In what could safeguard the home buyers from unexpected tax liabilities and helps protect home buyers rights with regards to seeking clear contractual terms in real estate transactions, especially from government entities, the Madras High Court has ruled in favour of home buyers against the Tamil Nadu Housing Board (TNHB).
The ruling prevents the Board from demanding an additional 5% Goods and Services Tax (GST) after buyers had already paid the full flat price inclusive of taxes.
The court was hearing a batch of writ petitions filed by home buyers who challenged the Tamil Nadu Housing Board’s demand for extra GST charges over and above the agreed cost of flats in a housing project approved under the Real Estate (Regulation and Development) Act, 2016 (RERA).
No additional GST on fully paid flats
Justice D. Bharatha Chakravarthy observed that the cost paid by the petitioners was explicitly stated to be inclusive of GST, both in advertisements and allotment letters. Since the home buyers had already paid the entire price, the court held that the Tamil Nadu Housing Board cannot claim any further amount. The court directed the Board to execute the sale deeds without delay.
For those buyers who had paid the extra 5% GST under protest, the court ordered the Tamil Nadu Housing Board to refund the amount promptly.
Contractual clarity and fairness emphasised
The court further highlighted the Tamil Nadu Housing Board’s dominant position in drafting the contract terms and noted that the Board cannot backtrack on its contractual obligations after collecting the full amount. The project was characterised as a straightforward real estate transaction based on market value, and the government entity cannot renege on promises made to home buyers.
What was the plea of Tamil Nadu Housing Board ? And what now?
The Tamil Nadu Housing Board had argued the additional GST was necessary due to exceptional circumstances and public interest. However, the court pointed out that the Tamil Nadu Housing Board had already included a 9% profit margin in the flat price. Thus, any unpaid GST would only reduce this profit rather than cause a financial loss.
The court also noted the Tamil Nadu Housing Board enjoys tax credits exceeding the additional tax demand, rendering the Board’s claim unsustainable.
The court clarified that the Tamil Nadu Housing Board must reconcile its tax accounts and pay GST dues to authorities internally without passing this financial burden on to the home buyers who had honored their payment commitments in full.
Meanwhile, experts see this judgement having ramifications across the country.
An tax expert states, “The ruling basically enunciates one of the basic principles of Contract laws i.e. pacta sunt servanda or the sanctity of the contract must be kept. The Madras High Court has clearly said that once the housing board collects the full flat price especially stating that the price includes GST, they cannot later come back and ask for more money as tax or GST. Even if the builder is a government agency like the Tamil Nadu Housing Board, they must adhere to what was promised in the beginning. If there was a mistake in calculating GST, it is the builder’s responsibility to handle it and it is not the buyer’s problem. For the real estate industry, this is a strong reminder that prices must be final and transparent.”
