Aruna Popat Vs Shalwak Infrabulls (NAA)
We have carefully considered all the submissions filed by the Applicants, the Respondent, and the other material placed on record and find that the Applicant No. 1, vide her complaint, had alleged that the Respondent was not passing on the benefit of ITC to her on purchase of the flat, which she had purchased in the “Shalwak Elite” Project being executed by the Respondent in Nagpur, Maharashtra, even though he was availing ITC on the purchase of the inputs at the higher rates of GST which had resulted in the benefit of additional ITC to him and was also charging GST from her ©12%. The compla was examined by the Standing Committee in its meeting and as forwarded to the DGAP for investigation under Rule 129 (1) of the above Rules. The DGAP vide his Report dated 23.03.2020 had found that the Respondent had profiteered an amount of Rs. 19,286/- by not passing on the ITC benefit to Applicant No. 1. The DGAP has further stated that the Respondent had claimed to have passed on the ITC benefit of Rs. 40,000/- to the above Applicant. This Authority had issued Notice dated 05.05.2020 to the Respondent to appear before the Authority for hearing. During the course of the hearing, the Respondent has claimed that he had already passed on the benefit of Rs. 40,000/- to the above Applicant. The DGAP in its Report dated 23.03.2020 has also stated that he has duly verified the claim made by the Respondent.
It is clear from the perusal of the above Reports that the DGAP has computed the ratio of CENVAT to the turnover for the pre GST period and compared it with the ratio of ITC to the turnover for the post GST period and then computed the percentage of the benefit of additional ITC which the Respondent is required to pass on to the flat buyers. The above ratios have been computed by the DGAP based on the Service Tax and GST Returns filed by the Respondent during both the above periods and the ITC Registers maintained for the above periods by him and hence, the ratios calculated by the DGAP are based on the factual record submitted by the Respondent and therefore, they can be relied upon while computing the profiteered amount. The Respondent has also not raised any objection against the methodology employed where the benefit of ITC is required to be passed on. Therefore, the above methodology is appropriate, logical, reasonable, and in consonance with the provisions of Section 171 of the CGST Act, 2017.
However, the Respondent vide his letter dated 20.10.2020 has submitted before the Authority that till date he had not collected any GST amount from the landowners. Further, he has stated that he has neither executed the Deed of Agreement till date nor given possession of flats to the landowners and as per his calculation he was liable to pass on the Input Tax Credit amounting to Rs.10,976/- and he would pass on the remaining amount of ITC benefit to the landowners by way of Short demanding the amount receivable from the Land Owner.
Whereas, it is pertinent to mention here that the Respondent has specifically admitted the profiteering in respect of landowner’s flats however, the DGAP had restricted his investigation to the home buyers only and failed to investigate the profiteering in the case of flats allocated to landowners.
Therefore, this Authority hereby directs the DGAP to re-investigate the matter under Rule 133 (4) of the CGST Rules, 2017 on the following issues:-
i. Whether the landowners have received their share of flats from the developer.
ii. Whether the Respondent has not collected GST from the landowners as claimed by the Respondent.
iii. Whether the Respondent is liable to pass on Input Tax Credit benefit amounting to Rs.10,976/- to the landowner.
These issues in need to be appropriately addressed by way of revisiting the investigation in the interest of justice. Since the profiteering in respect of units belonging to landowners has not been considered in the DGAP Report dated 23.09.2020 This Authority, under the powers conferred on it vide Rule 133(4) of the CGST Rules read with Section 171 (2) of the CGST Act 2017, directs the DGAP to reinvestigate this case and recompute the quantum of profiteering based on the above findings. While reinvestigating the matter on the above lines, all other contentions made by Respondent before this Authority during the course of the hearings may also be considered.
The DGAP shall submit his Report after reinvestigation on the above issues expeditiously. The Respondent is directed to extend all necessary assistance to the DGAP and furnish him necessary documents or information as required during the course of the investigation.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING APPELLATE AUTHORITY
1. The present Report dated 23.03.2020 has been received from Applicant No. 2 i.e. the Director-General of Anti-Profiteering (DGAP) on 16.04.2020 after an investigation under Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the case are that an application was filed before the Standing Committee on Anti-profiteering under Rule 128 (1) of the CGST Rules, 2017, in which the Applicant No. 1 had alleged profiteering by the Respondent in respect of the purchase of Flat in his project “Shalwak Elite” located at Nazool Plot No. 11, City Survey No. 358, Dr. Munje Marg, Mouza-Dhantolion, Nagpur, Maharashtra. Applicant No. 1 had alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) availed by him by way of commensurate reduction in the price of the flats. The aforesaid application was considered by the Standing Committee on Anti-profiteering in its meeting and it was decided to forward the same to the DGAP to conduct a detailed investigation into the allegation made in the complaint according to Rule 129 (1) of the CGST Rules, 2017, which was received by the DGAP in this regard on 09.10.2019.
2. On receipt of the recommendation from the Standing Committee on Anti-profiteering, the DGAP had issued a Notice dated 23.10.2019 under Rule 129 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 Applicants by way of commensurate reduction in the prices of the flats 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 allowed to inspect the non-confidential evidence/information furnished by Applicant No. 1 during the period between 31.10.2019 to 01.11.2019 in accordance with Rule 129 (5) of the above Rules but the Respondent did not avail of the said opportunity. Vide e-mail dated 24.02.2020, the above Applicant was also allowed to inspect the non-confidential documents/reply submitted by the Respondent on 26.02.2020. However, the Applicant vide email dated 25.02.2020 submitted that due to advanced age, she was unable to visit the DGAP’s office. She also submitted that she had received a total Input Tax Credit benefit of Rs. 40,000/- and requested to treat the matter as closed.
3. The DGAP has covered the period from 01.07.2017 to 30.09.2019 during the current investigation.
4. The DGAP has reported that the Respondent had submitted his replies vide letters/emails dated 07.11.2019, 22.11.2019, 29.11.2019, 10.01.2020, 13.01.2020, 14.01.2020, 17.01.2020, 23.01.2020, 13.02.2020, 14.02.2020, 21.02.2020, 25.02.2020 and 28.02.2020. The submissions made by the Respondent are, interalia, as follows-
a) That he had commenced his only project, namely `Shalwak Elite’ by entering into the Agreement of Development & Sale on 19th July 2013;
b) That this Agreement had been entered by this firm `Shalwak Elite’ with the landowners, i.e. Smt. Malti Madhukar Vaidya & Shri Makrand Madhukar Vaidya;
c) That even though the project was started on 19.07.2013, he had not received any booking for the project till 30.03.2017 and that the first ‘agreement to sell’ was entered into by him on 30.03.2017 for a consideration of Rs. 70,00,000/- (Rupees Seventy Lakh only).
d) That based on his abovementioned first agreement to sell, he had applied for Registration under the Maharashtra Value Added Tax Act, 2002 (MVAT Act 2002) & under the Service Tax laws; that he had been issued registration under the MVAT Act on 29.04.2017 while his Service Tax Registration was issued on 04.05.2017;
e) That the Second Agreement to Sell in the context of the project was entered on 15.04.2017 with Mrs. Aruna Popat for consideration of Rs. 93,00,000/- (Rupees Ninety Three Lakh only).
f) That apart from these two bookings, all the other flats/ units in the project, were sold only after the occupancy/completion of the project i.e. after 15.03.2018.
g) That during the period from 01.04.2017 to 30.06.2017, he paid Rs. 5,44,000/- @4.5% as his total service tax liability and Rs. 1,63,000/- @1% as VAT under the MVAT Act.
h) That during the post- GST period from 01.07.2017 to 15.03.2018, he had received Rs. 42,00,000/- (Rupees Forty-Two Lakh only) from the Applicant No. 1, on which he had discharged his GST liability of Rs. 5,04,000/- (Rupees Five Lakh Four Thousand only) @ 12%; and that he had claimed and utilized an amount of Rs. 57,318/- as the input tax credit (ITC) thereon.
i) That the balance unutilized ITC was reversed by him vide his GSTR-3B return for December 2019.
j) That he has not profiteered in respect of the said project since he has passed on the ITC benefit to, the Applicant No. 1, and that she (Applicant No.1) has withdrawn her complaint voluntarily as the complaint had been made due to a misunderstanding.
5. The DGAP has reported that during the course of the investigation, the Respondent also furnished the following documents/information to the DGAP vide his above-mentioned letters/e-mails:-
(a) Copies of his GSTR-1 Returns for the period from July 2017 to September 2019.
(b) Copies of his GSTR-3B Returns for the period from July 2017 to September 2019.
(c) Copy of his Tran-1.
(d) Copies of Registration Certificate obtained by him under the Service Tax laws and the MVAT Act.
(e) Copies of his VAT Returns (including all annexures) & ST-3 Returns for the period from April 2017 to June 2017.
(f) Copies of all the demand letters issued by him and the sale agreements entered by him with the Applicant and other homebuyers.
(g) Copies of his Balance Sheet for FY 2016-17, 2017-18 & 201819.
(h) Copies of his Profit & Loss Account for FY 2016-17, 2017-18, and 2018-19.
(i) Copy of his Electronic Credit Ledger for the period from 01.07.2017 to 30.09.2019.
(j) Details of VAT, Service Tax, ITC on VAT, CENVAT Credit for the period April 2016 to June 2017, and Output GST and ITC of GST for the period July 2017 to September 2019 for the project “Shalwak Elite”.
(k) List of the homebuyers of the project “Shalwak Elite” along with details of the ITC benefit passed on by him to them.
(I) Copy of the Maharashtra RERA Registration Certificate of the Project “Shalwak Elite”.
(m) Copies of the Occupancy Certificates issued in respect of the, said project.
(n) Copy of the letter issued to him by Applicant No. 1 evidencing the receipt of ITC benefit amounting to Rs.40,000/-.
6. The DGAP has reported that the case records were carefully examined by him and it was found that the main issue for determination was as to whether there was a 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 had passed on the above benefit to the home buyers as per the provisions of Section 171 of the CGST Act, 2017 or not.
7. In his Report, the DGAP has interalia reported that —
a) the Respondent has claimed that he has already passed on the benefit of Input Tax Credit to the Applicant No.1 and that Applicant No. 1 has withdrawn her complaint;
b) Applicant No. 1, vide her letter dated 13.11.2019, has submitted before the DGAP that she had received the proportionate share of the ITC benefit in respect of her flat in the project ‘Shalwak Elite’ and that she has unconditionally withdrawn her complaint against the Respondent.
c) The fact that the Respondent has passed on the benefit of Input Tax Credit to Applicant No. 1 has been verified.
8. The DGAP has further reported that in terms of Rule 129 of the CGST Rules 2017, the DGAP was bound by his statutory obligation to complete an investigation once a reference has been received by him from the Standing Committee on Anti-Profiteering. The DGAP has added that no legal provision permitted closure of an investigation, once it has been initiated, despite the withdrawal of the complaint by an Applicant. Thus, in the instant case, the proceedings that had been initiated on the application made by Applicant No. 1, could not be discontinued based on the subsequent request received from Applicant No. 1 seeking withdrawal of her Application/ complaint.
9. Further, the DGAP has reported that the Respondent has submitted that out of the total 12 units in the said project, 02 units were retained by the landowners/ plot owners,i.e. Smt. Malti Madhukar Vaidya and Mr. Makrand Madhukar Vaidya, as per the Development Agreement dated 19.07.2013 entered by him with him while one unit remained unsold. Out of the remaining 9 units, 7 units were sold after the date of issuance of Occupancy Certificate, i.e. 15.03.2018. The DGAP has added that in support of his above contention, the Respondent has submitted a copy of the RERA Registration Certificate of his project `Shalwak Elite’ and Customer Sale Deeds in respect of all the homebuyers detailing their payment plans.
10. The DGAP has further reported that para 5 of Schedule-III of the CGST Act 2017 provides that no GST is leviable in respect of the 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, where the entire consideration has been received after issuance of the completion certificate, where required, by the competent authority or after its first occupation, whichever was earlier” as such a transaction was to be treated neither as a supply of goo nor a supply of services. Thus, the ITC pertaining to those residential units, which were under construction but not sold, was provisional, as it might be required to be reversed in terms of Section 17(2) & Section 17(3) of the Central Goods and Services Tax 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 pply 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”.
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”.
Further, the manner of determination of ITC in respect of input services and reversal thereof has been laid down in Rule 42 of the CGST Rules, 2017, and the relevant portion of the said Rule is reproduced below:-
(f) the amount of input tax credit attributable to inputs and input than exempted but including zero-rated supplies, be denoted as ‘T4’;
(g) ‘Ti’, ‘T2’, ‘T3’ and ‘T4’ shall be determined and declared by the registered person at the invoice level in FORM GSTR-2;
(h) input tax credit left after attribution of input tax credit under clause [(f)] shall be called common credit, be denoted as ’02’ and calculated asC2 = C1- T4;
(i) the amount of input tax credit attributable towards exempt supplies, be denoted as D1 and calculated as-
D1= (E÷F) x C2
where,
E’ is the aggregate value of exempt supplies during the tax period, and
F’ is the total turnover in the State of the registered person during the tax period:
[Provided that in case of supply of services covered by clause (b) of paragraph 5 of Schedule II of the Act, the value of E/F` for a tax period shall be calculated for each project separately, taking value of E and F as under
E= aggregate carpet area of the apartments, construction of which is exempt from tax plus aggregate carpet area of the apartments, construction of which is not exempt from tax, but are identified by the promoter to be sold after issue of completion certificate or first occupation, whichever is earlier;
F= aggregate carpet area of the apartments in the project;
Explanation 1: In the tax period in which the issuance of completion certificate or first occupation of the project takes place, value of E shall also include aggregate carpet area of the apartments, which have not been booked till the date of issuance of completion certificate or first occupation of the project, whichever is earlier:
Explanation 2: Carpet area of apartments, tax on construction of which is paid or payable at the rates specified for items (i), (i a), (i b), (i c) or (i d), against serial number 3 of the Table in the notification No. 11/2017-Central Tax (Rate), published in the Gazette of India, Extraordinary, Part 11, Section 3, Sub-section (i) dated 28th June, 2017 vide GSR number 690(E) dated 28th June, 2017, as amended, shall be taken into account for calculation of value of `E` in view of Explanation (iv) in paragraph 4 of the notification No. 11/2017-Central Tax (Rate), published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) dated 28th June, 2017 vide GSR number 690(E) dated 28th June, 2017, as amended.]
The proportional amount for the present case is calculated as under:
D1=(E÷F) x C2,
The values for the above variables are:
E= 801.68 Sq Mtr.
F= 1192.20 Sq Mtr.
C2= Rs. 2,07,142/-
D1= (801.68/1192.20)* 207142= Rs. 1,39,290/-
DGAP has added that therefore the Respondent was required to reverse proportionately, the benefit of additional input tax credit available to him post-GST in respect of the unsold units as on the date of issuance of Occupancy Certificate to the tune of Rs. 1,39,290/-. DGAP has further reported that the Respondent, vide his reply dated 17.01.2020, submitted the Electronic Credit Ledger for the period from 01.01.2020 to 10.01.2020, which showed that he had reversed ITC amounting to Rs. 1,51,688/-.
11. As regards the allegation of profiteering, the DGAP has reported that the Respondent, vide his email dated 13.01.2020, has claimed that the benefit of input tax credit had been duly passed on by him to the above applicant. Further, the Respondent has furnished a copy of a letter dated 23.02.2020 issued by the Applicant which shows that that benefit amounting to Rs.40,000/- has been passed on by him to the Applicant and the said amount worked out to 0.95% of the amount collected from the above applicant in the post-GST period. In this context, the DGAP has reported that quantification of the correct quantum of profiteering has to be computed based on the input tax credit available to the Respondent and the taxable amount received by him from the Applicant and other recipients in the post-GST period.
12. The DGAP has reported that in the period before the introduction of GST, the Respondent was eligible to avail CENVAT credit of Service Tax paid on input services and credit of the VAT amount paid on purchase of inputs. However, the CENVAT credit of the amount of Central Excise Duty paid on inputs was not admissible as per the CENVAT Rules in force at the material time. The Respondent had got registered under the Service Tax laws on 04.05.2017 and under the VAT laws on 29.04.2017. From the Statutory returns furnished by the Respondent, it was found that the Respondent had not availed CENVAT credit of Service Tax paid on input services. However, ITC on the VAT paid by him on the purchase of inputs for the period April 2017 to June 2017 has been availed by the Respondent although he was not eligible for availing the ITC of VAT, having opted for the composition scheme under MVAT Act, 2002. Further in the post-GST period after 1.07.2017, the Respondent became eligible to avail input tax credit of the GST paid by him on inputs and input services, including sub-contracts. From the information submitted by the Respondent, duly verified from the GSTR-1 and GSTR-3B Returns for the period from April 2016 to June 2017 and July 2017 to September 2019, the details of the input tax credit availed by him ,the ratio of ITC to taxable turnover for the project “Shalwak Elite” during the said periods are furnished in Table-A below.
13.
Table-‘A’
(Amount in Rs.)
