BMC’s Rs 450cr credit notes under lens as no GST paid

In recent headlines, the Brihanmumbai Municipal Corporation (BMC) has found itself in the eye of a storm surrounding its credit note policy, which involves a staggering Rs 450 crore. The focus of this controversy lies in the alleged failure to pay Goods and Services Tax (GST) on these credit notes, prompting investigations by Central GST authorities.

 

Table Section
1. Introduction
2. Background of the Credit Note Policy
3. Allegations of GST Non-Payment
4.  BMC's Response and Clarifications
5. Controversies Surrounding the Credit Note Policy
6. FAQs
7. Conclusion

 

Background of the Credit Note Policy: 

During the pandemic, the BMC introduced a credit note policy as a strategic financial move to facilitate the construction of 35,000 tenements for project-affected persons (PAP). This initiative aimed to address housing needs without depleting the BMC's fixed deposits. Under this policy, developers were entrusted with purchasing land, constructing houses, and delivering them to the BMC. In return, developers received credit notes along with the transfer of development rights. These credit notes, being negotiable instruments, were subsequently sold to various entities, including prominent city developers.

 

 

 

Allegations of GST Non-Payment:

Central GST sources have raised concerns, revealing that GST was allegedly not paid on these significant commercial transactions involving credit notes. Transactions of this magnitude typically attract GST at rates of up to 18%. The lack of GST payment on transactions amounting to Rs 450 crore has triggered investigations by GST authorities, seeking to unravel the intricacies of the financial dealings.

 

BMC's Response and Clarifications:

In response to the allegations, a BMC official claimed ignorance of the GST issue, placing the responsibility on the builders engaged in the transactions. The BMC defended its credit note policy, highlighting its role in expediting the construction of houses for PAP, thereby contributing to the clearance of hurdles for crucial infrastructure projects. The official also mentioned a departmental issue that led to the decision for the finance department to issue digital credit notes.

 

Controversies Surrounding the Credit Note Policy: 

From its inception, the credit note policy has been mired in internal and legal controversies. An internal BMC note disclosed discussions about the printing of credit notes in the Government of India Press to circumvent potential legal issues, a suggestion ultimately rejected by the BMC. Legal hurdles arose as the policy lacked provisions in the Maharashtra Regional and Town Planning Act. Despite objections, the state urban development department allowed the policy, citing a precedent set by the Mumbai Metropolitan Region Development Authority (MMRDA) for settling PAP.

 

 

Conclusion: 

As the investigation unfolds, the controversy surrounding BMC's credit note policy and the alleged non-payment of GST underscores the need for transparency in financial transactions. This incident prompts a thorough review of credit note policies, especially in the context of public infrastructure projects. The outcomes of the investigation are poised to influence financial practices within municipal corporations and their collaborations with private entities in similar ventures. Stay tuned for further developments as this story continues to evolve.