The Kochi Zonal Unit of the Directorate General of GST Intelligence, which has authority over Kerala and Lakshadweep, has discovered 420 crores in GST evasion. It has recovered around 115 crores of tax evasion amount in FY 2021-22 across various sectors.
In the current fiscal year, the Unit discovered around 283 crores with a realization of approximately 47 crores. For egregious breaches of the GST legislation, the office has also made two arrests in FY 2021-22 and one more in the current fiscal year.
According to Giridhar G.Pai, Additional Director General, one such area is real estate. They have started search and summons procedures against 15 real estate businesses in Kerala. Investigations uncovered evasion through improper use of the input tax credit, concealment of turnover, and failure to pay landowners’ portion.
Accumulation of Input Tax Credit
Builders must pay GST on construction services performed on units/flats/apartments for which payments were received from consumers before the completion or first occupation date. There is no GST responsibility on units if payments are received after the completion or first occupation date. Builders collect input tax credits for all units and are obligated to reverse the credit related to the inputs used in units where no GST is payable. They unlawfully accrue input tax credits by failing to do so. This credit is then utilized to pay GST instead of cash.
Most builders enter into joint venture agreements with landowners, and in exchange, the landowners receive a portion of the completed flats. GST is to be paid on all units/flats/apartments in the share assigned to landowners as payments are made in the form of development rights immediately upon the project’s debut. Customers have reserved some of these apartments. According to the study, GST is only paid on units in the land owner’s portion that have been sold to end customers before the date of completion or first occupation, and those that remain unsold are incorrectly considered exempt and no GST is paid. The builder is required to pay GST on the finished product.
For residential constructions, a new lower tax rate with no input tax credit advantage was implemented on April 1, 2019. All new projects started after March 31, 2019, must pay GST in cash only. It has been discovered that some builders are utilizing input tax credits to discharge their GST due to the new decreased rates.