While the overall cost of construction seems to have gone down under
the Goods and Services Tax regime on account of additional input tax
credit for builders, the intent to pass on the benefit of lower cost to
the end buyer still seems to be missing from the market.
In order
to ensure that homebuyers get this benefit, the government has started
questioning
developers/builders who are not passing on the reduced rates
and additional input tax credit(ITC).
On December 8, the
government again clarified that homebuyers of real estate properties
will not have to pay GST if they purchase a fully constructed property
after the issue of completion certificate. It has also asked the
builders to reduce the prices of properties by passing on the benefit of
lower GST rate.
Tax experts say that the government’s note on
Saturday appears to be an outcome of anti-profiteering complaints
against some builders, where it has been brought to its notice that some
builders/ contractors are not passing on the benefit of lower tax
burden to the homebuyers.
Take the case of M/s Pyramid Infratech
Pvt Ltd, Haryana where the ruling held that the benefit of ITC had been
extended to all the goods and services which were utilised by any
builder which was not available in the pre-GST era. Since Section 171
not only deals with passing on the benefit of reduction in the rate of
tax but also deals with passing on the benefit of ITC, the builder is
held to be liable for anti-profiteering.
Accordingly, it was held
that the builder shall reduce the price to be realised from the buyers
of the flats as per the benefit of ITC received by him. The National
Anti-Profiteering Authority directed the builder to refund any amount
collected in excess along with interest at 18 percent and show cause as
to why the penalty in relation to anti-profiteering (higher of Rs 10,000
or tax evaded) should not be levied.
These homebuyers in Haryana
had booked flats under the Haryana Affordable Housing Policy 2013. After
the builder failed to share the benefit of the input tax credit with
them and forced them to pay more Goods and Services Tax, they filed an
application with the high court alleging that the benefit of ITC had not
been passed on to them in respect of the construction service supplied
by the builder and that this was a violation of the provisions of
Central Goods and Services Act 2017.
Section 171 of the CGST Act,
2017 not only deals with passing on the benefit of reduction in the rate
of tax but also deals with passing on the benefit of Input Tax Credit.
The builder had responded saying that there had been an increase in the
rate of tax and no benefit could be passed on by him to the buyers.
The
court eventually passed an order stating that the builder had become
eligible to claim ITC after coming in to force of the GST and hence he
was liable to pass on the benefit to the buyers and that the builder was
not being asked to the benefit out of his own account. The Authority
under Rule 133 (3) (a) of the CGST Rules, 2017 also ordered that the
builder reduce the price to be realized from the buyers of the flats in
commensurate with the benefit of ITC received by him.
It was found
that the builder had denied benefit of Input Tax Credit to the buyers
of the flats in contravention of the provisions of Section 171(1) of the
CGST Act, 2017 and had thus realised more price from them than he was
entitled to collect and has also compelled them to pay more GST than
that they were required to pay by issuing incorrect tax invoices and had
therefore committed an offence under section 122 (1) (i) of the CGST
Act, 2017 and therefore was liable for imposition of penalty.
The
National Anti-Profiteering Authority in September this year directed
that the Commissioner of State Tax Haryana to monitor the order under
the supervision of the DGAP by ensuring that the amount profiteered by
the builder be passed on to the all the buyers.
It is cases like
these that prompted the government to clarify and reiterate that buyers
of real estate properties will not have to pay GST if they purchase a
fully constructed property after the issue of completion certificate.
“It
is brought to the notice of buyers of constructed property that there
is no GST on sale of complex/building and ready to move in flats where
sale takes place after issue of completion certificate by the competent
authority,” the finance ministry has said in a statement this week. It
clarified that GST is applicable on sale of under construction property
or ready-to-move-in flats where completion certificate has not been
issued at the time of sale.
The ministry also asked the builders to reduce the prices of properties by passing on the benefit of lower GST rate.
It
also said in a statement that housing projects under the affordable
housing segment of state governments will attract GST of 8 percent. "For
such (affordable housing) projects, after offsetting ITC, the builder
or developer in most cases will not be required to pay GST in cash as
the builder would have enough ITC in his books of account to pay the
output GST," the ministry said.
“In an effort to educate the
homebuyers about unscrupulous collection of additional tax by some
builders/ contractors, the press note clarifies that no GST shall be
levied on sale of complex/ building and ready to move-in flats where
sale has taken place after issuance of completion certificate. The
release also reiterates that on account of additional input tax credits,
generally the overall cost of construction has actually come down
instead of increasing.” said Harpreet Singh, Partner in KPMG.
