State GST issues 20,000 notices to developers for expense inquiries

The State GST department has recently issued approximately 20,000 notices to a variety of taxpayers across sectors, particularly focusing on real estate developers, asking for clarifications regarding their expenditures during the 2017-18 financial year. According to GST officials, this scrutiny is due to the absence of a robust system to monitor suppliers? GST compliance during that period. Specifically, residential real estate was subjected to a 12% GST rate in that year, allowing developers the option to claim Input Tax Credit (ITC). However, the lack of mechanisms to validate suppliers' GST compliance led to potential misuse, with developers resorting to obtaining fake invoices to inflate their expenses. Speaking on the condition of anonymity, a high-ranking official from the State GST department stated, We issued approximately 20,000 notices in Gujarat to taxpayers whose returns were under scrutiny as the deadline for issuing notices for the 2017-18 financial year was approaching. Many of these notices were directed at builders, spanning both the 2017-18 and 2018-19 periods, under Section 73 of the GST Act. Our investigation revealed that numerous developers had utilised counterfeit invoices from suppliers to artificially inflate their expenses. We have mechanisms in place to detect such fraudulent transactions. Developers have been given the opportunity to either justify these purchases or settle the corresponding tax liabilities. Chartered Accountant Karim Lakhani explained the context, stating, Initially, the GST rate for residential real estate was 12%, allowing developers to pass on the benefit of ITC to buyers. However, in 2019, the central government revised the GST rates to 1% for affordable housing and 5% for other residential units. During this transition, many ongoing projects were given the choice to adhere to either the old or new systems, leading to a complex tax landscape for developers.