GSTAT Principal Bench Holds Interest on Profiteered Amount Under Section 171 CGST Act Is Mandatory from Date of Collection

Background and Investigation
The case arose from complaints alleging that Pacific Development Corporation Ltd. charged a higher GST rate of 12% instead of 1% for its ‘Golf Estate’ project. The Directorate General of Anti-Profiteering (DGAP) was directed to investigate whether the benefit of additional input tax credit (ITC) post-GST implementation was passed on to homebuyers, as mandated by Section 171 of the Central Goods and Services Tax Act, 2017.

The DGAP’s investigation, covering the period from 01.07.2017 to 31.05.2020, focused on four towers (B, C, D, G) of the project, excluding others based on project-specific facts. The DGAP calculated that the ratio of ITC to purchase value increased by 0.23% in the post-GST regime, resulting in a total benefit of Rs. 11,91,763 (including GST) that should have been passed on to 364 eligible homebuyers.

Proceedings Before the Tribunal
The Respondent, while not admitting liability, agreed to comply with the DGAP’s findings to resolve the matter. However, the Respondent contested the imposition of interest, arguing that interest should either not be levied or should be calculated only from the date of project completion, citing relevant case law and the date of notification of Rule 133(3)(c).

During hearings, the Tribunal considered submissions from both parties and the complainants. The DGAP and complainants maintained that interest should be payable from the date of profiteering, i.e., the date of collection of excess amounts from homebuyers.

Tribunal’s Legal Reasoning
The Tribunal addressed four key issues: (i) whether the Respondent derived additional ITC benefit post-GST; (ii) whether such benefit was passed on to homebuyers; (iii) liability to refund the profiteered amount with interest; and (iv) applicability of penalty.

On the first two issues, the Tribunal found, based on the DGAP report and the Respondent’s own submissions, that the Respondent did derive additional ITC benefit and failed to pass it on, thus violating Section 171.

Regarding interest, the Tribunal held that Section 171 and Rule 133(3)(b) create a statutory obligation to pass on benefits at the time of supply. The provision for interest is mandatory, compensatory in nature, and applies from the date of collection of the excess amount until the date of refund. The Tribunal rejected the Respondent’s argument that interest should only accrue from the date of project completion, emphasizing that the law requires benefits to be passed on at the time of supply, and any retention of such benefit constitutes excess consideration.

The Tribunal relied on the Delhi High Court’s judgment in Reckitt Benckiser India Pvt. Ltd. v. Union of India, which affirmed the broad powers under Section 171 to ensure restitution and deterrence through interest and penalty.

Final Directions and Outcome
The Tribunal directed the Respondent to refund the profiteered amount of Rs. 11,91,763/- along with interest at 18% per annum from the respective dates of collection to the date of actual refund, to all eligible homebuyers as identified in the DGAP report. Compliance is to be reported within three months.

On penalty, the Tribunal noted that Section 171(3A) (effective from 01.01.2020) applies to the period of contravention and that penalty is leviable unless the profiteered amount is deposited within thirty days of the order.

The order was pronounced in open court, disposing of the matter and directing necessary compliance and communication to relevant authorities.