ANTI-PROFITEERING ON REAL ESTATE –NOT NECESSARY IN ALL CASES

[Dr. Sanjiv Agarwal]

Generally, it is seen that allegations or charges of Anti-profiteering have been established in most of the cases. Recently in two cases, National Anti-profiteering Authority (NAA) came to the conclusion that charges of anti-profiteering be could not be proved and hence no action could be taken against builders / developers. These have been briefly discussed hereunder. 

Title	SHRI PARAMJEET RATHEE, DIRECTOR GENERAL OF ANTI-PROFITEERING, INDIRECT TAXES & CUSTOMS, VERSUS M/S. SUPERTECH LIMITED
Date of Order/ Judgment	25.02.2020
Citation	2020 (2) TMI 1237 - NATIONAL ANTI-PROFITEERING AUTHORITY

In the instant case, complaint was filed before the Standing Committee on Anti-Profiteering under Rule 128 of the Central Goods & Services Tax (CGST) Rules, 2017. It was alleged that builder respondent had resorted to profiteering in respect of the supply of construction services related to the purchase of Flat in the Respondent’s project “Officer Enclave”, Gurugram. It was also alleged that the Respondent had not passed on the benefit of Input Tax Credit (ITC) by way of commensurate reduction in the price of the apartment purchased by him, on implementation of GST w.e.f. 01.07.2017.

The matter was referred to DGAP for detailed investigation under Rule 129. The investigation was carried out for the period from 1.7.2017 to 31.03.2019 and report submitted on 30.09.2019.

The main issue before the DGAP was to investigate whether the benefit of reduction in the rate of tax or ITC had been passed on by the Respondent to his recipients and whether the Respondent had benefited from the reduction in the rate of tax or the ITC after implementation of the GST w.e.f. 01.07.2017 and if so, whether such benefit was passed on by the Respondent to the recipients, in terms of Section 171 of the CGST Act, 2017?

According to DGAP report, the ITC pertaining to units which were under construction but not sold was provisional ITC which may be required to be reversed by the Respondent if such units remained unsold at the time of issue of completion certificate, in terms of Section 17(2) & Section 17(3) of the Central Goods and Services Tax Act, 2017.

The DGAP contended that the ITC pertaining to unsold units might not fall within the ambit of this investigation and the Respondent would be required to recalibrate the selling price of such units to be sold to prospective buyers by considering the proportionate benefit of additional ITC available to them in the post-GST period.

The issue of profiteering had been examined by comparing the ratio of ITC available relevant to the turnover. The rate of tax during the pre-GST period (April, 2016 to June, 2017) was Service Tax @4.5% and VAT@I% (total tax rate was 5.5%) and in the post-GST period (July, 2017 to December, 2018), the effective GST rate on construction service was 12% (GST @18% alongwith 1/3rd abatement on account of land value), vide Notification No.11/2017-Central Tax (Rate) dated 28.06.2017. This showed that upon the introduction of GST w.e.f. 01.07.2017, the applicable tax rate on the construction services supplied by the Respondent had gone up from 5.5% to 12%.

As per the details submitted by the Respondent-  developer, it appeared that prior to 01.07.2017, i.e., in the pre-GST era, the Respondent was eligible to avail CENVAT credit of Service Tax paid on the input services only and no CENVAT credit was available in respect of Central Excise Duty and VAT paid on the inputs. However, post-GST, the Respondent -developer could avail ITC of GST paid on all inputs and input services.

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 0.94% and during the post-GST period (July, 2017 to March, 2019), it was 0.39%. It was also observed from the above narrated facts that the rate of tax in the post-GST period was higher than the rate of tax in the pre-GST period. Therefore, it appeared that the Respondent had neither benefited from additional ITC nor had there been a reduction in the tax rate in the post-GST period. Therefore, the provisions of Section 171 of the Central Goods and Services Tax Act, 2017 did not appear to be attracted to the present case.

The NAA considered the DGAP report and other submissions and observed that  it was clear from the plain reading of Section 171(1) of the CGST Act that it deals with two situations one relating to the passing on the benefit of reduction in the rate of tax and the second pertaining to the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the DGAP’s Report that there has been no reduction in the rate of tax in the post GST period. Hence the only issue to be examined was as to whether there was any net benefit of ITC with the introduction of GST. DGAP had stated that ITC as a percentage of the turnover which was available to the Respondent during the pre-GST period (April 2016 to June-2017) was 0.94% and during the post-GST period (July-2017 to March-2019), it was 0.39%. On this basis, the DGAP has reported that the Respondent had neither benefited from additional ITC nor had there been a reduction in the tax rate in the post-GST period and therefore it does not qualify to be a case of profiteering.

The NAA agreed with the findings of DGAP. Hence, the NAA concluded that the Respondent has not contravened the provisions of Section 171 of the Act.  The instant case does not fall under the ambit of Anti-Profiteering provisions of Section 171 of the CGST Act, 2017. Therefore, the allegation that the Respondent has not passed on the benefit of ITC in this case was not found to be sustainable. Accordingly, the application filed by Applicant, requesting action against the Respondent for alleged violation of the provisions of Section 171 of the CGST Act, is dismissed as not maintainable and the same was dismissed.

Title	SH. MANABENDRA NATH BASU, DIRECTOR GENERAL OF ANTI-PROFITEERING, CENTRAL BOARD OF INDIRECT TAXES & CUSTOMS, VERSUS M/S. PARIBAR ESTATES PVT. LTD.
Date of Order/ Judgment	02.03.2020
Citation	2020 (3) TMI 405 - NATIONAL ANTI-PROFITEERING AUTHORITY

In the instant case, the complainant filed a complaint before standing committee alleging profiteering by the builder. Accordingly, he had purchased a Flat in the respondent’s project and the Respondent company had not passed on the benefit of Input Tax Credit (ITC) to him by way of commensurate reduction in the price, on introduction of the GST w.e.f. 01.07.2017.

The complaint was referred to DGAP for further examination who submitted his report on 30.08.2019. The report stated that prior to the implementation of the GST w.e.f. 01.07.2017, Service Tax on the construction service was chargeable @ 4.50% (vide Notification No. 14/2015-ST dated 19.05.2015). After implementation of the GST w.e.f. 01.07.2017, the GST on the construction service was chargeable @ 18% (effective rate was 12% in view of 1/3rd abatement on value) vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 and the effective GST rate on construction service in respect of the affordable and the low-cost houses upto a carpet area of 60 square metres was further reduced from 12% GST (effective rate was 8% in view of 1/3rd abatement on value), vide Notification No. 1/2018-Central Tax (Rate) dated 25.01.2018 (in respect of affordable and low-cost house upto a carpet area of 60 square meters). Thus in the case of construction service the effective rate of tax (@ 4.5%) in the Pre-GST era was lower than the effective rate of tax @ 8% or 12%, in the Post-GST era.

During the pre-GST era, the Respondent was eligible to avail CENVAT Credit of Service Tax paid on the input services. Further, post GST, the Respondent was eligible to avail the input tax credit of GST paid on all the inputs and input service including the sub-contracts. However, on perusal of statutory returns, for the pre-GST era as well as post-GST era, it was found by the DGAP that the Respondent has not availed of any CENVAT/ITC.

It also noted that Dy. Commissioner of WBGST report revealed that:

1. The supplier has charged GST on portion of flat sale value (received after 01.07.2017) in accordance with the law. The project is yet to get completion certificate.
2. The supplier has not enjoyed benefit of Input Tax Credit till date and thus no ITC has been passed on.

DGAP submitted that :

1. After the introduction of GST w.e.f. 01.07 2017, the rate of tax on the construction services has increased. Thus, the instant case was not covered under the criteria of “reduction in rate of tax on any supply of goods or services”
2. No benefit has been availed by the Respondent on account of input tax credit post GST. Thus, the instant case was not covered under the criteria of “the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices”

Further,  it appeared that Section 171 (1) of the Central Goods and Services Tax Act, 2017 which required 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”, was not attracted in the present case.

The NAA considered the report of DGAP and submissions of both the parties. It framed the following issues to be decided:

1. Whether there was any reduction in the rate of tax on construction service w.e.f. 01.07.2017 in respect of the present case?
2. Whether there was any increased benefit of ITC w.e.f. 01.07.2017.?
3. Whether there was any violation of the provisions of Section 171 of the CGST Act, 2017 by not passing on the benefit?

The NAA noted that prior to the implementation of the GST w.e.f. 01.07.2017, Service Tax on construction service was chargeable @ 4.50% (vide Notification No. 14/2015-ST dated 19.05.2015). however, after implementation of the GST w.e.f. 01.07.2017, GST on construction service was changeable @ 18% (effective rate was 12% in view of 1/3rd abatement on value) which was imposed vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 which was further reduced for low cost affordable housings to 12% GST (effective rate was 8% in view of 1/3rd abatement on value), vide Notification No. 1/2018-Central Tax (Rate) dated 25.01.2018 (in respect of affordable and low-cost house upto a carpet area of 60 square meters) and hence it is established that there was no rate reduction w.e.f. 01.07.2017 in the case of construction service for low cost affordable houses which the above Applicant has purchased. Hence, no benefit of tax reduction was required to be passed on to him.

Further, during the pre-GST era, the Respondent was eligible to avail CENVAT Credit of Service Tax paid on the input services and post GST, the Respondent was eligible to avail the input tax credit of GST paid on all the inputs and input service including the sub-contracts. However, the Respondent has not availed any benefit of CENVAT or ITC in the pre and post GST era and hence, there was no additional benefit available to the Respondent which was to be passed on to his buyers.

It was also a fact on record that Respondent has not availed benefit of ITC after coming in to force of the GST and he had charged GST @18% which was required to be charged as per the Notification dated 01.07.2017.

The NAA therefore, concluded that the Respondent was not liable to pass on the benefit of ITC to the complaint and thus he has not contravened the provisions of Section 171 of the CGST Act, 2017. Therefore, NAA found no merit in the application filed by the complaint and the same was accordingly dismissed.