Delhi High Court Quashes ₹45.36 Crore GST Demand Against NBCC After Finance Ministry Clarification

The Delhi High Court has recently quashed a Rs 45.36 crore GST demand raised against NBCC (India) Ltd, a state-owned construction and project management company under the Ministry of Housing and Urban Affairs, in connection with the redevelopment of East Kidwai Nagar, New Delhi.

A division bench of Justice Prathiba M Singh and Justice Shail Jain set aside the demand after relying on a clarification issued by the Ministry of Finance, which stated that the Union Ministry itself was the principal supplier of leasing services from the project and that NBCC acted only as its implementing agency.

The clarification placed before the court recorded, “Where the Ministry is the principal supplier and remains available to accept any GST demand, initiation of proceedings against the agent appears to be unnecessary and without authority of law.”

The case arose from the redevelopment of East Kidwai Nagar, where NBCC developed General Pool Residential Accommodation for government employees along with commercial spaces. NBCC was appointed as the implementing agency under a memorandum of understanding dated July 16, 2013, with the Ministry of Urban Development, now the Ministry of Housing and Urban Affairs.

Lease proceeds from the commercial spaces were routed through an escrow account jointly operated by NBCC, the Ministry and Union Bank of India.

Following an investigation by the Directorate General of GST Intelligence, Mumbai, the CGST Delhi South Department raised a demand alleging that NBCC, acting as an agent of the Ministry, had supplied taxable leasing services and failed to pay GST of Rs 45.36 crore on lease receipts of about Rs 252.01 crore during the 2017–18 financial year.

NBCC challenged the demand, arguing that it never treated the lease proceeds as its own income, deposited all collections into the escrow account. It further argued that the leasing rights and revenues always vested with the Ministry. It also contended that Section 86 of the CGST Act applies only to goods and does not extend joint liability to services.

During the proceedings, an inter-ministerial meeting was convened, following which the Ministry of Finance issued an Office Memorandum clarifying NBCC's role.

The memorandum noted that NBCC acted solely as the executing arm of the principal and further observed, “Section 86 of the CGST Act, 2017 creates joint and several liability only for goods, not for services, and does not cover the present case,” adding, “Hence, it appears that the demand raised by CGST Delhi South has no merit.”

Accepting this position, the Delhi High Court held that the GST department's assumption that NBCC was the supplier of leasing services was flawed and legally unsustainable. The bench accordingly set aside the impugned demand and disposed of the writ petition.