Inflationary and Market Forces Not Valid Defence for Non-Passing of GST Rate Reduction Benefits on Hotel Services

The GST Appellate Tribunal Delhi in the case of DGAP vs. Hotel Babylon Inn Pvt. Ltd. [NAPA/35/PB/2025, order dated September 02, 2025] held that the respondent, a hotel service provider, profiteered by not passing the benefit of GST rate reduction on hotel accommodation service and that inflationary pricing due to COVID-19 and market forces contentions were rejected as valid defences for non-passing of the benefit. The Tribunal directed the respondent to pay the profiteered amount along with 18% interest per annum from the date of collection of higher amounts till realisation, to be deposited in the Consumer Welfare Fund.

Facts:

Directorate General of Anti-Profiteering (DGAP) (“the Appellant”) initiated proceedings under Section 171 of the CGST Act against Hotel Babylon Inn Pvt. Ltd. (“the Respondent”) for not passing on the benefit of the GST rate reduction effective from October 1, 2019, on hotel accommodation services.

The Respondent continued to charge tariffs without commensurate reduction despite GST rate reduction as per Notification No. 20/2019-CTR.

The Appellant contended that the Respondent had profiteered by charging higher base prices post-GST rate reduction period, calculating profiteering amount at Rs. 31,28,631/- based on average base price comparison methodology.

The Respondent contended pricing depended on market forces, seasonal and COVID related sanitization costs, and argued that GST was charged separately, thereby passing the benefit. The Respondent challenged the method of calculating profiteering and claimed fluctuations in hotel room prices and transaction values prevented direct comparison.

The Appellant sought direction to recover the profiteered amount with interest and deposit in the Consumer Welfare Fund.

Issue:

Whether the Respondent has profiteered by not passing the benefit of GST rate reduction on hotel accommodation services?

Held:

The GST Appellate Tribunal Delhi in NAPA/35/PB/2025 held as under:

• Observed that, the GST rate on hotel accommodation was reduced effective October 1, 2019, by Notification No. 20/2019-CTR dated September 30, 2019 and the Respondent kept tariffs unchanged.
• Noted that, the method adopted by DGAP to compare pre- and post-GST rate reduction average base prices was appropriate to determine profiteering.
• Rejected the Respondent’s contentions that tariff pricing was justified by market dynamics, seasonal demands, or inflationary costs related to COVID-19, calling such arguments an “afterthought” and “castle of air” without cogent material.
• Held that, Section 171 of the CGST Act mandates passing on any reduction in GST rate or ITC benefit to the ultimate consumer by commensurate price reduction.
• Directed deposit of the profiteered amount of Rs. 31,28,631/- by the Respondent into the Consumer Welfare Fund along with interest at 18% per annum from October 1, 2019 until realisation and ordered compliance report to be filed by the jurisdictional Commissioner.

Our Comments:

The Tribunal meticulously applied Section 171 CGST Act’s mandate emphasizing the entitlement of consumers to the benefit of GST rate reductions and input tax credits. It highlighted the statutory benevolent purpose of anti-profiteering provisions and dismissed the respondent’s market forces and COVID-related arguments due to absence of substantial evidence. The Delhi High Court’s judgement in Reckitt Benckiser Pvt. Ltd. Vs. union of India and others [2024 SSC Online Del 588] held that there is initial but rebuttable presumption that whenever there is a reduction in rate of GST, there should be a commensurate reduction of prices in the products i.e. goods or services, and if there is no reduction in price, there has been a profiteering by the Respondent. The methodology for determining profiteering by comparing pre- and post-rate reduction prices transaction-wise is held as a reasonable approach consistent with statutory requirements.

Relevant Provisions:

Section 171 of the Central Goods and Services Tax Act, 2017

“171. Antiprofiteering measure.-

(1) 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.

(2) The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.

Provided that the Government may by notification, on the recommendations of the Council, specify the date from which the said Authority shall not accept any request for examination as to whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.

Explanation1.––For the purposes of this sub-section, “request for examination” shall mean the written application filed by an applicant requesting for examination as to whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.

Explanation 2.––For the purposes of this section, the expression “Authority” shall include the “Appellate Tribunal

(3) The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.

(3A) Where the Authority referred to in sub-section (2), after holding examination as required under the said sub-section comes to the conclusion that any registered person has profiteered under sub-section (1), such person shall be liable to pay penalty equivalent to ten per cent. of the amount so profiteered:

Provided that no penalty shall be leviable if the profiteered amount is deposited within thirty days of the date of passing of the order by the Authority.

Explanation.-For the purposes of this section, the expression “profiteered” shall mean the amount determined on account of not passing the benefit of reduction in rate of tax on supply of goods or services or both or the benefit of input tax credit to the recipient by way of commensurate reduction in the price of the goods or services or both.”

Rate changes with effect from Notification No. 20/2019-Central Tax (Rate) dated September 30, 2019:

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