Annuity Paid for Building a Road Is Taxable, Not Exempt: Rajasthan High Court

The Rajasthan High Court has held that annuity instalments received for constructing a highway are taxable works contract services under heading 9954, not exempt access-to-road services, and has upheld CBIC's Circular No. 150/06/2021-GST as clarificatory.

The Rajasthan High Court at Jodhpur has dismissed writ petitions filed by a highway concessionaire, holding that annuity instalments received for constructing a road are taxable works contract services, not exempt access-to-a-road services.

The petitioner built, operated and maintained a highway under a concession agreement, paid in annual instalments rather than a lump sum. It argued that entry 23A of Notification No. 12/2017-Central Tax (Rate), which exempts "service by way of access to a road or bridge on payment of annuity", covered those receipts.

The Court disagreed. Entry 23A sits under heading 9967, which covers operation services. Because the petitioner's obligations substantially involved construction and maintenance, the supply fell under heading 9954, construction services, beyond the exemption's reach. The manner of payment does not change the character of what was supplied. The Court also upheld CBIC's Circular No. 150/06/2021-GST as merely clarifying the existing position rather than amending the exemption.

What this means for you

If you hold, or subcontract on, a hybrid annuity or similar deferred-payment road project, treat the construction leg as taxable and price for it. Spreading the consideration over years does not convert a construction service into an exempt one. The circular the Court upheld says so in terms: "Entry 23A of notification No. 12/2017-CT(R) does not exempt GST on the annuity (deferred payments) paid for construction of roads."

Read CBIC's Circular No. 150/06/2021-GST here: https://gstcouncil.gov.in/sites/default/files/2024-06/circular_refund_150.pdf

Topics:annuity gstroad construction gstworks contractentry 23anotification 12/2017circular 150/06/2021heading 9954hybrid annuity modelrajasthan high courtgst exemptionchennai gsttamil nadu contractors

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