NAA directive to L&T and Omkar: Refund GST worth Rs.30 crore to homebuyers

In what appears to be a popular case of GST profiteering in the real estate industry, the National Anti-Profiteering Authority (NAA) issued 91-page order to two developers, M/s Larsen & Toubro Parel Project LLP and M/s Omkar Realtors Developers Private Limited. 

However, there is no clarity at present if these developers have implemented the directive of NAA or filed an appeal before the Bombay High Court. The L&T Realty spokesperson mentioned to media houses that this matter is sub-judice (litigated and hence, not for public discussion).

These realtors must refund Rs.30.76 crore and interest at 18% per annum. Around 850 homebuyers in the Parel’s Crescent Bay project are said to benefit from this move. Further, other projects by these two builders were to be investigated for profiteering by the Director General of Anti-Profiteering (DGAP) under Section 171 of the CGST Act.

The NAA directed the builders to reduce the home prices for buyers equivalent to their respective eligible ITC benefits. It also directed them to publish advertisements in local newspapers to create awareness among homebuyers about the judgment. It concerns a GST rate reduction for real estate from 12%-18% to 1-5% after April 2019.

A three-member panel directed by Shri Amand Shah, chairman of the NAA, ordered M/s L&T to refund the profiteered amount belonging to 2017-2019 with an 18% interest per annum in three months. It also ordered M/s Omkar Realtors to pass on the Input Tax Credit (ITC) benefit at 10.51% of the turnover, calculated to Rs.1.23 crore, to half of the flat buyers had paid consideration.

Shirish Deshpande, the Mumbai Grahak Panchayat chairperson and a consumer rights activist, recently pointed to this judgement on 29th July 2022. Bharat Kashyap, the complainant, had bought an apartment in the Crescent Bay project for Rs.6.85 crore. In October 2019, Bharat Kashyap reached out to the state-level GST standing committee, which asked the DGAP to investigate the matter and present a report.

The amount included service tax paid between 2014 and 2019 and GST paid between July 2017 to September 2019. The GST deposited was Rs.36.22 lakh and paid to L&T, but the developer reversed the ITC worth Rs.1.29 lakh as a credit note.

L&T has realised an additional amount of Rs.7.94 lakh from Bharat Kashyap, whereas Rs.29.45 crore from the rest of around 850 homebuyers. On the other hand, M/s Omkar realised Rs.1.23 crore between July 2017 and September 2019.

The builders have a Joint Development Agreement (JDA) to construct six towers for the Crescent Bay project. Their lawyers argued that the existing anti-profiteering provisions under GST violate Articles 14 and 19 (1) (g) of the Indian constitution and proceedings by the NAA are time-barred. It was supposed to be passed within six months of receiving the DGAP report in 2020. They further pointed out that the panel of NAA did not have a judicial member and that their role was limited to defining the profiteered amount.

On the other hand, the NAA stated that Section 171 protects the consumers’ interest by ensuring that both the ITC and tax reduction benefits are passed on to the rightful consumers bearing the tax burden, especially consumer communities unorganised and vulnerable. 

Section 171 of the CGST Act states that the sellers must pass on the benefit of any tax reduction or ITC to the recipients by reducing the product prices. Any willful action of not passing on the benefit is considered profiteering.

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