The Rajasthan High Court (Jodhpur Bench) has held that deferred annuity payments under DBFOT concession agreements constitute taxable works contract services falling under Heading 9954, and that CBIC Circular dated 17 June 2021 is a valid clarification under Section 168 of the CGST Act. The High Court asserted that where a concessionaire undertakes construction, design and maintenance of a road under a DBFOT agreement and receives the project cost partly upfront and partly through deferred biannual annuity payments, the underlying service is a taxable works contract falling under Heading 9954 and not an exempt transport service under Heading 9967.
A circular issued by the Board under Section 168 of the CGST Act clarifying this position is a valid administrative instrument and does not amount to an amendment of the exemption notification, added the Court.
The Division Bench comprising Justice Pushpendra Singh Bhati and Justice Praveer Bhatnagar observed that construction services under DBFOT concession agreements do not qualify for the Nil rate exemption under Entry 23A of Notification No. 12/2017, even where the consideration is received through deferred biannual annuity payments spread over the operation period. Entry 23A of the said Notification applies exclusively to services falling under Heading 9967 covering supporting services in transport, and cannot be stretched to cover construction of roads which squarely falls under Heading 9954.
The Court clarified that the CBIC Circular dated 17 June 2021 is a valid administrative instrument issued in exercise of power under Section 168 of the CGST Act, and its purpose is to clarify the correct legal position and correct misinterpretations by field authorities, not to amend the parent notification.
The Court said that an advance ruling favourable to the assessee does not create a permanent bar against the Revenue, since Section 103(2) of the CGST Act contemplates that the binding effect of an advance ruling ceases upon a change in law, facts or circumstances, and the issuance of a clarifying circular constitutes such a change.
Exemption notifications are to be interpreted in favour of the revenue in cases of ambiguity, and where the contractual arrangement involves reciprocal obligations of construction, design and maintenance in exchange for annuity payments, the transaction squarely falls within the statutory framework of supply and consideration, cautioned the Court.
Briefly, the petitioner, M/s Nagaur Mukundgarh Highways Pvt Ltd., is a private company that entered into a concession agreement with the National Highways Authority of India (NHAI) for the design, build, operate and transfer of a road project, under which approximately 50% of the project cost was funded by the petitioner and the remaining 50% was payable by NHAI through biannual annuity payments over a 10-year operation period.
The petitioner challenged the validity of Circular No. 150/6/2021 dated 17.06.2021 issued by the Central Board of Indirect Taxes and Customs (CBIC), which clarified that Entry 23A of Notification No. 12/2017-Central Tax (Rate) does not exempt GST on annuity payments made for construction of road services falling under Heading 9954. The petitioner also challenged the show cause notice dated 09.12.2022 and the consequential recovery order dated 07.07.2023, contending that its services were exempt under Entry 23A of the said Notification, which covers “service by way of access to a road or a bridge on payment of annuity” under Heading 9967 with a Nil tax rate.
