NO PROFITEERING ON SUPPLY OF RESIDENTIAL APARTMENT IF NOT ESTABLISHED

[Dr. Sanjiv Agarwal]

In one of the complaints against supplier of residential flats, where supplier had completed the project prior to implementation of the GST and it had neither availed ITC on any of the inputs procured in the GST Regime, nor had it availed/carried forward the pre-GST credit pertaining to the stock held in hand as on 30.06.2017, it was held that such supplier was not liable to pass on the benefit of ITC complainants and that the provisions of Section 171 (1) of the CGST Act, 2017 were not attracted. The allegation that the supplier has not passed on the benefit of ITC was held to be not sustainable.

In Ramesh Kumar Yadav  v. Vatika Ltd. 2019 (7) TMI 138 - NATIONAL ANTI-PROFITEERING AUTHORITY the complaint alleged that supplier of flats  had resorted to profiteering in respect of supply of construction services related to purchase of an apartment in the project “Independent Floor Phase-II” at Gurugram. It had not passed on the benefit of Input Tax Credit (ITC) by way of commensurate reduction in the price of the apartment purchased on implementation of GST w.e.f. 01.07.2017.

On reference to DGAP, it was reported that the main issues for determination were whether there was benefit of reduction in the rate of tax or the ITC on the supply of the construction service by the supplier after implementation of the GST w.e.f. 01.07.2017 and if so, whether such benefit was passed on to the recipients, in terms of section 171 of the CGST Act, 2017. The supplier had not availed any ITC post implementation of GST w.e.f. 01.07.2017. Hence, there was no ITC available with the supplier, the benefit of which should have been passed on to the recipients. Therefore, the provisions of Section 171 of the CGST Act, 2017 were not attracted.

After submissions by both parties, DGAP issued a supplementary report stating that as the supplier had not availed any ITC in the post-GST period, there could not be any additional benefit of ITC available to the Respondent after implementation of the GST w.e.f. 01.07.2017. It had charged GST @ on construction services 18% on 2/3d of the demand raised post-GST because the payment of GST would depend on the time of supply of service, in terms of Section 13 of CGST Act, 2017 and it had raised the demand in the post-GST period.

The NAA had following issues before it to be decided:

1. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 in this case?
2. If yes then what was the quantum of profiteering?

On the issue of reduction in the tax rate, it was apparent that there has been no reduction in the rate of tax in the post GST period; hence the only issue to be examined is as to whether there was any net benefit of ITC with the introduction of GST. Since no ITC has been availed by the Respondent in the post-GST period, there was no additional benefit of ITC which had accrued to the Respondent post-GST as compared to pre-GST period. In view this that there was no reduction in the rate of tax nor there was increased additional benefit on account of ITC, the provisions of Section 171 of CGST Act, 2017 could not be invoked.

It was revealed from the records that supplier had completed the project prior to implementation of the GST and it had neither availed ITC on any of the inputs procured in the GST Regime, nor had it availed/carried forward the pre-GST credit pertaining to the stock held in hand as on 30.06.2017. Therefore, it is not liable to pass on the benefit of ITC to the above Applicants. Therefore, the provisions of Section 171 (1) of the CGST Act, 2017 which state that “a 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”, have not been contravened in the present case, as the same are not even applicable. In view of the above, the allegation that the supplier has not passed on the benefit of ITC was held to be not sustainable.

The complaint for violation of the provisions of section 171 of the CGST Act was therefore, not maintainable and hence dismissed.

Discussions to this article

[Ganeshan Kalyani]

Yes, Sir in the case it is obvious that construction was complete before GST, so the provision of anti profiteering which exist is GST is not applicable.

[Dr. Sanjiv Agarwal]

Perhaps, complainant was in the impression that what ever is sold in GST regime is subject to section 171.

There is a need for putting some cost for making a complaint to avoid such instances.