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Issues: (i) Whether the methodology adopted for examining profiteering in a real estate project, by comparing the ratio of credit to purchase value and computing project-wise savings per square foot, was valid; (ii) whether the benefit of input tax credit had been passed on to the complainant and other homebuyers; (iii) whether the EPC contractor's input tax credit flow required separate verification for determining profiteering by the respondent; and (iv) whether the treatment of ITC reversal, unsold units, and the difference between the earlier and later reports affected the conclusion under section 171.
Issue (i): Whether the methodology adopted for examining profiteering in a real estate project, by comparing the ratio of credit to purchase value and computing project-wise savings per square foot, was valid.
Analysis: Section 171 of the Central Goods and Services Tax Act, 2017 requires any benefit of input tax credit to be passed on by commensurate reduction in prices. The methodology in real estate matters is not confined to a rigid formula, and the relevant exercise must reflect the peculiar facts of the project. The comparison of pre-GST and post-GST credit ratios to purchase value, as applied after the guidance in Reckitt Benckiser, was accepted as a fair method for the project under investigation because there is no direct correlation between turnover and ITC in a construction project.
Conclusion: The methodology was upheld and the objection to it failed.
Issue (ii): Whether the benefit of input tax credit had been passed on to the complainant and other homebuyers.
Analysis: The record included ledger entries and confirmation of adjustment of a quantified amount against the complainant's dues. The respondent also placed material showing that ITC benefit had been passed on to other homebuyers through credit notes, and confirmations were obtained from some recipients. The complainant did not displace this material with reliable evidence.
Conclusion: The objection that no ITC benefit was passed on was rejected.
Issue (iii): Whether the EPC contractor's input tax credit flow required separate verification for determining profiteering by the respondent.
Analysis: The EPC contractor supplied work contract services to the respondent and did not sell units to homebuyers. The investigation examined the contractor-related documents, but the liability under section 171 depended on the respondent's own supply position and whether any benefit accrued to it for onward passing. The contractor had no active role in the accrual of benefit to homebuyers for this purpose.
Conclusion: The objection regarding failure to examine the contractor's ITC flow was rejected.
Issue (iv): Whether the treatment of ITC reversal, unsold units, and the difference between the earlier and later reports affected the conclusion under section 171.
Analysis: Units sold after completion were excluded from the scope of taxable supply, and ITC relating to unsold units at the time of occupancy certificate had to be reversed. The net ITC position for the entire project was therefore relevant. The later report used the methodology approved after the earlier approach was found flawed, so the divergence from the earlier report did not undermine the final conclusion. The criticism that the data were selective or unverified was also rejected because the report showed independent checking against GSTR-9 and chartered accountant certifications.
Conclusion: The objections based on ITC reversal, unsold units, and alleged inconsistency in reports were rejected.
Final Conclusion: The report concluding that no contravention of section 171 was made out was accepted, and the anti-profiteering objections were rejected in full.
Ratio Decidendi: In real estate anti-profiteering matters, the existence of profiteering must be assessed on a project-wise basis by a fair and reasonable methodology that reflects the absence of a direct turnover-ITC correlation, and ITC relating to amounts not retained or to supplies outside the scope of tax cannot be treated as benefit available for passing on.
Project-wise anti-profiteering analysis in real estate upheld, with ITC benefit and unsold-unit treatment assessed on fair methodology.
Real estate anti-profiteering under section 171 of the CGST Act was assessed on a project-wise basis using a fair methodology that compared pre-GST and post-GST credit ratios to purchase value, because construction projects do not show a direct turnover-ITC correlation. The material on record, including ledger entries, credit notes and recipient confirmations, was accepted as showing that input tax credit benefit had been passed on to the complainant and other homebuyers. Separate verification of the EPC contractor's ITC flow was found unnecessary for this purpose. ITC reversal for unsold units and the later report's revised approach were also accepted, and the no-profiteering conclusion stood.
Anti-profiteering methodology in real estate projects - commensurate reduction in prices - benefit of input tax credit - no direct correlation between turnover and input tax credit - Exclusion of post-occupancy certificate units and reversed input tax credit - comparison of pre-GST and post-GST credit ratios to purchase value. The core dispute in the present proceedings is that the Complainant is aggrieved with the DGAP report dated 08.01.2025 pursuant to the investigation against the Respondent, wherein is has been concluded that the no benefit accrued to the Respondent on introduction of the GST law and hence, there was no requirement to pass on any benefit in terms of Section 171 of the CGST Act. Anti-profiteering methodology - Credit to purchase value comparison - No contravention of section 171 - HELD THAT: - With respect to the objection raised by the Complainant that the DGAP misinterpreted the judgment in Reckitt Benckiser [2024 (1) TMI 1248 - DELHI HIGH COURT] by erroneously substituting the comparative base of ITC/turnover ratio with ITC/purchase value ratio, thereby adopting a defective methodology, we are of the considered view that the DGAP has correctly applied the methodology in accordance with the findings of the Hon’ble High Court of Delhi in paragraph 129 of the said judgment (as reproduced above). Accordingly, we hold that the objections raised by the Complainant are misconceived and untenable. The Tribunal held that, in real estate matters, computation could not rest on the earlier turnover-based comparison, since the governing principle is to determine total savings on account of GST at the project level. Applying that approach, the DGAP compared the ratio of credit availed to purchase value in the pre-GST and post-GST periods and found that the ratio declined from 6.81% to 3.34%. As the post-GST position reflected no additional benefit, the basis for any commensurate price reduction under Section 171 did not arise. The Complainant's challenge to substitution of the turnover base with purchase value was therefore rejected. [Paras 34, 57, 62, 68] The objection to the methodology was rejected and the finding that the Respondent had not contravened Section 171 was upheld. Passing on of input tax credit benefit - Book adjustment - HELD THAT: - The Tribunal accepted the Respondent's material showing that the relevant amount had been credited to the Complainant by adjustment against his outstanding dues, and noted that receipt of that benefit had also been confirmed. In view of the ledger entry and the confirmation obtained during investigation, the allegation that no benefit had been passed on to the Complainant was found to be without basis. [Paras 35, 36, 38, 39] The plea that no benefit was passed on to the Complainant was rejected. EPC contractor's role - Accrual of input tax credit benefit - HELD THAT: - The Tribunal found that the EPC contractor was only providing works contract services to the Respondent and issuing invoices accordingly, while the sale of units to homebuyers was undertaken by the Respondent himself. Since the contractor was not the supplier of the flats to the recipients, and had no active role in accrual of the additional benefit to homebuyers, the DGAP's treatment of the contractor's position was held to be proper. [Paras 41, 43, 44] The objection that the DGAP failed to examine the EPC contractor's ITC flow in a legally relevant manner was rejected. Scope of investigation in real estate anti-profiteering - Post-occupancy certificate units - Reversal of input tax credit - HELD THAT: - The Tribunal held that units sold after issuance of occupancy certificate, unsold units, and cancelled units were correctly kept outside the purview of the investigation, and only the 107 units sold before occupancy certificate were relevant for buyer-level examination. At the same time, for computing total project savings, the DGAP was entitled to take the purchase value of the entire project and to exclude the input tax credit that stood reversed in respect of units sold after occupancy certificate or otherwise not retained by the Respondent. Since such reversed credit was not available to the Respondent, it could not be treated as benefit accruing for purposes of Section 171. [Paras 48, 55, 56, 57, 58] The objections regarding limitation of investigation to 107 units and use of net ITC after reversal were rejected. Change in methodology - Earlier and later DGAP reports - HELD THAT: - The Tribunal held that the earlier report had been prepared on a turnover-based formula, whereas the later report was prepared on the purchase value basis after the governing methodology stood clarified. In those circumstances, a different outcome between the two reports was a natural consequence of the change in the legal method of computation, and did not undermine the later conclusion that there was no contravention of Section 171. [Paras 60, 61, 62] The alleged inconsistency between the two reports was held to be immaterial. The Tribunal found from the report itself that the DGAP had not mechanically accepted the figures furnished by the Respondent. It noted that the DGAP had departed from figures certified by the Chartered Accountant where warranted and had also relied on the Respondent's GSTR-9 data for the relevant year. This showed independent scrutiny of the material and negatived the plea of unverified or selective reliance. [Paras 66, 67] The objection regarding lack of independent verification was rejected. Final Conclusion: The Tribunal rejected all objections to the DGAP report and accepted the report holding that, on the methodology applicable to real estate projects, no additional input tax credit benefit had accrued to the Respondent. It accordingly held that there was no contravention of Section 171 of the CGST Act.