DPJ Bidar – Chincholi (Annuity) Road Project Private Limited Vs Union of India (Karnataka High Court)
Held that circular no. 150/06/2021-GST dated 17.06.2021 clarifying that GST exemption is not available to annuity (deferred payments) received by the concessionaries towards construction of roads is contrary to notification no. 32/2017 and notification no. 33/2017 dated 13.10.2017.
Facts-
The case of the petitioners is that the annuity (deferred payments) paid for construction of roads is exempt from GST as per notification nos. 32 and 33/2017 dated 13.10.2017 and the clarification issued by the GST Council in this regard in its meeting held on 28.05.2021 and the subsequent Circular dated 17.06.2021 (wherein it was clarified that entry 23A doesn’t exempt GST on the annuity paid for constructions of roads) issuing clarification regarding the same is contrary to the exemption notifications and are liable to be set aside.
Conclusion-
As stated above, the deliberation of GST Council in its meeting held on 06.10.2017 and the notifications issued pursuant thereto clearly exempts the entire annuity being paid to the petitioners towards construction and maintenance of roads. It cannot be construed to have not exempted the annuity (deferred payments) towards construction of roads. The impugned circular has the effect of overriding the notification bearing nos. 32 and 33/2017 dated 13.10.2017 and has to be held as bad in law. Nothing prevents respondent no.1 from imposing GST on the consideration paid to concessionaires like the petitioners on the payment received by them by way of annuity but that has to be done in the manner known to law. In the instant case, respondent no.1 has issued the notifications under Section 11 of the Central Goods and Services Tax Act, 2017 and Section 6 of the Integrated Goods and Services Tax Act, 2017 exempting the consideration received by concessionaires from highway authorities as annuity from GST. The clarification issued is contrary to the said notifications for the reasons recorded above. If respondent no.1 is desirous of altering the same, it has to issue fresh notifications amending its earlier notifications.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
Petitioners in both the writ petitions are concessionaires who have been entrusted with construction of road by respondent no.7-Karnataka Road Development Corporation Limited. As a consideration for construction and maintenance of the roads for the contract period, the petitioners are paid certain amounts termed as ‘annuity’ by respondent no.7. In certain contracts where construction and maintenance of the roads has been out sourced to private persons consideration is paid by permitting the concessionaires/contractors to collect tolls from the vehicles plying on the road.
2. 100% exemption under Goods and Services Tax (for short ‘GST’) was granted towards collection of toll charges by way of notification No.12/2017 dated 28.06.2017 issued by respondent no.1. The toll charges as already stated above consisted of the entire consideration towards construction, operation and maintenance of the road. In other words, it consisted of the charges collected towards construction as well as services provided by the concessionaires. Subsequently, it was proposed that annuity, which was being paid by the highway authorities as a consideration to the concessionaires instead of permitting them to collect toll charges be also exempted from GST. In this regard, the minutes of 22nd GST Council meeting held on 06.10.2017 reads as under:
“Agenda item 13(iv): Issue of Annuity being given in Place of Toll Charges to Developers of Public Infrastructure – exemption thereon
61. Introducing this Agenda item, the Joint Secretary (TRU-II), CBEC stated that while toll is a payment made by the users of road to concessionaires for usage of roads, annuity is an amount paid by the National Highways Authority of India (NHAI) to concessionaires for construction of roads in order that the concessionaire did not charge toll for access to a road or a bridge. In other words, annuity is a consideration for the service provided by concessionaires to NHAI. He stated that construction of roads was now subject to tax at the rate of 12% and due to this, there was free flow of input tax credit from EPC (Engineering, Procurement and Construction) contractor to the concessionaires and thereafter to NHAI. He stated that as a result, tax at the rate of 12% leviable on the service of road construction provided by concessionaire to NHAI would be paid partly from the input tax credit available with them. He stated that the Council may take a view for grant of exemption to annuity paid by HAI/State Highways Construction Authority to concessionaires during construction of roads. He added that access to a road or bridge on payment of toll was already exempt from tax. The Hon’ble Minister from Haryana suggested to also cover under this provision annuity paid by State-owned Corporations. After discussion, the Council decided to treat annuity at par with toll and to exempt from tax, service by way of access to a road or bridge on payment of annuity.”
3. In this regard, two notifications viz., notification no. 32/2017 and notification no. 33/2017 were issued on 13.10.20 17 and the service by way of access to a road or a bridge on payment of annuity was also exempted. The relevant portions of the notifications read as under:
(d) after serial number 23 and the entries relating thereto, the following serial number and entries shall be inserted namely:-
