GST liability on highway contracts arises only when invoices raised or annuity payments received, not on work completion

The Madras HC set aside orders requiring petitioner to pay GST on entire contract value for National Highways Department services. The court held that petitioner was not liable to pay tax without raising invoices to NHAI, even though work was substantially completed. Tax liability would arise only when invoices are raised or annuity payments received over 15 years. The case was remanded to respondent for re-examination considering CBIC Circular No.221/15/2024-GST dated 26.06.2024 and GST Council's 53rd Meeting recommendations. Petition disposed through remand.

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Issues Involved:
1. Legality of the impugned Assessment Orders.
2. Applicability of CBIC Circular No.221/15/2024-GST.
3. Tax liability on the petitioner under the Hybrid Annuity Model (HAM).
4. Relevance of the petitioner's accounting practices and input tax credit claims.
5. Allegations of suppression of taxable turnover and misstatement of facts.

Detailed Analysis:

1. Legality of the Impugned Assessment Orders:
The petitioner challenged the impugned Assessment Orders dated 28.04.2023 for the Assessment Years 2019-20, 2020-21, and 2021-22, which demanded substantial tax, penalty, and interest amounts.

2. Applicability of CBIC Circular No.221/15/2024-GST:
The petitioner argued that the Department's stand was unjustified and relied on CBIC Circular No.221/15/2024-GST dated 26.06.2024. The Circular clarified the time of supply for payment of tax under the Hybrid Annuity Model (HAM) of the National Highways Authority of India (NHAI). According to the Circular, the tax liability under HAM contracts arises at the time of issuance of an invoice or receipt of payment, whichever is earlier, provided the invoice is issued on or before the specified date or the date of completion of the event specified in the contract.

3. Tax Liability on the Petitioner Under HAM:
The petitioner's contract with NHAI involved receiving 40% of the consideration during the execution of work and the remaining 60% annually over the next 14 years. The Department contended that since the work was substantially completed, the petitioner was liable to pay tax on the entire value. However, the Court noted that the petitioner is not liable to pay tax if no invoice is raised. Tax liability would arise only when the petitioner raises an invoice for payment in 30 Annuities or receives amounts in Annuities.

4. Relevance of the Petitioner's Accounting Practices and Input Tax Credit Claims:
The Department argued that the petitioner booked income in its Profit and Loss Account and availed 100% input tax credit on the tax paid by the sub-contractor. The petitioner countered that input tax credit must be availed as per Rule 16, and the treatment of income in the Profit and Loss Account was in accordance with accounting standards. The Court agreed that the petitioner's accounting practices and input tax credit claims were not relevant to the determination of tax liability under the HAM contract.

5. Allegations of Suppression of Taxable Turnover and Misstatement of Facts:
The Department alleged that the petitioner suppressed taxable turnover by not reporting the entire value of works completed and claimed an unjustified exemption. The Court noted that the Department's argument was based on the petitioner's failure to issue invoices within the prescribed period. However, the Court found that the petitioner's claim of exemption was not a suppression of taxable turnover but a matter of timing under the HAM contract.

Conclusion:
The Court set aside the impugned orders and remitted the cases back to the respondent to re-examine the issue in light of the CBIC Circular No.221/15/2024-GST and the Court's observations. The respondent is directed to carry out this exercise within three months and ensure that the petitioner is heard before final orders are passed. The Writ Petitions were disposed of with no costs, and connected Miscellaneous Petitions were closed.

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