The Director General of Anti-Profiteering (DGAP) has started a probe against Lodha Group for alleged profiteering, sources said. The builder is being investigated for not passing on the benefits of the input tax credit (ITC) to the buyers of its luxury residential project Eternis in Mumbai, sources added. A homebuyer had approached the anti-profiteering body alleging that the Mumbai-based realtor had not passed on the benefits of the lower tax rate on construction services to him.
Acting upon the complaint, the National Standing Committee has referred the case to DGAP, the investigation arm of the National Anti-Profiteering Authority (NAA). The investigation report is likely to be submitted to the apex authority in three months. Lodha Group did not respond to an e-mail query sent by DNA Money. Lodha Eternis is a luxury residential development with 2/3 bedroom apartments starting at over Rs 2 crore at Andheri East in Mumbai. The possession will be given in November 2019, as per the developer’s website.
Under the Goods and Services Tax (GST) regime, a 12% tax rate is charged on the sale of under-construction flats while full ITC can be availed by a builder for offsetting the headline rate of 12%. 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. Ready-to-move-in properties, however, do not invite GST.
“As the ITC is availed by the builder on the materials utilised for construction, the overall tax liability should come down by 4-8% for the under construction properties. It, however, varies from state to state. In cities like Delhi and Mumbai, where the land prices are high, the builder should pass on an average 4-6% tax benefit to the consumer. In the states where the land cost is less, builders should pass on more benefit to consumers,” said GST consultant Sandesh Mundra.
As per the anti-profiteering provisions under section 171 of the Central GST (CGST) Act, any reduction in the rate of tax on supply of goods or services or the benefit of ITC shall be passed on to the recipients by way of commensurate reduction in price. NAA has the mandate to ensure that the benefits of lower taxes under the new tax regime are shared with consumers. About three months ago, NAA had come out with an order against Gurugram-based builder Pyramid Infratech. The apex anti-profiteering body had directed the builder to pass on the benefits of ITC to its customers. The authority also asked the builder to pay 18% interest, dismissing the builder’s argument of increase in the price of inputs.
The NAA has to pass an order within three months after receiving the DGAP report. It can ask the erring company to reduce the prices or return to the buyer the undue profit earned along with 18% interest. It can also ask the company to deposit the money in the Consumer Welfare Fund if it is not able to identify the consumers. It can also levy a penalty or cancel the registration of the builder if it is found guilty of not passing on to consumers the benefit of lower taxes under the GST regime.