GST or Goods and Services tax was introduced and took shape the previous financial year and stood effective from 1st July 2017. As per GST Act, all enterprises with an annual turnover of 10 lakhs and above have to compulsorily register themselves, in order to tax for the goods or services or they might face penalty in form of fine or imprisonment or both. In order to be GST compliant, many small and medium enterprises whilst trying to register themselves with GST, are facing teething troubles. Many SME vendors, particularly in the realty sector are yet to be trained and advised to claim transition provisions GST, and thereby claim input tax. All the stake holders have to upload their GST payment details, failure of which would mean that they would not get input tax credit. GST has brought about a single taxation system, abolishing all the previous cumbersome taxation process, whilst the implementation has been extremely haphazard. Why is there a lack of complete awareness and preparedness on the part of SME’s particularly the ones engaged in the realty sector? Are the business yet to cope up with increased compliances and consequent cost under GST? The large firms have created systems and have found out ways to tackle regulatory changes arising out of GST. Whilst the output is being charged at GST rates as applicable, computing input tax credit, filing GST returns, obtaining previous service tax and excise offset or credit would be a challenge. Wouldn’t this mean that there would be inflationary pressures and inefficiency in cash management and allied costs, which could impose margin and liquidity pressure? Would the Real Estate industry which was widely cash based, now issue invoices to the suppliers and buyers in order to claim input tax credit?
Virtual Reality is the latest technology to boost up for the real estate sales in India. In the realty industry, there are lots of errors and omissions that a Developer would have to go through, before finalizing the project and handing over it to the buyers, which comes with substantial cost implication. A Virtual reality portal, would eradicate, this predicament of the Developers, wherein they can virtually build the project, thereby minimizing the cost implication. It is convenient to the developers and is a highly accurate representation of what is proposed, thereby helping the developer to complete projects on time and delivering the same to the buyer, which is a win – win situation. Would virtual reality solve the problem of poor virtualization, especially in case of under constructed projects?
The SC, in its judgment, stated that the allotment of public lands to the commercial developers, for the development of their projects, is illegal. The Apex Court, advised the government officials not to allot public land to the commercial developers, without ensuring maximum public interest. The Apex court, opined that the natural resources must be disposed in a manner, where it achieves maximum benefit. When the statute provides several modes for disposal, the choice among one of the available methods must facilitate the fulfillment of public interest.
The Apex court also stated that , where natural resources are alienated for commercial exploitation, a public authority cannot allow them to be dissipated at its unbridled discretion at the cost of public interest. The aforesaid decision of the Supreme Court, came about in a case where there was a PIL filed against a private entity Ajar enterprises, wherein it was granted 43,407 square meters of land by Ujjain Development Authority. The Apex court whilst upholding its judgment, canceled the allotment of leasehold rights of M/s. Ajar Enterprises. Would the government authorities take a cue, and stop discrimination of natural resources?
With the implementation of GST, the realty sector in undergoing greater changes, which comes along with much more difficulties. A confusion still prevails in the minds of the home – buyers if the GST for the under constructed projects is at 12% or at 18%? Whilst, the buyers of ready to move in homes need not pay any GST, the buyers of under-constructed properties had to pay. Many of the Developers, due to lack of clarity also started charging GST at 18% for the projects which were nearing completion or for the projects, for which occupancy certificates had been issued along with necessary fittings such as Electricity and water connections. What is the rate of GST to be charged for under-constructed property? Experts from the GST council state that the under construction properties will be taxed at 18%. This includes 9% State GST plus 9% Centre GST. With the one- third abatement of the land cost, the effective rate will be 12% which will be shared by the Centre and state in equal proportion. Whilst, there is a clarity on the rate of tax, the GST Council, has not clarified on the input tax regime or the anti profiteering clause, which still poses a problem to both the Developer and the home buyer. How would the Government redress this? Would the GST council also come up with the definition of under – construction property, given that the properties with occupancy certificates are also being charged?
The initiation of insolvency proceedings against Jaypee Infratech by IDBI and the appointment of an Insolvency Professional, is a matter, which brought the Nation’s attention towards the dubious developers, who apart from obtaining huge loans from bank and not repaying them, have also not delivered constructed homes fit for occupation to the home-buyers, who have paid huge advance money, years before, and were eagerly awaiting the delivery of their finished homes. It came as a huge shock, when the insolvency petition was admitted as against the Developers, which left the eager homebuyers disappointed. Whilst, the government had announced that the home – buyers would be treated at par with the creditors and that their interests would be the priority, the home – buyers who have invested as much as 16000 crores in the huge project have now sought for a separate escrow account, in any of the resolutions passed by the government with regard to ‘safeguarding their interests’. The project was pending completion for the last 7 to 8 years, despite the buyers having deposited 80% to 90% of the amount. The RERA act mandates that the Developer maintain a separate Escrow Account, where the Developer, would deposit 70% of the advance amount received from the home buyers. Is the demand for separate escrow account by the Noida home buyers legitimate? Would the Government implement the same? Would the Insolvency Professional appointed, consider the same? Would the provision of a separate escrow account protect the interests of the homebuyers?
The Ministry of Housing and Urban Affairs has in meeting stated that it was open to remove ambiguities in the RERA rules and regulations, without diluting the essence of it. Many of the provisions of RERA, are still not clear, which includes the definition of carpet area, enforcement of liability of workmanship and structural deficiencies, applicability of promoter in cooperative housing societies and the role of regulators in enforcing penalties. The ministry directed the officials concerned to examine the veracity of the difficulties and the possibility of addressing the same under the clause of removing difficulties. Would the Center chalk out implementations to remove ambiguities without diluting the core facilities aimed to protect the home buyers?
The Real Estate Portals are currently facing turmoil over registration as per the RERA norms. The uncertainty surrounding this issue, seems not to be ending. Many of them are confused over whether they would qualify as real estate ‘agent’ or a ‘middleman’. Whilst the lawyers, on interpretation of the RERA Act, opine that the Real estate portal must register themselves, the real estate portals aver and assert that they do not fall under the category of an ‘agent’. Whilst the Real Estate Authorities opine that one has to look at the very nature of the real estate portals, before arriving at any conclusion. Magic Bricks, a leading online portal avers that it need not register itself, since it is a classifieds portal, or an advertising platform, for landlord, broker and builders and falls under the category of ‘intermediary’ under the IT Act. Isn’t any portal, that is soliciting information to various potential buyers, register itself as per RERA? Can the State RERA penalise the portals soliciting information, if they have not registered themselves. What would be the outcome of this? Would the Central RERA and Ministry of Housing and Urban Development, issue a clarification statement, with regard to this, in order to remove ambiguities and difficulties?
The Mumbai and its citizens are grappling hard with the aftermath of the rain showers, that had the whole city drowned due to floods. Whilst, the city is coping with the same, and the government authorities are rising to the occasion, one would still wonder what is the reason towards the same? Is it the poor civic management by the state or is it rather a problem that is much deeper than it appears to be? The answer is that the natural drainage system, which has collected excessive rain water, is at its receiving end, due to the ever rising demand of building concrete structures. The local civic body of Mumbai, i.e. the Brihanmumbai Municipal Corporation’s storm water drainage project has also crippled the cause of nurturing wetlands in the city, by building concrete walls on both the sides of the natural creek, apart from their inaction in cleaning up the wetlands and rivers, which are highly polluted due to dumping of plastic substances and garbages. This inturn does not allow the water to be absorbed, apart from negatively affecting the growth of mangroves areas, which is one of the natural means of protection from floods. The creation of more square foot of space in the city, has also led to the diminishing wet lands. Most of these, wetlands are treated like landfills where solid waste is dumped regularly and later used as reclamation land for more construction. How would the government redress this issue? Would they learn their lessons and stop unauthorized constructions in the futre?
The RERA Act, which was introduced in the previous financial year, and stood effective from May 1st 2017, has given a sleepless night to many developers and other associated with the realty sector. As many as 21 Petitions have been filed in the various High Courts of the respective State Government, challenging the validity of the RERA Act. The Central Government has now moved a Petition before the Supreme Court, seeking its intervention, in transferring all the petitions pending in various high courts to the Delhi High Court. Would the Supreme Court agree to Central Government’s plea? What would be the outcome of these petitions? Would RERA regulations in those respective state governments, where the whole Act is challenged hamper the realty sector? What would be the consequence of this?
Anti profiteering clause, was introduced through section 171 of the GST Act, wherein it is mandatory to pass on the benefit due to reduction in rate of tax or from Input Tax credit to the customer and commensurate the same by reducing the prices. But, how does this work on the Real Estate sector, which is currently facing difficulties, due to haphazard implementation of RERA and GST. A person, who had invested in an under-constructed property, as early as 2014, and who has been regularly paying VAT and Service Tax, has to now pay GST. However, certain developers charge GST at 18% while others at 12%, and a few others also charge GST for the properties, for which Occupancy Certificates are issued. The main feature of the GST, is the seamless flow of the input tax credit, which has to be passed on at each stage by the goods manufacturer, wholesaler or retailer or a service provider. With the rate of GST, itself, being a confusion, which the GST council has still not clarified, here comes another issue, in the form of anti – profiteering clause. The anti – profiteering clause, which was designed and launched as a part of GST, is yet to take a shape. No modalities have been worked out by the government on this regard or how the clause would shape up. Despite huge promises on levy of penalty on contravention of the anti profiteering clause, by the government, it appears ambiguous as to how the government would deal with the same. Wouldn’t this non – clarity affect the realty sector? Would the Corporate Companies, prefer to deal with unregistered vendors, given that there is the operation of the reverse charge mechanism? Wouldn’t complying with the anti – profiteering clause, be a major road block for the developers, given that the cost structure would change over a period of time? How are the Developers and realty sector, going to deal with the gaps between the rendering of services, billing certification, invoicing, measurement, payments , retention money and liquidated damages, owing to the haphazard implementation of GST?