Vivek Kumar Vs Bhartiya Urban Pvt. Ltd. (Competition Commission of India)
The implementation of the Goods and Services Tax (GST) in India brought about significant changes in the taxation landscape of the country. One of the key objectives of GST was to simplify the indirect tax system and eliminate the cascading effect of taxes. While GST was expected to benefit both businesses and consumers, it also introduced the concept of anti-profiteering to ensure that the benefits of reduced tax rates and input tax credits were passed on to the end consumers. This article delves into a real-life case, Vivek Kumar Vs Bhartiya Urban Pvt. Ltd., to understand the implications of GST and anti-profiteering in the real estate sector.
The Case Overview:
In the case of Vivek Kumar Vs Bhartiya Urban Pvt. Ltd., the National Anti-Profiteering Authority (NAA) was called upon to investigate alleged profiteering by a real estate developer, Bhartiya Urban Pvt. Ltd., in their project “Nikoo Homes-I” located in Bengaluru. The allegation was that the developer had not passed on the benefits of Input Tax Credit (ITC) to the buyers after the introduction of GST on July 1, 2017.
Key Points of the Case:
Background and Complaint: The complaint was filed by Vivek Kumar, a buyer in the project, who alleged that the developer had resorted to profiteering by not reducing the prices of flats even after claiming ITC under GST. He claimed that the developer had not passed on the benefits of reduced tax rates and ITC to the buyers.
Investigation and Findings: The Director General of Anti-Profiteering (DGAP) conducted a detailed investigation into the matter. The investigation period covered from July 1, 2017, to August 31, 2018. The DGAP found that the developer had received Occupancy Certificates (OCs) for all the units by July 28, 2018. The investigation revealed that the developer had availed ITC even after receiving OCs.
Calculation of ITC Benefit: The DGAP calculated the ITC benefit that should have been passed on to the buyers. It compared the ITC availed during the pre-GST period to the post-GST period and found no significant increase in ITC post-GST. The effective tax rate on construction services had actually increased from 16.15% to 18% post-GST.
Legal Perspective: The case raised questions about whether Section 171 of the Central Goods and Services Tax Act, 2017, dealing with profiteering, was applicable in this scenario. Section 171 requires businesses to pass on the benefit of reduced tax rates or increased ITC to consumers. Since there was no reduction in the rate of tax and no substantial increase in ITC, the provision was not applicable in this case.
Conclusion:
The case of Vivek Kumar Vs Bhartiya Urban Pvt. Ltd. sheds light on the complexities of anti-profiteering in the real estate sector under GST. While the intent of GST was to benefit consumers by reducing tax burdens, the case demonstrates that the application of anti-profiteering provisions depends on specific circumstances.
In this instance, the developer was not found guilty of profiteering as there was no significant increase in ITC, and the tax rate had actually gone up. This case highlights the importance of a thorough investigation and legal interpretation when assessing anti-profiteering allegations.
FULL TEXT OF THE ORDER OF COMPETITION COMMISSION OF INDIA
The National Anti-Profiteering Authority (NAA) vide Interim Order No. 12/2019 dated 15.10.2019 in this matter had passed the following order:-
“14. The Authority accordingly directs the DGAP under Rule 133(4) to further investigate the matter by taking into consideration the fact that the Occupancy Certificates for all the 2415 units have already been received up to 28.07.2019 which Respondent has himself admitted. The allegation of the Applicant No. I that the Respondent has been availing the ITC even after receiving of OCs but has not been passing on the benefit of ITC to the buyers also needs to be investigated.
15. Since there are many other projects under the single Registration No. i.e. 29AAACZ3571A1ZF, the Authority directs the DGAP under Rule 133(5) to investigate all the other projects of the Respondent under the same GST registration which have not yet been investigated from the perspective of Section 171 of the CGST Act, 2017 and submit the complete investigation report for all the Projects under this single GST Registration.”
2. The brief facts of the case have been mentioned in the NAA’s I.O. No. 12/2019 dated 15.10.2019 and the same are reproduced below:
i. A Report dated 07.03.2019, was received on 14.03.2019 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. In the present case the Karnataka State Screening Committee on Anti-profiteering, vide the minutes of its meeting held on 31.07.2018 had forwarded an application dated 25.07.2018 filed by the Applicant No. 1 to the Standing Committee on Anti-profiteering under Rule 128 of the CGST Rules, 2017. The Applicant No. 1 stated that the Respondent had resorted to profiteering in respect of supply of Construction Service related to the purchase of Flat No. 11407, Tower-I, in the Respondent’s project “Nikoo Homes-I”, Bhartiya City, Chokkanahalli, Yelahanka, Bengaluru, Karnataka-560054. The Applicant No. 1 had 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 flat purchased by him, on implementation of GST w.e.f. 01.07.2017.
ii. The DGAP had issued a notice dated 26.10.2018 and called upon the Respondent under Rule 129 of the CGST Rules, 2017 to reply as to whether the benefit of ITC had been passed on by him to the recipients by way of commensurate reduction in prices and also asked him to suo-moto determine the quantum of benefit which was not passed on.
iii. The period of the DGAP’s investigation in this case was from 01.07.2017 to 31.08.2018.
iv. The Respondent had submitted his replies to the DGAP vide letters/emails dated 16.10.2018, 12.11.2018 and 12.02.2019. The Respondent had stated before the DGAP that the Applicant No. 1 had purchased an apartment in Nikoo Homes-I project, which comprised of 2,415 residential units in 10 Towers and the total area of the project was 32,28,666 sq. ft. and the project had commenced in May, 2013.
v. The Respondent had submitted copies of all demand letters, Sale Agreement/Contract issued to the above Applicant, details of turnover, output tax liability, GST payable and input tax credit availed, copy of Occupancy Certificate for the project “Nikoo Homes- I” and list of home buyers in the project “Nikoo Homes-I” to the DGAP.
vi. The DGAP in his Report had observed that the Respondent vide letter dated 12.11.2018 had submitted copies of Sale Agreement dated 11.03.2014, agreement to build and the demand letters for the sale of flat no. 11407 to the above Applicant, measuring 1,265 square feet, at the basic sale price of Rs. 5,070/- per square feet.
vii. Further, for the calculation of the profiteering, the DGAP had claimed that the ITC as a percentage of the turnover available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 9.95% and during the post-GST period (July, 2017 to August, 2018), it was 9.25%, which showed that the Respondent had not benefited from any additional ITC. Thus, the Respondent, post introduction of GST, had availed lesser ITC to the extent of 0.70% [9.95% (-) 9.25%] of the turnover, as compared to the pre-GST period. Therefore, the DGAP had stated that the allegation of profiteering had not been established against the Respondent from the rate of tax angle, by comparing the applicable tax rates in the pre-GST and post-GST periods. In the pre-GST period (April, 2016 to June, 2017), Service Tax@ 6% and VAT@ 10.15% were payable on the construction service and in the post-GST period (July, 2017 to August, 2018), the GST rate was 18% on Construction Service (without 1/3rd abatement on account of land value). Therefore, he had concluded that the applicable tax rate on Construction Services had been increased from 16.15% in the pre-GST period to 18% in the post-GST period. Thus, there was an increase in the rate of tax and there was no additional benefit of ITC with the implementation of GST w.e.f. 01.07.2017, hence the provisions of Section 171 of the CGST Act, 2017 were not attracted.
viii. The above Report was considered by the NAA in its meeting held on 19.03.2019 and it was decided to hear the Applicant No. 1 on 04.04.2019, but the Applicant No. 1 was not present during the scheduled hearing. Instead, the Applicant No. 1 vide his email dated 04.04.2019 submitted the demand letters from the Respondent for installments No. 12 & 13 and intimated that the Respondent had charged GST @18% in the demand letters. Earlier the Respondent used to charge VAT + ST + Cess @10.1%. Therefore, he had to bear an extra tax burden of 18% – 10.1% = 7.9% (Rs. 91,627) when the Central Government had reduced the GST rate from 12% to 5%.
ix. Supplementary Report was sought from the DGAP on the issues raised by the Applicant No. 1 through his submissions dated 04.04.2019. The DGAP vide his Report dated 12.04.2019 intimated that the issue raised by the Applicant No. 1 was that there was an extra burden of 13% due to non-opting for the new scheme of paying GST @5% by the Respondent. In this regard, the DGAP stated that as per Notification No. 03/2019-Central Tax (Rate) dated 29.03.2019, the suppliers of Construction Service were given an option to pay tax on construction of apartments at the old rate of 18% with ITC or at the new rate of 7.50% without ITC. Therefore, if the supplier would have chosen the option for paying tax at the new rate i.e. @7.50% w.e.f. 01.04.2019, he would be denied ITC. The DGAP has further claimed that if the Respondent had chosen option 2 of paying tax @ 7.50% without ITC, there would have been a reduction of 0.56% in the total liability, as against 13% reduction as claimed by the above Applicant, hence, the claim of the Applicant no. 1 was not sustainable.
x. After considering the reply submitted by the DGAP, the NAA called the Applicants for hearing on 24.04.2019 but the Applicant no. 1 did not appear for the same. The DGAP was represented by Sh. Bhupender Goyal, Assistant Director (Cost). In the hearing, it was decided to call the Karnataka State Screening Committee (KSSC) on 10.05.2019. The KSSC vide its letter dated 08.05.2019 had requested exemption from appearance and forwarded the minutes of the meeting dated 31.07.2018 and submitted that it did not have any more material to express further opinion in the case.
xi. Third hearing in the case was held on 10.05.2019, but the Applicant No. 1 was not present during the scheduled hearing. Instead, the Applicant No. 1 vide his email dated 10.05.2019 had submitted that Respondent’s claim that 93% of project work was completed on 30.06.2017 was incorrect. He further added that the claim of the Respondent that he had started handing over the units to customers before 30.06.2017 was wrong and he had hidden the true facts about the project. He further submitted that there were 10 Towers comprising of 2415 flats in the project Nikoo Homes-I. Each Tower comprised of approx. 250 flats and each Tower was like an apartment/project in itself. The Respondent had completed each Tower one by one and gave possession to the buyers accordingly. The Applicant’s Flat No. 11407 was in Tower 1 which was completed in the end of the project by the Respondent. The Respondent had received Occupancy Certificates (OC) from Bruhat Bengaluru Mahanagar Palike (BBMP) starting from Tower 9 to Tower 1 in phases. The OC for Tower No. 7, 8, 9 (called Wing G, H, I) was received on 20-03-2017, for Tower No. 5, 6 (called Wing E, F) was received on 04-12-2017, for Tower No. 3, 4, 10 (called Wing C, D, J) was received on 23-04-2018 and for Tower No. 1, 2 (called Wing A, B) was received on 28-07-2018. Post-GST, electrical, plumbing, carpentry, garden work, painting and multiple other works were done by the sub-contractors for the Respondent and the Respondent had availed ITC on these. He should have passed on that ITC to the buyers but he was not willing to pass on ITC benefit availed by him. He had further submitted his reply to the Point No. 15 of the DGAP’s Report dated 07.03.2019 that Tower No. 1-9 were completed in multiple phases whereas Tower No. 1-6 were completed post-GST implementation. The Respondent had not disclosed the details of sold and unsold inventory which he should have provided for correct calculation of ITC. The Applicant No. 1 had further submitted reply to Point No. 16 of the DGAP’s Report dated 07.03.2019 stating that the Respondent had provided the information of the project as a whole and he did not disclose Tower-wise information in the Table, though Towers were completed in multiple phases. He had further added that due to unavailability of Tower-wise information, exact quantum of ITC benefit which was to be passed on to the buyers could not be calculated.
xii. On Perusal of the above submissions it was evident that the Applicant No. 1 had raised substantive issues pertaining to the passing of the benefit of ITC which needed to be addressed. In the interest of equity and justice, a notice was issued to the Respondent on 01.08.2019 to explain why he should not be held liable to pay the benefit of ITC to the above Applicant as well as to the other house buyers and consequently held to have violated the provisions of Section 171 of the CGST Act, 2017. He was also directed to submit the relevant documents/records viz. copies of Occupancy Certificates (OCs) of all the Towers of the project, the stage of construction of each of the Towers of the project, details of the Service Tax, VAT and GST Returns for the entire registration with project wise division, the Tower wise details of apartments/flats/residential units/commercial units/other than residential units sold and unsold as on date and as against their respective OCs and copy of project report/Returns submitted to RERA. He was afforded opportunities of hearing on 09.08.2019 and 28.08.2019 to file his submissions on the objections raised by the above Applicant. The Respondent in his submissions dated 28.08.2019 had submitted the following information:
a. Copies of OCs for all the towers
b. Details of Service Tax, VAT and GST Returns
c. Tower-wise details of units sold and unsold
d. Copies of RC, Reports and Returns under RERA
xiii. The NAA carefully perused the DGAP’s Report, the written submissions of the Applicant No. 1 and all the other material placed on record and found that:
1) As per the submissions filed by the Respondent himself on 28.08.2019 it is observed that the Occupancy Certificates (OCs) for all the Residential Units have been received as per the schedule given in below Table:-
