GSTAT Principal Bench Holds Builders Must Uniformly Pass On GST Input Tax Credit Benefit to Homebuyers Under Section 171 CGST Act

Background and Complaint
The proceedings before the Goods and Services Tax Appellate Tribunal (GSTAT) Principal Bench, New Delhi, arose from a complaint filed under Rule 128 of the Central Goods and Services Tax Rules, 2017. The complainant alleged that the respondent, a builder engaged in the “Assotech Windsor Court Society” project, failed to pass on the benefit of additional Input Tax Credit (ITC) to homebuyers following the introduction of GST from 1 July 2017, as required by Section 171 of the CGST Act, 2017.

DGAP Investigation and Findings
The Directorate General of Anti-Profiteering (DGAP) conducted a detailed investigation covering the period from 1 July 2017 to 31 March 2024. The DGAP compared the ratio of ITC to purchase value in the pre-GST and post-GST periods, finding an increase from 9.70% to 11.89%, resulting in an additional benefit of 2.18%. The DGAP calculated that this benefit should have led to a commensurate reduction in prices for homebuyers. However, the respondent did not uniformly pass on this benefit, leading to a computed profiteered amount of Rs. 40,17,869, with GST @ 12% bringing the total to Rs. 45,00,014.

The respondent claimed to have passed on ITC benefits amounting to Rs. 5,75,26,106 to 267 homebuyers, but the DGAP found discrepancies: some homebuyers received excess benefit, others received less, and some none at all. A balance of Rs. 4,01,676, plus applicable GST of Rs. 48,201, remained to be passed on.

Tribunal’s Legal Reasoning
The Tribunal confirmed that the introduction of GST allowed builders to avail ITC on a broader base, eliminating cascading taxes and enhancing cost transparency. Section 171 of the CGST Act imposes a statutory obligation on suppliers to pass on benefits of tax rate reductions or additional ITC to recipients by way of commensurate price reductions.

The Tribunal held that the respondent had indeed derived additional ITC benefit post-GST and was required to pass this on uniformly to all eligible homebuyers. The failure to do so constituted a contravention of Section 171. The Tribunal also clarified that the profiteered amount must include the GST component, as the consideration collected from homebuyers was inclusive of GST. This position was supported by the Delhi High Court’s decision in Reckitt Benckiser India Pvt. Ltd. v. Union of India, which held that GST collected on the additional realization forms part of the profiteered amount and must be returned to recipients.

Interest and Penalty
The Tribunal further held that interest at 18% per annum is mandatorily payable on the amount not passed on, from the date of collection until the date of actual refund, as per Rule 133(3)(b) of the CGST Rules. The Tribunal cited judicial authority supporting the imposition of interest to deter non-compliance.

Regarding penalty, the Tribunal noted that Section 171(3A) of the CGST Act, effective from 1 January 2020, applies to the period under investigation. Accordingly, penalty is attracted for profiteered amounts not passed on for the period post-1 January 2020, unless the amount is deposited within thirty days of the order.

Final Directions and Outcome
The Tribunal directed the respondent to refund the remaining profiteered amount of Rs. 4,01,676, along with GST of Rs. 48,201 (totaling Rs. 4,49,877), to the eligible homebuyers as detailed in the DGAP report, with interest at 18% per annum from the date of collection to the date of refund. Compliance was ordered within 30 days, failing which penalty under Section 171(3A) would be imposed. The order also required submission of a compliance report to the jurisdictional Commissioner and the DGAP.

The decision reinforces the statutory mandate that builders must uniformly pass on GST-related ITC benefits to homebuyers, with strict consequences for non-compliance, including refund with interest and potential penalties.