Rahul Kumar Vs. Emaar MGF Land Ltd. (National Anti-Profiteering Authority)
The brief facts of the case are that vide his application dated 07.01.2019 filed before the Standing Committee on Anti-profiteering under Rule 128 (1) of the CGST Rules, 2017, the Applicant No. 1 had alleged profiteering by the Respondent in respect of purchase of Flat No. EFP 24-0501 in ‘Emerald Floors Premier’ project of the Respondent. The above Applicant had also alleged that the Respondent had not passed on the benefit of lnput Tax Credit (ITC) by way of commensurate reduction in the price of the above flat. The aforesaid reference was considered by the Standing Committee on Anti-profiteering, in its meeting held on 11.03.2019, wherein it was decided to forward the same to the DGAP to conduct detailed investigation in to the complaint according to Rule 129 (1) of the CGST Rules, 2017.
Held by NAA
It is established from the perusal of the facts that the Respondent has benefited from the additional ITC to the extent of 11.90% of the turnover during the period from July, 2017 to March, 2019 and hence the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent as he has not passed on the above benefit to his customers and thus he has profiteered an amount of Rs. 13,35,79,636/- inclusive of GST @ 12% on the base profiteered amount of Rs. 11,92,67,532/-. Further, the Respondent has realized an additional amount of Rs. 1,04,734/- which includes both the profiteered amount @ 11.90% of the taxable amount (base price) and 12% GST on the said profiteered amount from the Applicant No. 1. He has further realized an additional amount of Rs. 13,34,74,902/‑ which includes both the profiteered amount @ 11.90% of the taxable amount (base price) and 12% GST on the said profiteered amount from the 1,238 flat buyers other than the Applicant No. 1. The details of the profiteered amount and the buyers have been mentioned by the DGAP in Annexure-18 of his Report dated 24.09.2019. These buyers are identifiable as per the documents placed on record and therefore, the Respondent is directed to pass on an amount of Rs. 13,35,79,636/- and the amount of Rs. 1,04,734/- to the other flat buyers and the Applicant No. 1 respectively along with the interest @ 18% per annum from the dates from which the above amount was 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-18 attached with the Report dated 24.09.2019.
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 Project commensurate with the benefit of ITC received by him as has been detailed above. Since the present investigation is only up to 31.03.2019 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 Applicant No. 1 or any other buyer shall be at liberty to approach the Haryana State Screening Committee to initiate fresh proceedings against the Respondent as per the provisions of Section 171 of the CGST Act, 2017.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. The present Report dated 24.09.2019 has 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 vide his application dated 07.01.2019 filed before the Standing Committee on Anti-profiteering under Rule 128 (1) of the CGST Rules, 2017, the Applicant No. 1 had alleged profiteering by the Respondent in respect of purchase of Flat No. EFP 24-0501 in “Emerald Floors Premier” project of the Respondent. The above Applicant had also alleged that the Respondent had not passed on the benefit of lnput Tax Credit (ITC) by way of commensurate reduction in the price of the above flat. The aforesaid reference was considered by the Standing Committee on Anti-profiteering, in its meeting held on 11.03.2019, wherein it was decided to forward the same to the DGAP to conduct detailed investigation in to the complaint according to Rule 129 (1) of the CGST Rules, 2017.
2. The above Applicant had furnished the following documents along with his application:-
(a) Statement of Account as on 03.10.2018 for his unit.
(b) Facts as known to him regarding the Project.
3. On receipt of the recommendation from the Standing Committee on Anti-profiteering, the DGAP had found from the application filed by the Applicant No. 1 that he had booked a flat in the Respondent’s Project “Emerald Floor Premier”, on 24.01.2010 i.e. in the pre-GST era. In terms of the instalment plan agreed upon, the above Applicant was to pay the consideration in 12 instalments and prior to coming in to force of the GST he had already paid 10 instalments. As per the above Applicant, vide demand letter issued on 22.09.2017, the Respondent had raised demands equal to Instalments Number 11 and 12, totalling Rs. 9,24,853/- plus GST of Rs. 93,378/-.
4. The DGAP had issued Notice dated 08.04.2019 under Rule 129 (3) of the above Rules, asking the Respondent to intimate as to whether he admitted that the benefit of ITC had not been passed on to the above Applicant by way of commensurate reduction in the price of the flat and in case it was so, to suo moto compute the quantum of the same and mention it in his reply to the Notice along with the supporting documents. The Respondent was given opportunity to inspect the non-confidential evidence/information furnished by the above Applicant during the period between 15.04.2019 to 17.04.2019 in accordance with Rule 129 (5) of the above Rules and he availed of the said opportunity and inspected the documents on 24.04.2019. Vide e-mail dated 21.08.2019, the above Applicant was also given opportunity to inspect the non-confidential documents/reply submitted by the Respondent on 30.08.2019. However, the Applicant No. 1 did not avail of the said opportunity.
5. The DGAP has covered the period from 01.07.2017 to 31.03.2019 during the current investigation. The time limit to complete the investigation was extended by this Authority, vide its orders dated 19.06.2019 in terms of Rule 129 (6) of the above Rules.
6. The DGAP has stated in his Report that the Respondent had submitted replies vide his letters/e-mails dated 18.04.2019, 25.04.2019, 15.05.2019, 31.05.2019, 18.07.2019, 26.07.2019, 02.08.2019, 16.08.2019, 22.08.2019 and 17.09.2019. The submissions of the Respondent have been summed up by the DGAP as under:-
a) That the unit as referred to in the complaint was one of the categories of the Project “Emerald Estates” which had other category of unit therein too namely “Emerald Est Apartments”. The project “Emerald Estate” was registered with RERA and the total saleable area of the project was 21,51,306 sq. ft. and it had a total of 1587 units.
b) That the Respondent had been a duly compliant corporate citizen and had complied with the provisions of anti-profiteering as envisaged in Section 171 of the CGST Act, 2017. He had also claimed that he had duly passed on the benefit arising on account of ITC in each demand note raised/yet to be raised to the customers in the GST regime and had been passing on the benefit of 1.64% to the customers of the above Project.
c) That as per the stay order granted by the Hon’ble High Court of Delhi in the case of M/s Abbott Healthcare Pvt. Ltd. v. Union of India in (W. P. (C) 4213/2019) the investigation should be restricted only to the unit in respect of which the complaint had been filed or same class of buyers and not to the whole Project.
d) That the Respondent has made an estimated computation of the additional benefit which has accrued to him keeping in view two factors namely (a) benefit of Transitional Stock carried forward in TRAN-1 Form and (b) Saving of taxes on goods/services to be purchased in the GST regime for completion of the Project. This computed benefit has been or would be distributed among the units booked in the pre-GST regime but delivered under the post-GST regime. Details of benefit passed on to the customers were mentioned in his home-buyer’s data.
e) That the methodology of comparing the ratio of ITC to the turnover for the pre-GST and the Post GST period, adopted to calculate profiteering by the DGAP would not yield the correct quantum of profiteering. Comparison of the above ratios 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. The turnover reflected the amount collected as per the payment or booking plan issued by the developer which was dependent upon marketing driven strategy. On the contrary, the ITC credit would accrue to a developer on the basis of the actual cost incurred by him while undertaking the development of the project. Thus, accrual of ITC was not dependent on the amount collected from the Accordingly, calculation of profiteering on the basis of the turnover would not reflect the correct outcome.
f) That the additional ITC in the hands of the Respondent in terms of Section 171 of the CGST Act, 2017 would reflect that ITC on goods or services which was not available earlier. However, the above approach for calculating the additional benefit. which has accrued to the Respondent. had considered the change in the rate of tax on input goods and services, the credit of which was available earlier also but had not considered the tax cost which was earlier blocked in the hands of the Respondent. Hence. the above approach of comparison of [TO to turnover ratio for the pre-GST and the post-GST period was not a correct approach and thus, was liable to be discarded.
g) That according to the computation made by the Respondent as per his understanding of the methodology adopted by the DGAP and this Authority in its recent orders, there was a net negative additional ITC ratio based on which there was no profiteering at all in his Project.
h) That the CGST Act, 2017 read with the Rules, did not specify the procedure and mechanism of calculation of profiteering. hence the proceedings were arbitrary and liable to be dropped. The above Act and the Rules also did not provide any method or formula of computation to ensure compliance with the anti-profiteering provisions and whether such computation should be made invoice-wise, product-wise, business vertical wise or entity wise. In the absence of the same, it was impossible to defend and explain how the observations and findings on the complaint were incorrect and thus, violative of the principles of natural justice.
i) That the investigation must not go beyond the application submitted by the above Applicant as per the Orders of this Authority passed in case No. 01/2018 and 05/2018. As there was only one applicant who had filed the complaint, the DGAP should not suo-moto assume jurisdiction with regard to other recipients (home-buyers) of the Respondent.
j) That he has decided to pass on the benefit of 4.93% to his customers, despite his earlier decision to pass benefit of 1.64% as communicated in his submissions dated 15.05.2019 and 07.2019, wherein he has worked out a net negative benefit post-GST. The benefit has been passed on or would be passed on by way of commensurate reduction in prices.
7. The Respondent has also submitted the following documents/information to the DGAP vide his above mentioned
letters/e-mails during the course of the investigation:-
(a) Copies of GSTR-1 Returns for the period from July, 2017 to March, 2019.
(b) Copies of GSTR-3B Returns for the period from July, 2017 to March, 2019.
(c) Electronic Credit Ledger for the period from July, 2017 to March,
(d) Copies of VAT & ST-3 Returns for the period from April, 2016 to June, 2017.
(e) Copies of all demand letters, sale agreement/contract issued in the name of the Applicant No. 1.
(f) Details of applicable taxes pre-GST and post-GST.
(g) Copies of Balance Sheets and Cost Audit Reports for FY 2016-17 and 2017-18.
(h) Details of VAT, Service Tax, ITC of VAT, CENVAT Credit for the period from April, 2016 to June, 2017, Output GST and ITC for the period from July, 2017 to March, 2019 for the impugned Project.
(i) CENVAT/ITC register for the FY 2016-17. 2017-18 and 2018-19 reconciled with VAT, ST-3 and GSTR-3B Returns.
(j) List of home-buyers of the impugned Project.
(k) Collaboration Agreement between the Respondent and M/s Sewak Developers Private Limited, Active Promoters Private Limited and Brij Basi Projects Private Limited.
(I) Development Agreements for plots between Sh. Rajiv Kumar and M/s Sewak Developers Private Limited and Smt. Shakuntala and M/s Sewak Developers Private Limited.
8. The DGAP has also stated that all the documents placed on record were carefully examined by him and he had found that the main issues for determination were whether there was reduction in the rate of tax or benefit of ITC on the supply of construction service by the Respondent after implementation of the GST w.e.f. 01.07.2017 and in case it was so, whether the Respondent has passed on the above benefits to the home buyers as per the provisions of Section 171 of the CGST Act, 2017 or not.
9. The DGAP has further stated that Para 5 of Schedule-III of the CGST Act, 2017, defining activities or transactions which would be treated neither as a supply of goods nor a supply of services, reads as “Sale of land and subject to clause (b) of paragraph 5 of Schedule-II, sale of building”. Further, Clause (b) of para 5 of Schedule-II of the Central Goods and Services Tax Act, 2017 reads 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”. In the light of these provisions, the DGAP has contended that the ITC pertaining to the units which were under construction but were not sold was provisional ITC that would be required to be reversed by the Respondent, if such units would remain unsold at the time of issue of Completion Certificate (CC), in terms of Section 17 (2) & Section 17 (3) of the Central Goods and Services Tax Act, 2017 which read as under:-
“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.
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.”
Therefore, the DGAP has claimed that the ITC 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 net benefit of additional ITC available to him post-GST.
10. The DGAP has also claimed that the Respondent’s contention regarding lack of methodology and procedures was not maintainable. Definition of Profiteering has been provided in Explanation to Section 171 (3A) of the Central Goods and Services Tax Act, 2017 which reads as “profiteered shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of ITC to the recipient by way of commensurate reduction in the price of the goods or services or both.” He has further claimed that the methodology and procedure for determination of profiteering may vary from case to case, depending on the facts and circumstances of the case as well as the nature of Goods and Services supplied.
11. The DGAP has also submitted that the stay order, granted by the Hon’ble High Court of Delhi in the case of M/s Abott Healthcare Pvt. Ltd. v. Union of India, was only an interim stay order and not final judgement of the Hon’ble High Court. Hence its ratio would not apply to the present case. Further, the above case was regarding a product which was being sold in the market and the stay was to limit the adjudication to that product only. The present case was of construction service and the investigation was being limited to one project only out of 23 projects under construction.
12. The DGAP has further submitted that the orders of this Authority cited by the Respondent in his submissions dated 18.07.2019, to restrict the scope of this investigation only to the unit for which the complaint had been filed or same class of buyers and not to the whole project, had been wrongly interpreted and were not relevant to this case. Order No. 01/2018 was related to supply of goods where there was no profiteering in respect of the said product, whereas the other Order No. 05/2018 pertained to the Fast Moving Consumer Goods (FMCG) Sector, where one product was different from another, and there was also no profiteering on the said product. The investigation reports and the final Orders of this Authority in both these cases as quoted by the Respondent, were related to supply of goods on which profiteering was not found. This was not the case in the present investigation. The present case was related to supply of service and the investigation had been kept limited to one project only, where benefit of ITC was to be passed on to all the beneficiaries.
13. The DGAP has also observed from the home-buyer’s data submitted by the Respondent that the Respondent’s Project “Emerald Estate” has different categories of units viz. Emerald Floors Premier, Emerald Estate, Emerald Estate-School and Emerald Estate EWS. The EWS units were not categorised as affordable houses and same rate of GST had been charged across all categories.
14. The DGAP has also contended on the claim of the Respondent that he had decided to pass on benefit to the tune of 1.64% and 4.63%, to the customers, and would provide details of such benefit passed on but the Respondent had not explained the basis of his calculations and reasons for difference in his own calculations. In the absence of basis of calculations, there was no reason to admit his claim that he has been passing on the benefit already, however the benefit as claimed has been mentioned in the home-buyers list.
15. The DGAP has further contended that the Respondent has claimed that there was a net negative benefit of credit post-GST, but the calculations made by the Respondent, claimed to be in line with the methodology followed by the DGAP, were not correct, as the Respondent has wrongly claimed credit of WCT (VAT) and even the turnover accounted for has difference from the data provided in the home-buyers details.
16. The DGAP has also intimated that prior to 01.07.2017 i.e. before the GST was introduced, the Respondent was eligible to avail CENVAT credit of Service Tax paid on the input services. However, CENVAT credit of Central Excise Duty paid on the inputs was not admissible as per the CENVAT Credit Rules, 2004, which were in force at the material time.
17. The DGAP has further intimated that the Respondent was paying VAT under the Haryana VAT Act, 2003 under the normal scheme and was eligible to avail ITC on VAT paid on the inputs purchased by him. However, the Respondent, in his submissions dated 18.07.2019 has claimed VAT credit of 1259/- and turnover of 9,5911- for the impugned Project for the period from April, 2017 to June, 2017, whereas NIL VAT turnover and NIL VAT credit has been shown for the period from April, 2016 to March, 2017. The issue was examined in detail and it was observed by the DGAP that in total, VAT paid on the purchases made in the State amounted to a total of 2,67,07,322/-which was for the whole of the State, spread across all projects and not just for the impugned Project. This amount was different from the amount as was claimed in the Respondent’s submissions and the Respondent did not submit breakup of the purchases made across projects to justify either the credit of VAT for the impugned Project or the VAT turnover. As, there was no direct relation between the turnover reported in the VAT Returns for the period from April, 2016 to June, 2017, filed by the Respondent and their reconciliation with the actual consideration collected from the home buyers, therefore, the credit of VAT and the VAT turnover was not considered for computation of the ratio of ITC to the turnover for the pre-GST period.
18. The DGAP has also informed that the Respondent has claimed credit for Rebate of VAT (WCT) paid to the registered contractors or subcontractors claiming credit for the same in the pre-GST period. The DGAP has examined this issue in detail and has reported that there was no deduction claimed on account of payment to the works contractors to claim WCT credit for the Project in his VAT Returns submitted to his office. Moreover, in terms of Section 42 of th Haryana VAT Act, 2003 and the relevant Rules, the liability to pay tax was jointly upon the developer (Respondent) and his sub-contractors. The Respondent was eligible to claim the ITC of WCT (VAT) credit, even if not paid directly by him, only if, the following conditions were fulfilled:-
a. Tax has been paid by his sub-contractor on the sale of goods involved in execution of the works contract.
b. The assessment of such tax has become final and
c. ITC of such VAT has not been availed by his sub-contractor.
The DGAP has alleged that the Respondent did not submit any evidence in this regard to substantiate his claim of ITC of WCT (VAT) credit. Therefore, the Respondent was not eligible to claim this amount as ITC.
19. The DGAP has further informed that post-GST the Respondent could avail the ITC on GST paid on all the inputs and input services including the sub-contracts. The Respondent vide his submission dated 22.08.2019 has submitted reconciliation of turnover and CENVAT/ITC for all his projects, as in the pre-GST era, the Respondent had a centralized registration for Service Tax, and in post GST era, the GSTR Returns reflected turnover and ITC for the whole State of Haryana and not just the impugned project. Further vide his submissions dated 17.09.2019, the Respondent has submitted the detailed calculations regarding appropriation of common ITC on the basis of proportionate area of the impugned Project with the total area of active projects across the State in the corresponding period.
20. The DGAP has also stated that the Respondent vide his e-mail dated 02.08.2019 has submitted his home-buyers data wherein he has mentioned several entries which were either negative or were having very petty figures. Clarifications were sought from the Respondent regarding the same and he was asked to submit details of such demands raised vide invoices of such low value and reasons thereof. The Respondent vide his reply dated 17.09.2019 has submitted that such petty demand notes as reflected in the home-buyers list were due to rounding off of the adjustments and the amount did not pertain to demand notes raised from the customers. Further, other petty demands were on account of services such as delayed payment charges or transfer charges and not on account of the basic cost of the unit. Hence for the purpose of investigation, all such negative values and petty demands upto 1,000/- have been excluded from the demands raised in the relevant period to get a more accurate figure of turnover. From the information submitted by the Respondent for the period from April, 2016 to March, 2019, the details of the ITC availed by him with respect to the impugned Project, his turnover from the Project “Emaar Floor Premier”, the ratio of ITC to the turnover, during the pre-GST period from April, 2016 to June, 2017 and the post-GST period from July, 2017 to March, 2019), has been furnished by the DGAP in the Table-‘B’ given below:-
Table – B
(Amount in Rs.)
