2025 (10) TMI 1170 - AT - GST

No benefit under Section 171 CGST Act for projects; anti-profiteering provisions inapplicable and proceedings dropped

GSTAT held that investigation showed no reduction in GST rate or accrual of Input Tax Credit benefits for the respondent's projects, so no benefit under ... Violation of the Anti-Profiteering provisions of CGST Act, 2017 - dropping in ITC ratio - reduction in the GST rate or benefit of ITC or not - benefit of rate reduction or ITC was passed on or not to the recipients as provided under section 171 of the CGST Act, 2017 or not - HELD THAT:- The tribunal has considered the DGAP’s Report dated 19.08.2025 in its hearing on 09.10.2025. During the hearing, the DGAP’s representative submitted that the investigation on these projects was ordered by CCI and there was no direct complaint received against these projects. The tribunal needs to determine as to whether there was any reduction in the GST rate or benefit of ITC and whether the benefit of rate reduction or ITC was passed on or not to the recipients as provided under section 171 of the CGST Act, 2017. It can be concluded that post-GST, no benefit of reduction in rate of tax or benefit of Input Tax Credit accrued to the Respondent in respect of the project “Gurgaon Hills” and “Grand Hyatt Gurgaon Residences”. Therefore, the tribunal finds that the provisions of Section 171 of the CGST ACT, 2017 are not attracted in the Respondent Project “Gurgaon Hills” and “Grand Hyatt Gurgaon Residences”. The proceedings in the present case are accordingly dropped. A copy of this order be supplied to the respondent and the concerned Commissioner CGST/SGST for necessary action. ISSUES PRESENTED AND CONSIDERED 1. Whether, in respect of specified real estate projects, any reduction in tax rate or accrual of benefit of Input Tax Credit (ITC) post-GST implementation occurred such that an obligation under Section 171 of the CGST Act, 2017 to pass on benefit to recipients arises. 2. Whether the methodology for computing profiteering for real estate projects should be project-specific, based on ITC attributable to project purchases (ratio of ITC to total purchase value), rather than comparing ITC-to-turnover ratios across pre- and post-GST periods. 3. Whether sales made after issuance of Occupation Certificate (OC), being dealings in immovable property as per Schedule III read with Schedule II, fall outside GST and must be excluded from profiteering computation, with reversal of attributable ITC under Sections 17(2) and 17(3). 4. Whether a scrapped project for which development rights have been transferred to a new developer (with buyers' consent) and where the new project falls under post-Notification No. 03/2019 (rates without ITC) gives rise to any pass-through ITC benefit under Section 171. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Accrual of post-GST benefit (rate reduction or ITC) triggering Section 171 obligation Legal framework: Section 171 of the CGST Act imposes an obligation on suppliers to pass on any benefit arising from reduction in rate of tax or benefit of ITC to recipients. The scope requires demonstration of (a) a reduction in tax rate or accrual of ITC benefit attributable to supplies to recipients, and (b) failure to pass on such benefit. Precedent treatment: The Tribunal followed directions of the High Court emphasizing case-by-case computation of profiteering in real estate matters and rejecting a single uniform formula based on turnover ratios. Interpretation and reasoning: The DGAP adopted a project-wise computation of ITC attributable to purchases (ratio of ITC to purchase value) for pre- and post-GST periods in line with the High Court directions. For the completed project examined, the effective ITC ratio decreased from pre-GST to post-GST (2.96% to 1.95%), indicating no net ITC benefit accrued post-GST. For the scrapped project, the proposed replacement project would be undertaken post-Notification No.03/2019 under GST rates without ITC; hence no ITC benefit could accrue to the developer in any event. The Tribunal verified statutory returns, ITC ledgers, apportionment methodology and applicable tax status of sales after OC before reaching conclusions. Ratio vs. Obiter: The finding that Section 171 is not attracted where no post-GST accrual of ITC or rate reduction benefit is shown is ratio; the application of the project-wise ITC ratio method to the facts is requisite to the decision. Conclusion: No reduction in rate or ITC benefit accrued to the developers in respect of the examined projects; Section 171 obligations do not arise and proceedings are dropped as to those projects. Issue 2 - Proper methodology for computing profiteering in real estate: project-wise ITC to purchase value ratio vs. ITC-to-turnover comparison Legal framework: Anti-profiteering analysis must determine whether economic benefit from GST implementation (rate reduction or ITC) accrued on supplies to be passed to recipients; methodology must capture the economic effect of GST on project costs. Precedent treatment: The High Court held no fixed/uniform mathematical formula can be prescribed; however it critiqued the widespread practice of comparing ITC-to-turnover ratios and directed computation of total savings per project divided by total area to determine per-sqft benefit where appropriate. Tribunal adopts High Court guidance and re-investigates on that basis. Interpretation and reasoning: The Tribunal accepted and implemented a revised, project-specific approach based on ratio of ITC to total purchase value (project purchases) rather than turnover, recognizing that in real estate (a long-tailed, uneven expense industry) turnover is not directly correlated with accrual of ITC. DGAP's proportional apportionment of shared costs by project-area ratio was treated as a reasonable mechanism to attribute construction costs and ITC to the project under review. The Tribunal found this approach 'appropriately captures the economic effect of GST implementation on the project's cost structure and ensures that profiteering analysis remains contextual.' The approach was also applied to exclude transactions outside GST (post-OC sales) by reversing attributable ITC per Sections 17(2) and 17(3). Ratio vs. Obiter: The endorsement of a project-wise ITC-to-purchase-value methodology as suitable in these factual circumstances is ratio for the decision; the broader statement that no single method fits all real estate cases is declaratory of principle as per the High Court and is treated as binding direction. Conclusion: Project-specific computation using ITC attributable to project purchases (with proper apportionment) is the appropriate methodology for the facts of the instant matters; prior turnover-based comparisons were held to be flawed for such projects. Issue 3 - Treatment of sales after Occupation Certificate and reversal of attributable ITC Legal framework: Schedule III read with Paragraph 5(b) of Schedule II excludes sale of building after issuance of completion certificate from taxable supply (immovable property); Sections 17(2) and 17(3) require reversal of ITC attributable to exempt supplies/transactions outside GST. Precedent treatment: Tribunal applied statutory schedules and Sections 17(2)-(3) to exclude post-OC sales from GST and to mandate reversal of attributable ITC for unsold units at OC issuance. Interpretation and reasoning: Units sold after issuance of OC were held to be transactions in immovable property outside GST; accordingly, ITC attributable to such units must be reversed and excluded from profiteering computation. The investigation period was limited to transactions prior to OC issuance for those units. The Tribunal treated reversal amounts (e.g., documented DRC-03 entries) and non-reclaimed reversals as adjustments to total post-GST ITC attributable to the project. Ratio vs. Obiter: The application of Schedule III and Sections 17(2)-(3) to exclude post-OC sales and to require corresponding ITC reversal is ratio directly applied to the facts. Conclusion: Sales after OC are outside GST and associated ITC attributable to those units must be reversed and excluded from any profiteering calculation; only sales prior to OC are relevant for Section 171 analysis. Issue 4 - Effect of transfer of development rights and applicability of Notification No. 03/2019 (rates without ITC) to transferred/successor projects Legal framework: Notification No. 03/2019 prescribes concessional GST rates for residential constructions commenced after 31.03.2019 with the condition that rates apply without entitlement to ITC; Section 171 requires passing on of any ITC/rate benefits that accrue. Precedent treatment: Tribunal applied the Notification to projects to be commenced post-Notification date and concluded that such projects cannot yield ITC benefits to developer; accordingly Section 171 is inapplicable where no ITC accrual is possible. Interpretation and reasoning: The original project was scrapped and development rights were conveyed by a registered sale agreement to a new developer. Buyers provided consent for transfer. The envisaged development by the new developer had not commenced but, being a post-31.03.2019 project, would attract concessional GST rates without ITC. Therefore, no ITC benefit could accrue to the new developer and no ITC pass-through obligation under Section 171 could arise from such future development. The Tribunal treated the chain of transfer and the absence of commencement as factual background that negated any present ITC benefit. Ratio vs. Obiter: The conclusion that a project subject to Notification No.03/2019 cannot give rise to ITC-derived profiteering is ratio as applied to the scrapped/transferred project facts. Conclusion: Transfer of development rights and the contingency that the successor project falls under rates without ITC mean no ITC benefit is available to be passed on; Section 171 is not attracted in respect of that project. Cross-references and final determination All issues were addressed collectively by applying the High Court's directive against turnover-based methodology and by executing a project-wise ITC attribution, excluding post-OC taxable exclusions and considering the effect of post-2019 concessional GST rates without ITC. On the combined factual and legal analysis, the Tribunal concluded no profiteering under Section 171 arose in respect of the examined projects and accordingly dropped the proceedings.