Indian Oil Corporation Ltd. Vs Gopal Teknocon Private Limited (NAA)
It is accepted fact that petroleum products play a very important role in day-to-day life of an individual and also fuel the economy. It is also well-known fact that refining and further processing and delivery of the petroleum product is a continuous process and any delay on account of any activity/construction/service may have a far reaching consequences, which would not only disrupt the supply chain but also pose safety hazards to the people and may also cause environmental concerns. The Applicant No. 1 i.e. IOCL in it’s letter dated 13.04.2022 has highlighted the need for placing the order of supply on the Respondent and have contended that they had no option of inviting fresh tenders but to go along with tender which was floated, before the implementation of GST. The IOCL i.e. Applicant No. 1 in their letter dated 13.04.2022 have worked out the amount of discount which should have been provided to them by the Respondent.
The benefits of tax reduction and ITC under the provisions of Section 171 (1) of the CGST Act, 2017 are being granted by the Central and the State Governments out of the public exchequer and not from the accounts of the suppliers and hence they are to be passed on as per the mandate of the above provisions by commensurate reduction in the prices. Although the supplier and the recipient can negotiate the prices to be charged at the time of the supply of goods and services, however, the terms and conditions of negotiation would be dependent upon facts/factors prevailing at the relevant time and also prevailing circumstances. The Applicant No. 1 i.e. IOCL has brought before the Authority vide letter dated 13.4.2022 various facts and the situation under which, the negotiation was carried out and the need to continue with the instant tender, it would be prudent that the various points/facts brought out in the said letter dated 13.4.2022 are examined.
The DGAP vide Para 18 (e) of his Report has also stated that the Respondent had not made any purchases in the pre GST era and hence there was no availability of CENVAT/VAT which could be compared with the ITC of post GST era. In this regard it would be appropriate to mention that the Respondent has himself claimed to have passed on benefit of ITC to the Applicant No. 1 amounting to Rs. 23,22,493.68/- in respect of both the Contracts. It is quite apparent from the submissions of the Respondent relied upon by the DGAP in his Report that he has computed the above amount by comparing the tax rates prevalent during the pre GST period and the ITC available on VAT. Therefore, it was incumbent upon the DGAP to investigate whether the methodology and the computations of the benefit of GST so made by the Respondent were correct or not and submit his findings to this Authority.
FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY
1. The present Report dated 29.01.2021 has been received from the Applicant No. 2 i.e. the Director General of Anti-Profiteering (DGAP) after detailed investigation under Rule 129 (6) of the Central Goods & Service Tax (CGST) Rules, 2017.The brief facts of the case are that an Application was filed by the Applicant No. 1 under Rule 128 of the CGST Rules, 2017 before the State Screening Committee on Anti-Profiteering alleging profiteering by the Respondent, in respect of awarding of a contract for Maintenance and Inspection of Crude Oil Storage Tanks vide which the Applicant No. 1 was not satisfied with the amount of discount offered and had also alleged that the Respondent had not passed on the benefit of Input Tax Credit to him by way of commensurate reduction in price, in terms of Section 171 of the Central Goods & Services Tax Act, 2017. The Applicant No. 1 had also submitted the following documents along with his application:-
(a) Duly filled in Form APAF-1.
(b) Letter of Acceptance of Work Order No.- 25161693 dated 30.06.2017 with respect to Tender No.PWRJT16078.
(c) Letter of Acceptance of Work Order No.- 25444188 dated 28.03.2018 with respect to Tender No.PWRJT16078.
(d) Letter to Special Commissioner, SGST, Ahmedabad.
2. The State Screening Committee had initially examined the matter and upon being satisfied that the Respondent had contravened the provisions of Section 171 of the CGST Act, 2017, forwarded the same with its recommendation, to the Standing Committee on Anti-Profiteering for further action, in terms of Rule 128 (2) of the CGST Rules, 2017. Further, the Standing Committee referred the same to the Directorate General of Anti-Profiteering (DGAP) on 07.08.2020 in terms of Rule 129 (1) of the CGST Rules, 2017 to conduct a detailed investigation in the matter.
3. Accordingly, investigation was initiated by the DGAP to collect necessary evidence to determine whether the benefit of Input Tax Credit had been passed on by the Respondent to the Applicant No. 1 in respect of the service supplied by the Respondent. The DGAP had issued a notice dated 04.09.2020 under Rule 129 of the CGST Rules, 2017 calling upon the Respondent to submit his reply as to whether he admitted that the benefit of Input Tax Credit, had not been passed on to the Applicant No. 1 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 furnish all supporting documents. Vide the said Notice, the Respondent was also given an opportunity to inspect the non-confidential evidence/information furnished by the Applicant No. 1. The Respondent availed of this opportunity on 19.01.2021.The DGAP has informed that the period covered in the current investigation was from 01.01.2019 to 31.07.2020.
4. The DGAP has further stated that the time limit to complete the investigation was till 06.02.2021. However, in terms of Notification No. 35/2020-Central Tax dated 03.04.2020, Notification No. 55/2020-Central Tax dated 27.06.2020, Notification No.65/2020- Central Tax dated 01.09.2020 and Notification No. 91/2020 dated 14.12.2020 where, any time limit for completion/furnishing of any report, has been specified in, or prescribed or notified under the Central Goods and Service Act, 2017 which fell during the period from the 20th day of March, 2020 to the 30th day of March, 2021, and where completion or compliance of such action has not been made within such time, then, the time limit for completion or compliance of such action was extended upto 31.03.2021.
5. Further, the DGAP has claimed in his report that in response to the Notice dated 04.09.2020, the Respondent submitted his reply vide letters and e-mails dated 11.09.2020, 07.10.2020 and 25.01.2021 to the DGAP. The detailed submissions of the Respondent vide letter dated 11.09.2020 are as follows:-
(a) The Respondent stated that the work executed by the Respondent for the Applicant No. 1 had commenced during the GST era i.e. after GST had came into effect.
(b) That the tender had been floated for Maintenance and Inspection of 2 number of 76 Diameter Crude Oil Storage Tanks vide tender number PWRJT16078 dated 31.12.2016 and the rate for tender no. PWRJT16078 dated 31.12.2016 for both the tanks was floated as a Single Tender on 28.01.2017.
(c) That the technical bid was opened by the Applicant No. 1 on 18.02.2017. The price bid was opened by the Applicant No. 1 on 06.04.2017. After opening of price bid they were declared the L1 party. The rate quoted by the Respondent for the said tender was Rs. 15,85,82,517.75/-, which was inclusive of VAT and exclusive of Service Tax.
(d) That the Applicant No. 1 had called for 1st round of price negotiations on 15.04.2017. As the Respondent was aware that the GST was coming into effect from 01.07.2017, he had given discounts during various stages of price negotiations. After the 3rd round of negotiations, the Applicant No. 1 had issued Purchase Order No. 25161693 dated 30.06.2017 for an amount of Rs 7,49,63,810.98/- for 1 Crude Tank MT-05 only.
(e) That, subsequently, the Applicant No. 1 had called for price negotiation on account of onset of GST on 05.08.2017. The Respondent offered an amount of Rs. 11,61,246.84/- as discount during these negotiations. After the GST Price Negotiation, the Applicant No. 1 had issued a Revision Work Order No. 25161693 dated 30.06.2017 without any change in the work order date 30.06.2017. The revision work order was sent to the Respondent through e-mail dated 06.11.2017, the value of revision purchase order was Rs. 7,38,03,474.90/-. Entire input procurement required for subject work was made in GST regime and entire output supplies were also made in the GST regime.
(f) That, on 07.03.2018, the Applicant No. 1 had called for price negotiations on account of on-Set of GST for the 2nd Tank MT-03. The Respondent had again offered an amount of Rs. 11,61,246.84/- as discount during these negotiations. Further, the Applicant No. 1 had issued LOA/Work order No. 25444188 dated 27.03.2018 with a value of Rs. 7,38,03,474.90/-. Entire input procurement required for subject work was made in GST regime and entire output supplies were also made in GST regime.
(g) That the Respondent had passed benefit of Rs 1,09,77,393.68/- to the Applicant No. 1 as a result of ON-SET of GST by offering discounts on his quoted price/rate during various stages of price negotiations with the officers of IOCL at his Rajkot office.
(h) That, if the Applicant No. 1 had any grievance they should have abstained from giving consent to the offers made by them. Instead, the Applicant No. 1 had issued revised purchase order showing his consent for the final price which the Respondent clearly stated as price without taxes. After all negotiations, the Applicant No. 1 had also signed revised agreement with revised price plus GST.
6. The DGAP submitted that vide the aforementioned letters, the Respondent submitted the following documents/information:-
(a) Copies of GSTR-1 returns for the period July, 2017 to July, 2020.
(b) Copies of GSTR-3B returns for the period July, 2017 to July, 2020.
(c) Invoice wise outward supplies from November, 2017 to July, 2020.
(d) Sample copies of the invoices post 01.07.2017.
(e) Electronic Credit Ledger for the period July, 2017 to July, 2020.
(f) Brief Profile of the Respondent.
(g) Copies of GSTR-9 returns for the period July, 2017 to March, 2018.
(h) Copies of Balance Sheets for the FY 2017-18 & 2018-19.
(i) Output GST and ITC of GST for the period July, 2017 to July, 2020.
(j) Correspondence letters with M/s IOCL, Gujarat with respect to Anti-profiteering measures in the post GST era.
7. The DGAP has claimed that the subject application, various replies of the Respondent and the documents/evidences on record had been examined and the main issues for determination by the DGAP were: –
(i) Whether there was benefit of reduction in rate of tax or input tax credit on the supply of construction service by the Respondent after implementation of GST w.e.f. 01.07.2017 and if so,
(ii) Whether the Respondent has passed on such benefit to the recipient by way of commensurate reduction in price, in terms of Section 171 of the Central Goods and Services Tax Act, 2017.
8. The DGAP has submitted that on perusal of Respondent’s submissions, it was observed by him that the Respondent had refuted the claim of the Applicant No. 1 and submitted that entire input procurement required for subject work was made in the GST regime and entire output supplies were also made in GST regime. It was also submitted that if the Applicant No. 1 had any grievance he should have abstained from giving consent to the offers made by him. Instead, the Applicant No. 1 had issued revised purchase orders showing his consent for the final price which the Respondent clearly stated as price without taxes. After all negotiations, the Applicant No. 1 had also signed revised agreement with revised price plus GST.
9. The DGAP has further submitted that submissions of the Applicant No. 1 were scrutinised and from the perusal of the facts/documents and calculation chart showing minimum commensurate discount submitted by the Applicant No. 1, the DGAP observed that no concrete evidence was produced by him so as to arrive at actual profiteering, if any. The calculation of profiteering submitted by the Applicant No. 1 was based on assumption that 40% of the material was excisable. It was also observed by the DGAP from the reply of the Respondent that he had not filed VAT Returns and ST-3 Returns as he had no business before 01.07.2017. Therefore, there was no pre-GST transaction. Thus, there was no pre-GST VAT/CENVAT credit available to the Respondent for comparison to arrive at additional benefit on account of GST. Hence, the profiteering could not be determined on assumptions or available documents. However, before coming to any conclusion, the DGAP found it necessary to procure all the documents and correspondences leading to determination of profiteering. Accordingly, vide letters dated 23.12.2020, copy of reply submitted by the Respondent was supplied to the Applicant No. 1 and the copy of complaint was given to the Respondent, in terms of Rule 129(4) of the Rules, and both the interested parties were requested to submit their comments with evidence.
10. It was further submitted by the DGAP that the Applicant No. 1 vide his letter/e-mail dated 08.01.2021 submitted the following: –
(a) That he had issued work order No. 25161693 dated 30.06.2017 for M & I of Tank No. MT-05 at WRPL Mundra to the Respondent amounting to Rs. 7.49 Crore (without Service Tax) and Rs. 8.03 Crore (including Service Tax). This P.O. post price negotiation was amended for a total amount of Rs. 7.38 Crore (without GST) and Rs. 8.70 Crore (including GST). The subject work order was totally executed in the Post-GST period.
(b) That he had issued another work order No. 25444188 dated 27.03.2018 for M & I of Tank No. MT-03 at WRPL Mundra Station for a total amount of Rs. 7.38 Crore (without GST) and Rs. 8.70 Crore (including GST).
The Work Order for Tank No. MT-05 was placed in the Pre-GST period which was subsequently amended after conducting price negotiations with the Respondent. Whereas, the work order for tank No. MT-03 was placed in post-GST period after conducting price negotiation.
In both the P.O.s there were 3 line items as under:-
I. Supply Items
II. Composite items
III. Services
11. Further, the DGAP has claimed that the Applicant No. 1 had submitted that for the supply items, VAT @ 5% was applicable at the time of submission of Bid. As per his estimate, 40% of the supply items were excisable @ 12.5% therefore 5% Excise Duty was considered and calculated for total supply items. Therefore, the Respondent had availed the Input Tax Credit of GST paid by him while executing the contract whereas the Respondent had offered a discount of 3.21% only on the quoted rates.
12. The DGAP has also submitted in his report that the Applicant No. 1 had claimed that for the Composite items he had considered that 60% were supply items and 40% were services. Accordingly, VAT © 5% was applicable on the supply part. Therefore, the Respondent had availed the Input Tax Credit both on supply and services during the execution of the contract whereas the Respondent had offered a discount of 0.76% on the quoted rates.
13. The Applicant No. 1 had thus submitted that for a single Tank it was estimated that the Respondent had not passed on discount of Rs. 36.13 Lakh as detailed below: –
The Applicant No. 1 had re-calculated the discount due on account of GST implementation based on the actual executed quantity against the subject work orders. Through his e-mail dated 08.01.2021 the Applicant No. 1 had forwarded the detailed calculation in excel file wherein as per the Applicant No. 1’s estimate the total discount due to him was as under: –
