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Lodha Developers, Puri Construction charged with GST profiteering

Lodha profiteered about Rs 4.17 crore at its Eternis project, Puri profiteered Rs 1 crore: DGAP

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Lodha Developers, Puri Construction charged with GST profiteering
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In what could have implications for homebuyers all over the country, a probe by Director General of Anti-Profiteering (DGAP) has charged Mumbai-based Lodha Developers and Delhi-based Puri Constructions with profiteering from homebuyers.

The two prominent builders didn't pass the benefit of Input Tax Credit (ITC) to the homebuyers post-GST, the DGAP report has found.

As per the investigation report, Lodha Developers profiteered to the tune of Rs 4.17 crore. The benefit of additional input tax credit of 5.75% of the taxable turnover accrued to Lodha Developers for the project 'Eternis' was not passed on to the customers, the report said.

Similarly, Puri Constructions profiteered an amount of around Rs one crore, sources said.

Meanwhile, the National Anti-Profiteering Authority (NAA) has started hearing the two cases.

The anti-profiteering watchdog, which functions under the finance ministry, has to decide a case within three months after submission of the report.

The DGAP has found that the provisions of Section 171 (1) of the Central Goods and Services Tax Act 2017 have been contravened by the builders. The Act provides for a reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.

The apex anti-profiteering body, if finds the builders guilty, may ask them to reduce prices, return the due amount to the customers, impose penalty or in extreme cases may even cancel the firm's registration.

A homebuyer at Lodha's luxury residential project Eternis in Mumbai had approached the anti-profiteering body alleging that Lodha group has not passed on the benefits of the lower tax rate on construction services to him.

Lodha Developers, if found guilty, may have to pay up around Rs 2 lakh per flat to over 200 homebuyers immediately as per the calculations done until August, sources said, adding that the probe covers one-year period up to August, 2018. About half of the flats in the Eternis project are ready for possession as of now, while the remaining ones would be handed over to buyers in November. The flats are priced Rs 2 crore onwards.

Responding to a query by DNA Money, a Lodha spokesperson said in an e-mailed statement, "The matter is sub-judice and we have submitted our views before the concerned authority. As per the report filed before the Authority, the complainant has been given GST credit of about Rs 1.3 lakh by us, but he is only entitled to credit of Rs 80,000 ! The concerned authorities will need to finalise the methodology of calculating the credit and who should get the benefit. We hope that there will be clarity on the matter soon, so that our purchasers can be given the right credit."

According to a Puri Constructions spokesperson, "We have contested the charge against us. The profiteering amount is being recomputed. The case will be heard on February 4."

Under the GST regime, a 12% tax rate is charged on the sale of under construction flats as compared to nil tax rate on ready-to-move-in properties. In the case of under-construction properties, the builder has to pass on the benefit available on account of the ITC by reducing the base price of the flat for the buyer. A full ITC can be availed by the builder for offsetting the headline rate of 12%.

THE DISPUTE

  • The benefit of additional input tax credit of 5.75% of the taxable turnover accrued to Lodha for the project 'Eternis' was not passed on to the customers
     
  • A homebuyer at Eternis had approached the anti-profiteering body alleging that Lodha has not passed on the benefits of the lower tax rate on construction services to him
     
  • Lodha, if found guilty, may have to pay up around Rs 2 lakh per flat to over 200 homebuyers immediately as per the calculations done until August
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