under construction but not sold was provisional ITC which may be required to be reversed by the Respondent, if such units remained unsold at the time of issue of the completion certificate, 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 are 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 exempt supplies under the said Acts, 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 may 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 II, sale of building”.
15. Thus the DGAP has claimed that the ITC pertaining to the unsold units may not fall within the ambit of the current investigation and the Respondent would be required to recalibrate the selling price of such units to be sold to the prospective buyers by considering the net benefit of additional ITC available to them post-GST.
16. The DGAP has also observed that prior to 01.07.2017, i.e., before the GST was introduced, as the service of construction of affordable housing provided by the Respondent, was exempted from Service Tax, vide Notification No. 25/2012-ST dated 20.06.2012, as amended by Notification No. 9/2016-ST dated 01.03.2016, the Respondent was not eligible to avail CENVAT credit of Central Excise Duty paid on inputs or Service Tax paid on the input services, as per the CENVAT Credit Rules, 2004, which were in force at the material time. However, the Respondent was eligible to avail credit of Service Tax paid on the input services however, CENVAT credit of Central Excise Duty was not available, for the commercial shops sold by him. The DGAP has further observed that the Respondent was also eligible to avail ITC of VAT paid on the inputs and claim deduction from the taxable turnover under the VAT (WCT), of the payments made to the registered contractors or sub-contractors for the execution of the project. Further, post-GST, the Respondent could avail ITC of GST paid on inputs and input services including the sub-contracts. From the information submitted by the Respondent for the period from April 2016 to December, 2018, the DGAP has furnished the details of the ITC availed by the Respondent, his turnover from the present project and the ratio of ITC to turnover, during the pre-GST period from April, 2016 to June, 2017 and post-GST period from July, 2017 to December, 2018 in the Table given below:-
Table-‘B’
(Amount in Rs.)
