Additional ITC Benefit Must Reach Homebuyers, Holds GST Appellate Tribunal

The GST Appellate Tribunal (GSTAT), Special Bench, on 7 May held that developers are mandatorily required to pass on the benefit of additional Input Tax Credit (ITC) to homebuyers under Section 171 of the CGST Act, 2017, and directed Vasavi and GP Infra LLP to refund Rs 79.94 lakh to flat buyers along with interest. A Bench comprising Justice (Retd.) Dr. Sanjaya Kumar Mishra, President, and Technical Member A. Venu Prasad upheld the findings of the Directorate General of Anti-Profiteering (DGAP) and concluded that the respondent had profiteered by not passing on GST benefits to the recipients. The Bench pointed out that “The benefit of additional Input Tax Credit accrued after implementation of GST has to be passed on to the recipients by way of commensurate reduction in prices.”

The proceedings arose from an investigation conducted by the DGAP into a residential real estate project developed by Vasavi and GP Infra LLP. The investigation examined whether the developer had passed on the benefit of increased ITC available under the GST regime to homebuyers. The DGAP compared the ratio of ITC to turnover during the pre-GST and post-GST periods and found that the respondent had enjoyed additional ITC benefits after the introduction of GST.

However, despite the increase in available credits, the developer did not reduce the prices charged to buyers or provide any commensurate benefit to them. Based on the findings, the DGAP concluded that the respondent had contravened the anti-profiteering provisions contained in Section 171 of the CGST Act.

Before the Tribunal, the issue centred around whether the respondent had failed to pass on the benefit of additional ITC to purchasers of residential units. The Bench observed that the statutory intent behind Section 171 is to ensure that any tax benefit arising from GST implementation reaches the ultimate consumer.

The Tribunal noted that the additional ITC benefit enjoyed by the developer resulted in a direct reduction in tax cost, which ought to have been reflected in the prices charged to homebuyers.

The GSTAT quantified the profiteered amount at Rs 79,94,277/-, which included the base profiteered sum of Rs 71,37,747/- along with applicable GST of Rs 8,56,530/-. It directed the respondent to refund or pass on the amount to the eligible homebuyers identified in the DGAP report. The Tribunal further directed that interest at the rate of 18% per annum be paid from the date of collection of the excess amount till the date of actual refund, in terms of Rule 133(3)(b) of the CGST Rules, 2017.

The Bench also observed that Section 171(3A) provides for the imposition of a penalty equivalent to 10% of the profiteered amount, though such a penalty would not apply if the amount is deposited within thirty days from the date of the order. Thus, the respondent was directed to report compliance to the jurisdictional Commissioner within the prescribed period.

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