Facts of the Case:

The petitioner, a highway concessionaire, challenged the validity and applicability of CBIC Circular No. 150/06/2021-GST dated 17.06.2021, which clarified that the GST exemption under Entry 23A of Notification No. 12/2017-Central Tax (Rate), relating to “service by way of access to a road or a bridge on payment of annuity”, does not extend to annuity payments received for construction of roads. The petitioner contended that the statutory notification granted a Nil rate of GST and that the Circular could not override or dilute such exemption. Reliance was also placed on an Advance Ruling dated 12.02.2019, which had earlier held the relevant annuity receipts to be exempt. The petitioner also challenged the consequential recovery order dated 07.07.2023.

The petitioner’s concession agreement with NHAI contemplated construction, operation and maintenance of the highway, with 50% of the project cost payable during construction and the remaining 50% payable through biannual annuity payments over ten years, along with interest. The petitioner argued that such annuity payments fell within Entry 23A of Notification No. 12/2017 and that the subsequent Circular could not retrospectively impose GST.

The Revenue, on the other hand, submitted that Heading 9954 specifically covers construction services relating to roads, highways, bridges, etc., whereas Heading 9967, covered by Entry 23A, concerns supporting/transport services such as access to roads or bridges on payment of annuity. According to the Revenue, the Circular merely clarified the correct legal position and did not amend the exemption notification. It was further contended that the earlier Advance Ruling could not operate contrary to the statutory provisions where the underlying interpretation was erroneous.

Issue:

Whether annuity payments received by a highway concessionaire under a concession agreement for construction, development, operation and maintenance of roads are exempt from GST under Entry 23A of Notification No. 12/2017-Central Tax (Rate), and whether CBIC Circular No. 150/06/2021-GST could validly clarify that such payments are taxable?

Held That:

The Rajasthan High Court dismissed the batch of writ petitions and upheld the levy of GST on annuity payments received by the petitioner under the highway concession agreements. The Court held that the exemption under Entry 23A of Notification No. 12/2017-Central Tax (Rate) is confined to services falling under Heading 9967, namely, services by way of access to a road or bridge on payment of annuity. It does not extend to consideration received for construction, development, design, operation and maintenance of roads, which constitutes a works contract service falling under Heading 9954.

The Court examined the terms of the concession agreement and found that the petitioner was not merely providing access to a completed road. Its contractual obligations substantially involved construction and maintenance of the highway, while the consideration for such work was structured partly as payments during the construction period and partly as deferred biannual annuity payments after commencement of operations. Under the agreement, 50% of the project cost was payable during construction and the remaining 50% was payable over ten years through annuity instalments, along with interest. Thus, the nomenclature “annuity” could not change the substance and classification of the underlying supply. The annuity payments were, in substance, deferred consideration for the taxable works contract services.

In reaching this conclusion, the Court relied heavily upon its earlier Division Bench judgment in CG Tollway Ltd. v. Union of India, wherein it had held that construction of roads falls under Heading 9954 and is distinct from services relating to access to roads or bridges under Heading 9967. The Court found the distinction between the BOT arrangement considered in CG Tollway and the present concession agreement to be immaterial for classification purposes. Although the petitioner in the present case had invested approximately 50% of the project cost and recovered the balance from NHAI through annuity payments, the essential character of the transaction remained construction-related works contract service.

The Court also upheld CBIC Circular No. 150/06/2021-GST dated 17.06.2021. It rejected the petitioner’s argument that the Circular impermissibly amended or diluted the statutory exemption. According to the Court, the Circular merely clarified the distinction between Heading 9967 and Heading 9954 and was issued by the Board in exercise of its powers under Section 168 of the CGST Act to ensure uniform implementation of the law. The Circular therefore did not create a new tax liability but clarified that the existing exemption under Entry 23A could not be extended to construction services merely because the consideration was paid through deferred annuities.

The Court further rejected the petitioner’s reliance on the Advance Ruling dated 12.02.2019, which had earlier treated the relevant annuity receipts as exempt. It held that an erroneous interpretation adopted by departmental authorities in an earlier Advance Ruling could not prevail over the statutory notification and the true nature of the services. The Revenue was not required to perpetuate an erroneous interpretation merely because an earlier ruling had adopted it. The Court observed that Section 168 empowers the Board to issue appropriate instructions where necessary to ensure proper implementation of the statutory provisions, particularly where an earlier interpretation had resulted in an incorrect understanding of the law.

The Court also reasoned that if the legislature intended to exempt works contract services relating to construction of roads, the exemption notification would have expressly provided for such exemption. Since Entry 23A specifically refers to services under Heading 9967 and does not cover construction services under Heading 9954, the petitioner could not claim exemption merely by characterising the deferred consideration as “annuity”. The Court therefore held that the taxability has to be determined by reference to the statutory exemption and the actual nature of the services rendered under the contract, rather than the terminology used for the payment mechanism.

Accordingly, the Court found no merit in the challenge to Circular No. 150/06/2021-GST or to the consequential levy of GST on the annuity payments. The reliance on the earlier Advance Ruling was also held insufficient to alter the taxability of the transaction. The entire batch of writ petitions was consequently dismissed, and the consequential challenges to the GST levy and recovery were rejected.

Case Name: M/s Nagaur Mukundgarh Highways Pvt. Ltd., vs. Central Board Of Indirect Taxes And Customs, Through Chairman, Government Of India, Ministry Of Finance, Department Of Revenue, North Block, New Delhi. dated 17.08.2026

Citation No. 2026 Taxo.online 2487