CCI Orders Re-Investigation into “Diya Greencity” Project Amidst Profiteering Allegations

In re Smt. Sudha Vs Diya Greencity Pvt. Ltd. (NAA)

Introduction: The Competition Commission of India (CCI) has directed a fresh investigation into the “Diya Greencity” project of Diya Greencity Pvt. Ltd. following a detailed report received from the Director-General of Anti-Profiteering (DGAP). The investigation stems from a complaint filed under Rule 128 of the Central Goods & Service Tax (CGST) Rules, 2017, by an aggrieved homebuyer, alleging non-passage of Input Tax Credit (ITC) benefits post the introduction of GST in 2017.

Background: The complainant, Smt. Sudha, had asserted that Diya Greencity Pvt. Ltd. failed to reduce flat prices in the “Diya Greencity” project, located at Raj Nagar Extension, Meerut Road, Ghaziabad, in proportion to the benefit of ITC accrued after the implementation of GST on July 1, 2017.

DGAP Investigation Findings: The DGAP’s report, dated April 20, 2023, outlined key points from its investigation:

1. The investigation period covered July 1, 2017, to October 31, 2022.

2. Diya Greencity Pvt. Ltd. had applied for the Completion Certificate for “Diya Greencity,” but it was rejected for non-compliance with formalities.

3. The Respondent claimed to have passed on the ITC benefit to 650 customers upon possession of flats, amounting to Rs. 3,81,70,416.

4. The DGAP found that post-GST, the Respondent benefitted from additional ITC of 5.43% of turnover, totaling Rs. 12,65,48,780.

5. The Respondent was alleged to have not fully passed on the benefit, as confirmed by only 102 out of 650 customers in the verification process.

6. A total of Rs. 42,11,007 in ITC benefit was confirmed as passed on by the Respondent to 64 customers.

7. The DGAP concluded that the Respondent contravened Section 171 of the CGST Act by not passing on the ITC benefit.

Response from Diya Greencity Pvt. Ltd.:

In response to the investigation report, Diya Greencity Pvt. Ltd. presented several arguments:

1. Illegality of Profiteering Methodology:

• The Respondent contended that the methodology adopted by DGAP was unconstitutional and inconsistent with Section 171(3) and Rule 126 of the CGST Rules 2017.
• Diya Greencity Pvt. Ltd. argued that the absence of a prescribed methodology for profiteering calculation rendered the entire process invalid.
• The Respondent cited cases challenging the constitutionality of anti-profiteering provisions pending in the Delhi High Court.

2. Applicability to Post-GST Bookings:

• Diya Greencity Pvt. Ltd. asserted that anti-profiteering provisions should not apply to customers who booked flats post-GST, claiming mutual agreement on prices.
• The Respondent referred to a Delhi High Court case involving M/s DRA Aadithya Projects Pvt. Ltd. as precedent for an interim stay on anti-profiteering investigations for post-GST period bookings.

3. Settlement with Smt. Sudha:

• Diya Greencity Pvt. Ltd. informed about a settlement with Smt. Sudha, who withdrew the complaint in exchange for a consideration price of Rs. 27,50,000.
• The Respondent argued that this settlement rendered the DGAP’s observation on passing on the ITC benefit to Smt. Sudha null and void.

4. Revision of Profiteering Amount:

• Diya Greencity Pvt. Ltd. challenged the DGAP’s calculation of profiteering amount, questioning the use of GST rates at 12% instead of the effective rates.
• The Respondent argued for a reduction in the profiteering amount due to the cancellation of flats and questioned the legality of adding GST to the profiteered amount.

Verification Process Accuracy:

• The Respondent disputed the accuracy of the DGAP’s verification process, claiming that ITC benefits had indeed been passed on to 38 customers.

Penalty under Section 171(3):

• Diya Greencity Pvt. Ltd. requested that no penalty be imposed under Section 171(3) of the CGST Act, stating compliance with Section 171.

CCI’s Decision and Re-Investigation Order: After considering the DGAP’s report, the Respondent’s submissions, and subsequent clarifications, the CCI found merit in some of the Respondent’s contentions. Consequently, the CCI has directed a re-investigation on specific issues:

• Verification of the settlement with Smt. Sudha and the impact on the complaint withdrawal.
• Assessment of whether certain flats fell under the Affordable Housing Scheme and if GST was to be charged at 8%.
• Examination of the impact of flat cancellations on the profiteering calculation.
• Re-evaluation of the verification process for passing on ITC benefits.

Conclusion: The CCI’s decision to order a re-investigation reflects its commitment to a thorough examination of allegations and fairness in competition. The re-investigation will shed light on critical aspects such as settlements, applicable GST rates, and accurate verification processes. This case highlights the complexities and challenges in enforcing anti-profiteering measures and emphasizes the need for transparency and adherence to legal procedures. The real estate industry, as well as consumers and stakeholders, await the outcome of the re-investigation, which will shape the narrative of compliance and accountability in the sector.

FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY

1. The present Report dated 20.04.2023 had 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. A reference was received by DGAP from the erstwhile National Authority Anti-profiteering (NAA) to conduct a detailed investigation in respect of an Application filed under Rule 128 of the CGST Rules, 2017, by Applicant No. 1 alleging profiteering in respect of Construction Service supplied by the Respondent. The above Applicant No. 1 alleged that the Respondent had not passed on the benefit of ITC to her by way of commensurate reduction in the price of the flat purchased from the Respondent in the project “Diya Greencity” situated at Raj Nagar Extension, Meerut Road, Ghaziabad on the introduction of GST w.e.f. 01.07.2017, in terms of Section 171 of the CGST Act, 2017.

2. The DGAP vide his Report dated 20.04.2023 had inter-alia submitted the following: –

i. On receipt of the reference from the NAA on 02.11.2022, a Notice under Rule 129 of the Rules was issued to Respondent calling upon the Respondent to reply as to whether he admitted that the benefit of ITC had not been passed on to the recipients by way of commensurate reduction in price and if so, to suo motu 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.

ii. The period covered by the current investigation was from 01.07.2017 to 31.10.2022.

iii. The DGAP issued the Notice dated 10.11.2022 and subsequent reminders to the Respondent. The replies of Respondent to DGAP are summed up as follows: –

a) The Respondent, having GSTIN: 09AADCD9607N1Z4, carries on the business of construction of flats and commercial shops as approved by Awas Bandhu, Dept. of Housing & Urban Planning Govt. of U.P Lucknow. The project was named “Diya Greencity” which was situated at Khasra No. 1097M & 1098, Village Morta, Hum turn Road, Raj Nagar Extension, Ghaziabad, Uttar Pradesh.

b) The Respondent submitted that there were 15 towers in the project “Diya Greencity”, named towers A to 0, and no Occupancy Certificate was received for the project “Diya Greencity” from the Ghaziabad Development Authority. The Respondent informed that he had applied for Completion Certificate but the same was rejected for want of fulfilment of certain formalities.

c) The Respondent also submitted that w.e.f. 01.04.2019, he had opted to pay tax at the existing rates with the full benefit of ITC in terms of Notification No. 03/2019-Central Tax (Rate).

d) The Respondent also submitted that no CENVAT Credit Register was maintained by him as no benefit of CENVAT Credit was availed by the Respondent in Pre-GST regime.

e) The Respondent submitted that he was registered under the UP-VAT Act, 2008 w.e.f. dated 23.08.2016.

f) The Respondent also informed that as per the agreement executed between the him and homebuyers/ allottees, it was agreed that every allottee was required to make the payment of instalment alongwith the amount of GST but none of the allottees had paid the GST at the time of payment of instalments and therefore the GST amount had been paid by the Respondent out of his own packet. The GST amount had been paid only by 650 allottees later on at the time of getting the possession of the flats. The Respondent informed that he had passed on the benefit of ITC to all these 650 customers at the time of getting the possession of the flats when he had paid the amount of GST and other pending dues also. The Respondent also submitted that total amount of benefit of ITC passed on to such customers was Rs. 3,81,70,416/-and except the above said 650 customers no other customer including the complainant/ Applicant No. 1 i.e. Mrs. Sudha had paid the amount of GST and other pending dues.

iv. The Respondent vide e-mail dated 06.03.2023, submitted copies of demand letters, for the sale of Flat no. 1-604 of Type-3B to the Applicant No. 1, measuring 807.36 square feet, at total base price of Rs. 24,36,500/- (including one car parking).

v. DGAP submitted that prior to 01.07.2017, i.e., before the GST was introduced, the Respondent was eligible to avail Credit of Service Tax paid on input services but no CENVAT Credit was available/ availed in pre-GST era, as per the VAT returns. The DGAP found that the Respondent had availed ITC of Rs. 1,15,34,080/- on VAT in the F.Y. 2016-17 and 2017-18 i.e. upto June-2017. Post-GST, the Respondent was entitled to avail ITC of GST paid on all the inputs and the input services including the sub-contracts. The Central Government, on the recommendation of the GST Council, had levied 18% GST (effective rate was 12% in view of 1/3rd abatement on value) on construction service, vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. From the information submitted by the Respondent for the period April, 2016 to July, 2022, DGAP had calculated the ratio of ITC to turnover, during the pre-GST (April, 2016 to June, 2017) and post-GST (July, 2017 to October, 2022) periods, as is shown in Table – ‘A’ below:

vi. From the above Table – DGAP has stated that the ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period (April, 2016 to June, 2017) was 0.55% whereas during the post- GST period (July, 2017 to October, 2022), this percentage was 5.98%. DGAP inferred from above Table that post-GST, the Respondent has benefited from additional ITC to the tune of 5.43% [5.98% (-) 0.55%] of the turnover. Accordingly, on the basis the figures contained in Table-A’ above, the comparative figures of the ratio of ITC availed/available to the turnovers in the pre-GST and post-GST periods. The DGAP recalibrated base price and the excess realization (profiteering) during the post-GST period, which are mentioned in Table- ‘B’ below:

vii. From Table-‘B’ above, the DGAP has claimed that the additional ITC of 5.43% of the turnover should have resulted in the commensurate reduction in the base price as well as cum-tax price. Therefore, in terms of Section 171 of the Central Goods and Services Tax Act, 2017, the benefit of such additional ITC was required to be passed on by the Respondent to the respective recipients.

viii. The Respondent vide his email dated 10.04.2023 sent to DGAP has submitted that he had charged GST from only 650 home buyers at the time of possession of flats and also GST rate charged from the above 650 home buyers was less than the effective rate of GST. Respondent claimed that eventually he had passed on Rs. 3,81,70,416/- of ITC benefits to the home buyers. To verify the claim of the Respondent DGAP sent emails to all 642 home buyers. Replies from only 102 Homebuyers have been received: out of 102 homebuyers, 23 denied that benefit of GST/Input Tax Credit was received by them, 64 have confirmed that GST discount had been received; and 15 were not sure whether the GST discount has been received by them or not. Hence, DGAP did not accept the contention of Respondent that benefit to all the homebuyers had been passed on. A summary of benefit of ITC required to be passed on and the ITC benefit claimed to have been passed on to the home buyers, has been furnished by DGAP which is shown in Table-‘C’ below:-

ix. DGAP submitted that as per above calculation, it is evident that the Respondent had benefitted by an additional amount of ITC of 12,65,48,780/- which included GST @12% on the base amount of 11,29,89,982/-.

x. DGAP finally concluded that the benefit of additional ITC to the tune of 5.43% of the turnover, accrued to the Respondent post-GST and the same was required to be passed on by him to the respective recipients. DGAP stated that the provisions of Section 171 of the Central Goods and Service Tax Act, 2017 were contravened by the Respondent, in as much as the additional benefit of ITC @ 5.43% of the base price received by the Respondent during the period 01.07.2017 to 31.10.2022 had not been passed on by him to his buyers. DGAP noticed that the confirmation from 64 home buyers has been received regarding the ITC benefit of Rs 42,11,007/- passed on by the Respondent as mentioned in above Table-C and this amount could be deducted from the total profiteered amount. From the above facts DGAP submitted that the Respondent was yet to pass on an additional amount of Rs. 12,23,37,773/- (Rs. 12,65,48,780/­(-) Rs. 42,11,007/-) to the 1333 home buyers which included the profiteered amount and GST on the said profiteered amount.

xi. Regarding Applicant No. 1, the DGAP submitted that the Respondent has realised an additional amount of 66,680/- from the Applicant No. 1. Further, the investigation revealed that the Respondent was required to pass on the additional benefit of ITC amounting to 12,22,71.093/- to other recipients in the present proceedings. These recipients are identifiable as per the documents provided by the Respondent, giving the names and addresses along with Unit No. allotted to such recipients.

xii. In view of the aforementioned findings, DGAP concluded that 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 ITC shall be passed on to the recipient by way of commensurate reduction in prices”, was contravened by the Respondent.

3. The above report was considered by the Commission and a copy of the investigation report dated 19.04.2023 was provided to the Respondent vide Notice dated 10.08.2023 to file his consolidated written submissions in respect of the above report of the DGAP. The Respondent vide letter dated 11.10.2023 filed his written submissions which are summarized as follows: –

i. That the methodology adopted to compute and determine the anti-profiteering by the respected Authority was illegal and was arbitrary as the same was unconstitutional.

The Respondent alleged that as per the provisions of Section 171 (3) read with Rule 126 of CGST Rules 2017 the methodology for computation of profiteering for transfer of commensurate benefit to the consumers was required to be prescribed but no such methodology had yet been prescribed under the law and the un-prescribed methodology as adopted by the Authority was being used uniformly to all the tax payers ignoring the different and distinct facts in each case. Also the present methodology adopted by the Authority was against the natural justice as it did not consider the external factors which adversely affect the tax payers which were beyond his control like high price escalations, COVID etc.

Thus, from the above facts, it was submitted by the Respondent that in the absence of any absolute mechanism to determine the amount of profiteering. the impugned DGAP report was erroneous and bad in law. Further the provisions contained under Section 171 of the CGST Act read with Rule 133(3)(a) of the CGST Rules, were bad in law and were violative of the settled principles of law as defined under Article 14 and 19(1)(g) of the Constitution of India.

Further, in case of M/S Samsung India Electronics Pvt. Ltd. vs. Union of India & Ors. it was contested that section 171 of the CGST Act and Rules 126, 127 and 133 of the CGST Rules be declared unconstitutional and ultra vires Articles 14, 19(I)(g), 246A, 265 and 300A of the Constitution. In addition to above the constitutional validity of anti-profiteering provisions had also been challenged in many other cases which were pending for disposal in the Hon’ble Delhi High Court.

ii. Application of Anti-profiteering provisions to the customers who had booked the flat during the post-GST period was not legally valid and justified

The Respondent submitted that 534 no. of flats in the project were booked and sold post-GST wherein the buyer and builder had mutually agreed upon at the then prevailing prices and agreement to sell was also signed post-GST only. Therefore, it was safe to assume that buyers were well aware of the implementation of GST, the then prevailing market prices and thereafter the agreement to sell were signed by them. As the agreements were signed post-GST, there was no question of application of provision of anti-profiteering on these flats since the buyers were well aware about the amount of GST they were required to pay.

The Respondent also relied upon the case of M/s DRA Aadithya Projects Pvt. Ltd wherein the Hon’ble Delhi High Court had granted an interim stay on an anti-profiteering investigation by DGAP on a complaint filed by home buyers who had booked units on or after 1 July 2017. The key argument advanced by the writ petitioner was that there was no element of passing of benefit under Section 171(1) of the CGST Act/ SGST Act for unit buyers whose agreement had been entered into during the introduction of GST, for the reason that there was neither change in the rate of tax nor there were any benefits of any additional ITC.

iii. Submission with respect to complaint filed by the customer Smt. Sudha

The Respondent had informed that the Applicant No. 1 Smt. Sudha was reluctant to purchase the flat and wished to get her money back with compensation. The Respondent had informed that he had settled the dispute with complainant and consequently both the parties had mutually agreed to execute a settlement deed dated 24.06.2023 whereby she had agreed to withdraw all the complaints which she had filed with all the Govt. agencies at consideration price of 27,50,000/- (Rupees twenty-seven lakh fifty thousand only). A copy of settlement deed was also provided alongwith his submissions. Accordingly the Respondent argued that the question of passing of the benefit of ITC to complainant did not arise and therefore the observation of the DGAP for passing of commensurate benefit of ITC of Rs. 66,680/- to complainant Smt. Sudha might be treated as null and void.

iv. The amount of additional benefit of ITC as determined by the DGAP needed revision in view of under noted facts and evidences not considered by the DGAP in framing his report.

a) The Respondent had argued that the DGAP had determined the amount of anti-profiteering by considering GST rate of tax @ 12% which was not correct as the applicable rate of GST was 12% w.e.f 01.07.2017 to 31.01.2018 and the net effective GST rate after considering 1131d abatement on value of affordable housing units having carpet area upto 60 Sq. Mtr. was 8% and was @ 12% on other housing units. The relevant Notification No. 11/2017-Central Tax (rate) dt. 28.06.2017 and 01/2018-Central Tax (Rate) dt. 25.01.2018 might be referred in this respect.

b) The Respondent had argued that after the issue of report of DGAP nine no. of affordable housing flats had been cancelled, so, the profiteered amount as computed by the DGAP in respect of these flats might be reduced.

c) The Respondent had argued that subject to the cancellation of flats the total profiteered amount determined by the DGAP might be reduced to the extent of amount of profiteering calculated in respect of 534 flats booked post-GST.

d) The Respondent had argued that the DGAP had calculated and added GST on the base price which was not legally justified as the GST charged and recovered by the respondent on the base price had already been paid to the GST Department which was not recoverable back to the Respondent in any manner. Therefore, it would cause double incidence of GST on the Respondent causing huge loss to him/it which was not legally justified and against the natural justice also.

v. The Respondent had alleged that as per the DGAP’s report the emails were sent to all the 650 home buyers to whom the benefit of ITC had been passed on by the Respondent for verification. 23 customers had denied and said that they had not received any benefit of ITC and 15 customers had said that they were not sure about it. The Respondent argued that in respect of above 38 customers, he had already given benefit of ITC to and therefore, the fact of denial as well as of uncertainty of receiving of benefit of ITC by all these 38 customers was not correct.

vi. The Respondent argued that no penalty under section 171(3) read with Rule 133(3)(d) might be imposed as the respondent was complying with the provisions of Section 171 of the GST.

4. Copy of the above submissions dated 11.10.2023 filed by the Respondent was supplied to the DGAP for providing clarifications under Rule 133(2A) of the CGST Rules, 2017. DGAP vide his letter dated 16.11.2023 had filed the clarifications as under : –

i. (Reply of Para 1) DGAP submitted that the methodology adopted by them in the Report was in line with the legal principles and this methodology of DGAP had been consistent throughout in all reports involving allegation of profiteering. DGAP further submitted that the case of Samsung India Electronics Pvt. Ltd. vs. Union of India & Ors., cited by the Respondent was not relevant in the present matter.

ii. (Reply of Para 2) DGAP submitted that the averment made by the Respondent regarding non-applicability of anti-profiteering provisions on the customers who have book flats post-GST period was incorrect. DGAP submitted that the Respondent had benefitted from additional ITC only after the introduction of the GST. This additional benefit of ITC pertains to the entire project or in other words relates to each flat/unit of the project of the Respondent. Hence all unit/flat buyers were eligible to get his due benefit of ITC from the Respondent irrespective of his bookings made in pre-GST or post-GST period. Whatever was the negotiated price, the benefit of additional ITC had to be specifically passed on to all the recipients by the Respondent.

iii. (Reply of Para 3) On the issue of the withdrawal of the complaint by the Applicant No. 1 Smt. Sudha, the DGAP clarified that the Respondent vide written submission dated 11.10.2023 submitted that the Applicant No. 1 had settled with the Respondent and both the parties mutually agreed to execute his settlement deed dated 24.06.2023. But DGAP further added that the Respondent had not made any submission or settlement deed during the time of investigation. Since the DGAP relied only on the verification from the customers themselves through emails regarding passing on the benefit of ITC„ the contention of the Respondent in this regard was not considered.

iv. (Reply of Para 4)

a. Regarding the claim that the net effective GST rate of 8% after considering 1/3rd abatement under the affordable housing units having carpet area upto 60 sq.mt was not considered by the DGAP, it was submitted that the Respondent had not claimed in any of his submissions that certain flats of the project “Diya Greencity” fell under the affordable scheme. Hence the contention of the Respondent had not been considered in the report.

b. Respondent raised an issue that after submission of report nine numbers of affordable flats had been cancelled so profiteering in respect of those flats might be reduced. In this regard the DGAP has clarified that since the investigation report had already been submitted to the Commission, the Commission might decide on this issue.

c. Respondent’s contention regarding non-applicability of anti-profiteering provisions on the bookings of flats in post-GST period was held incorrect by the DGAP.

d. Respondent’s contention regarding inflated profiteering amount due to addition of GST on the profiteered amount was also held unsustainable by the DGAP.

v. (Reply of Para 5) The Respondent has alleged that verification process carried out by the DGAP for ascertaining the amount of passing on the benefit of ITC, the denial and the uncertainty of receiving the benefit of ITC by the 38 customers was not correct. The DGAP here clarified that it had adopted a uniform practice of verifying the passing on of benefit of ITC from customers/homebuyers through emails only, therefore, the contention of the Respondent in this regard was not considered.

vi. (Reply of Para 6) With regard to the imposition of penalty under Rule 133(3)(d) of the CGST Rules 2017 on the Respondent, the DGAP has clarified that no clarification from DGAP was warranted as the applicability of the penalty would arise only after the final order was passed by the Commission.

5. The Commission has carefully considered the investigation report submitted by the DGAP; the submissions received from the Respondent and the clarifications received under Rule 133(2A) of the CGST Rules, 2017 from the DGAP. The Commission finds that the matter needs to be sent back to DGAP under Rule 133(4) of the CGST Rules, 2017 for re-investigation on the following issues:

i. Whether Smt. Sudha has received the benefit of ITC due to the settlement made by her with the Respondent as a consequence of which she has withdrawn her complaint?

ii. Whether some of the flats constructed by the Respondent fell under the ‘Affordable Housing Scheme’ and whether GST was to be charged on those flats @ 8%?

iii. To consider the claim of the Respondent regarding cancellation of flats/units in the project and calculate the profiteering accordingly.

iv. Verification of the ‘passing on of ITC benefit’ to homebuyers/customers be carried out afresh.

6. In view of the above, the DGAP is directed to submit a fresh investigation report under Rule 133(4) of the CGST Rules, 2017 on all above mentioned issues.

7 A copy of this order be supplied to all the parties free of cost and file be consigned after completion.