If a real estate developer or an infrastructure contractor is incurring more cost due to the goods and services tax, should the consumer pay him for that? Why not, ask developers.
In what is exactly opposite of anti-profiteering, real estate contractors have dragged the government of India and the GST Council to Delhi High Court, demanding that their losses due to GST be made good.
The problem is due to what they call a discrepancy in GST rates for contractors and subcontractors.
While the government has fixed 18% GST for under-construction properties, it has allowed deduction of land value by the developer, making his effective tax rate 12%. But the subcontractor has to pay full 18%.
Now, this difference in tax rate cannot be passed on to the developer and thereby to the final consumer, the contractors said in a writ petition filed in the Delhi High Court on Wednesday.
So they want the government and GST Council to fix the anomaly and bring parity in GST rates charged from contractors and subcontractors, or provide a mechanism to make good their losses.
If there is an anti-profiteering mechanism to ensure tax benefits are passed on to consumers, then why not the opposite, they ask.
“There is a clear case of discrepancy, unintended perhaps, in the GST rate for contractors and subcontractors and this would lead to additional cost for the subcontractors of infrastructure and real estate projects when the prices are fixed,” said Abhishek A Rastogi, partner at law firm Khaitan & Co.
Subcontractors now want the additional 6% GST they pay to be reimbursed.
“There should be a mechanism, in line with anti-profiteering, where if loss is incurred due to GST rates it has be made good,” said Rastogi who is an advocate on record for subcontractors. He hoped that the anti-profiteering authority formed by the government will address a “reverse anti-profiteering” situation when a business-to-business supplier is at a loss due to GST.
Industry experts pointed out that almost all the infrastructure projects and many real estate projects are partly or fully constructed by subcontractors.
Nayan Shah, president-elect at realty developers body CREDAI-MCHI, called for bringing down goods and services tax on consumer contract to single digit, between 6-8%, which would ensure that there is no revenue loss to the exchequer.