Realty firms come under anti-profiteering scanner

Anumber of complaints have been filed against real estate companies in the National AntiProfiteering Authority (NAA) in major cities for not passing on the benefits of the goods and services tax (GST) to customers.

Experts said the GST Council’s decision to remove input tax credit while lowering tax rates on under-construction houses may, in fact, result in an increase in the number of complaints to the NAA.

Complaints have been filed in Mumbai, New Delhi, Gurugram, Ahmedabad, Bengaluru, Chennai and Kolkata among other cities.

Last month, the Council had lowered the GST rate to 5 per cent from the current 12 per cent for under-construction flats priced more than ~45 lakh with effect from April 1. It had also cut GST rates on affordable housing to 1 per cent, from the current 8 per cent — less than what the ministerial panel on real estate had suggested. In both cases, builders will not be eligible to claim input tax credit in the new structure.

“Builders who are under the anti-profiteering scanner may not get the desired relief even with the pragmatic announcements by the GST Council because of the lack of methodology for computing profiteering,” said Abhishek Rastogi, partner at Khaitan & Co and a counsel for Pyramid Infratech which is fighting a case against an NAA order in the Delhi High Court.

Experts said the builders will now factor in their losses arising from the removal of input tax credit when they pass on the benefits to end users while the latter may want the entire GST cut to be given to them. “This may lead to antiprofiteering disputes,” Rastogi said.

The NAA had asked Pyramid Infratech to refund or reduce ~82.2 million from 2,476 buyers’ last instalment for not passing the benefit of input tax credit to them in their two affordable housing projects in Gurugram. The authority had also asked the company to pay an interest of 18 per cent per annum, to be calculated from the date of receipt of the excess amount from each buyer.

The company moved the Delhi High Court against the order, saying the project was time-linked and not constructionlinked, and disputed the methodology used by the NAA to arrive at a fine.

The high court had stayed the NAA ruling. The next hearing in the case is on April 26.

Meanwhile, various home buyers have deferred their EMIs till April when the newly announced GST rate cuts come into effect, said Niranjan Hiranandani, president of real estate association NAREDCO.

The issue of inputs may also impact generation of black money. A group of ministers on real estate had recommended that at least 80 per cent of inputs should be procured from organised dealers to address this issue. The Council will take up this issue at its next meeting on March 19.

Hiranandani said, “After the recent economic and taxation reforms, possible defaults in tax payment as also instances of tax evasion have been factored in the new regulatory regime by the powers that be.”

He said the new regulatory scenario is one where it is prudent to stay within the parameters of regulatory norms; if someone tries a misadventure, the department concerned has the machinery in place to deal with such situations.