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July 29, 2022

GST is exempt on annuity received by concessionaires towards road construction

by CA Shivam Jaiswal in GST

GST is exempt on annuity received by concessionaires towards road construction

Facts and Issues of the case

Petitioners in both the writ petitions are concessionaires who have been entrusted with construction of road by Karnataka Road Development Corporation Limited. As a consideration for construction and maintenance of the roads for the contract period, the petitioners are paid certain amounts termed as ‘annuity’ by Karnataka Road Development Corporation Limited. 100% exemption under Goods and Services Tax (for short ‘GST’) was granted towards collection of toll charges. The toll charges as already stated above consisted of the entire consideration towards construction, operation and maintenance of the road.

Observations by the Court

The case of the petitioners is that the annuity (deferred payments) paid for construction of roads is exempt from GST and the clarification issued by the GST Council. Admittedly, the toll charges collected by the concessionaries for construction, maintenance, operation and providing road access to the vehicle which ply on the road are exempted from GST

Annuity is paid to the concessionaires in lieu of toll charges. GST Council, took note of the same and as entire toll charges were being exempted from GST has decided to recommend exemption of annuity also, which include the consideration received by concessionaires service by way of access to a road or a bridge on payment of annuity has been exempted from GST and no GST was being collected on the entire annuity being paid to the concessionaires which included the consideration towards construction as well as the service that they provide towards maintenance of the said road. Thereafter, for reasons best known to it, GST Council has clarified that the annuity paid as deferred payment for construction of roads/highways was not exempted from GST as the tolls or annuity in lieu of tolls.

As stated above, the deliberation of GST Council in its meeting and the notifications issued pursuant thereto clearly exempts the entire annuity being paid to the petitioners towards construction and maintenance of roads. It cannot be construed to have not exempted the annuity (deferred payments) towards construction of roads. The impugned circular has the effect of overriding the notifications and has to be held as bad in law. Nothing prevents respondent no.1 from imposing GST on the consideration paid to concessionaires like the petitioners on the payment received by them by way of annuity but that has to be done in the manner known to law.


The annuity received by concessionaires for road construction is exempt from GST.


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