Profiteering in real estate: area-based input tax credit pass-through ordered, refund and compliance required to buyers

Profiteering under the obligation to pass on input tax credit was examined in a real estate sale where area-based computation was applied and the ITC-to-turnover ratio was rejected; the respondent was found to have profiteered and must refund and distribute the calculated amount proportionately to 1,865 eligible unit buyers, with unitwise allocation provided. The investigative report was accepted and the respondent agreed to comply by refunding the profiteered sum and filing a compliance report to tax authorities evidencing distribution. Interest on the profiteered amount was noted as collectible under applicable procedural rules. The proceedings are disposed on compliance.

---

---

Issues: Whether the Respondent failed to pass on the benefit of input tax credit to eligible homebuyers in the PAN Oasis project by way of commensurate reduction in price and, if so, the quantification of profiteering and consequent relief.

Analysis: The issue is examined under Section 171 of the Central Goods and Services Tax Act, 2017 and the CGST Rules (including Rule 129 and Rule 133(3)(b)), having regard to Schedule III and Sections 172-173 concerning exempt supplies and reversal of ITC. The Tribunal applied the principles in the Delhi High Court judgment dated 29.01.2024 concerning real estate profiteering methodology, including rejection of the ITC-to-turnover ratio and adoption of an area-based computation with reference to units sold before the Occupancy Certificate. On re-investigation, DGAP computed a marginal increase of 0.009% in ITC ratio for the project for the investigation period (01.07.2017 to 17.01.2018), calculated total savings attributable to additional ITC, derived per square foot benefit, and arrived at a base profiteered amount of Rs. 35,800 plus GST @12% (Rs. 4,296) totaling Rs. 40,096 to be distributed among 1,865 eligible units. The Respondent unqualifiedly accepted DGAP's computation and tendered Rs. 40,096, and DGAP affirmed its report. The Tribunal accepted the DGAP report, relying on the statutory provisions and the area-based methodology mandated by the cited judicial principle, and directed refund and interest in accordance with Rule 133(3)(b).

Conclusion: The Tribunal holds that profiteering of Rs. 40,096 occurred and directs refund of Rs. 40,096 with applicable interest to the eligible homebuyers in proportion to area; decision is in favour of Revenue.

---