Profiteering in Real Estate – Remand to Competition Commission of India (CCI) for Reassessment

By | January 24, 2025
(Last Updated On: January 24, 2025)

Profiteering in Real Estate – Remand to Competition Commission of India (CCI) for Reassessment

Summary in Key Points:

  • Issue: Whether the methodology used by the National Anti-Profiteering Authority (NAA) and Director General of Anti-Profiteering (DGAP) to determine profiteering in the real estate sector is valid.
  • Facts: The parties involved referred to the case of Reckitt Benckiser India Pvt. Ltd. v. Union of India, where the High Court held that the methodology used by NAA and DGAP to calculate profiteering in the real estate sector was flawed. The High Court had remanded the matter to the CCI for reconsideration.
  • Decision: Following the precedent set in Reckitt Benckiser, the High Court remanded the present cases back to the CCI for determination of profiteering in accordance with the principles laid down in that judgment.

Decision:

The High Court ruled in favor of the assessees, setting aside the impugned orders and remanding the matters back to the CCI. The court highlighted the following:

  • Flawed Methodology: The existing methodology used by NAA and DGAP to calculate profiteering in the real estate sector was found to be flawed in the Reckitt Benckiser case. This methodology relied on comparing the ratio of Input Tax Credit (ITC) to turnover in the pre-GST and post-GST periods, which is not appropriate for the real estate sector due to the lack of a direct correlation between turnover and ITC.
  • Remand to CCI: Following the precedent set in Reckitt Benckiser, the court remanded the present cases back to the CCI for a fresh determination of profiteering. The CCI is expected to adopt a methodology that is suitable for the real estate sector and takes into account the unique characteristics of this industry.

Important Note: This case highlights the challenges in determining profiteering in the real estate sector and the need for a specific methodology that considers the industry’s unique features. The High Court’s decision to remand the cases to the CCI emphasizes the importance of accurate and fair calculation of profiteering to ensure that the benefits of GST are passed on to consumers. This decision provides guidance to the CCI and ensures that profiteering in the real estate sector is assessed using a valid and appropriate methodology.

HIGH COURT OF GUJARAT
Savaliya Procon
v.
Union of India
BHARGAV D. KARIA and D.N. Ray, JJ.
R/SPECIAL CIVIL APPLICATION NO. 22598 of 2022
R/SPECIAL CIVIL APPLICATION NO. 4321 of 2023
DECEMBER  18, 2024
Anand Nainawati for the Petitioner. Chirayu A. Mehta for the Respondent.
ORDER
Bhargav D. Karia, J.- Heard learned Senior Advocate Mr. Mihir Joshi with learned advocate Ms. Khyati Chugh for the petitioner in Special Civil Application No. 4321 of 2023, learned advocate Mr. Anand Nainawati for the petitioner in Special Civil Application No. 22598 of 2022 and learned advocate Mr. Chirayu Mehta for the respondents No. 1 to 6.
2. At the outset, learned advocates for the respective parties submitted that the issue which has been raised in this petition questioning the order dated 26.08.2022 in Case No. 61 of 2022 passed by respondent No.2 in Special Civil Application No. 4321 of 2023 and the order dated 12.05.2022 passed in Case No. 10 of 2022 passed by respondent No.2 in Special Civil Application No. 22598 of 2022 are squarely covered by the decision of the Hon’ble Delhi High Court in a group of cases in the case of “Reckitt Benckiser India Pvt. Ltd. v. Union of India through its Secretary and others” and other allied matters rendered in WP (C) No. 7743 of 2019 and other similar matters on 29.01.2024.
3. It was further submitted that the Hon’ble Delhi High Court in the said Judgment and Order has held that the methodology adopted by National Anti-Profiteering Authority (NAA) which is now Competition Commission of India and Director General of Anti Profiteering (DGAP) to arrive at the profiteering amount of the real estate industry was generally based on the difference between the ratio of Input Tax Credit to turnover under the preGoods and Services and Tax and post-Goods and Services and Tax period and such methodology adopted by NAA is flawed as in the real estate sector, there is no direct correlation between the turn-over and the Input Tax Credit availed for a particular period.
4. It was further pointed out that the Hon’ble Delhi High Court in the aforesaid decision has remanded the matter back to the Competition Commission of India for determination/ decision in accordance with the judgment and order dated 29.01.2024 passed by the Hon’ble Delhi High Court in the aforesaid case.
5. It was therefore jointly submitted that these two petitions may also be remanded back to the Competition Commission of India for adjudication in accordance with law.
6. The Hon’ble Delhi High Court in the case of “Reckitt Benckiser India Pvt. Ltd.” (supra) has held in Para-129 which reads as under :-
“129. However, this Court finds that the methodology adopted by NAA and DGAP to arrive at the profiteering amount of the real estate industry was generally based on the difference between the ratio of Input Tax Credit to turnover under the pre-Goods and Services and Tax and post- Goods and Services and Tax period. This Court is in agreement with the contention of the learned counsel for the petitioners representing the real estate companies that the methodology adopted by NAA is flawed as in the real estate sector, there is no direct correlation between the turnover and the Input Tax Credit availed for a particular period. The expenses in a real estate project are not uniform throughout the life cycle of the project and the eligibility of credit depends on the nature of the construction activity undertaken during the particular period. As it is an admitted position that neither the advances received nor the construction activity is uniform throughout the life cycle of the project, the accrual of Input Tax Credit is not related to the amount collected from the buyers. This Court is in agreement with learned counsel of the petitioners that one needs to calculate the total savings on account of introduction of Goods and Services and Tax for each project and then divide the same by total area to arrive at the per square feet benefit to be passed on to each flat buyer. This would ensure that flat-buyers with equal square feet area received equal benefit. The Court, while hearing the present batch of matters on merits, shall take the aforesaid direction/interpretation into account.”
7. In view of the aforesaid submissions made by the learned advocates for both the sides, these two petitions are also remanded back to the Competition Commission of India for determination/ decision in accordance with the decision of the Hon’ble Delhi High Court rendered on 29.01.2024 in the aforesaid case.
8. Accordingly, the impugned orders dated 12.05.2022 in Case No. 10 of 2022 and 26.08.2022 in Case No. 61 of 2022 passed by the National Anti-profiteering Authority are quashed and set aside, so as to enable the Competition Commission of India to pass appropriate order in accordance with law. Petitions are accordingly disposed off.
Category: GST

About CA Satbir Singh

Chartered Accountant having 12+ years of Experience in Taxation , Finance and GST related matters and can be reached at Email : Taxheal@gmail.com