Time of supply for service supplied under HAM Contract would be the date of issuance of invoice or receipt of payment of annuity whichever is earlier: Madras High Court
The Hon’ble Madras High Court in the case of KNR Srirangam Infra (P) Ltd. v. Sales Tax Officer, Trichy [W.P.(MD) No. 14745 of 2023 dated July 24, 2024] set aside the Impugned Assessment Order and remitted back the matter for reconsideration in light of the observations made in the Circular No. 221/15/2024-GST dated June 26, 2024 (“the Circular”) and held that the liability to pay tax would arise when invoice has been received or payment would be received under Hybrid Annuity Model (“HAM”) contract wherein the payment is received in installments for part compensation.
Facts:
KNR Srirangam Infra (P) Ltd. (“the Petitioner”) is providing services to the National Highway Authority of India (“the NHAI”) for which the consideration is received by the Petitioner from NHAI in two parts i.e. forty percent of the consideration is received during the execution of the work and remaining sixty percent of the consideration is received annually over the next fourteen years.
The Revenue Department (“the Respondent”) passed the Impugned Assessment Orders contending that as the work has been substantially completed the Petitioner was liable to pay the tax on entire value of the work.
The Petitioner placed reliance upon the Circular subsequent to the recommendation of 53rd GST Council Meeting wherein the issue relates to the time of supply for the purpose of payment of tax for service under the HAM Contract was taken into consideration. Thereafter, the Petitioner contended that HAM of NHAI, the concessionaire/Petitioner has to construct the new road and provide operation and maintenance service which is spread over the period of 15-17 years and the payment of same is spread over the years.
Further, it is submitted that the aforesaid issue has been clarified in para 3 of the Circular, and therefore, the case be remitted back to the Respondent for reexamination of the said issue raised. The said para has been reproduced as hereunder:
“3. In the light of above, it is clarified that the tax liability on the concessionaire under the HAM contract, including on the construction portion, would arise at the time of issuance of invoice, or receipt of payments, whichever is earlier, if the invoice is issued on or before the specified date or the date of completion of the event specified in the contract, as applicable. If invoices are not issued on or before the specified date or the date of completion of the event specified in the contract, tax liability would arise on the date of provision of the said service (i.e., the due date of payment as per the contract), or the date of receipt of the payment, whichever is earlier.”
Issue:
Whether time of supply for service supplied under HAM Contract would be the date of issuance of invoice or receipt of payment of annuity or the date on which substantial provision for service was created?
Held:
The Hon’ble Madras High Court in the case of W.P. (MD) No. 14745 of 2023 held as under
- Opined that, the Petitioner is not liable to pay tax as no invoice is raised by the Petitioner on the NHAI as the Petitioner liability would arise when invoice is raised for the payment of amount in 30 annuities or when the amount of annuity is received, the Petitioner would be liable to pay tax.
- Further opined that, the Petitioner is entitled to ITC even when the Petitioner has sub-contracted the work and completed the work in advance for receiving the payment in the form of annuity over a period of time. Also, it would be incorrect to say that the Petitioner is liable to pay tax when neither invoice nor payment has been received.
- Held that, the Impugned Order is set aside and matter is remitted back for reconsideration in light of the observations made in the Circular.
Our Comments:
The Hon’ble Andhra Pradesh High Court in the pari materia case of M/s. Apco Arasavalli Expressway Private Limited v. Assistant Commissioner (ST) [Writ Petition No. 17225 of 2023 dated September 11, 2024] wherein the matter was remitted back for reconsideration taking into consideration the clarification provided on the aforesaid issue.
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