Case Law Details
Meenal Gupta Vs Kanakia Spaces Reality Pvt. Ltd. (NAA)
The present Report dated 31.08.2020 had been received from the Applicant No. 2 i.e. the Director General of Anti-Profiteering (DGAP) after detailed investigation under Rue 129 (8) of the Coning Goods & Service Tax (CGST) Rules, 2017 In pursuance of Authority’s Interim Order no.15/2019 dated 19.11 2019 In the matter of MG. Meenal Gupta Vs. M/s Kanakia Spaces Realty Pvt. Ltd. & M/s. New Monarch Builders & Contractors, wherein this Authority had referent Inc matter back to the DGAP under Rule 133(4) of the CGST Rules, 2017 to conduct further Investigation In the matter.
2. The brief bids of the case and findings of Investigation conducted by the DGAP are as under.-
i. An application was filed by Applicant No.1 to the Maharashtra State Screening Committee an Anti-profiteering (MSSCAP) under Rule 128 of eat CGST Rules, 2017 entering profiteering by the Respondent No. 15, in respect of purchase of Flat No. A-1104 in the Respondent No. 1s’ project “Kanakia Sevens”, situated at Sag Beug, Marol, Andheri East Mumbai, Maharashtra -400069, the above application was referred by the MSSCAP, vide letter F.No. V/GST(Audit-II) PRO-AP/2/2011 dated 21-03-2018 to the Standing Committee on Anti – profiteering in terms of Rule 128 of the Rules.
ii. The above reference was examined by the Standing Committee an Anti-Profiteering in its meeting held an 13.04.2018 Thereafter, it forwarded the same to the DGAP (erstwhile Directorate General at Safeguards) on 09.05.2018, to conduct a detailed investigation in the matter.
iii. Thu above application was examined by the DGAP and the investigation Report dated 06.11.2018 under Rules 129(6) of the Rules, was furnished to the Authority. Vide the above Report dated 06.11.2018, the DGAP informed that project under investigation was being constructed under a joint development agreement between the Respondent No 1, who was the original developer and the Respondent No. 1, who are the Land-owner Accordingly. Profiteering was computed for both the Respondents and the DGAP concluded that on the basis of the CENVAT/input Ito Credit (ITC) availability pro and poet-CST and the details of the amounts confected by the Respondent No. 1 & 2 from home buyers during the period 01.07 2017 to 31.07.2018, the amount of benefit of ITC that had not been passed on by the Respondent No. 1 to the recipient’s or in other words the profiteered amount, worked out to Rs. 3,99,41,729/- which included 17% GST on the base profiteered amount of Rs. 3,56,02,258/-. Further, the amount of benefit of ITC that had not been passed on by the Respondent No. 2 to the Respondent or in other words. tnu profiteered amount worked out to Rs 2,74,29,995/- which inductee 12% GST on the based profiteered amount at Rs. 2,44,91,067/-. The conclusion vas based on the documents and information submitted by the above Respondents during the course of original investigation.
iv. The Authority after cons doting the various submission mode by the Respondent No 1 6 2. We lift internal Older No. 15/2019 dated 19 11 2019, referred the matte buck to the DGAP under Rule 133(4) of the Rules, and director to further investigate the matter on the following issues:-
a) Whether the proportionate ITC availed by the Respondent No. 1 was liable to be bussed on by into Respondent No. 2 on by Respondent No. 2 on account of has share 0f 254 units in the free sale building which was further required to be passed on to the buyers of the above units?
b) What was the total Saleable area of the flats which were to be sold by the Respondent No. 2?
c) What was the area said by the Respondent No. 2 relevant to the taxable turnover during pre and post-GST periods in respect of his share in the free sale building?
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(f) The Respondents have submitted that such delegation of power to determine the methodology amounted to excessive delegation of law. This was so because the methodology to determine Anti-Profiteering was a substantive in nature since the said methodology would deterrent whether mom was profiteering or not.
(g) It was a well-established principle of law that essential legislative functions which comprised of the determination of the legislative policy and it formulation could not be delegated by the legislature. What could be delegated was only the task of regulating the procedural aspects of Implementation of the legislative policy necessary for implementing the purpose and objects of a legislation.
(h) In Harishankar Might v. State of Madhya Pradesh/(1955): SCR 381, the Hon’ble Supreme Court held that the legislature could not delegate its function of laying down legislature policy in respect of a measure and its formulation as a rule of conduct. The legislature must declare the policy of the law and the legal principles which ware to control any given cases, and must provide a standard to guide the officials or the body in power to execute the law. Further in Gulabehand Rapaial Modi it. Municipal Corpn. of Ahemdabad City. (1971) 1 SSC 823, the Court observed that in all statutes coaling with local administration municipal authorities had inevitably to be delegated the power of taxation. Such Power was a necessary adjunct to a system al Local Self-Government. Whether such delegation was excessive and amounted to indication of an essential legislative function had to be considered from the scheme, the object and the provisions of the statute in question
(i) The Respondents bawd submitted that in the present case, the Role conferred unbridled power on the Authority to prescribe a procedure for determining commensurate reduction’. which was the basis of an Anti-Profiteering investigation. The Respondents have submitted that such delegation suffered from the vice of excessive delegation since it was for the legislature to prescribe the method as to what was commensurate reduction. The Respondents have submitted that the excessive delegation of power to the Authority to determine the procedure for commensurate reduction’ was bad in law.
(j) The Respondent have submitted that section 171 of CGST Act and Rules 122 to 137 of CGST Rules being part of taxing statue, could not on forced in absence of machinery provisions for computation of the profiteered amount as per the settle law in case of CIT Vs. B.C. Shrinivasa Shetty [1981-SCC-160] and commissioner of central Excise Vs. Larsen & Turbo Limited [2016-1-SSC-170], Also the above provisions did not provide mechanism of computation not any guidelines and had left framing of methodology and computation to the DGAP which was illegal as it was well established principle that legislature could not delegate its authority under a statue without appropriate guidelines and this view has been upheld by Hon’ble High Court of Patna in case of M/s. Indian Aluminum Co. Limited and Anr. Vs. The State of Bihar and Ors. [1994-1-PJI.R]. Therefore, the Respondent have stated that the provisions of Anti-profiteering placed an unbridled discretion in the hands of the authority and hence the present proceedings were not maintainable.
(ii) When no methodology prescribed, authority cannot insist on any particular method:
(a) ‘The Respondent & have submitted that Rule, 126 of the CGST Rules provided that the Authority was required to determine the methodology for determining commensurate reduction. However, there was no notification prescribing such procedure/guideline. In absence of such guidelines, the DGAP could not insist on any method.
(b) The Respondents have further submitted that in the notice et any specific restrictions, the Authority could not compel the Respondents to follow as particular methodology. The Respondents have submitted that the law was replete with examples of a reasonable methodology wren no procedure was specified In law. Given this, the rejection of methodology adapted by the Respondents has and the mechanism adopted by the DGAP to calculate the profiteering amount was incorrect and bad in law.
(iii) Without prejudice, even if any methodology was prescribed, would be at best prospective and therefore, would not apply to the present case:
(a) The Respondents have submitted that even if a notification prescribing guidelines/procedure was issued at a later point of time, the same would be applicable prospectively and not retrospectively This was so because the determination of a procedure to Calculate commensurate reduction was a substantive provision, which could not be applied retrospectively. The principle of prospective application was dealt with by Maxwell on the interpretation on statues, 12th Edn as follows:-
“Perhaps no rule of construction was mow firmly established than thus – that a retrospective operation was not to be given to statue so as to impair an existing right or obligation, otherwise than as regards matters of procedure, unless that effect cannot be avoided without doing voidance to the language, unless the enactment. If the enactment was expressed in language which are fairly capable of other interpretation, it aught to be constructed as prospective only. The rule has, in fact, exempts, for it, “involves another and subordinate rule, to the effect that statue was not to be constructed has to a grater retrospective operation that its language renders necessarily.
(b) in State of Punjab & Ors. v. Bhajan Kaur & Ors., AIR 2008 SC 2276 the Hon’ble Supreme Court held that a statues was presumed to be prospective unless held to be retrospective, either expressly or by necessary implication. A substantive law was presumed to be prospective. It was once of the facts of the rule of law.
(c) In view of the above, it was apparent that the DGAP had violated the scope of Section 171 of the CGST Act and therefore in the absence of any guidance on the methodology for determining the manner in which the benefit of reduced rate of GST/incremental ITC has to be passed on to the customers, the approach, extent and manner of computation by the DGAP was liable to be sat aside and dropped.
(iv). Scope of Section 171 did not cover the present case:-
(a) Pat Rest/tridents have. submitted that Section 171 of the CGST Act stated that any reduction in rate of tax on any supply of goods or services or the benefit or ITC should be passed on to the recipient by way of commensurate reduction in prices.
(b) The Respondents rave submitted that the Anti-Profiteering provision under the statue mandated the passing on of the benefit of reduction in rate of tax on supply of goods of services of the benefit of ITC. The Respondents have rated that there was no stipulation or condition conflicted in the provision which dealt with the lime of the passing-on of such benefit. In other words, there was no condition which mandated passing-on of such benefit.
(c) It was a settled principle of law that a provision of a taxing statue was to be strictly interpreted. The Respondents have placed reliance in this regard on the following cases.
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- union or India v. Ind-Swift Laborities Ltd.. (2011)4 SCC 635,
- CIT Vs Calcutta Knifwears (2014) 362 ITR 673 (SC)
- V. Fernandoz vs. Stele el Kerala. AIR 195/ SC 651
(d) Applying the above principle, the Respondents have submitted that Section 171, which dealt with Anti-profiteering. merely provided for passing-on of benefit by the supplier, without mentioning any time period for passing on of such benefit was be passed-on immediately by the Supplier.
(v) Condition could not be added in a statue by way of interpretation when no such condition extend from a plain language of the provision:-
(a) The Respondents have submitted that while arriving at a conclusion in para 22 of the DGAP’s Report the DGAP added a condition into the provision, so as to mandate the Respondents pass-on the benefit of ITC immediately. The Respondents have submitted that the DGAP could not add condition that did not exist and were not provided in the statue.
(b) It was settled position of law that power of the authority to impose restriction and conditions must ‘low from the statue. In the present case neither Act not the Rules prescribe/confer power to the DGAP to impose restriction/condition in cases related to Anti-profiteering. The Respondents further relied on the cast Union of India v. Inter Continental (India) 2008 (296) E.L.T. 6 (S.C.) wherein it has been held that restriction could not be read by way of statutory interpretation In this regard the Court held as follows:-
(c) In view of this, the Respondents have submitted that the imposition of condition to pass-on the benefit ‘Immediately’ by the Respondents have to the Customer/flat owners was bad in law.
(vi) Section 171 was violative of Article 19(1)(a) of the constitution and hence could not be invoked:-
a) The provisions of Section 171 of the CGST Act were violative of Article 19(1)(g) of the Constitution of India. In this regard, the Respondents have submitted that Article 19 (1)(g) at the Constitution granted right carry on trade or business and freedom In fix prices and earn profits.
b) Now, as far as the present Anti-profiteering provisions under Section 171 were concerned, these provisions mandatory required the supplies to pass on the benefit of reduction in the rate of tax or the benefit of Input tax credit to the recipient. Thus, Section 171 of the CGST Act curtailed freedom of the Respondents to carry on trade of business by requiring them to fix prices and earn profits in a particular manner under the CGST Act Thus, the sad prevision violated the fundamental right of the Respondents to do business under Article 10(1)(g)
c) The Respondents have further submitted that the Section 171 on one hand required Respondents to do business in a particular manner but tailed to provide any mechanism to actually arrive at the benefit stipulated under the above provision; Thus Section 171 could not be invoked by the Authorities to initial against the Respondents.
(vii) Section 171 violated a statutory right available to the Respondents to decide the price themselves and the impact of tax:-
a) The Respondents have further submitted that the provisions with respect to passing on the increased tax liability or reducing prices in case of tax benefit were well recognized under the Sale of G000s Act, 1030. In this regard. the Respondents have referred to Section 64A of the said Act, which read as follows:-
b) The Respondents have submitted that Section 64A of this Sale of goods Act permitted the Respondents to pass on the liability of benefit due to increase or decrease of tax amount. In other words, the statue allowed the Respondents to determine the passing-on of the liability or benefit as per their contract.
c) The Respondents have submitted that this principle was profiteered by the Hon’ble Supreme Court, in the case of Rashtriya Ispat Nigam Ltd. vs. M/s Dewan Chand Ram Saran AIR 2012 SC 2829 wherein it was held that here was nothing in law to prevent the Respondents from entering into an agreement to determine the passing-on of the burden of any tax. The Respondents have placed reliance on the judgement of Numafigarh Refinery Ltd. vs. Daelim Industrial Co. Ltd., reported in 2007 (8) SCC 466.
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We find that, It is clear from n plain reading of Section 171 (1) of the CGST Act 2017 that deals with two situations:-
One relating to the passing an 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 clear from the DGAPs Report that there has been no reduction in the rate of tax in the post GST period from 01.07.2017 till 31.03.2019. Thereafter there was reduction In rate from 12% to 5% (without ITC) as the Respondents have opted tar composition scheme. Therefore. the benefit of Suction in rate of tax of 7% [12% (-) 5%] without ITC would be available on respect of units sold on or after 01.04.2019 and therefore no further pelmet at ITC was required to tin passed on the demand to be raised on or after 01.04.2019 as the additional benefit of ITC available to the Respondents No. 1 & 2 was 2.36% which was lower than 7% reduction in rate of tax of GST Hence, the other issue to be examined is as to whether there was any net benefit of ITC with the introduction of GST, which could have been reported by the DGAP, as tabulated above that the ITC as a percentage of the turnover that was available to the Respondents during the post-GST period (April-2015 to June-2017) was 1.45% and during the pre-GST period (July-2017 to March-2019) It was 3.81%. Hence, according to the DGAP, post-GST’. the Respondents have been benefited from additional ITC to the tuna of 2.38% (3.81%-1.45%) of turnover and the came Wes required to be passed on to the eligible customers/flat/recipient) is Rs. 5,07,57,281/-. Out of which the Respondents No. 1 has benefited by an additional amount of input tax credit, by an amount of Rs. 4,00,82,024/-which included GST @12% on the base amount of Rs. 3,57,87,521/- The buyers and unit no. wise break-up of this amount has been given In Annexure-23 to the DGAPs Report dated 31.08.2020. Similarly, the Respondents No. 2 has benefited by an additional amount of Input tax credit, by an amount of Rs. 1,06,75,257. which included GST @12% on the base amount of Rs. 95,31,480/-. The buyers and unit no. wise break-up of this amount has been given in Annexure–24 to the DGAP’s Report dated 31.08.2020.
In view of the above discussions, the Authority concurs with the DGAP’s Report dated 31.08.2020. The Authority determines that the Respondent No. 1 and 2 have profiteered by an amount of Rs. 4,00,82,024/- and Rs. 1, 06,75,257/- respectively for the project ‘Kanakia Sevens’ during the period of investigation i.e. 01.07.2017 to 31.03.2019. The investigation has revealed that the Applicant No. 1 had not paid any amount during the period under investigation and therefore, the above profiteering amount did not include any amount pertaining to the above Applicant. Further, the Respondent No. 1 has claimed that he had passed on the benefit of input tax credit amounting to Rs. 4,31,16,616/- to all eligible 256 home buyers/customers/recipients. The Respondent No. 2 has claimed that he had passed on the benefit of input tax credit amounting to Rs. 51,64,736/- to 37 home buyers/customers/recipients out of 72 home buyers/customers/recipients. DGAP vide his verification report dated 19.03.2021 has confirmed the claim of the Respondents regarding passing of the ITC benefit in respect of 23 home buyers/customers/recipients only As per the said Report, only 23 home buyers/customers/recipients not of 328 eligible home buyers/customer’s/recipients have confirmed receipt of the ITC benefit and the remaining home buyers/customer’s/recipients did not respond to the Communication made by the DGAP. Thus, evidence in respect of only 23 out of 328 eligible’ customers/recipients has been submitted. Hence, above claims of the Respondents end the DGAPs verification is neither definitive nor conclusive Hence. the same cannot be accepted.
This Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondents shall reduce the prices to be realized from their respective buyers of flats/shops/units commensurate with the benefit of ITC receives by them as has boon detailed above.
The Respondents are also liable to pay interest as applicable on the entire amount profiteered, i.e. Rs. 5,07,57,281/- for the project ‘Kanakia Sevens’ as per their share. Hence the Respondents are directed to also pass on interest @18% to their respective customers/ flat buyers/ recipients on the amount profiteered by them, starting from the date from which the above amount was profiteered till the date of passing on / payment as per provisions or Rule 133 (3) (b) of we CGST Rules 2017.
Complete lists of home buyers/customers/recipients have been attached with this Order with the details at amount or benefit of ITC to be passed along with interest @ 18% In respect of the project kanakia Sevens or the Respondent No. 1 & 2 as par Annexure -A &B respectively.
We also order Olaf the profiteering amount of Rs. 5,07.57.2011- for the project Kanakia Sevens’ along with the interest 18% from the data of receiving of the profiteered amount from the home buyers/customers/recipients bit the date of passing the benefit at ITC shall be paid/passed on by the Respondents within a period of 3 months from the date of passing of this order felling which It shall be recovered an per the provisions of the CGST Act, 2017.
It is also evident both the above narration of facts that the Respondents have denied benefit of ITC to the buyers of the flats/shops/units being constructed by them in the project ‘Kenakia Sevens’ In contravention of the provisions & Section 171 (1) of the CGST Act, 2017 and have committed an offence under Section 171 (3A) of the above Act. However, perusal of the provision of Section 171 (3A) under which penalty has been prescribed for the above violation shoes that it has been Instated In the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Financial Act, 2019 And it was not in operation during the period from 01.07.2017 to 31.03.2019 when the Respondents had committed the above violation and hence, the penalty prescribed under Section 171 (3A) cannot be imposed on the Respondents retrospectively Accordingly, note for imposition of penalty is not required to be issued In lite Respondents.
