Illegal Profiteering Charge on Adani Real Estate JV

In December 2012, Adani Realty, the real estate wing of the Adani group, announced the establishment of a joint venture (JV) with the Delhi-based M2K group. The JV, called Adani M2K projects, was set up to develop a housing project named, Oyster Grande, in Gurugram, Haryana, involving an investment of around Rs 1,000 crore.

The M2K group, headed by Mahesh Bhagchandka, has a presence in biotechnology, infrastructure, real estate, multiplexes, aviation and defence equipment. It made headlines in June 2015 when it struck a deal with the now-defunct New Zealand-based Martin Aircraft Company to sell “jetpacks,” a device that is worn on a person’s back to propel her or him through air. The group runs cinema halls in Pitampura and Rohini in the capital.

The Adani group, headed by Gautam Adani, the second-richest man in India, has a major presence in agri-logistics, coal mining, import of coal, power generation and distribution, solar energy, ports, defence, aerospace, real estate, edible oils, among other sectors. Adani is perceived to be close to Prime Minister Narendra Modi.

Adani M2K Projects came under the scanner of the tax authorities on August 30, 2018, when Amit Tandon, a buyer of a flat in Oyster Grande, complained to the Haryana State Screening Committee, a body under the Haryana government which investigates if tax benefits on the supply of goods and services are passed on to the consumer.

Tandon alleged that Adani M2K Projects had not passed on to him the benefit of input tax credit (ITC) that was proportionate to the reduction in the price of the apartment he had purchased due to the enactment of the Central Goods and Services Tax (CGST) Act, 2017. He had bought a flat in Oyster Grande on June 21, 2016, before the Act had been passed by Parliament.

The screening committee came to the conclusion that the lower tax burden on the developer of the housing project stood at Rs 1.25 crore (excluding interest that is due) that had to be passed on to the customers under Section 171 (1) of the CGST Act.

The Section states: “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.”

The committee then forwarded Tandon’s complaint with its recommendation to the Standing Committee on Anti-profiteering in the National Anti-profiteering Authority (NAA) that works under the Department of Revenue in the Union Ministry of Finance.

The NAA is headed by B N Sharma, who has signed the order, together with two technical members, J C Chauhan and Amand Shah, as well as the secretary of the authority, A K Goel.

Tandon’s complaint was forwarded to the Director General of Anti-profiteering (DGAP) under the NAA for a detailed investigation. The period of the investigation was from the date of implementation of the CGST Act, that is, July 1, 2017 till December 31, 2018.

Based on information submitted by Adani M2K Projects, the DGAP calculated that it had benefited from additional ITC to the tune of 1.51% until the end of calendar year 2018, which was not passed on to the buyers of the flats.

The NAA order dated December 18, 2019, stated: “...by not reducing the pre-GST basic price by 1.51% on account of additional benefit of ITC and charging GST @12% on the pre-GST basic price, the respondent (.. Adani MK2 Projects) appeared to (have) … contravened the provisions of Section 171 of the CGST Act, 2017.”

Interestingly, in its written submission to the NAA, Adani M2K Projects pointed out that it “it did not agree with the report of the DGAP” but to avoid any “negative publicity and unnecessary litigation,” it was “willing to accept the computation of the profiteering made in the report of the DGAP.”

The JV claimed that it had already passed on 30% of the profit that was obtained in an allegedly illegal manner to buyers of apartments in the Oyster Grande housing complex located in Sector 102, Gurugram, near the Dwarka Expressway.

The NAA order, however, stated that Adani M2K Projects only submitted proof of issuing credit notes to five buyers, including Amit Tandon. The order pointed out that the developer had not submitted any proof that it had issued credit notes to other owners of apartments in Oyster Grande – there are more than 400 buyers of flats in the housing complex.

The NAA noted that the total additional ITC of Adani M2K Projects could not be determined since the project had not been completed. The authority directed that a “comprehensive investigation at the time of issue of occupancy certificate” be carried out. Since the DGAP’s period of investigation is till the end of December 2018, any additional benefit of ITC obtained by Adani M2K Projects would have to be passed on to the apartment buyers.

The NAA order added that the developer is “apparently” liable for imposition of penalty and directed the DGAP to issue a notice to Adani M2K Projects to explain why a penalty should not be imposed on the real-estate company.

The official website of Adani M2K Projects contains the following disclaimer: “This website is in the process of being updated. By accessing this website, the viewer confirms that the information including brochures and marketing collaterals on this website are solely for informational purposes only and the viewer has not relied on this information for making any booking/purchase in any project of the Company. Nothing on this website, constitutes advertising, marketing, booking, selling or an offer for sale, or invitation to purchase a unit in any project by the Company. The Company is not liable for any consequence of any action taken by the viewer relying on such material/ information on this website.”

The NAA order also directed Adani M2K Projects to pay Rs 1.25 crore that is due to more than 400 apartment buyers with interest within three months.

On the night of Thursday, December 26, the writers of this article sent electronic mail messages with a questionnaire to Gautam Adani, an employee who works in the corporate communications department of the Adani group and to the e-mail provided on the official website of Adani M2K Projects.

Among the questions we asked was whether the facts contained in our article were correct and whether the owners of the joint venture would legally challenge the order of the NAA. Till the time of publication, no response had been received from any of those to who we had sent e-mails. This article will be updated as and when their responses are received.

The authors are independent journalists.