GSTAT Remands Anti-Profiteering Case Due to Unverified ITC Reversal Claims

DG Anti Profiteering (Director General of Anti-Profiteering) v. Lucknow Development Authority (Kritika and Swati Project) [Section 133(4)] (GSTAT)

The proceedings arose from a complaint alleging profiteering in violation of Section 171 of the Central Goods and Services Tax Act, 2017, on account of failure to pass on Input Tax Credit (ITC) benefits through commensurate price reduction in a residential housing project.

The complaint was examined by the Standing Committee on Anti-profiteering and referred to the Director General of Anti-Profiteering (DGAP) for investigation. The investigation covered the period from 1 July 2017 to 20 March 2020. The Respondent participated in the investigation and submitted relevant documents.

The DGAP noted that the Respondent was a statutory authority established under the Uttar Pradesh Urban Planning and Development Act, 1973 and operated on a “not for profit” basis. It was observed that the Respondent had reduced the prices of units and passed on ITC benefits to allottees through an office order, resulting in a reduction in flat costs. The Respondent had not availed CENVAT credit in the pre-GST regime but availed ITC under GST.

The project comprised 864 units, out of which 145 unsold units at the time of issuance of the Occupation Certificate were excluded from investigation. Thus, 719 units were considered. The DGAP calculated that the ratio of ITC to purchase value increased from 0% in the pre-GST period to 12.38% in the post-GST period. Based on this increase, total additional ITC benefit was computed, leading to a determination of profiteering.

The DGAP calculated the profiteered amount based on total savings from ITC, saleable area, and sold area. The total profiteered amount was determined after considering that the Respondent had passed on 95% of the ITC benefit to homebuyers. Despite this, a remaining portion of the benefit was found to have not been passed on, leading to a conclusion of contravention of Section 171(1).

The Respondent challenged the DGAP findings and made several submissions. It stated that substantial ITC reversal relating to unsold inventory had been made and disclosed in GST returns, and such reversals could not be segregated project-wise due to a single GST registration. It argued that the reversal was verified by the audit authority and should have been considered in the DGAP analysis.

The Respondent further contended that ITC benefits were passed on as discounts, which reduced the taxable value, and therefore, imposition of GST on the alleged profiteered amount was incorrect. It also clarified issues relating to six homebuyers, including cancellations and changes in flat area, and stated that the remaining 5% ITC benefit had subsequently been passed on to buyers, with acknowledgment from them.

The Tribunal observed that it was undisputed that 95% of the ITC benefit had already been passed on to homebuyers. It noted that the DGAP had acknowledged ITC reversal but had not adequately examined its implications, especially considering that multiple projects were being executed simultaneously.

The Tribunal also held that the issues relating to ITC reversal, imposition of GST on the alleged profiteered amount, and the claim that the remaining 5% benefit had been passed on required further verification. It further noted that the factual position regarding certain homebuyers and subsequent benefit transfer also needed examination based on records.

Accordingly, the Tribunal did not give a final ruling on profiteering but remanded the matter to the DGAP for further investigation under Rule 133(4) of the CGST Rules, 2017. The DGAP was directed to examine specific issues, including ITC reversal on unsold inventory, the legality of GST imposition on alleged profiteering when discounts were already given, and verification of the remaining ITC benefit allegedly passed on.

FULL TEXT OF THE JUDGMENT/ORDER OF GSTAT

1. The present proceedings arise from a complaint made by Shri Ajay Saini, 137, Sakhambari Apartment, Madhurdha, Kolkata- 700107 (hereinafter referred to as “the Complainant”) before the Standing Committee under Rule 128 of the Central Goods and Services Tax Rules, 2017 (for short “the CGST Rules, 2017). The Complainant has alleged that the M/s. Lucknow Development Authority (for short “the LDA”) (hereinafter referred to as “the Respondent”) has indulged in profiteering in contravention of Section 171 of Central Goods and Service Tax Act, 2017 (for short the “CGST Act, 2017”) insofar as it failed to pass on the benefit of reduction in GST rates in respect of construction services provided by the M/s. Lucknow Development Authority, Pradhikaran Bhawan, Vipin Khand, Gomti Nagar, Lucknow-226010.

2. It is alleged that the Respondent did not pass on the benefit of Input Tax Credit (for short “ITC”) to the Complainant by way of commensurate reduction in the prices on purchase of Flat No. F-3/401, in the project “Kritika & Swati Apartment” situated at Chak, Guj aria, Lucknow on introduction of GST w.e.f. 01.07.2017, in terms of Section 171 of the CGST Act, 2017.

3. The Complaint was examined by the Standing Committee on Anti-profiteering and the same was forwarded to the Director General of Anti Profiteering (hereinafter referred to as “the DGAP”) under Rule 129(1) of the CGST Rules, 2017.

4. Meanwhile, the Judgment in Reckitt Benckiser India Private Limited & Ors. V. Union of India & Ors. (2024) 14 Centex 374 (Delhi) was delivered the Hon’ble High Court of Delhi. Therefore, the methodology was followed by the DGAP in accordance with the findings given by the Hon’ble High Court in the said Judgment.

5. The period covered by the current investigation is from 01.07.2017 to 20.03.2020.

6. A notice was issued to the Respondent calling upon their reply, as to whether, the Respondent admit that the benefit of ITC had not been passed on to their customers by way of commensurate reduction in prices and, if so, to suo moto determine the quantum thereof and indicate the same in their reply and furnish all necessary documents.

7. The Respondent participated in the investigation and submitted documents as desired by the DGAP.

8. Upon completion of the investigation, the DGAP submitted its report dated 30.01.2026 under Rule 129(6) of the CGST Rules, 2017. The said report contains inter-alia, the following observations and conclusions: –

i. That the LDA is incorporated under “The Uttar Pradesh Urban Planning and Development Act, 1973” in order to ensure that development within Lucknow is orderly and is “not for profit”.

ii. That the respondent has reduced the price of the units for the allottees therefore, they were not required to issue any Credit Note.

iii. That the benefit of ITC has been passed on to all allottees through an office order, resulting reduction in the cost of the flats.

iv. The LDA has not claimed any credit of Central Value Added Tax (CENVAT) in the erstwhile Service Tax regime.

v. The LDA opted old scheme under Notification No. 03/2019-Central Tax dated 29.03.2019, wherein GST was paid after availing ITC on the inputs and input services.

vi. The LDA passed on the benefit of the ITC in the initial period itself to the tune of 95%, vide Orders of Vice Chairman, LDA vide file No. 938/F.C./2019-20 dated 12.02.2020.

9. The DGAP considered that the project “Kritika & Swati Apartment” was consisting of 864 units. The Occupation Certificate (for short “the OC”) was issued for all units on 20.03.2020. Out of total number of 864 units, 145 units were not sold till the date of issuance of the OC. Therefore, these 145 units were kept out of the scope of the investigation in view of the para 5 of the Schedule-III of the CGST Act, 2017. Total number of 719 units were considered for the purpose of investigation.

10. The methodology adopted by the DGAP is tabulated hereunder: –

(Amount in Rs.)

11. The DGAP calculated the profiteered amount tabulated hereunder: –

(Amount in Rs.)

12. During the investigation, the DGAP has taken into consideration that the respondent had passed on 95% benefit of ITC to the homebuyers. The details of the passing of the benefit of ITC is tabulated hereunder: –

(Amount in Rs.)

*The Area of 65.54 Sq. Mtr. is not mentioned in the Office Memo dated 12.02.2020 and hence, it is not considered for calculation of profiteering.

13. On the basis of the above, the DGAP concluded that even after passing of 95% of the benefit of the ITC to the homebuyers, the Respondent has indulged in profiteering. Thus, the Respondent has contravened the provision under Section 171 (1) of the CGST Act 2017.

14. The Principal Bench of the GST Appellate Tribunal (GSTAT), constituted under sub-section (3) of Section 109 of CGST Act, 2017, has been empowered to examine Anti-Profiteering cases w.e.f. 01.10.2024, vide Notification No. 18/2024-Central Tax dated 30.09.2024.

15. A notice was issued to the Respondent calling upon their written submissions against DGAP report dated 30.01.2026.

16. The Respondent submitted its written submissions with the following averments that: –

(i) The complete list of reversal made on unsold inventories amounting to Rs. 47,46,00,680.66/- which was furnished through GSTR-3B of March, 2020. A sum of Rs. 70,92,456.77/- was reversed proportionate to unsold inventories in respect of the project on account of payment made to M/s. Maa Vaishno Infra Contract. This issue was already adjudicated upon by CGST Audit Commissionerate, Lucknow but the final audit report does not include the adjudication as recorded by the said Authority.

(ii) The figure of reversal amount of Rs. 70,92,456.77/- was duly verified by the Chartered Accountant (CA).

(iii) Since, the GST registration is single, therefore, all reversals have to be disclosed in the same GST return as they cannot be segregated project-wise. Therefore, the reversal was duly verified by the CGST Audit Commissionerate which should have been taken into consideration by the DGAP.

(iv) The benefit of the ITC to the extent of 95% homebuyers has been passed on in form of discount and was reduced from the taxable value. Once taxable value has been reduced by way of discount and this fact was accepted by the DGAP, then imposition of 12% GST to the extent of the discount is incorrect.

(v) Insofar as six homebuyers, who initially booked the flat comprising area of 57.84 sq. mtr. is concerned, the allotment made to two allottees namely Mr. Karan Goel and Mr. Ram Prasad Yadav were cancelled. At the time of allotment, the area of the flats was having measurement of 57.84 sq. mtr. However, on actual area at the time of registry was compute as 65.54 sq. mtr. per flat. The said facts were also mentioned in the home-buyers list submitted by the Respondent.

(vi) Later on, the Respondent had passed on the remaining 5% i.e., Rs. 14,01,272/- benefit of ITC to concerned homebuyers. The passing of such benefit has been duly acknowledged by the homebuyers. Therefore, the Respondent did not contravene the provision under Section 171 of CGST Act, 2017.

17. The perusal of the DGAP report reflects that it is an admitted fact that the
Respondent has passed on 95% of benefit of the ITC amounting to Rs. 7,02,66,207/- to their home-buyers. Therefore, only the remaining 5% of the amount was to be passed on to the home-buyers which is now said to have been passed on by the Respondent.

18. The DGAP although considered this fact that the Respondent has reversed ITC of Rs. 47,46,00,680.66/- but it was not appreciated in the light of fact that the Respondent was executing multiple projects simultaneously.

19. Insofar as the contentions raised by the Learned Counsel for the Respondent that the reversal of the ITC was duly considered by the GST Authorities is concerned in our opinion this fact should have been examined by the DGAP during the course of investigation.

20. Insofar as the non-passing of the benefit to six home-buyers is concerned the status of cancellation of booking of two home-buyers as well the arguments that the Respondent has subsequently passed on the benefit to these home-buyers requires verification by the DGAP on the basis of the records of the Respondent.

21. In view of the above, we are of the considered opinion that the matter be referred to the DGAP for further investigation as provided under 133(4) of the CGST Rules, 2017.

22. The DGAP is thereby directed to further investigate and to take necessary action in the matter, on the following issues: –

(i) The reversal of the ITC amounting Rs. 47,46,00,680.66/-in respect of the unsold inventories

(ii) Whether the imposition of GST @12% on the alleged profiteering amount can be levied upon, particularly, when the benefit of ITC already been passed to the home-buyers in form of discounts, as accepted by the DGAP.

(iii) The passing of Rs. 14,01,272/- (being 5% of the remaining amount) which is said to have been passed on to the home-buyers by the Respondent requires verification.

23. The DGAP is directed to afford an opportunity of hearing to the Respondent as per the Principle of Natural Justice.

24. The Respondent is directed to cooperate with the investigation to be made by the DGAP and to produce relevant records as desired during investigation.

The office is directed to send the copy of this order to concerned parties.