GSTAT Principal Bench Directs DGAP to Reinvestigate ITC Reversal and GST Imposition in Anti-Profiteering Case

Background and Context
The proceedings before the Principal Bench of the Goods and Services Tax Appellate Tribunal (GSTAT) arose from a complaint alleging that Lucknow Development Authority (LDA) failed to pass on the benefit of Input Tax Credit (ITC) to homebuyers, as mandated by Section 171 of the Central Goods and Services Tax Act, 2017. The complaint, examined under the anti-profiteering provisions, centered on the ‘Kritika & Swati Apartment’ project, with the period of investigation spanning from July 1, 2017, to March 20, 2020.

DGAP Investigation and Findings
The Director General of Anti-Profiteering (DGAP) conducted an investigation, following the methodology laid down by the Delhi High Court in Reckitt Benckiser India Pvt. Ltd. v. Union of India. The DGAP found that LDA had passed on 95% of the ITC benefit to homebuyers through price reductions, as evidenced by office orders and supporting documentation. However, the DGAP concluded that LDA had still indulged in profiteering, as a portion of the benefit remained to be passed on.

The DGAP’s report detailed the calculation of the profiteered amount, the methodology for determining ITC benefit, and the treatment of unsold units, which were excluded from the scope of investigation in accordance with Schedule-III of the CGST Act. The report also noted that LDA had not claimed CENVAT credit under the previous tax regime and had opted for the old GST scheme, paying tax after availing ITC.

Submissions by Respondent
LDA, in its written submissions, contended that it had reversed ITC on unsold inventories as required, and that the reversal was duly verified by the GST Audit Commissionerate and a Chartered Accountant. LDA further argued that the benefit of ITC had been passed on to homebuyers in the form of discounts, and that the imposition of GST at 12% on the alleged profiteering amount was incorrect, given that the taxable value had already been reduced. LDA also submitted that the remaining 5% of the ITC benefit had subsequently been passed on to the relevant homebuyers.

Tribunal’s Reasoning and Directions
The GSTAT Principal Bench observed that while the DGAP acknowledged the reversal of ITC and the passing of 95% of the benefit to homebuyers, certain issues required further scrutiny. Specifically, the Tribunal noted that the DGAP had not fully appreciated the context of multiple simultaneous projects and the verification of ITC reversal by GST authorities. The Tribunal also highlighted the need to verify the status of benefit passed to certain homebuyers whose bookings were cancelled or whose flat areas changed.

Accordingly, the Tribunal exercised its powers under Rule 133(4) of the CGST Rules, 2017, and remanded the matter to the DGAP for further investigation on three key issues: (i) the reversal of ITC amounting to Rs. 47,46,00,680.66 in respect of unsold inventories; (ii) whether GST at 12% can be imposed on the alleged profiteering amount when the benefit has already been passed on as discounts; and (iii) verification of the passing of Rs. 14,01,272 (the remaining 5% ITC benefit) to homebuyers.

Outcome and Directions
The DGAP was directed to afford an opportunity of hearing to the respondent in accordance with the principles of natural justice and to conduct a thorough investigation on the specified issues. The respondent was instructed to cooperate fully and provide all relevant records. The Tribunal’s order underscores the importance of comprehensive verification and procedural fairness in anti-profiteering proceedings under GST law.