Case Law Details
GMR Pochanpalli Expreessways Limited Vs Additional Director (Supreme Court of India)
The dispute arose from a GST show cause notice issued to a concessionaire engaged in a Build-Operate-Transfer (BOT) annuity highway project. The notice sought GST, interest, and penalty on annuity amounts received between September 2017 and September 2022. The petitioner challenged both the show cause notice and Circular No. 150/06/2021-GST dated 17.06.2021, contending that annuity payments received under the BOT model were exempt from GST under Entry 23A of Notification No. 12/2017 and that the circular was contrary to GST exemption notifications and GST Council recommendations.
Read Telangana HC Judgment in this case: GST Show Cause Notice Upheld as Taxability of Annuity Requires Factual Determination
The petitioner argued that the highway project had been completed in 2009, prior to the introduction of GST, and that the annuity payments were linked to providing access to the road, similar to toll collections. According to the petitioner, the 22nd GST Council had recommended treating annuity payments on par with tolls, leading to the insertion of Entries 23A and 24A exempting services by way of access to a road or bridge on payment of annuity. The petitioner also relied on a Karnataka High Court decision that had quashed the impugned circular.
The Department contended that the exemption under Entry 23A applies only to services falling under SAC 9967 relating to access to roads or bridges, whereas the petitioner’s activities were classifiable under SAC 9954 relating to construction services. It argued that annuity payments for construction services remained taxable even when paid in deferred instalments and that the challenge to a mere show cause notice was premature.
The Telangana High Court examined the GST notifications, GST Council recommendations, and the impugned circular. It noted that Entries 23 and 23A exempt services by way of access to roads or bridges under SAC 9967 when consideration is received as tolls or annuities. However, the Court held that construction services covered under SAC 9954 are not exempt merely because consideration is paid through annuities. It found that the 43rd GST Council’s clarification and the circular merely explained that deferred annuity payments for construction services remain taxable and did not conflict with the exemption notifications.
The High Court further observed that the concession agreement did not expressly establish that the annuity payments were substitutes for toll collections. It held that the core issue—whether the petitioner’s services fell under exempt SAC 9967 or taxable SAC 9954—involved disputed questions of fact requiring adjudication by the tax authorities. The Court therefore declined to interfere at the stage of the show cause notice. Relying on settled principles governing judicial review of show cause notices, it held that writ jurisdiction should ordinarily not be exercised unless the notice is wholly without jurisdiction or suffers from exceptional legal defects. Since no such ground was established, the writ petition was dismissed while permitting the petitioner to submit its reply before the adjudicating authority.
The matter reached the Supreme Court through a Special Leave Petition. The Supreme Court noted that there were conflicting opinions among High Courts on the merits of the controversy, a fact also recorded in the Telangana High Court judgment. However, the Court expressly declined to examine the merits of the GST exemption issue. Instead, it held that the writ petition itself ought not to have been entertained because the dispute arose from a show cause notice and required adjudication by the competent authority.
While dismissing the Special Leave Petition, the Supreme Court clarified that the observations made by the Telangana High Court on the merits of the GST exemption issue would not be treated as final or binding findings. The Court kept all questions open and specifically stated that all issues and contentions, including those relating to the validity and applicability of the impugned circular, may be raised during the adjudication proceedings arising from the show cause notice. Accordingly, the Special Leave Petition was dismissed, leaving the substantive GST issues to be decided in the adjudication process.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
It is pointed out that there are conflicting opinions by the High Courts on the ratio on merits, as noticed in the impugned judgment itself.
However, we are not inclined to go into the said aspect, as we feel that the in present case, the writ petition should not have been entertained. In fact, the impugned judgment itself, in the later portion, records the said finding.
In view of the above, we are not inclined to entertain the present special leave petition. However, we make it clear that the observations made in the impugned judgment on merits will not be treated as final or binding findings.
All issues and contentions, including those pertaining to the circular, may be raised during the course of the adjudication proceedings pursuant to the impugned show-cause notice.
Recording the aforesaid, the special leave petition is dismissed.
Pending application(s), if any, shall stand disposed of.
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