Anti-Profiteering Watchdog Tells Builder To Pass On GST Benefits To Homebuyers
Coming to the rescue of homebuyers, the country’s anti-profiteering watchdog has asked a Gurgaon-based developer to pass on the benefits availed of under the new tax regime to homebuyers. The authority has also sent a show-cause notice to the builder, asking why a penalty should not be imposed on it for failing to do so.
Passing its order on 36 applications filed by 102 homebuyers, the National Anti-Profiteering Authority (NAPA) on September 18 ordered Pyramid Infratech to compensate Rs 8.22 crore to 2,476 flats owners ─ and not only the buyers who filed complaints ─ along with an 18 per cent interest within three months. The watchdog has also directed the Haryana tax commissioner to ensure that the order is complied with, and file a report.
This is the first time an order has been passed against a builder for not passing on the benefit availed of by developers through the input tax credit (ITC) system under the Goods and Services Tax (GST). The GST regime came into effect on July 1 last year, and real estate developers, who got tax benefits through ITC, were made liable to pass on the benefits to homebuyers.
These buyers had invested in two housing projects being developed by Pyramid Infratech, Urban Homes in Sector 70A and Urban Homes in Sector 86, under the Haryana Affordable Housing Policy 2013. The buyers alleged that while the builder was gaining profits through ITC under the new regime, he has been profiteering by not passing on the benefit to buyers. The developer cited an increase in the cost of raw materials and increased tax burden of sub-contractors as his reason for non-profiteering.
Setting the builder’s plea aside, the NAPA said a detailed study of the case made it absolutely clear that the excess ITC was available to him, the benefit of which he was required to pass on to buyers.
"The respondent (builder) cannot appropriate this (ITC) benefit as this is a concession given by the government from its own tax revenue to reduce the prices being charged by the builders from the vulnerable section of society which cannot afford high-value apartments,” the order read.
“The respondent is not being asked to extend this benefit out of his own account, and he is only liable to pass on the benefit of ITC to which he has become entitled by virtue of the grant of ITC on the construction service by the government," the watchdog further said.
Arriving at the right calculation
It is worth mentioning here that while the real estate sector does not directly fall under the ambit of the GST the benefits of the new regime, which subsumed several Central and state taxes, are offered to developers of under-construction projects by covering such projects under work contracts. This way the effective rate of tax on under-construction projects is 12 per cent. However, with a view to make affordable even more affordable, the government in January this year reduced the rate to eight per cent for homes purchased under the Credit-Linked Subsidy Scheme (CLSS) under the Pradhan Mantri Awas Yojana (PMAY).