GSTAT Principal Bench: Additional ITC Benefit Must Be Passed On by Price Reduction Under Section 171 CGST Act, Not by Additional Works

The Goods and Services Tax Appellate Tribunal (GSTAT), Principal Bench, has ruled that MM Construction is required to pass on the benefit of additional input tax credit (ITC) accrued after the introduction of GST to eligible homebuyers strictly by way of commensurate reduction in prices, as mandated under Section 171(1) of the Central Goods and Services Tax Act, 2017. The Tribunal rejected the contention that providing additional structural works and fittings in lieu of price reduction satisfies the statutory requirement, and directed the respondent to return the profiteered amount of Rs. 7,31,160, along with GST at 12% (Rs. 87,739), aggregating to Rs. 8,18,899, together with interest at 18% per annum from the date of collection till actual payment.

Background and Proceedings

The proceedings originated from a complaint by a homebuyer alleging that MM Construction failed to pass on the benefit of ITC by way of price reduction after the implementation of GST, as required by Section 171 of the CGST Act. The Directorate General of Anti-Profiteering (DGAP) investigated the matter and determined that the respondent had accrued an additional ITC benefit of Rs. 7,31,160 during the period from 1 July 2017 to 2 January 2020, the date of receipt of the occupancy certificate. The DGAP concluded that this benefit, along with GST, was required to be passed on to the homebuyers.

MM Construction argued that it had already passed on the benefit by providing substantial structural upgrades and fittings in the flats at no extra cost, and that the value of these works exceeded the alleged profiteered amount. The respondent submitted supporting documentation and maintained that Section 171 does not prescribe an exclusive mechanism for passing on the benefit, contending that the economic benefit had reached the purchasers through these additional works.

Key Issues Considered

The Tribunal framed the following core issues:

• Whether the respondent became entitled to additional ITC after GST and was required to pass on this benefit to homebuyers under Section 171.
• Whether the benefit was passed on by commensurate price reduction, or if providing additional works sufficed.
• If not, whether any amount remained payable to homebuyers.
• Whether interest and penalty were applicable.

Legal Analysis and Findings

The Tribunal held that Section 171(1) of the CGST Act imposes a statutory obligation to pass on the benefit of ITC by way of commensurate reduction in prices. Citing the Delhi High Court’s judgment in Reckitt Benckiser India Pvt. Ltd. v. Union of India, the Tribunal emphasised that the law does not permit suppliers to substitute price reduction with other forms of benefit, such as additional works or free material. The statutory mandate is clear: the benefit must reach the recipient through a reduction in price, not by collateral means.

The Tribunal rejected MM Construction’s argument that the real estate sector should be treated differently or that the Delhi High Court’s observations were limited to FMCG cases. It held that the statutory requirement applies uniformly, regardless of the sector. The Tribunal also noted that the respondent did not dispute the computation of the additional ITC benefit by the DGAP, and its defence was limited to the mode of passing on the benefit.

Accordingly, the Tribunal found that MM Construction had not discharged its statutory obligation under Section 171(1) and remained liable to pass on the benefit by way of price reduction. The profiteered amount, inclusive of GST, was ordered to be returned to the eligible homebuyers.

Interest and Penalty

The Tribunal directed that interest at 18% per annum, as provided under Rule 133(3)(b) of the CGST Rules, 2017, must be paid on the profiteered amount from the date of collection until the date of actual payment. However, it declined to impose a penalty under Section 171(3A) of the CGST Act, noting that the relevant provision came into force after the completion of the project and the period of alleged contravention.

Final Directions

MM Construction has been directed to pass on the total profiteered amount of Rs. 8,18,899 (including GST) to the eligible homebuyers, together with interest at 18% per annum. Compliance is to be reported to the Tribunal as per statutory requirements. No penalty was imposed in view of the timing of the relevant legal provision.

This decision reinforces the principle that the benefit of additional ITC under GST must be passed on to recipients strictly by way of price reduction, and not through alternative forms of benefit, in accordance with Section 171 of the CGST Act.