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March 20, 2021

NAA directs DGAP to reinvestigate alleged profiteering by Prestige Estate Projects Ltd

by CA Jessica Nagaonkar in GST

NAA directs DGAP to reinvestigate alleged profiteering by Prestige Estate Projects Ltd

Prestige Estates Projects Ltd is one of the leading real estate development companies with projects in residential office retail and hospitality segment. Its operations are spread across South India Pune Goa and Ahmedabad. They have developed a diversified portfolio of real estate development projects focusing on projects in the residential (including apartments villas plotted developments and integrated townships) commercial (including corporate office blocks built-to-suit facilities technology parks and campuses and SEZs) hospitality (including hotels resorts and serviced accommodation) and retail (including shopping malls) segments of the real estate industry. But massive expansion hasn’t come without growing pains. Anti-profiteering watchdog, National Anti-Profiteering Authority (NAA), found that the Dough Maker India which was the franchisee of Subway India was guilty of denying GST rate cut benefits to customers.

The National Anti-Profiteering Authority (NAA) is the statutory mechanism under GST law to check the unfair profiteering activities by the registered suppliers under GST law. The Authority’s core function is to ensure that the commensurate benefits of the reduction in GST rates on goods and services done by the GST Council and of the Input tax credit are passed on to the recipients by way of commensurate reduction in the prices by the suppliers.

Submissions by DGAP on the situation of the respondent pre GST

  • Prior to 01.07.2017, i.e., before GST was introduced, the Respondent was eligible to avail CENVAT credit of Service Tax paid on the input services.
  • However, CENVAT credit of Central Excise Duty paid on the inputs was not admissible as per the CENVAT Credit Rules, 2004, which were in force at the material time.
  • Further, upon examining the VAT Returns, invoices etc. submitted by the Respondent, it appeared that he was paying VAT under Karnataka VAT under normal scheme and was eligible to avail any ITC of VAT paid on the inputs purchased by him.
  • The Respondent submitted VAT Returns and the breakup of the purchases made for the project “Rise” to justify the credit of VAT for the impugned project and details of VAT turnover for the project were provided.
  • Further, during the pre-GST era, the Respondent was eligible to avail CENVAT credit of Service Tax paid on input services and deduction of the payments made to the registered contractors and sub-contractors (from the taxable turnover under VAT) on which VAT @4% was being levied.
  • However, CENVAT credit of the Central Excise Duty paid on inputs was not admissible as per the CENVAT Credit Rules, 2004, which were in force at the material time.

Submissions by DGAP on the situation of the respondent post GST

  • However, post-GST, the Respondent could avail the ITC of GST paid on all the inputs and input services including the sub-contracts.
  • The ITC as a percentage of the total turnover that was available to the Respondent during the pre-GST period (April 2016 to June 2017) was 1.56% and during the post-GST period (July 2017 to September 2019), it was 5.42% which clearly confirmed that post-GST, the Respondent had been benefited from additional ITC to the tune of 3.86% [5.42% (-) 1.56%] of the taxable turnover.
  • The Central Government, on the recommendation of the GST Council, had levied 18% GST (effective rate was 12% in view of 1/3rd abatement for land value) on construction service vide Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017
  • Accordingly, the profiteering was examined by comparing the applicable tax rate and ITC available for the pre-GST period (April 2016 to June 2017) when Service Tax 6% and VAT @ 4% were payable (total tax rate of 10 % of the construction value) with the post-GST period (July 2017 to September 2019) when the effective GST rate was 12% on construction service.
  • The ITC of 3.86% of the turnover should have resulted in commensurate reduction in the base prices.
  • Therefore, in terms of Section 171 of the CGST Act, 2017, the benefit of the additional ITC that had accrued to the Respondent, was required to be passed on to the recipients.
  • However, the Respondent has not contested that any such benefit would eventually have to be passed on to the recipients.
  • In fact, the Respondent has claimed that he has passed on an amount of Rs. 8,28,91,520 which was duly verified with the Credit Notes, Ledgers, Customers’ communication letters, Customers’ Master List and Acknowledgements (sample basis) submitted by the Respondent.
  • The benefit of ITC of Rs 8,28,91,520 already passed on by the Respondent was higher than Rs. 7,90,97,474 which he should have passed on in 452 cases.
  • However, the excess benefit claimed to have been passed on to some recipients, could not be set off against the additional benefit required to be passed on to some other recipients and it could only be adjusted against any future benefit that might accrue to such recipients who had received excess benefit.

Observations of NAA

  • NAA was of the opinion that once the Respondent claimed that he had passed on the benefit of ITC to his customers/flat buyers/recipients, and claimed the benefit of such amount, the onus to prove that the benefit of ITC was actually passed on to the eligible buyers was on the Respondent.
  • In the present case the amount of ITC benefit claimed to have been passed on was huge — Rs 8,28,91,520.
  • Hence it was the responsibility of the Respondent to submit proper and complete evidence.
  • The evidence should have included the details of payments, how such payments were made (through cheque/ draft/ credit note etc.), that it was relatable to GST benefit (because of additional ITC) and a third party verification certificate validating such claim.
  • Respondent had enclosed apartment wise break up of ITC benefit passed on to the customers.
  • Respondent has furnished complete list of persons to whom he had passed on the benefit and the amount passed on to them.
  • However, the Respondent had provided the evidence of actual passing on of the ITC benefit in respect of only four customers.
  • Further, these acknowledgement receipts did not mention of the amount of ITC benefit passed on by the Respondent to them.
  • NAA found this to be a fit case where the Respondent’s claim of having passed on the benefit to his recipients/homebuyers requires to be verified against third party evidence in the form of written acknowledgements receipts from the homebuyers evidencing the receipt of the benefit, including its quantum and also evidencing that the said benefit is in terms of Section 171(1) which stated that any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.

Order by the NAA

  • The claim made by the Respondent of having passed on the benefit has to be supported by acknowledgements which the Respondent shall procure from the homebuyer’s along with their contact details i.e. e-mail & Phone/Mobile No., failing which his claim will have to be considered as not established.
  • The Respondent shall submit the homebuyer wise evidence, as detailed above within 30 days of this Order and the same shall then be verified by the DGAP.
  • Accordingly, the matter was sent back to the DGAP for further investigation as per the provisions Section 171(2) read with Rule 133(4).
  • NAA directed the DGAP to verify the evidence submitted by the Respondent to evidence the passage of ITC benefit from the Respondent to the homebuyers and submit his Report, along with all the relied upon documents/evidence.
  • The DGAP was accordingly directed to reinvestigate the above issue and furnish his Report.
  • It was also observed that the Report of the DGAP was silent on the issue whether the Respondent has paid applicable interest to all the eligible recipients/flat buyers/customers or not.
  • NAA directed the DGAP to investigate and verify whether applicable interest on the profiteered amount, which the Respondent had already claimed to have passed on to his customers/flat buyers, has been paid by him or not from the date from the above amount was profiteered till the date of passing on/payment, as per the provisions of Rule 133(3) (b).

NAA was established in November 2017 as a forum to ensure firms passed on the benefit of GST rate cuts to consumers. Over 400 items have seen rate revision since GST was launched in July 2017. The government also extended the original two-year tenure of the body in 2019.

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