2022 (7) TMI 1314 - HC - GST

Exemption from CGST - toll charges - annuity (deferred payments) - Validity of clarificatory circular - Amount collected by the concessionaries for construction, maintenance, operation and providing road access to the vehicle which ply on the road - Notification no.12/2017 dated 28.06.2017 - HELD THAT - Admittedly, the toll charges collected by the concessionaries for construction, maintenance, operation and providing road access to the vehicle which ply on the road are exempted from GST by notification no.12/2017 dated 28.06.2017 - Though what is exempted is mentioned as service by way of access to a road or a bridge on payment of toll charges, the said toll charges is collected as consideration by the concessionaires towards construction and maintenance of the road. In short, the entire consideration for construction and maintenance of the road by concessionaires which is collected as toll charges is exempt from GST from 01.07.2017 and onwards. Annuity is paid to the concessionaires in lieu of toll charges. GST Council, in its 22nd meeting held on 06.10.2017 took note of the same and as entire toll charges were being exempted from GST has decided to recommend exemption of annuity also, which include the consideration received by concessionaires which is clear from the recordings in the minute book. The said recording makes it clear that it recommended treating annuity on par with the toll charges - Pursuant to the said meeting, the notifications no.32/2017 and 33/2017 dated 13.10.2017 have been issued by respondent no.1 wherein service by way of access to a road or a bridge on payment of annuity has been exempted from GST and no GST was being collected on the entire annuity being paid to the concessionaires which included the consideration towards construction as well as the service that they provide towards maintenance of the said road. The deliberation of GST Council in its meeting held on 06.10.2017 and the notifications issued pursuant thereto clearly exempts the entire annuity being paid to the petitioners towards construction and maintenance of roads. It cannot be construed to have not exempted the annuity (deferred payments) towards construction of roads. The impugned circular has the effect of overriding the notifications bearing Nos.32 and 33/2017 dated 13.10.2017 and has to be held as bad in law - In the instant case, respondent no.1 has issued the notifications under Section 11 of the Central Goods and Services Tax Act, 2017 and Section 6 of the Integrated Goods and Services Tax Act, 2017 exempting the consideration received by concessionaires from highway authorities as annuity from GST. The clarification issued is contrary to the said notifications for the reasons recorded above. If respondent no.1 is desirous of altering the same, it has to issue fresh notifications amending its earlier notifications. The impugned Circular dated 17.06.2021 is hereby set aside - Petition disposed off.

Summary

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.