ATS Homes guilty of profiteering in its project ATS Picturesque Reprieves: NAA

Director General of Anti-Profiteering Vs ATS Homes Pvt. Ltd. (NAA)

The brief facts of the present case, are that a reference was received by the DGAP from the Standing Committee on Anti-profiteering on 15.10.2020 to conduct a detailed investigation in respect of an application filed under Rule 128 of the Central Goods and Services Tax Rules, 2017, alleging profiteering by the Respondent in respect of purchase of a flat in the Respondent’s project ‘ATS Picturesque Reprieves‘, situated at Plot No. SC-01, Sector-152, Noida, Uttar Pradesh. The Applicant No. 1 alleged that the Respondent had not passed on the commensurate benefit of input tax credit (ITC) to him by way of commensurate reduction and charged GST @ 12 % on the amount due to him against payment. He had submitted that the Respondent always communicated that he was working on the computation and would pass on the benefit of ITC (if determined) after the project completion/ handing over the project. However, he had not given certainty of doing the same. The Applicant No. 1 providing a copy of Allotment letter (consisting breakup of consideration, payment plan, and flat description) along with his application in form APAF, has requested to keep his application confidential.

In the instant case, there is no reduction of rate of tax during the relevant period and the only issue which is required to be decided by the Authority is as to whether Respondent is required to pass on the benefit of input tax credit. As mentioned in earlier paragraphs, DGAP has carried out investigation in the subject matter and collected relevant information/evidences from the Respondent and after the analysis of the same the DGAP has come to a conclusion that the Respondent as gained benefit of ITC on the supply of Construction services after the implementation of GST w.e.f. 01.07.2017 and the Respondent was required to pass on such benefit to the homebuyers by way of commensurate reduction in prices in terms of Section 171 of the CGST Act, 2017 during the period 01.07.2017 to 30.09.2020.

In view of the above facts and findings discussed in the earlier paras, this Authority agrees with the methodology adopted by the DGAP in its Report to calculate the profiteered amount. Hence, this Authority determines that the Respondent has realized an additional amount of Rs. 12,78,61,818/- which includes both the profiteered amount @ 5.69% of the taxable amount (base price) and GST @ 12% on the said profiteered amount from the 535 buyers/recipients (other than the Applicant No. 1) during the period from 01.07.2017 to 30.09.2020 which was required to be passed on to home buyers/customers/recipients of supply of his impugned project. Since the Applicant No. 1, had booked his unit in the impugned project and paid the amount in pre-GST period only hence the profiteering in respect of the Applicant No.1 has not been calculated by the DGAP.

The details of eligible buyers to whom supply was made by the Respondent in his impugned Project and to whom benefit of ITC is required to be passed on by the Respondent during the aforesaid period along with details of such additional amount is given in Annexure-`A’ to this Order.

Since, all the home buyers/recipients of supply are identifiable as per the documents placed on record therefore, the Respondent is directed to pass on the above said profiteered amount along with the interest @ 18% per annum (from the dates from which the said profiteered amount was collected by him from each of them till the date such amount is passed on/returned/refunded) to above said buyers/recipients, within a period of 3 months from the date of passing of this Order as per the details mentioned in Annexure-`A’, failing which the said amounts shall be recovered as per the provisions of the CGST Act, 2017.

For the reasons mentioned hereinabove and in the given facts and circumstances and also stated position of law we find that the Respondent has denied the benefit of ITC to the buyers of his flats/customers/recipients in contravention of the provisions of Section 171 ( 1 ) of the CGST Act, 2017. The Authority holds that the Respondent has committed an offence by violating the provisions of Section 171 (1) and therefore, he is liable for imposition of penalty under the provisions of Section 171 (3A) of the above Act. As the said provision has been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019, the Respondent is liable to penalty for the amount profiteered by him from 1.01.2020 onwards. Accordingly notice be issued to the Respondent for such purpose.

Accordingly, this Authority under Rule 133 (3) (a) of the CGST Rules, 2017, orders that the Respondents shall reduce the prices to be realized from the home buyers/recipients of supply in the above Project commensurate with the benefit of ITC received by him as detailed above.

This Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioners of CGST, Noida and SGST, Lucknow, Uttar Pradesh to monitor compliance of this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent (GST Registration No. 09AAJCA4360K1ZF) as determined by the Authority, is passed on to all the eligible home buyers/recipients of supply. It may be ensured that the benefit of ITC is passed on to each home buyer/recipient of supply as per Annexure-A attached with this Order along with interest @18% as prescribed. In this regard an advertisement of appropriate size to be visible to the public may also be published in minimum of two local Newspapers/vernacular press in Hindi/English/local language with the details i.e. Name of Respondent M/s ATS Homes Pvt. Ltd., 71192, Deepali, Nehru Place, New Delhi-1 10 019, for his Project “ATS Picturesque Reprieves”, situated at Plot No. SC-01, Sector-152, Noida, Uttar Pradesh and amount of profiteering Rs. 12,78,61,818/-, so that the concerned home buyers/recipients of supply can claim the benefit of ITC, if not passed on. Home buyers/recipients of supply may also be informed that the detailed Order is available on this Authority’s website www.naa.gov.in.

FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY

The instant Report dated 02.09.2021, has been furnished to National Anti-Profiteering Authority (this Authority) by the Applicant No. 2 i.e. Director General of Anti-Profiteering (DGAP) under Rule 129(6) of the Central Goods and Services Tax Rules, 2017. The brief facts of the present case, are that a reference was received by the DGAP from the Standing Committee on Anti-profiteering on 15.10.2020 to conduct a detailed investigation in respect of an application filed under Rule 128 of the Central Goods and Services Tax Rules, 2017, alleging profiteering by the Respondent in respect of purchase of a flat in the Respondent’s project “ATS Picturesque Reprieves”, situated at Plot No. SC-01, Sector-152, Noida, Uttar Pradesh. The Applicant No. 1 alleged that the Respondent had not passed on the commensurate benefit of input tax credit (ITC) to him by way of commensurate reduction and charged GST @ 12 % on the amount due to him against payment. He had submitted that the Respondent always communicated that he was working on the computation and would pass on the benefit of ITC (if determined) after the project completion/ handing over the project. However, he had not given certainty of doing the same. The Applicant No. 1 providing a copy of Allotment letter (consisting breakup of consideration, payment plan, and flat description) along with his application in form APAF, has requested to keep his application confidential.

2. On receipt of the aforesaid reference from the Standing Committee on Anti-profiteering on 15.10.2020, a Notice under Rule 129 of the CGST Rules 2017, was issued on 06.11.2020 by the DGAP, calling upon the Respondent to reply as to whether he admitted that the benefit of input tax credit had not been passed on to the recipients by way of commensurate reduction in price and if so, to suo moto determine the quantum thereof and indicate the same in his reply to the Notice as well as to furnish all documents in support of his reply.

3. The Respondent was afforded an opportunity by the DGAP to inspect the non-confidential evidences/information during the period 11.11.2020 to 12.11.2020, the Respondent rough his authorized representative, had availed of the said opportunity on 11.12.2020 and collected the non-confidential documents submitted by the Applicant No. 1.

4. The Applicant No. 1 vide e-mail dated 17.07.2021 (Confidential), was afforded an opportunity to inspect the non-confidential documents/reply furnished by the Respondent on 1.9.07.2021 or 20.07.2021 however, he vide his e-mail dated 17.07.2021 (Confidential), expressed his inability to visit the office due to on-going pandemic situation in the country and requested to share the details on e-mail therefore, the DGAP vide e-mail dated 19.07.2021 (Confidential), had provided the non-confidential details furnished by the Respondent, to him.

5. The period covered by the current investigation is from 07.2017 to 30.09.2020.

6. As per Rule 129(6) of the CGST Rules, the statutory time limit to complete the present investigation was upto 14.04.2021 but due to force majeure caused in the light of Covid-19 pandemic, the investigation could not be completed on or before the aforesaid date. However, in the light of the Notification No. 14/2021-Central Tax dated 01.05.2021, as amended vide Notification No. 24/2021-Central Tax dated 01.06.2021 issued by the CBIC, the last date for submission of report was extended upto 30.06.2021. Further, Hon’ble Supreme Court of India passed an Order dated 08.03.2021 in Suo Moto Writ Petition (Civil) No. 3 of 2020, wherein it was stated that “in cases where the limitation would have expired during the period between 15.03.2020 till 14.03.2021, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 15.03.2021. In the event the actual balance period of limitation remaining, with effect from 15.03.2021, is greater than 90 days, that longer period shall apply.” The above relief’ has been extended and the period from 14.03.2021 till further orders shall also stand excluded in computing the limitation period as per the Hon’ble Supreme Court’s Order dated 27.04.2021 passed in Miscellaneous Application No. 665/2021 in SMW (C) No. 3/2020.

7. In response to the Notice dated 06.11.2020 and various reminders and Summons, the Respondent has submitted his replies vide letters/e-mails dated 26.11.2020, 18.12.2020, 23.12.2020, 22.01.2021, 02.02.2021, 03.02.2021, 05.02.2021, 26.02.2021 23.03.2021, 26.03.2021, 15.04.2021, 20.07.2021, 23.07.2021 and 27.08.2021, which have been summed up by the DGAP as under:-

(a) The Respondent was engaged in the construction of residential projects and presently he has two projects in running. The project `ATS Picturesque Reprieves’ at Noida was launched in the end of 2016 which is still under construction and Occupancy Certificate has not been received by him.

(b) He has opted old scheme for discharging GST @ 12% (after 1/3^rd abatement towards Land) in accordance with the Notification No. 3/2019-Central Tax (Rates) dated 29.03.2019 w.e.f. 01.04.2019.

(c) The instant project “ATS Picturesque Reprieves Phase 1” has 932 units with total saleable area of 21,79,800 sq. ft. The tower wise summary details are as under in Table-‘A’:

Table-A

In respect of another project “ATS Picturesque Reprieves Phase-2” which attracted 5% GST without ITC, he has not availed any ITC.

8. The Respondent vide the above said letters/emails has submitted the following documents/information:-

a. Copies of GSTR-1 & 3B Returns for the period July, 2017 to Sep., 2020.

b. Copies of GSTR-9 returns for FY 2017-18 and 2018-19.

c. Copy of GSTR-9C return for FY 2017-18.

d. Copies of ST-3 and VAT returns for the period April, 2016 to June, 2017.

e. Copy of Trans-1.

f. Tax rates – pre-GST and post-GST.

g. Copy of audited Balance sheets for FY 2016-17, 2017-18 & 2018-19.

h. Copies of Sale agreement/Contract, all Demand Letters issued to the one of home buyer in the project “ATS Picturesque Reprieves.

i. Copy of Electronic Credit Ledger for the period July, 2017 to September, 2020.

j. Declaration in Annexure-IV to the Notification No. 3/2019-CT (Rate) dated 29.03.20219.

k. CENVAT/ Input Tax Credit register for the period April, 2016 to September, 2020.

l. Details of VAT, Service Tax and GST turnover, output tax liability payable and input tax credit availed by the Noticee.

m. Copy of Lease Deed dated 30.12.2015 b/w Noticee and NO1DA Authority.

n. Copy of Project Report submitted to RERA.

o. Copies of RERA Registration Certificates and Architect Certificates.

p. List of home buyers in the project “ATS Picturesque Reprieves” along with details of benefit passed on.

q. Copies of all documentary evidences vide which benefit passed on to the customers.

All the documents/information were classified by the Respondent as confidential in terms of Rule 130 of the Rules 2017.

9. The DGAP had scrutinized the submissions/replies of the Respondent, Applicant No. 1 and the documents/evidences on record and submitted his Investigation Report dated 02.09.2020 to this Authority, wherein the DGAP has inter alia stated that:-

(1). The main issues for determination were:-

• Whether there was benefit of reduction in the rate of tax or input tax credit on the supply of construction service by the Respondent, on implementation of 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 Central Goods and Services Tax Act, 2017.

(ii). The Respondent, vide e-mail dated 23.03.2021, submitted copies of demand letters and sale agreement for the sale of flat no. 18101 in tower-18, measuring 2350 square feet, at total base price of Rs. 1,04,91,853/-(including two car parkings). The schedule of payment is furnished in Table-13′ below:-

Table-B

(iii). As per para 5 of Schedule-III of the Central Goods and Services Tax Act, 2017 (Activities or Transactions which shall be treated neither as a supply of goods nor a supply of services) which reads as “Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building”. Further, clause (b) of Paragraph 5 of Schedule 11 of the Central Goods and Services Tax Act, 2017 reads as “(b) construction of a complex, building, civil structure or a part thereof including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier”. Thus, the input tax credit pertaining to the residential units and commercial shops which are under construction but not sold is provisional input tax credit which may be required to be reversed by the Respondent, if such units remain unsold at the time of issue of the completion certificate, in terms of Section 17(2) & Section 17(3) of the Central Goods and Services Tax Act, 2017, which read as under:-

Section 17 (2) “Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies”.

Section 17 (3) “The value of exempt supply under sub-section (2) shall be such as may be prescribed and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building”.

Therefore, the input tax credit pertaining to the unsold units may not fall within the ambit of this investigation and the Respondent is required to recalibrate the selling price of such units to be sold to the prospective buyers by considering the net benefit of additional input tax credit available to them

(iv). The impugned project `ATS Picturesque Reprieves’ was being developed in phased manner hence it was registered with RERA under two different registrations. Details are given below in Table- ‘C’:-

Table- C

(v) In the instant case, since, the reference received from the Standing Committee for initiation of investigation pertains to the Applicant No. 1 s’ unit situated in ‘Phase-1’ which has a separate RERA Registration, the scope of the present investigation has been limited to the extent of construction service supplied by the Respondent in the project “ATS Picturesque Reprieves Phase-1”. Further as per the Respondent, he had not availed any ITC for Phase-2 of the said project.

(vi) On the allegation of profiteering, prior to GST introduction, the Respondent was eligible to avail Credit of Service Tax paid on input services but no credit was available in respect of Central Excise Duty paid on inputs as per the CENVAT Credit Rules, 2004. With regard to VAT credit paid on purchase of inputs, Since, the Respondent was not collecting VAT from customers and discharging his output tax liability on deemed 10% value addition on purchase value in cash and there is no direct relation of turnover reported in VAT returns with the amount collected from home buyers hence, credit of VAT paid on purchase of inputs and the VAT turnover is not considered while computation of input tax credit ratio to taxable turnover in pre-GST regime. Whereas, in post-GST period, the Respondent was entitled to avail input tax credit of GST paid on all the inputs and the input services including the sub-contracts. From the information submitted by him for the period April, 2016 to September, 2020, the details of the input tax credits availed by him, his turnovers from the impugned project “ATS Picturesque Reprieve Ph-1”, the ratios of input tax credits to turnovers, during the pre-GST (April, 2016 to June, 2017) and post-GST (July, 2017 to September, 2020) periods, are tabulated below in Table-D:-

Table-D

(Amount in Rs.)

(vii). In view of the above Table-“D”, it is clear that the input tax credit as a percentage of the turnover during the pre- GST period (April, 2016 to June, 2017) and the post- GST period (July, 2017 to September, 2020), were 0.12% and 5.81% respectively, were available to the Respondent which confirms that the Respondent had benefited from additional input tax credit to the tune of 5.69% (5.81% – 0.12%) of the turnover. Accordingly, the profiteering has been examined by comparing the applicable tax rate and input tax credit available in the pre-GST period (April, 2016 to June, 2017) when Service Tax @ 4.50% was payable with the post-GST period (July, 2017 to September, 2020) when the effective GST rate was 12% (GST @18% along with 1/3^rd abatement for land value) on construction services as per Notification No.11/2017-Central Tax (Rate), dated 28.06.2017. However, on the basis the figures contained in Table- `D’ above, the comparative figures of the ratios of input tax credits availed/available to the turnovers in the pre-GST and post-GST periods as well as the turnover, the recalibrated base price and the excess realization (profiteering) during the post-GST period, are tabulated in Table- ‘E’ below.

Table-E

(amount in Rs.)

(viii) In view of the above Table-T’, it appears that the additional input tax credit of 5.69% of the turnover should have resulted in the commensurate reduction in the base price as well as cum-tax price. Therefore, the benefit of such additional input tax credit was required to be passed on by the Respondent to the respective buyers in terms of Section 171 of the CGST Act 2017. Accordingly, on the basis of the aforesaid CENVAT/input tax credit availability in the pre and post-GST periods and the details of the amount raised/collected by the Respondent from the Applicant No. 1 and other home buyers during the period 01.07.2017 to 30.09.2020, he had benefited by additional amount of input tax credit of Rs. 12,78,61,819/- including GST @12% on the base amount of Rs. 11,41,62,338/-. The buyers and unit no. wise break-up of this amount is given in Annex-22 of the aforesaid Report. This amount of profiteering doesn’t include profiteering w.r.t. to Applicant No. 1 since no demand was raised/ amount collected from him during the period 01.07.2017 to 30.09.2020 which was confirmed by him vide his e-mail dated 17.07.2021 by the DGAP.

(ix) The Respondent has supplied construction services in the State of Uttar Pradesh only.

(x) The Respondent, out of total 932 units, had booked 801 flats till 30.09.2020 out of which 535 units were booked in the post GST period from 01.07.2017 to 30.09.2020. Remaining 266 customers [801- 535] (including the Applicant No. 1) had booked their units in pre-GST period who had paid the amount in the pre-GST period. Since 266 customers had not paid any consideration during the period 01.07.2017 to 30.09.2020, the profiteered amount has been calculated in respect of aforesaid 535 customers by taking into account proportionate input tax credit in respect to the saleable area relevant to turnover/amount raised/collected from them during the period from 01.07.2017 to 30.09.2020 (period of investigation). In any case, if the input tax credit in respect of these 266 units is considered for calculation of profiteering in respect of 535 flats where payments have been received during period under investigation, the input tax credit as a percentage of turnovers would be erroneous. Hence, the benefit of input tax credit in respect of these 266 units might be calculated when the consideration is received from such units by taking into account the proportionate input tax credit in respect of such units.

(xi) The Respondent has claimed that he had passed on the benefit of Rs. 29,63,18,048/- (Rs. 24,46,34,694/- on the basic selling price itself at the time of booking and Rs. 5,16,83,534/- on tax invoices issued to customers) upto 30.09.2020 to these 535 home buyers and copies of invoices, price sheets and signed undertakings by the home buyers corroborating the said claim to the DGAP which were duly verified by him with the list of home buyers and found to be correct. Further, to confirm the aforesaid claim of the Respondent, DGAP had sent e-mail/reminders dated 16.07.2021 and 11.08.2021 to 207 (other than the Applicant No. 1) out of 535 home buyers whose email ids were made available by the Respondent, whether the amount of benefit received by them from the Respondent. In response, only 90 out of 207 home buyers replied (Annex-23 of the Report) by confirming the receipt of benefit of ITC from the Respondent.

(xii) The above claim of the Respondent of passing on the benefit of input tax credit could be confirmed only from 90 home buyers (amounting to Rs. 3,63,15,084/-). Further, in some cases, the Respondent had passed on the benefit of input tax credit more than the required commensurate benefit whereas in some cases, the benefit of input tax credit passed on was less than the required commensurate benefit. Summary of category-wise input tax credit benefit required to be passed on and the benefit passed on, is tabulated below in Table- ‘F’ below:

Table-F 

(amount in Rs.)

* Other buyers from whom confirmation not received.

(xiii) In view of the above Table-‘F’, DGAP has observed that the benefit passed on by the Respondent to the buyers is less than what he ought to have passed on in case of 450 home buyers (Sr. 1 & 3 of above table) by an amount of Rs. 10,27,63,809/-. Further, the benefit passed on by him, is higher than what he should have passed on in respect of 85 home buyers (Sr. 2 of above table) by an amount of Rs. 1,12,17,075/-. However, this excess benefit passed on to some recipients, cannot be set off against the additional benefit required to be passed on to the other recipients and it can only be adjusted against any future benefit that might accrue to such recipients.

(xiv) In conclusion, DGAP has submitted that the Respondent had benefitted to the additional input tax credit to the tune of 5.69% of the turnover in the post-GST which was required to be passed on by him to the respective buyers. On this account, DGAP has observed that the Respondent is yet to pass an additional amount of Rs. 10,27,63,809/- (including GST) to the 466 buyers as mentioned at Sr. No. 1 & 3 of Table-T’ above. These buyers are identifiable as per the documents provided by the Respondent, giving the names and addresses along with Unit No. allotted to such buyers. Therefore, this additional amount of Rs. 10,27,63,809/- is required to be passed on to such eligible buyers. Further, it also is observed that the Respondent had not raised any demand/collected any amount from the Applicant No. 1 during the period 01.07.2017 to 30.09.2020 which has also been confirmed by the Applicant vide his e-mail dated 17.07.2021, therefore, no profiteering has been computed with respect to the unit booked by the Applicant No. 1. The benefit of input tax credit in respect of his units may be calculated whenever demand is raised or the consideration is received from him by taking into account the proportionate input tax credit in respect of his unit.

(xv).  As the present investigation covers the period from 01.07.2017 to 30.09.2020 hence profiteering, if any, for the period post September, 2020, has not been examined as the exact quantum of input tax credit that will be available to the Respondent in future cannot be determined at this stage, when he is continuing to avail input tax credit in respect to the present project.

(xv). In view of the above findings, the Section 171(1) of the Central Goods and Services Tax Act, 2017, requiring 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”, has been contravened by the Respondent.

10. The above Report was carefully considered by this Authority and a Notice dated 25.02.2022 was issued to the Respondent to explain why the Report dated 02.09.2021 submitted by the DGAP should not be accepted and his liability for profiteering in violation of the provisions of Section 171 of the CGST Act 2017 should not be determined and penalty under section 171(3A) of the CGST Act 2017 read with Rule 133 (3)(d) of the CGST Rules 2017 should not be imposed. The Respondent was directed to file his reply to the allegations levelled in the aforesaid DGAP’s Report dated 02.09.2021. Accordingly the Respondent has filed his written submissions dated 22.05.2022 wherein the Respondent has inter alia stated that:-

(a). Calculations of profiteering done by DGAP is erroneous and conceptually flawed:-

(i). The periods from April 2016 to June 2017 and July 2017 to Sep 2020 for pre-GST and post-GST respectively have been considered for computation of ratios which are not equal, true and fair as ratios fluctuate.

(ii) The benefit which is required to be passed on under the provisions of Section 171 of the CGST Act, 2017, related to the ITC, was not available in pre-GST regime which is available in post-GST regime only. As extra ITC accrued to him on the account of goods only due to introduction of GST, hence such benefit of ITC was required to be passed on to the customers, only on goods but ITC of services was merged while calculating profiteering even though ‘ITC of services’, is neutral as it was available in both pre GST and post GST regime.

(iii) He had incurred extra cost due to increase in the tax rate on inputs. In any case, there is increase in ITC due to increase in tax rate on inputs/ input services then it doesn’t mean that he has benefitted to extra ITC due to introduction of GST.

(b). While calculating profiteering, the DGAP has taken Pre-GST Cenvat credit of Rs. 38,26,487/- whereas the actual value of Cenvat credit availed during the period was Rs 94,34,901/- accordingly, the profiteered amount would be reduced. Hence, the said benefit be allowed and profiteering amount be re-calculated.

(c) He had passed on the ITC benefit to all the buyers who booked flats in pre-GST as well as post GST period either through Credit Notes/Invoices or at the time of Agreement even though 85 buyers had confirmed the receipt of ITC benefit. He also claimed that the Customers who did not confirm/reply, could not be treated as if no ITC benefit had been passed to them as there was no denial of receipt of ITC benefit, has been received. The DGAP’s Report is erroneous to the extent it interprets “no Confirmation” as no ITC benefit passed on.

(d) Section 171 of CGST Act, 2017 & Rule 126 of the CGST Rules, 2017 are violative of Article 14 & Article 19(1)(g) of the Constitution.

(e) The DGAP has exceeded its jurisdiction in calculating the Profiteering without disclosing the name of the Applicant No. 1. In actual there is no such complainant. The action of DGAP is suo-moto, which is beyond jurisdiction and illegal.

(f) The DGAP report has exceeded its jurisdiction in calculating Anti-Profiteering in respect of the customers other than the Applicant No. 1 (if any) in the matter. In terms of the provisions of Anti profiteering as contained under CGST Act 2017, the DGAP cannot go beyond the complaint of the Applicant No. 1.

(g) He cannot be asked to reduce his profit in the business, as the Constitution provides him freedom to increase the prices of his services anytime for profit, GST Act cannot restrict his such profit. Further, the fresh contracts/bookings made in post GST, can have profits as per his discretion. The provisions of Section 171 of the CGST Act 2017, can be invoked for transition phase and it does not cover such contracts made in post GST period.

(h) The provisions of Section 171 of the CGST Act, 2017 are applicable to the long term/continuous contracts, they are not applicable to the fresh contracts made after 01/07/2017 (post-GST). The price was offered in post-GST after considering the cost of inputs, which was recalibrated as per new taxes. As the Customers had agreed to the applicable taxes and other terms and conditions as per the agreement hence, it cannot assumed that he has taken benefit of ITC on bookings made in  post-GST. Therefore, the allegation of profiteering on area for which agreements to sell had been entered after 01-07-2017 is totally baseless, illogical and not enforceable under the law.

(i). Various provisions of Anti-profiteering has been challenged in the High Courts on the following grounds:-

(i) Blanket power has been delegated by Central Government for exercising powers to Authority by Rules. Section should list the functions and duties of the Authority instead of Rules.

(ii) Word “Commensurate Reduction” has not been explained/ defined in the Act/ Rules. Motive behind the concept of anti-profiteering is of passing on the benefit of reduced tax rate or increased ITC benefit by giving recipient benefit by commensurate reduction in prices. The benefit has to be passed on as a proportionate benefit which has to be necessarily determined by offsetting any cost incurred by the supplier since it could not have been intended by the legislature that the supplier will bear the burden of any costs incurred towards providing the benefit of the increased ITC. Therefore, Section 171 of the Act is incomplete and vague as it does not define/describe the word “Commensurate reduction”.

(iii) Concept of anti-profiteering as given under Section 171 of the Act has ignored the inflation and other factors adding to the cost of other inputs used by taxpayer. Other factors such as increased cost of raw materials (for instance, the price of steel etc) has not been considered in the computation. Therefore, findings of DGAP report are based on a faulty interpretation of section 171 of the CGST Act.

(iv) No standard formula for profiteering has been prescribed under the law. Excessive delegation of power to the authorities.  Methodology should have been determined by the Parliament. Section 171 of the Act is ultra vires the constitution.

(v) The Authority does not have a judicial member in its committee. Therefore, it must consist of a judicial member in order to decide the case.

(vi) Section 171(1) & Section 171(2) of the Act are incomplete and vague as the clause of time period is missing in the provision. Section 171 (1) & Section 171(2) are ambiguous as they are open to time period as for how long Respondent needs to reduce prices and pass on the benefit to the recipient.

(vii) ITC benefit cannot be sole factor for determination of anti-profiteering. Increase in the cost of price of raw material will always have an effect of an increase in availed ITC, but this cannot not be treated as a determining factor for profiteering. Ratio of ITC upon sales turnover is not the correct yardstick for determining profiteering.

(viii) Peculiarities of Real Estate Industry have been completely ignored by the Authority while computing profiteered amount. In any development project, the developer seeks to sell the flats/commercial units at the inception of the project to ensure that adequate finance is available for the construction activity. The Authority should have appreciated the actual proportion and approached the proceedings accordingly.

In view of above, the DGAP’s Report is liable to be quashed accordingly.

11. The above said submissions dated 22.05.2022 of the Respondent were forwarded to the DGAP for clarifications under Rule 133(2A) of the CGST Rules, 2017. The DGAP vide his letter dated 27.06.2022, has furnished his clarifications on the contentions of the Respondent mentioned at para 10 supra, given as under:-

(i) Upon the contention mentioned at para 10 (a) supra:- The DGAP in his Report dated 02.09.2021, has adopted a mechanism which has been upheld by the Authority in several cases. The detailed calculation of profiteering for the project has been done in Tables ‘ID’ & ‘E’ of aforesaid Report, on the basis of information submitted by the Respondent. Hence the contentions of the Respondent are wrong and denied.

(ii) Upon contention mentioned at para 10 (b) supra:- The Respondent has executed two projects namely “ATS Picturesque Reprieves” and “ATS Knighthood Drive” and the total CENVAT available as per ST-3 Returns does not entirely pertains to the impugned project i.e., “ATS Picturesque Reprieves”. Moreover the figures of CENVAT credit availed for the impugned project, has been considered on the basis of information submitted by the Respondent to the DGAP during the investigation. Hence the contention of the Respondent is incorrect.

(iii) Upon contention mentioned at para 10 (c) supra:- The verification of Respondent’s claim of having passed on benefit of ITC to the buyers was done by the DGAP on the basis of replies received from the Applicant No. 1 & other buyers and it was observed that 85 home buyers out of 207 home buyers (to whom emails were sent by the DGAP for confirmation of receipt of ITC benefits), have confirmed the receipt of ITC benefit which was required to be passed on to them and the same has been incorporated in Table-F of para 22 of the Report by the DGAP. Further, in respect of other 445 home buyers from whom no reply / confirmation has been received or email IDs have not been provided by the Respondent, the DGAP vide Report dated 02.09.2021 has already concluded that the Respondent has to pass on the ITC benefit to them. Hence, Respondent’s contention is erroneous and denied.

(iv) Upon contention mentioned at para 10 (d) supra:- The objection raised pertains to legal interpretation of the provisions of Section 171 of CGST Act 2017, hence, he did not offer any comment on it.

(v) Upon contention mentioned at para 10 (e) supra:- The DGAP has initiated investigation upon receipt of reference from the Standing Committee on Anti-profiteering wherein complaint/Applicant No. 1 had requested to keep his application confidential. Accordingly the details of Applicant No. 1 have been kept confidential.

(vi) Upon the contention mentioned at para 10 (f) supra:- The DGAP has carried out the investigation for the entire project on the basis of Applicant No. 1’s complaint and in this regard, he has not violated any Anti-profiteering provision contained in the CGST Act 2017 by doing so.

(vii) Upon contention mentioned at para 10 (g) supra:- The Respondent can fix his prices and profit margins in respect of the supplies made by him. Vide the anti-profiteering provisions enshrined in Section 171 of the CGST Act 2017 and Rules made thereunder, the DGAP has only been mandated to investigate whether both the benefits of ITC and Tax reduction which are derived from the sacrifice of precious indirect tax revenue of the Central and the State Governments, are passed on to the end consumers who bear the burden of indirect tax. The intent of this provision is the welfare of the consumers who are voiceless, unorganized and vulnerable.

(ix) Upon contention mentioned at para 10 (h) supra:- The Respondent was benefitted with additional ITC due to introduction of the GST. Since, the said additional benefit of ITC pertained to each flat/unit of impugned project of the Respondent, hence the same was required to be passed on by the Respondent to all eligible buyers of the project by way of commensurate reduction in prices under the provision of section 171 (1) of the CGST Act, 2017. Therefore the contention of the Respondent is incorrect.

(ix). Upon contention mentioned at para 10 (i) supra:- The provisions of Anti-Profiteering have been challenged before Hon’ble High Courts on various grounds, no final order has yet been passed in any of the cases by any of Hon’ble High Courts. Until such time, the investigation is to be carried out on the basis of the current legal provisions.

12. In the interest of natural justice, hearing on 03.08.2022 was granted to the interested parties and the Respondent wherein the Respondent has re-iterated his arguments made by him vide his earlier submissions dated 22.05.2022 which have already been taken on record.

13. The Authority has carefully considered the Reports of the DGAP, the submissions filed by the Respondent and the other material placed on record including submissions made during hearings. The Authority finds that the Applicant No. 1 (who requested to keep his application confidential) had filed a complaint against the Respondent alleging that the Respondent had not passed on the benefit of ITC to him by way of commensurate reduction in price on the purchase a flat in the “ATS Picturesque Reprieves” Project which was executed by the Respondent at Sector-152, Noida, Uttar Pradesh. The said complaint was examined by the Standing Committee on Anti-Profiteering and forwarded to the DGAP for detailed investigation on 15.10.2020, who vide his investigation Report dated 02.09.2021 furnished to this Authority, had stated that the Respondent is engaged in the construction of residential projects, has constructed/developed the impugned project in two phases comprising “ATS Picturesque Reprieves Phase-I and Phase-II” having separate RERA registrations. Since Phase-II of the project attracts 5% GST without ITC and the complaint filed by the Applicant No.1 was pertaining to Phase — I therefore the investigation of the DGAP is restricted to Phase — I of the said project containing 932 units with total area of 21,79,800 sq.ft. As the input Tax Credit (ITC) @ 5.81% and 0.12% of the turnover were available to the Respondent during the post-GST period and pre-GST period respectively as per the Table- D mentioned at para 9(vi) supra, therefore, the DGAP has concluded that the Respondent had benefited from the additional ITC to the tune of 5.69% (5.81% – 0.12%) of the turnover during the period from 01.07.2017 to 30.09.2020, which was required to be passed on to buyers of Phase-I of the impugned Project. The DGAP had also found that the Respondent has not reduced the basic prices of his flat by 5.69% due to the additional benefit of ITC. Accordingly, he has contravened the provisions of Section 171 of the CGST Act, 2017 and Rules made thereunder. The DGAP had concluded that the benefit of Rs. 12,78,61,818/-(including GST@ 12%) was to be passed on by the Respondent to 535 buyers/recipients for the period from 01.07.2017 to 30.09.2020 under the provisions of Section 171 of the CGST Act, 2017. Further the DGAP has found that since, the Respondent has passed on the benefit of ITC of Rs. 2,50,98,009/- to 90 buyers (Rs. 2,38,99,702/- to 85 buyers and Rs. 11,98,307/- to 05 buyers). Hence, according to the DGAP, the Respondent is yet to pass on the ITC benefit of Rs.10,27,63,809/- to 450 buyers as mentioned at Table-F above whereas the Respondent has claimed to have passed the ITC benefit of Rs. 29,63,18,048/- to 535 buyers as per annexure 22 to 26 of the above said Report of DGAP.

14. As per the said Report, only 90 home buyers/customers/recipients out of 535 eligible home buyers/customers/recipients have confirmed receipt of some ITC benefit and the remaining home buyers/customers/recipients did not respond to the communication sent by the DGAP. Thus, evidence in respect of only 90 out of 535 eligible customers/recipients has been submitted. Also, out of such 90 recipients, 5 are said to have received only partial benefit. Hence, this Authority finds that, the above claims of the Respondents and the DGAP’s verification is neither definitive nor conclusive. Hence, the same cannot be accepted.

15. The Authority finds that the DGAP has computed the ratio of CENVAT as a percentage of the turnover for the pre-GST period and compared it with the ratio of ITC to the turnover for the post-GST period, and then computed the percentage of the benefit of additional ITC which the Respondent was required to pass on to the flat buyers/recipients. The above ratios had been computed by the DGAP based on the data/details provided by the Respondent which have been duly verified from his Service Tax and GST Returns filed by him for the period April 2016 to June 2017 and July 2017 to September 2020 respectively. Since, the ratios calculated by the DGAP are based on the factual record submitted by him; hence they can be relied upon while computing the profiteered amount. The above methodology has been approved by this Authority in all such cases where the benefit of ITC was required to be passed on to the flat buyers/recipients of construction service.

16. The Authority finds that the contentions of the Respondent mentioned at para 10 (d) & (f) supra, are completely incorrect as the Parliament as well as all the State Legislatures have delegated the task of framing of the Rules under the CGST Act, 2017 on the Central Government as per the provisions of Section 164 and 171(3) of the CGST Act, 2017. Section 171 of the CGST Act, 2017 and the Rules do not infringe upon the fundamental right of equality or right to carry on business of any individual.

17. The mandate of Section 171 is limited to the extent of protecting the interest of consumers by ensuring that both the benefits of tax reduction and ITC, which are the sacrifices of precious tax revenue made from the kitty of the Central and the State Governments, are passed on to the end consumers who bear the burden of the tax. The intent of this provision is the welfare of end consumers, who are unorganized and vulnerable and it is the bounden duty of the Government to ensure that the benefit of the reduction in the tax or the benefit of ITC is passed on to the end consumers. The Respondent is absolutely free to exercise his rights to practice any profession, or to carry on any occupation, trade or business, as per the provisions of Article 19 (1) (g) of the Constitution. He can also fix his prices and profit margins in respect of the supplies made by him. Moreover, the said provisions nowhere intervene in the business decisions of the suppliers. These provisions were made only to ensure that the benefits of tax reduction and ITC are passed to the consumers as per the specific provisions of Section 171 (1) of the CGST Act, 2017. The said provisions do not violate right to property as there is no deprivation of his property by any anti-profiteering provision enshrined in CGST Act, 2017 and the Rules. Hence, there is no violation of Article 19 (1) (g) and Article 300A of the Constitution of India.

18. Further, this Authority which has been constituted under section 171 of the CGST Act passes detailed and reasoned orders after careful examination of Investigation Report of the DGAP, documents/information submitted by the applicants and the suppliers and ample opportunity of hearing is accorded to the interested parties following principles of natural justice hence there is no question of violation of Article 14 of the Indian Constitution. Hence, the reasons stated herein above, such contention of the Respondents is untenable.

19. On the contentions of the Respondent mentioned at para 10 (i) supra, this Authority finds that the Anti-profiteering provisions enshrined under Section 171 of the CGST Act 2017 and Rules made thereunder, have been challenged by the several petitioners in the different High Courts on various grounds but it is apposite to mention that all the petitions are subjudice and no order has been passed by any of the High Court against the said provisions as on till date. Therefore the contentions of the Respondent are not maintainable.

20. In view of the above, discussion, findings and after taking into consideration the provisions of the law and the submissions made by the Respondents, the issues to be decided are as under:-

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 CGST Act, 2017.

21. In the instant case, there is no reduction of rate of tax during the relevant period and the only issue which is required to be decided by the Authority is as to whether Respondent is required to pass on the benefit of input tax credit. As mentioned in earlier paragraphs, DGAP has carried out investigation in the subject matter and collected relevant information/evidences from the Respondent and after the analysis of the same the DGAP has come to a conclusion that the Respondent as gained benefit of ITC on the supply of Construction services after the implementation of GST w.e.f. 01.07.2017 and the Respondent was required to pass on such benefit to the homebuyers by way of commensurate reduction in prices in terms of Section 171 of the CGST Act, 2017 during the period 01.07.2017 to 30.09.2020.

22. In view of the above facts and findings discussed in the earlier paras, this Authority agrees with the methodology adopted by the DGAP in its Report to calculate the profiteered amount. Hence, this Authority determines that the Respondent has realized an additional amount of Rs. 12,78,61,818/- which includes both the profiteered amount @ 5.69% of the taxable amount (base price) and GST @ 12% on the said profiteered amount from the 535 buyers/recipients (other than the Applicant No. 1) during the period from 01.07.2017 to 30.09.2020 which was required to be passed on to home buyers/customers/recipients of supply of his impugned project. Since the Applicant No. 1, had booked his unit in the impugned project and paid the amount in pre-GST period only hence the profiteering in respect of the Applicant No.1 has not been calculated by the DGAP.

23. The details of eligible buyers to whom supply was made by the Respondent in his impugned Project and to whom benefit of ITC is required to be passed on by the Respondent during the aforesaid period along with details of such additional amount is given in Annexure-`A’ to this Order.

24. Since, all the home buyers/recipients of supply are identifiable as per the documents placed on record therefore, the Respondent is directed to pass on the above said profiteered amount along with the interest @ 18% per annum (from the dates from which the said profiteered amount was collected by him from each of them till the date such amount is passed on/returned/refunded) to above said buyers/recipients, within a period of 3 months from the date of passing of this Order as per the details mentioned in Annexure-`A’, failing which the said amounts shall be recovered as per the provisions of the CGST Act, 2017.

25. For the reasons mentioned hereinabove and in the given facts and circumstances and also stated position of law we find that the Respondent has denied the benefit of ITC to the buyers of his flats/customers/recipients in contravention of the provisions of Section 171 ( 1 ) of the CGST Act, 2017. The Authority holds that the Respondent has committed an offence by violating the provisions of Section 171 (1) and therefore, he is liable for imposition of penalty under the provisions of Section 171 (3A) of the above Act. As the said provision has been inserted in the CGST Act, 2017 w.e.f. 01.01.2020 vide Section 112 of the Finance Act, 2019, the Respondent is liable to penalty for the amount profiteered by him from 1.01.2020 onwards. Accordingly notice be issued to the Respondent for such purpose.

26. Accordingly, this Authority under Rule 133 (3) (a) of the CGST Rules, 2017, orders that the Respondents shall reduce the prices to be realized from the home buyers/recipients of supply in the above Project commensurate with the benefit of ITC received by him as detailed above.

27. This Authority as per Rule 136 of the CGST Rules 2017 directs the Commissioners of CGST, Noida and SGST, Lucknow, Uttar Pradesh to monitor compliance of this order under the supervision of the DGAP by ensuring that the amount profiteered by the Respondent (GST Registration No. 09AAJCA4360K1ZF) as determined by the Authority, is passed on to all the eligible home buyers/recipients of supply. It may be ensured that the benefit of ITC is passed on to each home buyer/recipient of supply as per Annexure-A attached with this Order along with interest @18% as prescribed. In this regard an advertisement of appropriate size to be visible to the public may also be published in minimum of two local Newspapers/vernacular press in Hindi/English/local language with the details i.e. Name of Respondent M/s ATS Homes Pvt. Ltd., 71192, Deepali, Nehru Place, New Delhi-1 10 019, for his Project “ATS Picturesque Reprieves”, situated at Plot No. SC-01, Sector-152, Noida, Uttar Pradesh and amount of profiteering Rs. 12,78,61,818/-, so that the concerned home buyers/recipients of supply can claim the benefit of ITC, if not passed on. Home buyers/recipients of supply may also be informed that the detailed Order is available on this Authority’s website www.naa.gov.in.

28. Contact details of concerned Jurisdictional CGST/SGST Commissioner may also be advertised through the said advertisement. A report in compliance of this Order shall be submitted to this Authority and the DGAP by the Commissioners CGST /SGST within a period of 4 months from the date of receipt of this Order.

29. The present investigation has been conducted up to 30.09.2020 only. However, the Respondent is liable to pass on the benefit of ITC which would become available to him till the date of issue of Completion Certificate. Accordingly, the concerned jurisdictional Commissioner CGST/SGST are directed to ensure that the Respondent passes on the benefit of ITC to the eligible home buyers/recipients of supply as per the methodology approved by this Authority in the present case and submit report to this Authority through the DGAP. The Applicant No. 1 or any other interested party/person shall also be at liberty to file complaint against the Respondent before the Uttar Pradesh State Screening Committee in case the remaining benefit of ITC is not passed on to them.

30. In view of facts discussed hereinabove and the findings thereof, the Authority has reason to believe that since the Respondent has been found to have contravened the provisions of Section 171 of the CGST Act 2017 in respect of the subject Project “ATS Picturesque Reprieves” and hence there is every possibility that similar contravention may has taken place with his other projects. This Authority in terms of Rule 133 (5)(a) of the CGST Rules 2017 also directs the DGAP to investigate profiteering in relation to other Projects executed by the Respondent, if any, under the provision of section 171 of the CGST Act 2017.

31. The Hon’ble High Court of Delhi, vide its Order dated 10.02.2020 in the case of Nestle India Ltd. & Anr. Vs. Union of India has held that:-

“We also observe that prima facie, it appears to us that the limitation of period of six months provided in Rule 133 of the CGST Rules, 2017 within which the authority should make its order from the date of receipt of the report of the Directorate General of Anti Profiteering, appears to be directory in as much as no consequence of non-adherence of the said period of six months is prescribed either in the CGST Act or the rules framed thereunder.”

In view of the above, it is clear that the time limit of 06 months provided in Rule 133 (1) of the CGST Rule 2017, is directory in nature to determine and to pass an order by this Authority. Hence this order having been passed today under Rule 133 (1) of the CGST Rules 2017.

32. A copy each of this order be supplied, free of cost, to the DGAP, the Applicant No. 1, the Respondent, the Commissioners of CGST, Noida and SGST, Lucknow, Uttar Pradesh, the Secretary (Town and Country Planning) Govt. of Uttar Pradesh and Uttar Pradesh RERA for necessary action. File be consigned after completion.

Annexure:- Annexure-`A’ in Pages 1 to 8.