Goods & Services Tax (GST) in IndiaAnti Profiteering Measures in Real Estate

October 19, 20210


Anti profiteering is a mechanism to ensure that any relaxation in tax rates or benefits from tax credits reflect in the prices of goods and services sold by the person benefiting from such relaxation or benefit. The ethos of this principle lies in the idea that benefits accrued due to the introduction of new relaxations or benefits in the indirect tax regime shall be duly shared with the consumers through reduced prices.

The inculcation of anti profiteering in the Goods & Services Tax (‘GST’) regime is based on the findings of the Comptroller and Auditor General in Implementation of Value Added Tax (VAT) in India – Lessons for transition to Goods and Services Tax – A Study Report (‘Report’). The Report revealed that the manufacturers of the goods did not reduce the maximum retail prices after introduction of VAT, though there was substantial reduction of tax rates.

The key inference from the Report was that reduction of tax rates and/or any increase in tax benefit was not reaching the final customer. This non-reduction of prices during VAT was found to be exacerbated owing to the absence of built-in price controlling mechanisms in the VAT regime.

The consequences of applying anti profiteering measures to real estate are double edged. Holding the realty sector accountable through anti profiteering measures is vital as it increases its overall transparency. However, application of this mechanism carries a plethora of issues which misbalance the transactions by hampering the rights of the developers.

It is also relevant to note that the constitutional validity of Section 171 of the Central Goods and Services Tax Act, 2017 (‘CGST Act, 2017’), which provides for the anti profiteering measures under GST, has been challenged before the Delhi High Court by Hindustan Unilever and 50 other petitioners.


The legislative response to enforce the reduction of effective tax incidence came in the form of Section 171 of the CGST Act, 2017.

Section 171(1) of the CGST Act, 2017 states that:

“Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.”

Therefore, price valuation by a person would be deemed to be profiteering when the price of goods or services is not reduced in proportion to the following incidents:

  • Any reduction in the tax rates.
  • Any benefit of Input Tax Credit (‘ITC’) availed.

Clause (2) and (3) of Section 171 of the CGST Act, 2017 empowers the Central Government to set up an Authority which would be responsible to examine whether the benefit of input tax credit availed or the reduction in tax rates have actually resulted into a commensurate reduction of prices for the consumer.

This Authority has manifested in the form of the National Anti Profiteering Authority (‘NAA’). NAA, by virtue of this provision, mandates that all persons and companies make certain that the prices of their goods or services are changing with the changes in GST rates.

Under Rule 133(3) of the Central Goods and Services Tax Rules, 2017 (‘CGST Rules, 2017’), the NAA is authorised to impose a penalty equal to the benefit the consumer would have gained by way of commensurate reduction of prices along with interest at the rate of 18% on the defaulter. Such interest is calculated from the date of collection of the higher price to the date the difference is paid back.

Additionally, Clause (3)(a) of Section 171 of the CGST Act, 2017 was later inserted to impose a penalty of 10% of the amount profiteered. However, this clause came into effect from 01.01.2020 and is not be applied retrospectively.

The GST Council, in September, 2021, extended the tenure of the NAA until 30.11.2022. The Council also noted that the alternative to NAA post completion of the tenure shall be explored in the Competition Commission of India (‘CCI’).


Rule 126 of the CGST Rules, 2017 vests the power to determine the methodology and procedure to determine profiteering with the NAA. The guiding principle in the Rule states that the adopted method should aim to determine if the reduced tax rates on the supply of goods or services or the increase in input tax credits is reaching the recipient through a commensurate reduction in prices.

The erstwhile tax regime levied Excise Duty, VAT, Customs Duty, Entry Taxes etc. on inputs and Service tax on various input services like labour procurement and functions, architect fee, etc. on real estate transactions. ITC was unavailable on duties like Central Sales Tax, Customs duty, Entry Tax, etc. This translated into higher tax liabilities for the developer which was transferred to the consumer in the form of higher prices.

The GST regime has brought some respite to the developers in the form of reduction of construction costs. This reduction is owing to the decreased tax liability, as multiple taxes are subsumed, with the increased availability of input tax credit.

The aforementioned tax benefits have to now be adjusted against the price charged during sale of real estate. A correct determination of the adjusted price is vital to avoid profiteering under Section 171 of the CGST Act, 2017.

A perusal of various NAA orders reveals the methodology and procedure adopted to identify cases of profiteering. The Director General of Anti Profiteering (‘DGAP’) has adopted a formula for comparison of the ratio of ITC available to the turnover in the pre-GST and post-GST era. This allows NAA to arrive at the notional gain acquired from the credit introduced.

The application of this method can be observed from the case of Jotbir Singh Bhalla v. Suncity Projects Pvt. Ltd., (Order No. 81/2020 NAA), where the DGAP reported that ITC as a percentage of turnover that was available to the Respondent during the pre-GST period from April 2016 to June 2017 stood at 2.21%, whereas, the percentage of ITC for the post-GST period from July 2017 to June 2019 stood at 5.38%. This showed a 3.17% benefit to the turnover by the additional ITCs made available post-GST to Suncity Projects Pvt. Ltd. This benefit was not passed on to the homebuyers, including the Applicant, who were yet to receive commensurate benefit. Hence, the Respondent developer was held guilty of profiteering in some of the transactions that had taken place.

In light of the same, NAA ordered for all the developers to pass on the commensurate benefit to the parties that have been bereft of it through such profiteering.


1. Projects that started and completed before GST came into force:

In this scenario, the concerned real estate project came to completion prior to the implementation of GST, i.e. before 01.07.2017. Here, it is pertinent to note that to determine whether or not a “commensurate reduction” of prices has taken place, there needs to be an availment of ITC or tax reduction benefit by the company in the post GST era.

Consequently, if a developer has not indulged in the purchase of inputs or availment of input services after 01.07.2017, Section 142(10) of the CGST Act, 2017 restricts the occurrence of any tax liability. This implies that no tax can be levied or input credit can be availed under the CGST Act, 2017 on the construction of such a project. Hence, the calculation of ITC to Turnover Ratio is non-viable, rendering the whole transaction outside the purview of Section 171 of the CGST Act, 2017.

This rationale was also followed in the case of Shri Ramesh Kumar Yadav & Others v. Vatika Limited,(Order No. 44/2019 NAA) wherein NAA held that as a developer, the Respondent had completed the project prior to implementation of GST and there was neither an incidence of availing ITC on any of the inputs procured in the GST Regime; nor had he availed/carried forward the pre-GST credit in context of the stock held in hand as on 30.06.2017.

Therefore, NAA held that the Respondent was not liable to pass the benefit of any ITC to the consumer.

2. Projects that started before the GST regime and completed after GST came into force:

In this situation, an incidence of tax benefit and ITC under the GST regime arose on the developer. This is because any inputs in stock or construction after 01.07.2017 would be eligible for ITC under the new regime. The challenge in such a situation is creating a balance between VAT and service tax levied on and then paid by the developers along with the concessions provided under the GST regime.

A similar situation arose in Shri Sukhbir Rohila & Others v. Pyramid Infratech Private Limited, (Order No. 7/2018 NAA). In this case, the Applicants had booked flats of the developer-Respondent in 2013. During the pre-GST regime, the project was exempt from Service Tax with only the levy of 5.25% VAT. During the GST regime, the rate of GST on the project was reduced by 4% with effect from 25.01.2018.

It was alleged that benefit of ITC and tax rate reduction after 01.07.2017 exceeded the pre GST output tax liability of the Respondent. The NAA, while keeping the pre GST tax liability in sight, held that the allottee is liable to pay a proportionate amount of tax incidence. Upon comparison of both ITC to taxable turnover ratios, it was revealed that an additional 6.1% ITC was availed. The NAA held that this excess ratio amounted to profiteering.

3. Projects commenced after GST came into force: 

In the case of projects that commenced after 01.07.2017, the NAA has unequivocally laid down that Section 171 of the CGST Act, 2017 would not apply to transactions. This is because no ‘additional benefit’ can be determined in the absence of a turnover prior to the introduction of GST.

The same was held by the NAA in Shri Arjun Kumar Parwani v. M/s Signature Builders Pvt. Ltd,(Order No. 45/2019 NAA) wherein NAA observed that since the project had not been in execution during the pre-GST period, a comparative analysis is unfeasible between pre and post GST ratios to determine whether or not any benefit was required to be passed onto the Applicant. Hence, the provisions of Section 171 (1) of the CGST Act, 2017 are not attracted where the projects commenced after the implementation of GST.

The NAA applied the same rationale in Shri Kapil Dev Sharma v. M/s Vikas Parks Pvt. Ltd, (Order No. 29/2020 NAA). It was held that as the project was launched after 01.07.2017, there was no pre GST tax rate or ITC structure that can be used for the comparison to determine anti profiteering.


The NAA devised a novel methodology for the determination of profiteering by relying upon ITC availed and taxable turnovers. However, the formula and method adopted has given rise to certain issues which negatively impact the rights of the developers.

Firstly, the method blatantly disregards varying costs at fluctuating rates peculiar to realty projects. The methodology adopted by NAA does not take into account any overhead costs that may have been incurred causing a shift in the transactions and prices at different periods.

In the Pyramid Infratech (supra), the developers pleaded that the increased cost of steel, a major raw material, shall be considered while evaluating profiteering. The NAA ignored the increase in costs while stating that price fluctuations are deemed accommodated when the maximum price was put on offer by the developer.

A similar observation was made in Mool Chand Mittal v. Elan Limited, (Order No. 85/2020 NAA) wherein the NAA relied on the language of Section 171 of the CGST Act, 2017 which stipulates that no consideration for costs to be incurred while calculating the profiteered amount. Therefore, the authority claimed that costs such as marketing campaigns and commissions are built into the cost of every project and hence, cannot be used to claim any concession. This raises issues for realty players especially in the post GST and post demonetisation era, where consultancy and marketing costs have taken a rise. The methodology is inorganic and stagnant when it comes to responding to a fluid economy.

Secondly, the methodology is likely to stress the free market economics of the realty industry. This can be especially fatal in the real estate industry owing to the long tenure of projects.  As the formula dictates that the ratio be calculated on the basis of the ITC availed and the total turnover, it does not account for a uniform and fair application across stages of construction. The procurements carried out, which in turn create the availment of ITC, happen inconsistently throughout the lifecycle of the project. This would mean that the extent of completion of the project will determine the profiteered amount. Simply put, if 60% of the project is being completed in the post GST era, the input credits would increase, thereby impacting this ratio. Additionally, the turnover would also increase near the completion of the project.

As these factors are solely considered to determine profiteering, it would result in an excess of credit which would be then considered as the profiteered amount. Therefore, the ratio of credit to revenue generated for any period will invariably vary according to the stages of the project, except if it is considered for the complete tenure of the project.

Thirdly, there exists vagueness in the methodology as it is bereft of a fixed period for computation of pre and post GST ratios. The NAA, so far, has taken the preGST period as April 2016 to June 2017. The post GST period is taken as the period from 01.07.2017 to the date closest to the date of investigation by DGAP.

This absence of a defined period is increasingly problematic for developers as the price fluctuations mentioned in the first issue cannot be taken into account during pricing, due to the lack of clarity as to what period the NAA may use to determine profiteering.


The anti profiteering provision of the CGST Act, 2017 when applied to the real estate sector is a socially-driven action to pull back the curtain on one of the largest yet least transparent industries. The efficacy of the provision may be checked against India’s improving ranking in the Global Real Estate Transparency Index (which has grown from 40 in 2014 to 34 in 2020).

However, this venture of the Government is not without flaw. The application of anti profiteering in the context of real estate with the current methodology could become a breeding ground for disruption in the realty economics, free market pricing, and unnecessary litigation.

The issues as discussed above are to be considered by the Delhi High Court in the constitutional challenge to the statutory provision. It is crucial for the Government to maintain transparency and reduce the tax incidence for consumers. Thus, it would be beneficial if a structured regime is established consisting of a definite formula for the determination of anti profiteering.

Team AMLEGALS, asssisted by Ms. Kashish Gupta (Intern)

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