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.