NO PROFITEERING ON RESIDENTIAL FLATS CONSTRUCTED IN POST  GST PERIOD

The provisions of Section 171 (1) of the CGST Act, 2017 would be attracted in case there was reduction in the rate of tax or an increase in the benefit of ITC, however, in the instant case, since the project was started after implementation of the GST w.e.f. 01.07.2017, there was no pre-GST tax rate or ITC availability that could be compared with the post-GST tax rate and ITC, to determine whether there was any benefit that was required to be passed on by way of reduced price. For section 171  that there should either be reduction in the rate of tax or the benefit of ITC which is required to be passed on to the recipients by commensurate reduction in the price

In Arjun Kumar Parwani and DGAP, CBIC, New Delhi v. Signature Builders Pvt. Ltd., New Delhi (2019 (7) TMI 237 - NATIONAL ANTI-PROFITEERING AUTHORITY, the complainant made an allegation that supplier of residential flats had resorted to profiteering in respect of supply of construction services related to purchase of flat. It was state that the basic sale price of the above flat in the pre-GST regime was fixed as ₹ 4000/- per square foot (sq. ft.) which was required to be recalibrated after implementation of the CST by passing on the additional benefit of Input Tax Credit (ITC) which had become available to the supplier.

The complaint was referred to DGAP for investigation. It contended that the anti-profiteering provisions would not apply to the project as it was not in existence before the implementation of the GST and was started after coming in to force of the GST.

Also, in the present case, the advertisement for start of the project, the pre-booking payments, draw of lots, allotment of units and receipt of payments had taken place post-GST and hence there was no pre-GST tax rate or ITC which could be compared with the post-GST tax rate and ITC which the supplier could have taken in to account to pass on the benefits of tax reduction or ITC which had become available to him post coming in to force of the GST.

The DGAP had submitted that the provisions of Section 171 (1) of the CGST Act, 2017 would be attracted in case there was reduction in the rate of tax or an increase in the benefit of ITC, however, in the instant case, since the project was started after implementation of the GST w.e.f. 01.07.2017, there was no pre-GST tax rate or ITC availability that could be compared with the post-GST tax rate and ITC, to determine whether there was any benefit that was required to be passed on by way of reduced price and hence, the provisions of Section 171 (1) of CGST Act, 2017 pertaining to profiteering, had not been violated.

The NAA asked the DGAP for further investigation under rule 133(4) on ITC aspect and impact of rate reduction from 12% to 8% w.e.f. January, 2018. It was further submitted by DGAP that all the events pertaining to the above project viz. advertisement for the project launch pre- booking payments, draw of lots, allotment of units and receipt of the entire payments etc. had taken place in the post-GST period and there was no sale or even booking of the flats in the pre-GST period and hence, there was no pre GST tax rate and ITC which could be compared with the post-GST tax rate and the ITC. He has also submitted that the provisions of Section 171 (1) of the CGST Act, 2017 were only attracted when there was reduction in the rate of tax or increase in the benefit of ITC. Since the project was started after coming in to force of the GST w.e.f. 01. 07.2017, there was no pre-GST tax rate or ITC which could be compared with the post-GST tax rate and the ITC to come to the conclusion that there was benefit which was required to be passed on by way of commensurate reduction in price.

Since supplier had charged 12% GST on the base price of Rs- 4,000/- per sq. ft., till 24.01.2018 and 8% GST on the above price w.e.f. 25.01.2018, there had been no profiteering due to reduction in the GST rate from 12% to 8% w.e.f. 25.01.2018.

The NAA addressed the following issues to settle the complaint:

1. Whether there was reduction in the rate of tax on the construction services as alleged by the Applicant?
2. Whether there was benefit of additional ITC available to the builder which was not passed on by him to the Applicant?
3. Whether there was any violation of the provisions of Section 171 (1) of the CGST Act, 2017 by the supplier ?

It observed that based on records and DGAP report, contentions of complainant were unreasonable and can not be accepted. Since the project was not under execution in the pre-GST period, no comparison can be made between the pre and post GST rate of tax which could establish that there has been reduction in the rate of tax the benefit of which was required to be passed on to the above Applicant and hence the claim on this ground was unacceptable. There was no additional benefit of ITC to the supplier and hence it was not required to pass on its benefit.

It held that it is clear from the section 171  that there should either be reduction in the rate of tax or the benefit of ITC which is required to be passed on to the recipients by commensurate reduction in the price. Since there has been no reduction in the rate of tax or benefit of additional ITC to the supplier, the provisions of the Section 171 are not attracted in the present case and the allegation of profiteering is not established against the supplier.

The complaint was dismissed as being not maintainable.