Real estate companies have sought the finance ministry’s intervention after goods and services tax authorities served notices on 27 big and medium-sized developers over intra-group royalty payments for the usage of brand names in special purpose vehicles set up to implement projects.
Authorities had also sent out notices for non-payment of tax on corporate guarantees provided by flagship companies to their subsidiaries, which attracts 18% GST.
In their representations to the finance ministry, realty players said most of the developers use SPV model for each project and imposition of 18% GST will inflate project cost and dent their margins substantially, people aware of the development said. The companies that have been served notices have approached the finance ministry individually, sources said. “We have received representation from the real estate companies on the imposition of GST… We are looking into it,” a senior official told ET.
He, however, did not divulge names of the players.
The industry has contended that the SPV model helped in forging joint ventures partners for different projects.
The industry has sought clarity on some other issues as well, and the matter might be referred to the group of ministers on real estate, when the GST council meets next, the official cited above said.
The Directorate General of GST Intelligence has so far confirmed a tax liability of about ₹3,500 crore and recovered ₹1,800 crore.
Officials claimed the use of the brand name and logo of the flagship company by SPVs is a service and liable to 18% GST. “This is under the legitimate definition of service which will attract 18% tax and we detected the evasion of Rs 3,500 crore from the realty sector alone,” an official from the DGGI said.
