GSTAT Rules on Anti‑Profiteering in NTPC–Kanwar Enterprises Construction Contract

Background of the Anti‑Profiteering Proceedings

The dispute before the Principal Bench of the GST Appellate Tribunal (GSTAT) arose from a detailed investigation conducted by the Director General of Anti‑Profiteering (DGAP). The investigation culminated in a report dated 25.10.2024 submitted under Section 171 of the Central Goods and Services Tax Act, 2017 (CGST Act) read with Rule 129 of the Central Goods and Services Tax Rules, 2017 (CGST Rules).

The trigger for the investigation was a reference made by the Standing Committee on Anti‑Profiteering. The reference itself was based on an application filed by the Executive Director (Vigilance) of NTPC, alleging that M/s Kanwar Enterprises Pvt. Ltd. (the Respondent) had retained benefits arising from the Goods and Services Tax (GST) regime, instead of passing them on to NTPC in respect of construction services rendered for the project titled “Ash Dyke Stage-II A NTPC Tanda Thermal Power Project” in Uttar Pradesh.

The core allegation was:

  • The Respondent failed to pass on:
    • The benefit of additional input tax credit (ITC) available under GST, and
    • The benefit of reduced overall indirect tax incidence under GST vis‑à‑vis the earlier VAT and Service Tax regime,

to the contract recipient, M/s NTPC Ltd.

The investigation covered the period from 01.07.2017 to 31.10.2023, i.e., the post‑GST implementation phase relevant to the project.

Contract Structure and Taxation: Pre‑GST vs Post‑GST

Contractual Tax Treatment Prior to GST

Before the introduction of GST on 01.07.2017, the project was governed by the then‑prevailing indirect tax structure. Initially, the Respondent assessed its pre‑GST tax burden as follows:

  • VAT @ 5% on 60% of the contract value, and
  • Service Tax @ 14.5% on 40% of the contract value.

On this basis, the Respondent computed a total pre‑GST tax component and extended a rebate of ₹ 11.01 crore to NTPC, which was certified by a Chartered Accountant. The contract terms were accordingly modified to incorporate this rebate.

Re‑assessment of Pre‑GST Tax Liability

Subsequently, following a query raised by the Central Vigilance Commission (CVC), the tax position was re‑examined. It was discovered that, for this contract, VAT @ 5% was actually leviable on the entire contract value, rather than only on 60%. Taking this into account, the DGAP noted that:

  • The effective pre‑GST tax incidence worked out to 10.8% of the basic contract value.
  • The revised pre‑GST total tax liability stood at ₹ 13.55 crore.

This recalculation led to the conclusion that there was a shortfall in rebate extended to NTPC amounting to ₹ 2.54 crore, which was recoverable from the Respondent on account of under‑accounting of pre‑GST indirect taxes.

Impact of GST and Additional ITC Benefit

With the advent of GST, multiple indirect taxes like VAT and Central Excise Duty, as well as Service Tax, were subsumed. The DGAP emphasized that:

Under Section 171 of the CGST Act, any benefit arising from reduced tax rates or additional input tax credit has to be mandatorily passed on to the recipient by way of a commensurate reduction in prices.

In the present project, the Respondent was able to avail ITC not only on input services but also on various goods and materials used in execution of the works contract, which were either not creditable or were partially creditable in the pre‑GST regime.

Identification of Relevant Materials for Profiteering Computation

During scrutiny of the Chartered Accountant’s certificate and the contract documentation, the DGAP identified certain key materials where the subsuming of Central Excise Duty into GST would lead to a measurable reduction in cost, given that GST ITC was now available. These materials were: