Analysis of Circular No.150/06/2021-GST, dated 17th June, 2021 related to GST on annuities paid for construction of road
It is to be stated that the above circular is issued on account of certain representations for a clarification regarding applicability of GST on the activity of construction of road where considerations are received in deferred payment (annuity) and the said issue has been examined by the GST Council in its 43rd meeting held on 28th May, 2021
The CBIC vide Circular No.150/06/2021-GST, dated 17th June, 2021 clarified that Entry 23A of Notification No. 12/2017- Central Tax (Rate), dated 28th June, 2017 does not exempt GST on the annuity (deferred payments) paid for construction of roads.
That the entry 23A with Heading 9967 of Notification No. 12/2017- Central Tax (Rate), dated 28th June, 2017 is reproduced below for your kid reference-
Service by way of access to a road or a bridge on payment of toll charges
The above-said entry implies that the GST is exempt on service, falling under heading 9967 (service code), by way of access to a road or a bridge on payment of annuity.
It is to be stated that the Heading 9967 covers “supporting services in transport” under which code 996742 covers “operation services of National Highways, State Highways, Expressways, Roads & streets; bridges and tunnel operation services.
Whereas the services by way of construction of road fall under the heading 9954 which inter alia covers general construction services of highways, streets, roads railways, airfield runways, bridges and tunnels.
That the consideration for construction of road service may be paid partially upfront and partially in deferred annual payments (and may be called annuities) and the entry 23A, as stated above, specifically covers heading 9967 only and thereby, does not apply to services falling under heading 9954
So, on the basis of above, it is clarified by the circular that Entry 23A does not cover construction of road services (falling under heading 9954), even if deferred payment is made by way of instalments (annuities). Hence, there is no exemption on the annuity (deferred payments) paid for construction of roads.
Also, in view of aforesaid, since, the above-said circular is clarificatory in nature, it will have retrospective effect.
The said circular also brings one question- Whether the interest liability will arise on non-payment of GST liability on the annuity payments (road construction) which were received before this clarification?
In response to the same, it is to be stated that the levy of said interest liability will be the debatable point.
However, as per Section 50 of CGST Act, 2017, read with clarification of applicability of GST on same (Circular No.150/06/2021-GST, dated 17th June, 2021), the department may raise demand for the interest liability on the said annuity payments received by the entity from the due date of the period in which the invoice was issued for the total amount of project (i.e. at the time of completion of project)
However, this can be challenged before court on the grounds that the due payment of GST liability is made only after the required clarification vide Circular No.150/06/2021-GST, dated 17th June, 2021 and as there was no such clarity at the time of completion of project, the company was under bonafide belief that the said annuity payments were exempt from the payment of GST liability.
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