Additional ITC Benefit Must Be Passed On Even If Unutilised: GSTAT Delhi

The GST Appellate Tribunal (GSTAT) at Delhi has recently observed that a GST-registered taxpayer cannot avoid passing on additional input tax credit benefits to buyers merely because the credit remains unutilised.

A bench comprising Technical Member A. Venu Prasad made the observation while adjudicating anti-profiteering proceedings concerning Bengal Shapoorji Housing Development Private Limited.

“The mere accrual of additional ITC reduces the cost of supply, irrespective of whether such credit is utilised or remains accumulated in the electronic credit ledger. The Respondent may claim refund of unutilised ITC, if admissible under the provisions of the CGST Act and Rules; however, this does not dilute the statutory obligation to pass on the benefit of such ITC to the recipients.”

Applying this, the tribunal directed the developer to refund over Rs. 1.49 crore to more than 1,500 homebuyers for failing to pass on the benefit of additional input tax credit.

The case relates to the project “Shukhobrishti – Spriha Phase 5 & 6” in Kolkata. The Directorate General of Anti-Profiteering (DGAP) found that the ratio of input tax credit to purchase value increased from 8.25% before GST to 14% after GST, resulting in an additional benefit of 5.75%, which was not passed on to buyers.

The tribunal directed refund of Rs. 1,33,32,208 as the profiteered amount along with GST of Rs. 15,99,865, taking the total to Rs. 1,49,32,073. The amount is to be returned to 1,525 homebuyers with interest at 18% per annum from the date of collection till refund.

The developer had argued that higher taxes on inputs created an inverted duty structure, leading to the accumulation of unutilised input tax credit, and that such credit did not amount to a real financial benefit. It also claimed that prices were fixed under a development agreement and could not be revised.

Rejecting these arguments, the tribunal held that the obligation under Section 171 of the CGST Act applies regardless of whether the credit is actually utilised and cannot be overridden by contractual arrangements.

On the GST component, the tribunal said that tax collected on higher prices must also be returned to buyers. It relied on the Delhi High Court's ruling in Reckitt Benckiser India Pvt. Ltd. v. Union of India to hold that GST forms part of the profiteered amount.

The tribunal also held that penalty under Section 171(3A) is attracted for the period after January 1, 2020, but allowed a 30-day window for the developer to deposit the amount and avoid the penalty.