GST can’t be demanded if a flat price is advertised and sold as inclusive of GST

The Hon’ble Madras High Court in the case of D. Hamsa Sundaramoorthy Versus The Managing Director, Tamilnadu Housing Board, The Executive Engineer, The Principal Secretary, Housing and Urban Development Department, Chennai - 2025 (6) TMI 517 - MADRAS HIGH COURT held that where the flat price was expressly advertised as “inclusive of GST”, Tamil Nadu Housing Board could not thereafter demand an additional 5% GST from the allottees.

Facts:

The Petitioners (“the Petitioners”), being allottees of flats developed by Tamil Nadu Housing Board (“the Respondent”) under real estate projects in Nandanam and Anna Nagar Divisions, Chennai, had paid the full flat cost as per the advertisement issued by TNHB, which clearly stated that the price was ₹9892/sq.ft., inclusive of GST.

Despite this, after handing over the keys and issuing the completion certificate in April 2024, the Respondent issued a letter dated August 16, 2024, demanding an additional 5% of the total sale consideration as GST from each allottee, along with belated interest if any, before execution of the sale deeds.

The Petitioners contended that TNHB was estopped from raising such additional demand, especially when the agreed sale consideration was expressly inclusive of GST, and such terms were neither clarified nor contradicted in any subsequent agreements or communications. The Respondent argued that the 5% GST component now demanded was applicable now as the same was omitted at the time of advertisement. Aggrieved by the same, the Petitioners approach the High Court.

Issue:

Whether the Tamil Nadu Housing Board can demand additional 5% GST on flats after having expressly advertised the flat price as inclusive of GST and receiving full consideration?

Held:

The Hon’ble Madras High Court in D. Hamsa Sundaramoorthy Versus The Managing Director, Tamilnadu Housing Board, The Executive Engineer, The Principal Secretary, Housing and Urban Development Department, Chennai - 2025 (6) TMI 517 - MADRAS HIGH COURTheld as under:

• Observed that, the advertisement issued by TNHB clearly and unambiguously stated that the price was inclusive of GST and “nothing contrary” was indicated either in the allotment letter or in the standard-format agreement drafted by TNHB.
• Noted that, TNHB as a government real estate developer, was in a dominant position in drafting the terms of the agreement and had complete knowledge of the applicable tax regime. The prospective allottees were required to accept the agreement as-is, without negotiation.
• Held that, TNHB cannot retreat from its contractual promise or renegotiate the price after the purchaser has fulfilled their entire payment obligation based on the declared all-inclusive price.
• Noted that, the tax liability now sought to be collected is 5% of the sale consideration. Already, 9% of the sale consideration is added as profit; therefore, even if there is any GST that is left out, that will only reduce the profit of TNHB to 4%, and rejected the plea of public interest by the Respondents.
• Further directed TNHB to reconcile its own accounts and adjust GST payments from within the total amount already collected. If any interest or penalty was due for belated payment under the GST law, TNHB must bear the same independently and ordered refund of any additional 5% GST already paid by some Petitioners.

Our Comments:

The Court’s reasoning in this case draws substantially on principles of contract law and promissory estoppel. The advertisement clearly stating that the flat cost was “inclusive of GST” created a binding representation on which the homebuyers relied while making full payment. Since TNHB did not insert any express qualification in the agreement or allotment letter contradicting the advertisement, it cannot be permitted to alter its stand subsequently and demand more on account of tax.

In this regard, the Madras High Court relied upon its earlier ruling in Chennai Hiranandani Residents Welfare Association Versus The Secretary, Housing and Urban Development Department, State of Tamil Nadu and Others  - 2024 (4) TMI 1286 - MADRAS HIGH COURT where it was held: “At the relevant point in time, when it was expressly held out that there would be 6 + 7 residential towers only, it cannot be said that the allottees of the flat have acceded to or consented that the promoter is allowed to put any number of towers...”

The above precedent emphasizes that express representations made during the offer stage cannot later be diluted or contradicted, especially when the buyer has no meaningful opportunity to renegotiate or bargain.

Further, the High Court also relied on the decision in General Manager (Contracts Cell), India Oil Corporation Ltd. and Deputy General Manager (Contracts Cell), India Oil Corporation Ltd Versus Jyothi Constructions and Others - 2023 (3) TMI 1581 - MADRAS HIGH COURT, which applied the doctrine of contra proferentem: “Where the words of a document are ambiguous, they shall be construed against the party who prepared the document.”

In the present case, TNHB being the drafting authority of the advertisement, agreement, and all communications, must bear the consequences of any ambiguity or omission in setting out the correct tax structure. The petitioners cannot be made to pay for the misclassification or lapse in the pricing mechanism, especially when such errors fall squarely within the internal accounting and tax obligations of TNHB. The Court has balanced contractual equity with the public law character of the respondent entity.

Relevant Provisions:

Section 3 of the Indian Contract Act, 1872

3. Communication, acceptance and revocation of proposals:

“The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it.”

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