All Homebuyers Need To Know About Anti-Profiteering Authority

Despite a well-thought-out plan to levy the Goods and Services Tax (GST), the Central government is struggling to provide answers to the many questions that consumers ask about this tax reform.

One of our readers, Vijay Salukhe, asks, “How can I be sure that the developer will pass on the benefit of input credit to me?” There are many homebuyers out there who have asked this question time and again.

Consider this.

According to the anti-profiteering rule, developers must pass on the benefits they receive, in full, as discounts to the homebuyers. However, developers are of the view that if the stamp duty is also calculated, the 'benefit' is next to nil for homebuyers. For instance, in cities like Nagpur, the stamp duty is 8.5 per cent as it is inclusive of cess for the Nagpur Municipal Corporation, the Metro rail and registration charges. Before the GST came into force, the incidence of tax inclusive of stamp duty stood at 14 per cent while after the implementation, with input credit, it now is 14.5 per cent. In premium areas, the input credit received would be lesser.

It is a general belief that the developer may not pass on the benefit. In reality, the developer is not getting a sizeable credit that could be passed on to the homebuyers as discount. But, one of the reasons why India grabbed a favourable position in Moody's ratings is because the Centre successfully managed to constitute a body to manage GST-related grievances – the National Anti-Profiteering Authority.

Also read: Strong Case For Bringing Real Estate Under GST Ambit, Says Jaitley

National Anti-Profiteering Authority

According to the information from the Directorate General of Taxpayer Services, the Central Board Of Excise & Customs (CBEC), a National Anti-Profiteering Authority sits with a five-member committee consisting of a Chairman who holds or has held a post equivalent in rank to a Secretary to the Government of India and four technical members who are or have been Commissioners of State tax or central tax or have held an equivalent post under existing laws. The Additional Director General of Safeguards under the CBEC (Board) shall be the Secretary to the Authority. The Authority shall cease to exist after the expiry of two years from the date on which the chairman enters upon his office unless the Council recommends otherwise.

Powers and functions

The methodology and procedure to determine whether the reduction in tax rates has been passed on by the registered person to the recipient is the major function of this authority. The authority is constituted by the Central government to protect homebuyers and others from an arbitrary price inflation. The CBEC said, “it has been the experience of many countries that when GST was introduced there has been a marked increase in inflation and the prices of the commodities. This happened in spite of the availability of the tax credit right from the production stage to the final consumption stage which should have actually reduced the final prices. This was obviously happening because the supplier was not passing on the benefit to the consumer and thereby indulging in illegal profiteering." Therefore, the Anti-Profiteering Authority was a necessity.

What else can the Authority do?

• If the Authority feels that a price reduction has not been passed on, it can order the registered company or the developer to do so. Undue profit must be returned along with 18 per cent interest.
• Return to the recipient, an amount equivalent to the amount not passed on by way of commensurate reduction in prices along with interest.
• Impose a penalty as specified by the Act.
• Even cancel the registration of such an offender.

How is the investigation carried on?

Upon a complaint, the Director General of Safeguards can conduct an investigation and collect evidence necessary to determine undue profiteering and before initiation of the investigation, issue a notice to the interested parties (and to such other persons as deemed fit for a fair enquiry into the matter) containing, inter alia, information on the following, namely :

1. The description of the goods or services in respect of which the proceedings have been initiated
2. Summary of the statement of facts on which the allegations are based
3. Time limit allowed to the interested parties and other persons who may have information related to the proceedings for furnishing their reply.

Note: The evidence or information presented to the Director General of Safeguards by one interested party can be made available to the other interested parties, participating in the proceedings. The evidence provided will be kept confidential and the provisions of section 11 of the Right to Information Act, 2005.

Who are the offenders?

• Those developers who do not pass on the benefit in the form of lower prices or lesser installment amounts
• A developer/construction company that asks homebuyers to pay a higher tax rate in installments on payments received after July 1.
• Those who had asked buyers to pay the full amount before GST rolled out

Is the system foolproof?

Anita Rastogi, Partner- Indirect Tax and GST, PwC India says, “The authority will be more of redressal forum. In the absence of a definition or guidance on 'commensurate reduction', the industry will follow its own economics to determine the commensurate reduction in the price of goods or services. It would be extremely important for businesses to calculate the 'commensurate reduction' and revisit the price of goods or services supplied by them. The Government should release some guidance regarding methodology, including calculations and periodicity, to reflect such commensurate reduction. The release of clear guidance will help the industry to comply with the anti-profiteering provisions."

Also read: GST & Construction Costs: Will Property Prices Really Come Down?