Sh. Pawan Kumar Vs Apex Meadows Pvt. Ltd (National Anti-Profiteering Authority)
We have carefully considered the Report of the DGAP, submissions made by the Respondent & the Applicants and based on the record it was revealed that the Respondent is in the Real Estate business and the DGAP’s Report was with regard to one of his projects namely ‘The Celest’ located in Vishakhapatnam, Andhra Pradesh. On examining the various submissions we find that the following issues need to be addressed:-
a. Whether there was any net additional benefit of ITC to the Respondent?
b. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017, by not passing on the benefit ITC by the Respondent?
The Respondent has himself agreed to the profiteering and claimed to have passed on a preliminary benefit of 3% suo moto on the demands post implementation of the GST of the additional ITC which amounted to Rs. 1,53, 35,365/- (i.e. 3% of Rs. 51, 11, 78,843/-) till 31 October 2018 received by him on the project to his customers vide his submissions dated 23.05.2019. While considering the various contentions made by the Respondent on the report of the DGAP, our findings was as under:-
A. The Respondent has computed the interim GST benefit by estimating taxes which were a cost to him in the pre-GST regime. We find that it is a methodology based on estimated or assumed figures which is not accurate and we agree with the methodology adopted by the DGAP while determining profiteering.
B. We find that the Respondent has contended that the Authority has not prescribed methodology for calculation of profiteering and consequently the DGAP has followed a methodology that was questionable and erroneous. In this regard, we observe that the profiteering has to be determined on cases to case basis, by adopting the most appropriate and accurate method based on the facts and circumstances of each case as well as the nature of the goods and services supplied. We reiterate that there cannot be any fixed mathematical formulations/methodology for determination of the quantum of benefit to be passed on which could cover different sectors of the economy and that each case has to be decided based on its specific facts. In this case, for calculation of profiteering, the increase in the ITC as a percentage of total taxable turnover has been taken by the DGAP and we do not find anything incorrect therein.
C. The Respondent has also argued that pre-GST period should have been taken from May, 2015 to June, 2017, whereas the DGAP has taken the period from April, 2016 to June, 2017. The DGAP has contended that he has considered a uniform pre-GST period from April, 2016 to June, 2017 across all the investigations relating to the Real Estate sector and we find this argument of the DGAP appropriate as principle of parity and uniformity in respect of period before the implementation of the GST, followed by him in real estate cases to arrive at profiteering amount.
D. The Respondent has also contended that the DGAP has taken the residential area as the total saleable area and not considered the commercial area. In this regard, the DGAP has stated that the Respondent has sold only the residential portion of the project and no commercial unit has been sold by him during or before the period of investigation considered by the DGAP. Apparently, there was no turnover from the commercial area of the project, the area sold relevant to turnover as per Column ‘G of Table ‘B’ of the DGAP’s Report dated 24.04.2019 consisted of only the residential portion and hence, the total saleable area pertaining to the residential portion only, has been considered by the DGAP in Column ‘F’ of Table `B’ of the Report dated 24.04.2019. We find that the DGAP has rightly observed that the Respondent has sold only the residential portion of the project and no commercial unit has been sold by him so no turnover is attributable to the commercial area. Hence, this plea of him cannot be accepted.
E. The Respondent has also argued that he would be able to pass on the actual ITC benefit only after the receipt of completion certificate (CC) of the subject project as the ITC in respect of unsold units has to be reversed after the receipt of CC. We find this argument incorrect as any benefit accrued on account of additional ITC has to be passed on to the customers by the Respondent in terms of Rule 129 (6) of the CGST Rules, 2017 as soon as it is availed by the supplier.
F. The Respondent has also submitted that the tax on the input services has been increased from 15% to 18% and hence he has not got additional benefit of ITC which he was required to pass on. In this connection it would be pertinent to mention that the Respondent has got benefit of ITC on goods as well and it is only the additional benefit of ITC, from his own supplies in the value chain, which he has availed post-GST which he is required to pass on. It is established from the returns filed by the Respondent that he has availed relevant ITC of Rs. 1,97,04,325/- during the pre-GST period and Rs. 5,32,85,487/- during the post-GST period @4.32% and 10.42% of the turnover respectively during the above periods which has resulted in additional ITC benefit of 6.03% of the turnover to him which he is bound to pass on.
G. The Respondent has also contended that he was not in agreement with the computation of the profiteered amount made by the DGAP as it included the GST which had been deposited by him in the Govt. account. The plea taken by the Respondent on this ground is fallacious as by forcing the flat buyers to pay more price by not releasing the benefit of additional ITC and by collecting tax @ 12% on this additional realisation he has denied the benefit of additional ITC to them by not reducing the prices of the flats commensurately. Had he not collected additional GST the buyers would have paid less price and by doing so he has denied them the benefit of additional ITC which amounts to violation of Section 171 of the above Act. Both the Central as well as the State Government had no intention of collecting the additional GST as they had forfeited their revenue in favour of the flat buyers to provide them accommodation at affordable prices and by compelling the buyers to pay the same the Respondent has not only defeated the intention of the above Governments but has also acted against the interests of the house buyers hence the contention of the Respondent is not justified and therefore, the GST collected by him on the additional realisation has rightly been included in the profiteered amount by the DGAP and there is no question of reducing an amount of GST paid to the Government from the profiteered amount which has been forcibly collected by him from the flat buyers.
H. The Respondent has also averred that the basis adopted by DGAP for allocation of ITC between sold and unsold portion was incorrect as the DGAP has considered project area as the basis to allocate ITC pertaining to sold and unsold portion of the project and computed “Relevant ITC” by drawing proportion of sold area vis-a-vis saleable area which has been done for both pre-GST and post- GST regime. The Respondent has also submitted that area was not a correct basis to allocate credit pertaining to sold and unsold portions and “value” was more logical and correct base. The Respondent has also submitted his computations on the basis of value. The DGAP has already considered value as turnover in his computations and he has arrived at relevant ITC only after considering the area sold and turnover. Therefore, we find no reason to deviate from the approach of the area taken to find the relevant ITC by the DGAP and therefore, the above argument of the Respondent cannot be considered.
I. The Respondent has also argued that similar methodology adopted in the case of M/s Pyramid Infratech has already been stayed by the Hon’ble Delhi High Court. In this context, we find that the argument of the Respondent is not entirely correct as the Hon’ble High Court has only granted a conditional stay on recovery subject to the Respondent depositing an amount of Rs. 5,11,60,450/- which he had admitted before the Authority.
J. The Respondent has also argued that Section 171 of the CGST Act, 2017 violates Article 19 (1) (g) of the Constitution which is Right to trade, as it tries to fix prices. He has also cited cases like Abbott Healthcare Pvt. Ltd. Hindustan Unilever Ltd. and Jubilant Food works Ltd. to support his argument. We find this argument of the Respondent incorrect as section 171 was inserted in the Act to ensure that benefit of GST rate reduction or ITC benefit is passed on to the eligible customers on account of GST implementation. It has nowhere acted as price regulator but has worked in interest of consumers. Further, the cases cited by the Respondent in support are still under review in the High Court so his argument is untenable.
K. The Respondent has further argued that no methodology or guidelines have been prescribed under GST laws to ascertain benefit to be passed. In the absence of the aforesaid methodology, the entire proceedings would be a futile exercise and there was no machinery for assessment of tax. In this regard, he has relied upon the Apex Court’s decision in the case of CIT vs. B. C. Srinivasa Shetty and he has also cited other cases viz. K.T. Moopil Nair vs. State of Kerala; Rai Ramkrishna vs. State of Bihar; State of A.P. vs. Nalla Raja Reddy; Vishnu Dayal Mahendra Pal vs. State of U.P.; and D.G. Gose and Co. (Agents) (P) Ltd. vs. State of Kerala in his defence. We find the contention of the Respondent wrong and incorrect as the Authority has notified the Methodology and Procedure vide its Notification dated 28.03.2018 under Rule 126 of the CGST Rules, 2017 which was also made available on its website for ready reference for the trade. As the facts of each case are different so no fixed mathematical methodology can be prescribed for each case separately.
The overarching principle of the existent law is to ensure that the supplier has not pocketed the ITC benefit accrued to him on account of implementation of GST and has passed it on.
The Applicants have also contended that the unutilized CENVAT credit balance of Rs. 1,31,25,206/- which has transitioned into the GST credit should be considered as post-GST credit and accordingly they have submitted their computation of profiteering. In this connection, the DGAP has stated that the transitional credit related to the ITC of Excise Duty/Service Tax/VAT which was available to the Respondent during the pre-GST period and the same was carried forward as transitional credit in form TRAN-1 in post-GST period and was not a new credit availed. We find this argument of the DGAP as correct and in line with the existent law so this contention of the Applicants is not sustainable.
The DGAP after taking into account the benefit of credit available during pre-GST (April 2016 to June 2017) period to the taxable turnover received during the said period and comparing the same with the post-GST period (01.07.2017 to 31.10.2018) has arrived at the percentage of ITC. Based on the above analysis the DGAP has as has been shown in the Table-B above correctly estimated the net benefit of ITC as 6.03%. However, the DGAP in his Report dated 24.04.2019 has mentioned that he has duly verified the Respondent’s claim of having suo moto passed on an amount of Rs. 5,04,818/- to the above Applicants from the demand letters issued to the Applicants No. 1 to 9. Therefore, the Respondent had profiteered by an amount of Rs. 6,31,629/- [Rs. 11,36,447/- (-) Rs. 5,04,818/-] in respect of the Applicants No. 1 to 9. The DGAP has also asserted that the Respondent had also realized an additional amount of Rs. 1,85,55,980/- (Sr. No. 10 of Table- ‘D’) which included both the profiteered amount @ 6.03% of the basic price and GST on the said profiteered amount, from 234 other recipients. Therefore, this additional amount of Rs. 1,85,55,980/- was required to be returned to such eligible recipients. Thus, the total profiteered amount (excluding the benefit already passed on) in respect of all 243 home-buyers (including Applicants No. 1 to 9) came to Rs. 1,91,87,609/-. However, this claim of the DGAP cannot be considered as the Respondent’s claim of passing of the ITC benefit suo moto has to be verified from the Applicants and not from the demand letters which he had submitted to the DGAP during the time of investigation. Therefore, the DGAP is directed to verify the above claims of the Respondents with conclusive evidence like affidavit from the Applicants or credit notes issued to the recipients. However, this Authority is in agreement with the DGAP’s calculations as mentioned in Annexure 15 of his Report. Thus, based on the above facts this Authority determines the profiteered amount as Rs. 3,45,22,974/- which includes GST @12% on the base profiteered amount of Rs. 3,08,24,084/- realized from 243 out of total 267 residential units for the period w.e.f. 01.07.2017 to 31.10.2018 as per the Annexure- 15 of the Report., including the above Applicants.
It was established from the perusal of the above facts of the case that the provisions of Section 171 of the CGST Act, 2017 had been contravened by the Respondent as he had profiteered an amount of Rs. 3,45,22,974/- which includes GST @12% as applicable on the base profiteered amount of Rs. 3,08,24,084/- from the 243 residential units for the period w.e.f. 01.07.2017 to 31.10.2018 as per Annexure- 15 of the Report. Accordingly, the above amounts shall be paid to the above Applicants and the other eligible house buyers by the Respondent along with interest @18% from the date from which these amounts were realised from him till he was paid as per the provisions of Rule 133 (3) (b) of the CGST Rules, 2017, failing which shall be recovered by the concerned Commissioner CGST / SGST and paid to the eligible house buyers.
From the above discussions it is clear that the Respondent has profiteered by an amount of Rs. 3,45,22,974/- during the period of investigation. Therefore, in view of the above facts, the Authority under Rule 133 (3) (a) of the CGST Rules, 2017, orders that the Respondent shall reduce/refund the price to be realized from the buyers of the flats commensurate with the benefit of ITC received by him as has been detailed above. As far as the final computation of the additional ITC that will be available to the Respondent is concerned, the same cannot be determined at this stage, as the construction of the project is yet to be completed. Hence, the DGAP is directed to carry out a comprehensive investigation post the issuance of occupancy certificate in respect of the said project. Further, we observe that in any case, the unsold area, in its entirety, has not been considered for computation of the profiteering amount in as much as the present investigation has been conducted only up to 31.10.2018. Therefore, we order that any additional benefit of ITC, which may accrue to the Respondent subsequently, shall also be passed on by him to all eligible buyers. In case this additional benefit is not passed on to the Applicant No. 1 to 10 or other eligible buyers, they shall be at liberty to approach the Andhra Pradesh State Level Screening Committee for initiating fresh proceedings under the provisions of Section 171 of the above Act against the Respondent. The concerned jurisdictional CGST or SGST Commissioner shall take necessary action to ensure that the benefit of additional ITC was passed on to the eligible house buyers in future.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. The present Report dated 24.04.2019, has been received on 25.04.2019 from the Applicant No. 11, 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. Vide the above report, the DGAP has reported that the Andhra Pradesh State Screening Committee on Anti-profiteering had referred 09 applications to the Standing Committee on Anti-profiteering under Rule 128 of the CGST Rules, 2017, filed by the Applicants No. 1 to 9, alleging profiteering by the Respondent in respect of purchase of flats in the Respondent’s project “The Celest” located in Vishakhapatnam. The Applicants No. 1 to 9 had alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) to them by way of commensurate reduction in price after implementation of GST w.e.f. 01.07.2017 and had charged GST on the pre-GST full amount of instalments. The Applicant No. 2 had also submitted copies of demand letters issued by the Respondent during the post-GST period Along with the application.
2. The Andhra Pradesh State Screening Committee on Anti-profiteering had examined the said applications and based on the submissions made during the personal hearing granted to the Respondent, the above Screening Committee had opined that in all the nine cases, the calculations submitted by the builder were not in accordance with the provisions of law and lesser benefit of ITC was passed on to the above Applicants. The above State Screening Committee had forwarded the said 9 applications with its observations, to the Standing Committee on Anti-profiteering for further action, in terms of Rule 128 of the CGST Rules, 2017. The aforesaid reference was examined by the Standing Committee on Anti-profiteering in its meeting held on 08.10.2018, the minutes of which was received in the DGAP on 25.10.2018 whereby it was decided to forward the same to the DGAP to conduct a detailed investigation in the matter.
3. Further, the Applicants No. 1 to 9 had submitted the duly filled in APAF-1 along with their applications. On perusal of the documents provided by the Applicant No. 2, it was revealed that the Applicant No. 2 had booked a flat in the Respondent’s project “The Celest”, in the pre-GST era. Thereafter, the DGAP had issued a Notice to the Respondent under Rule 129 of the Rules on 13.11.2018, calling upon the Respondent to reply as to whether he had admitted that the benefit of ITC had not been passed on to the Applicants by way of commensurate reduction in price and if so, to suo moto determine the quantum thereof and indicate the same in his reply to the Notice as well as furnish all supporting documents. The period covered by the current investigation was from 01.07.2017 to 31.10.2018. Subsequently, the Respondent had submitted his replies vide letters/e-mails dated 22.11.2018, 05.12.2018, 11.12.2018, 13.12.2018, 9.12.2018, 14.01.2019, 17.01.2019, 15.04.2019, 16.04.2019 and 22.04.2019. The submissions of the Respondent have been summed up as follows:-
(i) The Respondent contended that although there was no specified guideline for determination and computation of the benefit required to be passed on under the GST law, he suo moto computed the benefit on a preliminary basis and had been passing on the same by way of reduction in demand notes. Also, as the project was still under construction, it was not possible for the Respondent to compute the exact benefit of ITC to be passed on to the recipients and he would be able to ascertain the exact ITC benefit to be passed on only at the time of issuance of the completion certificate and further benefit (if any)/adjustment of the same would be made in his final demand note. On the basis of his preliminary calculation, the Respondent submitted that the preliminary benefit already passed on to the customers was likely to exceed the actual benefit that would be required to be passed on in accordance with Section 171 of the CGST Act, 2017.
(ii) The Respondent submitted that discount on account of GST benefit @3% had been offered to all the home buyers. The Respondent submitted that on all demands raised post-GST, discount @3% of the gross demand value had been given to his home buyers. To support his claim, the Respondent submitted all demand notes issued to the above Applicants wherein the discount had been passed on. The gross value reported in the home buyers list post-GST was inclusive of the 3% discount.
(iii) The Respondent, vide e-mail dated 19.12.2018, had provided the trail of e-mail communications with his various home buyers to substantiate his claim that 3% benefit on account of ITC had been passed on by him.
(iv) The Respondent submitted that as per Real Estate Regulatory Authority (RERA) specifications, the two phases of his project was identifiable as two distinct projects, for which all records was maintained separately. As the second phase was approved by Andhra Pradesh RERA on 08.12.2018, bookings were made in that phase after 08.12.2018. However, as the Respondent filed single GST return for both the phases, the gross figures in his GST returns included the demands raised in both the phases and any other outward supplies, such as, scrap sale, details of which were submitted.
(v) The Respondent had further submitted that in his ST-3 returns for the pre-GST era, figures were for both the demands raised as well as advances received. However, some of the home buyers cancelled their bookings post-GST and the details of demands raised on such home buyers were not provided in the home buyers list. The Respondent had also submitted reconciliation of ST-3 return figures with the total demands raised and advances received from his existing home buyers vide e-mail, dated 22.04.2019.
4. The Respondent had also submitted vide the aforementioned letters/e-mails, the documents/information viz. copies of GSTR-1 Returns for the period July, 2017 to October, 2018, copies of GSTR-3B Returns for the period July, 2017 to October, 2018, copies of Tran-1 for the period July, 2017 to December, 2017, copies of VAT & ST-3 returns for the period April, 2016 to June, 2017, copies of all demand letters, sale agreement/contract was issued to all the Applicants, Tax rates – pre-GST and post-GST, copy of Balance Sheet for FY 2016-17 & FY 2017-18, copy of Electronic Credit Ledger for the period 01.07.2017 to 31.10.2018, CENVAT credit/ITC register for the period April, 2016 to October, 2018, details of turnover, output tax liability/GST payable and ITC availed, list of home buyers in the project “The Celest”.
5. The Respondent, vide letter dated 11.12.2018, had also submitted copies of the demand letters issued to the above Applicants and copies of the sale agreements. The details of the demand raised by the Respondent on the Applicant No. 2, was furnished in table-‘A’ below:
Table ‘A’
(Amount in Rs.)
