Court Rules Toll Collection as Consideration in Barter for Construction Services, Not Exempt from GST
In a significant ruling, the Rajasthan High Court has upheld the applicability of Goods and Services Tax (GST) on toll collection under Build-Operate-Transfer (BOT) agreements, dismissing the writ petition filed by CG Tollway Ltd. The Division Bench, comprising Justices Mr. Arun Monga and Mr. Sandeep Shah, determined that the right to collect tolls is a form of deferred annuity for construction services and does not qualify for GST exemption under the existing legal framework.
The petitioner, CG Tollway Ltd., had challenged an order by the Deputy Commissioner, State Tax Business Audit-I, Bhilwara, which held the company liable to pay Rs. 16,36,20,418/- in GST, along with penalties and interest. The petitioner argued that the toll collection was exempt under Entry 23 of Notification No. 12/2017-CT (Rate) and that their subcontractor had already paid GST on the construction work, negating the need for further taxation.
The High Court, however, concluded that the transaction falls under the definition of "supply" as per Section 7 of the CGST Act, 2017, and constitutes a "works contract service." The court clarified that the toll collection is part of a barter system where the concessionaire receives the right to collect tolls in exchange for constructing and maintaining the highway, thus making it a taxable service.
The court dismissed arguments regarding double taxation, noting the existence of separate contracts between the National Highways Authority of India (NHAI) and the petitioner, and between the petitioner and its subcontractor, IRB Infrastructure Developers Ltd. The court emphasized that GST applies to the petitioner for services provided to NHAI and is distinct from the VAT paid by the subcontractor.
Furthermore, the court asserted that GST exemption notifications must be interpreted strictly in favor of revenue, citing precedents from the Supreme Court. The decision also referenced similar cases adjudicated by other High Courts, reinforcing the stance that toll collections linked to road construction services are taxable under GST.
The judgment has been viewed as a significant clarification on the taxation of infrastructure projects under BOT agreements, potentially impacting similar cases across the country.
Bottom line:-
GST applicability on concessionaire agreements involving toll collection and construction services - Toll collection under BOT agreements treated as deferred annuity and not exempt under GST.
Statutory provision(s): Section 7, Section 9, Section 15 of the CGST Act, 2017; Notification No. 12/2017-CT (Rate); Circular No. 150/06/2021-GST
CG Tollway Ltd. v. Union of India, (Rajasthan)(DB) : Law Finder Doc id # 2905512
