NEW DELHI: Several property developers received show cause notices from Goods and Services Tax authorities, questioning their claims of input tax credit estimated at about ₹3,500 crore, people familiar with the matter said.
These notices follow a Supreme Court ruling in October concerning Safari Retreats that allowed commercial realty companies to claim input tax credit (ITC) on construction cost for rental buildings.
GST authorities have sought refund of ITC from the realtors, claiming it was wrongly claimed and have also in some cases, blocked the credit claim altogether. “These notices are causing a major confusion among the industry players,” a developer, who received a notice, told ET requesting anonymity. The apex court had upheld the constitutional validity of the relevant provisions while emphasising that eligibility must be determined on a case-by-case basis, subject to the “essentiality” and “functionality” tests. It said two conditions must be met to avail tax credit-the property must either be leased out or sold before construction is complete, and it must qualify as “plant or machinery”.
Authorities say credits claimed by realty companies will be deemed eligible once it is conclusively established that they meet the functionality and essentiality tests as laid out by the Supreme Court.
Many realty developers have already approached the court against such notices, alleging that tax officials are using the provision to block and deny ITC.
Tax officials say they are closely examining ITC to prevent any potential misuse. “A scientific and objective mechanism for determining eligibility must be applied uniformly to avoid the unjust denial of rightful credits,” said Abhishek A Rastogi, founder of Rastogi Chambers.
“Also in certain cases, the authorities are interpreting the benefits of the Supreme Court’s findings as being restricted solely to the petitioners in the Safari Retreats case and this approach is fundamentally flawed, as judicial precedents are binding and must be applied uniformly to similarly situated taxpayers across the industry,” he added.
Source Homevior.in
