SECTION 171 - ANTI PROFITEERING

[NAMAN DOKANIA]

M/s XYZ Partnership firm unregistered in erstwhile act, but registered in GST as Builder enters to agreement with 2 flat buyers before GST and 3 flat buyers post GST with 100+GST for each flat..

But due to anti profiteering norms they offered discount to these flat buyers by the GST amount by charging just 100(inclusive of GST)

So, had he violated the provision of section 171 of the CGST Act?? Can you help me to quote any case law as because 171 is just commensurate reduction in prices and the price has been reduced by absorbing the gst amount in the offered rate.

[Ryan Vaz]

On the facts you describe — if the allottees earlier paid 100 + GST and the builder now charges a total of 100 (i.e. reduces the total price by the amount that was earlier charged as GST) — prima facie this is a passing-on of the tax benefit by way of a commensurate reduction in price and therefore does not ordinarily constitute a violation of Section 171.

However, anti-profiteering scrutiny looks beyond the headline price: the DGAP / NAA will examine whether any benefit of reduction in tax rate or accrual of additional Input Tax Credit has arisen and whether that benefit has been passed-on to recipients (considering time of supply, agreements, ITC claimed, base price changes, escalation clauses). If the builder actually availed ITC or obtained a tax reduction that accrued post-supply and did not pass the incremental benefit, there may be exposure. 

NAA – Pyramid Infratech Pvt. Ltd. - 2018 (9) TMI 1107 - NATIONAL ANTI-PROFITEERING AUTHORITY

Order No. 07/2019 (Real Estate Sector)
Held:

• Section 171 does not prescribe a rigid mathematical formula.

• What matters is whether the benefit of tax/ITC has actually reached the buyer.

• If the overall consideration payable is reduced, the requirement of “commensurate reduction” can be satisfied.
  Ratio useful for you:

Passing on benefit can be through reduction in total price and not necessarily by altering the basic price alone.

There are many more

[KALLESHAMURTHY MURTHY K.N.]

Sir, 

Anti-profiteering as per Section 171 of the CGST Act -2017 is that the suppliers of goods and services should pass on the benefit of any reduction in the rate of tax or the benefit of input tax credit to the recipients by way of commensurate reduction in prices.

Not passing on the benefits to the recipients is known as "profiteering".

In your case, GST was collected on the sale price 100+GST, which cannot be called profiteering, likely to be passed on to the buyers. This depends on the agreement entered into with the buyers, whether the sale price is inclusive of GST or the basic price itself is 100 and GST extra. Anti-profiteering happens when there is a GST rate difference or ITC reduction benefits not passed on to the buyers.  In your case, as explained by you, there is no case of profiteering.   

[KASTURI SETHI]

Your method of payment of tax does not fall in the definition and scope of profiteering. You do not need any case law inasmuch as  both experts have covered all aspects in a perfect manner.

[NAMAN DOKANIA]

Dear experts,

I have taken ITC in GST era, which was not available earlier. But, i have passed on the benefits by re-defining the agreement value which was exclusive of tax to inclusive of tax, thus indirect reducing the sale price..

Secondly, will anti profiteering will he attracted to all the buyers whose agreement was done before and after GST both, or only those whose agreement has been entered prior to GST?

[KALLESHAMURTHY MURTHY K.N.]

Sir, 

The facts are given with half the information. ITC not available earlier means, during the VAT regime, you may have been under composition and during the GST period, you either opted for ITC or wrongly availed ITC. If wrongly availed of ITC, you have to reverse the same along with consequential interest and penalty wherever applicable.   

Re-defining the agreement means whether it is applied to the existing customers from whom taxes were already collected or to new customers. Under such circumstances, if you have collected tax on the sale price and discharged it to the Government, there will be no question of a profiteering issue. If you revise the sale price for the customers already collected taxes with a fresh agreement, it means you agreed to a price reduction, and are required to pay back or adjust the differential price to the customers, but not the tax. It will fall under sec. 76 of the CGST Act. However, it cannot be the case of anti -profiteering and does not attract Sec. 171 of the Act.

[Sadanand Bulbule]

No, there is no violation of Section 171 because the builder has absorbed the GST and charged a GST-inclusive price, thereby ensuring a commensurate reduction in price, which is exactly what Section 171 mandates. This principle is supported by NAA ruling such as Abbott Healthcare Pvt. Ltd. - 2019 (3) TMI 371 - NATIONAL ANTI-PROFITEERING AUTHORITY, where it was held that passing on the benefit by price reduction/absorption of tax satisfies Section 171, even if GST is not charged separately.

[KASTURI SETHI]

Dear Querist,

 In view of comprehensive reply by the experts, I am of the view that problem does not exist. Remedy for what ? You should also peruse definitions of “”Transaction Value”” as per pre-GST era and post GST regime viz-a-viz "Contract and Agreement" as per Contract Act. There is a difference between agreement and contract.

As per Contract Act, there is no restriction in revising agreement or contract.

[Shilpi Jain]

Why is this question being asked now? Presently none can file an anti-profiteering complaint. More facts can ensure directed answer rather than generic

AI Summary

Builder's GST-inclusive flat pricing and price absorption u/s 171, with profiteering risk if extra ITC not passed on. Section 171 of the CGST Act requires a supplier to pass on any benefit of tax-rate reduction or additional input tax credit to recipients by way of commensurate reduction in price. Where a builder revises the consideration so that the total amount payable remains 100 (GST-inclusive) instead of 100 plus GST, this constitutes a price reduction/absorption of GST and ordinarily satisfies the commensurate-reduction requirement, and therefore does not, by itself, indicate profiteering. However, anti-profiteering exposure may still arise if incremental ITC or other post-GST tax benefits actually accrued and were not passed on to each buyer, having regard to the timing of supply, agreements and pricing clauses. If tax is collected from buyers but not paid to the Government, Section 76 consequences may be attracted.