Builder Held Liable for Profiteering Under Section 171 of CGST Act, 2017: GSTAT Orders Rs. 1.49 Crore Refund to 1525 Homebuyers

Background and Origin of the Dispute

A complaint lodged under Rule 128 of the Central Goods and Services Tax Rules, 2017 set in motion a chain of legal proceedings that ultimately culminated in the GST Appellate Tribunal (GSTAT) holding M/s Bengal Shapoorji Housing Development Private Limited liable for profiteering in connection with its real estate project "Shukhobrishti – Spriha Phase 5 & 6" located in Kolkata. The core allegation was straightforward: following the rollout of GST with effect from 01.07.2017, the developer had gained access to a substantially wider pool of Input Tax Credit (ITC) but deliberately chose not to translate that benefit into a corresponding price reduction for homebuyers — a clear violation of Section 171 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act, 2017).

The complaint was initially examined by the Standing Committee on Anti-Profiteering, which found sufficient cause to refer the matter to the Directorate General of Anti-Profiteering (DGAP) for a comprehensive investigation under Rule 129(1) of the CGST Rules, 2017.

DGAP Investigation: Scope, Findings, and Methodology

Investigation Period and Applicable Tax Scheme

The DGAP conducted its investigation covering the period 01.04.2017 to 30.09.2024. The extended investigation period was necessitated by the fact that the Respondent had not opted for the concessional GST scheme of 5% without ITC that became available from 01.04.2019. Instead, the developer continued under the older scheme, discharging GST @ 12% (after the standard one-third abatement towards land value, as permitted under Notification No. 11/2017—Central Tax (Rate) dated 28.06.2017 read with Notification No. 3/2019—Central Tax (Rate) dated 29.03.2019). This choice made the Respondent eligible to avail ITC, and consequently made the entire post-GST period relevant for computing any profiteering.

Pre-GST vs. Post-GST ITC Availability

A foundational aspect of the DGAP's analysis was a comparative assessment of the ITC regime before and after the GST transition:

• Pre-GST regime: The developer could avail only CENVAT credit of Service Tax paid on input services. Credit of Central Excise duty was not available. VAT and other State-level taxes were adjusted against VAT output liability. Taxes such as Central Excise duty, VAT, and Entry Tax embedded in the cost of construction materials were treated as part of project costs and inevitably passed on to buyers through pricing.

• Post-GST regime: The Respondent became eligible to avail ITC on GST paid across all inputs and input services deployed in the construction of the project. This represented a qualitatively and quantitatively superior credit entitlement compared to what was available earlier.

Computation of Additional ITC Benefit — Table A

The DGAP calculated the ratio of credit availed to the purchase value of goods and services (exclusive of taxes) in both periods, based on data submitted by the Respondent itself. The findings are captured below:

Table – A

The ITC-to-purchase-value ratio rose sharply from 8.25% in the pre-GST period to 14.00% in the post-GST period, representing an additional benefit of 5.75% that accrued directly to the Respondent on account of the GST transition.

Quantification of Profiteered Amount — Table B

Applying the additional ITC benefit of 5.75% to the post-GST purchase value and distributing the resultant savings proportionately on a per-square-foot basis across the saleable area, the DGAP arrived at the following profiteering computation:

Table – B