The Bombay High Court has quashed the anti-profiteering order dated 26 July 2022 passed against Sanghvi Premises Pvt. Ltd. and remanded the matter to the Goods and Services Tax Appellate Tribunal (GSTAT) for fresh consideration of the alleged profiteered amount in the light of the Delhi High Court’s ruling concerning the methodology applicable to real estate projects.
The petitioner, a real estate company, had challenged orders passed by the National Anti-Profiteering Authority, now represented by GSTAT, along with the constitutional validity of Section 171 of the Central Goods and Services Tax Act, 2017 and Rules 122, 124, 126, 127, 129, 133 and 134 of the CGST Rules. It had also questioned the valuation methodology adopted for determining the alleged profiteering amount.
The Court noted that the Delhi High Court, in its judgment dated 29 January 2024 in Reckitt Benckiser and connected matters, had upheld the constitutional validity of Section 171 and the relevant rules. However, in relation to the real estate sector, the Delhi High Court found the methodology adopted by the NAA and DGAP to be flawed because there was no direct correlation between turnover and input tax credit during a particular period of a real estate project.
The Delhi High Court had observed that construction expenditure and eligibility for input tax credit are not uniform throughout the life cycle of a real estate project. It accordingly indicated that the total savings arising from the introduction of GST should be determined project-wise and divided by the total area so that the benefit attributable per square foot could be passed on to flat buyers.
The Bombay High Court further recorded that, by an order dated 25 April 2024, the Delhi High Court had remanded real estate anti-profiteering matters for reconsideration after the Union of India stated that it had not challenged the relevant portion of the earlier judgment dealing with the real estate methodology.
Since Sanghvi Premises Pvt. Ltd. was also engaged in the real estate sector, the petitioner sought similar relief. Counsel appearing for the concerned respondents stated that the matter could be remanded to GSTAT on the issue of computation of the profiteered amount, and the other respondents raised no objection to such reconsideration.
Accordingly, the Bombay High Court allowed the writ petition, quashed and set aside the impugned order dated 26 July 2022 and remanded the matter to GSTAT for fresh consideration in light of the Delhi High Court’s decision. The Court expressly clarified that it had made no observations on the merits and that all contentions of the parties remained open.
Constitutional Challenge to Section 171 Left Open
The petitioner had also questioned the constitutional validity of Section 171 of the CGST Act and the relevant rules. The Bombay High Court noted that the issue is pending before the Supreme Court in SLP No. 012705/2024 and connected matters. It therefore left the issue of vires open to be governed by the law ultimately laid down by the Supreme Court.
Key Takeaway
The judgment provides relief to the real estate petitioner on the computation aspect of GST anti-profiteering proceedings. The earlier anti-profiteering order has been set aside and GSTAT must reconsider the alleged profiteering amount in light of the methodology-related principles recognised by the Delhi High Court for real estate projects. The Bombay High Court has not decided either the merits of the profiteering allegation or the constitutional validity of Section 171.
