If Benefit of Input Tax Credit is denied to buyers of flat then liable for penalty under section 122(1)(i)

If Benefit of Input Tax Credit is denied to buyers of flat then liable for penalty under section 122(1)(i)


If Benefit of Input Tax Credit is denied to buyers of flat then liable for penalty under section 122(1)(i)

2019 TaxPub(GST) 0185 (NAPA)



Ashok Khatri v. S3 Infra Reality (P.) Ltd.

Case No. 12/2019

27 February, 2019

Respondent by: Ankur Agarwal and Alka Gupta, CA


This Report dated 28-11-2018, has been received from the Applicant No. 2 i.e. the Director General of Anti-Profiteering (DGAP), under Rule 129 (6) of the Central Goods & Services Tax (CGST) Rules, 2017. The brief facts of the present case are that a complaint dated 4-4-2018 was filed before the Haryana State Screening Committee on Anti-Profiteering by the Applicant No. 1 alleging profiteering by the Respondent in respect of purchase of a flat in the Respondent’s project “Auric City Homes” situated in Village Bathola, Sector-82, Faridabad, Haryana-121007. The above Applicant had alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) to him by way of commensurate reduction in the price after implementation of the GST w.e.f. 1-7-2017 and charged CST on full amount of instalments. This Complaint was further referred to the Standing Committee on Anti-profiteering by the Screening Committee vide minutes of its meeting dated 20-6-2018 under Rule 128 of the above Rules.

  1. The above Complaint was examined by the Standing Committee on Anti-profiteering in its meeting held on 7-8-2018 and 8-8-2018 and its minutes were forward to the DGAP for detailed investigation under Rule 129(1) of the CGST Rules, 2017.
  2. The DGAP on receipt of the above minutes had called upon the Respondent to submit reply as to the whether the ITC benefit was passed on by him to his recipients and also asked him to suo-moto determine the quantum of benefit which was not passed on. The Respondent had submitted replies vide letters dated 20-9-2018, 10-10-2018, 16-10-2018, 1-11-2018, 12-11-2018, 13-11-2018, 14-11-2018, 15-11-2018, 19-11-2018, 22-11-2018 and 26-11-2018 stating that he was in the business of construction of flats under the Affordable Housing Scheme sanctioned under the Haryana Affordable Housing Policy, 2013 in Sector-82, Faridabad. The Respondent had also stated that after implementation of the GST w.e.f. 1-7-2017, the ITC on purchase of materials during July, 2017 and August, 2017 was negligible and he had raised the first demand without giving the benefit of ITC by changing GST @ 12% on 14-8-2017. He had further stated that he had raised the next demand on 14-2-2018 by levying GST @ 8% due to change in the rate of tax as per the Notification issued on 25-1-2018 and had given the benefit of ITC provisionally and informed the buyers that the benefit of ITC would be passed on to them at the time of handing over possession of the flats. The Respondent also submitted that the Applicant No. 1 had filed the complaint on 4-4-2018 in which he had mentioned about the demand raised by the Respondent in the month of August, 2017, but he had failed to mention the demand which was raised in the month of March 2018 which included the benefit of ITC which was passed on to the Applicant. He has further submitted that he had given the benefit of ITC to his customers and also assured them that such benefit would be passed on at the time of possession.
  3. The DGAP’s investigation report has covered the period from 1-7-2017 to 31-8-2018.
  4. The Respondent had also submitted the following documents along with their replies:–

(a) Copies of GSTR-1 returns for July, 2017 to August, 2018.

(b) Copies of GSTR-3B returns for July, 2017 to August, 2018 along with copies of challans for depositing the GST in Cash.

(c) Copies of Tran-1 returns for transitional credit availed.

(d) Copies of VAT & ST-3 returns for April, 2016 to June, 2017.

(e) Copies of all demand letters and sale agreement/contract issued in the name of Shri Ashok Khatri.

(f) Tax rates-pre-GST and post-GST.

(g) Copy of Balance Sheet for F.Y. 2016-17 & F.Y. 2017-18.

(h) Copy of Electronic Credit Ledger for 1-7-2017 to 31-8-2018.

(i) CENVAT/Input Tax Credit register for April, 2016 to August, 2018.

(j) Details of taxable turnover and input tax credit for the project “Auric City Homes”.

(k) List of home buyers in the project “Auric city Homes” along with buyers of commercial shops.

(l) Copy of Project Report of RERA.

(m) Reconciliation of turnover reported in GSTR-3B with list of home buyers.

(n) Details of unsold flats and unsold commercial shops.

(o) Copies of contract and demand letters for new bookings made during the period August, 2018 to October, 2018 reflecting passing of 2% benefit of GST input credit to new allottees.

(p) Details of Customer wise benefit passed on.

  1. The DGAP in his report has submitted that as per the documents submitted by the Respondent, the payment schedule for the purchase of a flat measuring 618.24 square feet at the basic sale price of Rs. 4,000 per square feet and the details of amounts and taxes paid by the Applicant No. 1 to the Respondent were as has been given below in the Table:–


(Amount in Rs.)

S. No. Payment Stage Due Date Basic % BSP Benefit Passed on Service Tax GST Total
1 Application for allotment (Date of Draw) 27-8-2015 5.00% 1,24,919 4,372 1,29,291
2 On allotment 11-9-2015 20.00% 4,99,674 17,489 5,17,163
3 Date of Draw+6 months 22-3-2016 12.50% 3,12,296 3,12,296
4 Date of Draw+12 months 27-8-2016 12.50% 3,12,296 3,12,296
5 Date of Draw+18 months 27-2-2017 12.50% 3,12,296 3,12,296
6 Date of Draw+24 months 11-9-2017 12.50% 3,12,296 37,476 3,49772
7 Date of Draw+30 months 1-3-2018 12.50% 3,12,296 -12,492 24,984 3,24,788
8 Date of Draw+36 months 27-8-2018 12.50% 3,12,296 24,984 3,37,280
Total 100.00% 24,98,369 -12,492 21,861 87,443 25,95,182
  1. The DGAP has also submitted that unlike other cases in which allegation of not passing on the benefit of ITC is generally contested but in the present case the Respondent had suo-moto admitted that there has been benefit of ITC post GST and he had passed on such benefit to the above Applicant by reducing the demand raised in the month of February, 2018 by Rs. 12,492 which was 1.23% of the amount collected post-GST. The Respondent had also assured that the final input tax credit benefit would be provided at the time of possession.
  2. The DGAP in his Report has further submitted that prior to 1-7-2017, i.e., in the pre-GST era, the service of construction of affordable housing, provided by the Respondent, was exempted from the Service Tax under Notification No. 25/2012-ST, dated 20-6-2012, as amended by Notification No. 9/2016-ST, dated 1-3-2016and hence the Respondent was not eligible to avail credit of Central Excise Duty paid on the inputs or Service Tax paid on the input services, however, the Respondent was eligible to avail CENVAT credit of Service Tax paid on input services for the commercial shops sold by him. He has also claimed that the Respondent was eligible to ITC on VAT paid on inputs but the CENVAT credit of Central Excise Duty paid on inputs was not available and post-GST the Respondent was eligible to avail ITC of GST paid on inputs and input services including the tax paid by his sub-contractors. He has further claimed that from the data submitted by the Respondent duly verified from his returns filed during the pre-GST period (April, 2016 to June, 2017) and the post-GST period (July, 2017 to August, 2018), the details of the ITC availed and the taxable turnover during the above periods were as under:–

Table B

(Amount in Rs.)

S. No. Particulars April, 2016 to March, 2017 April, 2017 to June, 2017 Total (pre-GST) 1-7-2017 to 24-1-2018 25-1-2018 to 31-8-2018 Total (Post-GST)
1 CENVAT of Service Tax Paid on Input Services used for Commercial Shops A 19,06,672 1,49,961 20,56,633
2 Input Tax Credit of VAT Paid on Purchase of Inputs B 1,36,94,480 32,37,996 1,69,32,476
3 Total CENVAT/ Input Tax credit Available (C) = (A+B) 1,56,01,152 33,87,957 1,89,89,109
4 Input Tax Credit of GST Availed (D) 2,03,84,595 1,40,08,003 3,43,92,598
5 Gross Taxable Turnover for VAT as per Annex-18 (E) 33,58,48,922 7,79,19,542 41,37,68,464
6 Abated Taxable Turnover reported in VAT Return (F) 18,74,58,580 4,34,91,837 23,09,50,417
7 Taxable Turnover for Service Tax on Commercial Shops (G) 2,02,16,792 30,09,744 2,32,26,536
8 Gross Taxable Turnover for GST (H) 20,63,35,174 27,05,32,230 47,68,67,404
9 Total Gross Taxable Turnover (I) = (E)+(G) or (H) 35,60,65,714 8,09,29,286 43,69,95,000 20,63,35,174 27,05,32,230 47,68,67,404
10 Total Saleable Carpet Area (Excluding Balcony Area) (in SQF) (I) 3,81,639.92 (Residential 15,310 (Commercial) 3,96,950 3,81,639.92 (Residential 15,310 (Commercial) 3,96,950
11 Total Sold Carpet Area (Excluding Balcony Area) (in SOF) relevant to turnover (J) 3,26,879.36 (Residential) 6,294 (Commercial) 3,33,173 3,53,009.30 (Residential 4,438 (Commercial) 3,57,447
12 Relevant ITC [(K) = (C)*(J)(I) or [(K) = (D)*(J)(I)] 1,59,38,195 3,09,70,006
Ratio of Input Tax Credit Post-GST [(L) = (K)/(I)] 3.65% 6.49%
  1. The DGAP has also contented that from the above Table, it was clear that the ITC as a percentage of the total turnover that was available to the Respondent during the pre-GST period from April, 2016 to June, 2017 was 3.65% and during the post-GST period w.e.f. July, 2017 to August, 2018, it was 6.49%. The Report has further claimed that this data duly confirmed that post-GST, the Respondent had benefited from additional ITC to the extent of 2.84% [6.49% (-) 3.65%] of the taxable turnover. The DGAP has also noted that the Central Government, on the recommendation of the GST Council, had levied 18% GST, effective rate of which was 12% in view of 1/3rd abatement on the value of land on construction service vide Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017. He has further noted that the actual GST rate on construction service in respect of affordable and low-cost housing was further reduced from 12% to 8%, vide Notification No. 1/2018-Central Tax (Rate), dated 25-1-2018. In view of the change in the GST rate after 1-7-2017, the DGAP has examined the issue of profiteering in two parts, i.e., by comparing the applicable tax rate and input tax credit available for the pre-GST period from April, 2016 to June, 2017 when only VAT was payable @ 5.25% with (1) the post-GST period from July, 2017 to 24-1-2018 when the effective GST rate was 12% and (2) with the GST period from 25-1-2018 to 31-8-2018 when the effective CST rate was 8%. Accordingly, on the basis of the above Table, the comparative figures of ITC available during the pre-GST and the post-GST period and the profiteered amount have been tabulated by the DGAP as per the Table given below:–

Table C

S. No. Particulars Pre-GST Post-GST
1 Period A 1-4-2016 to 24-1-2018 1-7-2017 to 24-1-2018 25-1-2018 to 31-8-2018 Total 1-7-2017 to 31-8-2018
2 Output tax rate (%)