Realty developers get notices for inflated credit claims under GST

Realty developers get notices for inflated credit claims under GST 

About 400 real estate developers, including listed companies, have received notices from the indirect tax department for inflated credit claims under the Goods and Services Tax (GST), said two people aware of the development. 

The developers have been asked to pay a fine of 100% and interest of about 18% on the wrongly claimed credit, according to the notices. Many developers, especially those with a substantial presence in commercial property and retail malls, have been served with the notices, tax officials said. 

“About 20 developers from Mumbai, including some of the listed players, have submitted input credit claims for raw material that had already been used when GST was rolled out. These companies will now face steep fines,” said a tax official. The companies had claimed credit on input costs such as steel, cement and sand used for under-construction buildings to offset future GST liabilities, tax officials said. However, the indirect tax department claims that some developers also claimed credit in cases where buildings were already completed when GST was rolled out on July 1, 2017. 

“A developer had already constructed 10 floors of a building on July 1, 2017. But while taking credit he claimed that only two floors had been constructed and availed of additional credit for eight floors,” said another person aware of the development. In this case, the tax department has disallowed credit of Rs 100 crore and demanded penalty of an equivalent amount. 

Industry experts said the rules for availing tax credits are very transparent. Eligibility of input tax credits for real estate developers depends on whether the apartments are sold before receipt of occupation certificate and the proportion of activities completed in a project before and after July 1. 

“Estimating the quantum of eligible input tax credits with accuracy is important to prevent denial of credits later, which would add to the cost of the project and cannot be recovered from buyers in future,” said MS Mani, a partner at Deloitte India. For most of the larger developers, the credit disallowed ranges from Rs 25 crore to Rs 100 crore. For the smaller companies, it is between Rs 1lakh to Rs 5 crore. Of the 400 developers, about 20 are large companies based in Mumbai, the National Capital Region, Bengaluru and Hyderabad. 

Many developers have claimed exaggerated tax credits and are not paying the GST amount they should ideally be paying, tax officials alleged. According to the tax officials, notices were also sent to Runwal Developers, Unitech and Indiabulls Real Estate. Emails sent to these companies on March 22 did not elicit any response. An official spokesperson with Indiabulls told ET over phone that he is not aware of such a notice being sent. An official spokesperson for Oberoi RealtyBSE 1.88 % said, “Nothing like this (notices being issued) has happened.” 

“There is a leakage of tax when higher input tax credits are taken by companies. The government had given an opportunity to such companies to revise their input credit claims in December, but few of them did so,” said another tax official. Tax officials are now considering taking punitive action against architects who may have provided fake completion certificates to developers to validate the stage of construction of a project. 

“In one instance, the developer had claimed that the project was only four floors by August while in December when our officers visited the site, the project was 25 floors,” said one person aware of the matter. The department has already served notices to major telecom companies for inflated input credit claims, ET reported on March 22. Experts said validating the claims of telecom companies may be tough because revenue officials will have figure out the timeline of capital expenditure for thousands of cell sites. 

Authentication of claims in the real estate sector may not be as difficult a problem. “Purchase of raw material on which credit has been claimed leaves a paper trail and there are discrepancies there, too. In almost all cases, developers buy raw material on the day they have to be used and raw material like cement is usually not stocked,” said the tax official. 

The Economic Times, New Delhi, 26th March 2018