'As Is Where Is' Could Cost Crores in GST: What Airport Custodians Must Know Before a BOT Exit

A Custodian at an international airport recently completed its Build-Operate-Transfer concession. Everything - buildings, equipment, vehicles, IT systems - was handed back to the government authority. The concession agreement said 'as is where is.' The team assumed it would be a clean, tax-neutral exit. It was not.

If you operate under a BOT concession at an Indian airport, this scenario should keep you up at night. The GST consequences of a concession handback are real, and they run into crores if you have not planned for them.

Who Is a Custodian Under the Customs Act?

Under the Customs Act, 1962, a Custodian is the licensed entity that receives imported goods, manages cargo terminals, oversees customs clearance, and maintains bonded warehouses until goods are formally cleared. Many Custodians at Indian airports operate under BOT concessions. They build the infrastructure, run operations for ten to thirty years, and transfer everything back to the airport authority at the end. Build. Operate. Transfer.

Why Terminal Buildings Are Not the Problem

The good news is that completed, occupied buildings fall outside GST. Paragraph 5 of Schedule III to the CGST Act excludes the sale of land and completed buildings from the definition of supply. So when a Custodian hands back terminal buildings and civil structures, there is no GST trigger. That part of the exit is genuinely clean.

GST on Movable Assets at BOT Exit

The problem lies with movable assets - baggage belts, generators, ground support vehicles, IT systems, and other equipment. Under Paragraph 1 of Schedule I to the CGST Act, any permanent transfer or disposal of business assets on which input tax credit has been availed is treated as a supply, even when no consideration changes hands. The 'as is where is' clause in your concession agreement does not override this statutory provision.

This means every piece of equipment where ITC was claimed triggers a GST liability at the time of handover. Under Section 18(6) of the CGST Act read with Rule 40(2) and Rule 44(6) of the CGST Rules, the Custodian must pay the higher of two amounts: the tax calculated on the transaction or open market value of the asset, or the original input tax credit reduced on a pro-rata basis for the period of use, assuming a five-year useful life. Even fully depreciated assets can carry a residual GST cost if the ITC arithmetic does not work out to zero.

The Going Concern Route and Its Own Tax Cost

There is an alternative. If the entire operation - assets, staff, contracts, liabilities - moves as a single package, it may qualify as a transfer of a going concern under Entry 2 of Notification No. 12/2017-Central Tax (Rate). A going concern transfer is treated as an exempt supply of service, attracting zero GST on the transfer itself.

But this route is not free either. Since a going concern qualifies as an exempt supply, Section 17(2) of the CGST Act steps in. The Custodian must reverse input tax credit already availed on inputs and capital goods to the extent they relate to this exempt supply. Rules 42 and 43 of the CGST Rules prescribe the proportional reversal mechanism. In practical terms, the ITC reversal on a large portfolio of airport equipment can itself amount to a significant outflow.

There is also a structural challenge. For a BOT exit to qualify as a going concern, the transferee - typically the airport authority or the next concessionaire - must continue operating the business as a running enterprise. Advance rulings, including the AAI-Ahmedabad airport ruling, suggest that continuity of operations for the foreseeable future is essential. If the authority plans to re-bid the concession or restructure operations, the going concern argument weakens considerably.

Plan the Exit Before the Exit Plans You

Either way - permanent asset transfer or going concern - there is a tax consequence. The only question is which one you have planned for. Custodians approaching a BOT exit should be doing three things right now. First, identify every movable asset on which ITC was claimed and compute the residual credit under Section 18(6). Second, obtain current market valuations for those assets so you know both sides of the 'higher of' test. Third, evaluate whether the going concern structure is still feasible given the terms of the concession handback and the incoming operator's plans.