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National Anti-Profiteering Authority Rules On Passing On Benefits Of Lower GST Rate To Home Buyers

The National Anti-Profiteering Authority aka NAA is the statutory mechanism which come under GST law to check the improper profiteering activities by the registered suppliers under GST law. The core function of authority is to ensure that the compatible advantages of the reduction in GST rates on goods & services done by the GST Council and of the Input tax credit (ITC)are passed on to the recipients by way of commensurate contraction in the prices by the suppliers.

National Anti-Profiteering Authority holds a builder guilty of profiteering under section 171(1) of CGST Act, 2017 to the tune of Rs. 3.69 crores (approx.) for not passing benefit of additional ITC to the tune of 2.42% (4.48% – 2.06%) considering ratio of ITC to turnover pre and post-GST.

The NAA ruled that profiteering should be determined at the point in time and not at the completion of the project. As the developer had took benefit of ITC during the project tenure, the developer was responsible to pass on the benefits of lower GST to home buyers by way of commensurate price reduction. The NAA agreed with the findings of the DGAP and directed the developer to refund the net benefit of Input Tax Credit by way of price reduction and excess GST collected from the flat buyers, along with interest at the rate of 18% per annum.

In a major development in the Real Estate market in India, the NAA has ruled that Real Estate Developers in India must pass on the benefits of GST immediately as per right norms.

There are two recent cases led to these developments which are a major sigh of relief for Home Buyers on their real estate investment in India.

A leading and well-known developer who had developed a residential project in one of the metropolitan cities of India had registered according to the latest GST norms and had received the benefit of the new GST norms. But the property developer did not pass the benefit of GST slab to their home buyer after that home buyer along with top authorities at NAA filed a complaint as co-applicants and this when the Director-General Anti Profiteering(DGAP) presented a detailed report.

Let’s see what DGAP stated and stressed on certain aspects

In the above-mentioned case, the residential developer accepted the fact that it got benefit from the new GST implications but stated that it failed to pass on the benefit because of the lack of calculations.

The DGAP then highlighted and cleared the fact that the ITC of the unsold properties was outside the scope of the investigation which is why the developer must recalibrate the calculations to the selling price.

Because the developer had already received the full benefit of the new GST tariff, it needs to be passed onto immediately on to the home buyers.

Later, when the property developer argued that it had already passed on the benefit to the home buyers and would do the rest after the project was complete and the exact numbers are ascertained, the authorities scrutinized all the legalities of the case.

Meanwhile, the developer stated that the right time to determine the profiteering of the project would be once it is completely sold and elaborated that a huge portion of the development work was done by subcontractors.

Other aspect that the NAA had observed was that the developer availed the ITC benefit immediately hence since the buyers did not receive the benefit at the right time, it directed the developer to completely compensate the home buyer immediately.

And, because the developer delayed the process despite all the existing provisions the developer has been penalized. The rulings in this and the previous case were just a sign of caution to the home buyer to set an example for other real estate developers. All real estate property developers must follow the clearly specified provisions.