GST relief: toll and annuity for road projects fully exempt; circular taxing construction component u/s11 CGST void

HC held that under Notification No. 12/2017, toll charges collected by concessionaires as consideration for construction, maintenance, operation and road access are fully exempt from GST from 01.07.2017. Following the GST Council's 22nd meeting, Notifications No. 32/2017 and 33/2017 exempted annuity paid in lieu of toll, including components for construction and maintenance, treating annuity on par with toll. The impugned clarificatory circular, which sought to tax the construction component of annuity, was found contrary to and overriding the exemption notifications issued under s.11 CGST Act and s.6 IGST Act. HC declared the circular dated 17.06.2021 bad in law and set it aside, disposing of the petition.

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Issues:
1. Exemption of annuity from GST for construction and maintenance of roads.
2. Clarification on GST exemption for annuity paid under the Hybrid Annuity Model Project.

Analysis:
1. The petitioners, concessionaires entrusted with road construction, receive annuity from the Karnataka Road Development Corporation Limited. Initially, 100% GST exemption was granted for toll charges collected by concessionaires. Later, annuity was proposed to be exempted from GST as well. The GST Council decided to treat annuity at par with toll charges, leading to notifications exempting annuity from GST for access to roads or bridges. However, a subsequent clarification stated that annuity paid for road construction was not exempt from GST.

2. The Circular issued clarified that annuity paid for road construction is not exempt from GST, contrary to the petitioners' belief. The Circular explained that while services for road access are exempt under heading 9967, construction services fall under heading 9954. The Circular emphasized that annuity paid for construction does not fall under the exemption.

3. The High Court analyzed the notifications and the GST Council's recommendations. The court noted that the entire annuity paid to concessionaires was exempt from GST, including consideration for construction and maintenance of roads. The court emphasized that the Circular contradicted the notifications and overruled them, thereby setting aside the Circular and its actions.

4. The judgment highlighted that the Circular could not override the notifications exempting annuity from GST. The court stressed that any alteration to the exemptions should be made through fresh notifications. Consequently, the court set aside the Circular dated 17.06.2021 and its actions, ruling in favor of the petitioners.

5. In conclusion, the High Court disposed of the writ petitions and pending applications, emphasizing the importance of adhering to the legal procedures for altering exemptions. The judgment clarified the exemption of annuity from GST for road construction and maintenance, ensuring compliance with the law and protecting the concessionaires' interests.

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