Chargeability of GST on Toll Contracts 

Before going into the discussion of the GST chargeability on the roads / highways we have to understand some basic facts that the how the overall model works .

In India The development of National Highways is the responsibility of the government of India . The Parliament of India has passed the act called National Highways Act, 1956 in this regard . While going through the act section 4 vests the ownership of all national highways in the Union of India . The bare act language of section 4 is

“National highways to vest in the Union.—All national highways shall vest in the Union, and for the purposes of this Act “highways” include—

(i) all lands appurtenant thereto, whether demarcated or not;

(ii) all bridges, culverts, tunnels, causeways, carriageways and other structures constructed on or across such highways; and

(iii) all fences, trees, posts and boundary, furlong and milestones of such highways or any land appurtenant to such highways.”

GST on Toll Contracts

Exemptions Under GST regarding Toll contracts :-

Exemption for payment of Toll Charges :

The entry no. 23 of Notification No. 12/2017-Central Tax (Rate) states the  “Service by way of access to a road or a bridge on payment of toll charges”. Therefore, no GST is payable on payment of toll charges.

Exemption for payment of Annuity :

The entry no. 23A of  Notification No. 12/2017-Central Tax (Rate), amended by Notification No. 32/2017-Central Tax (Rate) dated 13.10.2017 clearly speaks  “Service by way of access to a road or a bridge on payment of annuity” . Therefore, annuity amounts received by the  concessionaire from NHAI is exempt.

Area of Litigation 

1) In case of BOT (Toll Contract):In this type of the model a concession agreement is entered into between the NHAI and Private developer/ operator ( concessionaire).

The terms and conditions in concession agreement specifically provides that concessionaire has right to claim compensation in case any act done by NHAI which result in loss of revenue to concessionaire For Example:-  NHAI tenders another road or bridge nearby road or bridge which already constructed and operating toll plaza, that result in loss of revenue to one concessionaire.

Litigation :- Whether Compensation amount received from NHAI is considered as consideration by way of services provided to access road or bridge on payment of toll charges and the same is covered under the entry no. 23 of Notification No. 12/2017-Central Tax (Rate), ????

2) In case of BOT- Annuity(PPP):The concessionaire is responsible for the designing , building, financing , operating and transferring the project at the end of the concession period.The financial returns to the concessionaire through predetermined semi annual annuity payments made by then government .

Litigation :- The entry no. 23A of  Notification No. 12/2017-Central Tax (Rate), amended by Notification No. 32/2017-Central Tax (Rate) dated 13.10.2017 clearly speaks  “Service by way of access to a road or a bridge on payment of annuity”.

Whether the word “payment of annuity” is considered as payment made by govt. authority i.e NHAI or Any person ????

3) In case of hybrid model: Concessionaire responsible for Designing, Building, Financing (60% of the Project Cost),Operating and Transferring the project at end of concession period. Recovery of 60% of Project Cost through bi-annual annuity payments and Concessionaire receives Construction Support of 40% of  Project Cost in five equal investments. Toll collection to be the responsibility of the Authority 

Litigation:- Whether  Construction support of 40% receives from authority shall included in Value of Supply as per sec 15(2)(b) i.e Value of supply supplies includes Any payment incurs by recipient of the supply on behalf of supplier, it will included in value of supply.

So on 40% construction support given by govt. authority.Concessionaire is liable to pay GST ??????


(All comments shall be analyzed and Solution to above litigation will  be published in next post)

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January 2021