GSTAT Principal Bench Holds Builders Must Pass Full GST Input Tax Credit Benefit to Homebuyers; Profiteered Amount Includes GST Collected on Excess Realization

The Goods and Services Tax Appellate Tribunal (GSTAT) Principal Bench, New Delhi, has delivered a significant ruling clarifying the obligations of builders under Section 171 of the Central Goods and Services Tax Act, 2017 (CGST Act) regarding the anti-profiteering provisions. The Tribunal held that builders must pass on the full benefit of increased input tax credit (ITC) available under the GST regime to homebuyers by way of a commensurate reduction in the price of flats. The decision also affirms that the profiteered amount includes GST collected on the excess realization from buyers.

The proceedings arose from a complaint by a homebuyer alleging that the builder, LIC HFL Care Homes Ltd., failed to pass on the benefit of ITC after the introduction of GST, instead charging GST at 12% on post-GST demands without reducing prices. The Directorate General of Anti-Profiteering (DGAP) investigated and initially calculated the profiteered amount at Rs. 1,85,70,263/-, which was accepted by the National Anti-Profiteering Authority (NAA). However, following a remand by the Delhi High Court for reinvestigation in light of its judgment in Reckitt Benckiser India Ltd., the DGAP recalculated the profiteered amount as Rs. 2,31,93,107/- for the period July 2017 to November 2019.

The Tribunal examined the methodology for determining profiteering, referencing the Delhi High Court’s holding that no fixed formula applies and that the benefit must be computed based on the actual savings from increased ITC, divided by the total area to ensure equitable benefit to all buyers. The DGAP’s recalculation, based on the ratio of ITC to purchase value pre- and post-GST, found that the respondent had availed ITC at 17.99% of purchase value post-GST, compared to nil pre-GST, resulting in substantial savings that were not passed on to buyers.

The respondent argued that only ITC on construction materials (goods) should be considered, excluding ITC on services, and sought to reduce the profiteered amount by unavailed CENVAT credit from the pre-GST period. The Tribunal rejected these arguments, emphasizing that the benefit of ITC under GST encompasses both goods and services, and that any failure to claim credit in the pre-GST period due to error does not absolve the builder from the obligation to pass on the benefit actually availed post-GST. The Tribunal also relied on judicial admissions made by the respondent in prior proceedings, holding such admissions to be conclusive unless withdrawn or shown to be made under mistake.

In its detailed reasoning, the Tribunal affirmed the DGAP’s methodology and calculations, finding that the total profiteered amount of Rs. 2,07,08,131/- plus GST at 12% (Rs. 24,84,976/-), totaling Rs. 2,31,93,107/-, must be returned to the 240 homebuyers. The Tribunal further held that the GST collected on the excess realization forms part of the profiteered amount, in line with the Delhi High Court’s decision in Reckitt Benckiser, as the government did not intend to collect additional GST on such amounts.

Accordingly, the Tribunal directed the respondent to refund the profiteered amount to the homebuyers, calculated proportionately based on the area of each flat, along with interest at 18% from the date of the last installment paid by each buyer. The respondent was granted liberty to seek a refund of amounts previously deposited with the Pay and Account Officer (Consumer Affairs) and the Registrar General, Delhi High Court. The Tribunal also directed the jurisdictional Commissioner to report compliance within three months.

This decision reinforces the anti-profiteering framework under the GST regime, clarifying that builders must pass on the full benefit of ITC—covering both goods and services—to consumers, and that any GST collected on excess realization is to be included in the amount to be refunded.