Pareena Infrastructure Pvt. Ltd. guilty of Profiteering: NAA

Saurabh Kumar Vs Pareena Infrastructure Pvt. Ltd. (NAA)

Applicant alleged that the Respondent had not passed on the benefit or Input Tax Credit (ITC) to him by way of commensurate reduction in the price of flat in respect of purchase of flat in project “Laxmi Apartment” Sector-99A, Dwarka Expressway, Gurugram, Haryana.

It is clear from 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 he examined is as to whether there was any net benefit of ITC with the introduction of GST. On this issue it has been revealed from the  DGAP’s  Report that the ITC  as a percentage of the turnover that was available to the respondent during the per-GST period (April-2016 to June 2017) was 1.61% and during the post-GST period (July-2017 to October-2020), it was 9.88% for the project “Laxmi Apartments”, This confirms that post-GST. the  Respondent bus been benefited from additional ITC to the tune of  8.27% [9.88% (-) 1.61%] of his turnover for the said project and the same %vas required to be passed on to the customers/flat  buyers/recipients. The DGAP has calculated the amount of ITC benefit to be passed on to the customers/flat buyers/recipients as Rs. 633,70,091/- (which includes an amount of Rs. 57.557/- in relation to Applicant no. 1) for the project “Laxmi Apartments”. the details of which are mentioned in Table- B above.

Hence, the Authority finds nu reason to differ from the above detailed computation of profiteered amount by the DGAP or the methodology  adopted by it. The Authority finds that Respondent  has profiteered an amount of  Rs. 6,33,70,091/- (Rupees Six Crore Thirty three Laes Seventy Thousand Ninety one only) during the period under present investigation. This includes an amount of Rs. 57,577/- in relation to Applicant no. 1, Therefore given the above facts. the Authority under Rule I 33(3)(a) of the COST Rules orders that the Respondent shall reduce the price to be realized from the customers/flat buyers/recipients commensurate with the benefit of additional ITC received by him.

The Respondent is also liable to pay interest as applicable on the entire amount profiteered. i.e. Rs. 6,33,70,091/- for the project “laxmi Apartments”. Hence the Respondent is directed to also pass on interest @18% to the customers/flat buyers/recipients on the entire amount profiteered, starting from the date which the above profited, starting from the date Nola which the above amount was profiteered till the date of passing on/ payment. as par the provisions of Rule 133 (3) (h) of the CGST Rules, 2017.

 This Authority also orders that the profiteering amount of Rs. 6,33,70,091/- for the project “Laxmi Apartments” along with the interest @18% from the date of receiving of the profiteered amount from the customers/flat buyers/recipients till the date of passing the benefit  ITC shall be. paid/passed on by the Respondent within a Period of 3 months from the date of this Order failing which ,:.hall be recovered as per the provisions of the CGST Act. 2017.

FULL TEXT OF ORDER OF NATIONAL ANTI-PROFITEERING AUTHORITY

1. Standing Committee on Anti-profiteering, referred on application filed by Shri Saurabh Kumar, Infinity. Tower-B, 4th Floor, DLF Cyber City, Phase-II. Sector-25A, Gurugram-122002 to Director General of Anti-Profiteering (DGAP) alleging profiteering by M/s Pareena Infrastructure Pvt. Ltd., C-7A, 2nd Floor, Omax City Centre Mall, Sohna Road, Sector-49, Gurugram. Haryana-122 002 in respect of purchase of flat in project “Laxmi Apartment” Sector-99A, Dwarka Expressway, Gurugram, Haryana. The Applicant alleged that the Respondent had not passed on the benefit or Input Tax Credit (ITC) to him by way of commensurate reduction in the price of flat.

2. The Authority had issued an Interim Order No. 24/2020 dated 19.11.2020 on the subject matter. Mc Authority vide this I.O. has directed DGAP to further investigate the present case under Rule 133 (4) of the CGST Rules, on the following issues:-

a. The claim of the Respondent that he has passed on the ITC benefit amounting to Rs. 19.680/- to Applicant No. 1 and amounting to Rs. 1,54,87,120 to the 769 other buyers, needs to be verified by obtaining acknowledgments from approximately 10% (78 buyers) of the buyers.

b. It Is also apparent from the record that the Respondent has claimed to have passed on ITC benefit amounting to Rs. 1,55,06,800/- on account of profiteering for the period from July 2017 to June 2019. Therefore. he is also liable to pass on interest @8% on the profiteered amount to the flat buyers from the dates from which he has received the additional amount of consideration from them till the passing on of the ITC benefit, as he has used this amount in his business, as per the provisions of Section 171 (I) of the CGST Act, 2017 read with Rule 133 (3)(b) of the above Rules ‘The DGAP to directed to investigate, compute and ensure that the applicable interest is also paid to all eligible house buyers.

c. The difference in the turnover of the Respondent for the period from April 2016 to June 2017 adopted in the DGAP’s Report and the statutory Returns filed by him during the above period needs to be reconciled and explained with proper supporting documents.

d. Similarly, the difference in the, turnover of the Respondent For the period from July 2017 to June 2019 adopted in the DGAP’s Report and Statutory Returns filed by him during the above period needs to he reconciled and explained with proper supporting documents.

e. Further, the claim of the Respondent that he has availed VAT credit of Rs. 1,07,07,174/- during the period April 2016 to June 2017 needs to be verified whether he was eligible to claim ITC on the VAT which lie lugs paid during the period from April 2016 to June 2017 as per the provisions of the Haryana VAT Act, 2003 or not.

3. An Investigation Report dated 15.12.2021, had been received from the Director General Anti-Profiteering (DGAP) after detailed investigation as per the directions contained in this Authority’s Order No. 24/2020 dated 19.11.2020. The DGAP vide his Report dated 15.12.2021 had inter-alia submitted the following points:-

I. In light or the Covid-19 pandemic, the Investigation could nut be completed on or before the clue date. Further, the Hon’ble Supreme Court of India passed an Order dated 08.03.2021 in Sun Moto Writ Petition (Civil) No. 3 of 2020, wherein, it was stated that “in cases where the limitation would have expired during the period between 15.03.2020 till 14.03.2021. notwithstanding the actual balance period of limitation remaining. all persons shall have a limitation period of 90 days from 15.03.2021. In the event the actual balance period of limitation remaining, with effect from 15.03.202, is greater than 90 days, that longer period shall apply”. The above relief had been

extended and the period from 14.03.2021 till Further orders shall also stand excluded in computing the limitation period as per the Hon’ble Supreme Court’s Order dated 27.04.2021 passed in Miscellaneous Application No. 665/2021 in SMW(C) No. 3/2020. Further the above relief had been extended and the period from 02.10.2021 shall have a limitation period of 90 days from 03.10.2021 as per the Hon’ble Supreme Court’s Order dated 13.09.2021 passed in Miscellaneous Application No. 66512021 in SMW(C) No. 17020.

II. In response to the DGAP letter dated 18.12.2020 and subsequent reminders dated 06.01.2021, 29.01.2021, 25.021021, 29.07.2021, 26.08.2021, 14.09 2071, 10.10.2021 and summons dated 09.03.2021. 23.03.2021. and 30.06.2021, the Respondent submitted his reply vide letters/e-mails dated 01.02.2021, 15.03.2021, 26.03.2021, 25.06.2021 06.07.2021, 18.082021, 01.10.2021, 04.10.2011, 11.10.2021,
17.11.2021, 09.12.2021. 11.122021 and 13.12.2021.

The reply of the Respondent .s reproduced below: –

(a). He was executing multiple projects under the same Service Tax No /Vat No. and the same GSTIN. The turnover declared In statutory returns included the turnover of other projects as well. therefore there was difference in turnover in pm and pam41st periods

(b). He had passed on the credit of the ITC in the buyers in November 2018 and no interest was paid along with it.

(c). He had applied for Occupation Certificate with the respective authority.

(d). The project Apartments” under Investigation is an Affordable Hamlin Nouns, which was exempt from payment or Service ‘fax and the Respondent was not charging any Service Tax on the same. Further the Respondent had not claimed any Service Tax Input Credit on any Services

(e). Since the Project was exempt from payment of “Service Tax” similar exemption was available In the “Contractors” and he too was not liable to payment of Service Tax.

(f). He was liable to pay VAT and then was an option available with the Respondent to pay VAT tinder the Compounding Scheme @1% for the Builders effective from April 2014 or the VAT based on the Calculation of the cost or Material Transferred in the execution or thy Works Contract, If the Respondent opted for the Compounding method the effective cost to the Respondent was 1% of the total Receipts and it opted for the second method then it was allowed the benefit of VAT Input Tax Paid on the materials purchased and the effective rate also dues not exceed more than 1%.

(g). The Respondent opted for the Second method and had availed the following amounts of VAT Input against the Materials purchased during the period from April 2016 to June 2017.

It was also mentioned by the Respondent that he had not claimed any VAT from the Customers and the cost of approximately 1% towards Taxes was absorbed by him.

The Respondent further submitted that as per the explanation to Section I71, the Expression “PROFITEERED “shall mean the amount determined on account of not passing the benefit of reduction in the rate of tax on supply of goods or services or both the benefit of ITC to the recipient by way of commensurate reduction in the price of the goods or services or both. Thus, effectively the Respondent is required to pass on the benefit. only if there is a benefit accrued to the Respondent. that is. there is a tangible increase in the percentage of “PROFIT’ that the Respondent would get alter the introduction of GST. To his understanding the following two circumstances could occur due to which the benefit could arise as under:

i) The benefit of ITC which the, Respondent was not getting earlier and is now getting:

He reiterated that the Project undertaken by him was not liable to “Service Tax” and further the “Contractor” who was engaged by him was also not liable to pay any Service It. Thus, there was neither any “Output Tax Credit” Liability” nor any “Input ‘It Credit” available to him.

Post CST the Respondent is collecting the UST (Output Tax) from the Customers and paying the UST (Input Tax) to the Suppliers (who were charging VAT) and GST (Input Tax) to Contractors (who were not charging any UST). Thus, the purposes of comparing the increase in ITC mailable to the It esporolcist could be done only with the items on which it was earlier netting ITC or charging tax. The Respondent stated that he would not get any benefit from the Input Fax paid to the Contractor

ii) The alternate method to calculate the benefit to the Respondent Post GST

Respondent stated that he had passed on a 3% GST benefit to the Customers calculated on the payments due from the Customers after 01.07.1017 amounting to Ra.1,59,35,584/-.

The percentage had been estimated based on the expected benefit the Respondent would receive on the reduction in the Cost of the Contractors post GST An approximate coat of 50% is incurred on the portents to the Contractors. The Respondent had re-negotiated a reduction of 7% in the Contractors Bills post GST. The effective reduction in the Cost to the Respondent was estimated by him as below:

Thus. the Respondent had Submitted that he had gained by 2.75% based on calculations eaten above and had passed on the benefit of 3% to the customers.

III. As per the directions of NAA contained in the Interim Order No.11/2020 dated 19.11.2020. DGAP initiated re-investigation of the case. The main issues looked into by DGAP were:

a) Whether them was s benefit of reduction in the rate of tax or ITC on the supply of construction service by the Respondent after implementation of GST w.e.f. 01.07.2017 and if so;

b) to Whether the Respondent passed on such benefit lo the recipients hy way of commensurate reduction in price, in terms of Section 171 of the CGST Act, 2017 and:

c) To comply with the directions contained in the Interim Order No. 24/2020 dated 19.11.2020 of the NAA.

IV. DGAP submitted that ITC about residential units which wore under construction but not sold is a provisional ITC that might he required to be reversed by the Respondent, if such units remain unsold at the time of issue of the completion certificate. ha terms of Section 17(2) & Section 17(3) of the CGST Act. 2017

V. Therefore the Fit about the unsold units might not fait within the ambit of this investigation. and the Respondent was required to recalibrate the selling price of such units to be sold to the prospective buyers by considering the proportionate benefit of additional ITC available to him post-GST.

In the submissions made by the Respondent. he had contended that he would not get any benefit from the Input Tax paid to the Contractors, and thus the ITC competition method could give correct results only by excluding the ITC of Contractors from the total ITC post GST available to hint In this regard. it is observed that in the erstwhile tax regime (pre-GST). ‘various taxes and ccssess were being levied by the (central Government and the State Governments, which got subsumed in the GST Out of these taxes. the fit (ITC) of some taxes was tint allowed in the erstwhile tax regime. In the case or construction services. while the of Service Tax was available. the ITC of Central Excise duty paid on inputs was not available to the service provider. Suds input taws. the credit of which was not allowed in the erstwhile tax regime. used to get embedded in the cost of the goods or services supplied. resulting In increased price. With the introduction of GST w.e.f 01.07.2017, all these taxes got subsumed in the GST and ITC of GST is available in respect of all goods and services unless specifically denied. Broadly, the additional benefit of ITC In the GST regime would be limited to those input taxes. The credit of which wits not allowed in the pre-GST regime but is allowed it the GST regime, This additional benefit of ITC It in the GST regime is required to he past! on by the suppliers to the recipients by way of commensurate reduction in price. in terms of Section 171 of CGST Act, 2017. In the rues case, it is observed that in the pre-GST regime. the Respondent was neither charging Service Fax from the home buyers nor was paying Service fax to the sub-contractors un the services received by the Respondent from the sub-contractors. However, it is pertinent to mention here that even if. the Respondent had entrusted the work to the sub-contractors. in that case, based on the above explanation, the sub-contractors had benefitted with the additional ITC or GST in the post-List period which he was required to pass no to the Respondent and similarly in the supply chain of the construction services the Respondent is also required to pass on the additional benefit of ITC of GST to the home buyers. It could further be corroborated with this fact that the Respondent had himself asserted that he Its received a 7% benefit front the sub-contractors. Therefore, the claim of the Respondent that he would not get any benefit from the Input Tax ixtid to the Contractors. and thus the ITC Comparison method could give correct results only by excluding the ITC of Contractors from the total VIC post GST available to Iii Respondent. is incorrect and hence not acceptable.

VI. Further. the Respondent had also contended that he had gained by 2.75% based on calculations tabulated in his submission and claimed that he had already passed on the benefit Or 3% to the customers. In this regard. I)GAP had observed that the Respondent had inside this contention merely based on assumed figures and data which had got nothing to do with the factual data/figures. Therefore the contention of the Respondent merely Raised on assumption Was incorrect and could not be considered.

VII. As regards the allegation of profiteering, it was observed that before 01.27.2017, i.e., before the GST was introduced. the service of construction of affordable housing provided by the Respondent, was exempt front Service Tax in terms of Notification No. 25/2012-ST dated 20.06.2012. as amended by Notification No. 9/2016-ST dated 01.03.2016. the Respondent was not eligible to avail. CENVAT credit of Central excise duty paid on the inputs or Service TAN paid on the input services, as per the CENVAT Credit Rules, 2004. which was in force at the material time. Further, post-GST, the Respondent could avail ITC of GST paid on all the inputs and input services. From the data submitted by the Respondent covering the period April 2016 to October 2020, the details of the ITC to availed by them. his turnover from the project “Laxmi Apartments” and the ratio of ITC in turnover. during the pro-OST (April 2016 to June 2017) and post-GST (July 2017 to October 2020) periods. was furnished in table-A below.

VIII. In the above table -A. the turnover in respect of canceled units had been excluded from the total turnover. The. Respondent had skit gel approval rot one more Tower(dower-10) in the post-GST period I fence. the total saleable area had increased. Further. in the earlier report dated 23.032020. the ITC in the post-GST paled was taken after excluding the ITC available on account of GST paid to the sub-contractors. however. the same had been considered now based on the explanation in Para 14 above. Therefore. due to the above factors and also extension in the period of investigation. the ITC had also increased substantially in the period.

IX. From the above table- ‘A’, it is clear that the ITC as a percentage of the turnover that was available to the Respondent during the pre-GST period (April 2016 to July 2017) was 1.61% and during the post-GST period (July 2017 to 31.10.2020), it was 9.88% for the project “laxmi Apartments”. This confirms that post-GST. the Respondent hail benefited from additional ITC to the tune of 8.27% [9.884 (-) 1.61%1 of the turnover.

X. The Central Government, or the recommendation of the GST Council, had levied 18% GST (effective rate was 12% because of 1/3rd abetment for land value) on construction service, vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. The effective GST rate on construction stake in respect of affordable and low-cost houses up to a carpet area or 60 squire meters per house was further reduced from 12% to 8%. vide Notification No. 1/2018-Central Tax (Rate) dated 25.01.2018. Because of the change in the GST rate after 01.07.2017, the Issue of profiteering had been examined in two parts. Le_ by comparing the applicable las rate and ITC available in the pre-GST period (April 2016 to June 2017) when only %/AT was payable with (1) the port-GST period from 01.07.2017 to II:01.201R. when the effective CGST rate was 12% and (2) with the GST period from 25.01.2018 to 31.10.2020. when the effective GST rule was for residential flats. Accordingly. based on the figures contained in table- ‘A’ above the comparative figures or the ratio of tit availed/available to the turnover in the pre-GST and petit-CGST periods as well as the turnover. the recalibrated base price and the excess realization (profiteering) during the post-GST period. “a tabulated in table-B below,

XI. From table- 13′ above. it observed that the additional ITC of 8.27% of the turnover should have resulted in the commensurate reduction In the base price as well as cum-tax price. therefore. in mum: of Section 171 of the COST Act. 2017. the benefit of such additional lit .vas required to be passed on to the benefit of such additional ITC was required to be passed on to the recipients.

XII. Having established the fact of profiteering, the next step is to quantify the same. Based on the aforesaid CENVAT/input tux credit availability in pre and post-GST periods and the details of the amount collected by the Respondent from the Applicant and other home buyers during the period 01.07.2017 to 24.01.2018, the amount of benefit of lit that needed to be passed on by the Respondent to the home buyers comes to Rs. 2,26,21,714/-, which included 12% GST on the base amount of Rs. 2,01,97,959/- Further. the amount of benefit of 11 C that needed to be passed on by the Respondent to the home buyers during the period 25.01.2015 to 31.10.2020. comes to its. 4,07,48,377/-which included 8% GST un the base amount of Rs. 3,77,29,979/- recalibrated, the total benefit of It’s that the Respondent needed to be passed on in the home-buyers for the ?cried 01.07.2017 to 31.10.2020. comes to Rs. 6,33,70,091/- which included GST@ 12% or 8%) on the base amount of Rs. 5,79,27,938/- This amount was inclusive of the profiteered amount of R 57,557/-  in respect of the Applicant in the matter.