The Hon’ble High Court of Karnataka vide its order dated 11th July 2022 in the matter of M/s DPJ Bidar – Chincholi (Annuity) Road Project private limited & Another Vs. Union of India & Others in Writ Petition No. 22250 of 2021 C/W & Writ Petition No. 7233 of 2022 (T-Res), set aside the Circular dated 17.06.2021 making annuity paid to the concessionaries with respect to construction of roads taxable. It was held that the said circular being contradictory to the exemption notifications No. 32/2017 & 33/2017 dated 13.10.2017 is not sustainable.
The Petitioners filed the present Writ petitions praying to quash the decision taken in the 43rd GST Council Meeting held on 28.05.2021 vide para 15.33 of the minutes of the meeting in so far as it clarifies that the annuity paid as deferred payment for construction of roads/highways was not exempted from GST as the tolls and annuity in lieu of tolls are. Further, challenge was made to Recommendation No. 6 which states that clarification may be issued that entry 23A of the Notification 12/2017 – CT(R) exempts services by way of providing access to Road or Bridge on payment of Annuity, however it does not exempt annuity paid for construction of roads and also to declare that the Council has acted beyond its Authority.
Facts: –
- That the petitioners in both the writ petitioners are concessionaries who have been granted construction of roads by Karnataka Road Development Corporation, and in consideration for the construction & maintenance of roads, the petitioners received annuity from K.R.D.C. However, in certain contracts where the construction & maintenance work has been outsourced to private persons, the concessionaries were allowed to collect the tolls from the vehicles plying on the roads.
- That notification 12/2017-CT Rate dated 28.06.2017 provides for 100% exemption towards collection of toll charges. Further the toll charges are already included in the entire consideration towards construction, operation and maintenance of the road.
- Subsequently in the 22nd GST council meeting held on 06.10.2017, it was proposed that the annuity paid to concessionaries as consideration instead of allowing them to collect toll charges, be also exempted from GST. That after the discussions in the meeting, the Council decided to treat annuity at par with toll and to exempt from tax, service by way of access to a road or bridge on payment of annuity.
- That based on above two notifications 32 & 33/2017-CT (Rate) both dated 13.10.2017, were issued giving exemption to the annuity paid in case of Service by way of access to a road or a bridge. The exemption was inserted at serial number 23A of notification 32/2017- CT(Rate) and at serial number 24A of 33/3017 notification.
- That in view of the above notification the concessionaries like the petitioners got exemption with respect to annuity paid by the highway authorities towards construction and maintenance of roads.
- Thereafter, a clarification was sought by certain government authorities from GST Council that the entire annuity paid to the Concessionaries was exempt from GST or not. That in GST Council in 43rd GST Council meeting held on 28.05.2021 discussing about annuity paid under the Hybrid Annuity Model Project, recommended that clarification may be issued that ‘entry 23A of notification No.12/2017-CT(R) exempts services by way of providing access to road or bridge on payment of annuity. It does not exempt annuity paid for construction of roads.’
- That based on the above, a Circular No.150/06/2021-GST dated 17.06.2021 was issued by respondent authorities clarifying that entry 23 and 23A exempt ‘service by way of access to a road or a bridge on payment of toll’ falls under code ‘9967’. However, services by way of construction of roads fall under code ‘9954’ and is not covered by entry 23A of notification 12/2017 – CT (R), even if deferred payment is made by way of instalments (annuities).
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