Eden Realty guilty of profiteering in its project Siddha Eden Lakeville: NAA

Rajesh Shaw Vs Eden Realty Ventures Pvt. Ltd. (NAA)

The Applicant No.1 Rajesh Shaw alleged that the Respondent No. 1 Eden Realty Ventures Pvt. Ltd. had not passed on the benefit of ITC to him by way of commensurate reduction in prices and charged GST @12% on the amount due to him against payments made for project Siddha Eden Lakeville, situated at Lake View Park Road, Banhooghly, Kolkata, West Bengal-700108 on 17.09.2016.

It is observed from the Report of the DGAP 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 1.16%, whereas, during the post-GST period (July-2017 to September-2019), it was 6.85% for the project ‘Siddha Eden Lakeview’. This confirms that, post-GST, the Respondent No. 1 & 2 have been benefited from additional ITC to the tune of 5.69% (6.85% – 1.16%) of their turnover for the project ‘Siddha Eden Lakeview’ and the same was required to be passed on to the customers/flat buyers/recipients. Therefore, the Respondent No. 1 had benefit by an additional amount of ITC amounting to Rs. 4,11,40,502/- (which includes GST @12%), similarly, the Respondent No. 2 had benefited by an additional amount of ITC amounting to Rs. 2,50,94,164/- (which includes GST @12%). The DGAP has calculated the total amount of ITC benefit to be passed on to all the customers/flat buyers/recipients as Rs. 6,62,34,666/- for the project ‘Siddha Eden Lakeview’. The Respondent No. 1 is required to pass on Rs. 96,857/- as the additional benefit of ITC to the Applicant No. 1 and Rs. 4,10,43,645/- to other 264 recipients. Further, the Respondent No. 2 is required to pass on Rs. 2,50,94,164/- to 270 other flat buyers/recipients in the project ‘Siddha Eden Lakeview’ for the period from 1.07.2017 to 30.09.2019.

Authority finds no reason to differ from the above-detailed computation of profiteering in the DGAP’s Report or the methodology adopted. The Authority finds that the Respondent No. 1 has profiteered by an amount of Rs. 4,11,40,502/- and the Respondent No. 2 has profiteered by an amount of Rs. 2,50,94,164/- during the period of investigation i.e. 01.07.2017 to 30.09.2019. The Authority determines an amount of Rs. 4,11,40,502/- (including 12% GST) under section 133(1) as the profiteered amount by the Respondent No. 1 and an amount of Rs. 2,50,94,164/-(including 12% GST) as the profiteered amount by the Respondent No. 2 under section 133(1) from their 265 (including Applicant No. 1) and 270 homebuyers/customers/recipients of supply, respectively (as per Annexure ‘A’ to this Order), which shall be refunded/returned/passed on by the Respondents to the respective homebuyers/customers/recipients of supply along with interest @18% thereon, from the date when the amounts were profiteered by them till the date of such return/refund/payment, in accordance with the provisions of Rule 133 (3) (b) of the GCST Rules 2017. The amount profiteered is Rs. 96,857/- (including GST) in respect of the Applicant No.1. Since the Respondent No. 2 had availed the entire CENVAT/ITC for the project (including units pertaining to the Respondent No. 1), therefore the aforesaid profiteered amount of Rs. 4,11,40,502/- (inclusive of GST) has to be passed on/refunded/returned by the Respondent No. 2 to the Respondent No. 1, who in turn is required to pass on/return/refund the benefit to his recipients including the Applicant No. 1.

This Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that The Respondent No. 1 & 2 shall reduce the prices to be realized from the homebuyers/customers/recipients of supply commensurate with the benefit of ITC received as per the Methodology as has been detailed above.

The Respondent No. 1 & 2 are also liable to pay interest as applicable on the entire amount profiteered, i.e. Rs. 4,11,40,502/-(in respect of the Respondent No. 1) and Rs. 2,50,94,164/- (in respect of the Respondent No. 2), for the project ‘Siddha Eden Lakeview’. Hence the Respondent No. 1 & 2 are directed to also pass on interest @18% to the homebuyers/customers/recipients of supply on the entire amount profiteered, starting from the date from which the amount was profiteered till the date of passing on/ payment/return, as per provisions of Rule 133 (3) (b) of the CGST Rules, 2017.

FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY

1. The Present Report dated 31.12.2020 has been received to this Authority from the Applicant No. 2 i.e. the Director-General of Anti-Profiteering (DGAP) after a detailed investigation under Rule 128 of the Central Goods & Service Tax (CGST) Rules, 2017. The brief facts of the case are that the Standing Committee on Anti-Profiteering had made a reference to the DGAP to conduct a detailed investigation in respect of an application filed by the Applicant No. 1 alleging profiteering by the Respondent No. 1 in respect of purchase of flat no. HR/II/505 (3BHK + 2T) in the Respondent No. l’s project “Siddha Eden Lakeville”, situated at Lake View Park Road, Banhooghly, Kolkata, West Bengal-700108 on 17.09.2016. The Applicant No.1 alleged that the Respondent No. 1 had not passed on the benefit of ITC to him by way of commensurate reduction in prices and charged GST @12% on the amount due to him against payments.

2. The DGAP vide his Report dated 31.12.2020 has inter-alia submitted the following points :-

a. The Applicant No. 1 submitted the following documents along with the application:

i. E-mails of correspondence with Respondent No. 1 requesting to pass on the benefit of ITC.

ii. Copies of Demand Letters and Allotment letter.

b. On receipt of the aforesaid reference from the Standing Committee on Anti- profiteering on 09.10.2019, a Notice under Rule 129 of the Rules was issued by the DGAP on 22.10.2019, calling upon the Respondent No. 1 to reply as to whether he admitted whether the benefit of ITC had not been passed on to the recipients by way of commensurate reduction in prices 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. Further, the Respondent No. 1 was also afforded an opportunity to inspect the non-confidential evidences/information which formed the basis of the said Notice, during the period 30.10.2019 to 31.10.2019.

However, the Respondent No. 1 did not avail of the said opportunity.

c. Vide e-mail dated 13.11.2020, the Applicant No. 1 was also given an opportunity to inspect the non-confidential documents/reply furnished by the Respondent on 23.11.2020 or 24.11.2020. However, vide e-mail dated 25.11.2020, the Applicant No. 1 expressed his inability to visit the office and avail the said opportunity.

d. The period covered by the current investigation was from 01.07.2017 to 30.09.2019.

e. The statutory time limit to complete the investigation was 08.04.2020 which was extended up to 31.03.2021 by virtue 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-Central Tax dated 14.12.2020 issued by Central Government under Section 168A of the CGST Act, 2017 where it was provided that, “any time limit for completion or compliance of any action, by any authority, had been specified in, or prescribed or notified under section 171 of the said Act, which falls 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 had not been made within such time, then, the time-limit for completion or compliance of such action, shall be extended up to the 31st day of March, 2021”.

f. The Respondent No. 1 replied to the said Notice vide various letters/ e-mails but did not furnish the complete and the relevant documents required for investigation. Hence, Summons under Section 70 of the CGST Act, 2017 read with Rule 132 of the Rules, were issued on 13.03.2020 to the Respondent No. 1 asking him to submit the remaining documents via Speed Post/Courier or through E-mail on the DGAP E-mail ID on or before 19.03.2020. In response to the Summons, the Respondent No. 1 submitted the documents vide e-mail dated 19.03.2020.

g. In response to the Notice dated 22.10.2019 and subsequent reminders and summons, the Respondent No. 1 replied vide letters/emails dated 05.11.2019, 06.11.2019, 13.11.2019, 25.11.2019, 06.12.2019, 28.02.2020, 13.03.2020, 18.03.2020, 19.03.2020, 05.05.2020, 25.05.2020, 08.06.2020, 05.11.2020, 06.11.2020, 10.11.2020, 18.11.2020 and 24.11.2020. The Reply of the Respondent No. 1 was summed up as follows:-

i. In the subject project i.e. “Siddha Eden Lakeville, he was engaged as Landowner whereas, the Developer was M/s. Siddha Real Estate Private Limited. Further, all expenses in relation to construction activities of the project were borne out exclusively by Respondent No. 2. The Respondent No. 1 was neither incurring any expenditure nor claiming any GST ITC in respect of the impugned project.

ii. The Respondent No. 1 submitted that Section 171 of the CGST Act, 2017 provides 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. However, he was not providing the Construction Service directly and the same was provided by the Developer. He was acting as the seller for his area allocation only in accordance with the Joint Development Agreement entered into by him with the developer. Hence, in his opinion, there was no question of profiteering in his hands. If at all any benefit had to be passed, the same was the responsibility of the developer.

h. Vide Notice dated 21.10.2019, the Respondent No. 1 was asked whether any information/documents were provided on confidential basis, in terms of Rule 130 of the Rules, and if so, a non-confidential summary of such information/ documents was required to be furnished. However, the Respondent No. 1 had not classified his information/documents as confidential in terms of Rule 130 of the Rules.

Since, the Respondent No. 1 had submitted that in the impugned project he was engaged as landowner whereas, the Developer was M/s. Siddha Real Estate Private Limited and all expenses in relation to construction activities of the project were borne out exclusively by the Respondent No. 2 and if at all any benefit had to be passed, the same was the responsibility of the developer.

Accordingly, it was decided to implead the Respondent No. 2 in the on-going proceedings as an interested party and Addendum to Notice of Initiation of Investigation was issued to him on 19.11.2019, calling upon him to reply as to whether he admitted that the benefit of ITC available to him had not been passed on to the recipients by way of commensurate reduction in prices and if so, to suo moto determine the quantum thereof and indicate the same in his reply to the Addendum to Notice as well as to furnish all documents in support of his reply. Further, the Respondent No. 2 was afforded an opportunity to inspect the non-confidential evidences/information submitted by the Applicant No. 1, during the period 25.11.2019 to 26.11.2019. However, the Respondent No. 2 did not avail of the said opportunity.

j. In response to the Addendum to the Notice dated 19.11.2019 and subsequent reminders and Summons, the Respondent No. 2 replied vide letters/emails dated 13.01.2020, 27.01.2020, 11.02.2020, 19.02.2020, 28.02.2020, 11.03.2020, 13.03.2020, 09.11.2020, 20.11.2020, 11.12.2020, 15.12.2020 and 16.12.2020 and has interalia submitted that:-

i. He was a real estate developer primarily engaged in the business of real estate construction, development and other related activities. The Respondent No. 2 was undertaking construction of various projects and also providing various other services such as work contract services, business support services to associated enterprises, maintenance services etc.

ii. The Respondent No. 2 had furnished the block wise details of the impugned project “Siddha Eden Lake Ville” in table —’A’ below:-

The Respondent No. 2 had submitted that the Block-Harbour was covered under Phase-II which was completely a new block launched on 31-03-2019 i.e. under GST regime and he had not availed any CENVAT/ITC till 30.09.2019 in the said phase-II.

k. The reference received from the Standing Committee on Anti-profiteering, various replies of the Respondent No. 1 & 2 and the documents/evidences on record had been carefully scrutinized. The main issues for determination are:-

i. Whether there was benefit of reduction in the rate of tax or ITC on the supply of Construction Service by the Respondent No. 1 & 2, on implementation of GST w.e.f. 01.07.2017 and if so,

ii. Whether such benefit was passed on by Respondent No. 1 & 2 to the recipients, in terms of Section 171 of the CGST Act, 2017.

l. The Respondent No. 1, vide e-mail dated 05.11.2020, submitted payment plan (part of Builder Buyer agreement), demand letters and payment receipts for the sale of flat no. HR/II/505 in Tower Harmony Block-2 to the Applicant No. 1, measuring 1090 square feet (super area), at total basic sale price of Rs. 50,66,150/-.

m. At the outset, it was observed that the contention of the Respondent No. 1 that he would, compute the benefit on account of ITC of GST in respect of the project, at the end of the project and pass on the benefits that had accrued on account of GST, might have merit but the profiteering, if any, had to be determined at a given point of time, in terms of Rule 129(6) of the Rules. Therefore, the additional ITC available to the Respondent No. 1 & 2 and the amounts received by them from the Applicant No. 1 and other recipients post implementation of GST, had to be taken into account to determine the benefit of ITC that was required to be passed on.

n. Regarding the Respondent No. 2’s contention that the application filed by the Applicant No. 1 was not against him, it was observed from the Sale Agreement entered with the Applicant No. 1 that the Respondent No. 1 was a party and signed the said agreement in the capacity of Developer. Further, as per clause 14.3 of the Joint Development Agreement dated 08.05.2015 requires that “Siddha shall join the deed of transfer in favour of Eden’s Transferees and shall execute and register the same in his capacity as a confirming party”

Therefore, the Agreement was a Tripartite agreement where the Respondent No. 2 was a necessary party and thus, participation of the Respondent No. 2 in the said transactions was undeniable and the Respondent No. 2’s submission that he was not a party to documents entered with the Applicant No. 1 was incorrect. Further, in the impugned project, the CENVAT/ITC on the purchase of inputs, input services and capital goods was availed by the Respondent No. 2 for the whole project including the purchases made towards the unit allotted to the Applicant No. 1. Therefore, the Respondent No. 2 being a GST registered person was also statutory required to comply with the provisions of Section 171 of the CGST Act, 2017 and cannot deny passing on the benefit pertaining to Landowner’s share in the project.

Further, profiteering, if any, had to be computed considering the whole project as a whole irrespective of allocation of Developer or Landowner in order to remove any discrimination among the buyers only because of his purchase of the unit from one party rather than other party. Further, the agreement with the buyers was also signed by both the Respondent No. 1 & 2 jointly.

Moreover, DGAP was empowered to issue Notice to such other persons as deemed fit for a fair enquiry into the matter in terms of Rule 129(4) of the Rules. Therefore, the submission of the Respondent No. 2 in this regard was untenable.

0. Para 5 of Schedule-III of the CGST Act, 2017 (Activities or Transactions which shall be treated neither as a supply of goods nor a supply of services) 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 II of the CGST 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 had been received after issuance of completion certificate, where required, by the competent authority or after his first occupation, whichever was earlier’: Thus, the ITC pertaining to the residential units and commercial shops which was under construction but not sold was provisional ITC which might be required to be reversed by the Respondent No. 2, 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 CGST Act, 2017, which read as under:

Section 17 (2) “Where the goods or services or both was 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 exempted supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as was attributable to the said taxable supplies including zero-rated supplies’:

Section 17 (3) “The value of exempted supply under sub­section (2) shall be such as might be prescribed and shall include supplies on which the recipient was 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 ITC pertaining to the unsold units might not fall within the ambit of this investigation and the Respondent No. 2 was required to recalibrate the selling price of such units to be sold to the prospective buyers by considering the net benefit of additional ITC available to him post-GST.

P. With respect to the allegation of profiteering, on the basis of information and documents submitted by the Respondent No. 2, it was observed that prior to 01.07.2017, i.e. before the GST was introduced, the Respondent No. 2 was eligible to avail CENVAT credit of Service Tax paid on Services but no credit was available in respect of Central Excise Duty and VAT paid on the inputs. However, post-GST, the Respondent No. 2 could avail ITC of GST paid on all the inputs and the input services including the sub-contracts. From the information submitted by the Respondent No. 2 for the period April, 2016 to September, 2019, the details of the ITC availed by him, his turnover from the project “Siddha Eden Lake Ville Phase-I” , and the ratios of ITC’s to turnovers, during the pre-GST (April, 2016 to June, 2017) and post-GST (July, 2017 to September, 2019) periods, have been furnished by the DGAP in Table-T’ below:-

* Note: Since the Respondent No. 2 had availed the entire CENVAT/ITC for the project (including units pertaining to the Respondent No. 1), therefore CENVAT/ITC availed in Respondent No. 2’s books was considered in above table. However, turnover of the Respondent No. 1 was also included at S. No, 5 as well area in S. No. 7 as the Respondent No. 1 was also required to pass on the benefit to his recipients (including the Applicant No. 1),

q. It was clear from the above Table- ‘B’ that the ITC as a percentage of the turnover that was available to the Respondent No. 1 & 2 during the pre-GST period (April, 2016 to June, 2017) was 1.16% whereas during the post- GST period (July, 2017 to September, 2019), the percentage was 6.85%. This clearly confirmed that post-GST, the Respondent No. 1 & 2 had been benefited from additional ITC to the tune of 5.69% [6.85% (-) 1.16%] of the turnover. Accordingly, the profiteering had been examined by comparing the applicable tax rate and ITC available in the pre- GST period (April, 2016 to June, 2017) when Service Tax @4.5% was payable with the post-GST period (July, 2017 to September, 2019) when the effective GST rate was 12% (GST @18% along with 1/3rd abatement for land value) on Construction Service, vide Notification No.11/2017-Central Tax (Rate), dated 28.06.2017. Accordingly, on the basis the figures contained in table-’13’ above, the comparative figures of the ratio of ITC availed/available to the turnover 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, has been furnished by the DGAP in Table- ‘C’ below:

r. It was clear from Table-‘C’ above that the additional ITC of 5.69% of the turnover should have resulted in the commensurate reduction in the base prices as well as cum-tax prices. Therefore, in terms of Section 171 of the CGST Act, 2017, the benefit of such additional ITC was required to be passed on by the Respondent No. 1 & 2 to the respective recipients.

s. Accordingly, from the above calculation, it was evident that on the basis of the aforesaid CENVAT/ITC availability in the pre and post-GST periods and the details of the amount raised/collected by the Respondent No. 1 from the Applicant No. 1 and other home buyers during the period 01.07.2017 to 30.09.2019, the Respondent No. 1 had benefited by an additional amount of ITC, by an amount of Rs. 4,11,40,502/- which included GST @12% on the base amount of Rs. 3,67,32,591/-. The buyers and unit no. wise break-up of this amount has been provided by the DGAP in Annexure-40 of his Report. This amount was inclusive of Rs. 96,857/- (including GST) on the base amount of Rs. 86,479/- which was the benefit of ITC required to be passed on to the Applicant No. 1. Similarly, on the basis of the aforesaid CENVAT/ITC availability in the pre and post-GST periods and the details of the amount raised/collected by the Respondent No. 2 from the home buyers during the period 01.07.2017 to 30.09.2019, the Respondent No. 2 had benefited by an additional amount of ITC, by an amount of Rs. 2,50,94,164/- which included GST @12% on the base amount of Rs. 2,24,05,504/-. The buyers and unit no. wise break-up of this amount has been provided by the DGAP in Annexure-41 of his Report.

t. On the basis of the details of outward supplies of the construction service submitted by the Respondent No. 1 & 2, it was observed that the said service had been supplied in the State of West Bengal only.

u. The above computation of profiteering was with respect to 535 home buyers from whom consideration value had been raised/received by the Respondent No. 1 & 2 during the period 01.07.2017 to 30.09.2019 (excluding the flats sold by the Respondent No. 2 post 01.07.2017). Whereas the Respondent No. 1 & 2 had booked total of 723 units in the whole project as on 30.09.2019, however no demands were raised from 44 home buyers, during the post-GST period from 01.07.2017 to 30.09.2019. Therefore, if the ITC in respect of these 44 units was considered to calculate profiteering in respect of 535 units where demands had been raised after GST, the ITC as a percentage of turnover might be erroneous. Furthermore, the Respondent No. 1 & 2 had submitted that effective from 01.07.2017, they had sold 144 flats at the rates agreed by the customers and the consideration for such units had already factored benefit of ITC. The Respondent No. 2 claimed that Section 171 of the CGST could be applied only on the units the prices of which had been agreed before 01.07.2017 i.e. pre-GST customers since due to introduction of GST, the benefit of ITC had been accrued which should be computed and passed. In other words, the consideration of bookings made in GST regime were determined based on various factors including benefit of ITC and the same shall be outside the scope of calculation.

Clause 8.3 of the Agreement to Sell also confirms the same which reads as “Clarification on GST input Tax Credit: The Transferees/ Allottees understand, confirm and accept that the consideration of the said Apartment And Appurtenances had been arrived at after adjusting the full GST ITC to be passed on to the Transferees/Allottees and the Transferees/Allottees consequently shall not be entitled to and covenant not to raise any manner of dispute, claim and/or damage against the Transferor and/or Promoter in this regard’:

This argument of the Respondent No. 2 had merit and therefore, ITC pertaining to the above 144 units was outside the scope of this investigation as the selling price of such units was negotiated between the home buyers and the Respondent No. 2 taking into consideration the benefit of ITC or change in GST.

v. Hence, the benefit of additional ITC to the tune of 5.69% of the turnover has accrued to the Respondent No. 1 & 2 post- GST and the same was required to be passed on by them to the respective recipients. On this account, the Respondent No. 2 was required to pass on the additional benefit of ITC amounting to Rs. 96,857/- to the Applicant No. 1. Further, the investigation reveals that the Respondent No. 1 was required to pass on the additional benefit of ITC amounting to Rs. 4,10,43,645/- to 264 other recipients who were not Applicants in the present proceedings. These recipients were identifiable as per the documents provided by the Respondent No. 1, giving the names and addresses along with Unit No. allotted to such recipients. Therefore, this additional amount of Rs. 4,10,43,645/- was required to be returned to such eligible recipients. Further, the Respondent No. 2 was required to pass on the benefit of ITC amounting to Rs. 2,50,94,164/- in respect of 270 other recipients who were not Applicants in the present proceedings. These recipients were identifiable as per the documents provided by the Respondent No. 2, giving the names and addresses along with Unit No. allotted to such recipients. Therefore, this amount of Rs. 2,50,94,164/- was required to be returned to such eligible recipients.

w. The present investigation covered the period from 01.07.2017 to 30.09.2019. Profiteering, if any, for the period post September, 2019, had not been examined as the exact quantum of ITC that would be available to the Respondent No. 1 & 2 in future could not be determined at this stage, when the Respondent No. 2 was continuing to avail ITC in respect of the present project.

x. The DGAP has concluded that the provisions of Section 171(1) of the CGST 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”, had been contravened by the Respondent No. 1 the Respondent No. 2 in the present case.

3. The above Report was carefully considered by this Authority and a Notice dated 05.01.2021 was issued to the Respondent No. 1 & No. 2 to explain why the Report dated 31.12.2020 furnished by the DGAP should not be accepted and there liability for profiteering in violation of the provisions of Section 171 should not be fixed. The Respondent No. 1 was directed to file written submissions which had been filed on 19.01.2021 wherein the Respondent No. 1 had submitted:-

a. He and the Respondent No. 2 (the Developer) had entered into a Joint Development Agreement (JDA) on 8th May, 2015 for development of a project namely ‘Siddha Eden Lakeville’. As per the terms of the agreement, he transferred his development rights to the Respondent No. 2 who was responsible to construct the project at his own cost and resources at agreed terms and conditions. He would not incur any construction cost and would get constructed and completed units.

b. That the Project was under ‘Area Sharing’ model wherein the Respondent No. 2 would receive 38.5% of the allocated units and remaining 61.5% belonged to the Developers. Six Blocks were proposed to be constructed by Developer in the First Phase of construction, namely, “Harbour, Islet, Lagoon, Marina, Oceania and Stream”. A Deed of Declaration was also entered on 15th of January, 2018 identifying second phase of construction in the blocks namely ‘Ripple, Promenade, Harmony-I and Harmony-II’. A copy of Development Agreement had been submitted by the Respondent No. 1.

c. In the present case, the project was developed by the Respondent No. 2 and no ITC of GST paid on input services or inputs has been availed by him. He had also not incurred any cost of construction, therefore there was no ITC on construction expenses and benefit of ITC to be passed on by him to the flat buyers/customers.

The construction expenses were incurred by the Respondent No. 2 even in respect of his share. Therefore benefit, if any shall accrue to the Respondent No. 2 and not to him.

d. As per the Development Agreement, he agreed to grant the license to the Respondent No. 2 for the purposes of development of the said premises against consideration of 38.5% of the constructed units. And the Developer agreed to incur all the development costs including all costs, fees and expenses wholly incurred for the purpose of construction of the complex against a consideration of 61.5% (approx.) of the total constructed area.

e. As per Clause 8.4 of the Development Agreement, ‘Construction as per Specifications’:

“Siddha shall at his own costs and expenses construct, erect and complete the Said complex in accordance with the Revised Building Plan ..”

It had been further emphasized in Clause 18.6 of the Development Agreement that:-

“Siddha shall construct the Said Complex at his own cost, risk and responsibility, by adhering to the Revised Building Plan and applicable laws and attending to all notices issued by concerned authorities”

f. That he was not incurring any cost related to construction and therefore no ITC related to construction had been availed for the said Project, no question of benefit in lieu of excess ITC availment should ensue. Further, any such Benefit enjoyed by the Respondent No. 2 had not been passed on to him neither in cash nor in kind i.e. by means of revision of percentage of allocated flats. Therefore, landowner could only pass on the benefit if the Respondent No. 2 passes on commensurate benefit to him.

g. A similar case of Sattva Developers Pvt. Ltd. vs DGAP dated 14/06/2019, the Authority upheld the mechanism of DGAP to compute the amount of benefit as per the above referred mechanism i.e. availment of ITC to Turnover ratio in pre and post regime. Further, since it was an Allocation agreement between the landowner and the developer, the authority also ordered to pass on the benefit of the profiteered amount to the land owner who would in turn pass on the benefit to his buyers.

4. Copy of the above submissions dated 19.01.2021 filed by the Respondent No. 1 were supplied to the DGAP for supplementary Report under Rule 133(2A) of the CGST Rules, 2017. The DGAP filed his clarification dated 12.02.2021 and has stated that:-

a) Vide the aforesaid letter dated 19.01.2021, the Respondent No. 1 had not disputed the DGAP’s Report.

b) Vide para-30 of the Report dated 31.12.2020, the additional amount of ITC or the profiteering amount required to be passed on by the Respondent No. 1 was determined to be Rs. 4,11,40,502/- which included GST @12% on the base amount of Rs. 3,67,32,591/-. Since the Respondent No. 2 i.e. the developer had availed the entire CENVAT/Input Tax Credit for the project (including units pertaining to the Respondent No. 1), therefore the aforesaid amount of profiteering had to be passed on by the Respondent No. 2 to the Respondent No. 1 who in turn was required to pass on the benefit to his recipients (including the Applicant No.1 ) as per buyers and unit no. wise break-up given in Annex-40 of this office’s Report dated 31.12.2020.

5. The Respondent No. 2 has also filed his consolidated submissions vide letter dated 16.02.2021 and has interalia stated that:-

a. The details of the saleable area and number of units in the ‘Siddha Eden Lake’ project undertaken by Respondent No. 2 have been provided in the Table below:

Project	Saleable Area (in sq. ft.)	Number of Units	Launch period	RERA ID
Siddha Eden Lake Ville Phase-I	13,14,608	1103	Pre-GST regime	HIRA/P/NOR/ 2018/000183
Siddha Eden Lake Ville Phase-II	1,57,668	149	GST regime	HIRA/P/NOR/ 2018/000385

b. The details of Siddha Eden Lake Ville Phase-I Project have been mentioned in the Table below:-

Project	Saleable Area (in sq. ft.)	Number of Units
Developer’s Share	8,14,805	684
Landowner’s Share	4,99,803	419
Total	13,14,608	1,103

c. The Applicant No. 1 had entered into agreement with the Respondent No. 1 for purchase of flat and the prices had been agreed between the Respondent No. 1 and the Applicant No.1 and he did not have any privity of contract with the Applicant No. 1. Further, the Applicant No. 1 has filed his complaint against the Respondent No. 1 and not against him and the flat booked by the Applicant No.1 was pertaining to Respondent No. l’s share of units. Therefore, he could not be covered under the investigation proceedings initiated by the DGAP.

d. In this regard, he has referred Rule 129 of CGST Rules, 2017 and in the light of the above provisions, the DGAP could not conduct investigation against a third party who was not a supplier to the recipient. Thus, the anti-profiteering proceedings against the Respondent No. 2 should be dropped.

e. He was only a conforming party in the agreement entered by Respondent No. 1 and Applicant No. 1. The same had been duly mentioned in clause 14.3 of the Joint Development Agreement dated 08.05.2015. The said clause provided that

“Siddha shall join the deed of transfer in favour of Eden’s Transferees and shall execute and register the same in his capacity as a confirming party’.

f. As per Section 2(93) of the CGST Act, the person who was not liable to pay consideration to him could not be said to be his “recipient” for the supplies made by it. The Applicant No. 1 was liable to pay consideration to Respondent No. 1 not to him.

g. The ratios of ITC’s to the turnovers of Pre-GST and GST period for calculating the benefit of additional ITC accrued to the Respondent shall never yield the correct quantum of anti-profiteering. Under the real estate sector there was no correlation of turnover with the cost of construction or development of a project. The turnover reflects the amount collected as per the payment or booking plans issued by the developer which was dependent upon marketing driven strategy. On the contrary, the ITC accrued to a developer on the basis of actual cost incurred by it while undertaking the development of a project. Thus, accrual of ITC was not dependent on the amount collected from the buyers. Accordingly, calculating profiteering on the basis of turnover could not reflect the correct outcome for the Respondent. The additional ITC in his hands in terms of Section 171 of the CGST Act should reflect such ITC on goods or services which was not available earlier. However, the above approach for calculating the additional benefit accrued to him by considering the change in rate of tax on input goods and services whose credit was available earlier also and had not considered the tax cost which was earlier blocked in his hands. Hence, the above approach of comparison of ITC to turnover ratio for pre GST and post GST period was not a correct approach.

h. The amount of GST i.e. Rs. 26,88,660/- paid by him had been incorrectly included in the total profiteered amount as the same had not been retained by him and had been deposited with the GST authorities.

i. Profiteering was calculated for the whole project wherein ITC of only Respondent No. 2 had been considered. However, the turnover of both the Respondent No. 1 & No. 2 has been considered for calculation for profiteering. He and the Respondent No. 1 were two separate legal entities.

However, the methodology adopted by the DGAP had considered both the Respondent No. 1 & No. 2 as a single entity undertaking construction of the project. Hence, the methodology wherein ITC of Respondent No. 2 and turnover of both the Respondents had been adopted was wholly incorrect, irrational, arbitrary and baseless. Section 171 of the CGST Act read with rules thereunder did not provide any provision wherein two distinct entities could be treated like a single entity merely because both had entered into Joint Development Agreement for a single project. The methodology adopted by the DGAP had violated the provisions of Section 171 of the CGST Act.

ITC was not dependent of Turnover. The ITC was allowed in all cases for utilisation towards payment of output tax only. However, that by itself did not establish any direct relation with the turnover. ITC might be availed over a period of time without any output tax. Subsequently, output tax might be paid using accumulated ITC. Similarly, there was a possibility that output tax was discharged in cash first (in case of receipt of advance for services) and ITC might be availed later. Merely because ITC was utilized for payment of output tax could not establish any direct relation between the two. He still depend on different activities, viz. ITC based on the taxable expenditure incurred, and output tax based on the milestone billing to customers. The turnover reflected the amount collected by him as per payment or booking plans issued by it which was purely based on market driven strategy. On the contrary, the ITC had accrued to him based on actual cost incurred by has while undertaking the development of a project. Thus, accrual of ITC was not dependent on the amount collected from the buyers.

k. Investigation of profiteering could be initiated only on receipt of written Application from interested party, commissioner or any other person. In the instant case, the proceedings were started with the Application received from the Applicant No. 1. Hence, the investigation could not go beyond the Application and cover other customers also who had not questioned the benefit passed on to them. He has relied upon the decision of this Authority in the case of M/s UP Sales & Services vs. M/s Vrandavaneshwree Automotive Private Limited reported as 2018-VIL-01-NAA, Shri Rishi Gupta vs. M/s Flipkart Internet Pvt Ltd. reported as 2018 VIL-04-NAA.

l. The DGAP could not suo mote assume jurisdiction with regard to other recipients of the Respondent No. 2, on receipt of reference from the Standing Committee to conduct a detailed investigation in the matter of Applicant No. 1 . It was submitted that the DGAP could not exceed his jurisdiction by submitting his findings for other unit buyers and recipients who had not filed any application.

m. The Application filed by the Applicant No. 1 might be compared to a show cause Notice for a tax proceeding wherein the assessee was required to show as to why tax, interest, penalty, etc. should not be levied and collected from him. It was settled principle of law that an order adjudicating a show cause Notice could not travel beyond the scope of a show cause notice. The provisions of CGST Act read with CGST Rules nowhere provides that the DGAP could suo-moto extend the investigation to all units of the project even though complaint had been received from single unit as there were no directions by the Authority u/r 133(5) of the CGST Rules, 2017 in the present case. In this regard, he has placed reliance on the decision of Hon’ble Supreme Court in the case of Toyo Engineering India Limited vs. CC, Mumbai reported at 2006 (201) E.L.T. 513 (S.C.) and Reckitt & Colman of India Ltd. vs. CCE, reported at 1996 (88) E.L.T. 641 (S.C.). He has also placed reliance on the case of Fx Enterprise Solutions India Pvt. Ltd. and Ors. vs. Hyundai Motor India Limited, reported at 2017 CompLR 586 (CCI).

n. He has relied upon the decision of Hon’ble Delhi HC in the case of Man Realty Ltd. vs UOI & Ors. (dated 27.01.2021 in W.P. (C) 997/2021) vide which the Court was pleased to direct the Respondents to verify whether there were any directions issued u/r 133(5) in respect of other homebuyers.

0. The analogy drawn by the DGAP by reading the phrase “any supply” in Rule 129 was irrelevant. Further, the phrase “any supply” had been used in context of reduction in rate of supplies and not for the benefit of ITC.

P. He collected from his customers not only value of taxable construction services, rather he also collected value of land from his customers. Further, Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building was not treated as supply as per Schedule III of the CGST Act. Further, it was submitted that sale of land was covered by stamp duty regulations and appropriate stamp duty was paid on the same. Accordingly, it was submitted that calculation of profiteering should be excluded from value of land from his computation. Further, it was critical to mention here that GST provisions treats value of land to be 1/3rd of the total amount charged from customers. Hence, the same yardstick should be used for profiteering computation also. Accordingly, an amount of Rs. 83,64,721/- needed to be excluded from the total profiteering determined. He has also made reference to Para 2 of the Notification No. 11/2017-CT (R).

q. The CGST Act read with the CGST Rules, 2017 did not provide the procedure and mechanism of determination and calculation of profiteering. In absence of the same, the calculation and methodology the proceedings were arbitrary and were in violation of principle of natural justice. Accordingly, the investigation was liable to be rejected. Further, the Authority under the ‘Methodology and Procedure, 2018’ issued on 19.07.2018 under Rule 126 of the CGST Rules, 2017, merely provided the procedure to be followed pertaining to the investigation and hearing and no method/formula had been issued pertaining to the calculation of profiteering amount.

r. In order to control rise in inflation on account of implementation of GST, the Malaysian Government introduced the ‘Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit) (Net Profit Margin) Regulations 2014, which provided for the mechanism to calculate whether any company had profiteered on account of GST or not. The anti-profiteering measures in Australia revolved around the ‘Net Dollar Margin Rule’ serving as the fundamental principle as guideline. That is, if the new tax scheme – GST in this case – caused taxes and costs to fall by $1, then prices should fall by at least $1. At the same time if the cost of the business rose by $1 under the new tax scheme, then prices might rise by not more than $1. However, no such procedure for calculation of profiteering had been provided under the CGST Act and CGST Rules. Absence of the same, violates the principle of natural justice of the Respondent and thus, the investigation was liable to be set aside. He has also relied upon the case of Eternit Everest Ltd. vs. UOI, reported at 1997 (89) E.L.T. 28 (Mad.), where the Hon’ble High Court of Madras held that in absence of machinery provisions pertaining to determination and adjudication upon a claim or objection, the statutory provision would not be applicable. He has also relied upon the decision of Hon’ble Supreme Court in the case of Commissioner of Income Tax, Bangalore vs. B.C. Srinivasa Setty.

s. Section 171 of the CGST Act was not applicable in case of transaction of supplies between the Respondent No. 2 and the Landowner in respect of allotment of units as part of the development agreement. The development agreement between the Respondent No. 2 and the Landowner was under area sharing model wherein the Respondent constructed the project wherein certain units were allotted to Landowner and the remaining units were retained by the Respondent No. 2. In the present arrangement, there was no monetary consideration involved which the Landowner was providing to the Respondent for the said share of his units. In other words, there was no price which Landowner was providing to the Respondent No. 2 and accordingly, there could not be any commensurate reduction of prices by the Respondent.

t. Section 171 of the CGST Act was not applicable in the facts of the present case. Neither reduction in rate of tax on supply of goods / services nor benefit of ITC had been defined in the CGST Act. Reduction in rate of tax on supply of goods / services would mean a reduction in the rate of tax on goods /services supplied by a registered person. The Respondent was admittedly a construction service provider and supplied construction services on which there was no reduction in rate of tax.

u. ITC meant credit of input tax, and input tax means CGST, SGST, UTGST and IGST. Based on the definition of ITC and input tax, if one were to derive the meaning of the phrase benefit of ITC, it would mean benefit in the form of availability of ITC of GST charged on procurement of certain goods/services, which was earlier not available as ITC (either fully or partially) but became now available as ITC. For instance, under section 17(5)(a) of the CGST Act, ITC in respect of motor vehicles was not available (except in certain cases) and the said bar was on ITC in respect of all types of motor vehicles, irrespective of seating capacity. This was subsequently amended by the CGST (Amendment) Act, 2018 to provide that ITC should not be available only in respect of motor vehicles having seating capacity of not more than 13 persons (including the driver), except in certain cases. The effect of this amendment was that in respect of motor vehicles exceeding the seating capacity of 13 persons, ITC was available. Section 171 was intended to cover such kind of situations, where ITC was not available earlier in GST regime itself and the benefit of same becomes subsequently available.

v. Furthermore, even the transitional provisions under Chapter XX of the CGST Act do not treat the erstwhile credit as input tax credit. In fact, it specifically mentioned the erstwhile credit as “CENVAT credit”. Therefore, the expression “input tax credit” appearing in Section 171 must necessarily mean ITC in the GST regime only. The Respondent submitted that the benefit of ITC could only arise within GST regime, on a change in provision relating to ITC. It was submitted that transition from pre-GST to GST regime might entail certain benefits which the Respondent might pass on to his customers. However, the same cannot be considered as benefit of ITC for the purpose of invoking the provisions of section 171.

w. The comparison of the ITC with the CENVAT credit that existed under the CENVAT Credit Rules, 2004 and the respective VAT Acts to arrive at the benefit of ITC was beyond the scope of Section 171 of the CGST Act. Hence, the entire proceedings were beyond jurisdiction and the scope of Section 171 of the CGST Act and the DGAP’s Report was liable to be set aside based on this ground alone.

6. The above submissions dated 16.02.2021 of the Respondent No. 2 were supplied to the DGAP to file his clarifications under Rule 133(2A) of the CGST Rules, 2017. In response, the DGAP filed his supplementary report dated 03.03.2021 vide which he has inter-alia stated that:-

a. The objections raised by the Respondent No. 2 have been duly covered in the Report dated 31.12.2020.

b. Profiteering, if any, had to be computed considering the whole project as a whole irrespective of allocation of Developer or Landowner in order to remove any discrimination among the buyers only because of their purchase of the unit from one party rather than other party. Further, the agreement with the buyers was also signed by both, Respondent No. 1 & No. 2 jointly. Further, vide para-30 of the Report dated 31.12.2020, the DGAP had determined the additional amount of ITC or the profiteering amount to the tune of Rs. 4,11,40,502/- which included GST @12% on the base amount of Rs. 3,67,32,591/-to be passed on by the Respondent No. 1 to his recipients. Since the Developer i.e. the Respondent No. 2 had availed the entire CENVAT/Input Tax Credit for the project (including units pertaining to the Respondent No. 1), therefore the aforesaid amount of profiteering had to be passed on by the Respondent No. 2 to the Respondent No. 1 who in turn were required to pass it on to his recipients (including the Applicant No. 1) as per buyers and unit no. wise break-up given the DGAP’s Report dated 31.12.2020.

c. The facts in the case of M/s. Bhartiya City Developers Pvt. Ltd. were different from the facts in the present case as in case of M/s Bhartiya City Developers Pvt. Ltd., the Company had entered into two separate Agreements namely Agreement to sell and Agreement for construction, wherein the Company charged GST @ 18% on agreement for construction without any abatement. Since, the consideration was received as per Agreement to sell (towards land) which was altogether separate from the Agreement for construction and did not levy GST, so no benefit was computed towards the value of Land. However, in the present case, there was a common agreement entered with the customers agreeing total price bifurcating among towards Land and Construction. Further, in the present case, GST ©12% (after abatement for Land) has been considered by the DGAP while calculating the profiteered amount.

d. Further, the case of M/s. Fusion Buildtech Pvt. Ltd. cited by the Respondent No. 2 did not support his contention, as in that case, the DGAP had computed the benefit of ITC not passed on i.e. the profiteering amount considering the total consideration raised/collected from the Applicant No. 1 and other recipients during the period 01.07.2017 to 30.09.2018 and charged GST @ 12% (after abatement for Land) which was mentioned in para-18 of the Order No. 71/2019 dated 13.12.2019 passed by the Authority.

e. The Agreement with homebuyers was Tripartite where the Respondent No. 2 was a necessary party and thus, participation of the Respondent No. 2 in the said transactions was undeniable. Further, in the impugned project, the CENVAT/ ITC on the purchase of inputs, input services and capital goods was availed by the Respondent No. 2 for the whole project including the purchases made towards the unit allotted to the Applicant No. 1.Therefore, the Respondent No. 2 being a GST registered person was also statutorily required to comply with the provisions of Section 171 of the CGST Act, 2017 and could not deny passing on the benefit pertaining to the Respondent No. l’s share in the project.

f. The methodology adopted by the DGAP was correct and strictly as per law enshrined in Section 171 of the CGST Act. The methodology had been consistently adopted by the DGAP and upheld by Authority in all similar cases. In order to quantify the benefit of ITC, it was necessary to quantify the credits available to the Respondent No. 2 in the pre-GST regime and also the credits available in the GST regime. Further, the Respondent No. 2 discharged his output GST liability by utilizing the ITC available to him in addition to the credit which was not available to him in pre-GST period. However, the Respondent collected or charged full GST from the customers or flat buyers. Therefore, the Respondent No. 2 was not required to pay anything from his own pocket to pass on the benefit of additional ITC accrued to him in GST period. Hence, the methodology adopted by the DGAP was correct and justifiable. Further in the Report dated 31.12.2020, the increase in ITC as a percentage of total taxable turnover availed by the Respondent No. 2 post-GST has been quantified. The input or input service wise availability or non-availability of ITC prior and post implementation of GST had not been examined. In the erstwhile pre- GST regime, various taxes and Cesses were being levied by the Central Government and the State Governments, which got subsumed in the GST. Out of these taxes, the credit of some taxes was not allowed in the erstwhile tax regime. For example, the ITC of Central Sales Tax, which was being collected and appropriated by the States, was not admissible. Similarly, in case of construction service, while the ITC of Service Tax was available, the ITC of Central Excise Duty paid on inputs was not available to the services provider. Such input taxes, the credit of which was not allowed in the erstwhile tax regime, got embedded in the cost of the goods or services supplied, resulting in increased price. With the introduction of GST with effect from 01.07.2017, all these taxes got subsumed in the GST and the ITC of GST was available in respect of all goods and services, unless specifically denied. This additional benefit of ITC in the GST regime was required to be passed on by the suppliers to the recipients by way of commensurate reduction in prices, in terms of Section 171 of GST Act, 2017.

7. The Respondent No. 1 has also filed his rejoinder dated 03.03.2021 and submissions dated 13.06.2022 vide which he has stated that he acknowledged the clarifications of the DGAP dated 12.02.2021 that no benefit has been received by him and that all expenses in relation to the construction activities have been carried out by the Respondent No. 2. Hence, benefit of ITC, if any, passed on by the Respondent No. 2 to him should be passed on to the ultimate customers.

8. The Respondent No. 2 has also filed rejoinder dated 31.03.2021 vide which he has reiterated his submissions made earlier before this Authority and has inter-alia stated that:-

a. Merely because the project is single, the methodology could not surpass the separate distinct identity of both, him and the Respondent No. 1,

b. In the case of M/s Fusion Buildtech Pvt. Ltd., this Authority ordered that the DGAP has computed profiteering on the basic price raised/collected as per list of home-buyers excluding land.

c. He merely worked as works contractor for the Respondent No. 1 to the extent of its share where there was no price rather there was non-monetary consideration in the form of development rights. Hence, Section 171 could not be made applicable.

9. The Applicant No. 1 has also filed his submissions vide various e-mails and has submitted that the Respondent has profiteered in the present case by not passing on the benefit of additional ITC accrued to the Respondent and was forcing him to sign the deed with the clause that “I will not claim any ITC”.

10. The proceedings in the matter could not be completed by Authority with in prescribed time limit due to the lack of required quorum of Members in the Authority during the period from 29.04.2021 to 23.02.2022 and the minimum quorum was restored only w.e.f. 23.02.2022. Personal Hearing was held by this Authority on 13.06.2022. It was attended by the Applicant no. 1 and Authorised Representatives of the Respondent No. 1 and Respondent No. 2 as well as the DGAP.

11. This Authority has carefully considered the Reports filed by the DGAP, all the submissions and the documents placed on record, and the arguments advanced by the Applicant No. 1 and Respondent No. 1 & 2 during the hearing. It is clear from the plain reading of Section 171(1) that it deals with two situations: – one relating to the passing on the benefit of reduction in the rate of tax and the second pertaining to the passing on the benefit of the ITC. On the issue of reduction in the tax rate, it is apparent from the DGAP’s Report that there has been no reduction in the rate of tax in the post GST period; hence the only issue to be examined is as to whether there was any net benefit of ITC with the introduction of GST. It is observed from the Report of the DGAP 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 1.16%, whereas, during the post-GST period (July-2017 to September-2019), it was 6.85% for the project ‘Siddha Eden Lakeview’. This confirms that, post-GST, the Respondent No. 1 & 2 have been benefited from additional ITC to the tune of 5.69% (6.85% – 1.16%) of their turnover for the project ‘Siddha Eden Lakeview’ and the same was required to be passed on to the customers/flat buyers/recipients. Therefore, the Respondent No. 1 had benefit by an additional amount of ITC amounting to Rs. 4,11,40,502/- (which includes GST @12%), similarly, the Respondent No. 2 had benefited by an additional amount of ITC amounting to Rs. 2,50,94,164/- (which includes GST @12%). The DGAP has calculated the total amount of ITC benefit to be passed on to all the customers/flat buyers/recipients as Rs. 6,62,34,666/- for the project ‘Siddha Eden Lakeview’. The Respondent No. 1 is required to pass on Rs. 96,857/- as the additional benefit of ITC to the Applicant No. 1 and Rs. 4,10,43,645/- to other 264 recipients. Further, the Respondent No. 2 is required to pass on Rs. 2,50,94,164/- to 270 other flat buyers/recipients in the project ‘Siddha Eden Lakeview’ for the period from 1.07.2017 to 30.09.2019.

12. The Respondent No. 1 & 2 have raised several contentions in the matter and the findings of the Authority are as under:-

a. One of the contentions raised by the Respondent No. 1 is that there can be no profiteering by him as he is a landowner and as per Development Agreement he had agreed to grant license to the Respondent No. 2 (i.e. Developers) for the purpose of the development of the said premises against the consideration of 38.5% of the constructed units. Further, the Respondent No. 1 has also contended that the Respondent No. 2 (being the Developer) is a party to all the Sale Agreements executed. With respect to the above contention of the Respondent No. 1, this Authority finds that the Respondent No. 1 has not incurred any cost related to construction of the project and therefore, no ITC related to construction services had been availed by him. The DGAP vide his Report dated 31.12.2020 has computed the profiteered amount to the tune of Rs. 4,11,40,502/- which was to be passed on by the Respondent No. 1 to his customers/flat buyers/recipients in the said Project. Since the Respondent No. 2 had availed the entire CENVAT/ITC for the project (including units pertaining to the Respondent No. 1), therefore, this Authority finds that the aforesaid profiteered amount has to be passed on by the Respondent No. 2 to the Respondent No. 1 who in turn is required to pass on the benefit to his recipients.

b. The Respondent No. 2 has further contended that the Applicant No. 1 has filed his complaint against the Respondent No. 1 and not against him. Also, the flat booked by the Applicant No. 1 pertained to the share of the Respondent No. 1 and thus, the Applicant No. 1 had entered into agreement with the Respondent No. 1 and not with him. Hence, he being a third party in the present case, the proceedings initiated against him should be dropped. In this regard, we find that the objection raised by the Respondent No. 2 has been covered in para-21 of the DGAP’s Report dated 31.12.2020 which is reproduced below:

“Regarding the Co-Noticee contention that the Application filed by the Applicant No.1 was not against them, it was observed from the Sale Agreement entered with the Applicant that the Noticee was a party and signed the said agreement in the capacity of Developer. Further, as per clause 14.3 of the Joint Development Agreement dated 08.05.2015 requires that ‘Siddha shall join the deed of transfer in favor of Eden’s Transferees and shall execute and register the same in his capacity as a confirming party”

It is clear from above that, the agreement of supply was a tripartite where the Respondent No. 2 was a necessary party and thus, participation of the Respondent No. 2 in the said transactions was undeniable and the Respondent No. 2’s submission that he was not a party to the transaction of supply with the Applicant No. 1 is incorrect. Further, the CENVAT/ITC on the purchase of inputs, input services and capital goods was availed only by the Respondent No. 2 for the whole project including the purchases made towards the unit allotted to the Applicant No. 1. Since, the benefit of additional ITC has accrued to the Respondent No. 2, he being a registered person under the CGST Act, 2017, was statutory required to comply with the provisions of Section 171 of the CGST Act, 2017 by passing on the benefit of additional ITC and cannot deny to pass on the benefit pertaining to Landowner’s share (Respondent No. 1) in the project.

Further, this Authority finds that profiteering, if any, has to be computed considering the project as a whole irrespective of allocation of Developer or Landowner in order to remove any discrimination among the buyers only because of his purchase of the unit from Respondent No. 1 or Respondent No. 2. Further, the agreement with the buyers was also signed by both the Respondent No. 1 & 2 jointly. Moreover, under Rule 129(4) of the CGST Rules, 2017, the DGAP has been empowered to issue Notice to such other persons as deemed fit for a fair enquiry into the matter. Since, the Respondent No. 2 was availing all the CENVAT Credit/Input Tax Credit on purchase of the inputs/input services with respect to the subject Project, he has been rightly investigated by the DGAP. Therefore, the contention of the Respondent No. 2 in this regard was untenable.

c. The Respondent No. 2 has further contended that the investigation cannot go beyond the application filed by the Applicant No. 1. In this regard, the Authority notes that, in terms of Section 171(1) of the CGST Act, 2017, it is mandated 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’: Thus the legal requirement is abundantly clear that in the event of a benefit of ITC or reduction in rate of tax, there must be a commensurate reduction in prices of the any supply of goods or services. The said provision provides for ‘any supply’, which expand the scope to cover all supplies; where tax reduction or ITC benefit has not been passed on.

Therefore, the law prescribes that benefit of reduction in rate of tax or benefit of increase in ITC, in relation to any supply of goods or services should result in commensurate reduction in prices of such supply and accordingly, the DGAP had to examine all the supplies made by the Respondents i.e. other than the Application filed by the Applicant No. 1.

d. The Respondent No. 2 has further contended that there should be exclusion of land value from the calculation of profiteering amount. In this regard, the Authority finds that the facts in the case replied upon by the Respondent No. 2 of M/s. Bhartiya City Developers Pvt. Ltd. was different from the facts in the present case as in case of Bhartiya City Developers Pvt. Ltd., the Company had entered into two separate Agreements namely Agreement for sale of land and Agreement for construction, wherein the supplier charged GST @ 18% on agreement for construction without any abatement. Since, the consideration was received as per Agreement for sale of land which was altogether separate from the Agreement for construction and did not levy GST, so no benefit was computed towards the value of land sold. However, in the present case, there was a common agreement entered with the customers agreeing to a total price without bifurcating towards sale of land and supply of construction service. Further, the DGAP in his Report dated 31.12.2020 had considered GST @ 12% (after abatement for Land) which was mentioned in para-28 of the Report.

The Authority finds that the value of land is deducted from the turnover as and when the suppliers of construction services raise separate bills/invoices for the sale of land. In such cases, the land is an item of sale at a negotiated price between a seller and a buyer and there are separate bills/ invoices for the sale of such land and supply of construction service. In such cases, there is a clear bifurcation in these agreements with respect to such two items- one of sale and the other of supply. In such cases, both in the pre-GST regime, as well as the GST regime, the Service Tax, or GST as applicable, was charged only on the value of the supply of construction service. In such cases, the value of land which is a determinate value as per record was excluded from the turnover of receipts during the respective periods. The facts, in this case, are not the same. In the present case, there is no separate item of sale i.e. land and no separate invoices have been issued/bills raised for sale of such land. Also, both in the pre GST period and in the GST period, Service Tax and GST, as applicable, have been paid by the Respondent only on the value after availing abatement towards value of land as provided under various Notifications issued from time to time. The turnovers considered by the DGAP, while calculating the profiteered amount in the present case, are such taxable turnovers only. Hence, the value of land already stands excluded from the calculation of the profiteered amount by the DGAP in its Report.

Further, the case of M/s. Fusion Buildtech Pvt. Ltd. cited by the Respondent No. 2 does not support his contention, as in Fusion case, the DGAP had computed the benefit of ITC not passed on i.e. the profiteered amount considering the total consideration raised/collected from the Applicant No.1 and other recipients during the period 01.07.2017 to 30.09.2018 and charged GST @ 12% (after abatement for Land) which was mentioned in para-18 of the Order No. 71/2019 dated 13.12.2019 passed by the Authority.

Hence, this contention of the Respondent is not tenable.

e. The Respondent No. 2 has also contended that in absence of specified procedure and mechanism of calculation of profiteering the proceedings are arbitrary and liable to be dropped. In this regard, the Authority finds that the ‘Procedure and Methodology’ for passing on the benefits of reduction in the rate of tax and the benefit of ITC are enshrined in Section 171 (1) of the CGST Act, 2017 itself which states 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. “It is clear from the perusal of the above provision that it mentions “reduction in the rate of tax on any supply of goods or services”which does not mean that the reduction in the rate of tax is to be taken at the level of an entity/group/company for the entire supplies made by it. Therefore, the benefit of tax reduction has to be passed on at the level of each supply of each unit to each buyer of such unit and in case it is not passed on the profiteered amount has to be calculated on each unit. Further, the above Section mentions “any supply” i.e. each taxable supply made to each recipient thereby clearly indicating that netting off of the benefit of tax reduction by any supplier is not allowed. Each customer is entitled to receive the benefit of tax reduction on each product purchased by him. The word “commensurate” mentioned in the above Section gives the extent of benefit to be passed on by way of reduction in the prices which has to be computed in respect of each product based on the tax reduction or availability of additional ITC as well as the existing base price (price without GST) of the product. The computation of commensurate reduction in prices is purely a mathematical exercise which is based upon the above parameters and hence it would vary from product to product and hence no fixed mathematical methodology can be prescribed to determine the amount of benefit that a supplier is required to pass on to a recipient or the profiteered amount.

One formula which fits all cannot be set while determining such a “Methodology and Procedure” as the facts of each case are different. In one real estate project, the date of start and completion of the project, price of the house/commercial unit, mode of payment of the price, stage of completion of the project, the timing of the purchase of inputs, rates of taxes, amount of ITC availed, total saleable area, area sold and the taxable turnover realized before and after the GST implementation would always be different from the other project and hence the amount of benefit of additional ITC to be passed on in respect of one project would not be similar to another project. Issuance of Occupancy Certificate/ Completion Certificate would also affect the amount of benefit of ITC as no such benefit would be available once the above certificates are issued. Therefore, no set parameters can be fixed for determining the methodology to compute the benefit of additional ITC which would be required to be passed on to the buyers of such units.

Further, the facts of the cases relating to the Fast Moving Consumer Goods (FMCGs), restaurants, construction, and cinema houses are completely different and therefore, the mathematical methodology employed in the case of one sector cannot be applied in the other sector otherwise it would result in denial of the benefit to the eligible recipients. Moreover, both the above benefits have been granted by the Central as well as the State Governments by sacrificing their tax revenue in the public interest hence the suppliers are not required to pay even a single penny from their pocket, and hence they have to pass on the above benefits as per the provisions of Section 171 (1). Hence, the Authority finds that the above contention of the Respondent No. 2 is not tenable.

f. One of the contentions of the Respondent No. 2 is that he was not liable to pass on the benefit to the Respondent No. 1 as per Section 171 of the CGST Act. In this regard, the Authority finds that the contention of the Respondent No. 2 is not tenable. In this regard, the Authority finds that, it is a fact that Agreement with homebuyers/customers/recipients of supply was Tripartite where the Respondent No. 2 was a necessary party and thus, participation of the Respondent No. 2 in the said transactions is undeniable. Further, in the impugned project, the CENVAT/ ITC on the purchase of inputs, input services and capital goods was availed by the Respondent No. 2 for the whole project including the purchases made towards the unit allotted to the Applicant No.1. Therefore, the Respondent No. 2 being a GST registered person was also statutorily required to comply with the provisions of Section 171 of the CGST Act, 2017 and cannot deny passing on the benefit pertaining to Landowner’s share (Respondent No. 1) in the project. Further, profiteering, if any, had to be computed considering the whole project as a whole irrespective of allocation of Developer or Landowner in order to remove any discrimination among the buyers only because of his purchase of the unit from either of the two Respondents. Further, the agreement with the homebuyers/customers/recipients of supply was also signed by both the Respondent No. 1 & 2 jointly.

g. The Respondent No. 2 has also contended that Section 171 of the CGST Act cannot be applied to compare credit in the erstwhile regime with the ITC under the GST regime. The Respondent has also contended that comparison of ratio of ITC to turnover for pre-GST period and GST-period is not the correct mechanism for calculation of anti-profiteering amount. In this regard the Authority finds that, the amount of CENVAT during the pre-GST period is required to be compared with the amount of ITC available during the GST period to arrive at the quantum of ITC benefit, as it is only the additional ITC available during the GST period which is required to be passed on as per the provisions of Section 171 (1). This benefit is to be passed only w.e.f. 01.07.2017 when the provisions of Section 171 (1) have come in to force.

The whole purpose of taking period of 15 months is to cover a reasonable period just before the GST so that a proper assessment of percentage of ITC available to the Respondent could be arrived at. Further, during this period there was no variation in rate of tax on services and prior to that there were several changes in the rate of service tax as well as changes in the conditions for eligibility of availment of CENVAT Credit of Service Tax and Excise Duty including rate of abatement etc. which would result in distorted picture of CENVAT. Thus, this period was taken to find out the average ratio of ITC availability with turnover. The ratio of ITC and turnover in Pre-GST is compared with ratio of ITC in post GST. The period during the GST period may be one month or one year, depending upon the period of investigation. It does not mean that, if the period is larger, the availability of ITC would increase or decrease, but, it only gives a ratio which represents the period for comparison. It is a standard practice by the DGAP to take pre-GST period from 01.04.2016 to 30.06.2017 which has been followed in all cases. These cases have been upheld by this Authority. Therefore, the contention raised by the Respondent is not tenable.

13. For the reasons mentioned herein above, the Authority finds no reason to differ from the above-detailed computation of profiteering in the DGAP’s Report or the methodology adopted. The Authority finds that the Respondent No. 1 has profiteered by an amount of Rs. 4,11,40,502/- and the Respondent No. 2 has profiteered by an amount of Rs. 2,50,94,164/- during the period of investigation i.e. 01.07.2017 to 30.09.2019. The Authority determines an amount of Rs. 4,11,40,502/- (including 12% GST) under section 133(1) as the profiteered amount by the Respondent No. 1 and an amount of Rs. 2,50,94,164/-(including 12% GST) as the profiteered amount by the Respondent No. 2 under section 133(1) from their 265 (including Applicant No. 1) and 270 homebuyers/customers/recipients of supply, respectively (as per Annexure ‘A’ to this Order), which shall be refunded/returned/passed on by the Respondents to the respective homebuyers/customers/recipients of supply along with interest @18% thereon, from the date when the amounts were profiteered by them till the date of such return/refund/payment, in accordance with the provisions of Rule 133 (3) (b) of the GCST Rules 2017. The amount profiteered is Rs. 96,857/- (including GST) in respect of the Applicant No.1. Since the Respondent No. 2 had availed the entire CENVAT/ITC for the project (including units pertaining to the Respondent No. 1), therefore the aforesaid profiteered amount of Rs. 4,11,40,502/- (inclusive of GST) has to be passed on/refunded/returned by the Respondent No. 2 to the Respondent No. 1, who in turn is required to pass on/return/refund the benefit to his recipients including the Applicant No. 1.

14. This Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that The Respondent No. 1 & 2 shall reduce the prices to be realized from the homebuyers/customers/recipients of supply commensurate with the benefit of ITC received as per the Methodology as has been detailed above.

15. The Respondent No. 1 & 2 are also liable to pay interest as applicable on the entire amount profiteered, i.e. Rs. 4,11,40,502/-(in respect of the Respondent No. 1) and Rs. 2,50,94,164/- (in respect of the Respondent No. 2), for the project ‘Siddha Eden Lakeview’. Hence the Respondent No. 1 & 2 are directed to also pass on interest @18% to the homebuyers/customers/recipients of supply on the entire amount profiteered, starting from the date from which the amount was profiteered till the date of passing on/ payment/return, as per provisions of Rule 133 (3) (b) of the CGST Rules, 2017.

16. The complete list of homebuyers/customers/recipients of supply has been attached with this Order, with the details of profiteered amount to be passed on/returned/refunded along with interest © 18% in respect of the project ‘Siddha Eden Lakeview’ of the Respondent No. 1 & 2 as in the Annexure-A and Annexure-B respectively.

17. The Authority also order that the profiteered amount of Rs. 4,11,40,502/- (in respect of the Respondent No. 1) and Rs. 2,50,94,164/- (in respect of the Respondent No. 2), for the project ‘Siddha Eden Lakeview’ along with the interest @ 18% from the date of receiving of profiteered amount from the homebuyers/customers/recipients of supply till the date of passing on of the benefit of ITC i.e. profiteered amount shall be paid/passed on by the Respondent No. 1 & 2 within a period of 3 months from the date of this order failing which it shall be recovered as per the provisions of the CGST Act, 2017.

18. It is evident from the above narration of facts that the Respondent No. 1 & 2 have denied the benefit of ITC to the customers/ home buyers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and have thus committed an offence under Section 171 (3A) of the above Act and therefore, they are liable for imposition of penalty under the provisions of the above Section. However, since the provisions of Section 171 (3A) have come into force w.e.f. 01.01.2020, whereas, the period during which violation has occurred is w.e.f. 01.07.2017 to 30.09.2019, hence the penalty prescribed under the above Section cannot be imposed on Respondent retrospectively.

19. The concerned jurisdictional CGST/SGST Commissioner is also directed to ensure compliance of this Order. It may be ensured that the benefit of ITC has been passed on to each homebuyer/customer/recipients of supply as per this Order along with interest @18%. In this regard an advertisement of appropriate size to be visible to public at large may also be published in minimum of two local newspapers/ vernacular press in Hindi/English/local language with the details i.e., Name of builder (Respondent No. 1) — M/s Eden Realty Ventures Pvt. Ltd., and (Respondent No. 2) — M/s Siddha Real Estate Pvt. Ltd., Project- ‘Siddha Eden Lakeview’, Location- Lake View Park Road, Banhooghly, Kolkata, West Bengal and amount of profiteering Rs. 4,11,40,502/- (in respect of the Respondent No. 1) and Rs. 2,50,94,164/- (in respect of the Respondent No. 2) so that the concerned homebuyers/customers/recipients of supply can claim the benefit of ITC if not passed on. Homebuyers/customers/recipients of supply may also be informed that the detailed NAA Order is available on Authority’s website www.naa.gov.in. Contact details of concerned Jurisdictional CGST/SGST who are nodal officer for compliance of the NAA’s order may also be advertised through the said advertisement.

20. The concerned jurisdictional CGST/SGST Commissioner shall also submit a Report regarding compliance of this Order to the Authority and the DGAP within a period of 4 months from the date of receipt of this order.

21. Further, the DGAP is also directed to monitor the compliance of this Order by the concerned jurisdictional CGST/SGST Commissioner.

22. The present investigation has been conducted up to 30.09.2019 only. However, the Respondent No. 1 & 2 are liable to pass on the benefit of ITC which would become available to them 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 homebuyers/customers/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 West Bengal State Screening Committee in case the remaining benefit of ITC is not passed on to them.

23. Further, 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 fade, it appears to us that the limitation of period of six months provided in Rule 133 of the CGST Ru/es, 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.”

24. A copy of this order be sent to the Applicant No. 1, the Respondent No. 1 & 2, jurisdictional Chief Commissioner, CGST and jurisdictional Commissioners CGST/SGST in the State of West Bengal, the Principal Secretary (Town and Country Planning), Government of West Bengal as well as West Bengal RERA free of cost for necessary action. File be consigned on completion.

Annexed:

1. Annexure A in Pages 1 to 6.

2. Annexure B in Pages 1 to 12.

Download Annexed: Annexure A And Annexure B