No Additional ITC Benefits for “Ireo Waterfront” Post-GST; Anti-Profiteering Proceedings Dropped

Director General of Anti-Profiteering Vs Ireo Waterfront Pvt. Ltd (Competition Commission of India)

In a recent ruling, the Competition Commission of India (CCI) has concluded its investigation into Ireo Waterfront Pvt. Ltd., determining that the company did not pass on additional benefits of input tax credit (ITC) to is customers post-GST implementation. This decision, encapsulated in a report dated July 29, 2024, follows a lengthy inquiry initiated under Rule 129 of the Central Goods and Service Tax (CGST) Rules, 2017.

Background of the Case

The inquiry into Ireo Waterfront commenced with a report submitted by the Director-General of Anti-Profiteering (DGAP) on December 15, 2021. Initially, the National Anti-profiteering Authority (NAA) was responsible for examining the allegations of profiteering. However, following a regulatory shift on December 1, 2022, the jurisdiction for such matters was transferred to the CCI under Notification No. 23/2022-Central Tax.

The CCI undertook a detailed review of the DGAP’s findings and subsequently issued an interim order on July 31, 2023. This order directed the DGAP to broaden its investigation to include transactions occurring after December 31, 2020, until the issuance of the complete Occupation Certificates for the project.

Investigation Findings

Upon further examination, the DGAP established that Ireo Waterfront had opted for a GST rate of 5% without availing ITC, following Notification No. 03/2019-Central Tax (Rate). Consequently, the scope of the investigation was limited to the period from July 1, 2017, to March 31, 2019, rather than extending beyond that date.

Ireo Waterfront was required to submit various documents, including GSTR-1 and GSTR-3B returns, summaries of invoices raised on customers, and details of any ITC reversals. The company complied by providing the necessary information, detailing its GST practices and the treatment of ITC in relation to construction services.

Key Determinations by the DGAP

The primary issues identified by the DGAP included whether there was a reduction in the rate of tax or ITC benefit on construction services post-GST and whether any such benefit was conveyed to consumers in accordance with Section 171 of the CGST Act.

Ireo Waterfront’s representatives indicated that they had consistently charged GST at 5% for construction services since April 1, 2019, without claiming ITC on these services. They also provided evidence that all proportionate ITC had been reversed due to the adoption of the new tax scheme. Notably, the company did not opt to continue with the previous tax rates, as mandated by the 2019 Notification, which would have required a manual submission to the Commissioner by May 10, 2019.

Conclusion of Proceedings

After a thorough examination of Ireo Waterfront’s submissions, the DGAP concluded that the company had correctly followed the procedural requirements related to ITC. The investigation revealed that the company had adequately reversed its transitional ITC from the pre-GST period as required, and no ITC had been retained.

The final report submitted to the CCI noted that the reversal of ITC led to a negative credit balance, indicating that the company had effectively complied with the regulations concerning ITC under GST. Consequently, the CCI decided to drop the anti-profiteering proceedings against Ireo Waterfront Pvt. Ltd., affirming that there were no additional ITC benefits that needed to be passed on to the consumers.

Implications for the Real Estate Sector

This decision holds significant implications for the real estate sector, particularly in understanding the application of anti-profiteering measures under GST. The ruling emphasizes the need for real estate developers to maintain clarity in their tax practices and ensure compliance with applicable regulations. As the CCI continues to address similar cases, it highlights the ongoing scrutiny within the industry regarding pricing and tax benefits.

In conclusion, the CCI’s ruling not only resolves the specific allegations against Ireo Waterfront but also sets a precedent for future anti-profiteering investigations within the real estate domain. The case reinforces the necessity for developers to navigate the complexities of GST compliance while being vigilant about passing on any benefits to their customers.

FULL TEXT OF THE ORDER OF COMPETITION COMMISSION OF INDIA

1. The present Report dated 29.07.2024 has been received from the Director-General of Anti-Profiteering (DGAP) after a detailed investigation under Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017.

2. The brief facts of the case and findings of investigation conducted by the DGAP are as under:-

i. The DGAP had submitted an Investigation Report dated 15.12.2021 under Rule 129 of the CGST Rules, 2017, before the National Anti-profiteering Authority (NAA) in the project “Ireo Waterfront” of the Respondent.

ii. Thereafter, w.e.f. 01.12.2022, mandate to examine profiteering was vested with Competition Commission of India (CCI), as per the Notification No. 23/2022- Central Tax dated 23.11.2022 issued by Central Board of Indirect Taxes and Customs, Department of Revenue, Ministry of Finance.

iii. The CCI went through the above Investigation Report dated 15.12.2021 and passed an Interim Order No. 04/2023 dated 31.07.2023 under the provisions of Rule 133(4) of the CGST Rules, 2017 directing the DGAP to expand the scope of the investigation after 31.12.2020 till the issuance of complete Occupation Certificates and collect evidence necessary to determine whether the benefit of input tax credit (ITC) had been passed on to the recipients in respect of construction services supplied by the Respondent.

iv. Further vide CCI letter dated 07.05.2024, the DGAP was directed to re­investigate the case in view of Para 129 of Hon’ble Delhi High Court judgment dated 29.01.2024 as it was pertaining to real estate sector.

v. As per the CCI order dated 31.07.2023, the period of the current investigation should have been after 31.12.2020 till the issuance of complete Occupation Certificates. However, it was revealed that the Respondent had opted for GST@5% without ITC in terms of Notification No. 03/2019-Central Tax (Rate) dated 29.03.2019, therefore, the Investigation was restricted up to 31.03.2019. Accordingly, the Investigation period was from 01.07.2017 to 31.03.2019.

vi. Accordingly, a Notice dated 21.05.2024 was issued to the Respondent and he was requested to furnish the requisite information/data to determine profiteering as per the observations of the High Court.

vii. The Respondent vide his various e-mails has submitted the following documents/information: –

a. GSTR-1 and GSTR-3B returns for the period from April 2019 to October, 2023.

b. Summary of invoices raised on the customers during the financial year (F.Y.) 2022-23 and 2023-24 on which GST was charged @5%.

c. Sample copies of Invoices raised during the F.Y. 2022-23 and 2023-24 on which GST was charged @5%.

d. Details of ITC reversal in terms of Notification No. 03/2019 (Central Rate) dated 29.03.2019) along with the DRC-03 form.

e. Summary of GSTR-3B for the year 2017-2018 and 2018-19.

f. Copy of electronic credit ledger for the period April 2017 to 05 June 2024.

viii. The DGAP has stated that the directions received from CCI, various replies of the Respondent and the documents/evidence on record had been carefully scrutinised. The main issues for determination were: –

(i) Whether there was benefit of reduction in the rate of tax or ITC on the supply of construction service by the Respondent, on implementation of GST w.e.f. 01.07.2017 and if so,

(ii) Whether such benefit was passed on by the Respondent to the recipients, in terms of Section 171 of the Central Goods and Services Tax Act, 2017.

ix. The Respondent vide e-mail dated 12.12.2023 submitted that w.e.f. 01.04.2019, he was charging GST @5% on services relating to construction of residential projects including apartments, villas & floors and therefore he was not availing any ITC on services taken thereto and also reversed all the proportionate ITC as he had opted for the new scheme from 01.04.2019 in terms of Notification No. 03/2019-CT (Rate) dated 29.03.2019.

x. The DGAP had ascertained the same from the Assistant Commissioner, State Tax, District Ludhiana-Ill who informed that the facts of the case were verified in respect of M/s Imo Waterfront Pvt. Ltd. (GSTIN 03AACCV2433R1Z5) and found that to continue with the old rates, the Respondent had to exercise one time option in the prescribed form and submit the same manually to the jurisdictional Commissioner by the 10.05.2019 in terms of the Notification No. 03/2019- Central Tax (Rate) dated the 29.03.2019, which amended the notification No. 11/2017- Central Tax (Rate), dated the 28.06.2017, dealing with the taxation of real estate projects. However, the Respondent did not exercise the option in the prescribed form, hence, it was deemed that he had opted for new rates in respect of ongoing projects and accordingly new rate of GST@5% without ITC would be applicable and all the provisions of the new scheme including transitional provisions would be applied.

xi. The DGAP has observed from the ST-3 returns that the closing balance of Cenvat Credit was Rs. 78,53,983/- on 30.06.2017 which the Respondent had carried forward from the pre-GST period in TRAN-1 Form. The Respondent had also submitted the copies of DRC-03 Forms of ARN: AD0303230096510 dated 30.03.2023 for the F.Y. 2017-18 (Rs. 51,19,954/-) and ARN: AD0303230096541 dated 30.03.2023 for the F.Y. 2018-19 (Rs. 2,42,502/-) for reversal of transitional ITC of Rs. 53,62,456/- for the F.Y. 2017-2018 and F.Y. 2018-2019 as it pertained to the credit which was transitioned by the Respondent from the previous tax regime vide Form GST TRAN-1. This transitional ITC was reversed by the Respondent on account of the same being attributable to the construction of the instant project, the time of supply of which was after 01.04.2019. Thus, the Respondent did not retain any ITC and reversed the availed ITC. Post March 2022, no further ITC was availed by the Respondent.

xii. The Respondent vide email dated 05.07.2024 had submitted month wise details of ITC availed and reversed for the period July 2017 to March 2019 which has been given as under: –

Credit Availed and Reversed details as per GSTR3B returns (Monthly- basis)

Net ITC available as per Consolidated GSTR3B returns (Annually)

xiii. The DGAP has claimed that he has verified the above figures of IGST/CGST/SGST credit with the figures mentioned in the GSTR-3B returns filed by the Respondent for the F.Y. 2017-18 and F.Y. 2018-19 and found in order.

xiv. The DGAP has averred that the Respondent vide email dated 23.07.2024 had submitted that the reversal of ITC was made in compliance with Rule 37 of the CGST Rules, 2017, due to delay of more than 180 days in making payments to the respective suppliers for the value of supply along with tax, from the date of issuance of the invoices by the respective suppliers. An excess amount of ITC was reversed due to a clerical mistake. Hence, the net ITC available at the end of the period from July 2017 to March 2019 led to a negative credit of Rs. 7,51,067/- of IGST, Rs. 6,59,908/- of CGST and Rs. 3,24,770/- of SGST respectively. Further, the Respondent had decided not to re-avail the reversed ITC in any manner in compliance with the Notification No. 3/2019-C.T. (Rate) dated 29.03.2019.

xv. The DGAP has also confirmed that the Respondent had reversed the ITC amount of Rs. 24,82,604/- for the F.Y. 2019-20, Rs. 5,44,722/- for the F.Y. 2020-21 and Rs. 1,04,34,685/- for the F.Y. 2021-22 respectively in Form DRC-03 to fulfil the conditions prescribed in the Notification No. 03/2019-CT (Rate) dated 29.03.2019.

xvi. The DGAP has concluded that Respondent had not retained any ITC, related to ‘Ireo Waterfront’ project and reversed all the ITC availed as of March 2019. As per the judgment of the Hon’ble High Court of Delhi in the matters of determination of profiteering in the real estate sector the savings made by the suppliers of services on account of introduction of GST needed to be passed on to the recipients of services which needed to be determined by calculating any ITC under GST which had become eligible to be taken as credit and had been availed and utilized by the suppliers of services to discharge their GST liability on provision of output services. However, the net input tax availment as on 31.03.2019 being negative as evidenced by the GSTR 3B returns filed for the relevant period as explained above, there was no net ITC availed by the Respondent in post-GST period which could be compared with the pre-GST ITC to determine “profiteering” if any. Accordingly, no benefit on account of availment of ITC had been derived by the Respondent which needed to be passed on to the home buyers. Hence, DGAP has reported that the anti-profiteering provisions were not applicable to the impugned project under investigation.

xvii. The DGAP has also observed that the construction services have been supplied by the Respondent in the State of Punjab only.

3. This Commission has considered the DGAP’s Report dated 29.07.2024 in its meeting held on 19.09.2024 and carefully perused the documents placed on record. The Commission needs to determine as to whether there was any reduction in the GST rate or benefit of ITC and whether the benefit of rate reduction or ITC was passed on or not to the recipients as provided under Section 171 of the CGST Act, 2017.

4 We find that the DGAP has verified the documents submitted by the Respondent as well as the statutory returns filed by him and revealed that the Respondent had opted for GST©5°/0 without ITC in terms of Notification No. 03/2019-Central Tax (Rate) dated 29.03.2019 and reversed all the ITC available pertaining to the F.Y. 2017-2018 and 2018-2019 from April, 2019 onwards and he had also reversed ITC availed in compliance with Rule 37 of the CGST Rules, 2017, due to delay of more than 180 days in making payments to the suppliers for the value of supply along with tax, from the date of issuance of the invoices by the respective suppliers. He had also reversed the excess amount of ITC availed wrongly due to a clerical mistake, which resulted in a negative credit during the post-GST period. Therefore, the Respondent has not retained any ITC related to ‘Ireo Waterfront’ project and reversed all the ineligible ITC pertaining to the F.Y. 2017-2018 and 2018-2019.

5. From the above, it can be concluded that post-GST, no benefit of additional ITC accrued to the Respondent in respect of the project “Ireo Waterfront”. Therefore, the Commission finds that the provisions of Section 171 (1) of the CGST Act, 2017 are not attracted in the Respondent’s project “Ireo Waterfront”. The proceedings in the present case are accordingly dropped.

6. A copy of this order be sent to all the interested parties free of cost. File of the case be consigned after completion.