Road concession annuity payments classified as works contract services liable for 12% GST under Section 39

The AAR-Kerala ruled that bi-annual annuity payments received under a road construction and maintenance concession agreement constitute consideration for works contract services under GST law. The applicant, who designed, constructed, operated and maintained roads for 15 years before transferring to government, was held liable to pay 12% GST on annuity payments including early completion bonus. The services were classified as works contract services under SAC 995421, with GST payable on each annuity payment date as per Section 39 of CGST Act, 2017.

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Issues Involved:
1. Whether the annuity amount received is exempted from GST as per entry No. 23A of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017.
2. Whether the early completion bonus received is exempted from GST as it is part of the principal project.

Issue-wise Detailed Analysis:

1. Annuity Amount Exemption:
The applicant, a Special Purpose Vehicle (SPV) formed for the Kozhikode City Road Improvement Project (KCRIP), sought an advance ruling on whether the annuity amount received for the project is exempt from GST under entry No. 23A of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017. The annuity includes both construction and maintenance components, which are inseparable.

The jurisdictional officer contended that GST is exempted only on services falling under Heading 9967 by way of access to a road or bridge on payment of annuity, and the applicant's services do not fall under this heading. The officer referenced CBIC Circular No. 150/06/2021 GST dated 17.06.2021, which clarified that GST is not exempt on annuity payments for road construction.

Upon detailed examination, it was determined that the applicant provides a composite supply of works contract services as defined under Section 2(119) of the CGST Act, 2017, which includes construction, operation, and maintenance of roads under a Design, Build, Finance, Operate, Maintain and Transfer (DBFOT) basis. The bi-annual annuity payments received post-construction are considered consideration for the works contract services rendered.

The classification of services was established under SAC 995421 (General construction services of highways, streets, roads, railways, and airfield runways, bridges, and tunnels). The time of supply of services was determined as per Section 13 of the CGST Act, 2017, which states that the supply is deemed to have been made on each annuity payment date to the extent covered by the payment of annuity.

The applicable GST rate was identified as 12% (6% CGST and 6% SGST) under entry at Sl. No. 3 (iv) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017, as amended.

Ruling:
The annuity amount received by the applicant is liable to GST at the rate of 12% [6% CGST and 6% SGST] as per entry at Sl. No. 3 (iv) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017, as amended.

2. Early Completion Bonus Exemption:
The applicant also sought a ruling on whether the early completion bonus received for completing the project ahead of schedule is exempt from GST.

It was determined that the early completion bonus, as per the concession agreement, is an additional consideration for the works contract services rendered. The bonus is naturally bundled with the principal supply of services under the contract and is subject to the same GST rate.

Ruling:
The early completion bonus received by the applicant is liable to GST at the rate of 12% [6% CGST and 6% SGST] as per entry at Sl. No. 3 (iv) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017, as amended.

Conclusion:
Both the annuity amount and the early completion bonus received by the applicant are subject to GST at the rate of 12% [6% CGST and 6% SGST] as per the relevant notifications and provisions discussed.

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