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The core legal questions considered by the Authority for Advance Ruling (AAR) were:
(a) Whether the interest receivable on deferred payment in Equated Yearly Installments under the Annuity Model, as stipulated in the tender terms of a Hybrid Annuity Basis concession agreement, is liable to Goods and Services Tax (GST) or not;
(b) If the interest is taxable, what is the correct classification of the service and the applicable rate of GST payable on such interest.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Liability of GST on Interest Receivable on Deferred Payment under Annuity Model
Relevant Legal Framework and Precedents: The determination of taxability hinged upon Section 15 of the Central Goods and Services Tax Act, 2017 (CGST Act) and Maharashtra Goods and Services Tax Act, 2017 (MGST Act), which define the value of taxable supply. Specifically, Section 15(2)(d) provides that the value of supply shall include "interest or late fee or penalty for delayed payment of any consideration for any supply."
Additionally, Circular No. 221/15/2024-GST dated 26-06-2024 issued by the Central Board of Indirect Taxes and Customs (CBIC) was considered. Paragraph 4 of this Circular clarified that installments or annuities payable by the National Highways Authority of India (NHAI) to concessionaires under Hybrid Annuity Mode (HAM) include an interest component, which must be included in the taxable value for GST purposes.
Court's Interpretation and Reasoning: The AAR examined the concession agreement terms, which provided for 60% of the Bid Project Cost (BPC) to be paid in five equal installments during construction and the remaining 40% to be paid post-construction in 20 biannual installments over 10 years, with interest payable on the reducing balance at a specified bank rate plus 3%. The applicant contended that interest received forms part of the consideration and thus should be included in the value of supply under Section 15.
The jurisdictional officer concurred, relying on the CBIC Circular to assert that the interest component in the annuity payments is taxable.
Key Evidence and Findings: The concession agreement clauses (23.3, 23.4, 23.6) detailing the payment milestones and annuity payments with interest were scrutinized. The Circular's explicit clarification on the inclusion of interest in taxable value was pivotal.
Application of Law to Facts: The AAR applied Section 15(2)(d) to conclude that the interest component on deferred payments under the Annuity Model is part of the taxable supply's value. The CBIC Circular reinforced this interpretation, providing authoritative guidance on the matter.
Treatment of Competing Arguments: Both the applicant and the jurisdictional officer agreed on the taxability of interest, thus no conflicting arguments required extensive resolution.
Conclusion: Interest receivable on deferred payment in Equated Yearly Installments under the Annuity Model is liable to GST.
Issue 2: Classification of Service and Applicable Rate of GST on Interest Receivable
Relevant Legal Framework and Precedents: The classification of services under GST is generally aligned with the principal supply. The applicant and jurisdictional officer agreed that the interest should be classified in the same category as the original supply of services.
Court's Interpretation and Reasoning: The AAR held that since the interest arises from the original contract for construction and maintenance services, the interest component should be classified identically and taxed at the same rate applicable to those services.
Key Evidence and Findings: The concession agreement involved services of road construction and maintenance under a Hybrid Annuity Model. The interest is a financial component linked directly to the deferred payments for these services.
Application of Law to Facts: By treating the interest as an integral part of the consideration for the original service, the AAR applied the principle that ancillary charges or interest linked to a principal supply inherit the classification and tax rate of that supply.
Treatment of Competing Arguments: There was no dispute between parties on this issue.
Conclusion: The service of interest on deferred payment is classified the same as the original taxable supply of "services of construction of road and maintenance," and the GST rate applicable to the original service applies to the interest as well.
3. SIGNIFICANT HOLDINGS
"The amount of such interest shall also be includible in the taxable value for the purpose of payment of tax on the said annuity / installment in view of the provisions of section 15 (2) (d) of the CGST Act."
"Classification of service and applicable rate of GST payable on the interest receivable on deferred payment in Equated Yearly Instalment shall be the same as that of the original taxable supply of 'services of construction of road and maintenance'."
The core principles established include:
Final determinations on each issue were:
1. Interest receivable on deferred payment in Equated Yearly Installments under the Annuity Model is liable to GST.
2. The classification of the service and applicable GST rate on such interest is the same as that of the original taxable supply of road construction and maintenance services.
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