Deepak Naik Vs Prestige Estate Projects Ltd. (NAA)
We find this to be a fit case where the Respondent’s claim of having passed on the benefit to his recipients/homebuyers requires to be verified against third party evidence in the form of written acknowledgements receipts from the homebuyers evidencing the receipt of the benefit, including its quantum and also evidencing that the said benefit is in terms of Section 171(1) of the CGST Act, 2017 which states that “Any reduction in the 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”. Needles to state that the claim made by the Respondent of having passed on the benefit has to be supported by acknowledgements which the Respondent shall procure from the homebuyers alongwith their contact details i.e. e-mail & Phone/Mobile No., failing which his claim will have to be considered as not established. The Respondent shall submit the homebuyer wise evidence, as detailed above within a period of 30 days of this Order and the same shall then be verified by the DGAP. Accordingly, the matter is sent back to the DGAP for further investigation as per the provisions Section 171(2) of the CGST Act, 2017 read with Rule 133(4) of the CGST Rules 2017. This Authority directs the DGAP to verify the evidence submitted by the Respondent to evidence the passage of ITC benefit from the Respondent to the homebuyers and submit his Report, alongwith all the relied upon documents/evidence. The DGAP is accordingly directed to reinvestigate the above issue and furnish his Report under Rule 129 (6) of the CGST Rules, 2017.
It has also been observed that the Report of the DGAP is silent on the issue whether the Respondent has paid applicable interest to all the eligible recipients/flat buyers/customers or not. In view of the above, we direct the DGAP to investigate and verify whether applicable interest on the profiteered amount, which the Respondent has already claimed to have passed on to his customers/flat buyers, has been paid by him or not from the date from the above amount was profiteered till the date of passing on/payment, as per the provisions of Rule 133 (3) (b) of the CGST Rules, 2017.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. The present Report dated 28.08.2020 has been received from the Applicant No. 2 i.e. the Director General of Anti-Profiteering (DGAP) after a detailed investigation, under Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the case are that the Applicant No. 1 had filed an application dated 30.07.2019 (originally examined by the Karnataka State Screening Committee on Anti-Profiteering) under Rule 128 (1) of the CGST Rules, 2017 against the Respondent alleging profiteering in respect of construction service supplied by him. The Applicant No. 1 had stated that he had purchased a flat in the Respondent’s project “Prestige Lake Ridge” and 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 prices.
2. The Standing Committee on Anti-profiteering examined the application filed by the Applicant No. 1 in its meeting held on 13.09.2019 and upon being prima facie satisfied had referred the above application to the DGAP recommending a detailed investigation and to collect evidence necessary to determine whether the benefit of ITC had been passed on by the Respondent to the recipients in respect of the construction service supplied by the Respondent.
3. It has also been claimed by the DGAP that the Applicant No. 1 has submitted the following documents along with his application:-
a. Scanned copy of Aadhar Card as a proof of Identity.
b. Payment Schedule.
c. Construction Agreement.
d. Prestige Lake Ridge-Intimation of Allotment.
e. Account Statement as on 30.07.2019.
f. Demand Notes —Pre and Post GST.
g. Copy of Anti-Profiteering Application Form (APAF-1).
4. The DGAP has further reported that in the pre-GST era, the Applicant No. 1 had booked Flat No. 10043 in the project “Prestige Lake Ridge” of the Respondent on 14.08.2016 and the Applicant No. 1 was to pay the consideration in 21 installments and one additional installment at the time of possession, each linked with different stages.
5. The DGAP in his report has also stated that the documents and the Report of Karnataka State Screening Committee on Anti-profiteering has been examined and it appeared that the Respondent had demanded approximately 40% of the total amount payable which meant construction had been completed around 40% of the total construction. The remaining construction of around 60% was to be completed after introduction of GST from 01.07.2017. On going through the demand note/tax and payment schedule pre and post GST, it was observed that the basic price of the apartment payable at each milestone had remained same at Rs. 2,83,623/- and hence, it appeared that the builder had not passed on the benefit of ITC to the Applicant No. 1 and contravened the provision of Section 171 of the CGST Act, 2017.
6. On receipt of the reference from the Standing Committee on Anti-profiteering, the DGAP had issued notice dated 23.10.2019 under Rule 129 (3) of the above Rules, calling upon the Respondent to reply as to whether he admitted that the benefit of ITC had not been passed on to his recipients by way of commensurate reduction in prices of the flats 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 documents in support of his reply. The Respondent was also allowed to inspect the relied upon non-confidential evidence/information which formed the basis of the investigation between 30.10.2019 and 31.10.2019. However, the Respondent had not availed the said opportunity. The Applicant No. 1 was also given opportunity to inspect the non-confidential documents/reply furnished by the Respondent between 08.06.2020 and 09.06.2020, which was not availed by the Applicant No. 1.
7. The DGAP in his Report has stated that the last date prescribed under law for submission of the investigation Report to this Authority had expired on 08.04.2020. Further, in terms of Notification No. 35/2020-Central Tax dated 03.04.2020 as amended vide Notification No. 55/2020 — Central Tax dated 27.06.2020, issued by the Central Board of Indirect Taxes and Customs under Section 168 (A) of the Central Goods and Services Tax Act, 2017, where, any time limit for completion or compliance of any action, which fell during the period from the 20th day of March, 2020 to the 30th day of August, 2020, and where completion or compliance of such action had not been made within such time, then the time limit for completion or compliance of such action, would be extended upto the 31st day of August, 2020, including for the purpose for furnishing of any report under the provision of the CGST Act, 2017. Thus, in term of serial no. (i)(b) of Notification No. 35/2020-Central Tax dated 03.04.2020 as amended vide Notification No. 55/2020 — Central Tax dated 27.06.2020, the time limit for submission of the report stood extended up to 31.08.2020. However, the extension already granted as mentioned in this Authority’s Order dated 24.03.2020 for further three months, in the present case stood extended by three months up to 30.11.2020.
8. It has also been stated by the DGAP that the period covered for the current investigation was from 01.07.2017 to 30.09.2019.
9. The DGAP has also submitted that in response to the notice dated 23.10.2019 and subsequent reminders dated 06.11.2019 & 08.01.2020, the Respondent had submitted his replies vide letters and e-mails dated 31.10.2019, 01.11.2019, 18.11.2019, 17.01.2019, 16.07.2020, 07.07.2020 and 05.08.2020, the summary of which has been furnished by the DGAP as has been mentioned below:-
a. That communications to the home buyers of ‘Prestige Lake Ridge’ have been sent in October 2017 stating that the effective prices had been reduced since the implementation of GST. The factors, on the basis of which the prices would undergo change, were also conveyed to the customers.
b. That the exact impact was to be analyzed in detail and the Respondent would require time and clarity from all the suppliers and contractors so that the accurate amount of savings was passed on to the customers.
c. That communication was also sent to the home buyers that the Respondent had initiated negotiations with the suppliers and contractors, to analyze the potential benefit on account of GST implementation which was to be passed on to all the customers.
d. That at the time of final closure, the benefit of ITC and reduction in costs on account of GST implementation would be adjusted. Hence, the allegation in the notice dated October 23, 2019 alleging profiteering was incorrect and was liable to be set aside. The application filed by the Applicant No. 1 was unwarranted and liable to be dismissed as the Respondent has not evaded from complying with anti-profiteering provisions. Further, in the light of written confirmation / communication that the benefits arising on account of GST implementation would be passed on, there was no occasion to come before this Authority. For these reasons, the complaint filed by the Applicant was liable to be dismissed as pre-mature. He undertook to pass on the benefit of increase in ITC / cost reduction when the current statutory timelines were complete and the benefits were realized by him.
e. That the following demonstration steps have already been taken and those that were underway to comply with the anti-profiteering provisions of the GST law. That as on June 30, 2017, he had already billed to the extent of 40% (Approx.) of the apartment sale price on which the applicable VAT and Service Tax was already discharged by him in the erstwhile tax regime. That he has sub-contracted completely the construction and other works to various contractors except to the extent of purchasing Steel and other minor items. Therefore, being a part of a large public group of Companies and always being compliant of various Central and State laws, the Respondent has ensured that it has lawfully complied with all the taxation laws as well.
f. That several communications have also been sent to the Applicant No. 1 stating that the benefit of ITC would be passed on before billing the possession charges and before handing over the apartment unit to him. At this stage, the cloud of uncertainty on the exact savings on account of ITCs and cost reduction looms large on him and any logic based estimation of savings on account of ITC passed on in a hurried manner to the customers could be grossly wrong and erroneous on the part of him and may require upward or downward revision again at the time of final settlement / handing over.
g. That post GST implementation he has initiated negotiation with all the Suppliers and the Contractors on the effect of GST implementation The supplier contracts and contractor’s agreements existing as on 30th June 2017 were under revision and the exact amount of savings realized in the project would be known upon project completion and at the time of handing over the apartment units to the customers That post GST implementation he has also worked out the effective prices of various goods such as Steel etc. which has also on account of GST implementation impacted the construction cost.
h. That pursuant to the GST implementation, many suppliers and contractors had been blacklisted by the local VAT Department and a lot of transitional credits under SGST had been lost as the deduction pertaining to these suppliers had not been allowed by the VAT Department. The impact of such suppliers existing under the GST regime was also being analyzed and this would also impact the benefit that would be passed on to the Customers.
i. That there were many suppliers who had not passed on the benefit of ITC in GST regime. That was to say, they had not uploaded their invoices in GSTR-1 on the Common portal. These credits had not been passed on to the Respondent and were currently not reflecting in the GSTR-2A on the common portal. The impact of such suppliers existing under the GST regime was also being analyzed and this would also impact the benefit that would be passed on to the customers. Rigorous efforts were being made by the Respondent so as to ensure that all GST credits were reflected in his GSTR — 2A on the common portal.
j. That the turnover reported in the audited financials of the Respondent was based on the Accounting Standards which required reporting of turnover based on the percentage of completion method whereas the turnover reported in the VAT, Service Tax and GST Returns was based on the provisions relating to of time of supply as mentioned in those Acts. Further, the amount of ITCs flowing to the Respondent was also based on the amount of construction work undertaken by the subcontractors and the amount of input materials received at site. Therefore, the amount of ITC availed on year-on-year basis was not comparable under construction contracts such as the ones undertaken by the Respondent. This aspect would also affect the amount of ITC that would be realized by the Respondent and passed on to the customer.
k. That vide email dated 05.08.2020, the Respondent submitted that he had passed on the benefit of ITC total amounting Rs 8,28,91,520/- and submitted Credit Notes, Ledgers, Customers’ communication letters, Customers’ Master List and Acknowledgements (sample basis) and details of ITC as supporting documents.
10. The DGAP has further intimated that vide the aforementioned letters and statement, the Respondent has submitted the following documents/information:-
a. Copies of GSTR-1 Returns for the period July 2017 to September 2019.
b. Copies of GSTR-3B Returns for the period July 2017 to September 2019.
c. Copies of Tran-1 filed.
d. Electronic Credit Ledger for the period July 2017 to September 2019.
e. Copies of VAT& ST-3 Returns for the period April 2016 to June 2017.
f. Copies of all demand letters, sale agreement/contract issued in the name of the Applicants.
g. Details of applicable tax rates, pre-GST and post-GST.
h. Copy of Balance Sheet and Cost Audit Report for financial year 2016-17 and 2017-18.
i. Details of VAT, Service Tax, ITC of VAT, Cenvat Credit for the period April 2016 to June 2017, Output GST and ITC for the period July 2017 to September 2019 for the Project “Prestige Lake Ridge”.
j. Cenvat/ITC Ledger for the financial year 2016-17, 2017-18, 2018-19 and 2019-20 (up to September, 2019) reconciled with VAT, ST-3 and GSTR-3B Returns.
k. List of home-buyers for the impugned Project.
I. Project details submitted to RERA.
m. Copies of Credit Notes, Ledgers, Customers’ communication letters, Customers’ Master List and Acknowledgements (sample basis).
11. It has also been stated by the DGAP that the Respondent has not claimed confidentiality of any of the details/information furnished by him in terms of Rule 130 of the CGST Rules, 2017.
12. The DGAP has further reported that the reference received from the Standing Committee on Anti-Profiteering, various replies of the Respondent and the documents/evidence placed on record have been carefully examined and it emerged that the main issues for determination were whether there was reduction in the rate of tax or benefit of ITC on the supply of construction service availed by the Respondent after implementation of GST w.e.f. 01.07.2017 and if so, whether the Respondent had passed on such benefit to the recipients by way of commensurate reduction in prices, in terms of Section 171 of the CGST Act, 2017.
13. The DGAP in his report has also stated that vide letter dated 18.11.2019, the Respondent has submitted a copy of agreement to sell dated 18.01.2017 and demand letters for the sale of Unit no. 10043 measuring 1571 square feet, at the rate of Rs. 4560/- per square feet. The details of Payment Schedule including amounts and taxes paid/payable by the Applicant No. 1 to the Respondent has been furnished by the DGAP in the Table-LA’ below:-
Table- ‘A’ (Amount in Rs.)
