MUMBAI: The BMC’s controversial credit note policy, where payments to builders were made through credit notes worth Rs 450 crore for construction of 35,000 project-affected persons’ (PAP) tenements, is under the scanner for non-payment of GST.
Central GST sources said the BMC issued credit notes to builders. The builders sold these to others, including prominent city developers, who used them to settle their civic dues. Officials said they learnt that no GST was paid on these transactions. “They were commercial transactions involving negotiable instruments (credit note), which attract GST of up to 18%. They are being investigated,” said a GST source.
A BMC officer said he wasn’t aware of the GST issue, and that the onus of making such payments was on the builders. “There was some departmental issue, after which it was decided that the finance department will issue the credit note in digital form. The PAP scheme is good for the city, where we are constructing houses to settle people close to their areas, which help us clear the hurdles created by their structures for infrastructure projects.”
Unwilling to break its fixed deposits to pay for the PAP projects, the BMC had introduced the credit note policy during the pandemic. It asked developers to purchase land, build houses and hand them over to it. In lieu of the payments, the BMC issued credit notes to the developers along with the transfer of development rights. The developers could sell these credit notes to other builders to recover their expenses for a profit. The credit notes could be used only to settle the BMC’s tax and FSI premium payments. But, no construction was initiated after the credit notes were issued.
The policy was controversial from the get-go. An internal BMC note shows that the chief accountant (finance) had said that credit notes be printed in Government of India Press to avoid legal issues. The BMC, while rejecting the CA’s objection, said, “The condition of printing the credit notes from Indian Security Press, Government of India, was neither included in the basic e-tender nor included during the scrutiny by CA (finance) at the time of obtaining approval of the improvement committee/corporation.” Later, the BMC decided to digitise the credit notes.
There was a legal hurdle, too, as there was no provision for such a policy in Maharashtra Regional and Town Planning Act. But, the state urban development department allowed it, citing MMRDA’s precedent to settle PAP.
