Realtors took authorities to the court over the constitutional validity of the National Anti-profiteering Authority.

Several property developers took the government to the court over the constitutional validity of the National Anti-profiteering Authority (NAA) and claimed the body had no power to demand interest on penalties imposed. This is after NAA has slapped notices for profiting from the Goods & Services Tax (GST) for 50 developers in India.

According to a writ petition lodged at the High Court in Delhi, the NAA is on an equal footing with a tribunal but it has not one member of the judiciary. “The constitution of the NAA is unconstitutional and untenable in the absence of a judicial representative,” says the writ petition filed at the High Court in Delhi.

In compliance with the GST system, consumers must receive the benefits of the rate reduction. If a corporation cannot, the advantage of the tax system can be offset by penalties and interest. The anti-profiteering section of the GST Act states: ‘A decrease in the tax rate to any supply of goods or services, or the benefit of input tax credit should be passed in a lesser price to the consumer.’

The input tax credit relates to a GST process system whereby the tax paid when a company buys raw materials or other services, can be transferred to the consumer when the commodities or services are sold.

Many real estate builders based in Delhi, Mumbai, Chennai and Bengaluru were ordered to pay penalties because the benefits of the input tax credit were not passed on to customers.

According to the NAA investigations, Developers are not passing on the benefits of the input tax credit to consumers. The promoter of the real estate sector is challenging NAA’s authority to slap interest on the penalties as well.

“The applicability of interest is not a matter of concern as it is not provided for by legal provisions (sections 171),” said Abhishek A Rastogi, Khaitan & Co partner representing the realtors in the case.

This comes after the indirect tax department began questioning developers of their claimed transition credit. Developers had set off taxes paid against their GST liabilities under the earlier tax regime and were required by the tax department to reverse the transactions.

Many property developers claimed transition credit on under-construction apartments and said that they were stock or inventory for them, but the tax department sent notices and disallowed those statements. Some of the top players’ tax liability is hundreds of crores.

In the past, NAA has also challenged some of the other industries such as FMCG and pharmaceuticals as a result of the GST rate reduction. The NAA had questioned about 150 consumer goods and pharmaceutical companies’ tax heads and CFOs to find out with the distributors and stockists, if their stocks were sold at reduced rates after GST rollout on June 30, 2017.

Several companies have also taken the government and the indirect taxation department to court on GST levied on these deals in which long-term lease could be jeopardized.

The real estate players filed a writ petition in the Rajasthan High Court on 17 September, in accordance with the report. In compliance with the current rules, 18% GST is levied on long-term lease transactions, and industry trackers have said that the GST paid is a mere expense because it cannot be used as an input tax credit in the event that the receiver wishes to build commercial buildings there.