2023 (12) TMI 1411 - CCI - GST

Developer fails to prove GST input tax credit benefits passed to home-buyers under section 171

Syed Ali Hussaini, Vepachedu Bhargav, Director General of Anti-Profiteering Versus M/s Vasavi and GP Infra LLP

CCI held that a flat developer failed to demonstrate passing on ITC benefits to post-GST home-buyers, constituting profiteering under section 171 of CGST ... Profiteering - purchase of flat - benefit of input tax credit (ITC) had not been passed on to his customers by way of commensurate reduction in prices - contravention of section 171 of CGST Act - HELD THAT:- The Commission is of the view that the claim of the Respondent regarding passing on the benefit of additional ITC to his customers/home- buyers needs to be verified. The Respondent is directed to provide all the documentary evidence i.e. 'Names of the home-buyers, their E- mail ids/Mobile Nos./Addresses, Amount of ITC benefit passed on to each home-buyer, Copies of Tax invoice, Credit Notes and Cheques issued to each home-buyer, Copies of Bank Statements indicating the amount of ITC benefit passed on to the home-buyers and Acknowledgement Receipts from all the home-buyers stating that they have received the additional benefit of ITC' duly certified by the Authorized person of the Respondent to the DGAP to prove his above claim. The claim of the Respondent regarding passing on the benefit of ITC to the customers/home-buyers shall be verified by the DGAP by contacting the customers/home buyers and seeking their replies regarding receipt of benefit of ITC. The Commission is of the view that on the basis of the documents submitted by the Respondent, the DGAP has not tried to investigate whether the Respondent had sold the flats to the post-GST home- buyers at the rates lower than the rates charged from the pre-GST home-buyers. Further, during the course of investigation, the Respondent has not provided the details to the DGAP. The DGAP has already submitted his investigation report to the Commission. The Commission under Rule 133(4) of the CGST Rules, 2017 directs the DGAP to further investigate the claim of the Respondent regarding passing on the benefit of ITC and charging lower rates from the post-GST buyers than the pre-GST buyers and recalculate the profiteered amount, if required. The Respondent is also directed to extend all necessary assistance to the DGAP and furnish him with necessary documents or information as required during the course of the investigation. Conclusion - The benefits of ITC must be passed on to consumers, and the burden of proof lies with the seller to demonstrate compliance. Application disposed off The judgment from the Competition Commission of India (CCI) involves an investigation into alleged profiteering by a respondent in the sale of flats within a real estate project. The investigation was initiated following complaints that the respondent did not pass on the benefits of Input Tax Credit (ITC) to buyers after the introduction of the Goods and Services Tax (GST).1. Issues Presented and ConsideredThe core legal questions addressed in this judgment are:Whether the respondent failed to pass on the benefit of additional ITC to homebuyers post-GST implementation, as required under Section 171 of the CGST Act, 2017.Whether the respondent's claims of having passed on ITC benefits to certain buyers can be substantiated with evidence.Whether the respondent's pricing strategy post-GST was in compliance with anti-profiteering provisions, particularly in comparison to pre-GST pricing.2. Issue-wise Detailed AnalysisIssue 1: Failure to Pass on ITC BenefitsLegal Framework and Precedents: Section 171 of the CGST Act mandates that any reduction in tax rates or benefit of ITC must be passed on to the recipient by way of commensurate reduction in prices.Court's Interpretation and Reasoning: The CCI examined the DGAP's report which indicated that the respondent had not passed on the ITC benefits to the buyers, resulting in profiteering.Key Evidence and Findings: The DGAP's investigation revealed a significant increase in ITC post-GST, which was not reflected in reduced prices for buyers.Application of Law to Facts: The respondent was found to have benefited from additional ITC but did not reduce prices accordingly, violating Section 171.Treatment of Competing Arguments: The respondent argued that the ITC benefits were passed on, but the evidence provided was insufficient to substantiate these claims.Conclusions: The CCI found that the respondent had indeed profiteered by not passing on the ITC benefits to buyers.Issue 2: Substantiation of ITC Benefit ClaimsLegal Framework and Precedents: The burden of proof lies on the respondent to demonstrate compliance with Section 171 of the CGST Act.Court's Interpretation and Reasoning: The CCI required the respondent to provide documentary evidence supporting their claims of having passed on the ITC benefits.Key Evidence and Findings: The respondent's evidence was deemed insufficient, as many buyers did not confirm receipt of ITC benefits.Application of Law to Facts: Without adequate proof, the respondent's claims could not be verified.Treatment of Competing Arguments: The respondent's arguments were countered by the lack of supporting evidence and buyer confirmations.Conclusions: The CCI directed further investigation to verify the respondent's claims.Issue 3: Pricing Strategy Post-GSTLegal Framework and Precedents: The anti-profiteering provisions require that any benefit from tax changes be reflected in pricing.Court's Interpretation and Reasoning: The CCI examined whether the respondent's post-GST pricing was lower than pre-GST prices, factoring in ITC benefits.Key Evidence and Findings: The DGAP's investigation could not conclusively determine the pricing strategy due to insufficient documentation.Application of Law to Facts: The lack of clear evidence prevented a definitive conclusion on pricing compliance.Treatment of Competing Arguments: The respondent claimed lower post-GST prices, but this was not substantiated with clear evidence.Conclusions: The CCI ordered a reinvestigation to verify pricing claims and compliance with Section 171.3. Significant HoldingsPreserve Verbatim Quotes of Crucial Legal Reasoning: 'The Respondent is directed to provide all the documentary evidence... to prove his above claim.'Core Principles Established: The judgment reinforces the principle that the benefits of ITC must be passed on to consumers, and the burden of proof lies with the seller to demonstrate compliance.Final Determinations on Each Issue: The CCI directed further investigation to verify the respondent's claims of passing on ITC benefits and to reassess the pricing strategy post-GST.The judgment emphasizes the importance of transparency and compliance with anti-profiteering measures, ensuring that consumers benefit from tax reductions and ITC benefits. The CCI's directive for further investigation underscores the need for thorough verification of claims made by businesses in compliance with GST regulations.