The Competition Commission of India ( CCI ) recently dropped an anti-profiteering investigation against a housing developer citing that the developer in question did not violate section 171(1) of the Central Goods and Services Tax ( CGST ) Act, 2017 ( GST Act )
The case began when Mr. Jainil Jayeshbhai Mehta, the applicant, filed an application against M/s Swastik Harmony Developers, the respondent, claiming that the developer failed to pass on the benefits of Input Tax Credit ( ITC ) and the reduction in tax rates, as mandated by Section 171 of the GST Act
The applicant purchased a flat (Flat No. 601) in the “Swastik Heights” project located in Ahmedabad, Gujarat. He asserted that the developer had charged 8% GST on the base price of ₹25,00,000 but did not pass on the ITC benefits, which were supposed to reduce the price of the flat.
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It should be noted that the “Swastik Heights” project commenced after the implementation of GST on March 8, 2018. The developer purchased the land for the project on May 24, 2017, and the project was registered under Gujarat RERA on May 9, 2018.
In response to the application, the Director-General of Anti-Profiteering ( DGAP ) initiated an investigation under Rule 129 of the CGST Rules, 2017, to determine whether the developer had failed to pass on the benefits of ITC or tax reduction to the buyer. The investigation period covered from July 1, 2017, to March 31, 2023.
On April 24, 2023, the DGAP issued a notice to the respondent, asking them to reply to the allegations and provide the necessary documentation. The developer responded with multiple submissions, stating that they were registered under GST as of February 27, 2018, and had opted to charge 8% GST with ITC benefits for all buyers, instead of the reduced 1% GST without ITC, which became effective on April 1, 2019.
The DGAP’s report, prepared after the investigation, highlighted that the “Swastik Heights” project had started after the introduction of GST and therefore had no pre-GST turnover or ITC that could be used for comparison with the post-GST scenario. Consequently, the DGAP concluded that Section 171 of the CGST Act did not apply in this case, as the project had entirely commenced under the GST regime.
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The applicant, however, contested the DGAP’s findings. He argued that the developer had filed multiple GSTR-3B returns during the post-GST era, claiming ITC and charging 8% GST from all flat buyers, yet had not passed on the benefits of reduced GST or ITC to him through a corresponding price reduction.
In response, the DGAP clarified that their investigation found no pre-GST turnover or ITC to compare against the post-GST period, leading them to conclude that Section 171(1) of the GST Act, which mandates passing on the benefits of tax reduction or ITC to the recipient, did not apply.
On March 20, 2024, the CCI directed the case to be re-investigated by the DGAP. However, the DGAP maintained its stance, citing a judgment by the Delhi High Court dated January 29, 2024. The judgment reiterated that the provisions of Section 171 were not applicable, given that the project commenced entirely in the post-GST period.
A hearing was scheduled for the applicant on August 8, 2024, where he maintained his previous arguments, insisting that the developer should have passed on the benefits of the reduced GST rates or ITC.
After considering the DGAP’s report and the submissions from both parties, the bench of Ms Ravneeth Kaur, Mr Anil Agrawal, Ms Sweta Kakkad and Mr Deepak Anurag concluded that since the project began in the post-GST era, with the commencement certificate issued on March 8, 2018, there was no pre-GST ITC or turnover for comparison. Therefore, Section 171 of the GST Act was deemed not applicable in this case. In result, the commission ruled that because the project started entirely under the GST regime, the developer was not required to pass on any ITC benefits or GST rate reductions, as claimed by the applicant.
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