Dr. Sanjiv Agarwal, FCA, FCS
For the first time, National Anti-Profiteering Authority has held against the real estate company for Anti-profiteering activities in case of sale of flats to buyers.
In Sukhbir Rohila v. Pyramid Infratech Pvt. Ltd. (2018) 9 TMI 1107 (NAA); (2018) 97 taxmann.com 379 (NAA), the National Anti-Profiteering Authority vide its order dated 18.09.2018 has confirmed Anti-profiteering charges on sale of flats and also imposed penalty. In the instant case, 36 applications were filed alleging that the benefit of Input Tax Credit (ITC) had not been passed on to the Applicants in respect of the construction service supplied by the Respondent.
They had booked flats with the Respondent under the Haryana Affordable Housing Policy 2013, notified by the State of Haryana vide Notification No. PF-27/48921 dated 19.08.2013. They had alleged that before coming in to force of the CGST Act, 2017 w.e.f. 01.07.2017, Excise Duty and Value Added Tax (VAT) were being collected from them as Service Tax was exempted, however, after the implementation of the above Act, 12% Goods & Services Tax (GST) was levied on the construction service in place of Excise Duty and VAT w.e.f. 01.07.2017, which was further reduced to 8% w.e.f. 25.01.2018 but the benefit of Input Tax Credit (ITC) which was available to the Respondent and which was much more than the output tax liability of the Respondent had not been passed on to them and therefore the Applicants should not have been burdened with the entire GST of 12% or 8%. It was further alleged that the Respondent had not agreed with the contention of the Applicants that the Respondent was charging 12% and 8% GST and was simultaneously also enjoying the benefit of ITC and was not giving the benefit of the ITC, had claimed that the Respondent was contravening the provisions of Section 171 of the CGST Act, 2017. Accordingly, they had filed several applications with the Haryana Screening Committee for appropriate redressal of their grievance. These applications were examined by the Screening Committee in its meeting held on 30.10.2017 and it was decided to forward these applications to the Standing Committee on Anti-profiteering for further necessary action. The Standing Committee in its meeting held on 07.11.2017 after confirming that prima facie there was evidence of non-compliance of the provisions of Section 171, had forwarded these applications to the Director General of safeguards (DGSG), now Director General of Anti-profiteering(DGAP) for detailed investigation.
On the other hand, the Respondent had claimed that the provisions of Section 171 of the CGST Act, 2017 were not applicable in as much as there was no reduction in the rate of tax as earlier the “Affordable Housing Schemes” (AHS) executed under the ‘Affordable Housing Policy 2013’ (Policy) notified by the State of Haryana vide its Notification No. PF-27/48921 dated 19.08.2013 were exempt from the payment of Service Tax and only VAT was leviable @ 5.25%, however after 1.07.2017 an enhanced tax @12% had been imposed in the GST regime. The Respondent had also claimed that in the case of this Scheme the Respondent could charge only a fixed price not exceeding Rs. 4000/- per sq. ft. carpet area plus taxes, as had been provided under the Policy and in the present case, the maximum price had not been exceeded by him. Out of the total GST incidence, 50% (6% out of 12% GST) was towards SGST, whereas it was earlier availing ITC on the State VAT and the difference after utilizing the ITC was being paid in cash, therefore, the ITC being allowed was not an additional benefit and the GST liability was not entirely covered by the ITC available to the Respondent. Further, it was required to pay GST on the sub-contracted work which was an additional cost to him whereas Service Tax was exempted in the past. It was further claimed that there had been tremendous increase in the prices of inputs including Steel due to which no profiteering could be alleged against it.
Respondent also submitted that while it had received 62.50% of the payment due during the pre-GST period, the amount spent on construction during this period was only 25% of the total cost and hence he would receive 37.50% of total payment due during the post-GST period when he would have to spend 75% of the total cost on construction. The initial consideration paid by the Applicants was towards the cost incurred/ to be incurred by it against the cost of land, licenses, approvals, administrative and financial expenses which amounted to 40-45% of the total revenue from the Applicants. He has also submitted that while calculating the ITC against the taxable value during the pre-GST period, the taxable value should be accordingly adjusted by giving effect to the above issues during the pre-GST and post-GST period and percentage of ITC should be accordingly recalculated.
It also demanded that:
a). The taxable value should be readjusted and ratio of ITC to taxable value should be recalculated during the pre-GST and post-GST period.
b). The cost of construction has increased an account of abnormal price rise of the inputs which should be taken in to account and accordingly set off should be given.
c). Set off should also be given on account of the liability of tax which was leviable on the sub-contractors.
The Authority concluded that this was a case of indulging in anti-profiteering activity by the respondent and ordered that the Respondent shall reduce the price to be realized from the buyers of the flats in commensurate with the benefit of ITC received by him as has been detailed above. Since the present investigation was only up to 28.02.2018 any benefit of ITC which shall accrue subsequently shall also be passed on to the buyers by the Respondent. It shall not only pass on the benefit to the 109 Applicants who are before us but to all the 2476 buyers as they are identifiable. Respondent was also directed to refund or reduce the amount, to the extent calculated above to each and every buyer at the time of collecting the last installment along with the interest @ 18% per annum to be calculated from the date of the receipt of the excess amount from each buyer, within a period of 3 months from the date of receipt of this order.
The Respondent had denied benefit of ITC to the buyers of the flats being constructed by it under the Policy in contravention of the provisions of Section 171(1) of the CGST Act, 2017 and has thus realized more price from them than he was entitled to collect and has also compelled them to pay more GST than that they were required to pay by issuing incorrect tax invoices and hence he has committed an offence under section 122 (1) (i) of the CGST Act, 2017 and therefore, he is liable for imposition of penalty. Accordingly, a Show Cause Notice be issued to him directing him to explain why the penalty prescribed under Section 122 of the above Act read with rule 133 (3) (d) of the CGST Rules, 2017 should not be imposed on him.
Further, the Authority, as per Rule 136 of the CGST Rules 2017 directed the Commissioner of State Tax Haryana to monitor this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent as ordered by the Authority is passed on to the all the buyers.
According to latest news Pyramid Infratech Pvt. Ltd. has moved to High Court over this order and the court has asked to take instructions whether order of anti-profiteering authority is appealable or not.