The Delhi High Court has held that unavailed pre-GST CENVAT credit cannot be notionally Treated as actual benefit for anti-profiteering computation under Section 171 CGST Act. The Court therefore dismissed the petition filed by LICHFL Care Homes Limited, declining to interfere with the GSTAT order upholding profiteering of Rs. 2.31 crores and interest at 18% in respect of the ‘Jeewan Anand’ residential project at Bhubaneswar, Odisha.
The Court held that the DGAP’s revised methodology, using the purchase value of goods and services as the denominator to compute the additional ITC benefit and thereafter dividing the project-level saving by the total project area to arrive at a per square feet figure, is materially different from the ITC-to-turnover ratio methodology rejected in Reckitt Benckiser and is consistent with the directions issued therein.
The Court clarified that the anti-profiteering determination under Section 171 of the CGST Act must proceed on the economic benefit actually accrued under the respective tax regimes, and that a taxpayer cannot notionally treat an unavailed pre-GST CENVAT credit as though it had actually reduced its pre-GST tax incidence. The Court observed that the distinction between eligibility and actual availment of credit is material, and that the DGAP was justified in relying upon the ST-3 returns reflecting NIL CENVAT credit actually availed during the pre-GST period, as against the admittedly availed post-GST ITC of Rs. 2.07 crores.
The Court reiterated that a mere disagreement with the methodology adopted by the adjudicatory authority, where the methodology falls within the parameters laid down by the Court, does not constitute a ground for interference under Articles 226 and 227 of the Constitution, and that the Petitioner’s without-prejudice alternative computation of Rs. 1.39 crores could not be treated as determinative of the actual liability.
The Division Bench comprising Justice Anil Kshetarpal and Justice Shail Jain observed that the present proceedings are not an appeal against the quantum determined by GSTAT, and that the jurisdiction under Articles 226 and 227 may be exercised where the statutory authority or Tribunal has acted contrary to the governing law, exceeded its jurisdiction, or failed to give effect to a binding direction, but is not intended to substitute the Court’s own assessment of factual material for that of the specialised adjudicatory authority.
The Court reiterated that no fixed or uniform mathematical formula can be prescribed for determination of profiteering, that the methodology based on comparison of the ratio of ITC to turnover was found to be flawed because expenses and construction activity are not uniform throughout the life cycle of a real estate project, and that the total savings on account of introduction of GST must be calculated and divided by the total area to arrive at the per square feet benefit. The Court observed that the DGAP did not apply the earlier ITC-to-turnover ratio, instead, it examined the purchase value of goods and services, determined the ITC actually availed during the post-GST period, calculated the resultant additional ITC benefit, and thereafter divided the project-level saving by the total project area.
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On the question of pre-GST CENVAT credit, the Court observed that the distinction between eligibility and actual availment is material, and that the DGAP’s finding was based on the actual statutory returns maintained by the Petitioner, with the ST-3 returns for the relevant pre-GST period reflecting NIL CENVAT credit actually availed, in contrast to the admittedly availed GST ITC of Rs. 2.07 crores during the post-GST period. The Court further observed that Section 171 of the CGST Act is concerned with the benefit of ITC actually accruing to the supplier and its consequential passing on to the recipient, and that the Petitioner cannot notionally treat an unavailed credit as though it had already reduced its pre-GST tax incidence, as such an exercise would amount to comparing actual post-GST benefit with a hypothetical pre-GST benefit.
The Court also observed that the distinction between goods and services is not determinative where the question is the total additional ITC actually availed by the supplier after introduction of GST, and that the contention regarding the increase in the rate of tax does not demonstrate any error in the particular computation undertaken. The Court noted that the Petitioner’s alternative computation of Rs. 1.39 crores, expressly made without prejudice, cannot be treated as determinative of the actual liability under Section 171, and that the Impugned Order does not rest solely upon the alleged admission but is independently supported by the computation undertaken by the DGAP.
The Court declined to examine the contention regarding expenditure incurred towards installation of a sub-station and allied electrical infrastructure, observing that the methodology mandated in Reckitt Benckiser India Pvt Ltd. v. Union of India [2024 (82) G.S.T.L. 344 (Del.)] does not contemplate a broad balancing of every commercial expense incurred by a developer against the ITC benefit.
Briefly, the Petitioner, LICHFL Care Homes Limited, developed a residential project called ‘Jeewan Anand’ at Bhubaneswar, Odisha, which commenced in 2011 and was completed in November 2019, with a total area of approximately 2,70,048 square feet. Proceedings under Section 171 of the Central Goods and Services Tax Act, 2017 were triggered by a complaint from a homebuyer alleging that the benefit of Input Tax Credit (ITC) available upon introduction of GST was not passed on through a commensurate reduction in prices. The Directorate General of Anti-Profiteering (DGAP) submitted its first Report determining profiteering of Rs. 1.85 crores for the period from July 2017 to September 2020, which was accepted by the erstwhile National Anti-Profiteering Authority (NAPA).
The Petitioner challenged this order before the Delhi High Court. During the pendency of these proceedings, the Delhi High Court rendered its judgment in Reckitt Benckiser India Pvt Ltd. v. Union of India, holding that the methodology based on comparison of the ratio of ITC to turnover in the pre-GST and post-GST periods was flawed for the real estate sector, and directed that the total savings on account of introduction of GST for each project be calculated and divided by the total area to arrive at the per square feet benefit. Pursuant to the order, the matter was remanded to the Competition Commission of India for fresh determination, and the DGAP thereafter submitted its Report, recalculating the profiteering for the period from July 2017 to November 2019 at Rs. 2.31 crores, inclusive of GST.
The DGAP found that the ratio of ITC to purchase value during the pre-GST period was NIL, whereas the corresponding ratio during the post-GST period was 17.99%, and applied this percentage to the post-GST purchase value of Rs. 11.54 crores to arrive at total savings of Rs. 2.07 crores, which was apportioned over the total project area of 2,70,048 square feet, resulting in a saving of Rs. 76.895 per square foot. This per square foot figure was applied to the total sold area of 2,69,304 square feet, yielding a profiteered amount of Rs. 2.07 crores, to which GST at 12% amounting to Rs. 24.84 lakhs were added, resulting in an aggregate amount of Rs. 2.31 crores, together with interest at 18%. The Goods and Services Tax Appellate Tribunal (GSTAT) upheld this determination.
