S. Ganapathy Subramanian Vs Mahindra Lifespace Developers Ltd. (NAA)
1. In the present case the first investigation Report dated 05.11.2018 was 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 fads of the case were that an application before the Standing Committee on Anti-profiteering under Rule 128 (1) of the CGST Rules, 2017, was filed by the Applicant No. 1 alleging profiteering by the Respondent in respect of purchase of a flat in the Respondent’s “Avadi” Project at Chennai. He had also alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) to him. The aforesaid application was considered by the Standing Committee on Anti-profiteering, in its meeting held on 25.05.2018, the minutes of which were received by the DGAP on 08.06.2018, whereby it was decided to forward the same to the DGAP to conduct a detailed investigation in the matter under Rule 12 (1) of the above Rules. The DGAP in his Report had stated that the Respondent did not co-operate with the investigation and tried to delay the investigation intentionally, The DGAP had also stated that the Respondent had not Submitted the complete information required for the investigation. The DGAP had further stated that claim of the Respondent that the benefit of GST Input Tax Credit was already factored in the construction cost was not substantiated as the Respondent had recently communicated this information to the Applicant vide e-mail dated 01.06.2018. The DGAP had also observed that turnover of the Respondent during the period from July, 2017 to August, 2018 did not reconcile with the GST Returns filed by him and hence, the project details submitted by the Respondent could not be relied upon. It was also noticed by the DGAP that the Respondent had benefited from the additional input tax credit to the extent of 7.57% of the taxable turnover. The DGAP had calculated the amount of profiteering in this case as Rs. 2,04,65,828/-
2. This Authority, after perusal of the above Report of the DGAP had decided to accord hearing to the concerned parties. During the hearing held on 13.12.18 this Authority had asked the Respondent to submit details of the project under investigation and his other projects along with the Anti-Profiteering compliance and the details of the Completion Certificates (CC), The Respondent had submitted only the details of the project under investigation and no details of his other projects were supplied. Next hearing was held on 07.01.2019 when this Authority had again asked the Respondent to submit the current status and details of all the projects constructed by the Respondent to the DAP. The Respondent had submitted the details of the project under investigation vide letter dated 25.01.2019 but did not submit the details of other projects,. The Respondent also refused to accept the calculation of the ratios of CENVAT/ITC to the turnovers made by the DGAP in his Report dated 05.11.2018 and submitted new figures of ITC and turnovers for the pre and post GST periods as per the following table:-
3. The Respondent had claimed that the net additional ITC benefit was 0.16% which was quite different from the benefit of 7.57% as per the investigation Report of the DGAP. It was evident from the above claims of the Respondent that there were serious differences in the calculations of the above ratios made by the Respondent and the DGAP which required re-investigation.
4. The DGAP in his Report as well as in his subsequent letters had aka stated that the Respondent had not submitted complete information which was required for It showed that the Investigation Report submitted by DGAP was not based on accurate information and was not complete.
5. This Authority after carefully examining the DGAP’s Report, the submissions of the Respondent and all other documents placed on record had observed that:-
(i) The DGAP’s Investigation Report could not be considered as it was based on incomplete information.
(ii) There was huge difference between the benefit of additional ITC calculated by the DGAP and the Respondent which was required to be re-investigated.
(iii) The Respondent was reluctant in providing complete information to the investigation agency as well as to this Authority during the hearings which was required to be obtained from him and Report submitted accordingly.
6. Therefore, this Authority vide its order dated 27.02.2019 had directed the DGAP under Rule 133 (4) of the above Rules to re-investigate the matter and submit a comprehensive investigation Report. The Respondent was also directed to co-operate with the investigating agency and submit complete information to the DGAP. This Authority had also directed the DGAP to investigate other projects of the Respondent and verify their profiteering compliance.
7. The DGAP in compliance to the order dated 27.02.2019 has submitted the present investigation Report dated 18.12.2019 in which he has stated that in order to collect evidence necessary to reconcile the difference in the ratios of Input Tax Credit to the taxable turnovers Calculated by him in the Report dated 05.11.2018 and to examine the submissions made by the Respondent made before this Authority in respect of the project “Avadi”, a letter was issued to the Respondent on 09.04.2019. calling upon him to submit the information/documents required to re-investigate the matter. The DGAP has also stated that vide e-mail dated 15.11.2015 the Applicant No. 1 was given an opportunity to inspect the non-confidential documents/reply furnished by the Respondent on 19.11.2019 or 20.11.2019, which the Applicant did not avail of.
8. The DGAP has further stated that the period covered by the current investigation was from 01.07.2017 to 31.10.2019.
9. The DGAP has also submitted that the Respondent had replied to the above letter vide his various letters/e-mails but did not furnish the complete and relevant documents required for investigation in spite of specific direction by this Authority. Hence, Summons Under Section 70 of the CGST Act. 2017 read with Rule 132 of the above Rules, were issued on 19.11.2019 to Sh. Manoj Kasture, General Manager of the Respondent asking him to appear at the DGAP’s office on 25.11.2019 and produce the relevant documents. However, the Respondent neither appeared nor furnished the complete information. In response to the Summons dated 19.11.2019, the Respondent vide his e-mail dated 23.11.2019 had submitted partial documents and sought one Week’s time to submit the remaining documents.
10. The DCAP has further submitted that as all the documents were not received, another Summons dated 25.11.2019 were issued to Sh. Manoj Kasture, General Manager asking him to appear at the DGAP’s office on 29.11.2019 and produce the relevant documents, In response to the above summons, the Respondent appeared on 29.11.2019 and submitted the documents vide his e-mails dated 29.11.2019 & 30.11.2019.
11. The DGAP has also intimated that in response to the DGAP’s letter dated 09.04.2019 and further reminders vide letters/e-mails/summons, the Respondent had submitted his replies vide letters/e-mails dated 22.04.2019, 16.10.2019, 24.10.2019, 30.10.2019, 09.11.2019, 13.11.2019, 23.11.2019, 29.11.2019 and 30.11.2019. Thu submissions of the Respondent have been summed up by the DGAP as follows:-
a That the Respondent hac received Completion Certificate for Block D & F of the above project on 25.02.2019 and had reversed ITC of Rs. 23,93,212/- towards unsold units which must be reduced from the post-GST credit computation.
b. That in case there was any profiteering amount determined under Section 171 of the CGST Act, 2017 then the said amount should pertain to the customers who had booked units in the pre-GST regime and not for those customers who had hooked flats post 30.06.2017.
c. That the Respondent had passed benefit of incremental ITC of Rs. 7,75,191/- under Section 171 to the flat buyers of Block D & F This included incremental ITC benefit of Rs. 4,557/- to the Applicant No 1 by Credit Note.
d. That he had not availed any ITC of Service Tax or VAT in the pre-GST regime with respect to Block D & F Further for the period from 01.07.2017 to 24.01,2018, he had discharged GST a 12% on the value of demand after one third deduction on account of land and the flat buyers had paid the same. For the period post 25.01.2018 till possession of the flat, the flat buyers had born GST @ 8% on value of demand letter after one third deduction for land.
12. The DGAP has further intimated that apart from the above, during the personal hearing held before this Authority the Respondent had also submitted the following: –
a. Proportion of booking-Block F: – That the demand for recovery of the amount from the customers could be raised only on the premises which had been sold. No demand could be raised on the premises which were not sold. Accordingly, the tax was not paid, and the value of taxable Service was not disclosed in the Returns. Therefore, the proportion of use of credit would always depend upon the fact of proportionate quantum of sale of premises. In order to make proper comparison in Table-D, the credit to the extent of unsold area must be reduced from the post-GST period.
b. Recovery of maintenance charges:- That after completion of any building, it was required to tie maintained by the builder for a period of two years and then it was handed over to the society. The Phase-1 of the project was completed in the year 2016 and the budding was maintained by the Respondent till 2018. For the purpose of maintenance, the Respondent had appointed various suppliers and one of them was “M/s Cushman and Wakefield” which was a facility management company. The suppliers had maintained the building from year 2016 to 2018 for which they had charged fee plus applicable tax. Some portion of the tax charged by them had been availed as credit during the Service tax period and balance in the GST period, The corresponding income of such expenses had been booked only in the Service Tax regime. At the time of possession, he had collected advance maintenance charges for two years which formed part of the taxable turnover appearing in the Returns. The credit of service had been taken in the post-GST period but the corresponding taxable income for the same has been taken in the pre-GST period. Therefore. for the purpose of proper comparison and computation, the turnover & credit pertaining to such maintenance charges must be reduced.
c. Transactions pertaining to Block C & G:– That during the period from July, 2017 to August, 2018, the value of credit and turnover was not much impacted from the transactions of Block C and Block G. The sales lor Block C were started from November, 2018 and the construction work of the said Block began from November, 2018. Similarly, sales of Block G were started from May, 2018 and the construction work of the said Block began from September, 2018. The Applicant No, 1 had booked flat in Block F Block D and Block F were sold and constructed simultaneously. Accordingly, for the purpose of computation of profiteering amount, the credit and turnover details pertaining to Block D and Block F should only be considered and therefore, from the total credit and turnover figures upto December, 2018 as declared in the GST returns, the details pertaining to Block C & Clock G should be excluded.
d. The balance demand to be raised for the Block-F should be considered for the profiteering purpose:-That under That the construction industry, the credit might accumulate in a particular period but the tax liability with respect to the same might arise in a different period. The construction activity went on gradually which resulted into accrual of CENVAT Credit. However demand notices for the same were raised as per milestones mentioned in the agreement. Unless the milestone was achieved, the builder could not raise demand notice to the customer. However. CENVAT Credit would still accrue to the builder. In the present case, as on December, 2018, the construction work of Block F was about to complete and the Respondent was about to receive the CC for the said block. Thus. it had been estimated by the him that there would be very minimal ITC on account of administration and information technology expenses to be received for the said Block. Therefore, for proper computation of the benefit, the pending turnover to be raked for the fiats sold as on December, 2018, must had been added to the post-GST turnover.
e. Increase in credit on account of increase in cost of construction in GST period:- That the entire basis of computing profiteering amount was to find out the percentage of input credit increase in the post-GST period The DGAP had ignored the fact that the cost of construction had increased drastically during the post-GST period owing to which the credit amount had also increased whereas the sale prices did not increase in the same ratio. Such increase in credit owing to inflation did not reflect in the increased benefit as specified under Section 171 of CGST Act, 2017. The increased IT was not on account of GST but on account of increased cost of construction as one of the major contributors. The average increase in construction cost was about 21%. Correspondingly, the sale prices during the pre and post GST periods had increased by only 1.75%, The average selling price of the units during the pre-GST regime was Rs 3.329 per sq. ft whereas during the post GST regime, the average selling price of the units was Rs. 3,357 per sq. ft, Hence. there was an increase of only Rs. 58/- (1.75%) per sq. ft. Therefore, the net input tax availed by the company, as reflected in Table-B of the DGAP’s Report, should be reduced by 19.25% (for post-GST period) to make the figures of pre and post GST comparable.
f. On the basis of above submissions the Respondent had submitted that the Table-‘D’ should have been re-constructed, as per the Table-A below:-
Table-A
(Amount in Rs.)
13. Vide the aforementioned letters and e-mails, the Respondent had also submitted the following documents /information:-
a. Copies of GTR-1 Returns for the period from July, 2017 to March, 2019.
b. Copies of GSTR-3B Returns for the period from July, 2017 to October, 2019.
c. Copies of VAT & ST-3 Returns for the period from April, 2016 to June, 2017.
d. Copy of Project Report submitted to RERA for Tower D along with all periodic progress report.
e. Copy of Project Report submitted to RERA for Tower F along with all periodic progress report.
f. Copy of Completion Certificate for Block-F & D dated 25.02.2019 issued by Chennai Metropolitan Development Authority.
g. Copy of Electronic Credit Ledger for the period from 01.07.2017 to 31.10.2019.
h. CENVAT Credit/Input Tax Credit ledgers far the period from April, 2016 to March, 2019.
i. Details of Input Credit Reversal for post CC sales.
j. Copies of Credit Notes issued by Contractor for differential tax charged from the Respondent.
k. List of home buyers in the project “Avadi Project Bock-F & D” along with customer wise details of benefit passed on.
14. The DGAP has also reported that he has carefully considered all the documents placed on record to reconcile the difference in the ratios of Input Tax Credit to the taxable turnovers calculated by him in the Report dated 05.11.2016 aid by the Respondent in his submissions filed before this Authority in respect of the project “Avadi” .
15. The UGAP has further reported that the Respondent had received the CC in respect of Block F & D and therefore the Respondent had furnished absolute figures of ITC availed during the post-GST period and the amount of demands raised during the post-GST period or the balance amount to be demanded.
16. The DGAP has also contended that before enquiring into the allegation of profiteering, it was important to example Section 171 of CGST Act, 2017 which governed the anti-profiteering provisions under the GST. Section 171 (1) reads as “Any reduction in rate of tax on any supply of goods or services of the benefit of ITC shall be passed on to the recipient by way of commensurate reduction in “Thus, the legal requirement was abundantly clear that in the event of benefit of ITC or reduction in the rate of tax, there must be a commensurate reduction in the prices of the goods or services Such reduction could only be in money terms, so that the final price payable by a consumer got reduced. This was The legally prescribed mechanism for passing on the benefit of ITC or reduction in the rate of tax to the consumers under the GST regime. Moreover, it was also clear that the said Section 171 simply did not provide a supplier of goods or services any other means of passing on the benefit of ITC or reduction in tho rate of tax to the consumers Thus, the legal position was unambiguous and could be summed up as follows –
a. That a supplier of goods or services must pass on the benefit of ITC or reduction in rate of tax to the recipients by commensurate reduction in prices.
b. That the law did not offer a supplier of goods and services any flexibility to suo moto decide on any other modality to pass on the benefit of ITC or reduction in rate of tax to the recipients.
Therefore, in terms of Section 171 of the CGST Act. 2017, the claim of increase in cost on account of various factors could not be considered and could also not be set off against the benefit of Input tax credit.
17. The DGAP has further contended that the claim of the Respondent that the credit to the extent of unsold area must be reduced from the post-GST period could not be accepted. In this regard, the DGAP has made reference to 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) which reads 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 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 had been received after issuance of completion certificate, where required, by the competent authority or after his first occupation, whichever was earlier”. Thus. the ITC pertaining b the residential units which were under construction but not sold was provisional ITC which might 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 was used by the registered person partly for effecting taxable supplies including zero-rated supplies wider 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 at 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 00( 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 Scheduled II, sale of building”.
The DGAP has stated that in the present case the Respondent had received the CC for Block D & F on 25.02.2019 and he had reversed ITC of Rs. 23,93,2121/- towards unsold units, Therefore, the ITC availed post-GST period (after reversal) pertained to the sold area only.
18. The DGAP has also claimed that the Respondent had also contended that he had received the CC of Block D & F on 25.02.2019, therefore, for the proper computation of the benefit, the pending turnover to be raised for the flats sold prior to receiving of CC must had been added to the post-GST turnover. The DGAP has stated that this contention of the Respondent held good as the ITC availed (after reversal for unsold area) pertained to the units sold before the CC was received. Further the demand which had already been raised post-GST and which was to be raised for the sold units was also known to the Respondent. Therefore, for the purpose of computation of ratio of ITC to taxable turnover during post-GST period. the demand pending to be raised had also been considered.
19. The DGAP on the basis of revised information and documents submitted by the Respondent has submitted that prior to 01.07.2017, i.e. before the GST was introduced, the Respondent had not availed any credit of Service Tax paid on input services. Further, no credit was available in respect of Central Excise Duty and VAT paid on the inputs. However, post-GST, the Respondent could avail ITC of GST paid on all the inputs and the input services including the sub-contracts. From tie information submitted by the Respondent for the period from April, 2016 to October, 2019, the details of the ITC availed by him, his turnover from the impugned project “Avedi”, the ratios of ITC to turnovers, during the pre-GST (April, 2016 to June, 2017) and the post-GST (July, 2017 to October, 2019) periods, have been furnished by the DGAP as per Table-‘B’ given below:-
Table-‘B’
(Amount in Rs.)
20. The DGAP has contended from the Table-‘B’ supra 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 0.00% and during the post-GST period (July, 2017 to October, 2019), it was 7.06% which clearly confirmed that post-GST, the Respondent had benefited from additional ITC to the tune of 7 06% [7.06% (-) 0.00%] of the turnover. Accordingly, the profiteering had been examined by comparing the applicable tax rate and ITC available in the pre-GST period (April, 2016 to June, 2017) when Service Tax 6% and VAT @2% was payable with the post-GST period (July, 2017 to October, 2019) when the effective GST rate was 12% GST @ 18% along with 1/3rd abatement for land value) on construction service imposed vide Notification No 11/2017-Central Tax (Rate) dated 28.06.2017. Accordingly, on the basis of the figures contained in Table-‘5’ above, the comparative figures of ratios of ITC availed/available to the turnovers in the pre-GST and post-GST periods as well as the turnover, the recalibrated base price and the excess realization (profiteering) during the post-GST period., has been tabulated by the DGAP as is given in Table-‘C’ below:-
Table-‘C’
(Amount in Rs.)
21. The DGAP has also stated from the Table-‘C’ above that the additional ITC of 7.06% of the turnover should have resulted in the commensurate reduction in the base prices as well as cum-tax prices of the flats, Therefore, in terms of Section 171 of the CGST Act, 2017, the benefit of such additional ITC was required to be passed on by the Respondent to the respective recipients.
22. The DGAP has further stated from the amount of additional benefit of input tax credit on the basis of the aforesaid CENVAT/input tax credit availability rare and post-GST and the details of the amount to be collected by the Respondent from the Applicant No. 1 and other home buyers a.s on 30th June 2017 and the new bookings made post 01.07.2017 till CC was received that the amount of benefit of ITC that had not been passed on by the Respondent to the recipients or in other words, the profiteered amount came to Rs. 2,87,64,178/- which included GST @ 12% on the base profiteered amount of Rs. 10,48,832/- and GST @ 8% on the base profiteered amount of Rs. 2,55,45,821/-. The home buyers and unit no, wise break-up of this amount has been given in Annexure-14 of the DGAP s Report This amount was inclusive of Rs. 1,71,830/- (including GST on the base profiteered amount of Rs. 1,58,515/-) which was The benefit of ITC required to be passed on to the Applicant No. 1, mentioned at Serial No. 31 of the above mentioned Annexure-14.
23. On the basis of the details of the outward supplies of the construction service submitted by the Respondent, it was intimated by the DAP that the said service had been supplied by the Respondent in the State of Tamil Nadu only.
24. On the basis of Table- ‘A’ and ‘IT above, the reconciliation of ratios of ITC to the taxable turnovers calculated by the DGAP in his Report and the Respondent’s submission dated 25.01.2019 has been furnished by the DGAP as given in the Table- ‘D’ below:-
Table- ‘D’
(Amount in Rs.)
25. On the basis of above reconciliation, the DGAP has stated that the difference in his calculation of additional benefit of ITC of 7.06% and the calculation of the Respondent of 0.16% [5.11% – 4.95%] as per Table- ‘A’ supra, was mainly ari account of following three reasons:-
a. 4.95% was claimed to have been pertaining to the pre-GST period.
b. 1.26% on account of setting oft of increase in cost with benefit of ITC.
c. 0.69% (approx) on account of Units sold after August 2018 but before receiving OC.
26. The DGAP has further stated that the Respondent had submitted that he had passed on benefit of Rs. 7,71,830/- to the home buyers of Dock D & F. The Respondent had submitted sample copies of Credit Notes vide his submissions dated 22.11.2019 vide which he had passed on the benefit of ITC and the same were verified by the DGAP and found to be correct. A summary of category- wise ITC benefit required to be passed on and the benefit already passed on, was furnished by the DGAP as in given in Table-‘E’ below:-
Table-‘E’
(Amount in Rs.)
27. From the Table ‘E’ supra, the DGAP has submitted that the benefit already passed on by the Respondent to the recipients was less than what he ought to have passed on in case of 206 residential flats including the Applicant Na 1 (Sr, 1, 2 & 5 of above Table) by an amount of Rs. 2,79,92,348/-
28. The DGAP has also submitted that the benefit of additional ITC to the tune of 7.06% of the amount collected by the Respondent from the Applicant No 1 and the other home buyers and the new bookings made post 01.07.2017 till receiving of the CC, has accrued to the Respondent and the same was required to be passed on to the Applicant No. 1 and other recipients. Therefore, the provisions of Section 171 of the CGST Act, 2017 have been contravened by the Respondent inasmuch as the additional benefit of ITC 7.06% of the amount collected by the Respondent from the Applicant No. 1 and other home buyers and the new bookings made post 01.07.2017 till CC was received has not been passed on to the Applicant No. 1 and the other recipients. On this account, the Respondent has realized an additional amount to the tune of Rs. 1,67,273/- from the Applicant No. 1 as mentioned at Sr. No 1 of Table- ‘E’. Further, the Respondent has also realized an additional amount of Rs. 2,78,25,075/- as mentioned at Sr. No 2 & 5 of Table- ‘E’, from 205 other recipients wiry were not Applicants in the present proceedings. These recipients were identifiable as per the documents provided by the Respondent, giving the names and addresses along with Unit Nos, allotted to such recipients. Therefore, this additional amount of Rs 2,78,25,075/- was required to be returned to such eligible recipients. The DGAP has also argued that in view of the aforementioned findings, it appeared that Section 171(1) of the CGST Act 2017 requiring that ‘any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices”, has been contravened by the Respondent in the present case.
29. The above Report was considered by this Authority in its meeting held on 19.12.2019 and it was decided that the Applicants and the Respondent be asked to appear before this Authority on 09.01.2020 The Respondent was issued notice on 20.12.2019 to explain why the above Report of the DGAP should not be accepted and his liability for violating the provisions of Section 171 of the CGST Act, 2017 should not be fixed During the course of the hearings no one appeared for the Applicants and the Respondent was represented by Sh. Manoj M. Kasture, General Manager, Sh Akhilesh Thakur Employee, Sh S. S Gupta and Sh, Archit Agrawal, Chartered Accountants,.The Respondent has filed written submissions dated 28.01.2020 and 27.02.2020. The issues raised by the Respondent have been mentioned in the subsequent paras.
30. The Respondent has submitted that the construction activity for Block D & F had commenced in the GST regime (i.e. in Sept 2017). All the activities related to construction of the project had been undertaken in the GST regime only. Since the project had commenced only under the GST regime, hence, the project could not be subject to the anti-profiteering proceedings at all. Further, he had also sent an e-mail dated 01.06.2018 to the Applicant No. 1 intimating that the project had been launched by the Respondent after the GST Act had been passed by the Parliament and therefore, the sale value which was agreed upon by the above Applicant had taken in to account the benefits arising due to implementation of GST and no further benefits were to be passed on to the Applicant No. 1 on account of GST. It was also submitted that in the 9th Meeting of the GST Council held on 16.01.2017 it was decided that the GST would be rolled out from 01.07.2017 and the model GST law was also made available in the public domain. The model law already had the provision for availment of ITC by the Respondent which was not earlier available to him and also the provision of anti-profiteering. Further, the CGST Act was passed by the Parliament in March, 2017 and the builders were given sufficient time to ensure implementation of the GST law. Therefore, the Respondent had envisaged that he was supposed to pass on the additional benefit arising to him due to GST and hence, the agreement price was accordingly reduced to factor in the benefit arising due to GST. It was further submitted that the entire construction activity was undertaken in the GST regime and therefore the impugned complaint was not sustainable at all and must be set aside.
31. The Respondent has also stated that in the present Report, the DGAP has computed pre-GST benefit as 0% and post-GST benefit as 7.06%. Accordingly, it had been concluded that the entire credit earned by the Respondent during the GST period was to be passed on under Section 171 of the GST Act If the said Report was accepted, it would mean that the Respondent was not entitled to the input tax credit benefit at all under the pre-GST regime. However, the Respondent has claimed that he was fully entitled to CENVAT credit of input service as per the CENVAT Credit Rules, 2004. Thus, it was submitted that the method applied by DGAP was giving absurd results and such methodology could not be adopted for computing profiteered amount under Section 171.
32. The Respondent has further stated that the total profiteered amount as calculated by DGAP was Rs 2.87 crores (inclusive of tax) which included Rs. 1,71,830/- (inclusive of tax) to be passed on to the Applicant No. 1. The Respondent has referred to Table-‘A’ of the old DGAP Report dated 05.11.2018. wherein the DGAP had made calculation of tax which would have been collected from the complainant in case GST had not been introduced vis-a-vis the actual tax collected from the complainant. The Respondent has re produced the Table as Ls given below:-
The Respondent has submitted that he had collected Rs. 66,835/- as tax from the above Applicant which itself showed that there was gross error in the calculation made by the DGAP. The extra Lax collected from the Applicant No. 1 was Rs. 86.835/- but benefit as per DGAP was Rs 1,71,830/- which was to be passed on to the above Applicant.
33. The Respondent has also submitted that in case of construction industry, each project went on for 2-3 years and cost was constantly incurred by the builder/developer at each stage of development to finish the project and ITC of such cost was availed by the builder/developer. However, the revenue of the builder was earned only when each milestone as set out in the agreement was achieved by the Respondent, Therefore, the cost incurred by the developer in a particular period and the subsequent ITC availed on such cost need not synchronize with the turnover of that particular period, because if the milestone was. not achieved in the particular period then demands could not be raised and therefore, there would be no revenue for the Respondent The Respondent has further submitted that Since the work of the current project had been carried out by the Respondent only in the GST regime, entire ITC pertaining to the project had also been availed in the GST regime and therefore, the turnover pertaining to the flats booked in the pre-GST regime did not reflect the actual work done and therefore the turnover considered in the pre-GST regime should have been considered to be the turnover of the GST regime because the work in respect of the same had been done in the GST regime only.
34. The Respondent has also submitted that the DGAP in Table-B of the reinvestigation Report had calculated that the Respondent had benefited by 7.06% of the total turnover in the GST regime due to the introduction of GST. It was submitted that the said calculation made by the DGAP was incorrect for the following reasons:-
a. There was an increase in ITC availed in GST regime due to increase in the cost of construction: The Respondent has submitted that the DGAP had ignored the fact that the cost of construction had increased drastically during the post-GST period owing to which the credit amount had also increased whereas the sate prices did not increase in the same It was further submitted that the increased input Tax Credit was not on account of GST but on account of increased cost of construction. It was also Claiborne that owing to increase in the construction cost, the credit availment (numerator). had also increased. however, there was no corresponding increase in the turnover (denominator) as the contracts with customers were not revised owing to increase in the cost at construction, Hence, the method of calculation adopted in Table-D was incorrect and could not be accepted. The Respondent has further claimed that in case of M/s N. P. Foods – MB (9) TMI 1763-NAA this Authority had held that when there was an increase in the cost of inputs then profiteering could not be alleged if the price of goods had been increased.
b. Increase in ITC was also due to increase In the rate of tax chargeable to services: The Respondent has also contended that under the pre-GST regime, services were subject to Service Tax at the rate of 15%. Under the GST, in most of the cases, services were taxable at 18%, Therefore, there was an increase of 3% (18% – 15%) in the ITC available to the This increase of 3% was not due to any additional Benefit that the Respondent was getting due to the advent of GST but it was due to increase in the rate of tax applicable to services which was more than what was applicable under pre-GST regime. Therefore, the Respondent had not benefited from this increase in credit due to increase in the rate of Service Tax. Hence, in order to arrive at the correct profiteering figures, the credit figures must be revised for the services availed by Pit Respondent during the period from July, 2017 till August, 2018. The said calculation has been submitted by the Respondent as is given in the Table below:-
Period: July-2017 to October-2019
It was further contended that this amount of Rs. 1,52,802/- was not an additional benefit which has accrued to the Respondent due to advent of GST hut this credit was available to the Respondent even under the pre-GST regime. Thus, the same must be reduced from the post-GST period calculation in Table- C of the DGARs report. The Respondent has further computed the impact of his above contention as is given in the Table below.–
He further submitted that in view of the atone, the final amount of profiteering should be calculated as is given in the Table below –
Based on the above working. the ratio has been re-calculated by the Respondent as 5.63% (5.63% – 0%).
35. The Respondent has also pleaded that the calculation made by the UGAP in the re-investigation Report should have considered only those flat buyers who had purchased flats before the introduction of GST. It was further pleaded that in case of flats sold after 01.07.2017, the total sale value agreed between the Respondent and the flat buyer was fixed after considering the benefit arising to the Respondent due to advent of GST and the said benefit had already been considered in the final amount charged to the customer. The Respondent has also submitted that the profiteering amount should have been restricted to only those flats which were booked in the pre-GST regime and the same should have been calculated as follows.-
In view of the above, it was further submitted that the profiteering amount should have been restricted to Rs. 57.37 Lakhs only.
In view of the above, it was further submitted that the profiteering amount should have been restricted to Rs. 57,37 Lakhs only.
36. The Respondent has also argued that Rule 129 of CGST Rules prescribed the methodology for conduct of investigation to be carried out by the DGAP. In the present case, minutes of the meeting of the Standing Committee in which reference for investigation to the DGAP was rnad, had been received by the DGAP on 08.06.2018. As mentioned in Rule 129 (6), the investigation was supposed to be finished within 6 months from date of receipt of reference from the Standing Committee. Permission had been obtained by the DGAP from this Authority, as has been mentioned in Paragraph 8 of the DGAP’s Report dated 05.112018 to extend the period of investigation. This permission was availed by the DGAP to complete the investigation by 06.11.2018. however, the investigation had finally been concluded by the DGAP on 18.12.2019 i.e. 407 days beyond the due date for completing the investigation, Hence, the Report of DGAP was beyond the prescribed time limit given under rule 129 (6) and accordingly the demand raised on the basis of said Report could not be sustained. It was also argued that even if it was assumed without admitting that the re-investigation under rule 133 (4) pursuant to the Order No, 1/2019 dated 27.02.2019 of this Authority was a fresh investigation (as per rule 133 (5) (b)). even then the DGAP must have filed his Report within 6 months from the date of order passed on 26.08.2019. However, the re-investigation Report by the DGAP had been filed on 18.12.2019 and no evidence of any extension being approved by this Authority had been given in the Report. Even if the extension was allowed then the period of nine months (six months regular period three months extended period) had expired on 26.11.2019 whereas the Report had been furnished by the DGAP on 18.12.2019. Therefore, the re-investigation Report submitted by the DGAP was time barred and therefore, it must be set aside.
37. The Respondent has also averred that the Report of the DGAP was beyond the scope of this Authority’s above Order. The DGAP in his re-investigation Report dated 18.12.2019 had computed the benefit of Rs, 2.79 Crore which had been profiteered by the Respondent, whereas this Authority in Rs Order dated 27.021019 had directed the DGAP to re-investigate the matter and submit comprehensive Report specifically on the issue of large difference in the rate of ITC on the total taxable turnover calculated by him as well as the Respondent. The Respondent has further averred that the directions were to reconcile the difference between the Respondent’s submissions and DGAP’s observations however the DGAP rad gone beyond the dire ion given by this Authority and had enhanced the investigation period from August, 2018 to October, 2019. The Respondent nas relied upon the following orders of the Montle Tribunal and claimed that it had been consistently held that whenever the matter had been remanded back to the lower authority on a limited issue, such authority could not travel beyond the scope of such remand order:-
a. M/s Seshasayee Paper & Boards Ltd-TIOL-993-CESTAT-MAD
b. M/s Semac 2011-TIOL-522-CESTAT-BANG
It was also submitted that the Report furnished by the DGAP was beyond the scope of directions issued by this Authority in its order dated 27.02.2019 and therefore, the impugned Report needed to be set aside.
38. The Respondent has also claimed that no mechanism had been prescribed in Section 171 of the CGST Act and the Rules prescribed under the said Section to calculate the ‘profiteered’ amount. It was further claimed that the law in respect of the mechanism to be followed to determine the ‘profiteered’ amount was unclear and ambiguous. Therefore. it was open to the Respondent to follow a logical and viable mechanism based on the nature of the business and the volatile nature of the industry it was also submitted that the mechanism considered by the DAP was arbitrary in nature. Section 171 referred to input tax credit under the CGST Act and there was no provision or Section to compare the pre-GST credits without taking into account the difference in law in the relevant periods’, difference in the credit systems: nature of construction business and inability to raise bills in the absence of milestones being achieved. It was further submitted that the concept of “benefit of input tax credit” was not defined anywhere in the Act or Rules made thereunder.
39. The Respondent has also contended that the DGAP had computed the total benefit to be passed on to the buyers of the fiats by the Respondent as Rs. 2.67 Crore (inclusive of tax) which included Rs, 1.71.830/- (inclusive of tax) to be passed on to the Applicant No. 1. The Respondent has further contended that the GST amount should not have been considered as a benefit to the Respondent. It was also submitted that the term ‘profiteering’ had been described in various dictionaries as follows:-
> Black’s Law Dictionary –Taking advantage of unusual or exceptional circumstances to make excessive profits
> Law Lexicon – To seek or obtain excessive profits, one who is given to making excessive profits
> Shorter Oxford English Dictionary – Make or seek to make an excessive profit
> Mount vs Welsh – Any conduct or practice involving the acquisition of excessive profit
> Islamic Academy of Education vs State of Karnataka – Profiteering would mean taking advantage of unusual or exceptional circumstances to make excessive profits.
It was further submitted from the above definitions that only those amounts which had been collected and kept by the Respondent could be termed as “profiteering” on the part of the Respondent. The amount which had been paid by the Respondent to the Government could not be considered as ‘profiteering’ since the same was not retained by the Respondent. Therefore amount of Rs. 211.69.525/- should not form part of the profiteered amount.
40. The Respondent has also stated that the allegation by the DGAP that he had not provided complete data as and then asked for by the DGAP were not correct The Respondent has submitted a list of the chronological events as per the Table given below to support his claim.
