Petitions challenging the taxability of annuity payments under concession agreements dismissed; Court affirms classification as "works contract services."
In a significant decision, the Rajasthan High Court has dismissed a series of writ petitions challenging the imposition of Goods and Services Tax (GST) on annuity payments received under concession agreements for road construction projects. The Division Bench, comprising Dr. Pushpendra Singh Bhati and Justice Praveer Bhatnagar, delivered the judgment on August 17, 2026, affirming the taxability of these payments under the Central Goods and Services Tax Act, 2017.
The case was brought by M/s Nagaur Mukundgarh Highways Pvt. Ltd., which contested the validity of a circular issued by the Central Board of Indirect Taxes and Customs (CBIC) that clarified the GST applicability on such annuities. The petitioner argued that the circular contradicted an existing statutory exemption under Entry 23A of Notification No. 12/2017-Central Tax (Rate), which purportedly exempted services related to road access on annuity payments.
However, the Court, in its detailed judgment, delineated the distinction between "works contract services" and "transport services." It clarified that the services provided by the petitioner were classified as "works contract services" under Heading 9954, which are taxable, as opposed to the exempt "transport services" under Heading 9967. The Court emphasized that the exemption under Entry 23A applies exclusively to transport services and not to construction activities.
The judgment further explained that the Board's circular, issued under Section 168 of the CGST Act, was a valid exercise of power aimed at ensuring uniformity in the Act's implementation. The Court observed that administrative instructions could clarify ambiguities but cannot override statutory provisions. Consequently, the advance ruling obtained by the petitioner earlier did not exempt them from the statutory obligations, as the circular provided a corrected interpretation of the law.
The Rajasthan High Court's decision aligns with prior judgments, including those from the Karnataka High Court and the Telangana High Court, which similarly upheld the Board's authority to issue clarifying instructions. The ruling reiterates the expansive definition of "supply" under Section 7 of the CGST Act, encompassing barter, licensing, and exchange transactions, thereby broadening the scope of taxable activities.
The Court concluded that the nature of the concession agreement between the petitioner and the National Highways Authority of India (NHAI) was a "works contract service," thus subjecting it to GST. It rejected the petitioner's contention that their services were limited to road access, affirming that the agreement involved construction, design, and maintenance responsibilities.
This judgment reinforces the taxability of annuity payments in road construction projects under GST, providing a clear interpretation of the relevant statutory framework and notifications.
Bottom Line :
Central Goods and Services Tax (CGST) - Annuity payments received under concession agreements for road construction projects are taxable under "works contract services" and do not qualify for exemption under Entry 23A of Notification No. 12/2017-Central Tax.
Statutory provision(s): Central Goods and Services Tax Act, 2017 - Sections 7, 11, 103, 164, 168; Notification No. 12/2017-Central Tax (Rate); Circular No. 150/6/2021.
