Issue before the Court
Writ Petition was field before Karnataka High Court praying to quash and set aside the decision taken in the 43 GST Council which clarifies that annuity paid as deferred payment for construction of Roads/Highways was not exempted from GST.
Facts
A petition was filed by the concessionaires who were entrusted by Karnataka Road Development Corporation Ltd. The petitioners were paid “annuity” by Karnataka Road Development Corporation Ltd. For construction & maintenance of roads for contract period.
There was 100% exemption under GST wss granted towards toll charges by way of notification no. 12/2017 dt. 28.06.2017. Toll charges consisted of construction, operation and maintenance of the road. GST council meet held on 06.10.2017 decided to treat annuity at par with toll and exempted it from GST. Notification No. 32/2017 & 33/2017 were issued on 13.10.2017 and the service by way of access to a road or a Bridge on payment of annuity was also exempted.
Certain government authorities sought clarification from the GST Council whether the entire annuity being paid to the concessionaries was exempt from GST. Based on that a circular was issued by CBIC bearing No.150/06/2021-GST dt. 17.06.2021. In that circular it was mentioned that GST is not exempt on annuity (deferred payments) paid for construction of roads.
Petitioners Say
Annuity (deferred payments) paid for construction of roads is exempt from GST as per Notification No. 32/2017 & 33/2017 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 issuing Clarification regarding the same is contrary to the exemption notifications and are liable to be set aside.
Respondents Say
Respondents specifically contended that what is exempted is only service by way of access to a road or a bridge on payment of annuity and not Annuity (deferred payments) paid for construction of roads.
Reasons & Findings of the court
The toll charges collected by the Concessionaries for construction, maintenance, operation and providing road access to the vehicle which ply on the Road are exempted from GST by notification no. 12/2017 dt. 28.06.2017. The entire consideration For construction and maintenance of the road by Concessionaires which is collected as toll charges is exempt From GST from 01.07.2017 and onwards.
Annuity is paid to the concessionaires in lieu of toll Charges. GST Council, in its 22nd meeting held on 06.10.2017 took note of the same and as entire toll charges were being exempted from GST has decided to recommend exemption of annuity.
The court took a view that it is a settled proposition of law that a Circular which clarifies the notification cannot have the effect of overruling the notification. In the instant case, what has to be considered is whether the impugned Circular is in violation of Notification No. 32/2017 & 33/2017 or clarifies the said notifications.
Conclusion
For the above-mentioned reasons and findings the Circular was held bad in law by the Karnataka High Court. GST can be imposed on considerations paid to be concessionaires but it has to be done in a manner known to law.
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