Delhi High Court Remands Real Estate Anti-Profiteering Probe Over Faulty Methodology

The Legal Issue

The central legal issue is whether the Director General of Anti-Profiteering (DGAP) is justified in using a generic “ratio-based” methodology (comparing ITC to turnover) to calculate profiteering, or if it must adopt an “item-wise” data approach when requested by a developer. Additionally, the court examined the impact of the March 31, 2019, option (shifting to a 5% GST rate without ITC) on profiteering calculations.

Facts Of Case

Project & Complaint: Homebuyers of the project “Gulmohar Gardens Phase II” alleged that the developer failed to pass on the benefit of additional Input Tax Credit (ITC) available upon the transition to GST on July 1, 2017.
Transition Opportunity: On March 31, 2019, the developer opted for the new 5% GST scheme for real estate (without ITC benefit), effectively ending their ability to claim ITC after that date.
DGAP Findings: The DGAP initially found that the developer’s ITC-to-purchase ratio jumped from 7% (pre-GST) to 13.25% (post-GST). Based on this 6.25% differential, the DGAP quantified the profiteering at approximately ₹1.72 crores.
Assessee’s Defense: The developer challenged the DGAP’s mathematical formula. They argued that the “ratio” method is flawed and requested a computation based on actual item-wise pre-GST rates applied to the actual post-GST basket of goods and services. They also contended that adding 12% GST to the “profiteered” amount constituted an illegal double levy.

The Decision

The Delhi High Court (2026) partly ruled in favor of the assessee and ordered a reinvestigation:

Merit in Item-Wise Data: The Court held that the developer’s request to use item-wise comparison (actual pre-GST rates vs. post-GST costs) had merit and could lead to a more accurate determination than a broad ratio.
Remand under Rule 133(4): The Court directed the DGAP to conduct a fresh investigation. The DGAP must now verify the item-wise data provided by the developer and rework the ITC ratios accordingly.
Scope of Period: The investigation remains confined to the period before the developer opted for the 5% no-ITC scheme (i.e., July 1, 2017, to March 31, 2019).
Mandatory Cooperation: The developer was ordered to furnish all additional material and documents required by the DGAP to conclude this re-computation.
Outcome: Partly in favour of Assessee / Matter Remanded.

Key Takeaways

Methodology can be Challenged: Real estate developers are not bound by the DGAP’s standard “ITC-to-Turnover” ratio. If a developer can provide granular, item-wise data (comparing specific tax rates on steel, cement, etc., pre- and post-GST), the authorities must consider it.
5% GST Scheme Limitation: For real estate projects that opted for the 5% GST rate (without ITC) from April 1, 2019, any anti-profiteering liability is effectively “capped” at the credits gained during the transitional window (July 2017 – March 2019).
Impact of Rule 133(4): This rule serves as a “reset button,” allowing the Court or Authority to send back reports that are mathematically or procedurally flawed for a fresh look.

GOODS AND SERVICE TAX APPELLATE AUTHORITY, NEW DELHI

DGAP

SVP Builders^*

Mayank Kumar Jain, Judicial Member
and Anil Kumar Gupta, Technical Member

NAPA/78/PB/2025

JANUARY 15, 2026

ORDER

1. The representative of the DGAP and learned counsel for the respondent have been heard.

2. Peruse the record.

3. On the recommendations of the standing Committee the DGAP conducted investigation against the respondent for alleged profiteering in respect of construction services supplied by them. Initially, one Dr. Rahul Bamal made a complaint against the respondent.

4. During the investigation the DGAP considered the relevant document/annexures and found that the respondent has opted for new scheme after 31.03.2019 for discharging @ 5% in accordance with the notification 3/2019-Central Tax (rates) dated 29.03.2019. The profiteering has been calculated up to the period of 29.03.2019.

5. The DGAP adopted the methodology such as:-

“The profiteering if any needs to be determined by calculating any input tax credit under GST which has become eligible to be taken as credit has been availed and utilised by the supplier of service to discharge its GST liability on provision of output service. Thus, any ITC will result in saving to the supplier of service only if the same has resulted in savings to the supplier in the form of decreased cost on account of availment and utilization thereof in payment of GST on output service. Any positive difference in percentage of availability from the pre GST being deducted from the postGST can be multiplied with the amount spent in the post GST on the purchase of inputs and input services to calculate the savings made by the Noticee as the excess availability of ITC in the GST period to the Noticee to pay output GST leads to reduction in cost to the Noticee, which as per the provisions of Section 171 of the CGST Act needs to be passed on to the recipient of services. The amount of profiteering then needs to be attributed to the total area constructed in post GST to determine profiteering per square feet and passed on to the home buyers in proportion of the area of the flats”

6. Total 1175 flats were constructed by the respondent as per details.

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That they had constructed total1175 flats having total saleable area of 13,01,530 Sq. Ft. in the project “Gulmohar Gardens Phase II”

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That the respondent opted for the new scheme of 5% without ITC vide notification no.3/2019- Central Tax (rates) dated 29.03.2019.

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That all the 857 flats were booked opting the new scheme of 5% without ITC for the project.

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That the area of 9,30,090 Sq. Ft. of 857 flats is considered for calculation of profiteering.

7. For calculation of the profiteered amount the saleable area of the project and sold area, the ratio of CENVAT/Input Tax credit to purchase value was worked out. ITC as a percentage of purchase value was used by respondent during the pre-GST period was 7% and for post-GST period it was 13.25%. The ratio of ITC to total purchase of goods and services has increased by 6.25% in post-GST period as compared to pre-GST period.

8. Further, GST @ 12% was also applied by on the profiteered amount by the DGAP.

9. After investigation it was concluded that respondent has profiteered an amount of Rs.1,54,02,290 plus GST @ 12% i.e. 18,48,275 totalling Rs. 1,72,50,565.

10. The respondent filed its written submission and denied all the allegations made in the report. It is submitted that the methodology adopted by DGAP for investigation is contrary to the directions given by Hon’ble High Court of Delhi in Reckitt Benckiser India (P.) Ltd. v. UOI GST 495/82 GSTL 344 (Delhi)/(2024) 14 Centex 374.

11. So far as the item purchased value in pre and post GST period are not identical in nature and quality. Certain goods/services purchased in pre-GST period such as RCC pipes, letter-box, stone breaking tools, Khaprail sheets, energy meter, thermacoal sheets, Chimney, Plastic foot-rest and safety goods were not purchased in post GST period. The benefit of ITC has to be worked out on actually purchased items in post GST period by comparing the rate of tax in post GST period viz-a-viz a same in pre-GST period. The comparison has to be between the same basket of goods and services and not between non comparable items.

12. Hence, the respondent pleaded that the amount of profiteering worked out by the DGAP is not correct. The respondent claimed that on comparing the same basket of Goods and Services the amount of profiteering works out to Rs.40,90,542 only.

13. The item wise actual data in post GST period was available and it would have been justified to be used for comparison.

14. The respondent also submitted that GST collected from the buyers has already been deposited with the Government. Adding GST to the benefit amount results in double taxation. GST component cannot be added separately. The imposition of 12% GST is illegal.

15. We have carefully examined the facts and findings in the DGAP report as well as the contentions made by the respondent in their written reply as well as during the course of personal hearing.

16. After our thoughtful consideration, we observe that keeping in view the spirit of principal laid down by Hon’ble High Court of Delhi in the case of Reckitt Benckiser India (P.). Ltd. (supra), submissions made by the respondent regarding comparison of the GST availed on the actual Goods and Services purchased in the Post GST period with the ITC available on such goods and services by applying the applicable rates on such goods and services in the preGST period carries weight. The contentions contained in the written submission as well made by learned counsel during the course of personal hearing have merits.

17. Since, the respondent have claimed that they have submitted the data and documents of actual goods and services purchased in the post-GST period and the respective applicable rates on goods and services in PreGST period, DGAP needs to verify this data.

18. In view of the above we are of the opinion that reinvestigation is required by the DGAP. The matter is sent back to the DGAP for the re-investigation in accordance with the provision contain in the Rule 133(4) of the Goods and Services Tax Act, 2017.

19. The DGAP is directed to re-workout the ratio of ITC in the Pre-GST period and then compare it with the post-GST period to calculate the amount of profiteering.

20. It is directed that during the course of re-investigation, the respondent would furnish any additional document or information as required by DGAP.

21. The matter is, accordingly, disposed of.