In a ruling that will have far reaching consequences for real estate developers, the National Anti-Profiteering Agency (NAA) has held that excuses like the challenges and uncertainties associated with the GST regime cannot be used deny home buyers from benefits of a lower tax rate. Very simply, if a developer has benefitted from the introduction of GST in terms of lower rate of tax, the benefits need to be passed on to the consumer. The history of the case can be traced to a period when GST had not come into force and a buyer had purchased a flat in the ‘East Crest, Bengaluru’ project launched by Salarpuria Real Estate Pvt. Ltd. The matter came before the National Anti-Profiteering Agency (NAA) was basis the report furnished by the Director General of Anti-Profiteering (DGAP) who was also the Co-Applicant in the matter.
The DGAP in its report highlighted the following key aspects: The developer had accepted the fact that he has profiteered post GST, however due to non-availability of the calculations, the benefit could not be passed on. The ITC pertaining to the unsold units was outside the scope of investigation and hence, the respondent is required to recalibrate the selling price as such. The argument that the ITC details were not available is not acceptable because the entire amount was available to the respondent. Profiteering, if any, has to be established at a given point of time in terms of Rule 129(6) of the CGST Rules, 2017. The report had determined a profiteering of 1.45% on the transaction value. The benefit accrued was calculated on the 51 units sold out of a total of 263 units, however, it was supposed to be passed onto the remaining 50 buyers, not being a party of the ruling. Salarpuria Real Estate, however, argued that the project did not fall under affordable housing project and hence, being a residential project, the normal rate of GST applicable on the same was 12%.
The developer added that it was not able to ascertain the exact impact of GST and hence, had suo moto sent out communication stating the same in this regard. Moreover, it passed on a benefit to the extent of Rs. 25 per sq. ft.to the buyers already, with a communication that the balance of the benefit would be passed on, once the exact numbers are ascertained. According to the developer, the prudent exercise in this case would be to declare the ITC benefit once the project was complete and that the cost of construction of the flat is irrelevant to determine profiteering since the project, once wholly put, is valued basis its surroundings, landscaping, standards, facilities etc. The developer also argued that a major chunk of the work is undertaken by sub-contractors hence the complete details of ITC were not available with it. The NAA after considering the legal provisions and facts of the case, held that the contention of the developer that computation of the benefit/ loss could not be done before completion of the project is not tenable. In its ruling the NAA held that the respondent has regularly availed the benefit of additional ITC and hence he cannot be allowed to enrich himself at the cost of the buyers and keep them waiting till the project was completed.