Mumbai-based prominent real estate developer Surendra Hiranandani-owned House of Hiranandani has profiteered from homebuyers by not passing on the benefits of the input tax credit (ITC) to the flat owners of one of its under-construction housing projects, a probe by an anti-profiteering agency has revealed, sources said.
Apart from it, Maharashtra-based builder S3 and two realtors from the National Capital Region - Ocean Seven and Mascot Group - have also been charged with profiteering from customers, sources added.
The probe conducted by the Director General of Anti-Profiteering (DGAP) has reportedly found that House of Hiranandani profiteered a total of around Rs 3.5 crore from the flat owners of Amalfi, the realtor's residential project in Chennai. As per the company's website, the luxury apartments, starting at over Rs 1 crore, will be ready for possession by June 2020.
Similarly, S3 Builders has been found to have profiteered around Rs 1.5 crore, Ocean Seven less than Rs 1 crore and Mascot Group around Rs 50 lakh, sources said.
There were complaints against Gurugram-based Vatika group, too. But the allegations of profiteering could not be proved.
The DGAP report found that excess ITC credit was available to the builders and the benefit of same was not passed on to the buyers, sources said.
The homebuyers in their complaints had alleged that the builders did not pass on the benefit of the availed tax credit. ITC is the credit available for all taxes paid on inputs such as cement and other construction material across the value chain.
The DGAP recently submitted the report to the GST watchdog National Anti-Profiteering Authority (NAA), which will be hearing the cases.
The NAA is likely to come up with a final order in the cases within three months. If the NAA finds the builders guilty, it can order them to reduce prices from retrospective effect, return the due amount to the customers, impose a penalty, or in extreme cases, it may even cancel the firm's registration. In case the customers cannot be identified, it can also ask the company to deposit the profiteered amount to the Consumer Welfare Fund (CWF) of the government.
Under the GST regime, builders are required to pass on the benefit of ITC to the buyers of the under-construction houses on which a GST rate of 12% along with ITC is applicable until March 31, 2019. But starting April 1, the under-construction properties will be subjected to a flat 5% GST without ITC benefits.
The GST Council recently withdrew ITC on all housing segments. It also defined affordable homes as units costing up to Rs 45 lakh each and brought down GST on it to 1% from 8%.
Section 171 of the Central GST (CGST) Act, 2017, deals not only with passing on the benefit of reduction in the rate of tax but also with passing on the benefit of ITC.
The anti-profiteering agency has been receiving several such complaints against builders. Earlier, Mumbai-based Lodha Developers and Delhi-based Puri Constructions were charged with profiteering from homebuyers.
In September 2018, the NAA, while holding Pyramid Infratech guilty, had asked it to return a profit of Rs 8.2 crore made by not passing on the benefits of ITC to nearly 2,500 homebuyers. In November, Delhi High Court stayed the anti-profiteering order against the builder.
The NAA, the apex anti-profiteering body under the administrative control of the finance ministry, has been set up to protect consumers' interest, with DGAP as investigation arm and complaints mechanism via several state-level screening committees and a national standing committee.
The respective state screening committees, after collecting prima facie evidence, send the report to the national standing committee. The national-level committee then refers the case to the DGAP for investigation. DGAP gets three months (extendable by another three months) to submit its report to the NAA, which comes up with the final order.
THE AMOUNT
1. Rs 3.5 cr House of Hiranandani
2. Rs 1.5 cr S3
3. Less than Rs 1 cr Ocean Seven
4. Around Rs 50L Mascot Group
EARLIER INSTANCES
1. Mumbai-based Lodha Developers and Delhi-based Puri Constructions were charged with profiteering.
2. In September 2018, NAA asked Pyramid Infratech to return Rs 8.2 crore to nearly 2,500 homebuyers. In November, Delhi HC stayed the anti-profiteering order against the builder.
3. Builders are required to pass on the benefit of ITC to the buyers of the under-construction houses on which a GST rate of 12% is applicable until March 31, 2019
4. From April, under-construction properties, other than affordable, will be subjected to a flat 5% GST without ITC
CLARIFICATION
In the report the project ‘Amalfi’ belongs to the OMR project of House of Hiranandani Group owned by Surendra Hiranandani. It has nothing to do with Hiranandani Group. The error is regretted.
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